SLM HOLDING CORP, S-4, 1997-02-05

SLM HOLDING CORP
S-4, 1997-02-05

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 5, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------

FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------

SLM HOLDING CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)

6199
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)

52-2013874
(I.R.S. EMPLOYER
IDENTIFICATION NO.)

1050 THOMAS JEFFERSON STREET, N.W.
WASHINGTON, D.C. 20007
(202) 298-3152
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

TIMOTHY G. GREENE
GENERAL COUNSEL
SLM HOLDING CORPORATION
1050 THOMAS JEFFERSON STREET, N.W.
WASHINGTON, D.C. 20007
(202) 298-3150
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: UPON CONSUMMATION OF THE REORGANIZATION DESCRIBED HEREIN.

If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]

CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE PRICE PER OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) UNIT(2) PRICE(2) FEE
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<S> <C> <C> <C> <C>
Common Stock, par value $.20 per
share............................... 54,600,000 $107.50 $5,869,500,000.00 $1,778,636.36
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</TABLE>

(1) Assumes that 54,600,000 shares of common stock (the "Sallie Mae Common
Stock") of the Student Loan Marketing Association ("Sallie Mae") are
converted into shares of the registrant common stock (the "Holding Company
Common Stock") at the exchange ratio of one share of Holding Company Common
Stock for each share of Sallie Mae Common Stock pursuant to the Agreement
and Plan of Reorganization to which this registration statement relates.
This number is based upon the number of shares of Sallie Mae Common Stock
expected to be issued and outstanding on May 16, 1997 and shares of Sallie
Mae Common Stock expected to be issuable pursuant to stock option and other
benefit plans on or prior to May 16, 1997.

(2) Estimated solely for purposes of calculating the registration fee and
computed pursuant to Rules 457(c) and 457(f)(1) under the Securities Act of
1933, as amended, based on $107.50, which is the average of the high and low
prices per share as reported on the New York Stock Exchange Composite Tape
for the Sallie Mae Common Stock on January 29, 1997.
------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

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<PAGE> 2

CROSS REFERENCE SHEET
PURSUANT TO ITEM 501 (b) OF REGULATION S-K

<TABLE>
<CAPTION>
ITEM NO. DESCRIPTION CAPTION IN PROSPECTUS
- -------- --------------------------------------------- -------------------------------------
<S> <C> <C>
Item 1 Forepart of Registration Statement and
Outside Front Cover Page of Prospectus..... Cover of Registration Statement;
Outside Front Cover Page of
Prospectus; Cross Reference Sheet
Item 2 Inside Front and Outside Back Cover Pages of
Prospectus................................. Available Information; Table of
Contents
Item 3 Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information.............. Summary
Item 4 Terms of the Transaction..................... Summary; The Reorganization; Terms of
the Reorganization; Comparison of
Stockholder Rights; Appendix A:
Agreement and Plan of
Reorganization; Appendix B: The
Student Loan Marketing Association
Reorganization Act of 1996
Item 5 Pro Forma Financial Information.............. Summary; Capitalization
Item 6 Material Contacts With the Company Being
Acquired................................... Summary; The Reorganization; Terms of
the Reorganization; Appendix A:
Agreement and Plan of
Reorganization
Item 7 Additional Information required for
Reoffering by Persons and Parties Deemed to
be Underwriters............................ *
Item 8 Interests of Named Experts and Counsel....... Legal Matters; Experts
Item 9 Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................ *
Item 10 Information With Respect to S-3
Registrants................................ *
Item 11 Incorporation of Certain Information by
Reference.................................. *
Item 12 Information With Respect to S-2 or S-3
Registrants................................ *
Item 13 Incorporation of Certain Information by
Reference.................................. *
Item 14 Information With Respect to Registrants Other
Than S-2 or S-3 Registrants................ Summary; The Reorganization;
Terms of the Reorganization;
Business; Regulation
Item 15 Information With Respect to S-3 Companies.... *
Item 16 Information With Respect to S-2 or S-3
Companies.................................. *
</TABLE>
<PAGE> 3

<TABLE>
<CAPTION>
ITEM NO. DESCRIPTION CAPTION IN PROSPECTUS
- -------- --------------------------------------------- -------------------------------------
<S> <C> <C>
Item 17 Information With Respect to Companies Other
Than S-3 or S-2 Companies.................. Summary; The Reorganization; Terms of
the Reorganization; Selected
Financial Data; Historical
Financial Statements of Sallie Mae;
Management's Discussion and
Analysis of Results of Operations
and Financial Condition of Sallie
Mae; Business; Regulation
Item 18 Information if Proxies, Consents or
Authorizations are to be Solicited......... Front Cover Page of Prospectus;
Summary; Information Regarding
the Special Meeting; The
Reorganization; -- Recommendation
of the Board of Directors and
Reasons for the Reorganization
Item 19 Information if Proxies, Consents or
Authorizations are not to be Solicited or
in an Exchange Offer....................... *
</TABLE>

- ---------------
* Omitted because inapplicable or answer is negative.
<PAGE> 4

STUDENT LOAN MARKETING ASSOCIATION
1050 THOMAS JEFFERSON STREET, N.W.
WASHINGTON, D.C. 20007
(202) 298-3152

, 1997

Dear Sallie Mae Shareholder:

The Board of Directors of the Student Loan Marketing Association ("Sallie
Mae") invites you to attend a Special Meeting of Shareholders (the "Special
Meeting") to be held on Thursday, May 15, 1997, at 10:00 a.m., local time, at
the Ritz-Carlton, Tysons Corner, 1700 Tysons Blvd., McLean, VA 22102. At the
Special Meeting, Sallie Mae shareholders will be asked to consider and vote upon
the approval and adoption of an Agreement and Plan of Reorganization (the
"Reorganization Agreement") providing for the reorganization (the
"Reorganization") of Sallie Mae into a subsidiary of a new holding company named
SLM Holding Corporation (the "Holding Company"). If the Reorganization is
approved, each outstanding share of common stock, par value $.20 per share, of
Sallie Mae shall be converted into one share of common stock, par value $.20 per
share, of the Holding Company. The Reorganization is described in the attached
Proxy Statement/Prospectus. For information concerning the Board of Directors of
the Holding Company, see the section entitled "MANAGEMENT" in the attached Proxy
Statement/Prospectus.

The Reorganization, which has been authorized by legislation described
herein, would effectively "privatize" Sallie Mae by phasing out its federal
sponsorship and transferring control over its charter and business directions to
Sallie Mae shareholders. This is a unique and important opportunity for Sallie
Mae and its shareholders.

NO MATTER HOW MANY SHARES YOU HOLD, YOU ARE URGED TO COMPLETE, SIGN AND
RETURN THE ENCLOSED PROXY CARD AT YOUR EARLIEST CONVENIENCE. This will help to
establish a quorum and avoid the cost of further solicitation. We hope that you
will be able to attend the meeting and encourage you to read the enclosed
materials describing the meeting agenda and Sallie Mae in detail.

We look forward to seeing you on May 15, 1997.

Sincerely,

William Arceneaux
Chairman of the Board
<PAGE> 5

STUDENT LOAN MARKETING ASSOCIATION
------------------------

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 15, 1997
------------------------

Consistent with the By-Laws of the Student Loan Marketing Association
("Sallie Mae"), notice is hereby given on behalf of the Board of Directors that
a Special Meeting of Shareholders of Sallie Mae (the "Special Meeting") will be
held on Thursday, May 15, 1997, at 10:00 a.m., local time at the Ritz-Carlton,
Tysons Corner, 1700 Tysons Blvd., McLean, VA 22102.

The purpose of the meeting is to consider and vote upon the approval and
adoption of an Agreement and Plan of Reorganization (the "Reorganization
Agreement") providing for the reorganization (the "Reorganization") of Sallie
Mae into a subsidiary of a new holding company named SLM Holding Corporation
(the "Holding Company"). If the Reorganization is approved, each outstanding
share of common stock, par value $.20 per share, of Sallie Mae shall be
converted into one share of common stock, par value $.20 per share, of the
Holding Company.

Holders of record of Sallie Mae Common Stock at the close of business on
March 17, 1997 will be entitled to vote at the Special Meeting or any
adjournments or postponements thereof. Accompanying this Notice of Special
Meeting are the form of proxy and the Proxy Statement/Prospectus describing in
detail the business to come before the Special Meeting.

THE BOARD OF DIRECTORS SOLICITS YOUR PROXY AND ASKS YOU TO COMPLETE, SIGN
AND RETURN THE ENCLOSED FORM OF PROXY AT YOUR EARLIEST CONVENIENCE IN ORDER TO
BE SURE YOUR VOTE IS RECEIVED AND COUNTED. RETURNING YOUR FORM OF PROXY WILL
HELP AVOID THE COSTS OF FURTHER SOLICITATION. PLEASE CHECK THE BOX ON THE FORM
OF PROXY IF YOU PLAN TO ATTEND THE SPECIAL MEETING OR ADVISE MY OFFICE DIRECTLY
AT (202) 298-3152.

YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU HOLD.

By Order of the Board of Directors

Ann Marie Plubell
Vice President, Associate General
Counsel and
Secretary

, 1997
Washington, D.C.

YOU ARE URGED TO MARK, SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT IN
THE ACCOMPANYING ENVELOPE AS SOON AS POSSIBLE. THE PROXY IS REVOCABLE AT ANY
TIME PRIOR TO ITS USE. THE AFFIRMATIVE VOTE OF HOLDERS OF AT LEAST A MAJORITY OF
THE OUTSTANDING COMMON STOCK OF SALLIE MAE IS REQUIRED FOR APPROVAL OF THE
REORGANIZATION.
<PAGE> 6

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROXY STATEMENT/PROSPECTUS SHALL NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY
SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR
SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED FEBRUARY 5, 1997

PROXY STATEMENT OF
STUDENT LOAN MARKETING ASSOCIATION
------------------------

PROSPECTUS OF SLM HOLDING CORPORATION
------------------------

This Proxy Statement/Prospectus is being furnished to holders of record on
March 17, 1997 (the "Record Date") of the common stock, par value $.20 per share
(the "Sallie Mae Common Stock"), of the Student Loan Marketing Association, a
federally-chartered government-sponsored enterprise ("Sallie Mae"), in
connection with the solicitation of proxies by the Sallie Mae Board of Directors
(the "Sallie Mae Board") for use at the Special Meeting of Sallie Mae
shareholders (the "Special Meeting") to be held on Thursday, May 15, 1997 at
10:00 a.m. at the Ritz-Carlton, Tysons Corner, 1700 Tysons Blvd., McLean, VA
22102 and at any adjournments or postponements thereof.

At the Special Meeting, Sallie Mae shareholders will be asked to consider
and vote upon the approval and adoption of an Agreement and Plan of
Reorganization (the "Reorganization Agreement") providing for the reorganization
(the "Reorganization") of Sallie Mae into a wholly-owned subsidiary of a new
holding company named SLM Holding Corporation (the "Holding Company"). If the
Reorganization is approved, each outstanding share of Sallie Mae Common Stock
shall be converted into one share of common stock, par value $.20 per share, of
the Holding Company ("Holding Company Common Stock").

This Proxy Statement/Prospectus also serves as the prospectus included as
part of a Registration Statement on Form S-4 that has been filed with the
Securities and Exchange Commission (the "SEC") covering the 54,600,000 shares of
Holding Company Common Stock issuable in the Reorganization. This Proxy
Statement/Prospectus and accompanying form of proxy are first being mailed to
the holders of Sallie Mae Common Stock on or about , 1997.

The following legend is required by the Privatization Act (as defined
herein) in connection with the offering of securities by the Holding Company,
including the Holding Company Common Stock:

OBLIGATIONS OF THE HOLDING COMPANY AND ANY SUBSIDIARY OF THE HOLDING COMPANY ARE
NOT GUARANTEED BY THE FULL FAITH AND CREDIT OF THE UNITED STATES AND NEITHER THE
HOLDING COMPANY NOR ANY SUBSIDIARY OF THE HOLDING COMPANY IS A
GOVERNMENT-SPONSORED ENTERPRISE (OTHER THAN SALLIE MAE) OR AN INSTRUMENTALITY OF
THE UNITED STATES.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/ PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------

THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS 1997.
<PAGE> 7

AVAILABLE INFORMATION

A Registration Statement on Form S-4 has been filed with the SEC under the
Securities Act of 1933, as amended (the "1933 Act"), with respect to the shares
of Holding Company Common Stock issuable in exchange for Sallie Mae Common Stock
in the Reorganization as described herein (the "Registration Statement"). For
further information pertaining to the Holding Company Common Stock offered
hereby, reference is made to such Registration Statement and to the exhibits
thereto, which may be inspected and copied at prescribed rates at the public
reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such material can also be obtained from the
SEC at prescribed rates by writing to the Public Reference Section of the SEC at
450 Fifth Street, N.W., Washington, D.C. 20549.

Sallie Mae is exempt from the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The Holding Company was
formed to effectuate the transactions described under "THE REORGANIZATION." The
Holding Company has not previously been subject to the requirements of the
Exchange Act, and there currently is no public market for its stock. However, if
the Reorganization described herein is approved and consummated, the Holding
Company will become subject to the information, reporting and proxy statement
requirements of the Exchange Act, and such information may be obtained from the
SEC at prescribed rates by addressing written requests for such copies to the
public reference facilities of the SEC at the above-stated address and should be
available at the SEC's regional offices located at Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and at Seven World
Trade Center, 13th Floor, New York, New York 10048. The SEC also maintains a
site on the World Wide Web at http://www.sec.gov that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the SEC. Sallie Mae Common Stock is presently listed on the
New York Stock Exchange (the "NYSE") under the symbol "SLM" and Sallie Mae files
quarterly Information Statements and annual reports to shareholders with the
NYSE. In addition, Sallie Mae and the Holding Company have applied to have the
Holding Company Common Stock listed on the NYSE as of the effective date of the
Reorganization described herein. If the Reorganization is approved, Exchange Act
reports, proxy statements and other information concerning the Holding Company
will be available for inspection and copying at the offices of the NYSE at 20
Broad Street, New York, New York 10005.

No person is authorized to give any information or to make any
representation not contained in this Proxy Statement/Prospectus in connection
with the solicitation made hereby, and if given or made, such information or
representation must not be relied upon as having been authorized by Sallie Mae
or the Holding Company. This Proxy Statement/Prospectus does not constitute an
offer to sell, or a solicitation of an offer to purchase, any securities, or
solicitation of a proxy, to any person in any jurisdiction to whom it is
unlawful to make such offer or solicitation in such jurisdiction. Neither the
delivery of this Proxy Statement/Prospectus nor any distribution of the
securities to which this Proxy Statement/Prospectus relates shall, under any
circumstances, create any inference that there has been no change in the affairs
of either Sallie Mae or the Holding Company since the date of this Proxy
Statement/Prospectus. Statements contained in this Proxy Statement/Prospectus as
to the contents of any contract or other document referred to herein are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.

FORWARD-LOOKING INFORMATION

This Proxy Statement/Prospectus contains certain forward-looking statements
and information relating to Sallie Mae and the Holding Company that are based on
the beliefs of Sallie Mae and Holding Company management as well as assumptions
made by and information currently available to Sallie Mae and Holding Company.
When used in this document, the words "anticipate," "believe," "estimate" and
"expect" and similar expressions, as they relate to Sallie Mae and Holding
Company management, are intended to identify forward-looking statements. Such
statements reflect the current views of Sallie Mae and the Holding Company with
respect to future events and are subject to certain risks, uncertainties and
assumptions, described in this Proxy Statement/Prospectus. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those described herein as
anticipated, believed, estimated or expected. Sallie Mae and the Holding Company
do not intend to update these forward-looking statements.

ii
<PAGE> 8

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
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<S> <C>
SUMMARY............................................................................... 1
Sallie Mae and the Holding Company............................................... 1
The Special Meeting.............................................................. 1
The Reorganization............................................................... 2
The Privatization Act............................................................ 3
Other Provisions of the Reorganization........................................... 4
Certain Federal Income Tax Consequences.......................................... 5
Regulation....................................................................... 5
Comparison of Stockholder Rights................................................. 5
Holding Company Board of Directors............................................... 5
Summary Selected Financial Data.................................................. 6
Market Data...................................................................... 7
INFORMATION REGARDING THE SPECIAL MEETING............................................. 8
Purpose.......................................................................... 8
Place, Time and Date of Meeting.................................................. 8
Record Date; Shares Entitled to Vote............................................. 8
Quorum; Votes Required........................................................... 8
Common Stock Information......................................................... 8
Voting and Revocation of Proxies................................................. 8
Solicitation of Proxies.......................................................... 9
No Dissenters' Appraisal Rights.................................................. 9
THE REORGANIZATION.................................................................... 10
Background....................................................................... 10
Reasons for the Reorganization; Recommendation of the Board of Directors......... 12
Corporate Structure Before and After the Reorganization.......................... 13
Diagrams of Current and Proposed Corporate Structures............................ 15
Exchange of Stock Certificates................................................... 16
Treatment of Preferred Stock..................................................... 16
Effect on Stock Options and Employee Benefits.................................... 16
Dividend Policy.................................................................. 16
Stock Exchange Listing........................................................... 17
TERMS OF THE REORGANIZATION........................................................... 18
THE PRIVATIZATION ACT................................................................. 19
Reorganization................................................................... 19
Oversight Authority.............................................................. 20
Restrictions on Intercompany Relations........................................... 20
Limitations on Holding Company Activities........................................ 21
GSE Dissolution After Reorganization............................................. 21
Charter Sunset If Reorganization Does Not Occur.................................. 22
CERTAIN FEDERAL INCOME TAX CONSEQUENCES............................................... 23
Treatment of Holding Company, Sallie Mae and MergerCo............................ 23
Conversion of Sallie Mae Common Stock into Holding Company Common Stock.......... 23
Reporting Requirement............................................................ 24
BUSINESS.............................................................................. 25
General.......................................................................... 25
Industry Overview................................................................ 25
Business Strategy................................................................ 26
Products and Services............................................................ 27
</TABLE>

iii
<PAGE> 9

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Loan Purchases.............................................................. 27
Borrower Benefits and Program Technology Support............................ 28
Joint Venture with The Chase Manhattan Bank................................. 29
Servicing........................................................................ 29
Specialized Financial Services................................................... 30
Warehousing Advances........................................................ 30
Academic Facilities Financings and Student Loan Revenue Bonds............... 30
Letters of Credit........................................................... 30
Private Student Loan Insurance.............................................. 30
Financing/Securitization......................................................... 30
Operations Following the Reorganization.......................................... 31
Competition...................................................................... 32
Properties....................................................................... 32
Employees........................................................................ 33
Legal Proceedings................................................................ 33
REGULATION............................................................................ 34
Current Regulation............................................................... 34
Operating Restrictions Following Reorganization.................................. 35
Non-Discrimination and Limitations on Affiliation with Depository Institutions... 35
CAPITALIZATION........................................................................ 36
SELECTED FINANCIAL DATA............................................................... 37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................................................... 38
Forward-Looking Information...................................................... 38
Overview......................................................................... 38
Results of Operations............................................................ 40
Student Loan Spread Analysis..................................................... 41
Net Interest Income.............................................................. 43
Average Balance Sheets........................................................... 44
Rate/Volume Analysis............................................................. 45
Operating Expenses............................................................... 46
Federal and State Taxes.......................................................... 46
Liquidity and Capital Resources.................................................. 47
Preferred Stock.................................................................. 49
Trends and Uncertainties......................................................... 49
Recently Issued Accounting Pronouncements........................................ 52
Other Related Events............................................................. 52
DESCRIPTION OF HOLDING COMPANY CAPITAL STOCK.......................................... 53
General.......................................................................... 53
Common Stock..................................................................... 53
Preferred Stock.................................................................. 53
Warrants......................................................................... 54
COMPARISON OF STOCKHOLDER RIGHTS...................................................... 55
General.......................................................................... 55
Board of Directors............................................................... 55
Capitalization................................................................... 56
Purpose.......................................................................... 56
Dividends........................................................................ 57
Exemption from Certain Laws...................................................... 57
Limitations on Director Liability................................................ 57
</TABLE>

iv
<PAGE> 10

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Indemnification.................................................................. 57
Special Meetings of Stockholders................................................. 58
Amendment of Governing Documents................................................. 58
United States and Delaware Law................................................... 58
MANAGEMENT............................................................................ 60
Holding Company Board of Directors............................................... 60
Sallie Mae Board of Directors.................................................... 62
Statutory Requirements...................................................... 62
Meetings of the Board............................................................ 66
Audit Committee............................................................. 67
Compensation and Personnel Committee........................................ 67
Nominations and Board Affairs Committee..................................... 67
DIRECTOR COMPENSATION................................................................. 68
EXECUTIVE OFFICERS OF THE COMPANY..................................................... 69
Names and Titles................................................................. 69
Previous Experience.............................................................. 69
EXECUTIVE COMPENSATION................................................................ 70
Report of the Compensation and Personnel Committee............................... 70
Policy...................................................................... 70
Compensation Related to Achievement of Annual and Long-Term Goals........... 71
Base Salary................................................................. 71
Annual Bonus................................................................ 71
Incentive Performance Plan.................................................. 71
Stock Option Plan........................................................... 72
Compensation Tables.............................................................. 72
Description of Benefit Plans..................................................... 75
Thrift and Savings Plans.................................................... 75
Stock Purchase Plan......................................................... 76
Deferred Compensation Plan for Key Employees................................ 76
Stock Option Plan........................................................... 76
Stock Compensation Plan..................................................... 76
Performance Graph........................................................... 77
TRANSACTIONS WITH AFFILIATED INSTITUTIONS............................................. 78
Board and Management Ownership of the Company.................................... 79
Principal Holders................................................................ 81
LEGAL MATTERS......................................................................... 82
EXPERTS............................................................................... 82
SALLIE MAE ANNUAL MEETING SHAREHOLDER PROPOSALS....................................... 83
FINANCIAL STATEMENTS.................................................................. F-1
APPENDIX A -- AGREEMENT AND PLAN OF REORGANIZATION.................................... A-1
APPENDIX B -- STUDENT LOAN MARKETING ASSOCIATION REORGANIZATION ACT OF 1996........... B-1
APPENDIX C -- THE FEDERAL FAMILY EDUCATION LOAN PROGRAM............................... C-1
APPENDIX D -- STATEMENT OF DISSENTING DIRECTORS....................................... D-1
</TABLE>

v
<PAGE> 11

SUMMARY

The following is a summary of certain important aspects of the
Reorganization (as defined below) and related information discussed elsewhere in
this Proxy Statement/Prospectus. This Summary does not purport to be complete
and is qualified in its entirety by, and should be read in conjunction with, the
more detailed information and financial statements, including the notes thereto,
appearing elsewhere in this Proxy Statement/Prospectus. Shareholders of the
Student Loan Marketing Association are urged to carefully read this Proxy
Statement/Prospectus in its entirety. Capitalized terms used but not otherwise
defined in this Summary have the meanings ascribed to them elsewhere in this
Proxy Statement/Prospectus.

SALLIE MAE AND THE HOLDING COMPANY

The Student Loan Marketing Association ("Sallie Mae" or the "GSE") was
established in 1972 as a for-profit, stockholder-owned, government-sponsored
enterprise to support the education credit needs of students by, among other
things, promoting liquidity in the student loan marketplace through secondary
market purchases. Sallie Mae is the largest source of financing and servicing
for education loans in the United States. The student loan industry in the
United States developed primarily to support federal student loan programs and,
accordingly, is highly regulated. The principal government program, the Federal
Family Education Loan Program (formerly the Guaranteed Student Loan Program)
(the "FFELP"), was created to ensure low cost access by both needy and middle
class families to post-secondary education. Sallie Mae's products and services
include student loan purchases, commitments to purchase student loans and
secured advances to originators of student loans. Sallie Mae also offers
operational support to originators of student loans and to post-secondary
education institutions. In addition, Sallie Mae provides other education-related
financial services.

The Privatization Act (as defined below) authorized the creation of SLM
Holding Corporation, a recently formed Delaware corporation (the "Holding
Company"), which will become the holding company of Sallie Mae if the
Reorganization is approved. AS USED HEREIN, THE "COMPANY" REFERS TO SALLIE MAE
PRIOR TO THE REORGANIZATION AND TO THE HOLDING COMPANY AS A CONSOLIDATED ENTITY
FROM AND AFTER THE EFFECTIVE TIME (AS DEFINED BELOW) OF THE REORGANIZATION.

THE SPECIAL MEETING

The Special Meeting of Sallie Mae shareholders (the "Special Meeting") will
be held on Thursday, May 15, 1997 at 10:00 a.m., at the Ritz-Carlton, Tysons
Corner, 1700 Tysons Blvd., McLean, VA 22102. At the Special Meeting, Sallie Mae
shareholders will be asked to consider and vote upon the approval and adoption
of an Agreement and Plan of Reorganization (the "Reorganization Agreement")
providing for the reorganization (the "Reorganization") of Sallie Mae into a
wholly-owned subsidiary of the Holding Company pursuant to the merger (the
"Merger") of a newly-formed subsidiary of the Holding Company ("MergerCo") with
and into Sallie Mae, with Sallie Mae as the surviving corporation. If the
Reorganization is consummated, each outstanding share of common stock, par value
$.20 per share, of Sallie Mae ("Sallie Mae Common Stock") would be converted
into one share of common stock, par value $.20 per share, of the Holding Company
("Holding Company Common Stock").

Under the Privatization Act and Delaware law, the Reorganization requires
approval by the affirmative vote of the holders of a majority of the outstanding
shares of Sallie Mae Common Stock. This document and the enclosed form of proxy
are being furnished to you in connection with the solicitation by Sallie Mae's
Board of Directors (the "Sallie Mae Board") of proxies in the enclosed form for
use at the Special Meeting. Only holders of record of Sallie Mae Common Stock as
of the close of business on March 17, 1997 will be entitled to notice of and to
vote at the Special Meeting or any adjournments or postponements thereof. If a
reorganization pursuant to the Privatization Act does not occur on or before
March 31, 1998, certain "charter sunset" provisions become applicable which will
result in the dissolution of the GSE by July 1, 2013.

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<PAGE> 12

THE REORGANIZATION

BACKGROUND

For the last several years, Sallie Mae has advocated the "privatization" of
its business through a corporate restructuring that would permit a transition
from government-sponsored enterprise status to a fully private, state-chartered
corporation. Sallie Mae's federal charter restricts its business activities to
specified education finance related activities and imposes special obligations
on it as a government-sponsored enterprise, including payment of an "offset fee"
on student loans that it holds and that are insured under the FFELP. On
September 30, 1996, Congress enacted the Student Loan Marketing Association
Reorganization Act of 1996 (the "Privatization Act"), which authorized the
creation of the Holding Company through which the Company could pursue new
business opportunities beyond the limited scope of the GSE's restrictive federal
charter and effect an orderly wind-down of the GSE following the transfer of
ongoing business activities to the Holding Company.

REASONS FOR THE REORGANIZATION; RECOMMENDATIONS OF THE BOARD OF DIRECTORS

The Sallie Mae Board has determined that the Reorganization, upon the terms
and conditions set forth in the Privatization Act and the Reorganization
Agreement, is in the best interests of Sallie Mae and its shareholders.
ACCORDINGLY, THE SALLIE MAE BOARD HAS APPROVED THE REORGANIZATION AGREEMENT AND
RECOMMENDS THAT THE HOLDERS OF THE OUTSTANDING SHARES OF SALLIE MAE COMMON STOCK
VOTE FOR APPROVAL OF THE REORGANIZATION AT THE SPECIAL MEETING. THE
REORGANIZATION WAS APPROVED BY THE SALLIE MAE BOARD BY A VOTE OF 13 MEMBERS IN
FAVOR OF THE REORGANIZATION AND 8 MEMBERS AGAINST THE REORGANIZATION. FOR A
SUMMARY OF THE SALLIE MAE BOARD DELIBERATIONS, SEE "THE REORGANIZATION."

CORPORATE STRUCTURE BEFORE AND AFTER THE REORGANIZATION

Sallie Mae currently operates as a government-sponsored enterprise, subject
to the restrictions of its federal charter. Following the Reorganization, Sallie
Mae would be one of several subsidiaries of the Holding Company. The
Privatization Act will impose certain restrictions on intercompany relations
between Sallie Mae and its affiliates during the period prior to the GSE's
dissolution. In particular, Sallie Mae must not extend credit to, nor guarantee
any debt obligations of, the Holding Company or the Holding Company's non-GSE
subsidiaries. Although Sallie Mae may not finance the activities of its non-GSE
affiliates, it may, subject to its minimum capital requirements, dividend
retained earnings and surplus capital to the Holding Company, which in turn may
use such amounts to support its non-GSE subsidiaries. The Sallie Mae Charter (as
defined below) effectively requires that it maintain a minimum capital ratio.
The Privatization Act further directs that under no circumstances shall the
assets of Sallie Mae be available or used to pay claims or debts of or incurred
by the Holding Company.

TERMS OF THE REORGANIZATION

Pursuant to the Reorganization Agreement, MergerCo will be merged with and
into the GSE with the GSE surviving, each outstanding share of Sallie Mae Common
Stock will be converted into one share of Holding Company Common Stock and the
outstanding shares of the common stock of MergerCo will be converted into all of
the issued and outstanding shares of Sallie Mae Common Stock, all of which will
then be owned by the Holding Company. If the Reorganization is approved, the
Reorganization will become effective at the time the certificate of merger is
filed with the Secretary of State of the State of Delaware (the "Effective
Time"), which management expects to be on or about May 16, 1997. As a result of
the Reorganization, Sallie Mae will become a subsidiary of the Holding Company
and all of the Holding Company Common Stock outstanding immediately after the
Reorganization will be owned by the holders of Sallie Mae Common Stock
outstanding immediately prior to the Reorganization. Following the
Reorganization, the GSE will be gradually liquidated and its federal charter
will be rescinded on or before September 30, 2008.

The Reorganization will not result in any change to the GSE's outstanding
class of preferred stock or to its outstanding debt obligations and all of the
outstanding securities of Sallie Mae (other than the Sallie Mae

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<PAGE> 13

Common Stock and common stock equivalents) will remain outstanding as securities
of the GSE immediately after the Reorganization. The Privatization Act requires
that the GSE's preferred stock be repurchased or redeemed on or prior to the
GSE's dissolution, no later than September 30, 2008. The Privatization Act
provides that the Reorganization will not modify the attributes accorded to the
debt obligations of Sallie Mae by the Sallie Mae Charter.

It will not be necessary for holders of Sallie Mae Common Stock to exchange
their existing stock certificates for stock certificates of the Holding Company
in connection with the Reorganization. Following the Reorganization, new
certificates bearing the name of SLM Holding Corporation will be issued by
ChaseMellon Shareholder Services as outstanding certificates are presented for
transfer. In addition, new certificates of the Holding Company will be issued in
exchange for old certificates of the GSE upon the request of any shareholder.
Certificates presented for transfer to a name other than that in which the
surrendered certificate is registered must be properly endorsed, with the
signature guaranteed, and accompanied by evidence of payment of any applicable
stock transfer taxes.

THE PRIVATIZATION ACT

The Privatization Act provides the framework for effecting the
Reorganization and imposes certain restrictions on the operations of the Holding
Company and its subsidiaries after the Reorganization is consummated. See "THE
PRIVATIZATION ACT" and "REGULATION."

SUBSIDIARY STOCK AND ASSET TRANSFERS

The Privatization Act requires that at the Effective Time, or as soon as
practicable thereafter, Sallie Mae shall transfer to the Holding Company or one
or more of its non-GSE subsidiaries, certain assets, including all of the
capital stock of which the GSE is the beneficial owner in certain subsidiaries
(the "Transferred Subsidiaries"). It is anticipated that net asset transfers
(including the transfer of the Transferred Subsidiaries) occurring in the first
year after the Reorganization will aggregate $100 million or less and that
certain fixed assets will be transferred within approximately three years of the
Reorganization.

EMPLOYEE AND BENEFIT TRANSFERS

As required by the Privatization Act, all GSE employees will be transferred
from the GSE at the Effective Time. In connection with the Reorganization,
employee benefit obligations and benefit plans of the GSE will be transferred to
the Holding Company or one of its non-GSE subsidiaries. After the
Reorganization, Sallie Mae stock-based employee benefit plans will be amended to
provide for the delivery of Holding Company Common Stock instead of Sallie Mae
Common Stock.

WIND-DOWN PERIOD

Following the Reorganization, the GSE entity will be gradually liquidated
and its federal charter will be rescinded on or before September 30, 2008.
During this wind-down period, it is expected that Sallie Mae operations will be
managed by Sallie Mae's non-GSE affiliates. Also, during this period, the
Holding Company will remain a passive entity which supports the operations of
the GSE and its other subsidiaries, and all business activities will be
conducted through the GSE and by the other subsidiaries. The use of the "Sallie
Mae" name by the Holding Company and its subsidiaries is restricted by the
Privatization Act, as described herein.

The Privatization Act imposes certain "execution" or "transaction" costs on
the Company, including the payment of $5 million to the District of Columbia
Financial Responsibility and Management Assistance Authority (the "D.C.
Financial Control Board") for the restricted use of the "Sallie Mae" name. Also,
pursuant to the requirements of the Privatization Act, the Holding Company will
issue warrants to purchase 555,015 shares of Holding Company Common Stock to the
D.C. Financial Control Board, exercisable at any time before September 30, 2008,
at $72.43 per share.

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<PAGE> 14

During the wind-down period, the GSE's new business activities are limited.
The GSE generally may continue to purchase student loans only through September
30, 2007. The GSE's other lines of business, such as warehousing advances,
letters of credit and standby bond purchase commitments, will be limited to
takedowns on contractual financing and guarantee commitments in place as of the
Effective Time.

In addition, the business activities of the Holding Company and its non-GSE
subsidiaries are also subject to certain limitations, including a de facto
limitation against purchases of FFELP loans for so long as the GSE continues
this type of activity. Subject to the foregoing, the Holding Company could elect
at any time to commence FFELP student loan purchases through its non-GSE
subsidiaries.

After the Reorganization, Sallie Mae will be able to continue to issue debt
in the government agency market to finance student loans and other permissible
asset acquisitions, although the maturity date of such issuances generally may
not extend beyond September 30, 2008, Sallie Mae's final dissolution date. If at
any time during the wind-down period the GSE's capital ratio falls below certain
required levels (2 percent of assets until January 1, 2000 and 2.25 percent of
assets thereafter), the Holding Company is required to supplement the GSE's
capital to achieve the required level. Upon dissolution of the GSE, any
remaining GSE obligations will be transferred into a defeasance trust for the
benefit of the holders of such obligations. If the GSE has insufficient assets
to fully fund such defeasance trust, the Holding Company must transfer
sufficient assets to such trust to account for this shortfall.

A law enacted at the same time as the Privatization Act contains amendments
to the Federal Deposit Insurance Act and the Federal Credit Union Act that
prohibit all government-sponsored enterprises from directly or indirectly
sponsoring or providing non-routine financial support to certain credit unions
and depository institutions. Depository institutions are also prohibited from
being affiliates of government-sponsored enterprises.

CHARTER SUNSET IF REORGANIZATION DOES NOT OCCUR

If a reorganization pursuant to the Privatization Act does not occur on or
prior to March 31, 1998, the Privatization Act requires that it submit an
alternative wind-down plan to Congress and the Treasury Department by 2007. This
plan would call for the dissolution of Sallie Mae by 2013. During this
alternative wind-down period, Sallie Mae could not engage in new business
activities beyond its GSE charter, but could transfer assets, except for the
"Sallie Mae" name, at any time its statutory capital requirements were
satisfied. As with the Reorganization, any remaining obligations, and assets
sufficient to pay such obligations, would be transferred to a fully
collateralized trust at the time of dissolution. All other assets would be
distributed to Sallie Mae shareholders. Under this alternative, Sallie Mae
generally would have to cease its business activities after 2009 and could not
issue debt obligations that mature after 2013. The Secretary of the Treasury,
who would monitor the wind-down, could require Sallie Mae to amend its plan of
dissolution if deemed necessary to ensure full payment of its obligations.

OTHER PROVISIONS OF THE REORGANIZATION

NO DISSENTERS' APPRAISAL RIGHTS

Sallie Mae shareholders have no statutory appraisal rights. See "COMPARISON
OF STOCKHOLDER RIGHTS -- United States and Delaware Law -- Dissenters' Rights."

DIVIDEND POLICY

It is anticipated that the Holding Company will initially pay dividends on
Holding Company Common Stock at the rate most recently paid, and on
approximately the same schedule, as dividends have been paid on Sallie Mae
Common Stock. No assurance, however, can be given as to the amount of future
dividends, which will necessarily be dependent on future earnings and the
financial requirements of the Holding Company and its subsidiaries, including
the GSE, after the Reorganization. The Holding Company's principal source of
funds is expected to be funds from dividends on the stock of its subsidiaries
and proceeds from any issuances of the Holding Company's equity or debt
securities. The ability of the GSE to pay dividends is generally

4
<PAGE> 15

subject to the capital requirements included in Sallie Mae's federal charter set
forth in Section 439, Part B, Title VI of the Higher Education Act of 1965, as
amended, codified at 20 U.S.C. sec.1087-2, (the "Sallie Mae Charter"), and to
the priority of dividends on the preferred stock.

STOCK EXCHANGE LISTING

Sallie Mae has filed an application to list the shares of Holding Company
Common Stock to be issued in connection with the Reorganization on the New York
Stock Exchange ("NYSE"), subject to approval of the Reorganization Agreement by
the Sallie Mae shareholders and official notice of issuance. The shares of
Sallie Mae Common Stock are traded, and the shares of Holding Company Common
Stock are expected to be traded, on the NYSE under the symbol "SLM." If the
Reorganization is consummated, shares of Sallie Mae Common Stock will be
delisted at the same time the Holding Company shares are listed.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

The obligation of Sallie Mae to consummate the Reorganization is
conditioned upon the receipt by Sallie Mae of an opinion of Skadden, Arps,
Slate, Meagher & Flom LLP in form and substance reasonably satisfactory to
Sallie Mae, dated as of the Effective Time, substantially to the effect that, on
the basis of facts, representations and assumptions set forth in such opinion
and set forth in certificates of officers of the Holding Company, Sallie Mae and
others, as well as representation letters of certain holders of Sallie Mae
Common Stock, all of which are consistent with the state of facts existing at
the Effective Time, the Merger will be treated for U.S. federal income tax
purposes as a nonrecognition transfer of shares of Sallie Mae Common Stock by
the holders thereof to the Holding Company for shares of Holding Company Common
Stock. See "TERMS OF THE REORGANIZATION" and "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES."

REGULATION

The GSE will continue to be subject to the requirements of the Sallie Mae
Charter and to certain regulations irrespective of whether the Reorganization is
approved. The Privatization Act amends the Sallie Mae Charter to provide for
increased oversight of GSE operations by, and the reimbursement of certain
oversight costs to, the Secretary of the Treasury as well as the increase of
Sallie Mae's required shareholders' equity ratio from the current level of 2
percent of assets to 2.25 percent of assets beginning after January 1, 2000. See
"REGULATION."

COMPARISON OF STOCKHOLDER RIGHTS

There are certain differences between the present rights of holders of
Sallie Mae Common Stock and the rights of holders of Holding Company Common
Stock after the Reorganization, including those concerning cumulative voting, a
classified Board of Directors, Presidential appointment of members of the Board
of Directors and requirements that members of the Board of Directors be
affiliated with certain types of institutions. For a comparison of the relative
rights of holders of Sallie Mae Common Stock and holders of Holding Company
Common Stock, see "COMPARISON OF STOCKHOLDER RIGHTS."

HOLDING COMPANY BOARD OF DIRECTORS

Sallie Mae, as the sole stockholder of the Holding Company prior to the
Reorganization, will appoint the members of the Holding Company Board to serve
until their successors are duly elected. The directors that Sallie Mae intends
to appoint are identified elsewhere in this Proxy Statement/Prospectus. See
"MANAGEMENT -- Holding Company Board of Directors."

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<PAGE> 16

SUMMARY SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------
1996 1995(1) 1994(1) 1993(1) 1992(1)
------- ------- ------- ------- -------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net interest income(2).................... $ 859 $ 893 $ 940 $ 938 $ 834
Net income................................ 419 496 403 430 394
Earnings per common share................. 7.32 7.20 4.91 4.83 4.21
Dividends per common share................ 1.64 1.51 1.42 1.25 1.05
Return on common stockholders' equity..... 50.13%(4) 39.85%(4) 29.06%(4) 40.26% 40.22%

BALANCE SHEET DATA:
Student loans purchased................... $32,308 $34,336 $30,370 $26,804 $24,173
Student loan participations............... 1,446 - - - -
Warehousing advances...................... 2,789 3,865 7,032 7,034 8,085
Academic facilities financings............ 1,473 1,312 1,548 1,359 1,189
Total assets.............................. 47,630 50,002 52,961 46,509 46,621
Long-term notes........................... 22,606 30,083 34,319 30,925 30,724
Total borrowings.......................... 44,763 47,530 50,335 44,544 44,440
Stockholders' equity...................... 1,048(4) 1,081(4) 1,471(4) 1,280 1,220
Book value per common share............... 15.53 15.03 17.10 12.69 11.25

OTHER DATA:
Securitized student loans outstanding..... $ 6,263 $ 954 $ - $ - $ -
Core earnings(3).......................... 391 491 338 385 394
Core earnings per common share(3)......... 6.82 7.12 4.11 4.31 4.21
Net interest margin(2).................... 1.89% 1.82% 2.06% 2.23% 1.98%
Core net interest margin(3)............... 1.80 1.80 1.86 2.05 1.98
</TABLE>

- ---------------
(1) 1995 results reflect the change in method of accounting for student loan
income. The effect of the change increased net income by $151 million and
earnings per common share by $2.23. On a pro forma basis, assuming the
method of accounting for student loan income were applied retroactively
prior to 1992, net income would increase by $17 million ($.22 per common
share), $13 million ($.15 per common share), and $8 million ($.09 per common
share) for the years ended December 31, 1994, 1993, and 1992, respectively.

(2) For the years ended December 31, 1996, 1995, 1994, 1993 and 1992, premiums
on debt extinguished totaled $7 million, $8 million, $14 million, $211
million and $141 million, respectively. Such amounts are disclosed
separately, net of tax, in the Consolidated Statements of Income. Net
interest income is adjusted to include premiums on debt extinguished. Net
interest margin is determined based upon taxable equivalent net interest
income adjusted to include premiums on debt extinguished.

(3) Core earnings are net earnings before the impact of net floor revenue.

(4) At December 31, 1996, 1995 and 1994, stockholders' equity reflects the
addition to stockholders' equity of $349 million, $371 million, and $300
million, respectively, net of tax, of unrealized gains on certain
investments recognized pursuant to the adoption of FAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities."

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<PAGE> 17

MARKET DATA

Because the Holding Company is a newly-formed corporation and there is
currently no established trading market for its securities, no information can
be provided as to historical market prices for the Holding Company Common Stock.
Historical market prices for Sallie Mae Common Stock, however, may provide
relevant historical market information for determining the market value of the
Holding Company. Sallie Mae and the Holding Company will take all actions
necessary or advisable to ensure that the Holding Company Common Stock will be
approved for listing on the NYSE upon consummation of the Reorganization. The
common stock of Sallie Mae trades on the NYSE under the symbol "SLM." The
following table sets forth, for the periods indicated, the high and low sales
prices per share of Sallie Mae Common Stock as reported on the NYSE Composite
Tape, and the quarterly cash dividends per share declared with respect thereto.

<TABLE>
<CAPTION>
HIGH LOW DIVIDEND
---- --- --------
<S> <C> <C> <C>
1994
First Quarter................................. 49 7/8 42 7/8 .35
Second Quarter................................ 44 1/8 35 3/4 .35
Third Quarter................................. 39 1/8 32 .35
Fourth Quarter................................ 35 31 1/4 .37
1995
First Quarter................................. 39 32 7/8 .37
Second Quarter................................ 48 3/8 34 1/2 .37
Third Quarter................................. 55 3/4 47 .37
Fourth Quarter................................ 70 7/8 54 .40
1996
First Quarter................................. 86 1/8 63 1/4 .40
Second Quarter................................ 83 1/2 66 .40
Third Quarter................................. 77 69 1/4 .40
Fourth Quarter................................ 98 1/4 77 1/4 .44
1997
First Quarter (through January 31, 1997)...... 110 89 .44
</TABLE>

On January 23, 1997, the last trading day before the announcement that the
Sallie Mae Board had approved the Reorganization, the last sales price of Sallie
Mae Common Stock was $108.00 per share, as reported on the NYSE Composite Tape.

On , 1997, the date prior to the printing of this Proxy
Statement/Prospectus, the last sales price of Sallie Mae Common Stock was $
per share, as reported on the NYSE Composite Tape.

At December 31, 1996, 53,690,595 shares of Sallie Mae Common Stock were
outstanding, representing approximately 20,345 holders of shares of Sallie Mae
Common Stock.

At March 17, 1997, the Record Date shares of Sallie Mae Common Stock
were outstanding and eligible to be voted, representing approximately
holders of shares of Sallie Mae Common Stock.

7
<PAGE> 18

INFORMATION REGARDING THE SPECIAL MEETING

PURPOSE

At the Special Meeting of Shareholders (the "Special Meeting") of the
Student Loan Marketing Association ("Sallie Mae" or the "GSE"), the shareholders
of Sallie Mae will be asked to consider and vote upon the approval and adoption
of an Agreement and Plan of Reorganization (the "Reorganization Agreement")
among Sallie Mae, SLM Holding Corporation, a newly-formed Delaware corporation
and wholly-owned subsidiary of Sallie Mae (the "Holding Company"), and Sallie
Mae Merger Company, a newly-formed Delaware corporation and wholly-owned
subsidiary of the Holding Company ("MergerCo"). The Reorganization Agreement
provides for the reorganization (the "Reorganization") of Sallie Mae into a
wholly-owned subsidiary of the Holding Company pursuant to the merger (the
"Merger") of MergerCo with and into Sallie Mae, with Sallie Mae as the surviving
corporation. If the Reorganization Agreement is approved and the Merger is
consummated, (i) each outstanding share of common stock, par value $.20 per
share, of Sallie Mae ("Sallie Mae Common Stock") would be converted into one
share of common stock, par value $.20 per share of the Holding Company ("Holding
Company Common Stock") and (ii) all of the outstanding shares of MergerCo would
be converted into all of the issued and outstanding shares of Sallie Mae Common
Stock, all of which will then be owned by the Holding Company.

STOCKHOLDERS ARE REQUESTED TO COMPLETE, SIGN AND DATE THE ACCOMPANYING
PROXY CARD AND RETURN IT PROMPTLY TO SALLIE MAE IN THE ENCLOSED, POSTAGE-PAID
ENVELOPE.

This Proxy Statement/Prospectus is also furnished to Sallie Mae
shareholders as the prospectus of the Holding Company relating to the shares of
Holding Company Common Stock issuable in connection with the Reorganization.

PLACE, TIME AND DATE OF MEETING

The Special Meeting will be held on Thursday, May 15, 1997 at the
Ritz-Carlton, Tysons Corner, 1700 Tysons Blvd., McLean, VA 22102, beginning at
10:00 a.m., local time, and at any adjournments or postponements thereof.

RECORD DATE; SHARES ENTITLED TO VOTE

Only holders of record (each, a "Record Holder") of shares of Sallie Mae
Common Stock at the close of business on March 17, 1997, the record date for the
Special Meeting (the "Record Date"), are entitled to notice of, and to vote at,
the Special Meeting and any adjournments or postponements thereof.

QUORUM; VOTES REQUIRED

The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of Sallie Mae Common Stock entitled to vote at the Special
Meeting will be necessary to constitute a quorum for the transaction of
business. If such a quorum is not present, a majority of shares so represented
may adjourn the Special Meeting to a future date. Abstentions and broker
non-votes are counted when determining the presence of a quorum for the
transaction of business.

Approval of the Reorganization requires the affirmative vote of holders of
at least a majority of the outstanding shares of Sallie Mae Common Stock.
Abstentions and broker non-votes have the same effect as a vote against the
Reorganization.

COMMON STOCK INFORMATION

At December 31, 1996, 53,690,595 shares of Sallie Mae Common Stock were
outstanding representing approximately 20,345 holders of shares of Sallie Mae
Common Stock. As of the Record Date, there were outstanding and eligible to be
voted shares of Sallie Mae Common Stock representing approximately
holders of shares of Sallie Mae Common Stock. As of the Record Date, Sallie
Mae's directors, executive officers beneficially owned shares of Sallie
Mae Common Stock, or approximately . % of the shares of Sallie Mae Common
Stock outstanding as of such date. The Sallie Mae Common Stock is listed on the
New York Stock Exchange ("NYSE") under the symbol "SLM."

8
<PAGE> 19

VOTING AND REVOCATION OF PROXIES

Shares of Sallie Mae Common Stock that are entitled to vote and are
represented at the Special Meeting by properly executed proxies received prior
to the vote at the Special Meeting and not revoked will be voted at the Special
Meeting in the manner directed on such proxies. Shares may be voted in person or
by proxy. A Record Holder may execute a new proxy or vote in person his or her
shares at the Special Meeting. At the Special Meeting, the Chairman of the Board
shall designate the time that the polls shall close. Only those proxies received
or votes cast prior to the closing of the polls shall be valid.

Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before the shares represented by such proxy are voted at
the Special Meeting by (i) filing with the Secretary of Sallie Mae a written
notice of such revocation bearing a later date than the proxy, (ii) duly
executing a proxy relating to the same shares bearing a later date and
delivering it to the Secretary of Sallie Mae before the taking of the vote at
the Special Meeting, or (iii) voting in person at the Special Meeting.
Attendance at the Special Meeting will not in and of itself constitute a
revocation of a proxy. All written notices of revocation or other communication
with respect to revocation of proxies should be addressed as follows: Student
Loan Marketing Association, 1050 Thomas Jefferson Street, N.W., Washington, D.C.
20007, Attention: Ann Marie Plubell, Secretary, and must be received before the
taking of the vote at the Special Meeting.

PROXIES THAT ARE PROPERLY EXECUTED WITHOUT INDICATING ANY VOTING
INSTRUCTIONS AND TIMELY RECEIVED WILL BE VOTED FOR THE PROPOSAL TO APPROVE THE
REORGANIZATION

If the Reorganization is not approved, Sallie Mae will hold the Annual
Meeting of Shareholders of the Student Loan Marketing Association as soon as
practicable after the Special Meeting votes are tabulated.

SOLICITATION OF PROXIES

Sallie Mae will bear all expenses of this solicitation, including the cost
of preparing and mailing this Proxy Statement/Prospectus. In addition to
solicitation by mail, directors, officers, regular employees or other agents of
Sallie Mae, who will not be specifically compensated for such services but may
be reimbursed for reasonable out-of-pocket expenses in connection with such
solicitation, may solicit proxies from Sallie Mae shareholders personally or by
telephone, telecopy, telegram or other means of communication. Sallie Mae will
also arrange with custodians, nominees and fiduciaries for the forwarding of
proxy solicitation materials to the beneficial owners of shares held of record
by such persons. Sallie Mae may reimburse such custodians, nominees and
fiduciaries reasonable out-of-pocket expenses incurred in connection therewith.
Sallie Mae has retained D.F. King & Co., Inc. to solicit proxies on its behalf.
D.F. King will be paid a fee, estimated not to exceed $50,000 and will be
reimbursed its reasonable out-of-pocket expenses in connection with such
solicitation services.

NO DISSENTERS' APPRAISAL RIGHTS

Sallie Mae shareholders have no statutory appraisal rights in connection
with the matters to be considered at the Special Meeting. See "COMPARISON OF
STOCKHOLDER RIGHTS -- United States and Delaware Law -- Dissenters' Rights."

SHAREHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY CARDS.

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<PAGE> 20

THE REORGANIZATION

BACKGROUND

The Student Loan Marketing Association Reorganization Act of 1996 (the
"Privatization Act") was the result of a multi-year effort on the part of Sallie
Mae to win executive branch and Congressional support for privatization. As a
government-sponsored enterprise Sallie Mae has access to the "government agency"
debt market, exemptions from state taxes and certain securities laws, and lower
capital requirements. However, Sallie Mae's business activities are subject to
restrictions and burdens contained in Sallie Mae's federal charter, which is set
forth at Section 439, Part B, Title IV of the Higher Education Act of 1965, as
amended, codified at 20 U.S.C. sec. 1087-2 (the "Sallie Mae Charter"). The
Sallie Mae Charter may be changed by Congress, subject only to constitutional
limitations, without approval from Sallie Mae directors or shareholders. Sallie
Mae sought privatization to protect the value of its franchise from the
political risks of its government-sponsored enterprise status and the new
Federal Direct Student Loan Program (the "FDSLP"). In addition, Sallie Mae
recognized that changes in the student loan market, including the advent of
student loan securitization, had reduced the comparative advantages of
government-sponsored enterprise funding and capital levels. After passage of the
1993 Omnibus Budget Reconciliation Act ("OBRA"), which imposed new fees on
Sallie Mae and created the FDSLP, Sallie Mae worked with the executive branch to
produce a study on the "future of Sallie Mae" and put forward a specific
legislative framework to effect privatization through a transitional holding
company arrangement. During 1995 and 1996, Sallie Mae negotiated with Congress
and the executive branch to arrive at legislation intended to provide a fair
outcome for the government, GSE noteholders and GSE shareholders. The
Privatization Act, which was enacted on September 30, 1996, will allow Sallie
Mae to transition from a limited purpose government-sponsored enterprise to a
general purpose corporation that will independently determine which new business
opportunities to pursue.

The Privatization Act authorized the Sallie Mae Board of Directors (the
"Sallie Mae Board") to adopt a plan of reorganization pursuant to which Sallie
Mae would become a wholly-owned subsidiary of a holding company.

At a Sallie Mae Board meeting held on November 22, 1996, the Sallie Mae
Board charged (i) the Nominations and Board Affairs Committee with consideration
of the corporate governance structure for the Holding Company, the composition
and selection of the Holding Company Board of Directors and the structure of the
proposal for presentation to shareholders and (ii) the Finance Committee with
consideration of various financial and operational aspects of the plan of
reorganization and related asset transfers. Each of these Committees was
instructed to formulate recommendations for action by the full Sallie Mae Board
at the regular meeting held January 24, 1997.

Consistent with its charge, the Nominations and Board Affairs Committee met
on December 17, 1996, January 16, 1997, January 23, 1997 and January 24, 1997.

At its meeting on December 17, 1996, the Committee considered the relative
merits of a broad range of corporate governance provisions and determined to
solicit the further views of the members of the Committee concerning a variety
of governance issues. In addition, the Committee determined to solicit the
members of the Sallie Mae Board and the President and Chief Executive Officer
for the names and qualifications of potential nominees to the Holding Company
Board of Directors.

At the meetings of December 17, 1996 and January 16 and 23, 1997, the
Committee also discussed guidelines for the qualifications of Holding Company
Directors, as individuals and as members of a cohesive body.

At the meetings of January 16 and January 23, 1997, Mr. Brandon, moved that
the 14 members of the Sallie Mae Board who were elected by shareholders in 1996
be nominated as a body to constitute the entire Holding Company Board. The
motion was defeated, with Messrs. Jacobsen, Durmer, Spiegel and Thayer voting
against because the action would have given effective control at the Holding
Company to a minority of the present Sallie Mae Board and would not provide the
diversity desired for the Holding Company Board.

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At the meeting of January 16, 1997, Mr. Brandon moved that the Company
separate the vote on the initial election of the Holding Company Board members
from the vote on the plan of reorganization. The motion was defeated, with
Messrs. Jacobsen, Durmer, Spiegel and Thayer voting against because the action
would have left in doubt an essential component of the plan of reorganization,
namely the identity of the Board which would guide the new Holding Company
through privatization.

At its January 23, 1997 meeting, the Committee determined, by a vote of 4-1
(with Mr. Brandon voting against and Mr. Lambert absent) to recommend that the
full Sallie Mae Board adopt the charter and by-laws substantially in the form
described in this Proxy Statement/Prospectus.

At the January 23, 1997 meeting, Mr. Jacobsen also noted that on January
21, 1997 the names and qualifications of 26 individuals were provided to the
Committee members for their comment and review. He then moved that the 18
persons who are identified in the "Management -- Holding Company Board of
Directors" section of this Proxy Statement/Prospectus be recommended for
election to the initial Holding Company Board of Directors. After discussion,
the Committee voted 4-1 (with Mr. Brandon voting against and Mr. Lambert absent)
to recommend to the full Sallie Mae Board that these individuals be nominated
for election by Sallie Mae as the members of the Holding Company Board.

The Finance Committee met on December 19, 1996 and considered a number of
financial and operational issues related to the plan of reorganization. These
included the structure of the transaction to effect the new entity, the
structure of the new entity after reorganization, the transfer of employees and
assets and the capital structure of the new entity. On January 23, 1997, the
Operations and Finance Committees held a joint meeting to consider the
correctness of the privatization path and to consider the expression of the
financial and operational matters contained in this Proxy Statement/Prospectus.
The Company's outside legal and financial advisors were available to answer
questions at both the January 23, 1997 Committee meeting and the January 24,
1997 Board meeting discussed below. Members of management made presentations
concerning terms and financial aspects of the proposal at each of the
Committee's meetings.

On January 24, 1997, the Sallie Mae Board met to consider, among other
business, the proposed plan of reorganization. Mr. Jacobsen, Chairman of the
Nominations and Board Affairs Committee, reviewed the activity of the Committee
in detail, including a description of the recommended corporate governance
provisions and the proposed slate of the Holding Company Directors and moved
adoption of the recommendations.

As part of the Board's discussion, Mr. Hunt indicated that, while he
favored privatization, he opposed the plan of reorganization because he does not
view the plan as friendly to shareholders in its governance structure and
believes it should provide for a separate vote on the Holding Company Board of
Directors. Mr. Lord indicated that he had similar objections.

Mr. Hunt further stated that he was willing to serve on the slate and
pledged that, if he were to engage in any active solicitation of shareholder
opposition to the reorganization plan, then he would withdraw from the slate.

A majority of the Sallie Mae Board expressed the view that having nominees
on the Holding Company Board who were actively opposed to the plan of
reorganization would be confusing and not be in the best interests of
shareholders. As a result of this concern the Sallie Mae Board voted to provide
that Messrs. Hunt and Lord would have until close of business on January 31,
1997 to confirm that they had no objection to the plan of reorganization other
than as summarized in this Proxy Statement/Prospectus, and that neither Mr. Hunt
nor Mr. Lord would organize or participate in opposition to the plan of
reorganization and the slate of nominees contained therein. The motion was
approved with Messrs. Arceneaux, Berger, Daberko, Durmer, Jacobsen, Moore, Rohr,
Spiegel, Thayer, Vitale and Mmes. Gilleland, Montoya and Natividad voting for
and Messrs. Brandon, Daley, Hunt, Lambert, Lord, Porter, Shapiro and Waterfield
voting against such motion.

The Sallie Mae Board then voted to approve the recommendations of the
Nominations and Board Affairs Committee as set out above. The recommendations
were approved with Messrs. Arceneaux, Berger, Daberko, Durmer, Jacobsen, Moore,
Rohr, Spiegel, Thayer, Vitale and Mmes. Gilleland, Montoya and Natividad

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<PAGE> 22

voting for and Messrs. Brandon, Daley, Hunt, Lambert, Lord, Porter, Shapiro and
Waterfield voting against such recommendations.

Mr. Vitale, Chairman of the Finance Committee, reviewed the activity of the
Finance Committee in detail, including a description of the operations and
finance provisions of the plan of reorganization and moved that the Sallie Mae
Board approve the provisions as described. The Sallie Mae Board voted
unanimously to approve the finance and operations provisions in the proposed
plan of reorganization and voted to approve the proposed plan of reorganization,
as a whole, by the same 13-8 vote by which the Sallie Mae Board approved the
recommendations of the Nominations and Board Affairs Committee. No plan of
reorganization or business plan other than the plan of reorganization contained
in these documents was presented for consideration.

On January 31, 1997, Mr. Hunt advised the Chairman of the Sallie Mae Board
that, after evaluating his fiduciary duties, he was unable at that date to
provide the Sallie Mae Board with the confirmation it sought. On the same date,
Mr. Lord advised the Sallie Mae Board that his position on the plan of
reorganization and the opposition to the persons named to serve on the Holding
Company Board had not changed. These responses are currently being considered by
the Sallie Mae Board.

On February 5, 1997, a written statement was delivered to the Company on
behalf of Messrs. Brandon, Daley, Hunt, Lambert, Lord, Porter, Shapiro and
Waterfield (collectively, the "Dissenting Directors") stating their reasons for
their votes, including certain of the reasons noted above. The Dissenting
Directors' statement has been included in this Proxy Statement/Prospectus at
their request and is set forth in Appendix D.

REASONS FOR THE REORGANIZATION; RECOMMENDATION OF THE BOARD OF DIRECTORS

In reaching its determination, the Sallie Mae Board considered a number of
factors, including the following material factors:

a. The expectation that the Reorganization will enhance Sallie Mae's
core business by enabling the Holding Company to more effectively respond
to intensified competition in the student loan marketplace among the
Federal Family Education Loan Program ("FFELP") participants, and with the
FDSLP by extending Sallie Mae's school-based strategy and engaging in a
broader array of campus-based services.

b. The expectation that the Reorganization will provide a mechanism
for expansion of the business, new sources of revenue and, over time,
business diversification.

c. The belief, based on its experience through 1996 with five
successful securitization transactions, that, with the advent of student
loan securitizations, Sallie Mae's government-sponsored enterprise status
is no longer necessary to ensure its ability to obtain large volume, long
term funding on advantageous terms.

d. The belief of a majority of the Board is that the persons selected
to serve as the Holding Company Board are best able to lead the Company
through privatization, and reflect strong and diverse backgrounds,
attributes and skills, including technology, marketing, finance and vision
as well as diversity of gender, race, age and geography. Additionally,
these persons support the education mission of the organization and the
privatization plan.

e. The belief of a majority of the Board that the Holding Company
corporate governance provisions provide a proper balance of the interests
of all of the shareholders and permit the Holding Company to effectively
pursue the creation of stockholder value over the longer term.

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<PAGE> 23

f. The belief of a majority of the Board is that the Company will be
strengthened through the retention of the management responsible for
performance which has led to significant results and increases in the price
of Sallie Mae Common Stock over the past year.

g. The expectation that the Reorganization will reduce the level of
political risk to which Sallie Mae is subject.

h. The terms and conditions of the Privatization Act and the
Reorganization Agreement which the Sallie Mae Board, based on presentations
by management developed in consultation with the Company's outside legal
and financial advisors, has deemed to be generally favorable to Sallie Mae.
See "THE PRIVATIZATION ACT" and "TERMS OF THE REORGANIZATION."

i. The fact that the Reorganization will privatize the Company, by
making all members of the Board of Directors subject to shareholder vote
and by phasing out federal government involvement with corporate governance
of the Company.

j. The determination that the dissolution of Sallie Mae pursuant to
the "charter sunset" provisions of the Privatization Act is not in the best
interests of Sallie Mae and its shareholders.

k. The determination that the Merger will be treated for U.S. federal
income tax purposes as a nonrecognition transfer of shares of Sallie Mae
Common Stock by the holders thereof to the Holding Company for shares of
Holding Company Common Stock. See "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES."

In view of the wide variety of factors considered in connection with its
evaluation of the terms of the Reorganization, the Sallie Mae Board did not find
it practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the specific factors considered in reaching their determinations. In
addition, individual members of the Sallie Mae Board may have given different
weights to different factors.

THE BOARD OF DIRECTORS OF SALLIE MAE RECOMMENDS APPROVAL OF THE
REORGANIZATION AND URGES EACH SHAREHOLDER TO VOTE "FOR" THE REORGANIZATION.

CORPORATE STRUCTURE BEFORE AND AFTER THE REORGANIZATION

Sallie Mae was created in 1972 as a federally-chartered,
government-sponsored enterprise. The Sallie Mae Charter defines and limits its
corporate authority to education finance related activities, while imposing
certain fees and obligations on Sallie Mae. The Privatization Act authorizes the
reorganization of Sallie Mae into a subsidiary of a state-chartered corporation
(i.e., the Holding Company) and provides that Sallie Mae will be gradually
liquidated and its federal charter will be rescinded on or before September 30,
2008. Under the Privatization Act, consummation of the Reorganization is
conditioned on approval by the requisite vote of Sallie Mae shareholders on or
prior to March 31, 1998. If shareholder approval is not obtained within this
time frame, the Privatization Act's "charter sunset" provisions would require
Sallie Mae to restrict operations in the future and to ultimately dissolve by
July 1, 2013. See "THE PRIVATIZATION ACT -- Charter Sunset If Reorganization
Does Not Occur."

To carry out the Reorganization, Sallie Mae has formed the Holding Company
as a new Delaware corporation. All of the outstanding stock of the Holding
Company is owned by Sallie Mae. Two other new Delaware corporations, Sallie Mae
Merger Company ("MergerCo") and Sallie Mae, Inc. (the "Management Company") have
been organized. Prior to the Reorganization, none of the Holding Company,
MergerCo or the Management Company has any business, properties or liabilities
of its own except that all of the outstanding stock of MergerCo is owned by the
Holding Company.

The Reorganization would be effected pursuant to the Reorganization
Agreement by merging MergerCo with and into Sallie Mae, with Sallie Mae as the
surviving corporation, resulting in Sallie Mae becoming a wholly-owned
subsidiary of the Holding Company. In addition, upon consummation of the
Reorganization, or as soon as practicable thereafter, the stock of certain of
Sallie Mae's subsidiaries, including Sallie Mae

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<PAGE> 24

Servicing Corporation (collectively, the "Transferred Subsidiaries") would be
transferred to the Holding Company or one of its non-GSE subsidiaries.

Sallie Mae's outstanding class of preferred stock and debt securities will
remain outstanding as securities of Sallie Mae immediately after the
Reorganization. See "Treatment of Preferred Stock" below. Pursuant to the
Privatization Act, the Holding Company will issue to the District of Columbia
Financial Responsibility and Management Assistance Authority (the "D.C.
Financial Control Board") warrants to purchase 555,015 shares of Holding Company
Common Stock, exercisable at any time prior to September 30, 2008, at $72.43 per
share.

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DIAGRAMS OF CURRENT AND PROPOSED CORPORATE STRUCTURES

The following diagrams show the current corporate structure of the Company
and the proposed structure of the Company following the Reorganization.

Graphic: Current Corporate Structure
Box: with words "Student Loan Marketing Association (GSE)"
connected by vertical line to box: with words "Sallie Mae Servicing
Corporation"

Graphic: Proposed Structure Following the Reorganization
Box: with words "SLM Holding Corporation" connected by vertical
lines to boxes: with words "Student Loan Marketing Association (GSE)";
"Sallie Mae Servicing Corporation" and "Sallie Mae, Inc.",
respectively.

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<PAGE> 26

EXCHANGE OF STOCK CERTIFICATES

Because the Reorganization Agreement provides that, at the Effective Time
(as defined below), each outstanding share of Sallie Mae Common Stock shall be
converted automatically into one share of Holding Company Common Stock, it will
not be necessary for holders of Sallie Mae Common Stock to exchange their
existing stock certificates for certificates of Holding Company Common Stock.

Following the Reorganization, as outstanding certificates for Sallie Mae
Common Stock are presented to Chase Mellon Shareholder Services for transfer,
new certificates bearing the name of the Holding Company will be issued in their
place. In addition, upon the request of any shareholder, new certificates for
Holding Company Common Stock will be issued in exchange for old certificates of
Sallie Mae Common Stock. Certificates presented for transfer to a name other
than that in which the surrendered certificate is registered must be properly
endorsed, with the signature guaranteed, and accompanied by evidence of payment
of any applicable stock transfer taxes.

SHAREHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY CARDS.

TREATMENT OF PREFERRED STOCK

The proposed Reorganization will not result in any change in Sallie Mae's
outstanding class of preferred stock. However, if the Reorganization is
approved, the Privatization Act requires that prior to the dissolution of Sallie
Mae on or before September 30, 2008, Sallie Mae shall repurchase or redeem, or
make proper provisions for repurchase or redemption of any outstanding preferred
stock. Sallie Mae's preferred stock will continue to rank senior to Sallie Mae
Common Stock (all of which, after the Reorganization, will be held by the
Holding Company) as to dividends and as to the distribution of assets of Sallie
Mae in the event of the liquidation of Sallie Mae.

EFFECT ON STOCK OPTIONS AND EMPLOYEE BENEFITS

After the Reorganization, all stock-based Sallie Mae director, officer and
employee benefit plans, including the Sallie Mae Employees' Stock Purchase Plan,
Employee's Thrift and Savings Plan, Supplemental Employees' Thrift and Savings
Plan, Deferred Compensation Plan for Key Employees, key employee stock option
plans, Stock Compensation Plan, Incentive Performance Plan, Board of Director's
Stock Option Plan, Board of Directors' Deferred Compensation Plan and Board of
Directors' Restricted Stock Plan (collectively, the "Plans") will be amended to
provide for the delivery of Holding Company Common Stock instead of Sallie Mae
Common Stock thereunder. Each right to acquire shares of Sallie Mae Common
Stock, including, without limitation, rights (including stock options) to
acquire Sallie Mae Common Stock pursuant to any of the Plans, granted and
outstanding immediately prior to the Effective Time shall, by virtue of the
Reorganization and without any action on the part of the holder thereof, be
converted into and become a right to acquire the same number of shares of
Holding Company Common Stock at the same price per share, and upon the same
terms and subject to the same conditions as were applicable immediately prior to
the Reorganization under the relevant right.

DIVIDEND POLICY

The Holding Company's principal sources of funds are expected to be
dividends on the stock of its subsidiaries and proceeds from any issuances of
the Holding Company's equity or debt securities.

The ability of Sallie Mae to pay dividends on its capital stock is
generally subject to the capital requirements set forth in the Sallie Mae
Charter, see "REGULATION -- Current Regulation," and to the

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<PAGE> 27

priority of dividends on outstanding Sallie Mae preferred stock. See "THE
REORGANIZATION -- Treatment of Preferred Stock."

Holders of Holding Company Common Stock will be entitled to receive
dividends when, as and if declared by the Board of Directors of the Holding
Company out of funds legally available therefor. The timing and amount of future
dividends will be within the discretion of the Board of Directors of the Holding
Company and will depend on the consolidated earnings, financial condition,
liquidity and capital requirements of the Holding Company and its subsidiaries,
applicable governmental regulations and policies, and other factors deemed
relevant by the Board of Directors.

Subject to the earnings and financial condition of the GSE after the
Reorganization, dividends on the GSE's preferred stock will continue to be paid
at the prescribed times and rates. See "THE REORGANIZATION -- Treatment of
Preferred Stock." If the Holding Company issues preferred stock subsequent to
the Reorganization, the payment of dividends on Holding Company Common Stock may
be restricted to the extent that dividends on such preferred stock of the
Holding Company have not been paid in accordance with the terms of such stock
established by the Board of Directors upon its issuance.

STOCK EXCHANGE LISTING

Sallie Mae has filed an application to list the shares of Holding Company
Common Stock to be issued in connection with the Reorganization on the NYSE,
subject to approval of the Reorganization Agreement by the Sallie Mae
shareholders and official notice of issuance. The shares of Sallie Mae Common
Stock are traded, and the shares of Holding Company Common Stock are expected to
be traded, on the NYSE under the symbol "SLM." If the Reorganization is
consummated, shares of Sallie Mae Common Stock will be delisted in conjunction
with the listing of the shares of Holding Company Common Stock.

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<PAGE> 28

TERMS OF THE REORGANIZATION

The following discussion of the terms and conditions of the Reorganization
Agreement is qualified in its entirety by reference to the provisions of the
Reorganization Agreement, which are attached to this Proxy Statement/Prospectus
as Appendix A and incorporated herein by reference.

Pursuant to the Reorganization Agreement, MergerCo will be merged with and
into Sallie Mae, each outstanding share of Sallie Mae Common Stock will be
converted into one share of Holding Company Common Stock, and the outstanding
shares of the common stock of MergerCo will be converted into all of the issued
and outstanding shares of Sallie Mae Common Stock, all of which will then be
owned by the Holding Company. If the Reorganization is approved, it will become
effective at the time the certificate of merger is filed with the Secretary of
State of the State of Delaware (the "Effective Time"), which management expects
to be on or about May 16, 1997. As a result of the Reorganization, Sallie Mae
will become a subsidiary of the Holding Company and all of the Holding Company
Common Stock outstanding immediately after the Reorganization will be owned by
the holders of Sallie Mae Common Stock outstanding immediately prior to the
Reorganization. Shares of Holding Company Common Stock held by Sallie Mae and
the Sallie Mae Common Stock held in treasury will be canceled and retired.
Shares of the outstanding class of preferred stock of Sallie Mae will not be
affected by the Reorganization, and will remain outstanding, with the same
voting powers, designations, preferences, rights, qualifications, limitations
and restrictions.

Consummation of the Reorganization is subject to the fulfillment of the
following conditions: (i) the approval of the Reorganization Agreement by the
affirmative vote of the holders of a majority of the issued and outstanding
shares of Sallie Mae Common Stock, (ii) receipt of an opinion of counsel with
respect to the federal income tax consequences of the Merger and (iii) approval
by the NYSE of Holding Company Common Stock for listing upon official notice of
issuance.

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<PAGE> 29

THE PRIVATIZATION ACT

The Privatization Act establishes the basic framework for effecting the
Reorganization and imposes certain restrictions on the operations of the Holding
Company and its subsidiaries after the Reorganization is consummated and prior
to the ultimate dissolution of Sallie Mae. The Privatization Act amends the
Sallie Mae Charter and permits Sallie Mae, which is now a federally-chartered,
government-sponsored enterprise, to be reorganized as a wholly-owned subsidiary
of a state-chartered holding company owning all of Sallie Mae's outstanding
common stock. See "THE REORGANIZATION." The Privatization Act also amends the
Sallie Mae Charter (i) to require certain enhanced regulatory oversight of
Sallie Mae to ensure its financial safety and soundness, see
"REGULATION -- Current Regulation," and (ii) to provide for the dissolution of
Sallie Mae by July 1, 2013 if Sallie Mae does not reorganize pursuant to the
Privatization Act on or before March 31, 1998, see "Charter Sunset If
Reorganization Does Not Occur."

REORGANIZATION

The Privatization Act permits the Sallie Mae Board to propose to
shareholders a restructuring plan under which their share ownership in Sallie
Mae will be automatically converted to an equivalent share ownership in a
state-chartered holding company that will own all of the common stock of Sallie
Mae. Following the Reorganization, the remaining GSE entity will be liquidated
and its federal charter will be rescinded on or before September 30, 2008.
During this wind-down period, the Holding Company will remain a passive entity
that supports the operations of the GSE and its other non-GSE subsidiaries, and
any new business activities would be conducted through such subsidiaries. See
"REGULATION." The legislation provides a maximum eighteen month period for the
Sallie Mae Board to obtain shareholder approval for privatization on the terms
contained in the Privatization Act.

The Privatization Act requires certain personnel and asset transfers in
connection with the Reorganization, including the transfer of Sallie Mae's
interest in the Transferred Subsidiaries. Sallie Mae's student loans and related
contracts, warehousing advances and other program-related or financial assets
(such as portfolio investments, letters of credit, swap agreements and forward
purchase commitments) and any non-material assets that the Sallie Mae Board
determines to be necessary for or appropriate to continued GSE operations, may
be retained by the GSE. It is anticipated that net asset transfers occurring in
the first year after the Reorganization will aggregate $100 million or less and
that certain fixed assets will be transferred within approximately three years
of the Reorganization. It is anticipated that employees of Sallie Mae will be
transferred to the Management Company at the Effective Time. Employees of
non-GSE subsidiaries of Sallie Mae will continue to be employed by such
subsidiaries.

During the wind-down period, following the Reorganization and prior to
Sallie Mae's dissolution, Sallie Mae will be restricted in the new business
activities it may undertake. Sallie Mae may continue to purchase student loans
only through September 30, 2007, and warehousing advance, letter of credit and
standby bond purchase activity by Sallie Mae will be limited to takedowns on
contractual financing and guarantee commitments in place at the Effective Time.
In addition, Sallie Mae must discontinue its FFELP loan purchase activity once
the Holding Company, or its non-GSE subsidiaries, commence such activity.

Sallie Mae will continue to serve as a lender of last resort and will
provide secondary market support for the FFELP upon the request of the Secretary
of Education. If and to the extent Sallie Mae performs such functions, however,
it will not be required to pay the offset fee on such loans. Sallie Mae will be
able to transfer assets and to declare dividends, from time to time, provided it
maintains the minimum capital ratio of at least 2 percent until the year 2000.
After that time, charter amendments effected by the Privatization Act require
that Sallie Mae maintain a minimum capital ratio of at least 2.25 percent. In
the event that Sallie Mae does not maintain the required minimum capital ratio,
the Holding Company is required to recapitalize Sallie Mae in an amount
necessary to achieve such minimum capital ratio.

Sallie Mae's GSE debt obligations that are outstanding at the time of
Reorganization will continue to be outstanding obligations of the GSE
immediately after the Reorganization and will not be transferred to any other
entity (except in connection with the defeasance trust described below). See
"-- GSE Dissolution After Reorganization." The Privatization Act provides that
the Reorganization will not modify the attributes

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<PAGE> 30

accorded to the debt obligations of Sallie Mae by the Sallie Mae Charter. After
the Reorganization, Sallie Mae will be able to continue to issue debt in the
government agency market to finance student loans and other permissible asset
acquisitions. The maturity date of such issuances, however, may not extend
beyond September 30, 2008, Sallie Mae's final dissolution date. This restriction
will not apply to debt issued to finance any lender of last resort or secondary
market purchase activity requested by the Secretary of Education. The
Privatization Act makes it clear that the Reorganization (and the subsequent
transfer of any remaining Sallie Mae debt to the defeasance trust described
below) will not modify the legal status of Sallie Mae's GSE debt obligations,
whether such obligations exist at the time of Reorganization or are subsequently
issued.

If the Reorganization is consummated, the Holding Company must issue to the
D.C. Financial Control Board warrants to purchase 555,015 shares of Holding
Company Common Stock. These warrants are transferable and are exercisable at any
time prior to September 30, 2008 at $72.43. Within 60 days after the Effective
Time, Sallie Mae is also required to pay $5 million to the D.C. Financial
Control Board for use of the "Sallie Mae" name. Beginning in fiscal 1997, and
until the GSE is dissolved, Sallie Mae also must reimburse the Secretary of the
Treasury up to $800,000 annually (subject to adjustment based on the Consumer
Price Index) for its reasonable costs and expenses of carrying out its
supervisory duties under the Privatization Act.

OVERSIGHT AUTHORITY

During the wind-down period, the Secretary of the Treasury is granted
extended oversight authority to monitor the activities of the Holding Company
and its non-GSE subsidiaries, to the extent that the activities of such entities
are reasonably likely to have a material impact on the financial condition of
Sallie Mae. During this period, the Secretary of the Treasury may require that
Sallie Mae submit periodic reports regarding any potentially material financial
risk of its associated persons and its procedures for monitoring and controlling
such risk. The Holding Company is expressly prohibited from transferring
ownership of Sallie Mae or causing Sallie Mae to file bankruptcy without the
approval of the Secretary of the Treasury and the Secretary of Education. Each
of the Secretary of Education and the Secretary of the Treasury has express
authority to request that the Attorney General bring an action, or may bring an
action under the direction and control of the Attorney General, in the United
States District Court for the District of Columbia, for the enforcement of any
provision of Sallie Mae's safety and soundness requirements or the requirements
of the Privatization Act in general.

RESTRICTIONS ON INTERCOMPANY RELATIONS

During the wind-down period, Sallie Mae operations will be managed by its
affiliates or independent third parties. The Privatization Act also provides
certain restrictions on intercompany relations between Sallie Mae and its
affiliates during the wind-down period. Specified corporate formalities must be
followed to ensure that the separate corporate identities of Sallie Mae and its
affiliates are maintained. Specifically, the Privatization Act provides that
Sallie Mae must maintain books and records that clearly reflect the assets and
liabilities of Sallie Mae, separate from the assets and liabilities of the
Holding Company. In addition, the Privatization Act also provides that (i) the
funds and assets of Sallie Mae must at all times be maintained separately from
the funds and assets of the Holding Company, (ii) Sallie Mae must not extend
credit to, nor guarantee any debt obligations of, the Holding Company, (iii)
Sallie Mae must maintain a corporate office that is physically separate from any
office of the Holding Company, (iv) no director of Sallie Mae who is appointed
by the President may serve as a director of the Holding Company and (v) at least
one officer of Sallie Mae must be an officer solely of Sallie Mae.

Furthermore, the Privatization Act mandates that transactions between
Sallie Mae and the Holding Company, including any loan servicing arrangements,
shall be on terms no less favorable to Sallie Mae than Sallie Mae could obtain
from an unrelated third party, and any amounts collected on behalf of Sallie Mae
by the Holding Company pursuant to a servicing contract or other arrangement
between Sallie Mae and the Holding Company shall be immediately deposited by the
Holding Company to an account under the sole control of Sallie Mae.

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LIMITATIONS ON HOLDING COMPANY ACTIVITIES

The Holding Company must remain a passive entity that holds the stock of
its subsidiaries and provides funding and management support to such
subsidiaries. It is prohibited from directly engaging in any business activities
until the GSE is dissolved. After the Effective Time and prior to the
dissolution of the GSE, all business activities of the Holding Company must be
conducted through its subsidiaries. The Privatization Act extends to the Holding
Company and its subsidiaries the GSE's "eligible lender" status for loan
consolidation and secondary market purchases. See "BUSINESS."

The Holding Company generally may begin to purchase FFELP student loans
only after the GSE discontinues such activity. Subject to the foregoing, the
Holding Company could elect, at any time, to transfer new student loan purchase
activity from the GSE to one of its non-GSE subsidiaries. Under OBRA, loans
acquired after August 10, 1993 and held by the GSE are subject to a 30 basis
point per annum "offset fee." Sallie Mae has challenged the offset fee's
constitutionality and the Secretary of Education's statutory authority to apply
the fee on loans securitized by the GSE. See "BUSINESS -- Legal Proceedings."
The offset fee does not apply to loans held or securitized by the Holding
Company or non-GSE subsidiaries of the Holding Company.

Although Sallie Mae may not finance the activities of the non-GSE
subsidiaries, it may, subject to its minimum capital requirements, dividend
retained earnings and surplus capital to the Holding Company, which in turn may
use such amounts to support its non-GSE subsidiaries. Sallie Mae's charter
requires that it maintain a minimum capital ratio of at least 2 percent until
2000, and charter amendments effected by the Privatization Act require that
Sallie Mae maintain a minimum capital ratio of at least 2.25 percent thereafter
(whether or not the Reorganization occurs). In the event that Sallie Mae's
capital falls below the applicable required level, the Holding Company is
required to supplement Sallie Mae's capital to achieve such required level. The
Privatization Act further directs that under no circumstances shall the assets
of Sallie Mae be available or used to pay claims or debts of or incurred by the
Holding Company.

In exchange for the payment of $5 million to the D.C. Financial Control
Board, the Holding Company and its other subsidiaries may continue to use the
"Sallie Mae" name, but not the name "Student Loan Marketing Association," as
part of their legal names or as a trademark or service mark. Interim disclosure
requirements in connection with securities offerings and promotional materials
are required to avoid marketplace confusion regarding the separateness of the
GSE from its affiliated entities. During the GSE wind-down, the "Sallie Mae"
name may not be used by any Holding Company unit that issues debt obligations or
other securities to any person or entity other than the Holding Company or its
subsidiaries.

GSE DISSOLUTION AFTER REORGANIZATION

If shareholders of Sallie Mae approve the Reorganization, the Privatization
Act provides that the wind-down period will terminate and Sallie Mae will
liquidate and dissolve on September 30, 2008, unless an earlier dissolution is
requested by Sallie Mae and the Secretary of Education makes no finding that
Sallie Mae continues to be needed as a lender of last resort under the Sallie
Mae Charter or to purchase loans under certain agreements with the Secretary of
Education. In connection with such dissolution, Sallie Mae must transfer any
remaining GSE obligations into a defeasance trust for the benefit of the holders
of such obligations with cash or full faith and credit obligations of the United
States, or an agency thereof, in amounts sufficient, as determined by the
Secretary of the Treasury, to pay the principal and interest on the deposited
obligations. At December 31, 1996, Sallie Mae had $372 million in current
carrying value of debt obligations outstanding with maturities after September
30, 2008. If Sallie Mae has insufficient assets to fully fund such GSE debt, the
Holding Company must transfer sufficient assets to the trust to account for this
shortfall. Prior to dissolution, proper provision must also be made for the
redemption or repurchase of outstanding shares of Sallie Mae preferred stock.
Upon dissolution, the Sallie Mae Charter will terminate, and any assets that
Sallie Mae continues to hold after establishment of the trust or which remain in
the trust after full payment of the remaining obligations of Sallie Mae assumed
by the trust, will be transferred to the Holding Company or its affiliates, as
determined by the Holding Company Board of Directors.

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CHARTER SUNSET IF REORGANIZATION DOES NOT OCCUR

If a reorganization pursuant to the Privatization Act does not occur on or
prior to March 31, 1998, certain "charter sunset" provisions will apply. These
provisions will result in the dissolution of Sallie Mae by July 1, 2013, after
the discharge of all outstanding debt obligations and liquidations (the "Sunset
Dissolution Date"). Notwithstanding these charter sunset provisions, Sallie Mae
may dissolve prior to the Sunset Dissolution Date unless the Secretary of
Education finds that Sallie Mae continues to be needed as a lender of last
resort under the Sallie Mae Charter or to purchase loans under certain
agreements with the Secretary of Education.

Prior to July 1, 2007, Sallie Mae would be required to submit a detailed
plan for the orderly winding-up of its business activities to the Secretary of
the Treasury and to the Chairman and Ranking Member of the Committee on Labor
and Human Resources of the Senate and the Chairman and Ranking Member of the
Committee on Economic and Educational Opportunities of the House of
Representatives. Upon implementation, this dissolution plan would (i) ensure
that Sallie Mae will have adequate assets to transfer to the trust to ensure
full payment of its remaining obligations; (ii) provide that all assets not used
to pay liabilities will be distributed to shareholders; and (iii) ensure that
the operations of Sallie Mae remain separate and distinct from those of any
entity to which such assets are transferred. While the Privatization Act would
allow Sallie Mae to amend the dissolution plan to reflect changed circumstances,
no amendments could extend the date for full implementation of the plan beyond
the Sunset Dissolution Date. The Privatization Act also allows the Secretary of
the Treasury to require that Sallie Mae amend the dissolution plan, if the
Secretary of the Treasury deems such amendments necessary to ensure full payment
of all obligations of Sallie Mae.

If the charter sunset provisions apply, Sallie Mae could not engage in new
business activities beyond its GSE charter, but could generally transfer assets
at any time that its statutory capital requirements were satisfied. In addition,
Sallie Mae would have to cease its business activities other than certain
specified permitted activities at the request of the Secretary of Education and
with the approval of the Secretary of the Treasury. In addition, except in
connection with such permitted activities, Sallie Mae will be prohibited, after
July 1, 2009, from issuing debt obligations that mature later than July 1, 2013.
The charter sunset provisions also prohibit Sallie Mae from transferring or
permitting the use of the names "Student Loan Marketing Association," "Sallie
Mae," or any variations thereof, to or by any entity other than a subsidiary of
Sallie Mae.

If the Reorganization does not occur, the final liquidation of Sallie Mae
would occur on the Sunset Dissolution Date. At that time, Sallie Mae would be
required to take actions similar to those required at the time of a dissolution
after reorganization. See "-- GSE Dissolution After Reorganization." Remaining
obligations would be transferred to a defeasance trust and proper provision
would need to be made for the repurchase or redemption of any preferred stock of
Sallie Mae then outstanding. Finally, any assets remaining after establishment
of the trust or any assets remaining in the trust after full pay-off of Sallie
Mae debt would be transferred to holders of Sallie Mae Common Stock.

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CERTAIN FEDERAL INCOME TAX CONSEQUENCES

The following summary, based upon current law, is a general discussion of
certain United States federal income tax consequences of the Merger to Holding
Company, Sallie Mae, MergerCo and holders of shares of Sallie Mae Common Stock.
The summary is based upon the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury regulations, judicial decisions, administrative pronouncements
and current administrative rulings, all of which are subject to change, possibly
with retroactive effect. Any such change could affect the continuing validity of
this summary. The summary does not purport to be a comprehensive description of
all of the tax consequences applicable to a particular taxpayer. In particular,
the summary does not address any aspect of state, local or foreign taxation or
the tax treatment to holders subject to special tax rules, such as insurance
companies, foreign persons, tax-exempt organizations, dealers in securities,
banks and other financial institutions, holders who acquired their shares of
Sallie Mae Common Stock pursuant to the exercise of options or otherwise as
compensation or through a tax-qualified retirement plan. In addition, the
summary only applies to holders who hold shares of Sallie Mae Common Stock as
capital assets. No rulings have been or will be requested from the Internal
Revenue Service (the "IRS") with respect to any of the matters discussed herein.
There can be no assurance that future legislation, regulations, court decisions
or administrative pronouncements or rulings would not alter the tax consequences
set forth below. HOLDERS OF SALLIE MAE COMMON STOCK SHOULD CONSULT THEIR TAX
ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING
THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
LAWS.

If, in accordance with the opinion referred to above, the Merger will be
treated as a nonrecognition transaction under the Code, then, in the opinion of
Skadden, Arps, Slate, Meagher & Flom LLP, the following is a fair and accurate
summary of the general U.S. federal income tax consequences of the Merger to the
Holding Company, Sallie Mae, MergerCo and holders of shares of Sallie Mae Common
Stock that are converted in the Merger to Holding Company Common Stock:

TREATMENT OF HOLDING COMPANY, SALLIE MAE AND MERGERCO

No gain or loss will be recognized by Holding Company, Sallie Mae or
MergerCo as a result of the Merger.

CONVERSION OF SALLIE MAE COMMON STOCK INTO HOLDING COMPANY COMMON STOCK

A holder of Sallie Mae Common Stock whose shares of Sallie Mae Common Stock
are converted in the Merger into Holding Company Common Stock will not recognize
gain or loss upon such conversion. The aggregate tax basis of the Holding
Company Common Stock received by such holder will be equal to the aggregate tax
basis of the Sallie Mae Common Stock so converted, and the holding period of the
Holding Company Common Stock will include the holding period of the Sallie Mae
Common Stock so converted.

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REPORTING REQUIREMENT

Each holder of Sallie Mae Common Stock that receives Holding Company Stock
in the Merger will be required to retain records and file with such holder's
federal income tax return a statement setting forth certain facts relating to
the Merger.

THE DISCUSSION OF FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE IS FOR GENERAL
INFORMATION ONLY AND IS BASED ON EXISTING LAW AS OF THE DATE OF THIS PROXY
STATEMENT/PROSPECTUS. SHAREHOLDERS OF SALLIE MAE ARE URGED TO CONSULT THEIR TAX
ADVISORS TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE MERGER
(INCLUDING THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL, FOREIGN AND
OTHER TAX LAWS).

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BUSINESS

As used herein, the "Company" refers to Sallie Mae prior to the
Reorganization and to the Holding Company, on a consolidated basis, from and
after the Effective Time of the Reorganization.

Industry data on the FFELP and the FDSLP contained in this Proxy
Statement/Prospectus is based on sources that the Company believes represent the
best available information for these purposes, including Department of Education
and industry publications.

GENERAL

The Company provides a wide range of financial services, processing
capabilities and information technology to meet the needs of educational
institutions, lenders and students. Founded in 1972 as a government sponsored
enterprise, Sallie Mae's stated mission was to enhance access to post-secondary
education by providing a national secondary market and financing for guaranteed
student loans. As of December 31, 1996, the Company's managed portfolio of
student loans totaled approximately $40 billion (including loans owned, loans
securitized and loan participations). The Company also had commitments to
purchase an additional $15.8 billion of student loans or participations therein.
While the Company continues to be the leading purchaser of student loans, its
business has expanded over its first quarter of a century, reflecting changes in
both the education sector and the financial markets.

Primarily a wholesale provider of credit and a servicer of student loans,
the Company has as clients over 900 financial and education institutions and
state agencies. Through its six regional loan servicing centers, the Company
processes student loans for more than 4 million borrowers and is recognized as
the nation's pre-eminent servicer of student loans. The Company is also a
provider and arranger of infrastructure finance for colleges and universities.

Management believes that the Company is the leader in the education finance
industry due to its focus on customer relationships, value-added products and
services, superior loan servicing capabilities and sound financial management
strategy. In recognition of the increasingly important role that college and
university administrators play in the loan process, the Company adopted a
school-based focus. The Company's core marketing strategy is to provide schools
and their students with simple, flexible and cost-effective products and
services so that schools will elect to work with lenders committed to the
Company. This strategy, combined with superior servicing and technology
capabilities, has also enabled the Company to build valuable partnerships with
lenders, guarantee agencies and others.

In 1993, the Company launched a three year effort to obtain Congressional
approval to recharter as a fully private, state-chartered corporation.
Legislation to privatize the Company was approved by Congress and signed by
President Clinton in September 1996.

Privatization is expected to enable the Company to compete more effectively
in the student loan business and to pursue new business opportunities that
leverage its servicing resources, consumer database and higher education
expertise and relationships. Immediately following the Reorganization, the
principal business of the Company will continue to be the acquisition, financing
and servicing of student loans, as previously conducted by the GSE. Although the
GSE's activities will be phased out over time as described in "REGULATION" and
the student loan business will eventually be conducted through the Company's
non-GSE units, it is expected that student loan acquisitions will continue to be
effected through the GSE exclusively (pursuant to the terms of the Privatization
Act) for so long as it is advantageous to do so.

INDUSTRY OVERVIEW

The student loan industry provides affordable financing to students and
their families to fund post-secondary education. Banks and other eligible
lenders are able to make student loans at below market rates due to subsidies
and guarantees provided under programs sponsored principally by the federal
government. The largest student loan program, originally called the Guaranteed
Student Loan Program and now known as the FFELP, was created in 1965 to ensure
low cost access by families to a full range of post-secondary education
institutions. In 1972, to encourage further bank participation in the program,
Congress established

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the Company as a for-profit, stockholder-owned national secondary market for
student loans. The FFELP industry currently includes a network of approximately
5,300 originators, 6,300 educational institutions and an estimated 14.4 million
graduate and undergraduate students, excluding those attending proprietary
schools. Also, 39 state-sponsored or non-profit guarantee agencies collectively
guarantee and administer the FFELP under contract with the Department of
Education. In addition to the Company, a number of non-profit entities, banks
and other financial intermediaries operate as secondary markets. The Company
believes that lender participation in the program is relatively concentrated,
with an estimated 90% of outstanding loans held by the top 100 participants,
including approximately one-third owned by the Company as of September 30, 1994.
The FFELP is reauthorized by the Congress about every five years. The next
reauthorization is required in 1998. The provisions of the FFELP are also
subject to revision from time to time by the Congress. For an overview of the
FFELP and other federally sponsored student loan programs, see Appendix C "The
Federal Family Education Loan Program."

The demand for student loans has risen substantially over the last several
years. Higher education tuition cost and fee increases continue to exceed the
inflation rate. Over half of all full-time college students today depend on some
form of borrowing, compared to just over 35% in 1985. Federal legislation
enacted in late 1992 expanded loan limits and borrower eligibility that, in
part, resulted in an increase of over 50% in annual loan volume of
federally-guaranteed student loans ($21 billion in 1994 from $14 billion in
1992). Estimated future increases in tuition costs and college enrollments are
expected to prompt further growth in the student loan market.

In 1993, Congress expanded a previously established pilot program into the
FDSLP administered by the U.S. Department of Education. Established as an
alternative to the private sector-based FFELP, the FDSLP accounted for
approximately one-third of all new federally-sponsored student loans issued in
academic year 1995-6. The federal government contracts out loan administration
and collections services while financing its lending activity through U.S.
Treasury borrowing. The FDSLP had a legislated market share goal of up to 50%
for academic year 1996-7, but, based on current Department of Education
projections, management expects direct loan volume to reach between 35-40% of
total student loan volume for such academic year. See "-- Competition".

BUSINESS STRATEGY

Sallie Mae's strategy is to expand its higher education franchise as a
preferred provider of branded products and services to higher education
institutions, consumers and lenders, while leveraging the unrealized value
embedded in its consumer database and servicing operation. Management believes
the Company's statutory mandate, to provide liquidity to FFELP lenders, no
longer adequately characterizes the breadth of the Company's products and
services or the customer needs they currently address. Management believes
privatization will allow the Company to exploit its servicing, technology and
financing expertise to better and more broadly serve higher education
institutions and students. In addition, management believes that privatization
will allow the Company to realize value-enhancing opportunities to expand beyond
its core business, leveraging its servicing capability and unique consumer
database.

Competition in the student loan industry has intensified both among the
participants in the FFELP, and, with the expansion of the FDSLP, between private
industry participants and the government's direct student loan program. Sallie
Mae has responded by developing a school-based strategy that brings value more
directly to the higher education customer, generating loan product flows at the
source for Sallie Mae's network of affiliated lenders. This school-based
strategy has resulted in substantial volume growth over the past five years,
notwithstanding increased competition. The expansion of Sallie Mae's customer
focus to include colleges and universities, in addition to lenders, is based on
the increasingly active role played by college administrators in the referral of
loan providers to their students.

As the cost of education continues to rise, schools are looking for the
least expensive, most efficient source of student loan credit. To meet customer
needs and differentiate its lender partners, the Company has developed a
"branded" family of products and services. These include borrower benefits,
which reward on-time repayment by reducing total loan cost; flexible repayment
options; and specialized software and electronic

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communications systems. Products such as LineSS(R) (school loan processing
software) and ExportSS(R) (a loan origination and administration outsourcing
service) demonstrate Sallie Mae's expertise in providing technology and
operational support to help schools and lenders manage student loan-related
costs. The recently formed relationship with PeopleSoft to develop a student
information system and financial aid software and the acquisition of Kaludis
Consulting Group, a higher education strategic consulting firm, are expected to
enhance the Company's capabilities in this regard. Management believes that
privatization will further allow the Company to develop new products for certain
segments of the education market.

The Company's academic facilities financing business has complemented its
expanded customer focus. This business, now conducted through a wholly-owned,
broker-dealer subsidiary, Education Securities, Inc. ("ESI"), has allowed the
Company to strengthen relationships at several hundred schools across the
country and has increased the Company's name recognition on campus.

The Company's valuable network of lender clients is an established and
reliable nationwide source of loan originations. The Company plans to continue
to support and expand its network of lending partners. Leveraging their
relationship with the Company, many of these lenders have developed a reputation
for service to schools and strong name recognition with students, both of which
are critical to being selected as the lender. Although the Company is well known
on campuses as the industry's leading servicer of student loans, it is less well
known among families who are in need of college loans. The Company plans to
heighten its visibility with consumers to favorably position itself for future
new product offerings. It also plans to continue to build strong relationships
with colleges and families by providing state-of-the-art loan origination
capabilities, best-in-class loan servicing and preferred loan programs. The
Company expects to pursue its historic emphasis on product and distribution
innovation as it periodically assesses the course to best maximize shareholder
value.

Privatization is expected to give the Company enhanced flexibility to
explore and undertake new ventures consistent with the foregoing strategy to
expand its higher education franchise. In addition, privatization will permit
the Company to pursue opportunities outside of higher education. In pursuing
such opportunities, the Company expects to (i) leverage its servicing and
technology expertise in the non-student loan market, (ii) capitalize on its
unique consumer database, and (iii) build upon its existing school and lender
relationships.

The Company intends to supplement its business strategy by continuing to
aggressively control costs and proficiently manage its capital base. The Company
reduced general and administrative expenses as a percentage of managed student
loans from 1.36% for the year ended December 31, 1994 to 1.09% for the year
ended December 31, 1996. In addition, the number of shares of Sallie Mae Common
Stock outstanding was reduced by approximately 36% from January 1, 1994 to
December 31, 1996 through stock repurchases. Prudent capital management,
including the potential for further stock repurchases, is expected to remain a
priority for the Company.

PRODUCTS AND SERVICES

LOAN PURCHASES. The Company's purchases of student loans primarily involve
two federally sponsored programs. The Company principally purchases Stafford
loans, PLUS loans, and SLS loans originated under the FFELP, all of which are
insured by state-related or non-profit guarantee agencies and are reinsured by
the United States Department of Education. The FFELP is more fully described in
Appendix C. The Company also purchases student loans originated under the Health
Education Assistance Loan Program ("HEAL"), which are insured directly by the
United States Department of Health and Human Services. HEAL loans are made to
health professions graduate students under the Public Health Services Act. As of
December 31, 1996, the Company's managed portfolio of student loans totaled $40
billion, including $36.2 billion (including loans owned, loans securitized and
loan participations) of FFELP loans and $2.8 billion of HEAL loans.

In order to further meet the educational credit needs of students, the
Company in 1996 sponsored the creation of the private Signature Education
Loan(sm) program, with numerous lenders participating nationwide. Under this
program, the Company performs certain origination services on behalf of the
participating lenders. Upon sale of the loans to the Company, the Company
intends to insure the loans through its HEMAR

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Insurance Corporation of America ("HICA") subsidiary (if not already insured by
HICA prior to sale). Most of the HICA insured loans acquired by the Company are
part of "bundled" loan programs that include FFELP loans. The Company also
purchases loans originated under various other HICA-insured loan programs. As of
December 31, 1996, the Company owned approximately $1.0 billion of such private
education loans, including HICA insured Signature Education Loans(sm).

The Company purchases student loans primarily from commercial banks. In
addition, the Company purchases student loans from other eligible FFELP lenders,
including savings and loan associations, mutual savings banks, credit unions,
certain pension funds and insurance companies, education institutions, and state
and private nonprofit loan originating and secondary market agencies.

Most lenders using the secondary market hold loans while borrowers are in
school and sell loans shortly before their conversion to repayment status, when
servicing costs increase significantly. Traditionally, the Company has purchased
most loans just prior to their conversion to repayment status, although the
Company also buys "in-school" loans and those in repayment. The Company
purchases loans primarily through commitment contracts but also makes "spot"
purchases. Approximately two-thirds of the Company's new loan purchases were
effected pursuant to purchase commitments in 1996 and 1995. The Company enters
into commitment contracts with lenders to purchase loans up to a specified
aggregate principal amount over the term of the contract. Under the commitment
contracts, lenders have the right, and in most cases the obligation, to sell to
the Company the loans they own over a specified period of time, usually two to
three years, at a purchase price that is based on certain loan characteristics.

In conjunction with commitment contracts, the Company frequently provides
the selling institutions with operational support in the form of PortSS(R), an
automated loan administration system for the lender to use at its own offices
prior to loan sale, or in the form of loan origination and interim servicing
provided through one of the Company's loan servicing centers (ExportSS(R)). In
1995 and 1996, more than 80% of purchase commitment volume came from users of
PortSS(R) and ExportSS(R). The Company also offers commitment clients the
ability to originate loans and then transfer them to the Company for servicing
(TransportSS(sm)). PortSS(R), TransportSS(sm), and ExportSS(R) provide the
Company and the lender with the assurance that the loans will be efficiently
administered by the Company and that the borrowers will have access to the
Company's repayment options and benefits.

In a spot purchase, the Company competes with other secondary market
participants to purchase a portfolio of eligible loans from a selling holder
when such holder decides to offer its loans for sale. The Company made
approximately one-third of its purchases of educational loans through spot
purchases in 1995 and 1996. In general, spot purchase volume is more
competitively priced than volume purchased under commitment contracts. The
growth in volume generated by PortSS(R), ExportSS(R) and TransportSS(sm)
demonstrates the importance of the Company's investment in these systems in past
years.

The Company also offers eligible borrowers a program for the consolidation
of eligible insured loans into a single new insured loan with terms of from 10
to 30 years. The Higher Education Act of 1965, as amended provides that
borrowers may consolidate with one of their loan holders or may consolidate with
a separate lender if they cannot obtain a consolidation loan with an income
sensitive repayment plan. As of December 31, 1996, the Company owned
approximately $7.7 billion of such consolidation loans, known as SMART(sm) Loan
Accounts.

BORROWER BENEFITS AND PROGRAM TECHNOLOGY SUPPORT. To create customer
preferences and compete more effectively in the student loan marketplace, the
Company developed a comprehensive set of loan programs and services for
borrowers, including numerous loan restructuring and repayment options and
programs that encourage and reward good repayment habits. The Company also
provides counseling and information programs (including a world wide web site)
that not only help borrowers, but also help reinforce relationships with college
and university customers and lender partners.

Under the Company's "Great Rewards(R)" program, certain FFELP borrowers who
make their first 48 monthly payments on-time receive a two-percentage-point
interest rate reduction for the remaining term of the loan. Other programs pay
students an amount equal to part of the loan origination fees and modestly

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reduce interest costs for use of automatic debit accounts. The Company also
provides financial aid administrators at colleges and universities with
innovative products and services that simplify the lending process, including
electronic funds transfer services and loan information and management software
that enables college application data to be transferred electronically between
program participants.

JOINT VENTURE WITH THE CHASE MANHATTAN BANK. In the third quarter of 1996,
the Company restructured its business relationship with The Chase Manhattan Bank
("Chase"), the largest originator of student loans under the FFELP with an
estimated market share of 7.0%. Historically, Chase has also been the Company's
largest client, representing 11% of 1995 purchases. The Company and TCB
Education First Corporation, a wholly-owned subsidiary of Chase, are equal
owners of Education First Finance LLC and Education First Marketing LLC
(collectively, the "Chase Joint Venture"). Education First Marketing LLC is
responsible for marketing education loans to be made by Chase and its affiliates
to schools and borrowers. Shortly after such loans are made by Chase and its
affiliates, the loans are purchased on behalf of Education First Finance LLC by
the Chase/Sallie Mae Education Loan Trust (the "Trust"), which presently
finances these purchases through the sale of loan participations to the Company
and Chase. As of the date hereof, the Trust owns approximately $2.9 billion in
federally-insured education loans. Substantially all loans owned by the Trust
are serviced on behalf of the Trust by Sallie Mae Servicing Corporation on a
fee-for-service basis. Management believes the Chase Joint Venture reflects its
ability to leverage its servicing operations and differentiated product line to
strengthen its position in its core student loan purchasing business.

SERVICING

In 1980, the Company began servicing its own portfolios in order to better
control costs and manage risks. In late 1995, in connection with the
commencement of its securitization program, the Company transferred its
servicing operations to a wholly-owned subsidiary, Sallie Mae Servicing
Corporation ("SMSC"). The Company is now the largest FFELP loan servicer and is
recognized as the premier service quality and technology provider in its field.
The Company believes that its processing capability and service excellence is
integral to its school-based growth strategy. As of December 31, 1996, the
Company serviced approximately $38 billion of loans, including approximately
$25.5 billion of loans owned by Sallie Mae and $6.3 billion owned by five
securitization trusts sponsored by Sallie Mae, $4.3 billion of loans currently
owned by ExportSS(R) customers and $1.9 billion of the $2.9 billion owned by the
Chase Joint Venture Trust. The remaining $1.0 billion of loans owned by the
Chase Joint Venture Trust will eventually be serviced by the Company.

The Company currently has six loan servicing centers located in Florida,
Kansas, Massachusetts, Pennsylvania, Texas and Washington. This geographical
coverage, together with total systems integration among centers, facilitates
operations and customer service.

The United States Department of Education and the various guarantee
agencies prescribe rules and regulations that govern the servicing of federally
insured student loans. The Company's originations and servicing systems,
internal procedures and highly trained staff support compliance with these
regulations, ensure asset integrity and provide superior service to borrowers.
The Company has recently introduced imaging technology to further increase
servicing productivity and capacity. Management believes that ongoing
investments in servicing technology and personnel training will continue to
enhance its leading position in student loan servicing.

Management believes that a long-term commitment to developing loan
servicing expertise and efficiency has created new opportunities for the
Company. The Company is beginning to bid on federal and state government
contracts to provide various services including loan collection, claims
processing, and administration of prepaid tuition plan records. It is expected
that privatization will allow for new opportunities for government contracting
and third-party servicing activities for the Company. The Company plans to
continue to implement strategies intended to increase awareness of its servicing
capability among potential customers and highlight the earnings capacity of the
servicing operations for investors.

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SPECIALIZED FINANCIAL SERVICES

The Company has engaged in a number of specialty financial services related
to higher education credit, including collateralized financing of FFELP and
other education loan portfolios (warehousing advances), credit support for
student loan revenue bonds, portfolio investments of student loan revenue and
facilities bonds, underwritings of academic facilities bonds and surety bond
support for non-federally insured student loans.

WAREHOUSING ADVANCES. Warehousing advances are secured loans to financial
and educational institutions to fund FFELP and HEAL loans and other forms of
education-related credit. As of December 31, 1996, the Company held
approximately $2.8 billion of warehouse loans with an average term of 1.0 year.
These loans will remain assets of the GSE. The GSE will be able to extend new
warehousing advances during its wind-down only pursuant to financing commitments
in place as of the Effective Time. As of December 31, 1996, the GSE held
approximately $2.4 billion of such commitments. The non-GSE affiliates are not
expected to continue this line of business.

ACADEMIC FACILITIES FINANCINGS AND STUDENT LOAN REVENUE BONDS. Since 1987,
the GSE has provided facilities financing and commitments for future facilities
financing to approximately 250 educational institutions. Certain of these
financings are secured either by a mortgage on the underlying facility or by
other collateral. The GSE also invests in student loan revenue obligations. In
late 1995, the GSE established a broker-dealer subsidiary, Education Securities,
Inc., which manages the GSE's municipal bond portfolio and is developing an
array of specialized underwriting and financial advisory services for the
education sector. It is expected that following the Reorganization, the Company
will reduce its investment activity in the academic facilities and student loan
revenue bond products, but will expand its underwriting and financial advisory
activities in these and other market segments. As of December 31, 1996, this
portfolio totaled $1.5 billion.

LETTERS OF CREDIT. In the past, the GSE has also offered letters of credit
to guarantee issues of state and nonprofit agency student loan revenue bonds.
Currently outstanding letters of credit have original terms of up to 17 years.
As of December 31, 1996, the GSE held approximately $3.7 billion of such
commitments outstanding. After the Reorganization is consummated, letter of
credit activity by the GSE will be limited to guarantee commitments in place at
the Effective Time.

PRIVATE STUDENT LOAN INSURANCE. In 1995, the GSE acquired Hemar Insurance
Corporation of America ("HICA"), a South Dakota stock insurance company
exclusively engaged in protecting lenders against credit loss on their
education-related, non-federally insured loans to students attending
post-secondary educational institutions. A significant portion of HICA's insured
loan portfolio is made up of loans owned by the GSE. See "Products and
Services -- Loan Purchases."

FINANCING/SECURITIZATION

The Company obtains funds for its GSE operations primarily from the sale of
GSE debt securities in the domestic and overseas capital markets, through public
offerings and private placements of U.S. dollar and foreign currency denominated
debt of varying maturities and interest rate characteristics. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
Sallie Mae debt securities are currently rated at the highest credit rating
level by Moody's Investor Services and Standard & Poors, in part due to Sallie
Mae's current status as a GSE. The GSE is expected to retain its credit ratings
after the Reorganization.

The GSE uses interest rate and currency exchange agreements (collateralized
where appropriate), U.S. Treasury securities, interest rate futures contracts
and other hedging techniques to reduce the exposure to interest rate and
currency fluctuations arising out of its financing activities and to match the
characteristics of its assets and liabilities. The GSE has also issued preferred
stock to obtain funds. The Reorganization provides for access to GSE debt to
fund student loans and other permitted asset acquisitions with maturity dates
through September 30, 2008. In connection with such dissolution, Sallie Mae must
transfer any remaining GSE obligations into a defeasance trust for the benefit
of the holders of such obligations with cash or full faith and credit
obligations of the United States, or an agency thereof, in amounts sufficient,
as determined by the

30
<PAGE> 41

Secretary of the Treasury, to pay the principal and interest on the deposited
obligations. If Sallie Mae has insufficient assets to fully fund such GSE debt,
the Holding Company must transfer sufficient assets to the trust to account for
this shortfall. The Privatization Act requires that prior to the dissolution of
Sallie Mae on or before September 30, 2008, Sallie Mae shall repurchase or
redeem, or make proper provisions for repurchase or redemption of any
outstanding preferred stock.

In addition, since late 1995, the Company has further diversified its
funding sources independent of its GSE borrower status by securitizing a portion
of its student loan assets. Securitization is an off-balance sheet funding
mechanism that the Company effects through the sale of portfolios of student
loans by the GSE to SLM Funding Corporation, a bankruptcy-remote, special
purpose wholly-owned subsidiary of the GSE, that, in turn, sells the student
loans to an independent owner trust that issues securities to fund the purchase
of the student loans. The GSE has not guaranteed such indebtedness and has no
obligation to ensure its repayment. Because the securities issued by the trusts
through its securitization program are not GSE securities, the Company has been
and in the future expects to be able to fund its student loans to term through
such program, even for those assets whose final maturities extend beyond 2008.
The Company has taken the position that the 30 basis point per annum offset fee
does not apply to securitized loans. See "Legal Proceedings." It is anticipated
that securitization will remain a primary student loan funding mechanism for the
Company once it conducts student loan purchase activity through a non-GSE
subsidiary.

Management believes that the initial financing requirements of the Holding
Company will be minimal and can be accommodated through a number of alternative
sources, including public and private debt placement, bank borrowings and
dividends from subsidiaries. Securitization is expected to provide the principal
funding source for the anticipated student loan purchases of the Holding
Company. However, there will be a need for on-balance sheet financing for such
activities during the period prior to securitization. Such financings may
require the Holding Company to obtain a bond rating. Ratings for Holding Company
debt will not be known until specific debt is issued. It is expected that these
ratings will be below the GSE's current credit rating levels.

OPERATIONS FOLLOWING THE REORGANIZATION

Privatization will enable the Company to commence new business activities
without regard to the GSE's charter restrictions immediately after the Effective
Time. The Privatization Act also provides for a wind-down of the GSE's business
operations by September 30, 2007. At the time of the Reorganization or as soon
as practicable thereafter, the GSE will transfer personnel and certain assets to
the Holding Company or other non-GSE affiliates. Student loans, warehousing
advances and other program-related or financial assets (such as portfolio
investments, letters of credit, swap agreements and forward purchase
commitments) are generally not expected to be transferred. During the wind-down
period following the Reorganization, the GSE generally will be prohibited from
conducting new business except in connection with student loan purchases through
September 30, 2007 or with other outstanding contractual commitments and from
issuing new debt obligations which mature beyond September 30, 2008. However,
neither the Holding Company nor any of its non-GSE affiliates may purchase FFELP
loans for so long as the GSE remains an active purchaser in this secondary
market. See "REGULATION -- Operating Restrictions Following Reorganization."
During the wind-down period, GSE operations will be managed pursuant to
arms-length service agreements between the GSE and one or more of its non-GSE
affiliates. The Privatization Act also provides certain restrictions on
intercompany relations between the GSE and its affiliates during the wind-down
period. See "PRIVATIZATION ACT -- Separate Operation of Corporations."

Although loans held by the Holding Company and its non-GSE affiliates will
not be subject to the 30 basis point per annum offset fee, it is expected that
the Company will continue its secondary market purchase activities and
on-balance sheet funding through the GSE until the Holding Company's
creditworthiness is well-established. While student loans held on balance sheet
by the GSE would remain subject to the offset fee, the GSE's funding costs and
exemption from state taxes lessen its effect. Moreover, loans sold by the GSE to
asset-backed securitization trusts will not be subject to the offset fee if
certain litigation regarding this matter is resolved in favor of the Company.
See "-- Legal Proceedings."

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<PAGE> 42

The GSE's investment portfolio will be maintained consistent with liquidity
needs, the availability of attractive credit spreads and prudent capital
management. Similarly, swaps and other derivatives will continue to be utilized
by the GSE to manage interest rate risk and match asset and liability
characteristics.

In exchange for the payment of $5 million to the D.C. Financial Control
Board the non-GSE subsidiaries may continue to use the "Sallie Mae" name, but
not the name "Student Loan Marketing Association," with certain interim
disclosure requirements in connection with advertising and promotional
materials.

COMPETITION

The Company is the major financial intermediary for higher education
credit, but it is subject to competition on a national basis from several large
commercial banks and nonprofit secondary market agencies as well as on a state
or local basis by smaller banks and state-based secondary markets. While
Congress establishes loan limits and interest rates on student loans, market
share in the FFELP industry is increasingly becoming a function of school and
student desire for borrower benefits and superior customer service. FFELP
providers have been aggressively competing on the basis of enhanced products and
services in recent years, particularly to offset legislated reductions in
profitability and the impact of the FDSLP.

Because the Company's historic statutory role is confined to secondary
market activity at this time, it depends mainly on its network of lender
partners and its school-based strategy for new loan volume. Through this
approach, which is based on the Company's branded products and services, the
Company competes to acquire FFELP loans from originators of those loans. In
addition, the availability of securitization for student loan assets has created
new competitive pressures for traditional secondary market purchasers. Based on
the most recent information from the U.S. Department of Education, at the end of
fiscal year 1994, Sallie Mae's share (in dollars) of outstanding FFELP loans was
33%, banks and other financial institutions held 48% and state secondary market
participants held 19%.

The Company also faces competition from the FDSLP, both for new and
existing loan volume. Based upon current Department of Education projections,
the Company estimates that total student loan origination for the academic years
1994-95, 1995-96 and 1996-97 were $22.3 billion, $24.3 billion and $26.0
billion, respectively, of which FDSLP originations represented approximately 7%,
31% and 36%, respectively. Loans made under the direct loan program are not
available for purchase by the Company. The Department of Education has also
begun to offer FFELP borrowers the opportunity to refinance or consolidate FFELP
loans into FDSLP loans upon certification that the holder of their FFELP loans
does not offer a satisfactory income-sensitive payment plan. Approximately $320
million of the GSE's FFELP loans have been consolidated into the FDSLP. In early
1995, the GSE began offering an income-sensitive plan to compete with FDSLP
refinancing. However, the FDSLP also provides an income contingent option not
available under the FFELP program pursuant to which the government will
ultimately forgive student loan debt after 25 years. At this time it is not
certain what action, if any, the Congress will take with regard to the FDSLP in
connection with the reauthorization of the Higher Education Act.

PROPERTIES

The Company's principal offices are located at 1050 Thomas Jefferson
Street, N.W., Washington, D.C. 20007 and at a 31-acre site in Reston, Virginia
owned by the Company.

The following table lists the principal facilities owned by the Company:

<TABLE>
<CAPTION>
APPROXIMATE
LOCATION FUNCTION SQUARE FEET
------------------------------------ ------------------------------------ -----------
<S> <C> <C>
Reston, VA Servicing Headquarters 375,000
Wilkes Barre, PA Loan Servicing Center 135,000
Killeen, TX Loan Servicing Center 133,000
Lynn Haven, FL Loan Servicing Center 133,000
Lawrence, KS Loan Servicing Center 52,000
</TABLE>

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<PAGE> 43

It is expected that these properties will be retained by the GSE until the
year 2000 at which time they will be transferred to the Holding Company or one
of its non-GSE subsidiaries. In addition, the Company leases approximately
35,000 square feet of office space for its loan servicing center in Waltham,
Massachusetts, 37,800 square feet of office space for its loan servicing center
in Spokane, Washington and 47,000 square feet of additional space for its loan
servicing center in Lawrence, Kansas.

With the exception of the Pennsylvania loan servicing center, none of the
Company's facilities is encumbered by a mortgage.

The Company believes that its headquarters and loan servicing centers are
generally adequate to meet its long-term student loan and new business goals.
Sallie Mae's Washington, D.C. headquarters lease expires in 2001.

EMPLOYEES

As of December 31, 1996, the Company employed 4,792 employees nationwide.

LEGAL PROCEEDINGS

OBRA included a provision which applied a 30 basis point per annum fee to
student loans held by Sallie Mae. The Secretary of Education interpreted the
provisions of OBRA in such a manner as to apply that fee not only to loans held
by Sallie Mae but also to loans sold by Sallie Mae to securitization trusts. In
April 1995, the Company filed suit in the U.S. District Court for the District
of Columbia to challenge the constitutionality of the 30 basis point fee and the
application of the fee to loans securitized by the Company. On November 16,
1995, the District Court ruled that the fee is constitutional, but that,
contrary to the Secretary of Education's interpretation, the fee does not apply
to securitized loans. Both Sallie Mae and the United States appealed. On January
10, 1997, the U.S. Court of Appeals for the District of Columbia issued a
decision affirming the District Court's ruling as to the constitutionality of
the fee, and striking down the interpretation of OBRA by which the Secretary of
Education had sought to apply the fee to securitized loans. Under the Court of
Appeals' decision, however, the case was remanded to the District Court for
remand to the Secretary of Education. At this time, it is uncertain whether the
Secretary of Education will seek to develop a new interpretation of OBRA in a
further attempt to apply the fee to securitized loans, and whether any such
interpretation could withstand legal challenge.

On June 11, 1996, Orange County, California filed a complaint against the
Company in the U.S. Bankruptcy Court for the Central District of California. The
case is currently pending in the U.S. District Court for the Central District of
California. The complaint alleges that the Company made fraudulent
representations and omitted material facts in offering circulars on various bond
offerings purchased by Orange County, which contributed to Orange County's
market losses and subsequent bankruptcy. The complaint seeks to hold Sallie Mae
responsible for losses resulting from Orange County's bankruptcy, but does not
specify the amount of damages claimed. The complaint against the Company is one
of numerous cases that have been coordinated for discovery purposes. Other
defendants include Merrill Lynch, Morgan Stanley, KPMG Peat Marwick, Standard &
Poor's and Fannie Mae. The complaint includes a claim of fraud under Section
10(b) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5
promulgated thereunder. In addition, the complaint includes counts under the
California Corporations Code, as well as a count for common law fraud. The
Company believes that the complaint is without merit and intends to defend the
case vigorously. At this time, management believes the impact of the lawsuit
will not be material to the Company.

In September 1996, Sallie Mae obtained a declaratory judgment against the
Secretary of Education in the U.S. District Court for the District of Columbia.
The Court found that the Secretary acted erroneously in refusing to allow Sallie
Mae to claim adjustments to special allowance payments on certain FFELP loans
which were required to be converted retrospectively from a fixed rate to a
variable rate. The Secretary has filed a notice of appeal of the District
Court's decision.

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<PAGE> 44

REGULATION

As a GSE, Sallie Mae is organized under federal law and its operations are
restricted by its government charter. While the Reorganization will permit an
expansion of the Holding Company's private activities through unregulated
subsidiaries, such activities will be restricted in certain ways until the GSE
is dissolved, and the GSE's operations will continue to be subject to broad
federal regulation.

CURRENT REGULATION

Sallie Mae's structure and the scope of its business activities are set
forth in the Sallie Mae Charter. The Sallie Mae Charter, which is subject to
review and change by Congress, sets forth certain restrictions on Sallie Mae's
business and financing activities and charges the federal government with
certain oversight responsibilities with respect to these activities. In addition
to the limitation on its corporate purposes described under "COMPARISON OF
STOCKHOLDER RIGHTS -- Purpose," the Sallie Mae Charter also grants it certain
exemptions from federal and state laws. The charter's primary regulatory
restrictions and exemptions, including certain provisions added by the
Privatization Act, may be summarized as follows:

1. One-third of Sallie Mae's 21 member Board of Directors is appointed
by the President of the United States. The other 14 members are elected by
the holders of Sallie Mae Common Stock. The Chairman of the Board is
designated by the President of the United States from among the 21 members.

2. Debt obligations issued by Sallie Mae are exempt from state
taxation to the same extent as United States government obligations. Sallie
Mae is exempt from all taxation by any state or by any county,
municipality, or local taxing authority except with respect to real
property taxes. Sallie Mae is not exempt from the payment of federal
corporate income taxes.

3. All stock and other securities of Sallie Mae are deemed to be
exempt securities under the laws administered by the Securities and
Exchange Commission to the same extent as obligations of the United States.

4. Sallie Mae may conduct its business without regard to any
qualification or similar statute in any state of the United States,
including the District of Columbia, the Commonwealth of Puerto Rico, and
the territories and possessions of the United States (although the scope of
Sallie Mae's business is generally limited by its federal charter).

5. The issuance of Sallie Mae's debt obligations must be approved by
the Secretary of the Treasury.

6. Sallie Mae is required to have its financial statements examined
annually by independent certified public accountants and to submit a report
of the audit to the Secretary of the Treasury. The Treasury Department is
also authorized to conduct audits of Sallie Mae and to otherwise monitor
Sallie Mae's financial condition. Sallie Mae is required to submit annual
reports of its operations and activities to the President of the United
States and the Congress. Sallie Mae must pay up to $800,000 per year to the
Department of the Treasury to cover the costs of its oversight.

7. Sallie Mae is subject to certain "safety and soundness" regulations
including the requirement that Sallie Mae maintain a 2.00 percent capital
adequacy ratio (increasing to 2.25 percent after January 1, 2000). Sallie
Mae may pay dividends only upon certification that, at the time of a
dividend declaration and after giving effect to the payment of such
dividend, the capital adequacy ratio is satisfied.

8. The Secretary of Education or the Secretary of the Treasury may
request that the Attorney General bring an action in the United States
District Court for the District of Columbia to enforce the safety and
soundness requirements placed on Sallie Mae by the Sallie Mae Charter.

Like other participants in the insured student loan programs, Sallie Mae is
subject, from time to time, to review of its student lending operations by the
General Accounting Office, the Department of Education and certain guarantee
agencies. In addition, as a servicer of student loans, Sallie Mae is subject to
certain U.S. Department of Education regulations regarding financial
responsibility and administrative capability that govern all third party
servicers of insured student loans. Except for certain charter amendments
effected by the

34
<PAGE> 45

Privatization Act and described below under "Operating Restrictions Following
Reorganization," these restrictions and exemptions remain unchanged for GSE
operations following the Reorganization.

OPERATING RESTRICTIONS FOLLOWING REORGANIZATION

The Privatization Act modifies the Sallie Mae Charter and sets forth the
basic framework for effecting the Reorganization and the ultimate dissolution of
the GSE. Although the Privatization Act generally imposes no constraints on the
types of permissible activities of the privatized business, it does impose
certain restrictions on transactions between the GSE and the Holding Company and
its non-GSE subsidiaries after the Reorganization is consummated and prior to
the dissolution of the GSE. See "THE PRIVATIZATION
ACT -- Reorganization; -- Oversight Authority; -- Restrictions on Intercompany
Relations; -- Limitations on Holding Company Activities."

NON-DISCRIMINATION AND LIMITATIONS ON AFFILIATION WITH DEPOSITORY INSTITUTIONS

The Privatization Act also amended the Higher Education Act to provide that
Sallie Mae and, if the Reorganization occurs, any successor entity (including
the Holding Company) functioning as a secondary market for federally insured
student loans, may not engage, directly or indirectly, in any pattern or
practice that results in a denial of a borrower's access to insured loans
because of the borrower's race, sex, color, religion, national origin, age,
disability status, income, attendance at a particular institution, length of a
borrower's educational program or the borrower's academic year at an eligible
institution.

Pub. L. No. 104-208, the federal budget legislation of which the
Privatization Act was a part, contains amendments to the Federal Deposit
Insurance Act and the Federal Credit Union Act which prohibit all
government-sponsored enterprises from directly or indirectly sponsoring or
providing non-routine financial support to certain credit unions and depository
institutions. Depository institutions are also prohibited from being affiliates
of government-sponsored enterprises. Thus, neither the Holding Company nor any
of its subsidiaries could be affiliated with a depository institution until
Sallie Mae is dissolved. These restrictions effectively limit the ability of the
Holding Company and its affiliates to originate insured student loans through
depository institutions as long as the GSE remains in existence.

35
<PAGE> 46

CAPITALIZATION

The following table sets forth the capitalization of Sallie Mae at December
31, 1996 and the capitalization of the Holding Company "as adjusted" for the
Reorganization as of that date. No other pro forma information of the Holding
Company related to the Reorganization is included herein, since such pro forma
information would reflect no material change from the financial statements of
Sallie Mae at the time of such effectiveness. The information set forth in the
table below should be read in conjunction with the audited financial statements
and notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Sallie Mae" included elsewhere herein.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------
<S> <C> <C>
AS
ACTUAL ADJUSTED
----------- -----------

<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
<S> <C> <C>
Borrowed funds:
Short-term borrowings......................................... $22,156,548 $22,156,548
Long-term notes............................................... 22,606,226 22,606,226
----------- -----------
Total borrowed funds....................................... 44,762,774 44,762,774
----------- -----------
Minority interest in wholly-owned subsidiary.................... - 213,883(a)
Stockholders' equity:
Preferred stock, par value $50.00 per share, 5,000,000 shares
authorized and issued, 4,277,650 shares outstanding........ 213,883 -
Common stock, par value $.20 per share, 250,000,000 shares
authorized, 65,695,571 shares issued (53,690,595 shares
issued, as adjusted)....................................... 13,139 10,738
Additional paid-in capital.................................... - -(b)
Unrealized gains on investment, net of tax.................... 349,235 349,235
Retained earnings............................................. 1,008,737 489,143
----------- -----------
Stockholders' equity before treasury stock.................... 1,584,994 849,116
Common stock held in treasury at cost, 12,004,976 shares
(none, as adjusted)........................................ 537,164 -(c)
----------- -----------
Total stockholders' equity.................................... 1,047,830 849,116
----------- -----------
Total capitalization............................................ $45,810,604 $45,825,773
========== ==========
</TABLE>

- ---------------
(a) After the Reorganization, the preferred stock of Sallie Mae will not become
Holding Company Common Stock. Accordingly, the preferred stock of Sallie
Mae will be reflected as minority interest in a wholly-owned subsidiary in
the consolidated financial statements of the Company. Preferred dividends
paid by the GSE will be reflected as an expense of the Company affecting
net income; however, such payments will have no effect on earnings
available for common shareholders.
(b) Pursuant to the terms of the Privatization Act, the Holding Company will
issue to the D.C. Financial Control Board warrants to purchase 555,015
shares of Holding Company Common Stock at a price of $72.43 per share. The
fair value of the warrants will be capitalized as an organization asset
with a resulting increase in stockholders' equity at the time of the
Reorganization. The fair value of the warrants was established at $27.33
per share, using an option pricing model, for a total of $15.2 million.
(c) Concurrent with the consummation of the Reorganization, all existing
treasury shares of Sallie Mae's Common Stock will be retired and cancelled.

36
<PAGE> 47

SELECTED FINANCIAL DATA

The following table sets forth selected financial and other operating
information of Sallie Mae. The selected financial data in the table are derived
from the consolidated financial statements of Sallie Mae. The data should be
read in conjunction with the consolidated financial statements, related notes,
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------
1996 1995(1) 1994(1) 1993(1) 1992(1)
------- ------- ------- ------- -------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net interest income(2).................... $ 859 $ 893 $ 940 $ 938 $ 834
Net income................................ 419 496 403 430 394
Earnings per common share................. 7.32 7.20 4.91 4.83 4.21
Dividends per common share................ 1.64 1.51 1.42 1.25 1.05
Return on common stockholders' equity..... 50.13%(4) 39.85%(4) 29.06%(4) 40.26% 40.22%

- ---------------
(1) 1995 results reflect the change in method of accounting for student loan
income. The effect of the change increased net income by $151 million and
earnings per common share by $2.23. On a pro forma basis, assuming the
method of accounting for student loan income were applied retroactively
prior to 1992, net income would increase by $17 million ($.22 per common
share), $13 million ($.15 per common share), and $8 million ($.09 per
common share) for the years ended December 31, 1994, 1993, and 1992,
respectively.

(3) Core earnings are net earnings before the impact of net floor revenue.

37
<PAGE> 48

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994-1996
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

FORWARD-LOOKING INFORMATION

This Proxy Statement/Prospectus contains certain forward-looking statements
and information relating to Sallie Mae that are based on the beliefs of Sallie
Mae management as well as assumptions made by and information currently
available to Sallie Mae management. When used in this document, the words
"anticipate," "believe," "estimate" and "expect" and similar expressions, as
they relate to Sallie Mae management, are intended to identify forward-looking
statements. Such statements reflect the current views of Sallie Mae with respect
to future events and are subject to certain risks, uncertainties and
assumptions, described in this Proxy Statement/Prospectus. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those described herein as
anticipated, believed, estimated or expected. Sallie Mae does not intend to
update these forward-looking statements.

OVERVIEW

THE CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31,
1996, 1995 AND 1994 ARE PRESENTED IN A NEW FORMAT FROM PRIOR PRESENTATIONS OF
SALLIE MAE'S PUBLICLY AVAILABLE FINANCIAL STATEMENTS TO BETTER PORTRAY THE
CHANGING NATURE OF SALLIE MAE'S REVENUE STREAMS. WHILE THE PRINCIPAL SOURCE OF
EARNINGS CONTINUES TO BE FROM STUDENT LOANS, THE NATURE OF THOSE EARNINGS IS
CHANGING AS A RESULT OF SECURITIZATION. THE MAJOR DIFFERENCES BETWEEN THE OLD
AND NEW FORMAT ARE THAT THE SECURITIZATION RELATED INCOME, FEE INCOME AND GAINS
AND LOSSES ON SALES OF AVAILABLE FOR SALE SECURITIES WERE RECLASSIFIED FROM THE
INTEREST INCOME SECTION TO THE OTHER INCOME SECTION AND SERVICING AND
ACQUISITION COSTS WERE COMBINED WITH GENERAL AND ADMINISTRATIVE EXPENSES AND
PRESENTED AS OPERATING EXPENSES ON THE INCOME STATEMENT.

THE CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1995
WAS RESTATED ASSUMING THE CHANGE IN METHOD OF ACCOUNTING FOR STUDENT LOAN INCOME
WAS ADOPTED ON JANUARY 1, 1995. SEE NOTE 2 TO THE SALLIE MAE CONSOLIDATED
FINANCIAL STATEMENTS. FOR COMPARATIVE PURPOSES THE CONDENSED STATEMENTS OF
INCOME, STUDENT LOAN SPREAD ANALYSIS, NET INTEREST INCOME TABLE, AVERAGE BALANCE
SHEETS, RATE VOLUME ANALYSIS AND THE COMPARATIVE DISCUSSIONS OF EARNINGS THAT
FOLLOW ARE PRESENTED ON A PRO FORMA BASIS ASSUMING THE CHANGE IN METHOD OF
ACCOUNTING FOR STUDENT LOAN INCOME WAS APPLIED RETROACTIVELY PRIOR TO 1994.

Sallie Mae's net income was $419 million ($7.32 per common share) in 1996
compared to $366 million ($5.27 per common share) in 1995, before the cumulative
effect of an accounting change. Sallie Mae's core earnings (i.e., before the
impact of net floor revenue) were $391 million ($6.82 per common share) in 1996,
an 8 percent increase from $361 million ($5.19 per common share) in 1995.

The net income increase of $53 million (15 percent) in 1996 was primarily a
result of continued growth in managed student loan assets, the acceleration of
income recognition with the securitization of student loans, lower short-term
U.S. Treasury rates which resulted in higher floor revenues, lower operating and
servicing expenses and a one-time gain resulting from the successful outcome of
a lawsuit against the federal government regarding special allowance payments
("SAP") on certain loans. These positive factors were somewhat offset by the
increasing percentage of owned student loans subject to the annual 30 basis
point offset fee (unique to Sallie Mae), risk sharing on defaulted loans
(applicable to loans originated on or after October 1, 1993), loan origination
fees and rebates to the Department of Education on consolidation loans,
increased leverage and additions to loss reserves. Earnings per common share
were further enhanced by repurchases of 4.6 million shares of common stock in
1996.

Student loans added to the ExportSS(R) ("ExportSS") pipeline, which
represents loan volume serviced by and committed for sale to Sallie Mae, totaled
$4.2 billion during 1996, compared to $4.7 billion in the prior year. The
decrease occurred as a result of the substantial growth in direct lending by the
federal government.

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<PAGE> 49

The outstanding portfolio of loans serviced for ExportSS lenders totaled $4.0
billion at December 31, 1996, down 11 percent from $4.5 billion at December 31,
1995. In addition to the ExportSS pipeline, at December 31, 1996 Sallie Mae was
servicing for a fee $590 million of loans that will eventually be sold to the
Chase Joint Venture. Sallie Mae will effectively obtain a one-half ownership
interest in these loans upon their sale to the Chase Joint Venture.

In 1996, loan purchases totaled $9.9 billion, up 5 percent over $9.4
billion in 1995. The 1996 loan purchases include $1.5 billion of student loan
participation purchases from the Chase Joint Venture. Approximately two-thirds
of the non-joint venture purchase volume in 1996 was derived from Sallie Mae's
base of commitment clients, particularly those who used the ExportSS loan
origination service.

Total operating expenses decreased from $439 million in 1995 to $406
million in 1996. The decrease was due principally to the divestiture of a
majority interest in the CyberMark subsidiary in the second quarter of 1996,
which reduced year over year operating expenses by $20 million, lower salaries
related to reduced corporate staffing, lower professional fees and servicing
efficiencies which were offset by expenses associated with growth in student
loan servicing volume. (See "Operating Expenses" for further discussion.)

The 1992 legislated expansion of student eligibility and increases in loan
limits resulted in higher average student loan balances which generally command
a higher price in the secondary market and contribute to lower servicing costs
as a percent of the average balance of managed student loans. During 1996,
servicing costs decreased to 55 basis points of average managed student loans
compared with 62 basis points in 1995 due principally to increased average
student loan balances and to servicing efficiencies realized through the
consolidation of servicing operations and recent technology investments.

During 1996, Sallie Mae repurchased 4.6 million shares of its common stock,
leaving 53.7 million shares outstanding at December 31, 1996. As of December 31,
1996 Sallie Mae had repurchased nearly all of the 20 million shares which, in
May 1995, it announced it would repurchase over a two year period. The funds
necessary to complete the repurchase in that relatively short timeframe came
from the combination of current earnings, increased leverage, and reduced asset
balances. As of December 31, 1996, the Company had authority to repurchase up to
an additional 5 million shares, pursuant to a May 1996 resolution of the Board.

During 1996, Sallie Mae issued $8.3 billion of long-term notes to refund
maturing and repurchased debt obligations. In addition, during 1996, Sallie Mae
completed four securitization transactions in which it sold a total of $6.0
billion of student loans to trusts which issued non-GSE securities backed by
these loans. Access to the market for asset-backed securities has enabled Sallie
Mae to diversify its funding sources and will continue to be an important source
of funding in the future. The Company currently anticipates securitizing between
$7 billion and $9 billion of loans in 1997.

39
<PAGE> 50

SELECTED FINANCIAL DATA
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
INCREASE (DECREASE)
-----------------------------
YEARS ENDED DECEMBER 1996 VS. 1995 VS.
31, 1995 1994
----------------------- ------------ ------------
1996 1995 1994 $ % $ %
----- ----- ----- ----- --- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net interest income....................... $ 866 $ 901 $ 981 $ (35) (4)% $(80) (8)%
Other operating income.................... 147 50 14 97 191 36 265
Operating expenses........................ 406 439 390 (33) (8) 49 13
Federal income taxes...................... 183 141 176 42 30 (35) (20)
----- ----- ----- ----- --- ---- ----
Income before premiums on debt
extinguished............................ 424 371 429 53 14 (58) (14)
Premiums on debt extinguished, net of
tax..................................... (5) (5) (9) - 2 4 47
----- ----- ----- ----- --- ---- ----
NET INCOME................................ 419 366 420 53 15 (54) (13)
Preferred stock dividend.................. 11 11 11 - - - -
----- ----- ----- ----- --- ---- ----
Net income attributable to common stock... $ 408 $ 355 $ 409 $ 53 15% $(54) (13)%
===== ===== ===== ===== === ==== ====
EARNINGS PER COMMON SHARE................. $7.32 $5.27 $5.13 $2.05 39% $.14 3%
===== ===== ===== ===== === ==== ====
Dividends per common share................ $1.64 $1.51 $1.42 $ .13 9% $.09 6%
===== ===== ===== ===== === ==== ====
CORE EARNINGS............................. $ 391 $ 361 $ 356 $ 30 8% $ 5 1%
===== ===== ===== ===== === ==== ====
CORE EARNINGS PER COMMON SHARE............ $6.82 $5.19 $4.32 $1.63 31% $.87 20%
===== ===== ===== ===== === ==== ====
</TABLE>

CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
INCREASE (DECREASE)
---------------------------------
DECEMBER 31, 1996 VS. 1995 1995 VS. 1994
------------------ -------------- --------------
1996 1995 $ % $ %
------- ------- ------- --- ------- ---
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Student loans............................. $33,754 $34,336 $ (582) (2)% $ 3,965 13%
Warehousing advances...................... 2,790 3,865 (1,075) (28) (3,167) (45)
Academic facilities financings............ 1,473 1,313 160 12 (235) (15)
Cash and investments...................... 7,706 8,867 (1,161) (13) (3,830) (30)
Other assets.............................. 1,907 1,621 286 18 308 23
------- ------- ------- --- ------- ---
Total assets.............................. $47,630 $50,002 $(2,372) (5)% $(2,959) (6)%
======= ======= ======= === ======= ===
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings..................... $22,157 $17,447 $ 4,710 27% $ 1,431 9%
Long-term notes........................... 22,606 30,083 (7,477) (25) (4,236) (12)
Other liabilities......................... 1,819 1,391 428 31 236 20
------- ------- ------- --- ------- ---
Total liabilities......................... 46,582 48,921 (2,339) (5) (2,569) (5)
------- ------- ------- --- ------- ---
Stockholders' equity before treasury
stock................................... 1,585 3,876 (2,291) (59) 470 14
Common stock held in treasury at cost..... 537 2,795 (2,258) (81) 860 44
------- ------- ------- --- ------- ---
Total stockholders' equity................ 1,048 1,081 (33) (3) (390) (27)
------- ------- ------- --- ------- ---
Total liabilities and stockholders'
equity.................................. $47,630 $50,002 $(2,372) (5)% $(2,959) (6)%
======= ======= ======= === ======= ===
</TABLE>

RESULTS OF OPERATIONS

Sallie Mae's net income was $419 million ($7.32 per common share) for 1996
compared to $366 million ($5.27 per common share) in 1995 before the cumulative
effect of an accounting change. Sallie Mae's core earnings (i.e., before the
impact of net floor revenue) were $391 million ($6.82 per common share) in 1996,
an 8 percent increase from $361 million ($5.19 per common share) in 1995.

40
<PAGE> 51

The net income increase of $53 million (15 percent) in 1996 was primarily a
result of continued growth in managed student loan assets, the acceleration of
income recognition associated with the securitization of student loans, lower
short-term U.S. Treasury rates which resulted in higher floor revenues, lower
operating and servicing expenses and a one-time gain resulting from the
successful outcome of a lawsuit against the federal government regarding SAP on
certain student loans. These positive factors were somewhat offset by the
increasing percentage of owned student loans subject to the 30 basis point
offset fee (unique to Sallie Mae), risk sharing on defaulted loans (applicable
to loans originated on or after October 1, 1993), loan origination fees and
rebates to the Department of Education on consolidation loans, increased
leverage and additions to loss reserves. Earnings per common share were further
enhanced by repurchases of 4.6 million shares of common stock in 1996.

OBRA imposed legislative fees and risk-sharing on Sallie Mae and other
participants in the Federal Family Education Loan Program ("FFELP") including an
offset fee applicable only to Sallie Mae, consolidation loan rebate fees, and
risk-sharing on defaulted loans applicable to all FFELP participants. These fees
and reserves for risk-sharing on Sallie Mae's on-balance sheet portfolio of
student loans reduced net income by $62 million ($1.11 per common share), $37
million ($.55 per common share) and $17 million ($.21 per common share) in 1996,
1995 and 1994, respectively. In addition to these fees, OBRA also imposed other
yield reductions on all FFELP participants. Sallie Mae effectively shares the
costs of these reductions through pricing on its secondary market purchases.
Management believes the spreads earned on Sallie Mae's portfolio of student
loans will continue to be adversely affected as a result of these changes to the
FFELP program for the next several years as older loans in its portfolio, which
were not affected by OBRA, amortize and are replaced by more recently originated
loans which are affected by OBRA.

The following table analyzes the earning spreads on student loans for 1996,
1995 and 1994. Adjusted student loan yields reflect contractual yields adjusted
for premiums paid to purchase loan portfolios and the estimated costs of
borrower benefits.

STUDENT LOAN SPREAD ANALYSIS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
ON-BALANCE SHEET
Adjusted student loan yields................................. 7.92% 8.40% 7.29%
Amortization of floor swap payments.......................... .07 - -
Floor income................................................. .13 .04 .44
Direct OBRA costs............................................ (.29) (.17) (.09)
------- ------- -------
Student loan income.......................................... 7.83 8.27 7.64
Cost of funds................................................ (5.49) (5.95) (4.69)
------- ------- -------
Student loan spread.......................................... 2.34% 2.32% 2.95%
======= ======= =======
Core student loan spread..................................... 2.21% 2.28% 2.51%
======= ======= =======
OFF-BALANCE SHEET
Gain on securitization....................................... 1.22% -% -%
======= ======= =======
Servicing and securitization revenue......................... 1.43% .80% -%
======= ======= =======
AVERAGE BALANCES (IN MILLIONS OF DOLLARS)
Student loans, including participations...................... $33,273 $32,758 $28,642
Securitized loans............................................ 4,020 177 -
------- ------- -------
Managed student loans........................................ $37,293 $32,935 $28,642
======= ======= =======
</TABLE>

The decrease in the core student loan spread in 1996 was due principally to
higher OBRA fees, the effect of lower yielding student loan participations and
increased reserves offset by the impact of the monetization of student loan
floors and a one time gain from the successful outcome of the special allowance
litigation.

41
<PAGE> 52

Student loan floor revenues

Holders of FFELP loans qualify for the federal government's SAP. Depending
on the loan's status and when it was originated, the SAP increases the yield on
loans to a variable 91-day Treasury bill-based rate plus 2.50 percent, 3.10
percent, 3.25 percent or 3.50 percent, if that yield exceeds the borrower's
fixed or annually reset stated interest rate. Thus the rate earned by holders of
student loans varies with the 91-day Treasury bill rate except in low interest
rate environments when the stated interest rate on the borrower's loan exceeds
the variable 91-day Treasury bill rate plus the SAP spread and becomes, in
effect, a floor rate. The floor effect enables Sallie Mae to earn wider spreads
on these student loans since Sallie Mae's cost of funds, which is indexed to the
Treasury bill rate, reflects lower variable market rates. The floor generally
becomes a factor when the Treasury bill rate is less than 5.90 percent. For
loans which have fixed borrower rates, the floor remains a factor until Treasury
bill rates rise. For loans with annually reset borrower rates, the floor is a
factor until either Treasury bill rates rise or the rate is reset which occurs
on July 1 of each year.

As of December 31, 1996, approximately $30 billion of Sallie Mae's managed
student loans were eligible to earn floors ($16 billion with fixed borrower
rates and $14 billion with annually reset borrower rates). During 1996, Sallie
Mae "monetized" the value of the floors related to $13 billion of such loans by
entering into swap contracts with third parties under which it agreed to pay the
future floor revenues received, in exchange for fixed payments. These upfront
payments are being amortized over the remaining lives of these swaps, which is
approximately 2 years. The amortization of these payments, which are not
dependent on future interest rate levels, is included in core earnings. In 1996,
the amortization contributed $22 million pre-tax to core earnings. In addition,
Sallie Mae earned $43 million, $14 million and $126 million in floor revenues in
1996, 1995 and 1994, respectively, as the average bond equivalent 91-day
Treasury bill rate was 5.16 percent in 1996 versus 5.68 percent in 1995 and 4.38
percent in 1994. Of the remaining $17 billion of such loans at December 31,
1996, $9 billion were earning floor revenues at current market rates.

Securitization

During 1996 Sallie Mae completed four securitization transactions in which
a total of $6.0 billion of student loans was sold to a special purpose finance
subsidiary and by the subsidiary to trusts. In each case, the trust issued
asset-backed securities which funded the student loans to term. When loans are
securitized a gain on sale is recorded that is equal to the present value of the
expected net cash flows from the trust taking into account principal, interest
and SAP on the student loans less principal and interest payments on the notes
and certificates financing the student loans, the cost of servicing the student
loans, the estimated cost of Sallie Mae's borrower benefit programs, losses from
defaulted loans (which include risk-sharing, claim interest penalties, and
reject costs), transaction costs and the current carrying value of the loans
including any premiums paid. Accordingly, such gain effectively accelerates
recognition of earnings. The gains on sales to date have been further reduced by
the present value of offset fees. (See below for further discussion of the
offset fee litigation.) The pre-tax securitization gains on the transactions
recorded in 1996 totaled $49 million and was immaterial for 1995.

In November 1995, the U.S. District Court for the District of Columbia
ruled, contrary to the Secretary of Education's statutory interpretation, that
student loans owned by the trusts are not subject to the 30 basis point annual
offset fee. The Department of Education appealed this decision and in January
1997, the U.S. Court of Appeals for the District of Columbia issued a decision
affirming the District Court's ruling. However the Court of Appeals remanded the
case to the District Court with instructions for remand to the Secretary of
Education. It is therefore uncertain what the final outcome of this litigation
will be. If the final outcome following the remand is that the offset fee is not
applicable to loans securitized by Sallie Mae, then as of December 31, 1996, the
gains resulting from prior securitizations would have been increased by
approximately $55 million, pre-tax. Offset fees relating to securitizations have
not been paid pending the final resolution of the case. Management considers
this increase in gains as a contingent asset which will be recognized upon a
favorable final ruling in this matter. Gains on future securitizations will vary
depending on the characteristics of the loan portfolios securitized as well as
the outcome of the offset fee ruling.

42
<PAGE> 53

In addition to the initial gain on sale, Sallie Mae is entitled to the
residual earnings from the trust. Although the loans are sold to the trusts,
Sallie Mae continues to service such loans for a fee. The residual earnings and
the fees for servicing the loans are reflected as servicing and securitization
revenues in the Consolidated Statements of Income.

In the following tables, taxable equivalent net interest income and net
interest margins are adjusted to include premiums on debt extinguished (such
amounts are disclosed separately, net of tax, in the Consolidated Statements of
Income). The taxable equivalent adjustment reflects the impact of certain
tax-exempt and tax-advantaged investments.

NET INTEREST INCOME

<TABLE>
<CAPTION>
INCREASE (DECREASE)
----------------------------
1996 VS. 1995 VS.
YEARS ENDED DECEMBER 31, 1995 1994
-------------------------- ------------ -----------
1996 1995 1994 $ % $ %
------ ------ ------ ----- --- ---- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income
Student loans......................... $2,607 $2,708 $2,189 $(101) (4)% $519 24%
Warehousing advances.................. 194 408 334 (214) (53) 74 22
Academic facilities financings........ 100 108 102 (8) (7) 6 6
Investments........................... 542 697 499 (155) (22) 198 40
Taxable equivalent adjustment......... 36 52 54 (16) (30) (2) (5)
------ ------ ------ ----- --- ---- ---
Total taxable equivalent interest
income................................ 3,479 3,973 3,178 (494) (12) 795 25
Interest expense........................ 2,577 3,020 2,143 (443) (15) 877 41
Premiums on debt extinguished........... 7 8 14 (1) (2) (6) (47)
------ ------ ------ ----- --- ---- ---
Taxable equivalent net interest
income................................ $ 895 $ 945 $1,021 $ (50) (5)% $(76) (8)%
====== ====== ====== ===== === ==== ===
</TABLE>

The decrease in taxable equivalent net interest income in 1996 was
primarily a result of the increasing percentage of owned student loans subject
to the 30 basis point offset fee (unique to Sallie Mae) and risk sharing on
defaulted loans (applicable to loans originated on or after October 1, 1993),
loan origination fees and rebates to the Department of Education on
consolidation loans, additions to loss reserves and lower average earning
assets. The impact of the fees paid directly by Sallie Mae and reserves for
risk-sharing on defaulted loans relating to OBRA reduced taxable equivalent net
interest income and net interest margin by $96 million and .20 percent,
respectively, in 1996 as compared to $57 million and .11 percent, respectively,
in 1995 and $26 million and .05 percent in 1994, respectively. These negative
factors were somewhat offset by the continued growth in managed student loan
assets, lower short-term Treasury rates which result in higher floor revenue and
the successful outcome of the SAP litigation.

The following table reflects the rates earned on earning assets and paid on
liabilities for the years ended December 31, 1996, 1995 and 1994. Managed net
interest margin includes net interest income plus gains on securitization sales
and servicing and securitization income divided by average managed assets.

43
<PAGE> 54

AVERAGE BALANCE SHEETS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1996 1995 1994
---------------- ---------------- ----------------
BALANCE RATE BALANCE RATE BALANCE RATE
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
AVERAGE ASSETS
Student loans........................ $33,273 7.83% $32,758 8.27% $28,642 7.64%
Warehousing advances................. 3,206 6.04 6,342 6.43 6,981 4.82
Academic facilities financings....... 1,500 8.43 1,527 8.92 1,489 8.63
Investments.......................... 9,444 5.85 11,154 6.46 11,283 4.64
------- ----- ------- ----- ------- -----
Total interest earning assets.......... 47,423 7.34% 51,781 7.67% 48,395 6.57%
===== ===== =====
Non-interest earning assets............ 1,858 1,673 1,240
------- ------- -------
Total assets........................... $49,281 $53,454 $49,635
======= ======= =======
AVERAGE LIABILITIES AND STOCKHOLDERS'
EQUITY
Six month floating rate notes........ $ 2,485 5.42% $ 3,609 5.86% $ 3,410 4.52%
Other short-term borrowings.......... 18,366 5.43 11,802 5.88 13,167 4.43
Long-term notes...................... 26,024 5.58 35,373 6.00 30,397 4.67
------- ----- ------- ----- ------- -----
Total interest bearing liabilities..... 46,875 5.51% 50,784 5.96% 46,974 4.59%
===== ===== =====
Non-interest bearing liabilities....... 1,377 1,237 977
Stockholders' equity................... 1,029 1,433 1,684
------- ------- -------
Total liabilities and stockholders'
equity............................... $49,281 $53,454 $49,635
======= ======= =======
Net interest margin.................... 1.89% 1.82% 2.11%
===== ===== =====
Core net interest margin............... 1.80% 1.80% 1.91%
===== ===== =====
Managed net interest margin............ 1.95% 1.82% 2.11%
===== ===== =====
Managed core net interest margin....... 1.86% 1.79% 1.91%
===== ===== =====
</TABLE>

The following table summarizes the average balance of debt (by index after
giving effect to the impact of interest rate swaps) for the years ended December
31, 1996, 1995 and 1994 (dollars in millions). The average rates of total notes
were adjusted to include premiums on debt extinguished.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1996 1995 1994
------------------ ------------------ ------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
INDEX BALANCE RATE BALANCE RATE BALANCE RATE
- -------------------------------------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Treasury bill, principally 91-day..... $35,375 5.48% $34,039 5.93% $31,204 4.70%
LIBOR................................. 7,797 5.38 14,290 5.87 11,888 4.03
Discount notes........................ 2,694 5.35 1,209 5.85 2,718 4.48
Fixed................................. 720 6.81 811 6.68 792 6.60
Zero coupon........................... 123 11.12 123 11.06 111 11.06
Other................................. 166 4.93 312 6.11 261 5.71
------- ------- ------- ------- ------- -------
Total................................. $46,875 5.51% $50,784 5.96% $46,974 4.59%
======= ====== ======= ====== ======= ======
</TABLE>

In the above table, for the years ended December 31, 1996, 1995 and 1994,
Treasury bill spreads over the weighted average Treasury bill rates were .25
percent, .26 percent and .29 percent, respectively, and London Interbank Offered
Rate ("LIBOR") spreads under the weighted average LIBOR rates were .26 percent,
.31 percent and .39 percent, respectively.

The rate/volume analysis below shows the relative contribution of changes
in interest rates and asset volumes.

44
<PAGE> 55

RATE/VOLUME ANALYSIS

<TABLE>
<CAPTION>
INCREASE
(DECREASE)
TAXABLE ATTRIBUTABLE
EQUIVALENT TO CHANGE IN
INCREASE ---------------
(DECREASE) RATE VOLUME
---------- ----- ------
<S> <C> <C> <C>
1996 VS. 1995
Taxable equivalent interest income................................ $ (494) $(202) (292)
Interest expense and premiums on debt extinguished................ (444) (176) (268)
---------- ----- ------
Taxable equivalent net interest income............................ $ (50) $ (26) (24)
======= ===== ======
1995 VS. 1994
Taxable equivalent interest income................................ $ 795 $ 540 $255
Interest expense and premiums on debt extinguished................ 871 644 227
---------- ----- ------
Taxable equivalent net interest income............................ $ (76) $(104) $ 28
======= ===== ======
</TABLE>

The $26 million decrease in taxable equivalent net interest income
attributable to change in rates in 1996 was principally due to increased OBRA
costs, an increase in student loan reserves and an increased leverage offset by
$43 million in pre-tax floor revenues versus $14 million in 1995, revenue from
the amortization of student loan floors of $22 million, the successful outcome
of the SAP litigation, and a higher percentage of student loans relative to
average earning assets. The $24 million decrease in volume is due to the
decrease in warehousing advances and investments.

The $104 million decrease attributable to the change in rates in 1995 was
due to $99 million of pre-tax student loan net floor revenue in 1994 versus $14
million of pre-tax floor revenue in 1995 and declining core spreads on student
loans. Core student loan spreads declined due principally to the growth in the
proportion of student loans subject to the fees and risk-sharing resulting from
OBRA. Also contributing to the decline were the relatively lower spreads earned
on student loans acquired in recent years due to increased competition. These
factors were somewhat offset by increased investment spreads and a higher
percentage of student loans relative to average earning assets.

45
<PAGE> 56

OPERATING EXPENSES

Operating expenses include general and administrative costs, costs incurred
to service Sallie Mae's managed student loan portfolio and operational costs
incurred in the process of acquiring student loan portfolios. Operating expenses
are summarized in the following table:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------------
1996 1995 1994
------------------------------- ------------------------------- -------------------------------
SERVICING SERVICING SERVICING
AND AND AND
CORPORATE ACQUISITION TOTAL CORPORATE ACQUISITION TOTAL CORPORATE ACQUISITION TOTAL
--------- ----------- ----- --------- ----------- ----- --------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Salaries and employee
benefits................ $ 68 $138 $206 $ 75 $138 $213 $ 68 $128 $196
Occupancy and equipment... 24 60 84 25 49 74 21 37 58
Professional fees......... 22 8 30 40 11 51 22 9 31
Office operations......... 8 32 40 9 35 44 9 34 43
Other..................... 9 2 11 12 1 13 10 2 12
------ ------- ---- ------ ------- ---- ------ ------- ----
Total internal operating
expenses................ 131 240 371 161 234 395 130 210 340
Third party servicing
costs................... - 35 35 - 44 44 - 50 50
------ ------- ---- ------ ------- ---- ------ ------- ----
Total operating
expenses................ $131 $275 $406 $161 $278 $439 $130 $260 $390
====== ======= ==== ====== ======= ==== ====== ======= ====
Employees at end of the
year.................... 781 4,011 4,792 875 3,866 4,741 876 4,121 4,997
==== ===== ===== ==== ===== ===== ==== ===== =====
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31, INCREASE/(DECREASE)
-------------------- -----------------------------
1996 VS. 1995 VS.
1996 1995 1994 1995 1994
---- ---- ---- ----------- ------------
$ % $ %
--- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Servicing costs............................... $203 $205 $190 $(2) (1)% $15 8%
Acquisition costs............................. 72 73 70 (1) (2) 3 5
-
---- ---- ---- --- --- ---
Total acquisition and servicing expenses...... $275 $278 $260 $(3) (1)% $18 7%
==== ==== ==== === === === =
</TABLE>

Total operating expenses as a percentage of average managed student loans
totaled 109 basis points, 133 basis points and 136 basis points for the years
ended December 31, 1996, 1995 and 1994, respectively.

The decrease of $30 million in corporate operating expenses in 1996 versus
1995 was due principally to the divestiture of a majority interest in CyberMark,
a wholly-owned subsidiary, during the second quarter of 1996, and lower salaries
and professional fees.

Servicing costs include all operations and systems costs incurred to
service Sallie Mae's portfolio of managed student loans, including fees paid to
third party servicers. When expressed as a percentage of the managed student
loan portfolio, servicing costs were 55 basis points, 62 basis points and 66
basis points on average for the years ended December 31, 1996, 1995 and 1994,
respectively. Loan acquisition costs are principally costs incurred under the
ExportSS loan origination and administration service, the costs of converting
newly acquired portfolios onto Sallie Mae's servicing platform or those of third
party servicers and costs of loan consolidation activities. The ExportSS service
provides back-office support to clients by performing loan origination and
servicing prior to the sale of portfolios to Sallie Mae.

FEDERAL AND STATE TAXES

Sallie Mae maintains a portfolio of tax-advantaged assets principally to
support education-related financing activities. That portfolio was primarily
responsible for the decrease in the effective federal income tax rate from the
statutory rate of 35 percent to 30 percent, 27 percent and 29 percent in 1996,
1995 and 1994, respectively. Sallie Mae is exempt from all state, local, and
District of Columbia income, franchise, sales and use, personal property and
other taxes, except for real property taxes. However, this tax exemption is
effective at the GSE level and does not apply to its operating subsidiaries.
Under its Privatization Act, the Company's GSE and non-GSE activities would be
separated, with non-GSE activities being subject to taxation at the state and
local level. State taxes are expected to be immaterial in 1997 as the majority
of the Company's

46
<PAGE> 57

business activities will relate to the GSE. As increasing business activities
occur outside of the GSE, the effects of state and local taxes are expected to
increase accordingly.

LIQUIDITY AND CAPITAL RESOURCES

Sallie Mae secures financing to fund the purchase of insured student loans,
warehousing advances and its operations. To meet these financing needs, Sallie
Mae sells debt securities in the domestic and overseas capital markets, through
public offerings and private placements of U.S. dollar and foreign currency
denominated debt of varying maturities and interest rate characteristics. Sallie
Mae's debt securities are currently rated at the highest credit rating level by
Moody's Investor Services and Standard & Poors. The GSE is expected to retain
its credit ratings after the Reorganization.

Sallie Mae uses interest rate and foreign currency swaps (collateralized
where appropriate), purchases of U.S. Treasury securities and other hedging
techniques to reduce the exposure to interest rate and currency fluctuations
that arise from its financing activities and to match the characteristics of its
variable interest rate earning assets (See "Interest Rate Risk Management").
During 1996, Sallie Mae issued $8.3 billion of long-term notes to refund
maturing and repurchased obligations. Sallie Mae has also issued adjustable rate
cumulative preferred stock, common stock, common stock warrants and puts, and
subordinated debentures convertible to common stock, to diversify its funding
sources.

Management believes that the initial financing requirements of the Holding
Company will be minimal and can be accommodated through a number of alternative
sources, including public and private debt placement, bank borrowings and
dividends from subsidiaries. Securitization is expected to provide the principal
funding source for the anticipated student loan purchase activities of the
Holding Company. However, there will be a need for on-balance sheet financing
for such activities during the period prior to securitization. Such financings
may require the Holding Company to obtain a bond rating. Ratings for Holding
Company debt will not be known until specific debt is issued. It is expected
that these ratings will be below the GSE's current credit rating levels.

Financing and Securitization

Sallie Mae's unsecured borrowings typically have terms to maturity which
are of a shorter duration than the student loans. In addition, Sallie Mae is
assessed a 30 basis point annual offset fee on student loans that it holds,
which effectively raises the cost of funding such assets on balance sheet. Since
1995, Sallie Mae has further diversified its funding sources independent of its
GSE borrower status by securitizing a portion of its student loan assets. A
securitization involves the sale of student loans by Sallie Mae to a special
purpose finance subsidiary and by the subsidiary to a trust. The trust funds the
student loans to term through the public issuance of student loan asset-backed
securities ("ABS securities"). As student loans are securitized, Sallie Mae's
on-balance sheet funding needs are reduced. During 1996, Sallie Mae completed
four transactions in which it sold a total of $6.0 billion of student loans to
trusts which issued securities backed by the loans.

While ABS securities generally have a higher cost of funds than Sallie
Mae's traditional on-balance sheet financing (due principally to term
match-funding and the fact that ABS securities do not benefit from Sallie Mae's
government-sponsored enterprise status), management believes that securitization
is an efficient use of capital. See "Results of Operations -- Securitizations"
for discussion of the offset fee litigation. Management believes that
securitization will grow in importance as a source of funding for the Company.

Statutory Capital Adequacy Ratio

The Sallie Mae Charter, as most recently amended, by The Student Loan
Marketing Association Reorganization Act of 1996 ("The Privatization Act")
effectively requires that Sallie Mae maintain a minimum statutory capital
adequacy ratio (the ratio of stockholders' equity to total assets plus 50
percent of the credit equivalent amount of certain off-balance sheet items) of
at least 2 percent until January 1, 2000 and 2.25 percent thereafter or be
subject to certain "safety and soundness" regulations designed to restore such

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<PAGE> 58

statutory ratio. At December 31, 1996, Sallie Mae's statutory capital adequacy
ratio was 2.11 percent. Additionally, the Privatization Act now requires
management, prior to the payment of dividends by Sallie Mae, to certify to the
Secretary of the Treasury, that after giving effect to the payment of dividends,
the statutory capital ratio test would have been met at the time the dividend
was declared.

Interest Rate Risk Management

Sallie Mae's principal objective in financing its loan assets is to
minimize its sensitivity to changing interest rates by matching the interest
rate characteristics of borrowings to specific assets in order to lock in
spreads. Sallie Mae funds its floating rate loan assets (most of which have
weekly rate resets) with variable rate debt and fixed rate debt converted to
variable rates with interest rate swaps. To achieve a more precise match of
interest rate characteristics between loan assets and their related liabilities,
Sallie Mae has effectively converted some of its variable rate debt to a
different variable rate index with interest rate swaps. At December 31, 1996,
$18.0 billion of fixed rate debt and $4.6 billion of variable rate debt were
matched with interest rate swaps. Fixed rate debt at December 31, 1996 also
funded fixed rate warehousing advances and academic facilities financings.
Investments were funded on a "pooled" approach, i.e., the pool of liabilities
that funds the investment portfolio has an average rate and maturity or reset
date that corresponds to the average rate and maturity or reset date of the
investments which they fund.

In both its match funding activities for its loan assets and its pool
funding activities for its investments, Sallie Mae enters into various financial
instrument contracts in the normal course of business to reduce interest rate
risk and foreign currency exposure on certain of its borrowings. These financial
instrument contracts include interest rate swaps, interest rate cap and collar
agreements, foreign currency swaps, forward currency exchange agreements,
options on currency exchange agreements, options on securities, and financial
futures contracts.

An interest rate gap is the difference between volumes of assets and
volumes of liabilities maturing or repricing during specific future time
intervals. The following gap analysis reflects rate-sensitive positions at
December 31, 1996 and is not necessarily reflective of positions that existed
throughout the period.
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY PERIOD
-----------------------------------------------------------------
3 MONTHS 6 MONTHS
3 MONTHS TO TO 1 TO 2 2 TO 5 OVER 5
OR LESS 6 MONTHS 1 YEAR YEARS YEARS YEARS
-------- -------- -------- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Student loans......................... $ 30,270 $ 3,484 $ - $ - $ - $ -
Warehousing advances.................. 2,771 - - 1 1 17
Academic facilities financings........ 157 43 20 39 221 993
Cash and investments.................. 5,641 14 27 21 174 1,829
Other assets.......................... - - - - - 1,907
-------- -------- -------- ------- -------- ------
Total............................ 38,839 3,541 47 61 396 4,746
-------- -------- -------- ------- -------- ------
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings................. 15,542 2,269 4,346 - - -
Long-term notes....................... 8,505 - - 2,951 10,242 908
Interest rate swaps................... 14,522 2,410 (4,271) (2,966) (10,153) 458
Other liabilities..................... - - - - - 1,819
Stockholders' equity.................. - - - - - 1,048
-------- -------- -------- ------- -------- ------
Total............................ 38,569 4,679 75 (15) 89 4,233
-------- -------- -------- ------- -------- ------
Period gap............................ $ 270 $ (1,138) $ (28) $ 76 $ 307 $ 513
======= ======= ======= ======= ======== ======
Cumulative gap........................ $ 270 $ (868) $ (896) $ (820) $ (513) $ -
======= ======= ======= ======= ======== ======
</TABLE>

In low interest rate environments, floor revenues on student loans cause
the margins on these loans to widen beyond the locked-in spreads (See "Results
of Operations -- Student Loan Floor Revenues" discus-

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<PAGE> 59

sion). Such loans continue to be classified in the three months or less category
in the table above, reflecting the fact that as interest rates rise these assets
will resume their weekly rate reset.

The weighted average remaining terms to maturity of Sallie Mae's earning
assets and borrowings at December 31, 1996 were 5.5 years and 2.0 years,
respectively. The following table reflects the average terms to maturity for
Sallie Mae's earning assets and liabilities at December 31, 1996:

AVERAGE TERMS TO MATURITY
(IN YEARS)

<TABLE>
<S> <C>
EARNING ASSETS
Student loans.................................................................. 6.0
Warehousing advances........................................................... 1.0
Academic facilities financings................................................. 8.0
Cash and investments........................................................... 5.5
---
Total earning assets........................................................... 5.5
---
BORROWINGS
Short-term borrowings.......................................................... .5
Long-term borrowings........................................................... 3.5
---
Total borrowings............................................................... 2.0
---
</TABLE>

In the above table, Treasury receipts and variable rate asset-backed
securities, although generally liquid in nature, extend the weighted average
remaining term to maturity of cash and investments to 5.5 years. As loans are
securitized, the need for long-term on-balance sheet financing will decrease.

PREFERRED STOCK

Preferred stock dividends are cumulative and payable quarterly at 4.50
percentage points below the highest yield of certain long-term and short-term
United States Treasury obligations. The dividend rate for any dividend period
will not be less than 5 percent per annum nor greater than 14 percent per annum.
For the years ended December 31, 1996, 1995 and 1994, the preferred stock
dividend rate was 5.00 percent and reduced net income attributable to common
stock by $10.7 million, respectively. The Privatization Act requires that prior
to the dissolution of Sallie Mae on or before September 30, 2008, Sallie Mae
shall repurchase or redeem, or make proper provisions for repurchase or
redemption of any outstanding preferred stock.

TRENDS AND UNCERTAINTIES

Privatization

On September 30, 1996, the Student Loan Marketing Association
Reorganization Act of 1996 ("the Privatization Act") was enacted. The
Privatization Act authorized the creation of a state-chartered holding company
(the "Holding Company") that can pursue new business opportunities beyond the
limited scope of the GSE's restrictive federal charter. The Holding Company
would become the parent of the GSE pursuant to a reorganization which must be
approved by a majority vote of the GSE's shareholders, such vote to take place
on or before April 1, 1998.

A special meeting of shareholders has been called to consider and vote upon
the approval of the proposed Reorganization pursuant to a Proxy
Statement/Prospectus filed with the Securities and Exchange Commission ("SEC").
If the Reorganization is approved by the shareholders of the GSE, then it will
become a wholly-owned subsidiary of the Holding Company and the GSE's federal
charter will be rescinded on or before September 30, 2008. Pursuant to the
Reorganization, each outstanding share of Sallie Mae Common Stock will be
converted into one share of Holding Company Common Stock. In addition, Sallie
Mae will transfer certain assets, including stock in certain subsidiaries, to
the Holding Company or one of its non-GSE subsidiaries. As required by the
Privatization Act, all GSE employees will be transferred to the Holding Company
or one of its non-GSE subsidiaries. During the wind-down period, it is expected
that non-GSE

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<PAGE> 60

Sallie Mae operations will be managed by Sallie Mae's non-GSE affiliates. In
addition, the Holding Company will remain a passive entity which supports the
operations of the GSE and its other subsidiaries, and all business activities
would be conducted through the GSE and by such other subsidiaries.

The Privatization Act imposes certain restrictions on intercompany
relations between Sallie Mae and its affiliates during the wind-down period. In
particular, Sallie Mae must not extend credit to, nor guarantee any debt
obligations of the Holding Company or the Holding Company's non-GSE
subsidiaries. Furthermore, the Privatization Act mandates that transactions
between Sallie Mae and the Holding Company, including any loan servicing
arrangements, shall be on terms no less favorable to Sallie Mae than Sallie Mae
could obtain from an unrelated third party. While Sallie Mae may not finance the
activities of its non-GSE affiliates, it may, subject to its minimum capital
requirements, dividend retained earnings and surplus capital to the Holding
Company, which in turn may contribute such amounts to its non-GSE subsidiaries.
The Privatization Act directs that under no circumstances shall the assets of
Sallie Mae be available or used to pay claims or debts of, or incurred by, the
Holding Company.

During the wind-down period following the Reorganization and prior to the
GSE's dissolution, the GSE will be restricted in the new business activities it
may undertake. Sallie Mae may continue to purchase student loans only through
September 30, 2007. Warehousing advance, letter of credit and standby bond
purchase activity by the GSE will be limited to takedowns on contractual
financing and guarantee commitments in place. The Holding Company generally may
begin to purchase student loans only after the GSE discontinues such activity.
Sallie Mae's GSE debt obligations that are outstanding at the time of
Reorganization will continue to be outstanding obligations of the GSE
immediately after the Reorganization. Sallie Mae will be able to continue to
issue debt in the government agency market to finance student loans and other
permissible asset acquisitions, although the maturity date of such issuances
generally may not extend beyond September 30, 2008, Sallie Mae's final
dissolution date, if it has not been repurchased prior to that date. At December
31, 1996, Sallie Mae had $372 million in outstanding debt with maturities after
September 30, 2008. Such debt will be transferred into a defeasance trust on the
final dissolution date. The Privatization Act requires that prior to the
dissolution of Sallie Mae on or before September 30, 2008, Sallie Mae shall
repurchase or redeem, or make proper provisions for repurchase or redemption of
any outstanding preferred stock.

The Privatization Act imposes certain "execution" or "transaction" costs.
Within 60 days after the Merger date, Sallie Mae is required to pay $5 million
to the D.C. Financial Control Board for use of the "Sallie Mae" name. The
Holding Company must issue to the D.C. Financial Control Board 555,015 common
stock warrants. These warrants are transferable and exercisable at any time
prior to September 30, 2008 at $72.43 per share.

If a reorganization pursuant to the Privatization Act does not occur on or
prior to March 31, 1998, the Privatization Act requires that Sallie Mae submit
an alternative wind-down plan to Congress and the Treasury Department by 2007.
This plan would call for the dissolution of Sallie Mae by 2013. During this
alternative wind-down period, Sallie Mae could not engage in new business
activities beyond its GSE charter, but could transfer assets, except for the
"Sallie Mae" name, at any time its statutory capital requirements were
satisfied. As with the Reorganization, any remaining obligations, and assets
sufficient to pay such obligations, would be transferred to a fully
collateralized trust at the time of dissolution. All other assets would be
distributed to Sallie Mae shareholders. Under this alternative, Sallie Mae
generally would have to cease its business activities after 2009 and could not
issue debt obligations that mature after 2013. The Secretary of the Treasury,
who would monitor the wind-down, could require Sallie Mae to amend its plan of
dissolution if deemed necessary to ensure full payment of its obligations.

Direct Loan Program and 1993 FFELP Changes

Sallie Mae's student loan business continued to be impacted by legislative
changes to the student loan program as well as increased competition. OBRA
changed the FFELP in a number of ways that lower the profitability of FFELP
loans for all participants and established the Federal Direct Student Loan
Program ("FDSLP") under which the federal government can lend directly to
students. FFELP changes include risk-sharing on defaulted loans and yield
reductions, and a 30 basis point annual "offset fee" unique to Sallie Mae on
student loans purchased and held on or after August 10, 1993. (See "-- Other
Related Events.")

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<PAGE> 61

Despite extensive consideration in 1995 and 1996, the 104th Congress did
not enact any significant changes to the federal student loan programs. No
changes have been made that would effect the yield on student loans. Sallie Mae
cannot predict whether future budget proposals or other changes will be made to
the direct student loan program.

The FDSLP is funded directly by the federal government and administered by
the Department of Education. OBRA establishes goals for the phase-in of direct
lending expressed as a percentage of the combined dollar amount of loans
originated under the direct loan program and the FFELP with the following
targets:

<TABLE>
<CAPTION>
DIRECT LOANS
ACADEMIC YEARS AS A PERCENT OF TOTAL
---------------------------------------------------------------- ---------------------
<S> <C>
1994-1995....................................................... 5%
1995-1996....................................................... 40
1996-1998....................................................... 50
1998-1999....................................................... 60
</TABLE>

As of December 31, 1996, approximately 1,600 colleges and universities were
participating in the FDSLP for the 1996-97 academic year. Based on Department of
Education reports, management estimates that direct loan volume did not achieve
its target market share of 40 percent of total student loan originations.
Management estimates that Direct Loans accounted for approximately 31 percent of
total student loan volume in the 1995-96 academic year, up from approximately 7
percent in the 1994-95 academic year. The FDLSP has a legislated market share
goal of 50% for the 1996-1997 academic year.

In recent years as the FDSLP has grown, the volume of loans originated by
banks and other participants under the FFELP has been adversely impacted.
Historically, Sallie Mae has purchased the majority of its student loans as they
near the repayment phase which commences after a borrower leaves school. On
average there is a two to three year lag between the date a loan is originated
and the date it enters repayment. This lag has delayed the adverse affect of
FDSLP originations on Sallie Mae's purchases of student loans. As the volume of
FDSLP loans reaching the repayment phase increases, Sallie Mae's percentage
share of the overall student loan market will decline. In 1994, the Department
of Education began to offer existing FFELP borrowers the opportunity to
refinance FFELP loans into FDSLP loans. As of December 31, 1996, approximately
$346 million of FFELP loans owned by Sallie Mae have been accepted for
refinancing into FDSLP loans. Approximately $320 million have been refinanced
into FDSLP loans with the remainder awaiting disbursement by the federal
government.

OBRA provides that the special allowance for student loans made on or after
July 1, 1998 will be based on the U.S. Treasury security with comparable
maturity plus 1.0 percent for Stafford, Unsubsidized Stafford, and PLUS loans.
(See Appendix C) The Secretary of Education has not adopted regulations
specifying the U.S. Treasury security on which these interest rates will be
based or how often the special allowance rate will reset. Borrower rates are
reset annually. Sallie Mae management believes that the comparable maturity
security will be the 10-year Treasury Note. Depending on the specifics of the
regulations, these changes could adversely impact the FFELP market and Sallie
Mae's business, because of the uncertain availability and costs of funding to
support this new type of instrument. Representatives of the student loan
industry are currently engaged in discussions with congressional staff
concerning possible legislative modification of this OBRA provision.

OBRA also requires Sallie Mae to act as a lender of last resort to make
FFELP loans when other private lenders are not available. Such loans receive a
100 percent guarantee and are not subject to the 30 basis point offset fee on
loans held by Sallie Mae. If the Secretary of Education determines that Sallie
Mae is not adequately implementing this provision, the offset fee paid by Sallie
Mae could be increased from 30 basis points to 100 basis points.

Legislated expansion of student eligibility as well as increases in student
and parent loan limits have increased the volume of national loan originations.
FFELP originations rose nearly 30 percent year-to-year to about $23 billion for
the 1994 federal fiscal year ended September 30, 1994. During the 1995 federal
fiscal year, FFELP originations declined to $21 billion due to FDSLP
originations totaling $5 billion. Management expects FFELP originations to have
declined a similar amount in the 1996 federal fiscal year and to be flat in

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<PAGE> 62

1997. In the meantime, however, the competition for FFELP loans has intensified
at both the originating and secondary market levels due mainly to the reduced
volume and to securitization of student loans, which has developed into a
significant funding alternative for FFELP lenders.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 1996, Statement of Financial Accounting Standards ("FAS") No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" was issued. This statement will govern the accounting for
securitization transactions entered into after December 31, 1996. Also, under
this statement in-substance defeasance transactions entered into after December
31, 1996 no longer receive off-balance sheet treatment. Sallie Mae management
believes the application of this Statement will have no material impact on
Sallie Mae's results of operations.

OTHER RELATED EVENTS

In 1995, the Congress declined to provide funding for HEAL loans to new
borrowers. Funds were provided in 1995 and 1996 for borrowers who have
previously received HEAL loans. It is not known at this time whether Congress
will be willing to reverse this decision and provide funds for new borrowers. As
of July 1, 1996, the Department of Education has exercised recently granted
authority to raise the limits on Unsubsidized Stafford Loans to amounts equal to
the maximum available under the HEAL program. Loans of this size are available
only to borrowers attending programs that otherwise would have been eligible for
HEAL funding and at schools that were active participants in the HEAL program in
1995.

On June 11, 1996, Orange County, California filed a complaint against the
Company in the U.S. Bankruptcy Court for the Central District of California. The
case is currently pending in the U.S. District Court for the Central District of
California. The complaint alleges that the Company made fraudulent
representations and omitted material facts in offering circulars on various
offerings purchased by Orange County, which contributed to Orange County's
market losses and subsequent bankruptcy. The complaint seeks to hold Sallie Mae
responsible for losses resulting from Orange County's bankruptcy, but does not
specify the amount of damages claimed. In addition, the complaint includes
counts under the California Corporations Code, as well as a count for common law
fraud. The Company believes that the complaint is without merit and intends to
defend the case vigorously. At this time, Management believes the impact of the
lawsuit will not be material to the Company.

In September 1996, Sallie Mae obtained a declaratory judgment against the
Secretary of Education in the U.S. District Court for the District of Columbia.
The Court found that the Secretary acted erroneously in refusing to allow Sallie
Mae to claim adjustments to SAP on certain FFELP loans which were required to be
converted from a fixed rate to a variable rate. As a result, Sallie Mae has
recognized a receivable of $9 million for special allowance payments. The
Secretary has filed a notice of appeal of the District Court's decision.

In August 1996, Huntington National Bank, Battelle Memorial Institute and
Sallie Mae entered into an agreement to form a joint venture company, CyberMark
LLC, to produce and market stored value cards and systems. Huntington and
Battelle provided funding for the new company with Sallie Mae contributing the
smart card system it developed over the past three years through its CyberMark
subsidiary. Sallie Mae also contributed the CyberMark name to the joint venture
company.

In September 1996, Sallie Mae successfully restructured its arrangement
with The Chase Manhattan Bank, Sallie Mae's largest lending client, in light of
Chase's merger with Chemical Banking Corporation. Chase and Sallie Mae
established two joint venture companies in which they hold equal interests,
Education First Finance LLC and Education First Marketing LLC. Education First
Finance LLC acquired Chase's existing $2.6 billion student loan portfolio on
October 1, 1996 and will acquire all future loans originated by Chase. Education
First Marketing LLC will provide marketing services for Chase student loan
products. Chase, which is now the largest originator in the FFELP, will
originate insured student loans under the new arrangement. Sallie Mae will
provide all processing and servicing support. Although the parties intend that
the new arrangement be a long-term relationship, they have allowed for mutual
rights to acquire each other's interest in the joint venture after the first six
years.

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<PAGE> 63

DESCRIPTION OF HOLDING COMPANY CAPITAL STOCK

The statements set forth under this heading with respect to certain
provisions of the Delaware General Corporation Law (the "DGCL"), the Certificate
of Incorporation of the Holding Company, as in effect as of the Effective Time
(the "Holding Company Charter"), and the by-laws of the Holding Company (the
"Holding Company By-Laws") are brief summaries thereof and do not purport to be
complete and are qualified in their entirety by reference to the relevant
provisions of the DGCL, the Holding Company Charter and the Holding Company
By-Laws, as appropriate.

GENERAL

The Holding Company Charter authorizes capital stock consisting of
250,000,000 shares of Holding Company Common Stock, par value $.20 per share,
and 20,000,000 shares of preferred stock ("Holding Company Preferred Stock"). In
connection with the Reorganization, each outstanding share of Sallie Mae Common
Stock will be converted into one share of Holding Company Common Stock, and the
outstanding shares of the common stock of MergerCo, a newly-created,
wholly-owned subsidiary of the Holding Company will be converted into all of the
issued and outstanding shares of Sallie Mae Common Stock, all of which will then
be owned by the Holding Company. Accordingly, the number of shares of Holding
Company Common Stock issued and outstanding immediately following the
Reorganization will be equal to the number of shares of Sallie Mae Common Stock
issued and outstanding immediately prior to the Reorganization. No shares of
Holding Company Preferred Stock will be issued or outstanding prior to or
immediately following the Reorganization.

The Reorganization will become effective at the Effective Time, which
management expects to be on or about May 16, 1997. As a result of the
Reorganization, Sallie Mae will become a subsidiary of the Holding Company and
all of the Holding Company Common Stock outstanding immediately after the
Reorganization will be owned by the holders of Sallie Mae Common Stock
outstanding immediately prior to the Reorganization. Shares of Holding Company
Common Stock held by Sallie Mae and the Sallie Mae Common Stock held in treasury
will be canceled and retired. Shares of the outstanding class of preferred stock
of Sallie Mae will not be affected by the Reorganization, and will remain
outstanding, with the same voting powers, designations, preferences, rights,
qualifications, limitations and restrictions as prior to the Reorganization.

COMMON STOCK

The holders of Holding Company Common Stock are entitled to one vote per
share on all matters submitted to a vote of stockholders and do not have
cumulative voting rights. As a result, the holders of a majority of the shares
voting for the election of directors can elect all the members of the Holding
Company Board.

Holders of Holding Company Common Stock: (i) have equal and ratable rights
to dividends from funds legally available therefor when, as and if declared by
the Holding Company Board, subject to any rights of the holders of Holding
Company Preferred Stock; (ii) subject to any rights of the holders of Holding
Company Preferred Stock, are entitled to share ratably in any distribution to
holders of Holding Company Common Stock upon liquidation, after payment in full
of all creditors; and (iii) do not have preemptive rights. Holding Company
Common Stock is not redeemable or convertible. The outstanding shares of Holding
Company Common Stock are, and the shares to be issued in the Reorganization will
be, fully paid and non-assessable. The registrar and transfer agent for Holding
Company Common Stock is Chase Mellon Shareholder Services.

PREFERRED STOCK

The Holding Company Board, without further approval of the stockholders,
may from time to time authorize the issuances of one or more series of Holding
Company Preferred Stock, with such designations of titles; dividend rates; any
redemption provisions; special or relative rights in the event of liquidation,
dissolution, distribution or winding up; any sinking fund provisions; any
conversion provisions; any voting rights thereof; and any other preferences,
privileges, powers, rights, qualifications, limitations and restrictions, as
shall be set forth as and when established by the Holding Company Board. The
shares of any series of Holding

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<PAGE> 64

Company Preferred Stock will be, when issued, fully paid and nonassessable and
holders thereof will have no preemptive rights in connection therewith.

The Holding Company Board, without stockholder approval, may issue Holding
Company Preferred Stock with voting rights and other rights that could adversely
affect the voting power of holders of Holding Company Common Stock and such
stock could be used to prevent a hostile takeover of the Holding Company. The
Holding Company has no present plans to issue any shares of Holding Company
Preferred Stock.

WARRANTS

Pursuant to the Privatization Act, the Holding Company will issue warrants
to purchase 555,015 shares of Holding Company Common Stock to the D.C. Financial
Control Board, exercisable at any time prior to September 30, 2008, at $72.43
per share. Such warrants are transferrable.

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<PAGE> 65

COMPARISON OF STOCKHOLDER RIGHTS

The statements set forth under this heading with respect to certain
provisions of the Privatization Act, the Sallie Mae Charter and the Sallie Mae
By-Laws, the DGCL, the Holding Company Charter, and the Holding Company By-Laws
are brief summaries thereof and do not purport to be complete and are qualified
in their entirety by reference to the relevant provisions of the Privatization
Act, the Sallie Mae Charter and the Sallie Mae By-Laws, the DGCL, the Holding
Company Charter, and the Holding Company By-Laws, as appropriate.

GENERAL

As a result of the Reorganization, holders of Sallie Mae Common Stock,
whose rights are presently governed by the Sallie Mae Charter and federal common
law and by the Sallie Mae By-Laws (which were adopted by the Sallie Mae Board)
will become stockholders of Holding Company, a Delaware corporation.
Accordingly, their rights will be governed by the DGCL and the Holding Company
Charter and By-Laws. The following is a summary of certain material similarities
and differences between the present rights of holders of Sallie Mae Common Stock
and the rights of holders of Holding Company Common Stock after the
Reorganization.

BOARD OF DIRECTORS

NUMBER AND ELIGIBILITY. The Sallie Mae Charter provides for a Board of
Directors consisting of 21 members, seven of whom are Presidential appointees
and 14 of whom are elected by holders of Sallie Mae Common Stock. The President
of the United States (the "President") also has authority to designate the
Chairman of the Board. Shareholder-elected directors must be affiliated with
certain financial or educational institutions.

The Holding Company Charter provides that the Holding Company Board shall
consist of between 9 and 19 members, with the members to be divided into three
classes as described below. The initial number of directors has been established
at 18 and may be set, from time to time, by resolution of the Holding Company
Board of Directors. The President will not have authority to appoint the members
of the Holding Company Board of Directors or to designate the Chairman of the
Board. Under the Privatization Act, Sallie Mae directors appointed by the
President may not serve on the Holding Company Board. There are no affiliation
requirements for Holding Company directors.

The Holding Company By-Laws also require that independent directors
constitute a majority of the Holding Company Board and the Executive Committee
and all members of the Nominations Committee. Under the Holding Company By-Laws,
a director will not generally be considered "independent" if he or she: (a) has
been employed by the Holding Company or one of its affiliates in an executive
capacity; (b) is an employee or owner of a firm that is one of the Holding
Company's or its affiliate's paid advisors or consultants; (c) is employed by a
significant customer or supplier; (d) has a personal services contract with the
Holding Company or one of its affiliates; (e) is employed by a foundation or
university that receives significant grants or endowments from the Holding
Company or one of its affiliates; (f) is a relative of an executive of the
Holding Company or one of its affiliates; or (g) is part of an interlocking
directorate in which an executive officer of the Holding Company serves on the
board of another corporation that employs the director.

CLASSIFICATION. Under the Sallie Mae Charter, directors appointed by the
President serve at the pleasure of the President and until their successors have
been appointed and qualified. Elected members of the Sallie Mae Board of
Directors are elected for a term ending on the date of the next annual meeting
and serve until their successors have been elected and have qualified.

As permitted under the DGCL, the Holding Company Charter provides that the
Holding Company Board shall be divided into three classes, with the term of the
first class expiring at the annual meeting next ensuing, of the second class one
year thereafter, of the third class two years thereafter. At each annual meeting
thereafter, directors shall be chosen for a full term, as the case may be, to
succeed those whose terms expire.

CUMULATIVE VOTING. The Sallie Mae Charter provides for cumulative voting
in the election of directors. Under cumulative voting, each share of stock
entitled to vote in an election of directors has such number of

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votes as is equal to the number of directors to be elected. A shareholder may
then cast all of his or her votes for a single candidate or may allocate them
among as many candidates as the shareholder may choose.

The Holding Company Charter does not provide for cumulative voting rights.
Thus, holders of shares representing a majority of the votes entitled to be cast
in an election of directors for Holding Company will be able to elect all
directors then being elected.

REMOVAL. Pursuant to Sallie Mae's By-Laws, Sallie Mae directors may be
removed only for cause by vote of two-thirds of the directors remaining in
office, provided that at least a majority of the shareholder-elected directors
consent to such removal.

The Holding Company Charter provides that directors may be removed only for
cause and only by the affirmative vote of the holders of a majority of the
Holding Company's then outstanding capital stock entitled to vote at an election
of directors.

VACANCIES. The Sallie Mae Charter provides that any appointive seat on the
Sallie Mae Board that becomes vacant shall be filled by appointment of the
President, and any elective seat on the Board that becomes vacant after the
annual election of the directors shall be filled by the Board, but only for the
unexpired portion of the term.

The DGCL and the Holding Company By-Laws provide that vacancies may be
filled by vote of the majority of the remaining directors.

MEETINGS AND FUNCTIONS OF THE BOARD. The Sallie Mae Charter provides that
the Sallie Mae Board shall meet at the call of its Chairman, but at least
semiannually. The Sallie Mae Board determines the general policies that govern
the operations of Sallie Mae. The Chairman of the Board, with the approval of
the Sallie Mae Board, selects, appoints, and compensates the officers of Sallie
Mae as provided for in the Sallie Mae By-Laws.

The Holding Company By-Laws provide that the Holding Company Board shall
have regular meetings as may be determined from time to time by the Holding
Company Board. Special Meetings of the Holding Company Board shall be called by
the Secretary upon the direction of the Chairman or the President, if the
President is a member of the Holding Company Board, or upon the written request
of a majority of the entire Holding Company Board of Directors. The Holding
Company By-Laws require the Holding Company Board to meet at least six times
during each calendar year. Similar to Sallie Mae, the Holding Company Board
shall determine the general policies that shall govern the operations of the
Holding Company.

CAPITALIZATION

Under the Sallie Mae Charter, the maximum number of shares of voting common
stock that Sallie Mae may issue and have outstanding at any one time shall be
fixed by the Sallie Mae Board from time to time, and Sallie Mae is authorized to
issue nonvoting preferred stock having such par value as may be fixed by the
Sallie Mae Board from time to time. Sallie Mae currently is authorized to issue
up to 250,000,000 shares of the Sallie Mae Common Stock, and up to 5,000,000
shares of the preferred stock.

Under the DGCL, the amount of capital stock must be set forth in the
certificate of incorporation, and may not be altered without the consent of the
stockholders. The Holding Company is authorized to issue, without further action
by shareholders, up to 250,000,000 shares of Holding Company Common Stock, and
up to 20,000,000 shares of Holding Company Preferred Stock.

PURPOSE

Under the Sallie Mae Charter, Sallie Mae's corporate purposes generally are
to be a private corporation financed by private capital and serving as a
secondary market and warehousing facility for student loans, including insured
loans, to provide liquidity for student loan investments in order to facilitate
secured transactions involving student loans, to assure nationwide the
establishment of adequate loan insurance programs for students, and to provide
for an additional program of loan insurance to be covered by agreements with the
Secretary of Education.

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<PAGE> 67

The Holding Company's purpose is to engage in any lawful activity, as is
typical of ordinary state-chartered for-profit corporations.

DIVIDENDS

Under the Sallie Mae Charter, subject to rights of holders of Sallie Mae
preferred stock, dividends may be declared on shares of Sallie Mae Common Stock
by the Sallie Mae Board to the extent that net income is earned and realized and
the specified statutory capital ratio is satisfied.

Under the DGCL, dividends are generally payable out of surplus or, if there
is no surplus, out of net profits for the fiscal year in which the dividend is
paid and the prior year.

EXEMPTION FROM CERTAIN LAWS

Under the Sallie Mae Charter, Sallie Mae is exempt from all state and local
taxes, other than taxes on real property. Sallie Mae also is exempt from certain
state and federal securities laws and from state registration requirements to do
business in a particular jurisdiction. After the Reorganization, Sallie Mae
would continue to have such exemptions. Sallie Mae currently undertakes to
provide to its shareholders substantially all information that would otherwise
be required to be provided under federal securities laws.

The Holding Company and its other subsidiaries would not receive the
benefit of any such exemptions. Consequently, all operations conducted by the
Holding Company and its subsidiaries other than Sallie Mae would be subject to
state and local tax liabilities. In addition, in connection with the proposed
Reorganization, shares of Holding Company Common Stock have been registered
under the Securities Act of 1933, as amended. Following the Reorganization, the
Holding Company will issue and file all periodic reports required under federal
and state securities laws, including the Securities Exchange Act of 1934, as
amended, and subject to rules governing proxy solicitations.

LIMITATIONS ON DIRECTOR LIABILITY

Under the Sallie Mae By-Laws, directors, officers, and members of the
Directors' Advisory Council of Sallie Mae shall not be personally liable to
Sallie Mae or to shareholders for monetary damages for breach of fiduciary duty
acting in their respective official capacities, provided, however, such
limitation of liability shall not apply to (a) any breach of the party's duty of
loyalty to Sallie Mae or its shareholders, (b) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law, or
(c) any transaction from which the party derived an improper personal benefit.

The Holding Company Charter and Holding Company By-Laws contain certain
provisions limiting the liability of its directors to the extent permitted under
Delaware law. Under Delaware law, a corporation may include in its certificate
of incorporation, a provision eliminating or limiting the liability of a
director to the company or its stockholders for monetary damages for breach of
fiduciary duty as a director, provided that such provision may not eliminate or
limit the liability of a director: (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders; (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law; (iii) for certain acts concerning unlawful payment of dividends or stock
purchases or redemptions under Section 174 of the DGCL; or (iv) for any
transaction from which a director derived an improper personal benefit.

INDEMNIFICATION

Sallie Mae's By-Laws generally provide that directors, officers and
employees of Sallie Mae shall be indemnified to the extent permitted by the
DGCL.

The Holding Company By-Laws contain provisions that provide for indemnity
of the Holding Company's officers and directors to the fullest extent permitted
under Delaware law. Under Delaware law, a corporation is permitted to indemnify
its officers, directors and certain others against any liability incurred in any
civil, criminal, administrative or investigative proceeding if they acted in
good faith and in a manner they reasonably believed to be in or not opposed to
the best interests of the company, and, with respect to any criminal

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<PAGE> 68

proceeding, had no reasonable cause to believe their conduct was unlawful. In
addition, under Delaware law, to the extent that a director, officer, employee
or agent of a company has been successful on the merits or otherwise in defense
of any proceeding referred to above or in defense of any claim, issue or matter
therein, he must be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.

SPECIAL MEETINGS OF STOCKHOLDERS

The Sallie Mae By-Laws provide that a special meeting of stockholders may
be called by either the Chairman or a majority of the directors and shall be
called by the Chairman upon the written request of holders of at least one-third
of the outstanding Sallie Mae Common Stock.

The Holding Company By-Laws provide that a special meeting of stockholders
shall be called by the Secretary upon the direction of either the Chairman or
the President of the Holding Company, if the President of the Holding Company is
a member of the Holding Company Board, or upon the written request of either a
majority of the Holding Company Board or the holders of one-third of the then
outstanding capital stock entitled to vote at an election of directors.

AMENDMENT OF GOVERNING DOCUMENTS

CHARTER. The Sallie Mae Charter is contained in a federal statute and may
be amended only by act of Congress. Sallie Mae stockholders have no right to
amend or otherwise direct the provisions of the Sallie Mae Charter.

Under the DGCL, except for certain specified matters requiring only the
approval of the board of directors, an amendment or change to the Holding
Company Charter must be authorized by the Holding Company Board, followed
generally by a vote of the majority of all outstanding shares entitled to vote
thereon at a meeting of shareholders. As permitted by the DGCL, the Holding
Company Charter provides that amendments thereto relating to the Holding Company
Board of Directors must be approved by the affirmative vote of at least 80% of
the then outstanding shares of capital stock entitled to vote at an election of
directors. In addition, certain specified amendments affecting the rights of
holders of a class of securities must be approved by vote of the majority of all
outstanding shares of such class entitled to vote thereon, even though they
ordinarily would not have voting rights.

BY-LAWS. The Sallie Mae By-Laws may be amended, consistent with the Sallie
Mae Charter, by the majority vote of the Sallie Mae Board.

Under the DGCL, subject to the stockholders' right to amend the bylaws,
directors can amend the bylaws only if such right is expressly conferred upon
the directors in the company's certificate of incorporation. The Holding Company
Charter expressly provides its directors with such authority.

UNITED STATES AND DELAWARE LAW

-- ANTI-TAKEOVER LAWS

UNITED STATES. The authority of the President of the United States to
appoint one-third of the Sallie Mae Board (particularly given the cumulative
voting provisions contained in the Sallie Mae Charter) and to designate the
Chairman of the Sallie Mae Board, as well as the authority of the federal
government to amend the Sallie Mae Charter, could have a deterrent effect on a
potential acquiror. In addition, because certain amendments to the Federal
Deposit Insurance Act and the Federal Credit Union Act prohibit depository
institutions from being affiliates of government-sponsored enterprises, such
institutions are prohibited from being affiliates of Sallie Mae.

DELAWARE. Section 203 of the DGCL generally prohibits a publicly held
Delaware company from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless (i) prior to the date
of the business combination, the transaction is approved by the board of
directors of the company, (ii) upon consummation of the transaction which
resulted in the stockholder becoming an interested stockholder, the

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<PAGE> 69

interested stockholder owns at least 85% of the outstanding voting stock or
(iii) on or after such date the business combination is approved by the board
and by the affirmative vote of at least 66 2/3% of the outstanding voting stock
which is not owned by the "interested stockholder." A "business transaction"
includes mergers, assets sales and other transactions resulting in a financial
benefit to the stockholder. An "interested stockholder" is a person who,
together with affiliates and associates, owns (or within three years, did own)
15% or more of the company's voting stock.

In addition, certain provisions of the Holding Company Charter may be
characterized as anti-takeover in nature. For instance, the Holding Company
Charter provides for a classified board which restricts the election of new
members of the Holding Company Board constituting a majority of such Board in a
single election. In addition, the Holding Company Charter provides for the
issuance of preferred stock with such designations, rights and preferences as
the Holding Company Board may authorize. Such a provision provides the Holding
Company Board with greater flexibility for future financings but may also be
viewed as a means to restrict takeover bids. Finally, the Holding Company
Charter requires that certain amendments thereto relating to the Board of
Directors of the Holding Company be approved by the affirmative vote of at least
80% of the then outstanding shares of capital stock entitled to vote at an
election of directors.

-- MERGERS

UNITED STATES. There is no general federal merger statute. Moreover, the
Sallie Mae Charter and Sallie Mae's status as a government-sponsored enterprise
present various obstacles to merger activity in the absence of congressional
action. The Privatization Act provides that the Reorganization must be approved
by the affirmative vote of holders of a majority of the outstanding shares of
Sallie Mae Common Stock.

DELAWARE. Approval of mergers and consolidations and of sales, leases or
exchanges of all or substantially all of the property or assets of a company,
requires the approval of the holders of a majority of the outstanding shares
entitled to vote, except that no vote of stockholders of the company surviving a
merger is necessary if: (i) the merger does not amend the certificate of
incorporation of the company, (ii) each outstanding share immediately prior to
the merger is to be an identical share after the merger, and (iii) either no
common stock of the company and no securities or obligations convertible into
common stock are to be issued in the merger; or the common stock to be issued in
the merger plus that initially issuable on conversion of other securities issued
in the merger does not exceed 20% of the common stock of the company immediately
before the merger. In addition, no vote is required under the DGCL to approve
the merger of a parent corporation and one or more of its subsidiaries when the
parent corporation owns at least 90% of the outstanding shares of each class of
stock of all such subsidiaries.

-- DISSENTERS' RIGHTS

UNITED STATES. Neither the Sallie Mae Charter nor the Privatization Act
provides for any dissenters' rights.

DELAWARE. Stockholders are entitled to demand appraisal of their shares in
the case of mergers or consolidations, except where (i) they are stockholders of
the surviving company and the merger did not require their approval under the
DGCL or (ii) the company shares are either listed on a national securities
exchange or Nasdaq or held of record by more than 2,000 stockholders. Appraisal
rights are available in either (i) or (ii) above, however, if the stockholders
are required by the terms of the merger or consolidation to accept any
consideration other than (a) stock of the company surviving or resulting from
the merger or consolidation, (b) shares of stock of another company which are
either listed on a national securities exchange or held of record by more than
2,000 stockholders, (c) cash in lieu of fractional shares or (d) any combination
of the foregoing. Appraisal rights are not available in the case of a sale,
lease, exchange or other disposition by a company of all or substantially all of
its property and assets, nor in the case of a merger of a parent corporation and
one or more of its subsidiaries when the parent corporation owns at least 90% of
the outstanding shares of each class of stock of all such subsidiaries.

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MANAGEMENT

HOLDING COMPANY BOARD OF DIRECTORS

Prior to the Effective Time, Sallie Mae, as sole stockholder of the Holding
Company, expects to appoint the following persons, each of whom has consented to
serve as a member of the Holding Company Board. It is anticipated that prior to
completion of this Proxy Statement/Prospectus, Sallie Mae, as sole stockholder,
will assign such directors to classes for purposes of term of office based upon
the recommendation of the Nominations and Board Affairs Committee of the Sallie
Mae Board.

<TABLE>
<S> <C>
WILLIAM ARCENEAUX*.......................... President, Louisiana Association of Independent
Age 55 Colleges and Universities, Baton Rouge, LA
(1987- present). Mr. Arceneaux also is Chairman
of CSLA, Inc. and Foundation CODOFIL.
DOLORES E. CROSS**.......................... President, Chicago State University
Age 58 (1990-present), Chicago, Illinois. She is a
Director of Northern Trust Company where she
serves on the Business Risk and Strategic
Planning Committees. Dr. Cross served as a
member the Sallie Mae Board of Directors
(1992-1995). Dr. Cross also serves as a Trustee
of the College Board, New York, New York; as a
Director of Campus Compact and of the
Association of Black Women in Higher Education.
Dr. Cross previously served as Secretary to the
Board, American Council on Education. Dr. Cross
is Chairman-elect of the American Association
of Higher Education.
DAVID A. DABERKO*........................... Chairman and Chief Executive Officer of
Age 51 National City Corporation (July 1995-present).
Mr. Daberko previously served as President and
Chief Operating Officer (1993-July 1995) and as
Deputy Chairman at National City Corporation
(1987-1993), as well as Chairman, National City
Bank, both located in Cleveland, OH. He also
serves as a director of National City Bank,
Cleveland; National City Bank, Columbus;
National City Bank, Indiana. He is also on the
Boards of Case-Western Reserve University, and
the Ohio Foundation of Independent Colleges.
LAWRENCE A. HOUGH........................... President and Chief Executive Officer of Sallie
Age 52 Mae (July 1990-present). Mr. Hough is a trustee
of The George Washington University and the
Massachusetts Institute of Technology.
RONALD F. HUNT, ESQ.*....................... Attorney in New Bern, NC (1990-present). Since
Age 53 1987 he has served as Corporate Secretary of
the College Construction Loan Insurance
Association and as a director and Corporate
Secretary of Connie Lee Insurance Company and
of Connie Lee Management Services Corporation.
THOMAS H. JACOBSEN*......................... Chairman, President, and Chief Executive
Age 57 Officer of Mercantile Bancorporation Inc., St.
Louis, MO (1989-present). Mr. Jacobsen
presently serves as director of Trans World
Airlines, Inc. and Union Electric Company.
</TABLE>

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<PAGE> 71

<TABLE>
<S> <C>
BOBBIE GAUNT................................ General Marketing Manager, Ford Division, Ford
Age 49 Motor Company, Detroit, MI (1996-present). She
previously served as General Sales Manager,
Lincoln- Mercury Division, Ford Motor Co.
(1993-95) and Director, Marketing Research and
Strategies, North American Automotive
Operations, Ford Motor Co. (1991-92).
ALBERT L. LORD*............................. President, LCL, Ltd., Washington D.C. (1994-
Age 51 present). Previously, Mr. Lord served as
Executive Vice President and Chief Operating
Officer of Sallie Mae (1990-1994). Mr. Lord is
a director of Princeton Bank, Princeton, MN
(1995-present).
ANN REESE................................... Executive Vice President and Chief Financial
Age 42 Officer, ITT Corporation (1995-present). Ms.
Reese served in various positions of increasing
responsibility at ITT Corporation (1987-1995).
LAWRENCE RICCIARDI.......................... Senior Vice President and General Counsel,
Age 56 International Business Machines (1995-present).
Previously, Mr. Ricciardi served as President
(1993-95), Co-Chairman and Chief Executive
Officer (1993) and Executive Vice President &
General Counsel (1989-93) of RJR Nabisco
Holdings Corporation.
JAMES E. ROHR*.............................. President and Director of PNC Bank Corp., and
Age 48 President and Chief Executive Officer, PNC
Bank, N.A., Pittsburgh, PA (1992-present). Mr.
Rohr served previously as Vice Chairman of PNC
Bank Corp. (1989-1992). Mr. Rohr serves on the
boards of Allegheny Corporation,
Telephone/Equitable Resources, Inc. and
Carnegie-Mellon University.
ROGER SANT.................................. Chairman and Chief Executive Officer, The AES
Age 60 Corporation (1981-present). Mr. Sant is a
member of the Board of Marriot International,
Inc.
VINCENT SARNI............................... Chairman and CEO, PPG Industries (1989-1993).
Age 68 Mr. Sarni is a member of the Board of
Directors, PPG Industries, Hershey Foods
Corporation, LTV Corporation, and PNC Bank
Corporation. He also serves as a Trustee
Carnegie-Mellon University.
KENNETH A. SHAW**........................... Chancellor and President, Syracuse University
Age 57 (1991-present), Syracuse, New York. Dr. Shaw is
a Director of Unity Mutual Life Insurance Co.,
Syracuse, New York. Dr. Shaw also served as a
member of the Sallie Mae Board of Directors
(1993-1995).
WILLIAM EDWARD SIMMS........................ President (Risk Management Products Services)
Age 52 Reinsurance Division, Transamerica Occidental
Life Insurance Company. Mr. Simms also serves
on the board of directors of NationsBank, N.A.,
and is a Partner in the Carolina Panthers
football club. Mr. Simms is a member of the
board of Trustees, National Urban League.
</TABLE>

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<TABLE>
<S> <C>
JOHN W. SPIEGEL*............................ Executive Vice President and Chief Financial
Age 55 Officer, SunTrust Banks, Inc. and Treasurer,
SunTrust Banks of Georgia, Atlanta, GA
(1985-present). He is also a member of the
board of directors of Rock-Tenn Company and
ContiFinancial Corporation, and Suburban Lodges
of America.
PETER UEBERROTH............................. Managing Director and Principal, The Contrarian
Age 59 Group (1989-present). Co-chairman of GQHP
(1992-1993). He presently serves as Co-chairman
of the Board of Doubletree and Doubletree
Partners. Mr. Ueberroth is a member of the
board of directors of Ambassadors
International, Inc., The Coca Cola Company and
Transamerica Corporation.
DAVID J. VITALE*............................ Vice Chairman of First Chicago NBD Corporation
Age 50 and President of The First National Bank of
Chicago, Chicago, IL (1995-present). In 1995,
Mr. Vitale served as Senior Risk Management
Officer. He previously served as Vice Chairman
(1993-1995) of The First National Bank of
Chicago and First Chicago Corporation, Chicago,
IL and as Executive Vice President of First
Chicago Corporation (1986-1993). Mr. Vitale is
a director of First Chicago Investment
Management Company, Chicago, IL.
</TABLE>

- ---------------
* Currently a member of the Sallie Mae Board of Directors.
** Currently a member of the Sallie Mae Board of Directors Advisory Council and
formerly a member of the Sallie Mae Board of Directors.

SALLIE MAE BOARD OF DIRECTORS

STATUTORY REQUIREMENTS

The Sallie Mae Charter provides that the Sallie Mae Board will consist of
21 directors: 14 elected by the shareholders and seven appointed by the
President of the United States. The Sallie Mae Charter provides that, for
purposes of qualifying for election to the Board, seven directors must be
affiliated with eligible institutions and seven directors must be affiliated
with eligible lenders, as described in the Sallie Mae Charter. A nominee may be
considered to be affiliated with an eligible institution or eligible lender if
he or she has been, within five years of election to the Sallie Mae Board, an
employee, officer, director, or similar official of: (1) any such institution or
lender; (2) an association whose members consist primarily of such institutions
or lenders; or (3) a state agency, authority, instrumentality, commission, or
similar institution, the primary purpose of which relates to educational matters
or banking matters. The Sallie Mae Charter also provides that the 14 elected
directors serve for a term ending on the date of the next annual meeting and
until their successors have been elected and have duly qualified. The Sallie Mae
Charter further provides that the seven appointed members serve at the pleasure
of the President of the United States and until their successors have been
appointed and have duly qualified. The Sallie Mae Charter also provides that the
President may designate a Chairman from among the 21 members of the Sallie Mae
Board, and on November 12, 1993, President Clinton designated Mr. William
Arceneaux as Chairman of the Sallie Mae Board.

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SHAREHOLDER-ELECTED DIRECTORS:

<TABLE>
<CAPTION>
PRIMARY EMPLOYMENT DURING THE PAST FIVE YEARS
NAME AND AGE AT DECEMBER 31, 1996 AND DIRECTORSHIPS AT DECEMBER 31, 1996
- -------------------------------------------- -----------------------------------------------
<S> <C>
WILLIAM ARCENEAUX(3)(4)(5).................. See "-- Holding Company Board of Directors"
Director since 5/17/79
Age 55
JAMES E. BRANDON, ESQ.(1)................... Attorney and Certified Public Accountant,
Director since 7/5/95 Amarillo, TX. Mr. Brandon is President and
Age 70 director of National Cattle Co., Inc.,
Automated Electronics Corp., Park- Princess,
Inc., Kirby Royalties, Inc., El Paso Venezuela
Company, Oldham Ranches, Inc., Grain
Properties, Inc., and investments in real
estate. Mr. Brandon is a trustee of Eureka
College in Illinois. Mr. Brandon previously
served as a director of Sallie Mae from 1982 to
1991.
DAVID A. DABERKO(3)(4)...................... See "-- Holding Company Board of Directors"
Director since 5/20/87
Age 51
CHARLES L. DALEY(2)......................... Director, Executive Vice President and
Director since 7/5/95 Secretary of TEB Associates, Inc., Voorhees,
Age 64 NJ, a real estate finance company
(1992-Present). Previously, Mr. Daley was
Executive Vice President and Chief Operating
Officer of First Peoples Financial Corporation
(1987-1992) and Executive Vice President and
Chief Operating Officer of First Peoples Bank
of New Jersey (1984-1992.)
RONALD F. HUNT, ESQ.(2)(4).................. See "-- Holding Company Board of Directors"
Director since 7/5/95
Age 53
THOMAS H. JACOBSEN(3)....................... See "-- Holding Company Board of Directors"
Director since 1/20/87
Age 57
BENJAMIN J. LAMBERT, III(3)................. Virginia State Senator and optometrist,
Director since 7/5/95 Richmond, VA (1962-Present). Mr. Lambert is
Age 57 currently a director of Consolidated Bank &
Trust Company, Virginia Power and Dominion
Resources. Mr. Lambert is also Secretary of the
Board of Trustees of Virginia Union University.
ALBERT L. LORD(2)(4)........................ See "-- Holding Company Board of Directors"
Director since 7/5/95
Age 51
A. ALEXANDER PORTER, JR.(1)................. President, Porter, Felleman, Inc., New York, NY
Director since 7/5/95 (1983-Present). Mr. Porter is a trustee of
Age 57 Davidson College in North Carolina.
JAMES E. ROHR(3)............................ See "-- Holding Company Board of Directors"
Director since 5/27/93
Age 58
</TABLE>

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<PAGE> 74

- ---------------
(1) Affiliated with eligible institutions.

(2) Affiliated with eligible lenders.

(3) Affiliated with eligible institutions and eligible lenders.

(4) Member of the Executive Committee.

(5) Designated Chairman of the Board, November 12, 1993 by the President of the
United States, pursuant to Section 439(c)(1)(B) of the Sallie Mae Charter.

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PRESIDENTIAL APPOINTEES:

THE FOLLOWING DIRECTORS, APPOINTED BY THE PRESIDENT OF THE UNITED STATES
PURSUANT TO SECTION 439(C)(1)(A) OF THE SALLIE MAE CHARTER, SERVE AT THE
PLEASURE OF THE PRESIDENT OF THE UNITED STATES AND ARE NOT ELECTED BY
SHAREHOLDERS.

<TABLE>
<CAPTION>
PRIMARY EMPLOYMENT DURING THE PAST FIVE YEARS
NAME AND AGE AT DECEMBER 31, 1996 AND DIRECTORSHIPS AT DECEMBER 31, 1996
- -------------------------------------------- -----------------------------------------------
<S> <C>
MITCHELL W. BERGER, ESQ.(4)................. President and Founder of the Fort Lauderdale,
Director since 3/25/94 FL law of Berger & Davis, P.A. (1985-Present).
Age 40 Mr. Berger currently serves on the Board of
Governors of the Nova University School of
Business and is a Commissioner on The Florida
Environmental Regulation Commission
(1991-Present). In 1994, Mr. Berger served as
Co-Chair of the Community Relations Committee
for the Summit of the Americas in Miami, FL.
Mr. Berger was recently appointed by the
Governor of Florida to serve on the Board of
the South Florida Water Management District.
KRIS E. DURMER, ESQ. ....................... Attorney, Kris E. Durmer Law Office, Nashua, NH
Director since 3/25/94 (1994-Present). Prior to his current position,
Age 47 Mr. Durmer was director of the law firm
Currier, Zall, Durmer, Shepard & Barry, P.A.
(1988-1993).
DIANE S. GILLELAND.......................... Senior Fellow, American Council on Education
Director since 3/25/94 (as of January 1, 1997) and Director, Arkansas
Age 50 Department of Higher Education, Little Rock, AR
(1990-Present). She currently serves on the
boards of several organizations including the
Board of the Arkansas School of Mathematics and
Science.
REGINA T. MONTOYA, ESQ.(4).................. President of WorkRules Company, a consulting
Director since 3/25/94 firm and Visiting Professor at the University
Age 43 of Texas at Dallas since September 1995. Ms.
Montoya was elected national president of Girls
Incorporated in April 1996. Ms. Montoya has
also been a political analyst for KDFW-TV since
August 1995. Previously, Ms. Montoya served as
President of Jayhawk, Inc. and Vice President
for Special Projects and Special Advisor to the
Chairman of the Board of Westcott
Communications, Inc. Dallas, TX (1994-1995). In
1993, Ms. Montoya served as Assistant to
President Clinton and Director of the Office of
Intergovernmental Affairs. Ms. Montoya
previously worked with the Texas law firm of
Godwin & Carlton from September 1990 to January
1993. Ms. Montoya has also served as a member
of the Board of Directors of Jayhawk Acceptance
Corporation since February 1994, and as a
member of the Board of Directors of Trammell
Crow Company since December 1993. Ms. Montoya
also serves on the Board of Trustees of
Wellesley College and is Vice President and
member of the Board of Directors of the Harvard
Alumni Association.
</TABLE>

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<PAGE> 76

- ---------------
(1) Affiliated with eligible institutions

(2) Affiliated with eligible lenders

(3) Affiliated with eligible institutions and eligible lenders

(4) Member of the Executive Committee.

(5) Designated Chairman of the Board, November 12, 1993 by the President of the
United States, pursuant to Section 439(c)(1)(B) of the Sallie Mae Charter.

MEETINGS OF THE BOARD

The Holding Company anticipates that the Holding Company Board will hold
meetings and maintain committees substantially similar to those currently
maintained by Sallie Mae.

The Sallie Mae Board of Directors conducts regular meetings on a bi-monthly
basis and special meetings as may be required from time to time. Six meetings
were held during 1996. In addition, the Executive Committee of the Board, which
is empowered, with certain exceptions, to take all such actions of the Sallie
Mae Board as may be necessary between the Sallie Mae Board's regular meetings
meets from time to time as required. The members of the Sallie Mae Board who
served during 1996 attended at least 75% of the total number of meetings of the
Sallie Mae Board and committees of which they were members in 1996.

The Sallie Mae Board uses a number of committees to assist it in the
performance of its duties. Meetings of the committees of the Sallie Mae Board
are generally held on the day prior to the regular meetings of the Sallie Mae
Board and on such other dates as may be necessary between regular meetings. The
present

66
<PAGE> 77

standing committees are the Audit Committee, the Compensation and Personnel
Committee, the Executive Committee, the External Concerns Committee, the Finance
Committee, the Nominations and Board Affairs Committee, the Operations
Committee, and the Strategic Planning Committee. The purposes of the Audit,
Compensation and Personnel, and Nominations and Board Affairs Committees, the
identity of their current members, and the number of meetings held during 1996
are set forth below.

AUDIT COMMITTEE. The Audit Committee is empowered to: (1) make
recommendations to the Board on the selection of independent auditors; (2)
review with independent auditors the scope of their examination and the proposed
fee; (3) review with independent auditors the results of the examination; (4)
review with management the nature and extent of all non-audit-related services
provided to Sallie Mae by the independent auditor; (5) review the management,
scope, and results of the internal audit program; and (6) review the Employee
Standards of Conduct and the Board of Directors Code of Conduct and employee and
director compliance with each.

The Sallie Mae Audit Committee held five meetings during 1996. The current
membership of the Sallie Mae Audit Committee is as follows: James E. Moore,
Chairman; Randolph H. Waterfield, Jr., Vice Chairman; James E. Brandon; David A.
Daberko; Diane S. Gilleland; and James E. Rohr. The membership of the Holding
Company Audit Committee is anticipated to be as follows: .

COMPENSATION AND PERSONNEL COMMITTEE. The Compensation and Personnel
Committee is empowered to (1) consider and make recommendations to the Board
with respect to compensation and other benefits for the Board and employees of
Sallie Mae; (2) review Sallie Mae's management resources, manpower planning,
development, selection process, and the performance of its key executives; (3)
review position evaluations and salary rates for officers; (4) review Sallie
Mae's policies relating to development and continuity of able management; and
(5) recommend to the Board a process of succession for Sallie Mae's senior
officers.

The Sallie Mae Compensation and Personnel Committee held six meetings
during 1996. The current membership of the Sallie Mae Compensation and Personnel
Committee is as follows: David A. Daberko, Chairman; Irene Natividad, Vice
Chairman; Charles L. Daley; Steven L. Shapiro; Ronald J. Thayer; and David J.
Vitale. The membership of the Holding Company Compensation and Personnel
Committee is anticipated to be as follows: .

NOMINATIONS AND BOARD AFFAIRS COMMITTEE. The Nominations and Board Affairs
Committee is empowered to: (1) identify and recommend nominees for election to
the Board; (2) identify and review the qualifications of eligible candidates for
consideration as advisory members and Board members; and (3) review the
effectiveness and composition of the Board.

The Sallie Mae Nominations and Board Affairs Committee held one meeting
during 1996. The current membership of the Sallie Mae Nominations and Board
Affairs Committee is as follows: Thomas H. Jacobsen, Chairman; Benjamin J.
Lambert, Vice Chairman; Kris E. Durmer, James E. Brandon; John W. Spiegel; and
Ronald J. Thayer. The membership of the Holding Company Nominations and Board
Affairs Committee is anticipated to be as follows: .

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<PAGE> 78

DIRECTOR COMPENSATION

It is anticipated that the Holding Company will compensate its directors in
a manner that is substantially similar to the manner in which Sallie Mae
compensates its directors, and that following the Reorganization, the Holding
Company will become the sponsor of each of the director benefit plans. During
1996, each director of Sallie Mae, with the exception of the Chairman of the
Board, earned an annual retainer in the amount of $20,000. Each Chairman of a
standing committee with the exception of the Chairman of the Board, received an
additional annual retainer of $2,000. In addition, a fee of $1,500 accrued to
each director for attending each regular bi-monthly or special meeting of the
Sallie Mae Board and a fee of $1,500 accrued to each director for attending each
regularly scheduled committee meeting of the Sallie Mae Board (with only a
single fee paid for multiple committee meetings on the same day). The Chairman
of the Board, in recognition of the additional time that he is required to
devote to the affairs of Sallie Mae, was compensated on the basis of an annual
retainer in the amount of $50,000 and a per diem in the amount of $1,750 for
each day spent on the affairs of Sallie Mae. The Chairman of the Board may
authorize additional reimbursement for directors who perform additional services
or devote unusual amounts of time to Sallie Mae's activities, which are not
covered under the normal compensation schedules.

Directors may elect to defer cash compensation under the Sallie Mae Board
of Directors' Deferred Compensation Plan and invest deferred compensation in a
cash account on which interest is accrued and/or in a Sallie Mae Common Stock
account, on which dividends and other capital adjustments are made. At least 50%
of each director's annual retainer is credited to the Board of Directors'
Deferred Compensation Plan -- Stock Account. See "Board and Management
Ownership" for stock ownership information.

Directors are provided with $50,000 of group term life insurance and are
covered by a travel insurance plan while traveling on Sallie Mae business.

Consistent with Sallie Mae's philosophy that management and the Sallie Mae
Board's compensation should be aligned with the interests of the shareholders,
effective December 31, 1995, the Sallie Mae Board of Directors' Pension Plan, a
"non-qualified" plan, providing a benefit computed on the highest consecutive
three-year average of compensation, was eliminated. Benefits accrued to
directors serving on the Board at December 31, 1995 were frozen. Further, the
Board has recommended that a substantial portion of compensation be stock-based.

Directors may participate in the Sallie Mae Employees' Stock Purchase Plan
on the same terms and conditions as employees. Directors do not receive a salary
from Sallie Mae nor do they participate in any of the other plans discussed in
the Executive Compensation section.

Under the terms of the shareholder-approved Sallie Mae Board of Directors'
Restricted Stock Plan, each director may annually receive up to a maximum of 500
shares of restricted Common Stock. Shares granted under the Directors'
Restricted Stock Plan may not be transferred by a director until the later of
six months from the date of grant or the date the director separates from
service as a Board member. During 1996, each director was granted 100 shares of
restricted Sallie Mae Common Stock. The aggregate number of shares issued to
directors during 1996 was 2,100 shares.

Pursuant to the Board of Directors Stock Option Plan, approved at the 1996
Annual Meeting of Shareholders of Sallie Mae, each director was awarded options
to acquire 3,000 shares of Sallie Mae Common Stock at $73.00 per share.
Beginning in 1997, each director will annually receive grants of 1,000 stock
options pursuant to the Board of Directors' Stock Option Plan. At December 31,
1996, 63,000 options were outstanding and exercisable and had a value of
$1,267,875.

The total compensation accrued to directors in 1996 (including the value of
restricted stock grants and compensation related to participation in the Sallie
Mae Employees Stock Purchase Plan) aggregated $1,215,767.

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<PAGE> 79

EXECUTIVE OFFICERS OF THE COMPANY

NAMES AND TITLES

The executive officers of Sallie Mae at December 31, 1996, their titles,
and their years of employment with Sallie Mae are below. Their previous
experience, including principal occupations for the past five years, follows. It
is anticipated that the individuals set forth below will serve, in similar
capacities, as the executive officers of the Holding Company.

<TABLE>
<CAPTION>
YEAR
COMMENCED/
AGE AT REJOINED
NAME & TITLE 12/31/96 EMPLOYMENT
- ----------------------------------------------------------------------- -------- ----------
<S> <C> <C>
Lawrence A. Hough...................................................... 52 1973/1979
President and Chief Executive Officer
Robert D. Friedhoff.................................................... 42 1979
President, Sallie Mae Servicing Corporation
Executive Vice President, Systems and Servicing, Sallie Mae
Timothy G. Greene...................................................... 57 1973/1990
Executive Vice President and General Counsel
Lydia M. Marshall...................................................... 47 1985
Executive Vice President, Marketing
Denise B. McGlone...................................................... 45 1977/1994
Executive Vice President and Chief Financial Officer
</TABLE>

PREVIOUS EXPERIENCE

Lawrence A. Hough, President and Chief Executive Officer, was first
employed by Sallie Mae from 1973 to 1977 and rejoined Sallie Mae in 1979. He was
appointed to his present position in July 1990.

Robert D. Friedhoff, President, Sallie Mae Servicing Corporation (a
wholly-owned subsidiary of Sallie Mae) and Executive Vice President, Systems and
Servicing, Sallie Mae, was employed by Sallie Mae in February 1979. Prior to his
current appointment in December 1995, he served as Executive Vice President,
Servicing from 1993-1995. He previously served as Senior Vice President,
Servicing (1991-1993).

Timothy G. Greene, Executive Vice President and General Counsel, was first
employed by Sallie Mae from 1973 to 1979 and rejoined Sallie Mae in July 1990,
at which time he was appointed to his present position. A $500,000 loan made by
Sallie Mae to Mr. Greene in order to assist him in relocating to Washington,
D.C. to accept employment with Sallie Mae was repaid by Mr. Greene on June 30,
1996.

Lydia M. Marshall, Executive Vice President, Marketing, was employed by
Sallie Mae in July 1985. Prior to her current appointment in November 1993, she
served as Senior Vice President, Marketing from 1991 to 1993.

Denise B. McGlone, Executive Vice President and Chief Financial Officer,
was first employed by Sallie Mae from 1977 to 1983 and rejoined Sallie Mae on
January 31, 1994, at which time she was appointed to her present position. From
December 1991 through December 1993, Ms. McGlone held the position of Executive
Vice President and Global Head of Derivatives of DKB Financial Products, Inc. in
New York.

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<PAGE> 80

EXECUTIVE COMPENSATION

This section includes: (1) a report made by the Compensation and Personnel
Committee of Sallie Mae regarding executive compensation policy; (2) a summary
description in tabular form of executive compensation; (3) a summary of 1997
stock option grants; (4) a valuation of option exercises and remaining option
holdings; (5) a summary of awards under the Student Loan Marketing Association
Incentive Performance Plan (the "Incentive Performance Plan" or the "IPP"); (6)
a description of benefit plans; and (7) a comparison of stock performance to
market indices. Sallie Mae does not have any termination or change in control
agreements with its executive officers.

REPORT OF THE COMPENSATION AND PERSONNEL COMMITTEE

This report is issued by the Compensation and Personnel Committee to set
forth the Sallie Mae Board's philosophy and practice in the area of executive
compensation. Written comments by shareholders on the report are encouraged and
should be directed to the Chairman, Compensation and Personnel Committee.

POLICY. The purpose of Sallie Mae's executive compensation program is to
link compensation to the achievement of Sallie Mae's education finance program
and financial goals. These goals are to: increase the availability of education
related credit in the United States, improve the delivery of that credit, and
increase total shareholder return. Although the Holding Company Board has not
yet adopted a policy for its compensation programs, it is anticipated that the
Holding Company Board will adopt a policy substantially similar to that
currently in effect for Sallie Mae's Compensation and Personnel Committee.

Sallie Mae's experience demonstrates that its goals are best achieved
through the coordinated efforts of its entire senior management team. To create
an environment in which such coordinated efforts will occur, each component of
the executive compensation program applies to all executive officers, including
the President and Chief Executive Officer. In 1994, however, Mr. Hough suggested
that the Compensation and Personnel Committee consider awarding him a portion of
his annual bonus in restricted stock in order to further link the value of his
compensation package to the creation of shareholder value. The Committee decided
to act on Mr. Hough's suggestion and, therefore, the bonus component of Mr.
Hough's compensation (discussed below) is different from that of the other
executive officers.

The compensation program is designed to: (1) create a performance-oriented
environment by making a significant portion of annual compensation dependent on
the achievement of both annual and long-term goals; (2) align management and
shareholder interests by providing a portion of annual compensation in the form
of market-priced stock options which also provide the opportunity for management
to acquire shares of Sallie Mae's Common Stock; and (3) attract and retain key
executives. The program is reviewed at least annually to determine that it meets
the objectives set forth above.

In November 1994, to further support Sallie Mae's belief that management
ownership of Sallie Mae's Common Stock helps align management and shareholder
interests, Sallie Mae established minimum guidelines for stock ownership for all
officers of Sallie Mae. The guidelines provide that each officer should own a
specified number of shares depending on the officer's level of seniority. Each
officer is expected to increase his or her share ownership annually until the
guideline is achieved.

The stock ownership guideline for the President and Chief Executive Officer
is 30,000 shares. For each Executive Vice President the guideline is 10,000
shares. For each Vice President earning more than $140,000 in salary, the
guideline is 4,000 shares. For each Vice President earning $140,000 or less in
salary, the guideline is 2,000 shares. For each Assistant Vice President, the
guideline is 1,000 shares. See the "Board and Management Ownership" section for
stock ownership information.

Only shares owned directly or through Sallie Mae's Employees' Thrift and
Savings Plan, Supplemental Employees' Thrift and Savings Plan, and Deferred
Compensation Plan for Key Employees are considered in determining if an officer
meets the guidelines. Officers of Sallie Mae have five years within which to
meet the ownership guidelines.

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<PAGE> 81

COMPENSATION RELATED TO ACHIEVEMENT OF ANNUAL AND LONG-TERM GOALS. The
following describes each element of the executive compensation program and its
relationship to the goals described above. Also described is the relationship of
each element to the President and Chief Executive Officer's compensation for
1996.

BASE SALARY. Each executive officer's base salary takes into account the
officer's responsibility level, the officer's accomplishments in meeting that
responsibility, the leadership demonstrated by the officer, and the officer's
length of service with Sallie Mae. In determining the compensation, including
the salary for each executive officer, Sallie Mae also reviews the compensation
paid by comparable financial institutions to officers with similar
responsibilities. The companies in this group are publicly held financial
services companies with strong financial performance characteristics as
determined by shareholder return over five years and by earnings fundamentals.
The group includes banks, insurance companies, and other government-sponsored
enterprises. It is not Sallie Mae's policy to match salaries on a
dollar-for-dollar basis; however, Sallie Mae does take comparable salaries into
consideration when deciding what compensation levels are necessary to attract
and retain qualified executives. Based on the Board of Director's evaluation of
these considerations, Mr. Hough's salary increased 2.86% from 1995 to 1996.

ANNUAL BONUS. The annual bonus represents "at risk" compensation and the
Committee has determined that opportunities for increases in annual cash
compensation should be primarily reflected by the annual bonus. Each executive
officer's 1996 annual bonus is determined on the basis of the Board of
Directors' evaluation of the officer's performance in achieving certain goals
set forth in an annual plan and in meeting anticipated and unanticipated
challenges which arise during the year. The Board of Directors reviews each
officer's overall performance in the context of all of the goals and of each
year's challenges and, therefore, does not believe it appropriate to assign each
element of the annual plan a specific weight. In the case of the President and
Chief Executive Officer, the 1996 bonus was based on his planning and
implementation of successful business strategies. In evaluating his performance,
the following factors were considered: financial results, board relations,
congressional relations and team building. These factors include increased
earnings per common share, increased return on shareholder equity, asset growth,
improvements in student loan servicing quality, efforts to achieve rechartering
of Sallie Mae from a government-sponsored enterprise to state chartered
corporation on terms favorable to shareholders, and leadership in improving the
availability and quality of delivery of education credit, including efforts
related to student loan legislation. Ultimate supervisory responsibility for
employees who created a document which is the subject of a complaint filed with
the Federal Election Commission, was also considered in arriving at Mr. Hough's
bonus, as well as that of another executive officer. Based on Mr. Hough's
performance for 1996, he received a bonus of $440,000 of which $220,036 was paid
in cash and $219,964 was paid in the form of 2,263 restricted shares of Sallie
Mae Common Stock. Pursuant to the Stock Compensation Plan the restricted shares
of Sallie Mae Common Stock were valued at 90% of the closing price of the Sallie
Mae Common Stock on the NYSE on the date of grant. The restricted shares of
Sallie Mae Common Stock pay dividends and provides voting rights to the same
extent as unrestricted Sallie Mae Common Stock. From one year from the date of
grant, such restricted shares of Sallie Mae Common Stock may be forfeited, under
certain circumstances.

INCENTIVE PERFORMANCE PLAN. The Incentive Performance Plan is designed to
reward the achievement of long-term corporate goals and to create an incentive
for each executive officer and certain other senior officers of Sallie Mae to
remain employed by Sallie Mae. Under the Incentive Performance Plan, the
Compensation and Personnel Committee may establish each year corporate
performance targets to be achieved over a three-year period. At the end of each
three-year period, the level of achievement of each target is determined and,
based on the weight given to each target and the participation level of each
officer in the Incentive Performance Plan an award is made ranging from 0% to
100% of the officer's then-current salary. Payments under each plan are made in
three equal annual installments and are dependent upon the continued employment
of the executive officer, unless the officer retires from Sallie Mae, in which
case accrued payments are made.

In January of 1996, the Board of Directors made awards for the completed
1993 Plan, which contained the following weighted performance measurements: (1)
33.33% for educational credit enhancements; (2) 33.33% for total shareholder
return; and (3) 33.33% for return on equity, return on assets and earnings per

71
<PAGE> 82

share. Mr. Hough received an award of $267,750 under the 1993 Plan, payable in
three annual installments beginning in January of 1996. The amount of the award
was 22% less than the prior year, primarily as a reflection of the decrease in
the price of Sallie Mae Common Stock during 1994.

In 1996, the same performance measurements were set for the 1996 Plan as
noted above for the 1993 Plan.

STOCK OPTION PLAN. The Board of Directors strongly believes that in
addition to compensating executives for the successful financial performance of
Sallie Mae through annual bonuses and three-year incentive plans, a portion of
executive compensation should be linked to Sallie Mae Common Stock value by
granting stock options to executives. The value of the options granted is at
risk and directly tied to the increase in share price from the date of grant.
The terms of the options, granted at market price and not exercisable for a
period from 12 to 36 months and expiring in ten years, are designed to retain
key employees and to provide incentives for management to increase share price.
The number of options granted each year is based on the same factors as
discussed under "Annual Bonus" above. Previous grants of stock options are
reviewed but are not an element in determining option awards. Based on the Board
of Director's evaluation of these performance measurements, in 1996 Mr. Hough
received 30,000 stock options, exercisable at a price of $73.00 each, the then
current market price. In January of 1997, the Board of Directors awarded Mr.
Hough 27,000 stock options, exercisable at a price of $108 each.

In 1994, 1995, and 1996, Mr. Hough's cash and stock compensation consisted
of 43%, 40%, and 41% respectively, in base salary; 25%, 32%, and 34%
respectively, in annual bonus based on performance for each such year; and 32%,
28%, and 25% respectively, in payments under the Incentive Performance Plan.

Compensation and Personnel Committee

<TABLE>
<S> <C>
David A. Daberko, Chairman
Irene Natividad, Vice Chairman
Charles L. Daley, Member
Steven L. Shapiro, Member
Ronald J. Thayer, Member
David J. Vitale, Member
</TABLE>

The individuals listed above constitute the current membership of the
Sallie Mae Compensation and Personnel Committee. Messrs. Daley and Shapiro
dissented from this Report of the Compensation and Personnel Committee.

COMPENSATION TABLES

Set forth below is historical information relating to the compensation of
executive officers of Sallie Mae. It is anticipated that the Holding Company
will compensate its executive officers in a manner that is substantially similar
to the manner in which Sallie Mae compensates its executive officers.

72
<PAGE> 83

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
--------------------------------------
AWARDS
------------------------ PAYOUTS
ANNUAL COMPENSATION SECURITIES ----------
----------------------------- RESTRICTED UNDERLYING LTIP ALL OTHER
YEAR SALARY(1) BONUS(2) OTHER STOCK(3) OPTIONS(4) PAYOUT(5) COMPENSATION(6)
---- -------- -------- ----- ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Lawrence A. Hough.......... 1996 $540,000 $220,036 - $219,964 30,000 $ 329,656 $54,578
President and CEO 1995 525,000 210,052 - 209,948 50,000 372,078 31,465
1994 510,000 145,025 - 144,975 30,000 381,100 30,565
Timothy G. Greene.......... 1996 304,000 184,000 - 46,000 14,000 186,029 40,392
EVP and General Counsel 1995 295,000 192,000 - - 18,500 197,557 17,684
1994 288,000 155,000 - - 12,000 133,237 17,280
Denise B. McGlone.......... 1996 295,000 0 - 240,000 14,000 - 17,677
EVP and CFO 1995 285,000 260,000 - - 15,000 - 17,077
1994 253,846 250,000 - - 12,000 - 15,231
Robert D. Friedhoff........ 1996 275,000 235,000 - - 14,000 105,733 16,465
EVP, Systems and Servicing 1995 260,000 210,000 - - 18,500 96,236 15,565
1994 245,000 165,000 - - 12,000 82,683 14,700
Lydia M. Marshall.......... 1996 275,000 245,000 - - 14,000 98,984 16,454
EVP, Marketing 1995 255,000 220,000 - - 18,500 86,457 15,254
1994 235,000 165,000 - - 12,000 73,058 14,100
</TABLE>

- ---------------
(1) "Salary" is the base salary earned in the current year including all salary
deferred to future years.

(2) "Bonus" is the amount earned for the year. The Bonus is determined and
payable in the following year.

Of Mr. Hough's 1996 Bonus of $440,000, 50% was paid in cash ($220,036) and
50% was granted in the form of 2,263 restricted shares of Sallie Mae Common
Stock (determined at 90% of value on date of grant) with a cash value of
$244,404 on the date of grant.

Pursuant to the Stock Compensation Plan, per his election, 80% of Mr.
Greene's 1996 Bonus of $230,000 was paid in cash ($184,024) and 20% was
granted in the form of 473 restricted shares of Sallie Mae Common Stock
(determined at 90% of value on date of grant) with a cash value of $51,084
on the date of grant.

Pursuant to the Stock Compensation Plan, per her election, 100% of Ms.
McGlone's 1996 Bonus of $240,000 was granted in the form of 2,469 restricted
shares of Sallie Mae Common Stock (determined at 90% of value on date of
grant) with a cash value of $266,652 on the date of grant.

(3) Grantees of restricted shares of Sallie Mae Common Stock are eligible to
receive dividends. Mr. Hough's 1994 and 1995 grants will both become
unrestricted as of January 27 and 26, 1997, respectively. All other grants
will become unrestricted on January 23, 1998. On the last day of the fiscal
year, the aggregate number of restricted shares of Sallie Mae Common Stock
granted equaled 6,742 shares with a value at December 31, 1996 of $627,849.

(4) "Securities Underlying Options" includes stock options granted at market
prices in January of each year. The exercise price of the options are as
follows: January 1994: $49.00; January 1995: $37.00 and January 1996:
$73.00; except for Ms. McGlone's 1994 grant, the date of which grant was
November 17, 1993 priced at $44.50.

(5) Each year's Long-Term Incentive Plan ("LTIP") Payout is comprised of the
following payments under the Incentive Performance Plan:

1996 -- 1/3 of the total award earned in each of the IPP years 1993, 1992,
and 1991, paid in January 1996;
1995 -- 1/3 of the total award earned in each of the IPP years 1992, 1991,
and 1990, paid in January 1995;
1994 -- 1/3 of the total award earned in each of the IPP years 1991, 1990,
and 1989, paid in January 1994;

Ms. McGlone is not eligible to receive awards earned under IPP until the
1994 IPP payout which commences in 1997.

(6) "All Other Compensation" consists of the Employees' Thrift and Savings
Plan's and the Supplemental Employees' Thrift and Savings Plan's employer
matching contributions of up to 6% of base salary and for Messrs. Hough and
Greene, $22,213 and $22,173 resulting from purchases of discounted stock
under the Employees' Stock Purchase Plan.

73
<PAGE> 84

1996 OPTION GRANTS TABLE

<TABLE>
<CAPTION>
PERCENT
OF
NUMBER OF TOTAL
SECURITIES GRANTS TO
UNDERLYING EMPLOYEES VALUE AT
OPTIONS IN EXERCISE EXPIRATION GRANT
NAME POSITION GRANTED 1996(1) PRICE DATE DATE(2)
- ------------------------ ------------------------- ---------- --------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Lawrence A. Hough....... President and CEO 30,000 9.3% $73.00 1/25/2006 $774,000
Timothy G. Greene....... EVP and General Counsel 14,000 4.3 73.00 1/25/2006 361,200
Denise B. McGlone....... EVP and CFO 14,000 4.3 73.00 1/25/2006 361,200
Robert D. Friedhoff..... EVP, Systems & Servicing 14,000 4.3 73.00 1/25/2006 361,200
Lydia M. Marshall....... EVP, Marketing 14,000 4.3 73.00 1/25/2006 361,200
</TABLE>

- ---------------
(1) The total number of stock options granted to employees in 1996 was 324,045.

(2) Value is determined on the basis of the Extended Binomial Options Pricing
Model, a variation of the Black-Scholes pricing model. The following
assumptions have been used in valuing the stock options as of the grant
date -- January 25, 1996: volatility -- 29.42%; risk-free rate of
return -- 5.93%; dividend growth rate -- 8.0%; vesting period -- one year
from grant and time of exercise -- expiration date.

1996 OPTION EXERCISES AND YEAR-END VALUE TABLE

<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
OPTIONS AT OPTIONS AT
VALUE YEAR END DECEMBER 31, 1996
SHARES REALIZED ON EXERCISABLE/ EXERCISABLE/
NAME POSITION ACQUIRED EXERCISE UNEXERCISABLE UNEXERCISABLE
- ------------------------ ------------------------- -------- ----------- -------------- -------------------
<S> <C> <C> <C> <C> <C>
Lawrence A. Hough....... President and CEO 10,000 $ 604,500 148,250/30,000 $6,485,468/$603,750
Timothy G. Greene....... EVP and General Counsel 1,080 52,920 44,920/14,000 1,825,072/ 281,750
Denise B. McGlone....... EVP and CFO 8,500 309,812 18,500/14,000 948,312/ 281,750
Robert D. Friedhoff..... EVP, Systems & Servicing 0 0 51,000/14,000 2,176,937/ 281,750
Lydia M. Marshall....... EVP, Marketing 18,500 832,500 24,800/14,000 927,650/ 281,750
</TABLE>

LONG-TERM INCENTIVE PLAN TABLE
INCENTIVE PERFORMANCE PLAN (IPP)

<TABLE>
<CAPTION>
PERFORMANCE OR OTHER PERIOD
NAME POSITION AWARDS FOR 1993 IPP(1) UNTIL MATURITY OR PAYOUT(2)
- -------------------------- ------------------------- ------------------------------- --------------------------------
<S> <C> <C> <C>
Lawrence A. Hough......... President and CEO Three installments of $89,250. Payable beginning January 1996.
Timothy G. Greene......... EVP and General Counsel Three installments of $50,150 Payable beginning January 1996.
Denise B. McGlone(3)...... EVP and CFO N/A N/A
Robert D. Friedhoff....... EVP, Systems & Servicing Three installments of $38,061. Payable beginning January 1996.
Lydia M. Marshall......... EVP, Marketing Three installments of $37,329. Payable beginning January 1996.
</TABLE>

- ---------------
(1) The 1993 IPP commenced January 1, 1993 and ended December 31, 1995. Awards
for that IPP were determined by the Board of Directors in January 1996.

(2) The January 1996 payment for the 1993 IPP is included in the Summary
Compensation Table under "LTIP Payout".

(3) Denise McGlone rejoined the Corporation in February 1994. Ms. McGlone is not
eligible to receive awards until the 1994 IPP payout which commences in
1997.

74
<PAGE> 85

DESCRIPTION OF BENEFIT PLANS

Set forth below are current benefit plans of Sallie Mae. It is anticipated
that following the Reorganization, the Holding Company will become the sponsor
of each of these benefit plans and maintain such plans in a manner substantially
similar to the manner in which Sallie Mae currently maintains such plans.

PENSION PLANS

PENSION PLAN TABLE
ANNUAL NORMAL RETIREMENT BENEFIT(1)

<TABLE>
<CAPTION>
FINAL YEARS OF SERVICE AT NORMAL RETIREMENT DATE
AVERAGE ---------------------------------------------------------------
COMPENSATION 15 20 25 30
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
$400,000 $ 129,671 $ 172,895 $ 216,119 259,343
450,000 146,171 194,895 243,619 292,343
500,000 162,671 216,895 271,119 325,343
550,000 179,171 238,895 298,619 358,343
600,000 195,671 260,895 326,119 391,343
650,000 212,171 282,895 353,619 424,343
700,000 228,671 304,895 381,119 457,343
750,000 245,171 326,895 408,619 490,343
800,000 261,671 348,895 436,119 523,343
850,000 278,171 370,895 463,619 556,343
900,000 294,671 392,895 491,119 589,343
</TABLE>

- ---------------
(1) Payable for life to employees retiring in 1996 at age 62.

The credited years of service for the individuals named in the Summary
Compensation Table are: Mr. Hough: 21 years, 10 months; Mr. Greene: 12 years, 5
months; Ms. McGlone: 9 years, 3 months; Mr. Friedhoff: 17 years, 11 months; and
Ms. Marshall: 11 years, 6 months.

The Student Loan Marketing Association Employees' Pension Plan (the
"Pension Plan") provides monthly benefits upon retirement to employees who
complete five years of service. Benefits are calculated according to a formula
which is based on an employee's highest consecutive five-year average base
salary, length of credited service, and are integrated with social security
benefits. The maximum number of years for which a participant receives credit
for service under the Pension Plan is 30 years, and normal retirement age is 62.
The Pension Plan also provides early retirement benefits at age 55, as well as
joint and survivor benefits. The Pension Plan is funded solely by corporate
contributions. Annual contributions to the Pension Plan trust are determined on
an actuarial basis.

The Student Loan Marketing Association Supplemental Pension Plan (the
"Supplemental Pension Plan") assures that designated participants receive the
full amount of benefits to which they would have been entitled under the Pension
Plan but for limits on compensation and benefit levels imposed by the Internal
Revenue Code. The portions of compensation that are considered covered
compensation for the Supplemental Pension Plan for each named executive officer
are the salary and annual bonus amounts, up to 35% of the prior year's salary,
disclosed in the Summary Compensation Table.

Benefit amounts under both the Pension Plan and the Supplemental Pension
Plan are computed on an actuarial basis without individual allocation. The table
above shows estimated annual benefits payable under the Pension Plan and the
Supplemental Pension Plan to an employee for life upon retirement at age 62 in
specified years-of-service and remuneration classes, using assumptions about
compensation increases, under a straight life annuity option. The benefit
amounts shown in the table are not subject to any deduction for social security
or other offset amount.

THRIFT AND SAVINGS PLANS. The Student Loan Marketing Association
Employees' Thrift and Savings Plan (the "Thrift and Savings Plan") is available
to all employees of Sallie Mae after the completion of one year of service.
Employees participate in the Thrift and Savings Plan by contributing up to six
percent of their salaries. Sallie Mae provides a matching contribution equal to
100% of each participant's contribution.

75
<PAGE> 86

Participants are always fully vested in their own contributions to the
Thrift and Savings Plan. Participants vest in Sallie Mae's matching contribution
at the rate of 25% for each year of participation after their first year of
service and, therefore, are fully vested in the matching contributions after
five years of service. Participants may make withdrawals from the Thrift and
Savings Plan, subject to penalties in most instances, and borrow under certain
limited conditions.

The Student Loan Marketing Association Supplemental Employees' Thrift and
Savings Plan (the "Supplemental Thrift and Savings Plan") assures that
designated participants receive the full amount of benefits to which they would
have been entitled under the Thrift and Savings Plan but for limits on
compensation and contribution levels imposed by the Internal Revenue Code.

Salary deferrals made under the Thrift and Savings and the Supplemental
Thrift and Savings Plans by any of the five most highly-compensated executive
officers are reported under the "Salary" column of the Summary Compensation
Table. Sallie Mae contributions made under the Thrift and Savings and
Supplemental Thrift and Savings Plans on behalf of the five most highly
compensated executive officers are reported under the "All Other Compensation"
column of the Summary Compensation Table.

STOCK PURCHASE PLAN. The Employees' Stock Purchase Plan provides that all
full-time and certain part-time employees and members of the Board of Directors
may purchase shares of Sallie Mae Common Stock at the end of a two-year period.
The purchase price is equal to the fair market value of the Sallie Mae Common
Stock at the beginning of the two-year period, less 15%. Purchases are made with
funds that accumulate in a taxable, interest-bearing account funded by payments
from participating employees. Contributions to an employee's account may be made
only through after-tax payroll deductions and are limited to 10% of
compensation, but no more than $10,000. The Board authorized 1,250,000 shares of
Sallie Mae Common Stock to be issued pursuant to the Employees' Stock Purchase
Plan.

The Employees' Stock Purchase Plan is not a "qualified" stock purchase
plan. Accordingly, upon the purchase of stock, employees have taxable income to
the extent that the fair market value of the stock on the date of purchase
exceeds the purchase price. Income for any of the five most highly compensated
executive officers resulting from purchases of stock under the Employees' Stock
Purchase Plan is reported under the "All Other Compensation" column of the
Summary Compensation Table.

DEFERRED COMPENSATION PLAN FOR KEY EMPLOYEES. The Deferred Compensation
Plan for Key Employees provides that participants may elect to defer earnings
and invest the compensation in an interest-bearing cash account and/or a Sallie
Mae Common Stock account. Effective January 1, 1996, the Deferred Compensation
Plan was closed to new participants and closed to additional deferrals after
December 29, 1995. None of the five most highly compensated executive officers
participated in the Plan in 1996.

STOCK OPTION PLAN. The Stock Option Plan, effective from March 1993 to
March 1998, provides key employees an opportunity to acquire an equity interest
in Sallie Mae. The Stock Option Plan is administered by the Compensation and
Personnel Committee, none of whose members are eligible for benefits under the
Stock Option Plan.

The Stock Option Plan provides for the issuance of "non-qualified" or
"qualified" stock options at market value on the day of the grant with terms of
ten years from the date of the grant. Options must be held for a period of
between 12 and 36 months, as determined at the time the option is granted,
before the option may be exercised. The Stock Option Plan authorizes the
granting of options with respect to no more than 5,091,450 shares of Sallie Mae
Common Stock, subject to adjustments for stock splits. All options granted in
1996 were "nonqualified" options.

The Stock Option Plan includes a "reload" option feature that was approved
at the 1996 Annual Meeting of Shareholders of Sallie Mae and that is designed to
encourage officers of Sallie Mae to exercise options and to retain ownership of
the Sallie Mae Common Stock issued pursuant to such exercises.

STOCK COMPENSATION PLAN. At the 1996 Annual Meeting of Shareholders, the
Board of Directors adopted the Sallie Mae Stock Compensation Plan (the "Stock
Plan"). The purpose of the Stock Plan is to continue to promote and encourage
Sallie Mae Common Stock ownership by key employees in order to link

76
<PAGE> 87

the interests of the key employees of Sallie Mae with the interests of the
shareholders of Sallie Mae and to provide the Board of Directors a method to
compensate key employees with Sallie Mae Common Stock in lieu of a portion of
their cash compensation.

Awards will be granted, in lieu of all or part of an officer's annual
bonus, at the discretion of the Compensation and Personnel Committee, to
officers of Sallie Mae eligible to receive an annual bonus. Awards will be made,
at the discretion of the Compensation and Personnel Committee, in the form of
Sallie Mae Common Stock, restricted stock, or stock units. In its discretion,
the Committee may provide an officer with the opportunity to elect to receive an
annual bonus in cash or in restricted stock at a 10 percent discount.

PERFORMANCE GRAPH

STUDENT LOAN MARKETING ASSOCIATION
FIVE-YEAR CUMULATIVE TOTAL RETURN

<TABLE>
<CAPTION>
MEASUREMENT PERIOD S&P FINANCIAL-
(FISCAL YEAR COVERED) SLMA MISC.* S&P 500
<S> <C> <C> <C>
1991 100 100 100
1992 94.51 117.56 107.61
1993 63.29 140.35 118.39
1994 47.69 135.14 119.99
1995 99.93 216.44 164.92
1996 143.94 282.03 202.69
</TABLE>
<TABLE>
<CAPTION>
BASE
COMPANY/INDEX YEAR 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C>
Sallie Mae 100.0 94.5 63.3 47.7 99.9 143.9
S&P Financial-Misc.(1)(2) 100.0 117.6 140.4 135.1 216.4 282.0
S&P 500 Comp-Ltd(2) 100.0 107.6 118.4 120.0 164.9 202.7
</TABLE>

(1) Companies included in Standard & Poor's Financial-Miscellaneous Index:
American Express, American General Finance, Dean Witter, Federal Home Loan
Mortgage Corporation, Federal National Mortgage Association, Green Tree
Financial, MBIA Inc, MBNA Corporation, and Transamerica Corporation.

(2) Source: Bloomberg Comparative Return Table

77
<PAGE> 88

TRANSACTIONS WITH AFFILIATED INSTITUTIONS

Certain directors of the Company are also directors and/or executive
officers of other companies with which the Company, from time to time, engages
in business transactions. Management believes that the terms and conditions of
such transactions are no less favorable to the Company than the terms and
conditions of transactions generally entered into by the Company. The Company
does not believe that it is a party to any transactions in which a director of
the Company has a direct or indirect material interest.

78
<PAGE> 89

BOARD AND MANAGEMENT OWNERSHIP OF THE COMPANY

The following table provides information regarding shares of Sallie Mae
Common Stock owned by persons who have consented to serve as Holding Company
directors, the Company's management and Sallie Mae directors at December 31,
1996, unless otherwise indicated. None of such persons nor such persons as a
group were the beneficial owner of more than 1% of the outstanding shares of
Sallie Mae Common Stock at December 31, 1996. If the Reorganization is approved,
all shares of Sallie Mae Common Stock beneficially owned by such persons shall
be converted into shares of Holding Company Common Stock.

HOLDING COMPANY

<TABLE>
<CAPTION>
TOTAL SHARES
OWNED AND MAY BE
CREDITED TO CREDITED TO ACQUIRED
BENEFIT PLAN BENEFIT PLAN WITHIN 60
OWNED(1) ACCOUNT(2) ACCOUNT(3) DAYS(4)
-------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
HOLDING COMPANY DIRECTORS
William Arceneaux........................................ 1,475 2,408 3,883 3,000
Dolores E. Cross......................................... 150 0 150 0
David A. Daberko......................................... 805 3,593 4,398 3,000
Lawrence A. Hough........................................ 137,736 6,178 143,914 178,250
Ronald F. Hunt, Esq. .................................... 2,731 879 3,610 3,000
Thomas H. Jacobsen....................................... 1,625 670 2,295 3,000
Bobbie Gaunt............................................. 0 0 0 0
Albert L. Lord........................................... 35,300 379 35,679 3,000
Ann Reese................................................ 0 0 0 0
Lawrence Ricciardi....................................... 0 0 0 0
James E. Rohr............................................ 625 362 987 3,000
Roger Sant............................................... 0 0 0 0
Vincent Sarni............................................ 0 0 0 0
Kenneth A. Shaw.......................................... 125 831 956 0
William Edward Simms..................................... 0 0 0 0
John W. Spiegel.......................................... 325 268 593 3,000
Peter Ueberroth.......................................... 0 0 0 0
David J. Vitale.......................................... 625 12,124 12,749 3,000
HOLDING COMPANY NAMED EXECUTIVE OFFICERS (OTHER THAN
HOLDING COMPANY DIRECTORS)
Robert D. Friedhoff...................................... 8,288 206 8,494 65,000
Timothy G. Greene........................................ 6,340 2,663 9,003 58,920
Lydia M. Marshall........................................ 10,823 1,476 12,299 38,800
Denise B. McGlone........................................ 6,502 1,592 8,094 32,500
HOLDING COMPANY DIRECTORS AND EXECUTIVE OFFICERS AS A
GROUP.................................................. 213,475 33,629 247,104 397,470
</TABLE>

- ---------------
(1) Consists of shares held, directly or indirectly, by the individual or a
related party, including restricted shares, and, in the case of officers,
shares credited directly to the individual's account under the Employees'
Thrift and Savings Plan. Pursuant to the Employees' Thrift and Savings Plan,
a participant has the power to direct the voting of stock held on his behalf
in the Employees' Thrift and Savings Plan Trust.

(2) Consists of shares credited under the Directors' Deferred Compensation Plan,
the Supplemental Employees' Thrift and Savings Plan, and the Deferred
Compensation Plan for Key Employees.

(3) Consists of total of columns 1 and 2.

(4) Consists of shares which may be acquired through the Stock Option Plan and
the Board of Directors' Stock Option Plan.

79
<PAGE> 90

SALLIE MAE

<TABLE>
<CAPTION>
TOTAL SHARES
OWNED AND MAY BE
CREDITED TO CREDITED TO ACQUIRED
BENEFIT PLAN BENEFIT PLAN WITHIN 60
OWNED(1) ACCOUNT(2) ACCOUNT(3) DAYS(4)
-------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
SALLIE MAE DIRECTORS
William Arceneaux........................................ 1,475 2,408 3,883 3,000
Mitchell W. Berger....................................... 300 296 596 3,000
James E. Brandon......................................... 1,475 683 2,158 3,000
David A. Daberko......................................... 805 3,593 4,398 3,000
Charles L. Daley......................................... 1,200 190 1,390 3,000
Kris E. Durmer........................................... 618 278 896 3,000
Diane S. Gilleland....................................... 300 639 939 3,000
Ronald F. Hunt, Esq. .................................... 2,731 879 3,610 3,000
Thomas H. Jacobsen....................................... 1,625 670 2,295 3,000
Benjamin J. Lambert...................................... 200 361 561 3,000
Albert L. Lord........................................... 35,300 379 35,679 3,000
Regina T. Montoya........................................ 300 278 578 3,000
James E. Moore........................................... 800 887 1,687 3,000
Irene Natividad.......................................... 300 268 568 3,000
A. Alexander Porter, Jr. ................................ 21,200 190 21,390 3,000
James E. Rohr............................................ 625 362 987 3,000
Steven L. Shapiro........................................ 1,200 493 1,693 3,000
John W. Spiegel.......................................... 325 268 593 3,000
Ronald J. Thayer......................................... 300 268 568 3,000
David J. Vitale.......................................... 625 12,124 12,749 3,000
Randolph H. Waterfield, Jr. ............................. 400 485 885 3,000
SALLIE MAE NAMED EXECUTIVE OFFICERS
Robert D. Friedhoff...................................... 8,288 206 8,494 65,000
Timothy G. Greene........................................ 6,340 2,663 9,003 58,920
Lawrence A. Hough........................................ 137,736 6,178 143,914 178,250
Lydia M. Marshall........................................ 10,823 1,476 12,299 38,800
Denise B. McGlone........................................ 6,502 1,592 8,094 32,500
SALLIE MAE DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP... 241,793 38,114 279,907 436,470
</TABLE>

(2) Consists of shares credited under the Directors' Deferred Compensation Plan,
the Supplemental Employees' Thrift and Savings Plan, and the Deferred
Compensation Plan for Key Employees.

(3) Consists of total of columns 1 and 2.

(4) Consists of shares which may be acquired through the Stock Option Plan and
the Board of Directors' Stock Option Plan.

80
<PAGE> 91

PRINCIPAL HOLDERS

Sallie Mae believes the following institutions were beneficial owners of 5%
or more of the outstanding shares of Sallie Mae Common Stock at September 30,
1996 based upon information from such institutions and Sallie Mae's records.

<TABLE>
<CAPTION>
OWNERSHIP PERCENT AT
SEPTEMBER 30, 1996
PRINCIPAL HOLDERS SHARES ------------------------
- -------------------------------------------------------------- --------- (UNLESS OTHERWISE NOTED)
<S> <C> <C>
FMR Corporation............................................... 6,524,690 11.8%
The Capital Group Companies, Inc.(1).......................... 5,315,200 9.76%
Chancellor Capital............................................ 4,459,225 8.19%
Scudder Stevens & Clark....................................... 3,210,885 5.9%
</TABLE>

- ---------------
(1) Certain operating subsidiaries of the Capital Group Companies, Inc.
exercised investment discretion over various institutional accounts which
held, as of September 30, 1996, 5,315,200 shares of the issue (9.76% of the
outstanding shares of the class). Capital Guardian Trust Company, a bank,
and one of such operating companies, exercised investment discretion over
1,585,200 of said shares. Capital Research and Management Company, a
registered investment adviser had investment discretion with respect to
3,730,000 shares of the above shares.

81
<PAGE> 92

LEGAL MATTERS

The legality of the Holding Company Common Stock to be issued pursuant to
the Reorganization and certain other matters in connection with the
Reorganization will be passed upon by Timothy G. Greene, General Counsel of
Sallie Mae and of the Holding Company. Skadden, Arps, Slate, Meagher & Flom
L.L.P., Washington, D.C., will render an opinion to Sallie Mae and the Holding
Company as to certain federal income tax consequences of the Reorganization.

EXPERTS

The balance sheet of the Holding Company at February 3, 1997 and the
consolidated financial statements of Sallie Mae as of December 31, 1996 and
1995, and for each of the three years in the period ended December 31, 1996
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their reports thereon
appearing elsewhere herein, and are included in reliance upon such reports given
upon the firm as experts in accounting and auditing.

Representatives of Ernst & Young LLP are expected to attend the Special
Meeting, will have the opportunity to make a statement if they desire to do so,
and can be expected to respond to appropriate questions from shareholders
present at the Special Meeting.

82
<PAGE> 93

SALLIE MAE ANNUAL MEETING SHAREHOLDER PROPOSALS

If the Reorganization is not consummated, an annual meeting of Sallie Mae
will be held as soon as practicable after the Special Meeting. To be included in
the proxy material for the 1997 Annual Meeting of Shareholders of Sallie Mae,
any shareholder proposal must be received by Sallie Mae no later than May 30,
1997. The submission of a shareholder proposal does not guarantee that it will
be included in such proxy material.

By Order of the Board of Directors

Ann Marie Plubell
Vice President, Associate General
Counsel and
Secretary

83
<PAGE> 94

FINANCIAL STATEMENTS

INDEX

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SLM HOLDING CORPORATION
Report of Independent Auditors....................................................... F-2
Balance Sheet........................................................................ F-3
Notes to Balance Sheet............................................................... F-4
STUDENT LOAN MARKETING ASSOCIATION
Report of Independent Auditors....................................................... F-6
Consolidated Balance Sheets.......................................................... F-7
Consolidated Statements of Income.................................................... F-8
Consolidated Statements of Changes in Stockholders' Equity........................... F-9
Consolidated Statements of Cash Flows................................................ F-10
Notes to Consolidated Financial Statements........................................... F-11
</TABLE>

F-1
<PAGE> 95

REPORT OF INDEPENDENT AUDITORS

The Board of Directors
SLM Holding Corporation

We have audited the accompanying balance sheet of SLM Holding Corporation
as of February 3, 1997. This balance sheet is the responsibility of the
management of SLM Holding Corporation. Our responsibility is to express an
opinion on this balance sheet based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for our
opinion.

In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of SLM Holding Corporation at February
3, 1997 in conformity with generally accepted accounting principles.

Washington D.C. Ernst & Young LLP
February 3, 1997

F-2
<PAGE> 96

SLM HOLDING CORPORATION
BALANCE SHEET

<TABLE>
<CAPTION>
FEBRUARY 3,
1997
-----------
<S> <C>
ASSETS
Cash............................................................................. $ 1,000
========
LIABILITIES...................................................................... $ -
STOCKHOLDER'S EQUITY
Preferred stock, no par value, 20,000,000 shares authorized, none issued and
outstanding.................................................................... -
Common stock, par value $.20 per share, 250,000,000 shares authorized, 1,000
shares issued and outstanding.................................................. 200
Additional paid-in capital....................................................... 800
-----------
Total stockholder's equity....................................................... 1,000
-----------
Total liabilities and stockholder's equity....................................... $ 1,000
========
</TABLE>

See accompanying notes to balance sheet.

F-3
<PAGE> 97

SLM HOLDING CORPORATION

NOTES TO BALANCE SHEET

1. ORGANIZATION AND PRIVATIZATION

SLM Holding Corporation (the "Company") was incorporated on February 3,
1997 under Delaware law. The Company is a wholly-owned subsidiary of the Student
Loan Marketing Association ("Sallie Mae" or "GSE"), a corporation chartered
under federal law. The Company was incorporated to effect the reorganization of
the business of Sallie Mae and the eventual dissolution of Sallie Mae as
described below.

Privatization

Sallie Mae is a stockholder-owned corporation which was created in 1972 as
a federally chartered government-sponsored enterprise under the Higher Education
Act of 1965 (the "Act"). The Act defines Sallie Mae's charter and limits its
corporate authority to education finance related activities, while imposing
certain obligations on Sallie Mae, including acting as a lender of last resort
to eligible borrowers under the Federal Family Education Loan Program (the
"FFELP").

On September 30, 1996, the Student Loan Marketing Association
Reorganization Act of 1996 (the "Privatization Act") was enacted. The
Privatization Act authorized the creation of a state-chartered holding company
(the "Holding Company") that can pursue new business opportunities beyond the
limited scope of the GSE's restrictive federal charter. The Holding Company
would become the parent of the GSE pursuant to a reorganization ("the
Reorganization") which must be approved by a majority vote of the GSE's
shareholders, such vote to take place on or before April 1, 1998.

A special meeting of shareholders has been called to consider and vote upon
the approval of the proposed Reorganization pursuant to a Proxy
Statement/Prospectus filed with the Securities and Exchange Commission ("SEC").
If the Reorganization is approved by the shareholders, the GSE, which will
become a wholly-owned subsidiary of the Holding Company, will be gradually
liquidated and its federal charter rescinded on or before September 30, 2008.
Pursuant to the Reorganization, each outstanding share of Sallie Mae Common
Stock will be converted into one share of Holding Company Common Stock. In
addition, Sallie Mae will transfer certain assets, including stock in certain
subsidiaries to the Holding Company or one of its non-GSE subsidiaries. As
required by the Privatization Act, all GSE employees will be transferred to one
of the Holding Company's subsidiaries. During the wind-down period, it is
expected that all Sallie Mae operations will be managed pursuant to an
arms-length service agreement with a Sallie Mae affiliate. In addition, the
Holding Company will remain a passive entity which supports the operations of
the GSE and its other subsidiaries, and all business activities would be
conducted through the GSE and by such other subsidiaries.

The Privatization Act imposes certain restrictions on intercompany
relations between Sallie Mae and its affiliates during the wind-down period. In
particular, Sallie Mae must not extend credit to, nor guarantee any debt
obligations of the Holding Company, or the Holding Company's non-GSE
subsidiaries. Furthermore, the Privatization Act mandates that transactions
between Sallie Mae and the Holding Company, including any loan servicing
arrangements, shall be on terms no less favorable to Sallie Mae than Sallie Mae
could obtain from an unrelated third party. While Sallie Mae may not finance the
activities of its non-GSE affiliates, it may, subject to its minimum capital
requirements, dividend retained earnings and surplus capital to the Holding
Company, which in turn may use such amounts to support its non-GSE subsidiaries.
The Sallie Mae Charter requires that Sallie Mae maintain a minimum capital ratio
of at least 2.0 percent until 2000, and at least 2.25 percent thereafter. The
Privatization Act further directs that under no circumstances shall the assets
of Sallie Mae be available or used to pay claims or debts of or incurred by the
Holding Company.

F-4
<PAGE> 98

SLM HOLDING CORPORATION

NOTES TO BALANCE SHEET -- (CONTINUED)

1. ORGANIZATION AND PRIVATIZATION -- (CONTINUED)

During the wind-down period following the Reorganization and prior to the
GSE's dissolution, the GSE will be restricted in the new business activities it
may undertake. Sallie Mae may continue to purchase student loans only through
September 30, 2007. Warehousing advances, letters of credit and standby bond
purchase activity by the GSE will be limited to takedowns on contractual
financing and guarantee commitments in place as of the Reorganization's
effective date. The Holding Company generally may begin to purchase student
loans only after the GSE discontinues such activity. Sallie Mae's GSE debt
obligations that are outstanding at the time of Reorganization will continue to
be outstanding obligations of the GSE immediately after the Reorganization.
Sallie Mae will be able to continue to issue debt in the government agency
market to finance student loans and other permissible asset acquisitions,
although the maturity date of such issuances generally may not extend beyond
September 30, 2008, Sallie Mae's final dissolution date. At December 31, 1996,
Sallie Mae had $372 million in outstanding debt with maturities after September
30, 2008. Such debt will be transferred into a defeasance trust on the final
dissolution date.

The Privatization Act imposes certain "execution" or "transaction" costs.
Within 60 days after the merger, Sallie Mae is required to pay $5 million to the
D.C. Financial Control Board for use of the "Sallie Mae" name. In addition, the
Holding Company must issue to the D.C. Financial Control Board 555,015 common
stock warrants. These warrants are transferable and exercisable at any time
prior to September 30, 2008 at $72.43 per share. Beginning in fiscal 1997, and
until the GSE is dissolved, Sallie Mae also must reimburse the U.S. Treasury
Department up to $800,000 annually (subject to adjustment based on the Consumer
Price Index) for its reasonable costs and expenses of carrying out its
supervisory duties under the Privatization Act.

The transfer of subsidiaries and assets of the GSE to the Holding Company
and the related exchange of common stock between the GSE and the Holding Company
will be accounted for at historical cost similar to a pooling of interests.
Operations performed outside the GSE after the Reorganization will be subject to
state and local taxes.

If the Reorganization is not approved by shareholders certain charter
sunset provisions of the Privatization Act become applicable and will result in
the dissolution of the GSE by July 1, 2013.

2. RISKS AND UNCERTAINTIES

The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.

F-5
<PAGE> 99

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Student Loan Marketing Association

We have audited the accompanying consolidated balance sheets of the Student
Loan Marketing Association at December 31, 1996 and 1995, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Student
Loan Marketing Association at December 31, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.

As discussed in Note 1 to the financial statements, in 1995 the Student
Loan Marketing Association changed its method of accounting for student loan
income and in 1994 for certain investments in debt and equity securities.

Washington, D.C. Ernst & Young LLP
January 13, 1997

F-6
<PAGE> 100

STUDENT LOAN MARKETING ASSOCIATION

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Insured student loans purchased.................................... $32,307,930 $34,336,211
Student loan participations........................................ 1,445,596 -
----------- -----------
Insured student loans.............................................. 33,753,526 34,336,211
Warehousing advances............................................... 2,789,485 3,865,093
Academic facilities financings..................................... 1,473,331 1,312,234
Cash and investments............................................... 7,706,469 8,866,975
Other assets, principally accrued interest receivable.............. 1,907,079 1,621,222
----------- -----------
Total assets....................................................... $47,629,890 $50,001,735
========== ==========
LIABILITIES
Short-term borrowings.............................................. $22,156,548 $17,447,000
Long-term notes.................................................... 22,606,226 30,082,615
Other liabilities, principally accrued interest payable............ 1,819,286 1,390,915
----------- -----------
Total liabilities.................................................. 46,582,060 48,920,530
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, par value $50.00 per share, 5,000,000 shares
authorized and issued, 4,277,650 outstanding..................... 213,883 213,883
Common stock, par value $.20 per share, 250,000,000 shares
authorized:
65,695,571 and 124,121,770 shares issued, respectively........... 13,139 24,824
Additional paid-in capital......................................... - 537,818
Unrealized gains on investments (net of tax of $188,050 and
$199,686, respectively).......................................... 349,235 370,846
Retained earnings.................................................. 1,008,737 2,728,383
----------- -----------
Stockholders' equity before treasury stock......................... 1,584,994 3,875,754
Common stock held in treasury at cost: 12,004,976 and
66,415,524 shares, respectively.................................. 537,164 2,794,549
----------- -----------
Total stockholders' equity......................................... 1,047,830 1,081,205
----------- -----------
Total liabilities and stockholders' equity......................... $47,629,890 $50,001,735
========== ==========
</TABLE>

See accompanying notes to consolidated financial statements.

F-7
<PAGE> 101

STUDENT LOAN MARKETING ASSOCIATION

CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Interest income:
Insured student loans purchased............................. $2,586,035 $2,708,079 $2,162,149
Student loan participations................................. 20,625 - -
---------- ---------- ----------
Insured student loans....................................... 2,606,660 2,708,079 2,162,149
Warehousing advances........................................ 193,654 407,866 334,012
Academic facilities financings.............................. 100,425 107,721 101,655
Investments................................................. 542,469 697,724 499,443
---------- ---------- ----------
Total interest income......................................... 3,443,208 3,921,390 3,097,259
Interest expense.............................................. 2,576,772 3,020,649 2,142,495
---------- ---------- ----------
NET INTEREST INCOME........................................... 866,436 900,741 954,764
Other income:
Gain on sale of student loans............................... 48,981 - -
Servicing and securitization revenue........................ 57,736 1,423 -
Gains/(losses) on sales of available for sale securities.... 11,898 24,032 (100)
Other....................................................... 28,301 24,958 13,903
---------- ---------- ----------
Total other income............................................ 146,916 50,413 13,803
---------- ---------- ----------
Operating expenses............................................ 405,652 438,701 389,942
---------- ---------- ----------
Income before federal income taxes, premiums on debt
extinguished and cumulative effect of the change in method
of accounting for student loan income....................... 607,700 512,453 578,625
---------- ---------- ----------
Federal income taxes:
Current..................................................... 207,437 141,803 178,812
Deferred.................................................... (23,939) (540) (12,284)
---------- ---------- ----------
Total federal income taxes.................................... 183,498 141,263 166,528
---------- ---------- ----------
Income before premiums on debt extinguished and cumulative
effect of the change in method accounting for student loan
income...................................................... 424,202 371,190 412,097
Premiums on debt extinguished, net of tax..................... (4,792) (4,911) (9,329)
---------- ---------- ----------
Income before cumulative effect of the change in method of
accounting for student loan income.......................... 419,410 366,279 402,768
Cumulative effect of the change in method of accounting for
student loan income, net of tax............................. - 130,148 -
---------- ---------- ----------
NET INCOME.................................................... $ 419,410 $ 496,427 $ 402,768
=========== =========== ===========
Earnings per common share before premiums on debt extinguished
and cumulative effect of the change in method of accounting
for student loan income..................................... $ 7.41 $ 5.34 $ 5.03
=========== =========== ===========
Earnings per common share before cumulative effect of the
change in method of accounting for student loan income...... $ 7.32 $ 5.27 $ 4.91
=========== =========== ===========
EARNINGS PER COMMON SHARE..................................... $ 7.32 $ 7.20 $ 4.91
=========== =========== ===========
PRO FORMA AMOUNTS ASSUMING THE CHANGE IN METHOD OF ACCOUNTING FOR
STUDENT LOAN INCOME IS APPLIED RETROACTIVELY TO 1994
Net income.................................................... $ 419,410 $ 366,279 $ 420,203
=========== =========== ===========
Earnings per common share..................................... $ 7.32 $ 5.27 $ 5.13
=========== =========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-8
<PAGE> 102

STUDENT LOAN MARKETING ASSOCIATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
PREFERRED STOCK:
Balance, beginning and end of year.................... $ 213,883 $ 213,883 $ 213,883
----------- ---------- ----------
COMMON STOCK:
Balance, beginning of year............................ 24,824 24,769 24,766
Issuance of common shares.......................... 115 55 3
Retirement of common shares........................ (11,800) - -
----------- ---------- ----------
Balance, end of year.................................. 13,139 24,824 24,769
----------- ---------- ----------
ADDITIONAL PAID-IN CAPITAL:
Balance, beginning of year............................ 537,818 524,511 523,935
Proceeds in excess of par value from issuance of
common stock..................................... 22,920 11,673 514
Tax benefit related to employee stock option and
purchase plans................................... 7,393 1,634 62
Retirement of common shares........................ (568,131) - -
----------- ---------- ----------
Balance, end of year.................................. - 537,818 524,511
----------- ---------- ----------
UNREALIZED GAINS ON INVESTMENTS, NET OF TAX:
Balance, beginning of year............................ 370,846 299,558 -
Unrealized gains as of January 1, 1994............. - - 304,851
Change in unrealized gains......................... (21,611) 71,288 (5,293)
----------- ---------- ----------
Balance, end of year.................................. 349,235 370,846 299,558
----------- ---------- ----------
RETAINED EARNINGS:
Balance, beginning of year............................ 2,728,383 2,342,900 2,063,772
Cumulative effect of the change in method of
accounting for student loan income, net of tax... - 130,148 -
Income before cumulative effect of the change in
method of accounting for student loan income, net
of tax........................................... 419,410 366,279 402,768
Retirement of common shares........................ (2,037,368) - -
Cash dividends:
Common stock ($1.64, $1.51 and $1.42 per share,
respectively).................................... (90,994) (100,250) (112,946)
Preferred stock.................................... (10,694) (10,694) (10,694)
----------- ---------- ----------
Balance, end of year.................................. 1,008,737 2,728,383 2,342,900
----------- ---------- ----------
COMMON STOCK HELD IN TREASURY AT COST:
Balance, beginning of year............................ 2,794,549 1,934,377 1,546,272
Repurchase of 4,589,452; 16,094,701 and 10,542,791
common shares, respectively...................... 359,914 860,172 388,105
Retirement of 59,000,000 common shares............. (2,617,299) - -
----------- ---------- ----------
Balance, end of year.................................. 537,164 2,794,549 1,934,377
----------- ---------- ----------
TOTAL STOCKHOLDERS' EQUITY.............................. $ 1,047,830 $1,081,205 $1,471,244
========== ========= =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-9
<PAGE> 103

STUDENT LOAN MARKETING ASSOCIATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................... $ 419,410 $ 496,427 $ 402,768
Adjustments to reconcile net income to net
cash provided by operating activities:
(Increase) in accrued interest
receivable............................... (11,286) (179,505) (184,021)
Increase (decrease) in accrued interest
payable.................................. (109,214) 112,133 114,310
(Increase) in other assets................. (274,572) (128,799) (86,959)
Increase in other liabilities.............. 549,221 85,883 194,243
Cumulative effect of change in accounting
method................................... - (200,227) -
Other...................................... - - 26,822
------------- ------------- -------------
Total adjustments............................. 154,149 (310,515) 64,395
------------- ------------- -------------
Net cash provided by operating activities....... 573,559 185,912 467,163
------------- ------------- -------------
INVESTING ACTIVITIES
Insured student loans purchased............... (8,370,836) (9,379,663) (7,955,655)
Reduction of insured student loans purchased:
Installment payments....................... 3,094,937 3,452,985 3,220,233
Claims and resales......................... 1,277,400 1,161,163 1,142,350
Proceeds from securitization of student
loans.................................... 6,026,780 1,000,000 -
Participations purchased...................... (1,498,868) - -
Participation repayments...................... 53,272 - -
Warehousing advances made..................... (1,391,590) (2,250,077) (3,377,494)
Warehousing advance repayments................ 2,467,198 5,416,890 3,379,484
Academic facilities financings made........... (465,596) (122,813) (292,966)
Academic facilities financings reductions..... 302,557 379,283 103,314
Investments purchased......................... (15,966,490) (43,716,393) (87,312,581)
Proceeds from sale or maturity of
investments................................ 16,113,659 46,627,289 86,495,100
------------- ------------- -------------
Net cash provided by (used in) investing
activities.................................... 1,642,423 2,568,664 (4,598,215)
------------- ------------- -------------
FINANCING ACTIVITIES
Short-term borrowings issued.................. 267,164,206 163,805,115 118,724,135
Short-term borrowings repaid.................. (262,491,657) (166,764,320) (113,946,559)
Long-term notes issued........................ 8,304,988 12,350,217 16,317,375
Long-term notes repaid........................ (15,744,378) (12,196,436) (15,303,842)
Common stock issued........................... 30,428 13,362 579
Common stock repurchased...................... (359,914) (860,172) (388,105)
Dividends paid................................ (101,688) (110,944) (123,640)
------------- ------------- -------------
Net cash provided by (used in) financing
activities.................................... (3,198,015) (3,763,178) 5,279,943
------------- ------------- -------------
Net increase (decrease) in cash and cash
equivalents................................... (982,033) (1,008,602) 1,148,891
CASH AND CASH EQUIVALENTS AT BEGINNING OF
YEAR.......................................... 1,252,920 2,261,522 1,112,631
------------- ------------- -------------
Cash and cash equivalents at end of year........ $ 270,887 $ 1,252,920 $ 2,261,522
============ ============ ============
</TABLE>

See accompanying notes to consolidated financial statements.

F-10
<PAGE> 104

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

1. ORGANIZATION AND PRIVATIZATION

The Student Loan Marketing Association ("Sallie Mae" or the "GSE") is a
stockholder-owned corporation chartered by Congress to provide liquidity for
originators of student loans made under federally sponsored student loan
programs and otherwise to support the credit needs of students and educational
institutions. The GSE charter is subject to legislative change from time to
time. Sallie Mae is predominantly engaged in the purchase of student loans
insured under federally sponsored programs. Sallie Mae also makes secured loans
(warehousing advances) to providers of education credit, and provides financing
to educational institutions for their physical plant and equipment (academic
facilities financings).

Privatization

A special meeting of shareholders has been called to consider and vote upon
the approval of the proposed Reorganization pursuant to a Proxy
Statement/Prospectus filed with the Securities and Exchange Commission ("SEC").
If the Reorganization is approved by the shareholders, the GSE, which will
become a wholly owned subsidiary of the Holding Company, will be gradually
liquidated and its federal charter rescinded on or before September 30, 2008.
Pursuant to the Reorganization, each outstanding share of Sallie Mae Common
Stock will be converted into one share of Holding Company Common Stock. In
addition, Sallie Mae will transfer certain assets, including stock in certain
subsidiaries, to the Holding Company's or one of its non-GSE subsidiaries. As
required by the Privatization Act all GSE employees will be transferred to the
Holding Company or one of its subsidiaries. During the wind-down period, it is
expected that all Sallie Mae operations will be managed pursuant to an
arms-length service agreement with a Sallie Mae affiliate. In addition, the
Holding Company will remain a passive entity which supports the operations of
the GSE and its other subsidiaries, and all business activities would be
conducted through the GSE and by such other subsidiaries.

The Privatization Act imposes certain restrictions on intercompany
relations between Sallie Mae and its affiliates during the wind-down period. In
particular, Sallie Mae must not extend credit to, nor guarantee any debt
obligations, of the Holding Company or the Holding Company's non-GSE
subsidiaries. Furthermore, the Privatization Act mandates that transactions
between Sallie Mae and the Holding Company, including any loan servicing
arrangements, shall be on terms no less favorable to Sallie Mae than Sallie Mae
could obtain from an unrelated third party. While Sallie Mae may not finance the
activities of its non-GSE affiliates, it may, subject to its minimum capital
requirements, dividend retained earnings and surplus capital to the Holding
Company, which in turn may use such amounts to support its non-GSE subsidiaries.
The Sallie Mae charter requires that Sallie Mae maintain a minimum capital ratio
of at least 2.0 percent until 2000 and 2.25 percent thereafter. The
Privatization Act further directs that under no circumstances shall the assets
of Sallie Mae be available or used to pay claims or debts of, or incurred by,
the Holding Company.

F-11
<PAGE> 105

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

1. ORGANIZATION AND PRIVATIZATION -- (CONTINUED)

outstanding at the time of Reorganization will continue to be outstanding
obligations of the GSE immediately after the Reorganization. Sallie Mae will be
able to continue to issue debt in the government agency market to finance
student loans and other permissible asset acquisitions, although the maturity
date of such issuances generally may not extend beyond September 30, 2008,
Sallie Mae's final dissolution date. At December 31, 1996, Sallie Mae had $372
million in carrying value of outstanding debt with maturities after September
30, 2008. Such debt will be transferred into a defeasance trust on the final
dissolution date.

If the Privatization is not approved by shareholders certain charter sunset
provisions of the Privatization Act become applicable and will result in the
dissolution of the GSE by July 1, 2013.

2. SIGNIFICANT ACCOUNTING POLICIES

Loans

Loans, consisting of insured student loans purchased (student loans),
student loan participations, warehousing advances, and academic facilities
financings are carried at their unpaid principal balances which, for student
loans, are adjusted for unamortized premiums and unearned purchase discounts.

Investments

Investments are held to provide liquidity, to hedge certain financing
activities and to serve as a source of short-term income. Investments are
segregated into three categories as required under Statement of Financial
Accounting Standards ("FAS") No. 115. Securities that are actively traded are
accounted for at fair market value with unrealized gains and losses included in
investment income. Securities that are intended to be held to maturity are
accounted for at amortized cost. Securities that fall outside of the two
previous categories are considered as available-for-sale. Such securities are
carried at market value, with the after-tax unrealized gain or loss, along with
after-tax unrealized gain or loss on instruments which hedge such securities,
carried as a separate component of equity. The amortized cost of debt securities
in this category is adjusted for amortization of premiums and accretion of
discounts.

Student loan income

Student loan servicing costs are generally incurred in a fixed amount per
borrower and thus increase in proportion to principal balances outstanding as
loans are repaid. Prior to 1995, to achieve a level yield to maturity, interest
income was deferred during the early years of the loans, then recognized during
the later years to offset the aforementioned proportional servicing cost
increases. Changes in the estimates of future

F-12
<PAGE> 106

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

loan servicing costs were reflected in student loan income over the estimated
remaining terms of the loans. In 1995, Sallie Mae discontinued its accounting
method of deferring income on student loans. Effective January 1, 1995, Sallie
Mae commenced recognizing student loan income as earned. Sallie Mae believes
this method of accounting is preferable based on industry practices used for
recognition of interest income and servicing costs. Interest income earned on
student loan participations is recognized in accordance with the terms of the
joint venture agreement with The Chase Manhattan Bank which effectively reflects
the underlying interest income earned on the student loans less servicing costs
and the general and administrative expenses of the joint venture.

Change in method of accounting for student loan income

In the fourth quarter of 1995, pursuant to Sallie Mae changing its method
of accounting for student loan income effective January 1, 1995, the previously
reported three quarters of 1995 were restated to reflect the change. The effect
of the change in 1995 was to increase income before premiums on debt repurchased
by $21 million net of tax ($.30 per common share). The cumulative effect of the
change as of January 1, 1995 of $130 million, net of tax, was reported in the
Consolidated Statements of Income.

Securitizations

The Company securitizes student loans by selling selected portfolios of
such loans to trusts. Such securitizations are recorded as sales in accordance
with FAS No. 77, "Reporting by Transferors for Transfers of Receivables with
Recourse". A receivable is recorded at the time of sale equal to the present
value of the expected net cash flows from the trust. A gain is recorded on a
present value basis which takes into account principal, interest and special
allowance receipts on the student loans less principal and interest payments on
the notes and certificates financing the student loans, a normal servicing fee,
borrower benefit programs, losses from defaulted student loans (which includes
risk-sharing, claim interest penalties and reject costs), transaction costs,
offset fees and the current carrying value of the loans including any premiums
paid.

In addition to the initial gain on sale, Sallie Mae is entitled to the
residual earnings from the trust. After the loans are sold to trusts, Sallie Mae
continues to service them for a fee. These revenues are reflected as servicing
and securitization revenues in the Consolidated Statements of Income.

Interest expense

Interest expense is based upon contractual interest rates adjusted for net
payments under derivative financial instruments with off-balance sheet risks,
which include interest rate and foreign currency exchange agreements and the
amortization of debt issuance costs and deferred gains and losses on hedge
transactions entered into to reduce interest rate risk.

Federal income taxes

Deferred income taxes reflect the net effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.

Earnings per common share

Earnings per common share are computed using the weighted average of common
and common equivalent shares outstanding for the period. Common equivalent
shares include shares issuable upon exercise of incentive stock options.

F-13
<PAGE> 107

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

Consolidation

The consolidated financial statements include the accounts of Sallie Mae
and its subsidiaries, after eliminating significant intercompany accounts and
transactions.

Reclassification

Certain prior year amounts in the Consolidated Statements of Income for the
years ended December 31, 1995 and 1994 have been reclassified to conform with
the current year's presentation.

Use of estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, reported
amounts of revenues and expenses and other disclosures. Actual results could
differ from those estimates.

Recently issued accounting pronouncements

In June 1996, FAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" was issued. This statement
will govern the accounting for securitization transactions entered into after
December 31, 1996. In-substance defeasance transactions entered into after
December 31, 1996 will no longer receive off-balance sheet treatment. Sallie Mae
management believes the application of this Statement will have no material
impact on Sallie Mae's results of operations.

3. STUDENT LOANS

Sallie Mae purchases student loans from originating lenders, typically just
before the student leaves school and is required to begin repayment of the loan.
Sallie Mae's portfolio consists principally of loans originated under two
federally sponsored programs -- the Federal Family Education Loan Program
("FFELP") and the Health Education Assistance Loan Program ("HEAL"). Sallie Mae
also purchases privately insured loans from time to time, principally those
insured by a wholly-owned subsidiary.

There are four principal categories of FFELP loans: Stafford loans, PLUS
loans, SLS loans and consolidation loans. Generally, these loans have repayment
periods of between five and ten years, with the exception of consolidation
loans, and obligate the borrower to pay interest at a stated fixed rate or an
annually reset variable rate that has a cap. However, the yield to holders is
subsidized on the borrowers' behalf by the federal government to provide a
market rate of return. The formula through which the subsidy is determined is
referred to as the special allowance formula. Special allowance is paid whenever
the average of all of the 91-day Treasury bill auctions in a calendar quarter,
plus a spread of between 2.50 and 3.50 percentage points depending on the loan
status and when it was originated, exceeds the rate of interest which the
borrower is obligated to pay. In low interest rate environments the rate which
the borrower is obligated to pay may exceed the rate determined by the special
allowance formula. In those instances the rate paid by the borrower becomes a
floor on an otherwise variable rate asset.

The Omnibus Budget Reconciliation Act of 1993 ("OBRA"), enacted on August
10, 1993, made significant changes to the student loan delivery system and
created a program of direct lending to students by the federal government. The
direct lending program replaced approximately 7 percent of the FFELP
originations in the 1994-1995 academic year and under OBRA this is scheduled to
increase up to 60 percent in the 1998-1999 academic year. Management believes
these changes to the student loan delivery system along

F-14
<PAGE> 108

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

3. STUDENT LOANS -- (CONTINUED)

with direct lending, which reduce the pool of loans originated by the bank-based
FFELP, will have an increasing material adverse effect on Sallie Mae's long-term
earning prospects as a higher percentage of loans subject to OBRA will be
available to Sallie Mae and the full effects of direct lending originations are
factored in.

The estimated average remaining term of purchased student loans in Sallie
Mae's portfolio was approximately 6.0 years at December 31, 1996. The following
table reflects the distribution of Sallie Mae's loan portfolio by program.

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
FFELP -- Stafford.................................................. $17,292,273 $20,210,325
FFELP -- PLUS/SLS.................................................. 3,580,803 4,514,976
FFELP -- Consolidation loans....................................... 7,658,035 5,960,091
HEAL............................................................... 2,758,860 2,764,244
Privately insured.................................................. 1,017,959 886,575
----------- -----------
Student loans purchased............................................ 32,307,930 34,336,211
Participations..................................................... 1,445,596 -
----------- -----------
Total student loans................................................ $33,753,526 $34,336,211
========== ==========
</TABLE>

As of December 31, 1996, 84 percent of Sallie Mae's on-balance sheet
student loan portfolio was in repayment.

Holders of FFELP loans are insured against the borrower's default, death,
disability, or bankruptcy. Insurance on FFELP loans is provided by certain state
or non-profit guarantee agencies, which are reinsured by the federal government.
FFELP loans originated after October 1, 1993, of which Sallie Mae owned $13.6
billion at December 31, 1996, are insured for 98 percent of their unpaid balance
resulting in 2 percent risk-sharing for holders of these loans. HEAL loans are
directly insured by the federal government. Both FFELP and HEAL loans are
subject to regulatory requirements relating to servicing. In the event of
default on a student loan or the borrower's death, disability, or bankruptcy,
Sallie Mae files a claim with the insurer or guarantor of the loan, who,
provided the loan has been properly originated and serviced, and in the case of
HEAL, litigated, pays Sallie Mae the unpaid principal balance and accrued
interest on the loan less risk-sharing, where applicable.

Claims not immediately honored by the guarantor because of servicing or
origination defects are returned for remedial servicing, during which period
income is not recognized. On certain paid claims, guarantors assess a penalty
for minor servicing defects. Costs associated with claims on defaulted student
loans, which include such penalties and uncurable default claims, reduced
interest income on student loans by $12.8 million, $15.8 million, and $16.8
million for the years ended December 31, 1996, 1995 and 1994, respectively.

F-15
<PAGE> 109

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

3. STUDENT LOANS -- (CONTINUED)

The following table summarizes the reserves that Sallie Mae has recorded
for estimated losses due to risk-sharing, unpaid guarantee claims and defaults
on privately insured loans.

<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
BALANCE AT BEGINNING OF YEAR..................................... $60,337 $64,928 $66,814
Additions
Provisions for loan losses..................................... 29,749 800 202
Recoveries..................................................... 7,235 6,096 5,998
Deductions
Losses on loans................................................ (13,258) (11,487) (8,086)
------- ------- -------
BALANCE AT END OF THE YEAR....................................... $84,063 $60,337 $64,928
======= ======= =======
</TABLE>

4. WAREHOUSING ADVANCES

Warehousing advances are secured loans made, generally, to finance student
loans and other education-related loans at certain financial and educational
institutions and public sector agencies. Such advances are collateralized by
student loans, obligations of the United States government or instrumentalities
thereof, or by other collateral, such as residential first mortgages and
mortgage-backed securities. As of December 31, 1996, approximately 97 percent
were collateralized by student loans, 1 percent by U.S. government securities,
and 2 percent by other collateral. A summary of warehousing advances by industry
concentration follows:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
---------- ----------
<S> <C> <C>
Commercial banks............................................. $1,547,193 $2,612,125
Public sector agencies....................................... 1,126,095 985,182
Educational institutions..................................... 116,197 167,786
Thrift institutions.......................................... - 100,000
---------- ----------
$2,789,485 $3,865,093
========= =========
</TABLE>

Warehousing advances have specific maturities and generally bear rates of
interest which vary with the 91-day Treasury bill rate, or the London Interbank
Offered Rate ("LIBOR"), or which are fixed for the term of the advance. A
summary of warehousing advance interest rate characteristics follows:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
---------- ----------
<S> <C> <C>
Variable rate:
Treasury bill.............................................. $1,723,588 $2,138,929
LIBOR...................................................... 1,046,086 1,623,028
Fixed rate................................................... 19,811 103,136
---------- ----------
$2,789,485 $3,865,093
========= =========
</TABLE>

The average remaining term to maturity of warehousing advances was 1.0 year
as of December 31, 1996, with maturities as follows: 1997 -- $1,221,148;
1998 -- $1,232,186; 1999 -- $175,391; 2000 -- $127,863; 2001 -- $0; after
2001 -- $32,897.

F-16
<PAGE> 110

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

5. ACADEMIC FACILITIES FINANCINGS

Academic facilities financings are comprised of $539 million of loans to
and $934 million of bonds issued by educational institutions to finance their
physical plant and equipment. A summary of academic facilities financings
follows:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
---------- ----------
<S> <C> <C>
Fixed rate................................................... $1,325,186 $1,103,256
Variable rate................................................ 148,145 208,978
---------- ----------
$1,473,331 $1,312,234
========= =========
</TABLE>

The average remaining term to maturity of academic facilities financings
was 8.0 years as of December 31, 1996. The maturities of the academic facilities
financing loans were: 1997 -- $8,325; 1998 -- $14,065; 1999 -- $45,115;
2000 -- $17,368; 2001 -- $22,673; 2002-2006 -- $104,872; after 2006 -- $326,432.
The stated maturities and maturities if accelerated to the put or call date for
academic facilities bonds that are classified as available-for-sale are shown in
the following table:

<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE
---------------------
MATURITY
TO
STATED PUT OR
YEAR OF MATURITY MATURITY CALL DATE
---------------------------------------------------------------- -------- ---------
<S> <C> <C>
1997............................................................ $ 44,078 $ 97,657
1998............................................................ 77,409 127,774
1999............................................................ 43,638 57,366
2000............................................................ 78,588 98,515
2001............................................................ 87,197 107,464
2002-2006....................................................... 486,168 410,945
after 2006...................................................... 117,403 34,760
-------- ---------
$934,481 $ 934,481
======== ========
</TABLE>

In December 1995, pursuant to FAS No. 115, academic facilities bonds were
transferred from held-to-maturity to available-for-sale securities. At December
31, 1996 and December 31, 1995 fair market value of these bonds was
approximately $934 million and $710 million with an amortized cost of $916
million and $690 million, respectively.

F-17
<PAGE> 111

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

6. CASH AND INVESTMENTS

A summary of cash and investments at carrying value and market value, where
different, follows:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------
1996 1995
---------------------- ----------------------
CARRYING MARKET CARRYING MARKET
VALUE VALUE VALUE VALUE
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Cash..................................... $ 51,387 $ 32,420
Federal funds and bank deposits.......... 219,500 1,220,500
---------- ----------
Total cash and cash equivalents.......... 270,887 1,252,920
---------- ----------
Asset backed securities.................. 4,649,625 4,305,973
U.S. Treasury securities................. 1,317,881 1,268,500
Variable corporate bonds................. 635,414 611,654
Student loan revenue bonds............... 206,380 280,662
Commercial paper......................... 24,395 121,410
Federal funds and bank deposits.......... - 400,000
Other.................................... 601,887 $601,745 625,856 $626,687
---------- ----------
Total investments................... 7,435,582 7,614,055
---------- ----------
Total cash and investments.......... $7,706,469 $8,866,975
========= =========
</TABLE>

At December 31, 1996 and 1995, all investments with the exception of other
investments are classified as available-for-sale securities under FAS No. 115
and carried at fair market values which approximate amortized costs, except for
U.S. Treasury securities which have an amortized cost of $809 million. The fair
market value of U.S. Treasury securities is adjusted for unrealized gains and
losses on interest rate swaps, which are held to reduce interest rate risk
related to these securities. During 1995, pursuant to FAS No. 115, asset-backed
securities, variable corporate bonds, federal funds and bank deposits, student
loan revenue bonds and commercial paper were transferred from held-to-maturity
securities to available-for-sale securities at fair market values which
approximated amortized cost. Sallie Mae sold available-for-sale securities with
a carrying value of $4.6 billion, $6.6 billion and none for the years ended
December 31, 1996, 1995 and 1994, respectively.

Cash and cash equivalents excludes term federal funds and bank deposits
with terms to maturity exceeding three months. As of December 31, 1996, stated
maturities and maturities if accelerated to the put or call date for
investments, are shown in the following table.

<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE
HELD-TO-MATURITY -------------------------
---------------- MATURITY TO
STATED STATED PUT OR
YEAR OF MATURITY MATURITY MATURITY CALL DATE
---------------------------------------------- ---------------- ---------- -----------
<S> <C> <C> <C>
1997.......................................... $106,823 $ 216,807 $ 225,955
1998.......................................... 12,493 278,153 328,528
1999.......................................... 9,229 532,975 488,182
2000.......................................... 102,879 142,401 150,981
2001.......................................... 4,721 1,059,148 1,073,776
2002-2006..................................... 46,058 2,534,058 2,514,787
After 2006.................................... 319,684 2,070,153 2,051,486
---------------- ---------- -----------
$601,887 $6,833,695 $ 6,833,695
============ ========= =========
</TABLE>

F-18
<PAGE> 112

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

7. BORROWINGS

The following table summarizes outstanding notes, and their related average
balances and interest rates, which include the effects of related off-balance
sheet financial instruments (see Note 9). Short-term borrowings have an original
or remaining term to maturity of one year or less. The average rates of total
long-term floating rate notes, total long-term fixed-rate notes, total long-term
notes and total notes were adjusted to include premiums on debt extinguished.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------
1996 1995
------------------------------------- -------------------------------------
ENDING AVERAGE AVERAGE ENDING AVERAGE AVERAGE
BALANCE BALANCE RATE BALANCE BALANCE RATE
----------- ----------- ------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM NOTES
Six month floating rate notes.............. $ 2,699,477 $ 2,485,322 5.42% $ 2,699,595 $ 3,608,930 5.86%
Other floating rate notes.................. 1,827,643 1,960,926 5.39 1,942,360 1,221,480 5.78
Discount notes............................. 2,377,976 3,072,019 5.36 1,074,257 1,427,363 5.86
Fixed rate notes........................... 3,964,777 1,211,197 5.53 350,000 903,670 5.82
Securities sold not yet purchased and
repurchase agreements.................... - 165,792 4.93 131,112 311,797 6.10
Short-term portion of long-term notes...... 11,286,675 11,956,008 5.45 11,249,676 7,937,658 5.90
----------- ----------- ------- ----------- ----------- -------
Total short-term notes .................... 22,156,548 20,851,264 5.43 17,447,000 15,410,898 5.88
----------- ----------- ------- ----------- ----------- -------
LONG-TERM NOTES
Floating rate notes:
U.S. dollar denominated:
Interest bearing, due 1998-2003........ 8,844,825 12,740,190 5.46 16,995,853 21,998,541 5.95
----------- ----------- ------- ----------- ----------- -------
Fixed rate notes:
U.S. dollar denominated:
Interest bearing, due 1998-2018........ 12,928,983 11,971,640 5.59 11,430,127 12,035,074 5.99
Zero coupon, due 1998-2022............... 326,875 304,990 7.68 400,023 283,282 7.99
Dual currency, due 1998.................. 248,443 245,569 6.65 242,775 240,182 7.02
Foreign currency:
Interest bearing, due 1998-2000........ 257,100 577,592 5.31 767,100 627,900 5.78
Zero coupon, due 1997.................. - 183,647 5.42 246,737 188,399 5.85
----------- ----------- ------- ----------- ----------- -------
Total fixed rate notes................. 13,761,401 13,283,438 5.70 13,086,762 13,374,837 6.08
----------- ----------- ------- ----------- ----------- -------
Total long-term notes...................... 22,606,226 26,023,628 5.58 30,082,615 35,373,378 6.00
----------- ----------- ------- ----------- ----------- -------
Total notes................................ $44,762,774 $46,874,892 5.51% $47,529,615 $50,784,276 5.96%
========== ========== ======= ========== ========== =======
</TABLE>

To match the interest rate characteristics on its fixed rate and floating
rate borrowings with the rate characteristics of its assets, Sallie Mae enters
into interest rate exchange agreements with independent parties. Under these
agreements, Sallie Mae makes periodic payments, indexed to the related asset
rates, in exchange for periodic payments which generally match Sallie Mae's
interest obligations on fixed or variable rate borrowings.

The following table summarizes the ending balances of the borrowings that
have been matched with interest rate swaps at December 31, 1996 and 1995
(dollars in billions).

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1996 1995
------------------------ ------------------------
SHORT LONG SHORT LONG
TERM TERM TOTAL TERM TERM TOTAL
------ ----- ----- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
Fixed rate debt............................ $5.0 13.0 $18.0 $1.4 $12.0 $13.4
Floating rate debt......................... 3.2 1.4 4.6 6.1 3.9 10.0
------ ----- ----- ------ ----- -----
Total...................................... $8.2 $14.4 $22.6 $7.5 $15.9 $23.4
===== ===== ===== ===== ===== =====
</TABLE>

F-19
<PAGE> 113

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

7. BORROWINGS -- (CONTINUED)
At December 31, 1996, Sallie Mae had outstanding long-term debt issues with
put or call features totaling $14.1 billion. The stated maturities and
maturities if accelerated to the put or call date for long-term notes are shown
in the following table:

<TABLE>
<CAPTION>
MATURITY TO
STATED PUT OR
YEAR OF MATURITY MATURITY CALL DATE
----------------------------------------------------------- ----------- -----------
<S> <C> <C>
1997....................................................... $ - $12,794,908
1998....................................................... 7,466,131 5,510,293
1999....................................................... 7,676,221 2,185,610
2000....................................................... 4,077,772 1,483,972
2001....................................................... 2,465,758 79,200
2002-2022.................................................. 920,344 552,243
----------- -----------
$22,606,226 $22,606,226
========== ==========
</TABLE>

For the years ended December 31, 1996, 1995 and 1994, Sallie Mae
repurchased certain long-term notes prior to their scheduled maturity to lower
future years' interest expense. The following table summarizes these
transactions (dollars in millions):

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
--------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Maturity value.................................................... $90 $62 $138
==== ==== ====
Carrying value.................................................... $ 8 $ 8 $ 21
==== ==== ====
Premiums.......................................................... $ 7 $ 8 $ 14
==== ==== ====
</TABLE>

Sallie Mae issues debt with interest and/or principal payment
characteristics tied to foreign currency indices to attempt to minimize its cost
of funds. At December 31, 1996 and 1995, Sallie Mae had outstanding fixed rate
notes repayable in U.S. dollars, with principal repayment obligations tied to
foreign currency exchange rates, foreign currency notes which require the
payment of principal and interest in foreign currencies, and dual currency notes
which require the payment of interest in foreign currencies. To eliminate the
corporation's exposure to the effect of currency fluctuations on these
contractual obligations, Sallie Mae has entered into various foreign currency
agreements with independent parties (see Note 9). Short-term notes having these
characteristics are included in the short-term portion of long-term notes.

8. STUDENT LOAN SECURITIZATION

For the year ended December 31, 1996 and in October 1995, SLM Funding
Corporation, a wholly-owned special purpose finance subsidiary, purchased from
Sallie Mae and sold $6 billion and $1 billion, respectively, of student loans to
trusts which issued floating rate student loan asset-backed securities in
underwritten public offerings. At December 31, 1996, securitized student loans
outstanding totaled $6.3 billion.

The gain recorded on a sale of the student loans is based upon the present
value of expected residual cash flows from the trust, net of the carrying value
of the portfolio of student loans. A receivable from the trust, which represents
the present value of cash expected to be received by Sallie Mae over the life of
the student loans in the trust, is recorded at the time of sale and included in
other assets. In addition to the gain on sale, Sallie Mae is entitled to
residual earnings from the trust and servicing fees for continuing to service
the loans

F-20
<PAGE> 114

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

8. STUDENT LOAN SECURITIZATION -- (CONTINUED)

in the trust. These earnings are recorded as servicing and securitization
revenue in the Consolidated Statements of Income.

In November 1995, the U.S. District Court for the District of Columbia
ruled, contrary to the Secretary of Education's ruling, that student loans owned
by the trusts are not subject to the 30 basis point annual offset fee. The
Department of Education appealed this decision and in January 1997, the U.S.
Court of Appeals for the District of Columbia issued a decision affirming the
District Court's ruling. However, the Court of Appeals remanded the case to the
District Court with instructions to remand to the Department of Education. It is
therefore uncertain what the final outcome of this litigation will be. If the
final outcome following the remand is that the offset fee is not applicable to
loans securitized by Sallie Mae, then as of December 31, 1996, the gains
resulting from prior securitizations would have been increased by approximately
$55 million pre-tax. Offset fees relating to securitizations have not been paid
pending final resolution of the case. Management considers this increase in
gains as a contingent asset which will be recognized upon a favorable final
ruling in this matter. Gains on future securitizations will vary depending on
the characteristics of the loan portfolios securitized as well as the outcome of
the offset fee ruling.

9. DERIVATIVE FINANCIAL INSTRUMENTS

Derivative Financial Instruments Held or Issued for Purposes Other than
Trading

Sallie Mae enters into various financial instruments with off-balance sheet
risk in the normal course of business primarily to reduce interest rate risk and
foreign currency exposure on certain borrowings. These financial instruments
include interest rate swaps, interest rate cap and collar agreements, foreign
currency swaps, forward currency exchange agreements, options on currency
exchange agreements, options on securities and financial futures contracts.
Sallie Mae manages the credit risk associated with these instruments by
performing credit reviews of counterparties and monitoring market conditions to
establish counterparty, sovereign and instrument-type credit limits and, when
appropriate, requiring collateral.

F-21
<PAGE> 115

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

9. DERIVATIVE FINANCIAL INSTRUMENTS -- (CONTINUED)

The following table summarizes the activity for Sallie Mae's interest rate
swaps, foreign currency agreements and futures contracts held or issued for
purposes other than trading for the years ended December 31, 1994, 1995 and 1996
(dollars in millions).

<TABLE>
<CAPTION>
NOTIONAL PRINCIPAL
---------------------------
FOREIGN FUTURES
INTEREST RATE CURRENCY CONTRACT
SWAPS AGREEMENTS AMOUNTS
------------- ---------- --------
<S> <C> <C> <C>
Balance, December 31, 1993........................... $ 23,253 $1,500 $ 1,805
Issuances/Opens.................................... 15,402 510 4,437
Maturities/Expirations............................. (9,518) (575) (3,088)
Terminations/Closes................................ (99) (37) (2,598)
------------- ---------- --------
Balance, December 31, 1994........................... 29,038 1,398 556
Issuances/Opens.................................... 19,549 466 2,370
Maturities/Expirations............................. (10,634) (380) (535)
Terminations/Closes................................ (1,773) - (2,211)
------------- ---------- --------
Balance, December 31, 1995........................... 36,180 1,484 180
Issuances/Opens.................................... 28,063 14 2,631
Maturities/Expirations............................. (13,369) (310) (708)
Terminations/Closes................................ (300) - (1,925)
------------- ---------- --------
Balance, December 31, 1996........................... $ 50,574 $1,188 $ 178
========= ======== =======
</TABLE>

Interest Rate Swaps

Sallie Mae enters into four general types of interest rate swaps under
which it pays the following: 1) a floating rate in exchange for a fixed rate
(standard swaps); 2) a fixed rate in exchange for a floating rate (reverse
swaps); 3) a floating rate in exchange for another floating rate, based upon
different market indices (basis/reverse basis swaps); and 4) student loan floor
agreements. At December 31, 1996, Sallie Mae had outstanding $18.2 billion, $1.1
billion, $17.8 billion and $13.5 billion of notional principal in standard
swaps, reverse swaps, basis/reverse basis swaps and student loan floor
agreements, respectively. Net payments related to the debt-related swaps are
recorded in interest expense. The related net receivable or payable from
counterparties is included in other assets or other liabilities. For the years
ended December 31, 1996, 1995 and 1994, Sallie Mae received net payments on all
debt-related swaps reducing interest expense by $165 million, $94 million and
$262 million, respectively.

In 1996, Sallie Mae entered into swap contracts with third parties having
notional principal of $13.5 billion and, in exchange for upfront payments of
$128 million, agreed to pay them the future student loan floor revenues
received. The upfront payments, which are recorded in other liabilities are
being amortized over the average remaining life of these swaps, which is
approximately 2 years. For the year ended December 31, 1996, the amortization of
the upfront payments, increased student loan income by $23 million. For the year
ended December 31, 1996, payments under the contracts totaled $12 million.

F-22
<PAGE> 116

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

9. DERIVATIVE FINANCIAL INSTRUMENTS -- (CONTINUED)

As of December 31, 1996, stated maturities of interest rate swaps and
maturities if accelerated to the put or call date, are shown in the following
table (dollars in millions). The maturities of interest rate swaps generally
coincide with the maturities of the associated assets or borrowings.

<TABLE>
<CAPTION>
MATURITY TO
STATED PUT OR
YEAR OF MATURITY MATURITY CALL DATE
---------------------------------------------------------------- -------- -----------
<S> <C> <C>
1997............................................................ $ 14,006 $21,568
1998............................................................ 9,152 9,051
1999............................................................ 12,150 9,534
2000............................................................ 8,717 6,052
2001............................................................ 4,919 3,034
2002-2008....................................................... 1,630 1,335
-------- -----------
$ 50,574 $50,574
======= ========
</TABLE>

Foreign Currency Agreements

At December 31, 1996 and 1995, Sallie Mae had borrowings repayable in U.S.
dollars, with principal repayment obligations tied to foreign currency exchange
rates of $80 million and $235 million, respectively, and borrowings with
principal repayable in foreign currencies of $1.0 billion and $1.0 billion,
respectively. Such debt issuances were hedged by forward currency exchange
agreements, foreign currency swaps, and options on currency exchange agreements.
Such agreements typically mature concurrently with the maturities of the debt.
At December 31, 1996, Sallie Mae also had outstanding $80 million, $1.0 billion
and $80 million of notional principal in foreign currency exchange agreements,
foreign currency swaps and foreign currency options, respectively. The following
table summarizes the outstanding amount of these borrowings and their currency
translation values at December 31, 1996 and 1995, using spot rates at the
respective dates (dollars in millions).

<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1995
------ ------
<S> <C> <C>
Carrying value of outstanding foreign currency debt................. $1,108 $1,249
Currency translation value of outstanding foreign currency debt..... 1,002 1,149
</TABLE>

Financial Futures Contracts

Sallie Mae enters into financial futures contracts to hedge the risk of
future interest rate changes. Interest-rate forward and futures contracts are
commitments to either purchase or sell a financial instrument at a specific
future date for a specified price and may be settled in cash or through the
delivery of financial instruments. Futures contracts purchased by Sallie Mae
typically mature in one year or less. Sallie Mae maintains certain cash margins
to meet the dealers' criteria for financial futures.

The gains or losses related to financial futures contracts entered into as
hedges are deferred and included in other assets. Amortization of such gains or
losses over the life of the futures contract is included in either investment
income or debt expense depending on whether the risk that the derivative is
hedging relates to investments or debt.

F-23
<PAGE> 117

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

9. DERIVATIVE FINANCIAL INSTRUMENTS -- (CONTINUED)

Derivative Financial Instruments Held or Issued for Trading Purposes

From time to time Sallie Mae maintains a small number of active trading
positions in derivative financial instruments which are used to attempt to
generate additional income based on market conditions. Trading results for these
positions were immaterial to Sallie Mae's financial statements for years ended
December 31, 1996, 1995 and 1994. During December 1995, Sallie Mae entered into
a derivative contract of $1.5 billion notional amount whose value is determined
by both the market value and the yield of certain AAA rated variable rate
asset-backed securities. The contract, which had an original maturity date of
January 1997, was extended to January 1998. The mark-to-market gain on this
contract was $4 million at December 31, 1996 and immaterial at December 31,
1995.

10. FAIR VALUES OF FINANCIAL INSTRUMENTS

FAS No. 107, "Disclosures About Fair Value of Financial Instruments,"
requires estimation of the fair values of financial instruments. The following
is a summary of the assumptions and methods used to estimate those values.

Student Loans

Fair value was determined by analyzing amounts which Sallie Mae has paid
recently to acquire similar loans in the secondary market.

Warehousing Advances and Academic Facilities Financings

The fair values of both warehousing advances and academic facilities
financings were determined through standard bond pricing formulas using current
interest rates and credit spreads.

Cash and Investments

For investments with remaining maturities of nine months or less, carrying
value approximated fair value. Investments in U.S. Treasury securities were
valued at market quotations. All other investments were valued through standard
bond pricing formulas using current interest rates and credit spreads.

Short-term Borrowings and Long-term Notes

For borrowings with remaining maturities of nine months or less, carrying
value approximated fair value. Where available the fair value of financial
liabilities was determined from market quotations. If market quotations were
unavailable standard bond pricing formulas were applied using current interest
rates and credit spreads.

Off-balance Sheet Financial Instruments

The fair values of off-balance sheet financial instruments, including
interest rate swaps, interest rate cap and collar agreements, foreign currency
swaps, forward exchange agreements and financial futures contracts, were
estimated at the amount that would be required to terminate such agreements,
taking into account current interest rates and credit spreads.

F-24
<PAGE> 118

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

10. FAIR VALUES OF FINANCIAL INSTRUMENTS -- (CONTINUED)

The following table summarizes the fair values of Sallie Mae's financial
assets and liabilities, including off-balance sheet financial instruments
(dollars in millions):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------------
1996 1995
--------------------------------- ------------------------------------
FAIR CARRYING FAIR CARRYING
VALUE VALUE DIFFERENCE VALUE VALUE DIFFERENCE
------- -------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Student loans....................... $34,005 $33,754 $251 $ 34,551 $34,336 $215
Warehousing advances................ 2,793 2,790 3 3,878 3,865 13
Academic facilities financings...... 1,473 1,473 - 1,347 1,313 34
Cash and investments................ 7,706 7,706 - 8,868 8,867 1
------- -------- ----- ---------- -------- -----
Total earning assets................ 45,977 45,723 254 48,644 48,381 263
------- -------- ----- ---------- -------- -----
INTEREST BEARING LIABILITIES
Short-term borrowings............... 22,096 22,157 61 17,423 17,447 24
Long-term notes..................... 22,519 22,606 87 30,252 30,083 (169)
------- -------- ----- ---------- -------- -----
Total interest bearing
liabilities....................... 44,615 44,763 148 47,675 47,530 (145)
------- -------- ----- ---------- -------- -----
OFF-BALANCE SHEET FINANCIAL
INSTRUMENTS
Interest rate swaps................. (21) - (21) 245 - 245
Forward exchange agreements and
foreign currency swaps............ (161) - (161) (184) - (184)
Warehousing advance commitments..... - - - - - -
Academic facilities financing
commitments....................... - - - - - -
Letters of credit................... - - - - - -
----- -----
Excess of fair value over carrying
value............................. $220 $179
========= =========
</TABLE>

At December 31, 1996 and 1995, substantially all interest rate swaps and
foreign exchange agreements and foreign currency swaps were hedging liabilities.

11. COMMITMENTS AND CONTINGENCIES

Sallie Mae has committed to purchase student loans during specified periods
and to lend funds under the warehousing advance commitment, academic facilities
financing commitment and letters of credit programs. Letters of credit support
the issuance of state student loan revenue bonds. They represent unconditional
guarantees of Sallie Mae to repay holders of the bonds in the event of a
default. In the event that letters of credit are drawn upon, such loans are
collateralized by the student loans underlying the bonds.

Commitments outstanding are summarized below:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Student loan purchase commitments.......................... $15,845,821 $14,244,234
Warehousing advance commitments............................ 2,367,288 698,019
Academic facilities financing commitments.................. 9,930 6,330
Letters of credit.......................................... 3,743,892 3,063,390
----------- -----------
$21,966,931 $18,011,973
========== ==========
</TABLE>

F-25
<PAGE> 119

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

11. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)

The following schedule summarizes expirations of commitments outstanding at
December 31, 1996:

<TABLE>
<CAPTION>
ACADEMIC
STUDENT LOAN WAREHOUSING FACILITIES LETTERS OF
PURCHASES ADVANCES FINANCINGS CREDIT
------------ ----------- ---------- ----------
<S> <C> <C> <C> <C>
1997................................... $ 3,299,173 $ 348,072 $ 1,230 $ 367,829
1998................................... 1,793,359 172,647 - 1,122,724
1999................................... 4,367,745 103,609 8,700 861,630
2000................................... 272,743 34,859 - 826,690
2001................................... - - - 207,620
2002-2017.............................. 6,112,801 1,708,101 - 357,399
------------ ----------- ---------- ----------
Total............................. $ 15,845,821 $2,367,288 $ 9,930 $3,743,892
========== ========= ======== =========
</TABLE>

Litigation

On June 11, 1996, Orange County, California filed a complaint against the
Company in the U.S. Bankruptcy Court for the Central District of California. The
case is currently pending in the U.S. District Court for the Central District of
California. The complaint alleges that the Company made fraudulent
representations and omitted material facts in offering circulars on various bond
offerings purchased by Orange County, which contributed to Orange County's
market losses and subsequent bankruptcy. The complaint seeks to hold Sallie Mae
responsible for losses resulting from Orange County's bankruptcy, but does not
specify the amount of damages claimed. In addition, the complaint includes
counts under the California Corporations Code, as well as a count for common law
fraud. The Company believes that the complaint is without merit and intends to
defend the case vigorously. At this time, Management believes the impact of the
lawsuit will not be material to the Company.

12. PREFERRED STOCK

Sallie Mae's 4.3 million outstanding shares of non-voting adjustable rate
cumulative preferred stock, par value $50.00 per share, pay cumulative quarterly
dividends at a per annum rate of 4.5 percentage points below the highest yield
of certain United States Treasury obligations. However, the dividend rate for
any dividend period will not be less than 5 percent per annum nor greater than
14 percent per annum. The dividend rate was 5 percent for the years ended
December 31, 1996, 1995 and 1994. The stock is redeemable, at the option of
Sallie Mae, in whole or in part, at $50.00 per share plus accrued dividends. If
Reorganization is approved, Sallie Mae would be required to repurchase or redeem
all outstanding preferred stock on or before September 30, 2008.

In May 1986, the Board of Directors authorized management, under certain
circumstances, to repurchase up to $50 million of Sallie Mae's adjustable rate
cumulative preferred stock at market prices. As of December 31, 1996, Sallie Mae
had repurchased 722,350 shares at an average price of $45.23 per share,
totalling $32.7 million.

13. COMMON STOCK

The Board of Directors has reserved 11 million common shares for issuance
under various compensation and benefit plans with 6 million shares remaining at
December 31, 1996.

Sallie Mae has engaged in repurchases of its common stock since 1986. In
December 1996, Sallie Mae retired 59 million shares of common stock held as
treasury stock at an average price of $44.36. As a result, treasury stock
decreased by $2.6 billion with a corresponding decrease of $12 million to common
stock, par;

F-26
<PAGE> 120

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

13. COMMON STOCK -- (CONTINUED)

$568 million to additional paid-in capital; and $2.0 billion to retained
earnings. As of December 31, 1996, Sallie Mae held as treasury stock 12 million
common shares purchased at an average price of $44.75.

Earnings per common share are computed based on net income less dividends
on preferred stock divided by the weighted average common and common equivalent
shares outstanding for the period. Average common and common equivalent shares
outstanding for the years ended December 31, 1996, 1995 and 1994 totaled
55,811,279; 67,450,889; and 79,776,993, respectively.

14. STOCK OPTION PLANS

Sallie Mae maintains a stock option plan for key employees which permits
grants of stock options for the purchase of common stock with exercise prices
equal to the market value on the date of the grant. Stock options are
exercisable one year after date of grant and have ten year terms. Sallie Mae's
1993-1998 Employee Stock Option Plan authorized the grant of options for up to
5.1 million shares of common stock. The following table summarizes employee
stock options plan activity.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------
1996 1995 1994
-------------------- -------------------- -------------------
AVERAGE AVERAGE AVERAGE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- ------- --------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year....................... 1,094,975 $ 48.80 931,255 $ 54.49 698,550 $ 58.80
Granted...................... 325,545 73.08 517,800 37.15 367,150 48.03
Exercised.................... (485,363) 41.88 (223,180) 42.76 (13,445) 31.56
Canceled..................... (3,300) 73.00 (130,900) 53.52 (121,000) 62.33
--------- ------- --------- ------- -------- -------
Outstanding at end of year... 931,857 $ 60.80 1,094,975 $ 48.80 931,255 $ 54.49
======== ====== ======== ====== ======== ======
Exercisable at end of year... 609,612 $ 54.30 641,075 $ 57.09 587,855 $ 58.34
======== ====== ======== ====== ======== ======
Weighted-average fair value
of options granted during
the year................... $ 25.87 $ 10.18
====== ======
</TABLE>

The following table summarizes the number, weighted-average of exercise
prices (which ranged from $29 to $95) and weighted-average remaining contractual
life of the employee stock options outstanding at December 31, 1996.

<TABLE>
<CAPTION>
AVERAGE REMAINING
EXERCISE PRICES OPTIONS AVERAGE PRICE CONTRACTUAL LIFE
---------------------- ------- ------------- -----------------
<S> <C> <C> <C>
Under $40 178,938 $ 36.63 7.5 yrs.
$40-$70 188,634 $ 47.65 6.0 yrs.
Above $70 564,285 $ 72.86 7.5 yrs.
------- ------------- --------
Total 931,857 $ 60.80 7.0 yrs.
=======
------------- --------
</TABLE>

Also in May 1996, shareholders approved the Board of Directors Stock Option
Plan, which authorized the grant of options to acquire up to 200,000 shares of
common stock. Options under this plan are exercisable on the date of grant and
have ten year terms. Concurrent with the adoption of the plan, 63,000 options,
which had a fair value of $25.84 per option, were granted at $73.00 per share.
As of December 31, 1996, all of the Board of Directors options remained
outstanding and had a remaining contractual life of 9.0 years.

Sallie Mae accounts for its stock option plans in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," which results in no compensation expense for stock options granted
under the plans.

F-27
<PAGE> 121

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

14. STOCK OPTION PLANS -- (CONTINUED)

The following table summarizes pro forma disclosures for the years ended
December 31, 1996 and 1995, as if Sallie Mae had accounted for employee and
Board of Directors stock options granted subsequent to December 31, 1994 under
the fair market value method as set forth in FAS No. 123, "Accounting for Stock-
Based Compensation". The fair value for these options was estimated at the date
of grant using the Extended Binomial Options Pricing Model, a variation of the
Black-Sholes option pricing model, with the following weighted average
assumptions for 1996 and 1995, respectively: risk-free interest rate of 5.9
percent and 7.9 percent, volatility factor of the expected market price of
Sallie Mae common stock of 29.4 percent and 28.7 percent; dividend growth rate
of 8.0 percent; vesting period of one year from date of grant; and time of
exercise-expiration date.

<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Net income...................................................... $419,410 $496,427
======== ========
Pro forma net income............................................ $413,121 $493,648
======== ========
Earnings per common share....................................... $ 7.32 $ 7.20
======== ========
Pro forma earnings per common share............................. $ 7.21 $ 7.16
======== ========
</TABLE>

15. BENEFIT PLANS

Pension Plans

Sallie Mae has a qualified noncontributory defined benefit pension plan
covering substantially all employees who meet certain service requirements. The
plan's benefits are based on years of service and the employee's compensation.
Effective April 1, 1995, Sallie Mae modified the Plan to compute Plan benefits
on 5-year highest average base salary, a maximum service accrual period of 30
years, and normal retirement age of 62. Prior to these modifications, Plan
benefits were computed based on 3-year highest average base salary, a maximum
service accrual period of 26.67 years, and a normal retirement age of 60. The
plan is funded annually based on the maximum amount that can be deducted for
federal income tax purposes. The assets of the plan are primarily invested in
equities and fixed income securities.

The following table sets forth the plan's actuarially determined funded
status and amounts recognized in Sallie Mae's consolidated financial statements.

<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Accumulated Benefits:
Actuarial present value of accumulated benefit obligations:
Vested........................................................ $ 39,949 $ 34,232
Nonvested..................................................... 5,099 6,840
-------- --------
Total...................................................... $ 45,048 $ 41,072
======== ========
Pension Asset (Liability):
Actuarial present value of projected benefit obligation for
service rendered to date................................... $(75,106) $(72,361)
Plan assets at fair value..................................... 75,587 54,222
-------- --------
Plan assets (less than) greater than projected benefit
obligation................................................. 481 (18,139)
Unrecognized prior service cost............................... (4,023) (4,444)
Unrecognized transition obligation............................ 1,286 1,500
Unrecognized (gain) loss...................................... (7,149) 12,613
-------- --------
Accrued pension cost....................................... $ (9,405) $ (8,470)
======== ========
</TABLE>

F-28
<PAGE> 122

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

15. BENEFIT PLANS -- (CONTINUED)

In determining the projected benefit obligation, the weighted-average
assumed discount rate used was 7.5 percent in 1996, 7.0 percent in 1995 and 8.0
percent in 1994, while the assumed average rate of compensation increase was 6.0
percent in 1996 and in 1995 and 7.0 percent in 1994. The expected long-term rate
of return on plan assets used in determining net periodic pension cost was 8.0
percent in 1996 and in 1995 and 8.0 percent in 1994.

Net periodic pension cost included the following components:

<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Service cost -- benefits earned during the period...... $ 8,369 $ 8,867 $ 6,737
Interest cost on project benefit obligations........... 5,055 3,659 3,345
Actual return on plan assets........................... (13,009) (11,736) (1,228)
Net amortization and deferral.......................... 8,429 8,327 (220)
-------- -------- -------
Net periodic pension cost............................ $ 8,844 $ 9,117 $ 8,634
======== ======== =======
</TABLE>

Sallie Mae maintains a non-qualified pension plan for certain key employees
as designated by the Board of Directors and a nonqualified pension plan for its
Board of Directors. Total pension expense for these plans in 1996, 1995 and 1994
was $11.9 million, $11.2 million and $11.7 million, respectively.

Thrift and Savings Plans

Sallie Mae's Thrift and Savings Plan ("the Plan") is a defined contribution
plan that is intended to qualify under section 401(k) of the Internal Revenue
Code. The Plan covers substantially all employees who have been employed by
Sallie Mae for one or more years and have completed at least a thousand hours of
service. Participating employees may contribute up to 6 percent of base salary
and these contributions are matched 100 percent by Sallie Mae.

Sallie Mae also maintains a non-qualified Thrift and Savings Plan to assure
that designated participants receive the full amount of benefits to which they
would have been entitled under the Thrift and Savings Plan but for limits on
compensation and contribution levels imposed by the Internal Revenue Code.

Total expenses related to the Thrift and Savings Plan was $5.0 million,
$4.9 million and $4.8 million in 1996, 1995 and 1994, respectively.

16. FEDERAL INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.

F-29
<PAGE> 123

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

16. FEDERAL INCOME TAXES -- (CONTINUED)

Significant components of the company's deferred tax liabilities and assets as
of December 31, 1996 and 1995 under the liability method are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1995
-------- --------

<CAPTION>
<S> <C> <C>
Deferred tax liabilities:
Leases........................................................ $351,093 $344,438
Unrealized investment gains................................... 188,050 199,686
Other......................................................... 32,669 19,574
-------- --------
571,812 563,698
-------- --------
Deferred tax assets:
ExportSS operating costs...................................... 68,874 54,953
Student loan reserves......................................... 47,004 31,566
In-substance defeasance transactions.......................... 30,788 31,014
Asset valuation allowances.................................... 24,842 25,512
Securitization transactions................................... 13,076 -
Other......................................................... 31,211 25,522
-------- --------
215,795 168,567
-------- --------
Net deferred tax liabilities.................................... $356,017 $395,131
======== ========
</TABLE>

Sallie Mae is exempt from all state, local and District of Columbia taxes
except for real property taxes. Deferred tax assets on in-substance defeasance
transactions resulted from premiums on the debt extinguished. These premiums are
capitalized and amortized over the life of the defeasance trust for tax
purposes.

Reconciliations of the statutory United States federal income tax rates to
Sallie Mae's effective tax rate follow:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
----------------------
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----

<CAPTION>
<S> <C> <C> <C>
Statutory rate.................................................. 35.0% 35.0% 35.0%
Tax exempt interest and dividends received deduction............ (3.8) (6.4) (5.9)
Other, net...................................................... (1.3) (1.2) (.5)
---- ---- ----
Effective tax rate.............................................. 29.9% 27.4% 28.6%
==== ==== ====
</TABLE>

Federal income taxes paid for the years ended December 31, 1996, 1995 and
1994 were $202 million, $122 million and $188 million, respectively.

F-30
<PAGE> 124

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
1996
--------------------------------------------
<S> <C> <C> <C> <C>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------

<CAPTION>
<S> <C> <C> <C> <C>
Net interest income................................. $232,679 $219,561 $208,988 $205,208
Other income........................................ 21,754 27,899 35,211 62,052
Operating expenses.................................. 98,773 100,145 100,075 106,659
Federal income taxes................................ 47,968 44,340 42,877 48,313
-------- -------- -------- --------
Income before premiums on debt extinguished......... 107,692 102,975 101,247 112,288
Premiums on debt extinguished, net of tax........... (4,792) - - -
-------- -------- -------- --------
Net income.......................................... $102,900 $102,975 $101,247 $112,288
======== ======== ======== ========
Earnings per common share before premiums on debt
extinguished...................................... $ 1.82 $ 1.79 $ 1.79 $ 2.01
======== ======== ======== ========
Earnings per common share........................... $ 1.74 $ 1.79 $ 1.79 $ 2.01
======== ======== ======== ========
<CAPTION>
1995
--------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net interest income................................. $221,147 $222,694 $227,952 $228,948
Other operating income.............................. 321 7,883 8,971 33,238
Operating expenses.................................. 101,768 111,368 118,325 107,240
Federal income taxes................................ 30,906 31,187 32,031 47,139
-------- -------- -------- --------
Income before premiums on debt extinguished and
cumulative effect of the change in method of
accounting for student loan income................ 88,794 88,022 86,567 107,807
Premiums on debt extinguished, net of tax........... - - - (4,911)
-------- -------- -------- --------
Income before cumulative effect of the change in
method of accounting for student loan income...... 88,794 88,022 86,567 102,896
Cumulative effect of the change in method of
accounting for student loan income, net of tax
(through December 31, 1994)....................... 130,148 - - -
-------- -------- -------- --------
Net income.......................................... $218,942 $ 88,022 $ 86,567 $102,896
======== ======== ======== ========
Earnings per common share before premiums on debt
extinguished and cumulative effect of the change
in method of accounting for student loan income
.................................................. $ 1.17 $ 1.20 $ 1.28 $ 1.76
======== ======== ======== ========
Earnings per common share before cumulative effect
of the change in method of accounting for student
loan income ...................................... $ 1.17 $ 1.20 $ 1.28 $ 1.67
======== ======== ======== ========
Earnings per common share........................... $ 2.95 $ 1.20 $ 1.28 $ 1.67
======== ======== ======== ========
</TABLE>

F-31
<PAGE> 125

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

18. COLLEGE CONSTRUCTION LOAN INSURANCE ASSOCIATION

In 1987, Sallie Mae assisted in creating the College Construction Loan
Insurance Association ("Connie Lee"), a private, for-profit, stockholder-owned
corporation, authorized by Congress to insure and reinsure educational
facilities obligations. Sallie Mae's current investment in Connie Lee is
approximately $44 million, and as of December 31, 1996, through its ownership of
preferred and common stock and through agreements with other shareholders,
Sallie Mae effectively controlled 36 percent of Connie Lee's outstanding voting
stock. There are provisions to privatize Connie Lee under Pub. L. No. 104-208.
These provisions require that Connie Lee purchase its stock owned by the U.S.
government by February 28, 1997 at a purchase price determined by an independent
appraisal. After purchasing the government's shares, Connie Lee will convert to
a private, shareholder-controlled corporation.

F-32
<PAGE> 126

APPENDIX A

AGREEMENT AND PLAN OF REORGANIZATION

THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is dated as of
, 1997 among the STUDENT LOAN MARKETING ASSOCIATION, a
federally-chartered corporation ("Sallie Mae"), SLM Holding Corporation, a
Delaware corporation and a wholly-owned subsidiary of Sallie Mae ("Holding
Company") and SALLIE MAE MERGER COMPANY, a Delaware corporation and a
wholly-owned subsidiary of Holding Company ('MergerCo").

WHEREAS, Sallie Mae has an authorized capitalization consisting of:

(i) 250,000,000 shares of Common Stock, par value $.20 per share
("Sallie Mae Common Stock"), of which 53,690,595 shares were issued and
outstanding at December 31, 1996; and

(ii) 5,000,000 shares of Preferred Stock, par value $50 per share
("Sallie Mae Preferred Stock") of which 4,277,650 shares were issued and
outstanding at December 31, 1996.

WHEREAS, MergerCo has an authorized capitalization consisting of 1,000
shares of Common Stock, par value $.01 per share ("MergerCo Common Stock"), all
of which are issued and outstanding and owned beneficially and of record by
Holding Company; and

WHEREAS, Holding Company has an authorized capitalization consisting of
250,000,000 shares of Common Stock, par value $.20 per share ("Holding Company
Common Stock"), of which 1,000 shares are issued and outstanding and owned
beneficially and of record by Sallie Mae; and

WHEREAS, The Student Loan Marketing Association Reorganization Act of 1996
(the "Privatization Act") authorizes Sallie Mae to reorganize through the
formation of a state-chartered holding company that would own all issued and
outstanding Sallie Mae Common Stock; and

WHEREAS, the Boards of Directors of Sallie Mae, MergerCo and Holding
Company, deem it advisable to cause (i) the merger of MergerCo with and into
Sallie Mae with Sallie Mae as the surviving corporation (the "Merger"), (ii) the
conversion of each outstanding share of Sallie Mae Common Stock into one share
of Holding Company Common Stock and (iii) the conversion of the outstanding
shares of MergerCo into all of the issued and outstanding shares of Sallie Mae
Common Stock, all of which will then be owned by the Holding Company, and, as a
result of the Merger, Sallie Mae will become a subsidiary of the Holding Company
(collectively, the "Reorganization"), in accordance with the Privatization Act
and the Delaware General Corporation Law, as amended (the "DGCL"), and this
Agreement and have, by resolutions duly adopted, approved this Agreement and
directed that it be executed by the undersigned officers and that it be
submitted to a vote of the respective shareholders of Sallie Mae and MergerCo;
and

WHEREAS, Holding Company, as sole stockholder of MergerCo, has approved the
Agreement.

NOW THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, the parties to this Agreement agree
that MergerCo shall merge with and into Sallie Mae and Sallie Mae shall be the
corporation surviving the Reorganization. The terms and conditions of the
Reorganization, the mode of carrying it into effect and the manner and basis of
converting shares in the Reorganization shall be as follows:

ARTICLE I
THE REORGANIZATION

At the Effective Time (as herein defined), in accordance with the
provisions of this Agreement, the Privatization Act and the DGCL, MergerCo shall
be merged with and into Sallie Mae, whereupon the separate corporate existence
of MergerCo shall cease and Sallie Mae shall continue as the surviving
corporation (the "Surviving Corporation").

A-1
<PAGE> 127

Subject to and in accordance with the provisions of this Agreement, the
parties hereto shall consummate the Reorganization by filing a certificate of
merger with the Secretary of State of the State of Delaware and making all other
filings or recordings required by the DGCL in connection with the
Reorganization. The Reorganization shall become effective at such time as the
certificate of merger is duly filed with the Secretary of State of the State of
Delaware (the "Effective Time"). The Reorganization shall have the effects set
forth in the Privatization Act and DGCL. Without limiting the generality of the
foregoing, and subject thereto and to any other applicable laws, at the
Effective Time all the properties, rights, privileges, powers and franchises of
Sallie Mae and MergerCo shall vest in the Surviving Corporation, and all debts,
liabilities, restrictions, disabilities and duties of Sallie Mae and MergersCo
shall become the debts, liabilities, restrictions, disabilities and duties of
the Surviving Corporation.

ARTICLE II
TERMS OF CONVERSION OF SHARES

At the Effective Time:

(a) Each share of Sallie Mae Common Stock issued and outstanding
immediately prior to the Effective Time shall thereupon, and without any
action on the part of the holder thereof, be converted into one validly
issued, fully paid and nonassessable share of Holding Company Common Stock.

(b) Each share of Sallie Mae Common Stock held in treasury immediately
prior to the Effective Time shall thereupon be cancelled and retired and
all rights in respect thereof shall cease.

(c) The shares of Sallie Mae Preferred Stock issued and outstanding
immediately prior to the Effective Time shall not be converted or otherwise
affected by the Reorganization, and each such share shall continue to be
issued and outstanding and to be one fully paid and nonassessable share of
the Sallie Mae Preferred Stock of the Surviving Corporation.

(d) Each share of MergerCo Common Stock issued and outstanding
immediately prior to the Effective Time shall be converted into one validly
issued, fully paid and nonassessable share of the Surviving Corporation.

(e) Each share of Holding Company Common Stock issued and outstanding
immediately prior to the Effective Time shall be cancelled.

ARTICLE III
CHARTER AND BYLAWS

(a) From and after the Effective Time, and until thereafter amended as
provided by law, the provisions of the Higher Education Act of 1965, as amended
(the "Sallie Mae Charter"), as in effect immediately prior to the Effective
Time, shall be and continue to be the governing statute of the Surviving
Corporation.

(b) From and after the Effective Time, the By-Laws of Sallie Mae as in
effect immediately prior to the Effective Time shall be and continue to be the
By-Laws of the Surviving Corporation until amended.

ARTICLE IV
STOCK CERTIFICATES

Following the Effective Time, each holder of an outstanding certificate or
certificates theretofore representing shares of Sallie Mae Common Stock may, but
shall not be required to, surrender the same to Holding Company for
cancellation, exchange or transfer, and each such holder or transferee thereof
will be entitled to receive a certificate or certificates representing the same
number of shares of Holding Company Common Stock as the number of shares of
Sallie Mae Common Stock previously represented by the stock certificate or
certificates so surrendered. Until so surrendered or presented for cancellation,
exchange or transfer, each outstanding certificate which, prior to the Effective
Time, represented shares of Sallie Mae Common Stock shall be deemed and treated
for all corporate purposes to represent the ownership of the same

A-2
<PAGE> 128

number of shares of Holding Company Common Stock as though such surrender for
cancellation, exchange or transfer thereof had taken place. If any certificate
representing shares of Holding Company Common Stock is to be issued in a name
other than that of the registered holder of the certificate formerly
representing shares of Sallie Mae Common Stock presented for transfer, it shall
be a condition of issuance that (a) the certificate so surrendered shall be
properly endorsed or accompanied by a stock power and shall otherwise be in
proper form for transfer and (b) the person requesting such issuance shall pay
to Holding Company's transfer agent any transfer or other taxes required by
reason of issuance of certificates representing Holding Company Common Stock in
a name other than that of the registered holder of the certificate presented, or
establish to the satisfaction of Holding Company or its registered agent that
such taxes have been paid or are not applicable. The stock transfer books for
Sallie Mae Common Stock shall be deemed to be closed at the Effective Time, and
no transfer of shares of Sallie Mae Common Stock outstanding immediately prior
to the Effective Time shall thereafter be made on such books. Following the
Effective Time, the holders of certificates representing Sallie Mae Common Stock
outstanding immediately before the Effective Time shall cease to have any rights
with respect to stock of the Surviving Corporation and their sole rights shall
be with respect to the Holding Company Common Stock into which their shares of
Sallie Mae Common Stock shall have been converted in the Reorganization.

ARTICLE V
CONDITIONS OF THE REORGANIZATION

Consummation of the Reorganization is subject to the satisfaction of each
of the following conditions:

(a) The Reorganization shall have received such approval of the
shareholders of Sallie Mae as is required by the Privatization Act.

(b) Sallie Mae shall have received an opinion of Skadden, Arps, Slate,
Meagher & Flom LLP in form and substance reasonably satisfactory to Sallie
Mae, dated as of the Effective Time, substantially to the effect that, on
the basis of facts, representations and assumptions set forth in such
opinion which are consistent with the state of facts existing at the
Effective Time, the Merger will be treated for U.S. federal income tax
purposes as a nonrecognition transfer of shares of Sallie Mae Common Stock
by those holders thereof to the Holding Company for shares of Holding
Company Common Stock.

(c) The shares of Holding Company Common Stock to be issued and to be
reserved for issuance as a result of the Merger shall have been approved
for listing, upon official notice of issuance, by the New York Stock
Exchange.

(d) A registration statement on Form S-4 relating to the shares of
Holding Company Common Stock to be issued or reserved for issuance as a
result of the Merger, shall be declared effective under the Securities Act
of 1933, as amended, and shall not be the subject of any "stop order."

ARTICLE VI
AMENDMENT AND WAIVER

The parties hereto, by mutual consent of their respective Boards of
Directors, may amend, modify or supplement this Agreement, or waive any
condition set forth herein, in such manner as may be agreed upon by them in
writing, at any time before or after approval of this Agreement by the
shareholders of Sallie Mae, to the extent permitted by the DGCL.

ARTICLE VII
MISCELLANEOUS

(a) This Agreement may be executed in two or more counterparts, each of
which when so executed shall be deemed to be an original, and such counterparts
shall together constitute but one and the same instrument.

A-3
<PAGE> 129

(b) The validity, execution and interpretation of this Agreement shall be
governed by, and construed in accordance with, the internal laws of the State of
Delaware, except as otherwise provided in the Privatization Act.

(c) The parties hereto shall take all such action as may be necessary or
appropriate in order to effectuate the Reorganization. In case at any time after
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement, the officers and directors of each of the
parties hereto shall take all such further action.

IN WITNESS WHEREOF, Sallie Mae, MergerCo and Holding Company, have executed
this Agreement and Plan of Reorganization by their respective duly authorized
officers as of the date first written above.

STUDENT LOAN MARKETING ASSOCIATION

By:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------

SALLIE MAE MERGER COMPANY

By:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------

SLM HOLDING CORPORATION

By:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------

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APPENDIX B

Set forth below is the text of certain pertinent provisions of Title VI of
U.S. Public Law 104-208, also known as the "Student Loan Marketing Association
Reorganization Act of 1996" (the "Privatization Act"). The Privatization Act has
three principal provisions relating to Sallie Mae: (1) Section 602(a) adds to
Part B of Title IV of the Higher Education Act of 1965 (the "Higher Education
Act") a new Section 440 that provides for the reorganization of the Student Loan
Marketing Association ("Sallie Mae") into a subsidiary of a new holding company;
(2) Section 602(b) amends Section 439(r) of the Higher Education Act to require
certain enhanced regulatory oversight of Sallie Mae to ensure its financial
safety and soundness; and (3) Section 602(c) adds to Section 439 of the Higher
Education Act a new subsection (s) that requires Sallie Mae to eventually
dissolve in the event Sallie Mae does not reorganize in accordance with the
provisions of the new Section 440 (added by Section 602(a)).

TITLE VI -- REORGANIZATION AND PRIVATIZATION OF
SALLIE MAE

SEC.601. SHORT TITLE.

This title may be cited as the "Student Loan Marketing Association
Reorganization Act of 1996".

SEC.602. REORGANIZATION OF THE STUDENT LOAN MARKETING ASSOCIATION THROUGH THE
FORMATION OF A HOLDING COMPANY.

Sec. 602(a) AMENDMENT. -- Part B of title IV of the Higher Education Act of
1965 (20 U.S.C. 1071 et seq.) is amended by inserting after section 439 (20
U.S.C. 1087-2) the following new section:

"SEC.440. REORGANIZATION OF THE STUDENT LOAN MARKETING ASSOCIATION THROUGH
THE FORMATION OF A HOLDING COMPANY.

"(a) ACTIONS BY THE ASSOCIATION'S BOARD OF DIRECTORS. -- The Board of
Directors of the Association shall take or cause to be taken all such
action as the Board of Directors deems necessary or appropriate to effect,
upon the shareholder approval described in subsection (b), a restructuring
of the common stock ownership of the Association, as set forth in a plan of
reorganization adopted by the Board of Directors (the terms of which shall
be consistent with this section) so that all of the outstanding common
shares of the Association shall be directly owned by a Holding Company.
Such actions may include, in the Board of Director's discretion, a merger
of a wholly-owned subsidiary of the Holding Company with and into the
Association, which would have the effect provided in the plan of
reorganization and the law of the jurisdiction in which such subsidiary is
incorporated. As part of the restructuring, the Board of Directors may
cause --

"(1) the common shares of the Association to be converted, on the
reorganization effective date, to common shares of the Holding Company
on a one for one basis, consistent with applicable State or District of
Columbia law; and

"(2) Holding Company common shares to be registered with the
Securities and Exchange Commission.

"(b) SHAREHOLDER APPROVAL. -- The plan of reorganization adopted by
the Board of Directors pursuant to subsection (a) shall be submitted to
common shareholders of the Association for their approval. The
reorganization shall occur on the reorganization effective date, provided
that the plan of reorganization has been approved by the affirmative votes,
cast in person or by proxy, of the holders of a majority of the issued and
outstanding shares of the Association common stock.

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"(c) TRANSITION. -- In the event the shareholders of the Association
approve the plan of reorganization under subsection (b), the following
provisions shall apply beginning on the reorganization effective date:

"(1) IN GENERAL. -- Except as specifically provided in this
section, until the dissolution date the Association shall continue to
have all of the rights, privileges and obligations set forth in, and
shall be subject to all of the limitations and restrictions of, section
439, and the Association shall continue to carry out the purposes of
such section. The Holding Company and any subsidiary of the Holding
Company (other than the Association) shall not be entitled to any of the
rights, privileges, and obligations, and shall not be subject to the
limitations and restrictions, applicable to the Association under
section 439, except as specifically provided in this section. The
Holding Company and any subsidiary of the Holding Company (other than
the Association or a subsidiary of the Association) shall not purchase
loans insured under this Act until such time as the Association ceases
acquiring such loans, except that the Holding Company may purchase such
loans if the Association is merely continuing to acquire loans as a
lender of last resort pursuant to section 439(q) or under an agreement
with the Secretary described in paragraph (6).

"(2) TRANSFER OF CERTAIN PROPERTY. --

"(A) IN GENERAL. -- Except as provided in this section, on the
reorganization effective date or as soon as practicable thereafter,
the Association shall use the Association's best efforts to transfer
to the Holding Company or any subsidiary of the Holding Company (or
both), as directed by the Holding Company, all real and personal
property of the Association (both tangible and intangible) other than
the remaining property. Subject to the preceding sentence, such
transferred property shall include all right, title and interest
in --

"(i) direct or indirect subsidiaries of the Association
(excluding special purpose funding companies in existence on the
date of enactment of this section and any interest in any
government-sponsored enterprise);

"(ii) contracts, leases, and other agreements of the
Association;

"(iii) licenses and other intellectual property of the
Association; and

"(iv) any other property of the Association.

"(B) CONSTRUCTION. -- Nothing in this paragraph shall be
construed to prohibit the Association from transferring remaining
property from time to time to the Holding Company or any subsidiary
of the Holding Company, subject to the provisions of paragraph (4).

"(3) TRANSFER OF PERSONNEL. -- On the reorganization effective
date, employees of the Association shall become employees of the Holding
Company (or any subsidiary of the Holding Company), and the Holding
Company (or any subsidiary of the Holding Company) shall provide all
necessary and appropriate management and operational support (including
loan servicing) to the Association, as requested by the Association. The
Association, however, may obtain such management and operational support
from persons or entities not associated with the Holding Company.

"(4) DIVIDENDS. -- The Association may pay dividends in the form of
cash or noncash distributions so long as at the time of the declaration
of such dividends, after giving effect to the payment of such dividends
as of the date of such declaration by the Board of Directors of the
Association, the Association's capital would be in compliance with the
capital standards and requirements set forth in section 439(r). If, at
any time after the reorganization effective date, the Association fails
to comply with such capital standards, the Holding Company shall
transfer with due diligence to the Association additional capital in
such amounts as are necessary to ensure that the Association again
complies with the capital standards.

"(5) CERTIFICATION PRIOR TO DIVIDEND. -- Prior to the payment of
any dividend under paragraph (4), the Association shall certify to the
Secretary of the Treasury that the payment

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of the dividend will be made in compliance with paragraph (4) and shall
provide copies of all calculations needed to make such certification.

"(6) RESTRICTIONS ON NEW BUSINESS ACTIVITY OR ACQUISITION OF ASSETS
BY ASSOCIATION. --

"(A) IN GENERAL. -- After the reorganization effective date, the
Association shall not engage in any new business activities or
acquire any additional program assets described in section 439(d)
other than in connection with --

"(i) student loan purchases through September 30, 2007;

"(ii) contractual commitments for future warehousing
advances, or pursuant to letters of credit or standby bond
purchase agreements, which are outstanding as of the
reorganization effective date;

"(iii) the Association serving as a lender-of-last-resort
pursuant to section 439(q); and

"(iv) the Association's purchase of loans insured under this
part, if the Secretary, with approval of the Secretary of the
Treasury, enters into an agreement with the Association for the
continuation or resumption of the Association's secondary market
purchase program because the Secretary determines there is
inadequate liquidity for loans made under this part.

"(B) AGREEMENT. -- The Secretary is authorized to enter into an
agreement described in clause (iv) of subparagraph (A) with the
Association covering such secondary market activities. Any agreement
entered into under such clause shall cover a period of 12 months, but
may be renewed if the Secretary determines that liquidity remains
inadequate. The fee provided under section 439(h)(7) shall not apply
to loans acquired under any such agreement with the Secretary.

"(7) ISSUANCE OF DEBT OBLIGATIONS DURING THE TRANSITION PERIOD;
ATTRIBUTES OF DEBT OBLIGATIONS. -- After the reorganization effective
date, the Association shall not issue debt obligations which mature
later than September 30, 2008, except in connection with serving as a
lender-of-last-resort pursuant to section 439(q) or with purchasing
loans under an agreement with the Secretary as described in paragraph
(6). Nothing in this section shall modify the attributes accorded the
debt obligations of the Association by section 439, regardless of
whether such debt obligations are incurred prior to, or at any time
following, the reorganization effective date or are transferred to a
trust in accordance with subsection (d).

"(8) MONITORING OF SAFETY AND SOUNDNESS. --

"(A) OBLIGATION TO OBTAIN, MAINTAIN, AND REPORT
INFORMATION. -- The Association shall obtain such information and
make and keep such records as the Secretary of the Treasury may from
time to time prescribe concerning --

"(i) the financial risk to the Association resulting from
the activities of any associated person, to the extent such
activities are reasonably likely to have a material impact on the
financial condition of the Association, including the
Association's capital ratio, the Association's liquidity, or the
Association's ability to conduct and finance the Association's
operations; and

"(ii) the Association's policies, procedures, and systems
for monitoring and controlling any such financial risk.

"(B) SUMMARY REPORTS. -- The Secretary of the Treasury may
require summary reports of the information described in subparagraph
(A) to be filed no more frequently than quarterly. If, as a result of
adverse market conditions or based on reports provided pursuant to

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this subparagraph or other available information, the Secretary of
the Treasury has concerns regarding the financial or operational
condition of the Association, the Secretary of the Treasury may,
notwithstanding the preceding sentence and subparagraph (A), require
the Association to make reports concerning the activities of any
associated person whose business activities are reasonably likely to
have a material impact on the financial or operational condition of
the Association.

"(C) SEPARATE OPERATION OF CORPORATIONS. --

"(i) IN GENERAL. -- The funds and assets of the Association
shall at all times be maintained separately from the funds and
assets of the Holding Company or any subsidiary of the Holding
Company and may be used by the Association solely to carry out
the Association's purposes and to fulfill the Association's
obligations.

"(ii) BOOKS AND RECORDS. -- The Association shall maintain
books and records that clearly reflect the assets and liabilities
of the Association, separate from the assets and liabilities of
the Holding Company or any subsidiary of the Holding Company.

"(iii) CORPORATE OFFICE. -- The Association shall maintain a
corporate office that is physically separate from any office of
the Holding Company or any subsidiary of the Holding Company.

"(iv) DIRECTOR. -- No director of the Association who is
appointed by the President pursuant to section 439(c)(1)(A) may
serve as a director of the Holding Company.

"(v) ONE OFFICER REQUIREMENT. -- At least one officer of the
Association shall be an officer solely of the Association.

"(vi) TRANSACTIONS. -- Transactions between the Association
and the Holding Company or any subsidiary of the Holding Company,
including any loan servicing arrangements, shall be on terms no
less favorable to the Association than the Association could
obtain from an unrelated third party offering comparable
services.

"(vii) CREDIT PROHIBITION. -- The Association shall not
extend credit to the Holding Company or any subsidiary of the
Holding Company nor guarantee or provide any credit enhancement
to any debt obligations of the Holding Company or any subsidiary
of the Holding Company.

"(viii) AMOUNTS COLLECTED. -- Any amounts collected on
behalf of the Association by the Holding Company or any
subsidiary of the Holding Company with respect to the assets of
the Association, pursuant to a servicing contract or other
arrangement between the Association and the Holding Company or
any subsidiary of the Holding Company, shall be collected solely
for the benefit of the Association and shall be immediately
deposited by the Holding Company or such subsidiary to an account
under the sole control of the Association.

"(D) ENCUMBRANCE OF ASSETS. -- Notwithstanding any federal or
State law, rule, or regulation, or legal or equitable principle,
doctrine, or theory to the contrary, under no circumstances shall the
assets of the Association be available or used to pay claims or debts
of or incurred by the Holding Company. Nothing in this subparagraph
shall be construed to limit the right of the Association to pay
dividends not otherwise prohibited under this subparagraph or to
limit any liability of the Holding Company explicitly provided for in
this section.

"(E) HOLDING COMPANY ACTIVITIES. -- After the reorganization
effective date and prior to the dissolution date, all business
activities of the Holding Company shall be conducted through
subsidiaries of the Holding Company.

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"(F) CONFIDENTIALITY. -- Any information provided by the
Association pursuant to this section shall be subject to the same
confidentiality obligations contained in section 439(r)(12).

"(G) DEFINITION. -- For purposes of this paragraph, the term
'associated person' means any person, other than a natural person,
who is directly or indirectly controlling, controlled by, or under
common control with, the Association.

"(9) ISSUANCE OF STOCK WARRANTS. --

"(A) IN GENERAL. -- On the reorganization effective date, the
Holding Company shall issue to the District of Columbia Financial
Responsibility and Management Assistance Authority a number of stock
warrants that is equal to one percent of the outstanding shares of
the Association, determined as of the last day of the fiscal quarter
preceding the date of enactment of this section, with each stock
warrant entitling the holder of the stock warrant to purchase from
the Holding Company one share of the registered common stock of the
Holding Company or the Holding Company's successors or assigns, at
any time on or before September 30, 2008. The exercise price for such
warrants shall be an amount equal to the average closing price of the
common stock of the Association for the 20 business days prior to the
date of enactment of this section on the exchange or market which is
then the primary exchange or market for the common stock of the
Association. The number of shares of Holding Company common stock
subject to each stock warrant and the exercise price of each stock
warrant shall be adjusted as necessary to reflect --

"(i) the conversion of Association common stock into Holding
Company common stock as part of the plan of reorganization
approved by the Association's shareholders; and

"(ii) any issuance or sale of stock (including issuance or
sale of treasury stock), stock split, recapitalization,
reorganization, or other corporate event, if agreed to by the
Secretary of the Treasury and the Association.

"(B) AUTHORITY TO SELL OR EXERCISE STOCK WARRANTS; DEPOSIT OF
PROCEEDS. -- The District of Columbia Financial Responsibility and
Management Assistance Authority is authorized to sell or exercise the
stock warrants described in subparagraph (A). The District of
Columbia Financial Responsibility and Management Assistance Authority
shall deposit into the account established under section 3(e) of the
Student Loan Marketing Association Reorganization Act of 1996 amounts
collected from the sale and proceeds resulting from the exercise of
the stock warrants pursuant to this subparagraph.

"(10) RESTRICTIONS ON TRANSFER OF ASSOCIATION SHARES AND BANKRUPTCY
OF ASSOCIATION. -- After the reorganization effective date, the Holding
Company shall not sell, pledge, or otherwise transfer the outstanding
shares of the Association, or agree to or cause the liquidation of the
Association or cause the Association to file a petition for bankruptcy
under title 11, United States Code, without prior approval of the
Secretary of the Treasury and the Secretary of Education.

"(d) TERMINATION OF THE ASSOCIATION. -- In the event the shareholders
of the Association approve a plan of reorganization under subsection (b),
the Association shall dissolve, and the Association's separate existence
shall terminate on September 30, 2008, after discharge of all outstanding
debt obligations and liquidation pursuant to this subsection. The
Association may dissolve pursuant to this subsection prior to such date by
notifying the Secretary of Education and the Secretary of the Treasury of
the Association's intention to dissolve, unless within 60 days after
receipt of such notice the Secretary of Education notifies the Association
that the Association continues to be needed to serve as a lender of last
resort pursuant to section 439(q) or continues to be needed to purchase
loans under an

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agreement with the Secretary described in subsection (c)(6). On the
dissolution date, the Association shall take the following actions:

"(1) ESTABLISHMENT OF A TRUST. -- The Association shall, under the
terms of an irrevocable trust agreement that is in form and substance
satisfactory to the Secretary of the Treasury, the Association and the
appointed trustee, irrevocably transfer all remaining obligations of the
Association to the trust and irrevocably deposit or cause to be
deposited into such trust, to be held as trust funds solely for the
benefit of holders of the remaining obligations, money or direct
noncallable obligations of the United States or any agency thereof for
which payment the full faith and credit of the United States is pledged,
maturing as to principal and interest in such amounts and at such times
as are determined by the Secretary of the Treasury to be sufficient,
without consideration of any significant reinvestment of such interest,
to pay the principal of, and interest on, the remaining obligations in
accordance with their terms. To the extent the Association cannot
provide money or qualifying obligations in the amount required, the
Holding Company shall be required to transfer money or qualifying
obligations to the trust in the amount necessary to prevent any
deficiency.

"(2) USE OF TRUST ASSETS. -- All money, obligations, or financial
assets deposited into the trust pursuant to this subsection shall be
applied by the trustee to the payment of the remaining obligations
assumed by the trust.

"(3) OBLIGATIONS NOT TRANSFERRED TO THE TRUST. -- The Association
shall make proper provision for all other obligations of the Association
not transferred to the trust, including the repurchase or redemption, or
the making of proper provision for the repurchase or redemption, of any
preferred stock of the Association outstanding. Any obligations of the
Association which cannot be fully satisfied shall become liabilities of
the Holding Company as of the date of dissolution.

"(4) TRANSFER OF REMAINING ASSETS. -- After compliance with
paragraphs (1) and (3), any remaining assets of the trust shall be
transferred to the Holding Company or any subsidiary of the Holding
Company, as directed by the Holding Company.

"(e) OPERATION OF THE HOLDING COMPANY. -- In the event the
shareholders of the Association approve the plan of reorganization under
subsection (b), the following provisions shall apply beginning on the
reorganization effective date:

"(1) HOLDING COMPANY BOARD OF DIRECTORS. -- The number of members
and composition of the Board of Directors of the Holding Company shall
be determined as set forth in the Holding Company's charter or like
instrument (as amended from time to time) or bylaws (as amended from
time to time) and as permitted under the laws of the jurisdiction of the
Holding Company's incorporation.

"(2) HOLDING COMPANY NAME. -- The names of the Holding Company and
any subsidiary of the Holding Company (other than the Association) --

"(A) may not contain the name 'Student Loan Marketing
Association'; and

"(B) may contain, to the extent permitted by applicable State or
District of Columbia law, 'Sallie Mae' or variations thereof, or such
other names as the Board of Directors of the Association or the
Holding Company deems appropriate.

"(3) USE OF SALLIE MAE NAME. -- Subject to paragraph (2), the
Association may assign to the Holding Company, or any subsidiary of the
Holding Company, the 'Sallie Mae' name as a trademark or service mark,
except that neither the Holding Company nor any subsidiary of the
Holding Company (other than the Association or any subsidiary of the
Association) may use the 'Sallie Mae' name on, or to identify the issuer
of, any debt obligation or other security offered or sold by the Holding
Company or any subsidiary of the Holding Company (other than a debt
obligation or other security issued to and held by the Holding Company
or any subsidiary of the Holding

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Company). The Association shall remit to the account established under
section 3(e) of the Student Loan Marketing Association Reorganization
Act of 1996, $5,000,000 within 60 days of the reorganization effective
date as compensation for the right to assign the 'Sallie Mae' name as a
trademark or service mark.

"(4) DISCLOSURE REQUIRED. -- Until 3 years after the dissolution
date, the Holding Company, and any subsidiary of the Holding Company
(other than the Association), shall prominently display --

"(A) in any document offering the Holding Company's securities,
a statement that the obligations of the Holding Company and any
subsidiary of the Holding Company are not guaranteed by the full
faith and credit of the United States; and

"(B) in any advertisement or promotional materials which use the
'Sallie Mae' name or mark, a statement that neither the Holding
Company nor any subsidiary of the Holding Company is a
government-sponsored enterprise or instrumentality of the United
States.

"(f) STRICT CONSTRUCTION. -- Except as specifically set forth in this
section, nothing in this section shall be construed to limit the authority
of the Association as a federally chartered corporation, or of the Holding
Company as a State or District of Columbia chartered corporation.

"(g) RIGHT TO ENFORCE. -- The Secretary of Education or the Secretary
of the Treasury, as appropriate, may request that the Attorney General
bring an action in the United States District Court for the District of
Columbia for the enforcement of any provision of this section, or may,
under the direction or control of the Attorney General, bring such an
action. Such court shall have jurisdiction and power to order and require
compliance with this section.

"(h) DEADLINE FOR REORGANIZATION EFFECTIVE DATE. -- This section shall
be of no further force and effect in the event that the reorganization
effective date does not occur on or before 18 months after the date of
enactment of this section.

"(i) DEFINITIONS. -- For purposes of this section:

"(1) ASSOCIATION. -- The term 'Association' means the Student Loan
Marketing Association.

"(2) DISSOLUTION DATE. -- The term 'dissolution date' means
September 30, 2008, or such earlier date as the Secretary of Education
permits the transfer of remaining obligations in accordance with
subsection (d).

"(3) HOLDING COMPANY. -- The term 'Holding Company' means the new
business corporation established pursuant to this section by the
Association under the laws of any State of the United States or the
District of Columbia for the purposes of the reorganization and
restructuring described in subsection (a).

"(4) REMAINING OBLIGATIONS. -- The term 'remaining obligations'
means the debt obligations of the Association outstanding as of the
dissolution date.

"(5) REMAINING PROPERTY. -- The term 'remaining property' means the
following assets and liabilities of the Association which are
outstanding as of the reorganization effective date:

"(A) Debt obligations issued by the Association.

"(B) Contracts relating to interest rate, currency, or commodity
positions or protections.

"(C) Investment securities owned by the Association.

"(D) Any instruments, assets, or agreements described in section
439(d) (including, without limitation, all student loans and
agreements relating to the purchase and sale of student loans,
forward purchase and lending commitments, warehousing advances,
academic facilities

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obligations, letters of credit, standby bond purchase agreements,
liquidity agreements, and student loan revenue bonds or other loans).

"(E) Except as specifically prohibited by this section or
section 439, any other nonmaterial assets or liabilities of the
Association which the Association's Board of Directors determines to
be necessary or appropriate to the Association's operations.

"(6) REORGANIZATION. -- The term 'reorganization' means the
restructuring event or events (including any merger event) giving effect
to the Holding Company structure described in subsection (a).

"(7) REORGANIZATION EFFECTIVE DATE. -- The term 'reorganization
effective date' means the effective date of the reorganization as
determined by the Board of Directors of the Association, which shall not
be earlier than the date that shareholder approval is obtained pursuant
to subsection (b) and shall not be later than the date that is 18 months
after the date of enactment of this section.

"(8) SUBSIDIARY. -- The term 'subsidiary' means one or more direct
or indirect subsidiaries."

Sec. 602(b) TECHNICAL AMENDMENTS. --

(1) ELIGIBLE LENDER. --

(A) AMENDMENTS TO THE HIGHER EDUCATION ACT. --

(i) DEFINITION OF ELIGIBLE LENDER. -- Section 435(d)(1)(F) of
the Higher Education Act of 1965 (20 U.S.C. 1085(d)(1)(F)) is amended
by inserting after "Student Loan Marketing Association" the
following: "or the Holding Company of the Student Loan Marketing
Association, including any subsidiary of the Holding Company, created
pursuant to section 440,".

(ii) DEFINITION OF ELIGIBLE LENDER AND FEDERAL CONSOLIDATION
LOANS. -- Sections 435(d)(1)(G) and 428C(a)(1)(A) of such Act (20
U.S.C. 1085(d)(1)(G) and 1078-3(a)(1)(A)) are each amended by
inserting after "Student Loan Marketing Association" the following:
"or the Holding Company of the Student Loan Marketing Association,
including any subsidiary of the Holding Company, created pursuant to
section 440".

(B) EFFECTIVE DATE. -- The amendments made by this paragraph shall
take effect on the reorganization effective date as defined in section
440(h) of the Higher Education Act of 1965 (as added by subsection (a)).

(2) ENFORCEMENT OF SAFETY AND SOUNDNESS REQUIREMENTS. -- Section 439(r)
of the Higher Education Act of 1965 (20 U.S.C. 1087-2(r)) is amended --

(A) in the first sentence of paragraph (12), by inserting "or the
Association's associated persons" after "by the Association";

(B) by redesignating paragraph (13) as paragraph (15); and

"(13) ENFORCEMENT OF SAFETY AND SOUNDNESS REQUIREMENTS. -- The
Secretary of Education or the Secretary of the Treasury, as
appropriate, may request that the Attorney General bring an action in
the United States District Court for the District of Columbia for the
enforcement of any provision of this section, or may, under the
direction or control of the Attorney General, bring such an action.
Such court shall have jurisdiction and power to order and require
compliance with this section.".

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(3) FINANCIAL SAFETY AND SOUNDNESS. -- Section 439(r) of the Higher
Education Act of 1965 (20 U.S.C.1087-2(r)) is further amended --

(A) in paragraph (1) --

(i) by striking "and" at the end of subparagraph (A);

(ii) by striking the period at the end of subparagraph (B) and
inserting "; and" and

(iii) by adding at the end the following new subparagraph:

"(C)(i) financial statements of the Association within 45
days of the end of each fiscal quarter; and

"(ii) reports setting forth the calculation of the capital
ratio of the Association, within 45 days of the end of each
fiscal quarter.";

(B) in paragraph (2) --

(i) by striking clauses (i) and (ii) of subparagraph (A) and
inserting the following:

"(i) appoint auditors or examiners to conduct audits of the
Association from time to time to determine the condition of the
Association for the purpose of assessing the Association's
financial safety and soundness and to determine whether the
requirements of this section and section 440 are being met; and

"(ii) obtain the services of such experts as the Secretary
of the Treasury determines necessary and appropriate, as
authorized by section 3109 of title 5, United States Code, to
assist in determining the condition of the Association for the
purpose of assessing the Association's financial safety and
soundness, and to determine whether the requirements of this
section and section 440 are being met."; and

(ii) by adding at the end of the following new subparagraph:"

(D) ANNUAL ASSESSMENT. --

"(i) IN GENERAL. -- For each fiscal year beginning on or
after October 1, 1996, the Secretary of the Treasury may
establish and collect from the Association an assessment (or
assessments) in amounts sufficient to provide for reasonable
costs and expenses of carrying out the duties of the
Secretary of the Treasury under this section and section 440
during such fiscal year. In no event may the total amount so
assessed exceed, for any fiscal year, $800,000 adjusted for
each fiscal year ending after September 30, 1997, by the
ratio of the Consumer Price Index for All Urban Consumers
(issued by the Bureau of Labor Statistics) for the final
month of the fiscal year preceding the fiscal year for which
the assessment is made to the Consumer Price Index for All
Urban Consumers for September 1997.

"(ii) DEPOSIT. -- Amounts collected from assessments
under this subparagraph shall be deposited in an account
within the Treasury of the United States as designated by the
Secretary of the Treasury for that purpose. The Secretary of
the Treasury is authorized and directed to pay out of any
funds available in such account the reasonable costs and
expenses of carrying out the duties of the Secretary of the
Treasury under this section and section 440. None of the
funds deposited into such account shall be available for any
purpose other than making payments for such costs and
expenses."; and

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(14) ACTIONS BY SECRETARY. --

"(A) IN GENERAL. -- For any fiscal quarter ended after
January 1, 2000, the Association shall have a capital ratio of at
least 2.25 percent. The Secretary of the Treasury may, whenever
such capital ratio is not met, take any one or more of the
actions described in paragraph (7), except that --

"(i) the capital ratio to be restored pursuant to
paragraph (7)(D) shall be 2.25 percent; and

"(ii) if the relevant capital ratio is in excess of or
equal to 2 percent for such quarter, the Secretary of the
Treasury shall defer taking any of the actions set forth in
paragraph (7) until the next succeeding quarter and may then
proceed with any such action only if the capital ratio of the
Association remains below 2.25 percent.

"(B) APPLICABILITY. -- The provisions of paragraphs (4),
(5), (6), (8), (9), (10), and (11) shall be of no further
application to the Association for any period after January 1,
2000."

(4) INFORMATION REQUIRED; DIVIDENDS. -- Section 439(r) of the Higher
Education Act of 1965 (20 U.S.C. 1087-2(r)) is further amended --

(A) by adding at the end of paragraph (2) (amended in paragraph
(3)(B)(ii)) the following new subparagraph:

"(E) OBLIGATION TO OBTAIN, MAINTAIN, AND REPORT INFORMATION. --

"(i) IN GENERAL. -- The Association shall obtain such
information and make and keep such records as the Secretary of
the Treasury may from time to time prescribe concerning --

"(I) the financial risk to the Association resulting
from the activities of any associated person, to the extent
such activities are reasonably likely to have a material
impact on the financial condition of the Association,
including the Association's capital ratio, the Association's
liquidity, or the Association's ability to conduct and
finance the Association's operations; and

"(II) the Association's policies, procedures, and
systems for monitoring and controlling any such financial
risk.

"(ii) SUMMARY REPORTS. -- The Secretary of the Treasury may
require summary reports of such information to be filed no more
frequently than quarterly. If, as a result of adverse market
conditions or based on reports provided pursuant to this
subparagraph or other available information, the Secretary of the
Treasury has concerns regarding the financial or operational
condition of the Association, the Secretary of the Treasury may,
notwithstanding the preceding sentence and clause (i), require
the Association to make reports concerning the activities of any
associated person, whose business activities are reasonably
likely to have a material impact on the financial or operational
condition of the Association.

"(iii) DEFINITION. -- For purposes of this subparagraph, the
term 'associated person' means any person, other than a natural
person, directly or indirectly controlling, controlled by, or
under common control with the Association."; and

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(B) by adding at the end the following new paragraphs:

(16) DIVIDENDS. -- The Association may pay dividends in the form
of cash or noncash distributions so long as at the time of the
declaration of such dividends, after giving effect to the payment of
such dividends as of the date of such declaration by the Board of
Directors of the Association, the Association's capital would be in
compliance with the capital standards set forth in this section.

"(17) CERTIFICATION PRIOR TO PAYMENT OF DIVIDEND. -- Prior to
the payment of any dividend under paragraph (16), the Association
shall certify to the Secretary of the Treasury that the payment of
the dividend will be made in paragraph (16) and shall provide copies
of all calculations needed to make such certification."

"Sec. 602(c) SUNSET OF THE ASSOCIATION'S CHARTER IF NO REORGANIZATION PLAN
OCCURS. -- Section 439 of the Higher Education Act of 1965 (20 U.S.C. 1087-2) is
amended by adding at the end the following new subsection:

"(s) CHARTER SUNSET. --

"(1) APPLICATION OF PROVISIONS. -- This subsection applies
beginning 18 months and one day after the date of enactment of this
subsection if no reorganization of the Association occurs in accordance
with the provisions of section 440.

"(2) SUNSET PLAN. --

"(A) PLAN SUBMISSION BY THE ASSOCIATION. -- Not later than July
1, 2007, the Association shall submit to the Secretary of the
Treasury and to the Chairman and Ranking Member of the Committee on
Labor and Human Resources of the Senate and the Chairman and Ranking
Member of the Committee on Economic and Educational Opportunities of
the House of Representatives, a detailed plan for the orderly winding
up, by July 1, 2013, of business activities conducted pursuant to the
charter set forth in this section. Such plan shall --

"(i) ensure that the Association will have adequate assets
to transfer to a trust, as provided in this subsection, to ensure
full payment of remaining obligations of the Association in
accordance with the terms of such obligations;

"(ii) provide that all assets not used to pay liabilities
shall be distributed to shareholders as provided in this
subsection; and

"(iii) provide that the operations of the Association shall
remain separate and distinct from that of any entity to which the
assets of the Association are transferred;

"(B) AMENDMENT OF THE PLAN BY THE ASSOCIATION. -- The
Association shall from time to time amend such plan to reflect
changed circumstances, and submit such amendments to the Secretary of
the Treasury and to the Chairman and Ranking Minority Member of the
Committee on Labor and Human Resources of the Senate and Chairman and
Ranking Minority Member of the Committee on Economic and Educational
Opportunities of the House of Representatives. In no case may any
amendment extend the date for full implementation of the plan beyond
the dissolution date provided in paragraph (3).

"(C) PLAN MONITORING. -- The Secretary of the Treasury shall
monitor the Association's compliance with the plan and shall continue
to review the plan (including any amendments thereto).

"(D) AMENDMENT OF THE PLAN BY THE SECRETARY OF THE
TREASURY. -- The Secretary of the Treasury may require the
Association to amend the plan (including any amendments to the plan),
if the Secretary of the Treasury deems such amendments are necessary
to ensure full payment of all obligations of the Association.

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"(E) IMPLEMENTATION BY THE ASSOCIATION. -- The Association shall
promptly implement the plan (including any amendments to the plan,
whether such amendments are made by the Association or are required
to be made by the Secretary of the Treasury).

"(3) DISSOLUTION OF THE ASSOCIATION. -- The Association shall
dissolve and the Association's separate existence shall terminate on
July 1, 2013, after discharge of all outstanding debt obligations and
liquidation pursuant to this subsection. The Association may dissolve
pursuant to this subsection prior to such date by notifying the
Secretary of Education and the Secretary of the Treasury of the
Association's intention to dissolve, unless within 60 days of receipt of
such notice the Secretary of Education notifies the Association that the
Association continues to be needed to serve as a lender of last resort
pursuant to subsection (q) or continues to be needed to purchase loans
under an agreement with the Secretary described in paragraph (4)(A). On
the dissolution date, the Association shall take the following actions:

"(A) ESTABLISHMENT OF A TRUST. -- The Association shall, under
the terms of an irrevocable trust agreement in form and substance
satisfactory to the Secretary of the Treasury, the Association, and
the appointed trustee, irrevocably transfer all remaining obligations
of the Association to a trust and irrevocably deposit or cause to be
deposited into such trust, to be held as trust funds solely for the
benefit of holders of the remaining obligations, money or direct
noncallable obligations of the United States or any agency thereof
for which payment the full faith and credit of the United States is
pledged, maturing as to principal and interest in such amounts and at
such times as are determined by the Secretary of the Treasury to be
sufficient, without consideration of any significant reinvestment of
such interest, to pay the principal of, and interest on, the
remaining obligations in accordance with their terms.

"(B) USE OF TRUST ASSETS. -- All money, obligations, or
financial assets deposited into the trust pursuant to this subsection
shall be applied by the trustee to the payment of the remaining
obligations assumed by the trust. Upon the fulfillment of the
trustee's duties under the trust, any remaining assets of the trust
shall be transferred to the persons who, at the time of the
dissolution, were the shareholders of the Association, or to the
legal successors or assigns of such persons.

"(C) OBLIGATIONS NOT TRANSFERRED TO THE TRUST. -- The
Association shall make proper provision for all other obligations of
the Association, including the repurchase or redemption, or the
making of proper provision for the repurchase or redemption, of any
preferred stock of the Association outstanding.

"(D) TRANSFER OF REMAINING ASSETS. -- After compliance with
subparagraphs (A) and (C), the Association shall transfer to the
shareholders of the Association any remaining assets of the
Association.

(4) RESTRICTIONS RELATING TO WINDING UP. --

"(A) RESTRICTIONS ON NEW BUSINESS ACTIVITY OR ACQUISITION OF
ASSETS BY THE ASSOCIATION. --

"(i) IN GENERAL. -- Beginning on July 1, 2009, the
Association shall not engage in any new business activities or
acquire any additional program assets (including acquiring assets
pursuant to contractual commitments) described in subsection (d)
other than in connection with the Association --

"(I) serving as a lender of last resort pursuant to
subsection (q); and

"(II) purchasing loans insured under this part, if the
Secretary, with the approval of the Secretary of the
Treasury, enters into an agreement with the Association for
the continuation or resumption of the Association's secondary
market

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purchase program because the Secretary determines there is
inadequate liquidity for loans made under this part.

"(ii) AGREEMENT. -- The Secretary is authorized to enter
into an agreement described in subclause (II) of clause (i) with
the Association covering such secondary market activities. Any
agreement entered into under such subclause shall cover a period
of 12 months, but may be renewed if the Secretary determines that
liquidity remains inadequate. The fee provided under subsection
(h)(7) shall not apply to loans acquired under any such agreement
with the Secretary."

"(B) ISSUANCE OF DEBT OBLIGATIONS DURING THE WIND UP PERIOD;
ATTRIBUTES OF DEBT OBLIGATIONS. -- The Association shall not issue
debt obligations which mature later than July 1, 2013, except in
connection with serving as a lender of last resort pursuant to
subsection (q) or with purchasing loans under an agreement with the
Secretary as described in subparagraph (A). Nothing in this
subsection shall modify the attributes accorded the debt obligations
of the Association by this section, regardless of whether such debt
obligations are transferred to a trust in accordance with paragraph
(3).

"(C) USE OF ASSOCIATION NAME. -- The Association may not
transfer or permit the use of the name 'Student Loan Marketing
Association', 'Sallie Mae', or any variation thereof, to or by any
entity other than a subsidiary of the Association."

Sec. 602(d) REPEALS. --

(1) IN GENERAL. -- Sections 439 of the Higher Education Act of 1965
(20 U.S.C.1087-2) and 440 of such Act (as added by subsection (a) of this
section) are repealed.

(2) EFFECTIVE DATE. -- The repeals made by paragraph (1) shall be
effective one year after --

(A) the date on which all of the obligations of the trust
established under section 440(d)(1) of the Higher Education Act of 1965
(as added by subsection (a)) have been extinguished, if a reorganization
occurs in accordance with section 440 of such Act; or

(B) the date on which all of the obligations of the trust
established under subsection 439(s)(3)(A) of such Act (as added by
subsection (c)) have been extinguished, if a reorganization does not
occur in accordance with section 440 of such Act.

Sec. 602(e) ASSOCIATION NAMES. -- Upon dissolution in accordance with
section 439(s) of the Higher Education Act of 1965 (20 U.S.C. 1087-2), the names
"Student Loan Marketing Association", "Sallie Mae", and any variations thereof
may not be used by any entity engaged in any business similar to the business
conducted pursuant to section 439 of such Act (as such section was in effect on
the date of enactment of this Act) without the approval of the Secretary of the
Treasury.

Sec. 602(f) RIGHT TO ENFORCE. -- The Secretary of Education or the
Secretary of the Treasury, as appropriate, may request that the Attorney General
bring an action in the United States District Court for the District of Columbia
for the enforcement of any provision of subsection (e), or may, under the
direction or control of the Attorney General, bring such an action. Such court
shall have jurisdiction and power to order and require compliance with
subsection (e).

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APPENDIX C

THE FEDERAL FAMILY EDUCATION LOAN PROGRAM

GENERAL

The Federal Family Education Loan Program ("FFELP") (formerly the
Guaranteed Student Loan Program ("GSLP")) under Title IV of the Higher Education
Act (the "Act") provides for loans to be made to students or parents of
dependent students enrolled in eligible institutions to finance a portion of the
costs of attending school. If a borrower defaults on a student loan, becomes
totally or permanently disabled, dies, files for bankruptcy or attends a school
that closes prior to the student earning a degree, or if the applicable
education institution falsely certifies the borrower's eligibility for a Student
Loan (collectively "insurance triggers"), the holder of the loan (which must be
an eligible lender) may file a claim with the applicable Guarantee Agency.
Provided that the loan has been properly originated and serviced, the Guarantee
Agency pays the holder all or a portion of the unpaid principal balance on the
loan as well as accrued interest. Origination and servicing requirements, as
well as procedures to cure deficiencies, are established by the U.S. Department
of Education (the "Department") and the various Guarantee Agencies.

Under the FFELP, payment of principal and interest with respect to the
student loans is guaranteed against default, death, bankruptcy or disability of
the applicable borrower by the applicable Guarantee Agency. As described herein,
the guarantee agencies are entitled, subject to certain conditions, to be
reimbursed for all or a portion of Guarantee Payments they make by the
Department pursuant to a program of federal reinsurance under the Act. See
"Guarantee Agencies".

Guarantee Agencies enter into reinsurance agreements with the Secretary of
Education pursuant to which the Secretary agrees to reimburse the Guarantee
Agency for all or a portion of the amount expended by the Guarantee Agency in
discharge of its guarantee obligation with respect to default claims provided
the loans have been properly originated and serviced. Except for claims
resulting from death, disability or bankruptcy of a borrower, in which case the
Secretary pays the full amount of the claim, the amount of reinsurance depends
on the default experience of the Guarantee Agency. See " -- Federal Insurance
and Reinsurance of Guarantee Agencies".

In the event of a shortfall between the amounts of claims paid to holders
of defaulted loans and reinsurance payments from the federal government,
Guarantee Agencies pay the claims from their reserves. These reserves come from
four principal sources: insurance premiums they charge on student loans
(currently up to 1 percent of loan principal), administrative cost allowances
from the Department (payment of which is currently discretionary on the part of
the Department)(1), debt collection activities (generally, the Guarantee Agency
may retain 27 percent of its collections on defaulted student loans), and
investment income from reserve funds. Claims which a Guarantee Agency is
financially unable to pay will be paid by the Secretary or transferred to a
financially sound Guarantee Agency, if the Secretary makes the necessary
determination that the guarantor is financially unable to pay.

Several types of guaranteed student loans are currently authorized under
the Act: (i) loans to students who pass certain financial need tests
("Subsidized Stafford Loans"); (ii) loans to students who do not pass the
Stafford need tests or who need additional loans to supplement their Subsidized
Stafford Loans ("Unsubsidized Stafford Loans"); (iii) loans to parents of
students ("PLUS Loans") who are dependents and whose need exceed the financing
available from Subsidized Stafford Loans and/or Unsubsidized Stafford Loans; and
(iv) loans to consolidate the borrower's obligations under various federally
authorized student loan programs into a single loan ("Consolidation Loans").
Prior to July 1, 1994 the Act also permitted loans to graduate and professional
students and independent undergraduate students and, under certain
circumstances, dependent

- ---------------

(1) The Fiscal Year 1996 Omnibus Appropriations Act provided that for the
1995 and 1996 federal fiscal years, the Secretary must pay an administrative
cost allowance to guaranty agencies equal to .085 percent of each agency's loan
originations.

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undergraduate students who needed additional loans to supplement their
Subsidized Stafford Loans ("Supplemental Loans to Students" or "SLS Loans").

The FFELP is subject to statutory and regulatory revision from time to
time. The most recent significant revisions are contained in the Higher
Education Amendments of 1992 ("the 1992 Amendments"), the Omnibus Budget
Reconciliation Act of 1993 ("the 1993 Act") and the "Higher Education Technical
Amendments of 1993" (the "Technical Amendments"). As part of the 1992 Amendments
the name of the Guaranteed Student Loan Program was changed to the FFELP. The
1993 Act contains significant changes to the FFELP and creates a direct loan
program funded directly by the U.S. Department of Treasury (each loan under such
program, a "Federal Direct Student Loan").

Following enactment of the 1992 Amendments, Subsidized Stafford Loans,
Unsubsidized Stafford Loans, PLUS Loans and Consolidation Loans are officially
referred to as "Federal Stafford Loans," "Federal Unsubsidized Stafford Loans,"
"Federal PLUS Loans" and "Federal Consolidation Loans," respectively.

The description and summaries of the Act, the FFELP, the Guarantee
Agreements and the other statutes and regulations referred to in this Proxy
Statement/Prospectus do not purport to be comprehensive, and are qualified in
their entirety by reference to each such statute or regulation. The Act is
codified at 20 U.S.C. (LOGO) 1071 et seq., and the regulations promulgated
thereunder can be found at 34 C.F.R. Part 682. There can be no assurance that
future amendments or modifications will not materially change any of the terms
or provisions of the programs described in this Proxy Statement/Prospectus or of
the statutes and regulations implementing these programs.

LEGISLATIVE AND ADMINISTRATIVE MATTERS

The Act was amended by enactment of the 1992 Amendments, the general
provisions of which became effective on July 23, 1992 and which extend the
principal provisions of the FFELP to September 30, 1998 (or in the case of
borrowers who have received loans prior to that date, September 30, 2002, except
that authority to make Consolidation Loans expires on September 30, 1998). The
Technical Amendments became effective on December 20, 1993.

The 1993 Act, effective on August 10, 1993, implements a number of changes
to the federal guaranteed student loan programs, including imposing on lenders
or holders of guaranteed student loans certain fees, providing for 2 percent
lender risk sharing, reducing interest rates and Special Allowance Payments for
certain loans, effectively reducing the interest payable to holders of
Consolidation Loans and affecting the Department's financial assistance to
Guarantee Agencies, including by reducing the percentage of claims the
Department will reimburse Guarantee Agencies and reducing more substantially the
premiums and default collections that Guarantee Agencies are entitled to receive
and/or retain. In addition, such legislation also contemplates replacement of at
least 60 percent of the federal guaranteed student loan programs with direct
lending by the Department by the 1998-99 academic year.

ELIGIBLE LENDERS, STUDENTS AND INSTITUTIONS

Lenders eligible to make and/or hold loans under the FFELP generally
include banks, savings and loan associations, credit unions, pension funds,
insurance companies and, under certain conditions, schools and guarantee
agencies. Sallie Mae is an eligible lender for making Consolidation Loans and as
a lender of last resort and for holding FFELP loans.

A FFELP loan may be made only to qualified borrowers. Generally a qualified
borrower is an individual or parent of an individual who (a) has been accepted
for enrollment or is enrolled and is maintaining satisfactory progress at an
eligible institution, (b) is carrying or will carry at least one-half of the
normal full-time academic workload for the course of study the student is
pursuing, as determined by such institution, (c) has agreed to notify promptly
the holder of the loan of any address change and (d) meets the applicable "need"
requirements for the particular loan program. Each loan is to be evidenced by an
unsecured promissory note signed by the qualified borrower.

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Eligible institutions are post-secondary schools which meet the
requirements set forth in the Act. They include institutions of higher
education, proprietary institutions of higher education and post-secondary
vocational institutions. With specified exceptions, institutions are excluded
from consideration as eligible institutions if the institution (i) offers more
than 50 percent of its courses by correspondence; (ii) enrolls 50 percent or
more of its students in correspondence courses; (iii) has a student enrollment
in which more than 25 percent of the students are incarcerated; or (iv) has a
student enrollment in which more than 50 percent of the students are admitted
without a high school diploma or its equivalent on the basis of their ability to
benefit from the education provided (as defined by statute and regulation).
Further, schools are specifically excluded from participation if (i) the
institution has filed for bankruptcy or (ii) the institution, the owner or its
chief executive officer, has been convicted or pleaded nolo contendere or guilty
to a crime involving the acquisition, use or expenditure of federal student aid
funds, or has been judicially determined to have committed fraud involving funds
under the student aid program. In order to participate in the program, the
eligibility of a school must be approved by the Department under standards
established by regulation.

FINANCIAL NEED ANALYSIS

Student loans may generally be made in amounts, subject to certain limits
and conditions, to cover the student's estimated costs of attendance, including
tuition and fees, books, supplies, room and board, transportation and
miscellaneous personal expenses (as determined by the institution). Each
borrower must undergo a need analysis, which requires the borrower to submit a
need analysis form which is forwarded to the federal central processor. The
central processor evaluates the parents' and student's financial condition under
federal guidelines and calculates the amount that the student and/or the family
is expected to contribute towards the student's cost of education (the "family
contribution"). After receiving information on the family contribution, the
institution then subtracts the family contribution from its cost of attendance
to determine the student's eligibility for grants, Subsidized Stafford Loans and
work assistance. The difference between (a) the sum of the (i) amount of grants,
(ii) the amount earned through work assistance and (iii) the amount of
Subsidized Stafford Loans for which the borrower is eligible and (b) the
student's estimated cost of attendance (the "Unmet Need") may be borrowed
through Unsubsidized Stafford Loans. Parents may finance the family contribution
amount through their own resources or through PLUS Loans.

SPECIAL ALLOWANCE PAYMENTS

The Act provides for quarterly special allowance payments ("Special
Allowance Payments") to be made by the Department to holders of student loans to
the extent necessary to ensure that such holder receives at least a specified
market interest rate of return on such loans. The rates for Special Allowance
Payments are based on formulas that differ according to the type of loan and the
date the loan was originally made or insured. A Special Allowance Payment is
made for each of the 3-month periods ending March 31, June 30, September 30, and
December 31. The Special Allowance Payments equal the average unpaid principal
balance (including interest permitted to be capitalized) of all eligible loans
held by such holder during such period multiplied by the special allowance
percentage. The special allowance percentage shall be computed by (i)
determining the average of the bond equivalent rates of 91-day Treasury bills
auctioned for such 3-month period, (ii) subtracting the applicable borrower
interest rate on such loans from such average, (iii) adding the applicable
Special Allowance Margin (defined below) to the resultant percentage, and (iv)
dividing the resultant percentage by 4.

<TABLE>
<CAPTION>
DATE OF DISBURSEMENT SPECIAL ALLOWANCE MARGIN
- --------------------------------------------- --------------------------------------------------
<S> <C>
Prior to 10/17/86............................ 3.50%
10/17/86-9/30/92............................. 3.25%
10/01/92-6/30/95............................. 3.10%
7/1/95-6/30/98............................... 2.50% (Subsidized and Unsubsidized Stafford Loans,
in school, grace or deferment)
3.10% (Subsidized and Unsubsidized Stafford Loans,
in repayment and all other loans)
</TABLE>

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Special Allowance Payments are available on variable rate PLUS Loans and
SLS Loans as described below under "PLUS and SLS Loan Programs" only to cover
any amount by which the variable rate, which is reset annually based on the
52-week Treasury Bill, would exceed the applicable maximum rate.

As part of the amendments made to the Act by the Omnibus Budget
Reconciliation Act of 1993, the method for calculating borrower interest and
special allowance payment is scheduled to be altered for loans made on or after
July 1, 1998. As of that date, the borrower interest rate on Stafford Loans and
Unsubsidized Stafford Loans will be established annually at the "bond equivalent
rate of the securities with the comparable maturity", as determined by the
Secretary of Education, plus 1.0 percent. This rate will apply for loans both
during the in-school and repayment periods. For PLUS loans, the rate will be the
same, except that 2.10 percent will be added to the rate basis. Special
allowance payments on these loans will be paid at the "bond equivalent rate of
the securities with comparable maturities" plus 1.0 percent and reset at
intervals established by the Secretary of Education. The Secretary of Education
has yet to issue formal guidance on the rate basis or on the method or timing of
special allowance payments for these loans.

ORIGINATION FEES

The eligible lender charges borrowers an origination fee, which in turn is
passed on to the federal government, on Subsidized and Unsubsidized Stafford
Loans and PLUS Loans equal to 3 percent of the principal balance of each loan.
The amount of the origination fee may be deducted from each disbursement
pursuant to a loan on a pro rata basis. No origination fee is paid on
Consolidation Loans.

Lenders must refund all origination fees attributable to a disbursement
that was returned to the lender by the school or repaid or not delivered within
120 days of the disbursement. Such origination fees must be refunded by
crediting the borrower's loan balance with the applicable lender.

STAFFORD LOANS

The Act provides for (i) federal insurance or reinsurance of Subsidized
Stafford Loans made by eligible lenders to qualified students, (ii) federal
interest subsidy payments on certain eligible Subsidized Stafford Loans to be
paid by the Department to holders of the loans in lieu of the borrower making
interest payments ("Interest Subsidy Payments"), and (iii) Special Allowance
Payments representing an additional subsidy paid by the Department to the
holders of eligible Subsidized Stafford Loans (collectively referred to herein
as "Federal Assistance").

Subsidized Stafford Loans are loans under the FFELP that may be made, based
on need, only to post-secondary students accepted or enrolled in good standing
at an eligible institution who are carrying at least one-half the normal
full-time course load at that institution. The Act limits the amount a student
can borrow in any academic year and the amount he or she can have outstanding in
the aggregate. The following chart sets forth the historic loan limits.

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MAXIMUM LOAN AMOUNTS
FEDERAL STAFFORD LOAN PROGRAM

<TABLE>
<CAPTION>
ALL STUDENTS(1)
--------------- INDEPENDENT STUDENTS(3)
BASE AMOUNT ------------------------
SUBSIDIZED AND ADDITIONAL
SUBSIDIZED UNSUBSIDIZED UNSUBSIDIZED
SUBSIDIZED ON OR AFTER ON OR AFTER ONLY ON OR TOTAL
BORROWER'S ACADEMIC LEVEL PRE-1/1/87 1/1/87 7/7/93(2) AFTER 7/1/94 AMOUNT
- -------------------------------------- ---------- ----------- --------------- ------------ --------
<S> <C> <C> <C> <C> <C>
Undergraduate (per year)
1st year.............................. $ 2,500 $ 2,625 $ 2,625 $ 4,000 $ 6,625
2nd year.............................. $ 2,500 $ 2,625 $ 3,500 $ 4,000 $ 7,500
3rd year & above...................... $ 2,500 $ 4,000 $ 5,500 $ 5,000 $ 10,500
Graduate (per year)................... $ 5,000 $ 7,500 $ 8,500 $ 10,000 $ 18,500
Aggregate Limit
Undergraduate....................... $ 12,500 $17,250 $23,000 $ 23,000 $ 46,000
Graduate (including
undergraduate)................... $ 25,000 $54,750 $65,500 $ 73,000 $138,500
</TABLE>

- ---------------
(1) The loan limits are inclusive of both Federal Stafford Loans and Federal
Direct Student Loans.

(2) These amounts represent the combined maximum loan amount per year for
Subsidized and Unsubsidized Stafford Loans. Accordingly, the maximum amount
that a student may borrow under an Unsubsidized Loan is the difference
between the combined maximum loan amount and the amount the student
received in the form of a Subsidized Loan.

(3) Independent undergraduate students, graduate students or professional
students may borrow these additional amounts. In addition, dependent
undergraduate students may also receive these additional loan amounts if
the parents of such students are unable to provide the family contribution
amount and it is unlikely that the student's parents will qualify for a
Federal PLUS Loan.

(4) Some graduate health profession students otherwise eligible to borrow under
HEAL may be entitled to increase unsubsidized loan limits not to exceed
HEAL statutory limits for each course of study per academic year.

The interest rate paid by borrowers on a Subsidized Stafford Loan is
dependent on the date of the loan except for loans made prior to October 1,
1992, whose interest rate depends on any outstanding borrowings of that borrower
as of such date. The rate for variable rate Subsidized Stafford Loans applicable
for any 12-month period beginning on July 1 and ending on June 30, is determined
on the preceding June 1 and is equal to the lesser of (a) the applicable Maximum
Rate or, (b) the sum of (i) the bond equivalent rate of 91-day Treasury bills
auctioned at the final auction held prior to such June 1, and (ii) the
applicable Interest Rate Margin.

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SUBSIDIZED STAFFORD LOANS

<TABLE>
<CAPTION>
DATE OF DISBURSEMENT BORROWER RATE MAXIMUM RATE INTEREST RATE MARGIN
- ------------------------------ -------------------- -------------------- --------------------
<S> <C> <C> <C>
09/13/83-06/30/88............. 8% 8.00%
07/01/88-09/30/92............. 8% for 48 months; 8.00% for 48 months, 3.25%
thereafter, 91-Day then 10%
Treasury +
Interest Rate Margin
10/01/92-06/30/94............. 91-Day Treasury + 9.00% 3.10%
Interest Rate Margin
07/01/94-06/30/95............. 91-Day Treasury + 8.25% 3.10%
Interest Rate Margin
07/01/95-06/30/98............. 91-Day Treasury + 8.25% 2.50% (in school,
Interest Rate Margin grace, or deferment)
3.10% (in repayment)
After 07/01/98................ The bond equivalent 8.25% 1.0%
rate of the
securities with a
comparable maturity
as established by
the Secretary +
Interest Rate Margin
</TABLE>

The Technical Amendments provide that, for fixed rate loans made on or
after July 23, 1992 and for certain loans made to new borrowers on or after July
1, 1988, the lender must convert the loan to a variable rate loan capped at the
interest rate existing prior to the conversion. This conversion must have been
completed by January 1, 1995.

Holders of Subsidized Stafford Loans are eligible to receive Special
Allowance Payments. The Department is responsible for paying interest on
Subsidized Stafford Loans while the borrower is a qualified student, during a
grace period or during certain deferment periods. The Department makes quarterly
Interest Subsidy Payments to the owner of Subsidized Stafford Loans in the
amount of interest accruing on the unpaid balance thereof prior to the
commencement of repayment or during any deferment periods. The Act provides that
the owner of an eligible Subsidized Stafford Loan shall be deemed to have a
contractual right against the United States to receive Interest Subsidy Payments
(and Special Allowance Payments) in accordance with its provisions. Receipt of
Interest Subsidy Payments and Special Allowance Payments is conditioned on
compliance with the requirements of the Act and continued eligibility of such
loan for federal reinsurance.

Interest Subsidy Payments and Special Allowance Payments are generally
received within 45 days to 60 days after the end of any given calendar quarter
(provided that the applicable claim form is properly filed with the Department),
although there can be no assurance that such payments will in fact be received
from the Department within that period.

Repayment of principal on a Subsidized or Unsubsidized Stafford Loan
typically does not commence while a student remains a qualified student, but
generally begins upon expiration of the applicable grace period, as described
below. Any borrower may voluntarily prepay without premium or penalty any loan
and in connection therewith may waive any grace period or deferment period. In
general, each loan must be scheduled for repayment over a period of not more
than ten years after the commencement of repayment. The Act currently requires
minimum annual payments of $600 including principal and interest, unless the
borrower and the lender agree to lesser payments. As of July 1, 1995, lenders
are required to offer borrowers a choice among standard, graduated and
income-sensitive repayment schedules. These repayment options must be offered to
all new borrowers who enter repayment on or after July 1, 1995. If a borrower
fails to elect a

C-6
<PAGE> 149

particular repayment schedule or fails to submit the documentation necessary for
the option the borrower chooses, the standard repayment schedule is used.

Repayment of principal on a Subsidized Stafford Loan must generally
commence following a period of (a) not less than 9 months or more than 12 months
(with respect to loans for which the applicable interest rate is 7 percent per
annum) and (b) not more than 6 months (with respect to loans for which the
applicable interest rate is 9 percent per annum or 8 percent per annum and for
loans to first time borrowers on or after July 1, 1988) after the borrower
ceases to pursue at least a half-time course of study (a "Grace Period").
However, during certain other periods (each a "Deferment Period") and subject to
certain conditions, no principal repayments need be made, including periods when
the student has returned to an eligible educational institution on a full-time
(or in certain cases half time) basis or is pursuing studies pursuant to an
approved graduate fellowship program, or when the student is a member of the
Armed Forces or a volunteer under the Peace Corps Act or the Domestic Volunteer
Service Act of 1973, or when the borrower is temporarily or totally disabled, or
periods during which the borrower may defer principal payments because of
temporary financial hardship. For new borrowers to whom loans are first
disbursed on or after July 1, 1993, payment of principal may be deferred only
while the borrower is at least a half-time student or is in an approved graduate
fellowship program or is enrolled in a rehabilitation program, or when the
borrower is seeking but unable to find full-time employment, or when for any
reason the lender determines that payment of principal will cause the borrower
economic hardship; in the case of unemployment or economic hardship the
deferment is subject to a maximum deferment period of three years. The 1992
Amendments also require forbearance of loans in certain circumstances and permit
forbearance of loans in certain other circumstances (each such period, a
"Forbearance Period").

The Unsubsidized Stafford Loan program created under the 1992 Amendments is
designed for students who do not qualify for Subsidized Stafford Loans and for
independent graduate and professional students whose Unmet Need exceeds what
they can borrow under the Subsidized Stafford Loan Program. The basic
requirements for Unsubsidized Stafford Loans are essentially the same as those
for the Subsidized Stafford Loans, including with respect to provisions
governing the interest rate, the annual loan limits and the Special Allowance
Payments. The terms of the Unsubsidized Stafford Loans, however, differ in some
respects. The federal government does not make Interest Subsidy Payments on
Unsubsidized Stafford Loans. The borrower must either pay interest on a periodic
basis beginning 60 days after the time the loan is disbursed or capitalize the
interest that accrues until repayment begins. Effective July 1, 1994, the
maximum insurance premium was set at 1 percent. Subject to the same loan limits
established for Subsidized Stafford Loans, the student may borrow up to the
amount of such student's Unmet Need. Lenders are authorized to make Unsubsidized
Stafford Loans applicable for periods of enrollment beginning on or after
October 1, 1992.

PLUS AND SLS LOAN PROGRAMS

The Act also provides for the PLUS Program. The Act authorizes PLUS Loans
to be made to parents of eligible dependent students. The 1993 Act eliminated
the SLS Program after July 1, 1994.

The PLUS program permits parents of dependent students to borrow an amount
equal to each student's Unmet Need. Under the former SLS program, independent
graduate or professional school students and certain dependent undergraduate
students were permitted to borrow subject to the same loan limitations.

The first payment of principal and interest is due within 60 days of full
disbursement of the loan except for borrowers eligible for deferment who may
defer principal and interest payments while eligible for deferment; deferred
interest is then capitalized periodically or at the end of the deferment period
under specific arrangements with the borrower. The maximum repayment term is 10
years. PLUS and SLS loans carry no in-school interest subsidy.

The interest rate determination for a PLUS or SLS loan is dependent on when
the loan was originally made or disbursed. Some PLUS or SLS loans carry a
variable rate. The rate varies annually for each 12-month period beginning on
July 1 and ending on June 30. The variable rate is determined on the preceding
June 1 and is equal to the lesser of (a) the applicable Maximum Rate or (b) the
sum of (i) the bond

C-7
<PAGE> 150

equivalent rate of 52-week Treasury bills auctioned at the final auction held
prior to such June 1, and (ii) the applicable Interest Rate Margin as set forth
below.

PLUS/SLS LOANS

<TABLE>
<CAPTION>
DATE OF DISBURSEMENT BORROWER RATE MAXIMUM RATE INTEREST RATE MARGIN
- ----------------------------------------- -------------------- ------------ --------------------
<S> <C> <C> <C>
Prior to 10/01/81........................ 9% 9%
10/01/81-10/31/82........................ 14% 14%
11/01/82-06/30/87........................ 12% 12%
07/01/87-09/30/92........................ 52-Week Treasury + 12% 3.25%
Interest Rate Margin
10/01/92-06/30/94........................ 52-Week Treasury + PLUS 10% 3.10%
Interest Rate Margin SLS 11%
After 06/30/94
(SLS repealed 07/01/94)................ 52-Week Treasury + 9% 3.10%
Interest Rate Margin
</TABLE>

A holder of a PLUS or SLS loan is eligible to receive Special Allowance
Payments during any such 12-month period if (a) the sum of (i) the bond
equivalent rate of 52-week Treasury bills auctioned at the final auction held
prior to such June 1, and (ii) the Interest Rate Margin, exceeds (b) the Maximum
Rate.

THE CONSOLIDATION LOAN PROGRAM

The Act authorizes a program under which certain borrowers may consolidate
their various student loans into Consolidation Loans which will be insured and
reinsured to the same extent as other loans made under the FFELP. Under this
program, a lender may make a Consolidation Loan only if (a) such lender holds
one of the borrower's outstanding student loans that is selected for
consolidation, or (b) the borrower has unsuccessfully sought a Consolidation
Loan from the holders of the Student Loans selected for consolidation.

Consolidation Loans are made in an amount sufficient to pay outstanding
principal and accrued unpaid interest and late charges on all FFELP loans, as
well as loans made pursuant to various other federal student loan programs,
which were selected by the borrower for consolidation. The unpaid principal
balance of a Consolidation Loan made prior to July 1, 1994 bears interest at a
rate not less than 9 percent. The interest rate on a Consolidation Loan made on
or after July 1, 1994 is equal to the weighted average of the interest rates on
the loans selected for consolidation, rounded upward to the nearest whole
percent. The holder of a Consolidation Loan made on or after October 1, 1993
must pay the Secretary a monthly rebate fee calculated on an annual basis equal
to 1.05 percent of the principal plus accrued unpaid interest on any such loan.

The repayment term under a Consolidation Loan varies depending upon the
aggregate amount of the loans being consolidated. In no case may the repayment
term exceed 30 years. A Consolidation Loan is evidenced by an unsecured
promissory note and entitles the borrower to prepay the loan, in whole or in
part, without penalty.

GUARANTEE AGENCIES

The Act authorizes Guarantee Agencies to support education financing and
credit needs of students at post-secondary schools. Under various programs
throughout the United States, Guarantee Agencies insure student loans. The
Guarantee Agencies are reinsured by the federal government for 80 percent to 100
percent of claims paid, depending on their claims experience for loans disbursed
prior to October 1, 1993 and for 78 percent to 98 percent of claims paid for
loans disbursed on or after October 1, 1993.

Guarantee Agencies collect a one-time insurance fee of up to 1 percent of
the principal amount of each loan, other than Consolidation Loans, that the
agency guarantees.

C-8
<PAGE> 151

The Guarantee Agencies generally guarantee loans for students attending
institutions in their particular state or region or for residents of their
particular state or region attending schools in another state. Certain Guarantee
Agencies have been designated as the Guarantee Agency for more than one state.
Some Guarantee Agencies contract with other entities to administer their
guarantee agency programs.

FEDERAL INSURANCE AND REINSURANCE OF GUARANTEE AGENCIES

A student loan is considered to be in default for purposes of the Act when
the borrower fails to make an installment payment when due, or to comply with
other terms of the loan, and if the failure persists for 180 days in the case of
a loan repayable in monthly installments or for 240 days in the case of a loan
repayable in less frequent installments.

If the loan is guaranteed by a Guarantee Agency, the eligible lender is
reimbursed by the Guarantee Agency for 100 percent (98 percent for loans
disbursed on or after October 1, 1993) of the unpaid principal balance of the
loan plus accrued interest on any loan defaulted so long as the eligible lender
has properly originated and serviced such loan. Under certain circumstances a
loan deemed ineligible for reimbursement may be restored to eligibility.

Under the Act, the Department enters into a reinsurance agreement with each
Guarantee Agency, which provides for federal reinsurance of amounts paid to
eligible lenders by the Guarantee Agency. Pursuant to such agreements, the
Department agrees to reimburse a Guarantee Agency for 100 percent of the amounts
expended in connection with a claim resulting from the death, bankruptcy, or
total and permanent disability of a borrower, the death of a student whose
parent is the borrower of a PLUS Loan, or claims by borrowers who received loans
on or after January 1, 1986 and who are unable to complete the programs in which
they are enrolled due to school closure, or borrowers whose borrowing
eligibility was falsely certified by the eligible institution; such claims are
not included in calculating a Guaranty Agency's claims experience for federal
reinsurance purposes, as set forth below. The Department is also required to
repay the unpaid balance of any loan if collection is stayed under the
Bankruptcy Code, and is authorized to acquire the loans of borrowers who are at
high risk of default and who request an alternative repayment option from the
Department.

With respect to FFELP loans in default, the Department is required to pay
the applicable Guarantee Agency a certain percentage ("Reinsurance Rate") of the
amount such agency paid pursuant to default claims filed by the lender on a
reinsured loan. The amount of such Reinsurance Rate is subject to specified
reductions when the total reinsurance claims paid by the Department to a
Guarantee Agency during a fiscal year equals or exceeds 5 percent of the
aggregate original principal amount of FFELP loans guaranteed by such agency
that are in repayment on the last day of the prior fiscal year. Accordingly, the
amount of the reinsurance payment received by the Guarantee Agency may vary. The
Reinsurance Rates are set forth in the following table.

<TABLE>
<CAPTION>
GUARANTEE AGENCY'S
CLAIMS EXPERIENCE APPLICABLE REINSURANCE RATE
- --------------------------------------------- ---------------------------------------------------
<S> <C>
0% up to 5%.................................. 98% (100% for loans disbursed before Oct. 1, 1993)
5% up to 9%.................................. 88% (90% for loans disbursed before Oct. 1, 1993)
9% and over.................................. 78% (80% for loans disbursed before Oct. 1, 1993)
</TABLE>

- ---------------
The claims experience is not cumulative. Rather, the claims experience for
any given Guarantee Agency is determined solely on the basis of claims for any
one federal fiscal year compared with the original principal amount of loans in
repayment at the beginning of that year.

The 1992 Amendments addressed industry concerns regarding the Department's
commitment to providing support in the event of Guarantee Agency failures.
Pursuant to the 1992 Amendments, Guarantee Agencies are required to maintain
specified reserve fund levels. Such levels are defined as 0.5 percent of the
total attributable amount of all outstanding loans guaranteed by the agency for
the fiscal year of the agency that begins in 1993, 0.7 percent for the agency's
fiscal year beginning in 1994, 0.9 percent for the agency's fiscal year
beginning in 1995, and 1.1 percent for the agency's fiscal year beginning on or
after January 1, 1996.

C-9
<PAGE> 152

If (i) the Guarantee Agency fails to achieve the minimum reserve level in any
two consecutive years, (ii) the Guarantee Agency's federal reimbursements are
reduced to 80 percent (or 78 percent after October 1, 1993) or (iii) the
Department determines the Guarantee Agency's administrative or financial
condition jeopardizes its continued ability to perform its responsibilities, the
Department must require the Guarantee Agency to submit and implement a
management plan to address the deficiencies. The Department may terminate the
Guarantee Agency's agreements with the Department if the Guarantee Agency fails
to submit the required plan, or fails to improve its administrative or financial
condition substantially, or if the Department determines the Guarantee Agency is
in danger of financial collapse. In such event, the Department is authorized to
undertake specified actions to assure the continued payment of claims, including
making advances to guarantee agencies to cover immediate cash needs,
transferring of guarantees to another Guarantee Agency, or transfer of
guarantees to the Department itself.

The Act provides that, subject to compliance with the Act, the full faith
and credit of the United States is pledged to the payment of federal reinsurance
claims. It further provides that Guarantee Agencies are deemed to have a
contractual right against the United States to receive reinsurance in accordance
with its provisions. In addition, the 1992 Amendments provide that if the
Department determines that a Guarantee Agency is unable to meet its insurance
obligations, holders of loans may submit insurance claims directly to the
Department until such time as the obligations are transferred to a new Guarantee
Agency capable of meeting such obligations or until a successor Guarantee Agency
assumes such obligations. There can be no assurance that the Department would
under any given circumstances assume such obligation to assure satisfaction of a
guarantee obligation by exercising its right to terminate a reimbursement
agreement with a Guarantee Agency or by making a determination that such
Guarantee Agency is unable to meet its guarantee obligations.

Lastly, the 1993 Act provides the Secretary of Education with broad
authority to manage the finances and affairs of Guarantee Agencies. In general,
the Act provides that agency reserve funds are federal property and may be taken
by the Secretary if he determines such action is in the best interests of the
loan program. Also, the Secretary has broad authority to terminate a Guarantee
Agency's reinsurance agreement with the Department.

Within each fiscal year, the applicable Reinsurance Rate steps down
incrementally with respect to claims made only after the claims experience
thresholds are reached.

C-10
<PAGE> 153

APPENDIX D

STATEMENT OF DISSENTING DIRECTORS

The following statement has been included at the written request of the
directors listed below and represents solely their views.

STATEMENT OF MESSRS. BRANDON, DALEY, HUNT, LAMBERT, LORD, PORTER,
SHAPIRO AND WATERFIELD FOR INCLUSION IN THE FORM S-4

Messrs. Brandon, Daley, Hunt, Lambert, Lord, Porter, Shapiro and Waterfield
(the "Majority of Elected Directors") voted against the Reorganization and the
other items that were submitted to a single vote by the Board of Directors. The
determination of the Majority of Elected Directors to vote against the
Reorganization was based on their belief that (i) management has not presented a
concrete business plan for the Holding Company, and (ii) the Reorganization
unnecessarily impairs stockholders' control over the corporation in both the
near- and long-term. In reaching this determination, the Majority of Elected
Directors considered the following material factors:

1. The belief that management has not presented a credible business
plan, or otherwise demonstrated the ability, to leverage Sallie Mae's
strengths in order to increase profit margins after privatization, as
exhibited by management's concessions when renegotiating the Company's
business relationship with The Chase Manhattan Bank.

2. The failure of management to present specific new substantive
business ventures for the Holding Company following privatization.

3. The fact that the Reorganization alters the composition of the
board of directors without allowing a stockholder vote on the Holding
Company board. A proposal presented by Mr. Brandon to have a separate vote
of stockholders on the election of the initial board of directors of the
Holding Company was not included on the agenda for the Special Meeting of
Stockholders.

4. The fact that the Nominations Committee of the Sallie Mae Board of
Directors (with Messrs. Brandon and Lambert dissenting) voted against a
proposal that the initial Holding Company board of directors consist of the
current fourteen stockholder-elected directors of Sallie Mae until
stockholders are provided the opportunity to vote on their successors. In
addition, the Majority of Elected Directors were effectively prevented from
evaluating the merit of seven individuals who were first proposed to the
Nominations Committee as potential directors of the Holding Company on the
day before the Board of Directors voted on the Reorganization.

5. The determination that the Reorganization will insulate the Holding
Company board of directors from accountability to stockholders by providing
for a classified board under which only one-third of the directors will be
subject to election in any one year, whereas currently two-thirds of Sallie
Mae's directors are subject to annual election, and by failing to provide
for a stockholder vote on the Holding Company board of directors in 1997.

6. The determination that the Certificate of Incorporation and Bylaws
of the Holding Company contain provisions that can entrench and insulate
management and omit other provisions that would protect stockholders'
rights, such as a provision proposed by Mr. Brandon that would restrict the
Holding Company's ability to adopt a stockholders rights plan ("poison
pill") without a stockholder vote.

7. The determination that there is sufficient time for an alternative
plan of reorganization containing provisions enhancing management and board
accountability to stockholders to be presented to stockholders for a vote
well in advance of the time that the "sunset" provisions of the
Privatization Act are triggered.

In voting against the Reorganization on the bases set forth above, the
Majority of Elected Directors have not determined that privatization is
undesirable, but instead believe that privatization on the terms contained in
the terms of the Reorganization advocated by management is not in the best
interests of Sallie Mae's stockholders.

D-1
<PAGE> 154

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Article IX of the Registrant's By-Laws provides for indemnification of the
officers and directors of SLM Holding Corporation to the fullest extent
permitted by applicable law. Section 145 of the Delaware General Corporation Law
provides, in relevant part, that a corporation organized under the laws of
Delaware shall have the power, and in certain cases the obligation, to indemnify
any person who was or is a party or is threatened to be made a party to any suit
or proceeding because such person is or was a director, officer, employee or
agent of the corporation or is or was serving, at the request of the
corporation, as a director, officer, employee or agent of another corporation,
against all costs actually and reasonably incurred by him in connection with
such suit or proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation and,
with respect to any criminal proceeding, he had no reason to believe his conduct
was unlawful. Similar indemnity is permitted to be provided to such persons in
connection with an action or suit by or in right of the corporation, provided
such person acted in good faith and in a manner he believed to be in or not
opposed to the best interests of the corporation, and provided further (unless a
court of competent jurisdiction otherwise determines) that such person shall not
have been adjudged liable to the corporation.

The directors and officers of the Registrant and its subsidiaries will be
covered by a policy of insurance under which they will be insured, within limits
and subject to certain limitations, against certain expenses in connection with
the defense of actions, suits or proceedings, and certain liabilities that might
be imposed as a result of such actions, suits or proceedings in which they are
parties by reason of being or having been directors or officers.

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) The following exhibits are filed as part of this Registration
Statement.

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ----------- ---------------------------------------------------------------------------------
<S> <C> <C>
2 -- Agreement and Plan of Reorganization dated as of , 1997, by and
among the Student Loan Marketing Association ("Sallie Mae"), SLM Holding
Corporation ("Registrant"), and [Sallie Mae Merger Company] ("MergerCo")
(Appendix A to the Proxy Statement/Prospectus contained in this Registration
Statement)
3.1 -- Form of Amended and Restated Certificate of Incorporation of Registrant
3.2 -- By-Laws of Registrant
4 -- Reference is made to Article Fourth of the Form of Amended and Restated
Certificate of Incorporation of Registrant (Exhibit 3.1 herein)
*5 -- Opinion of Timothy G. Greene, Executive Vice President and General Counsel, as to
the legality of the securities being registered
*8 -- Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to certain tax matters
*10 -- Benefit Plans of SLM Holding Corporation
*21 -- Subsidiaries of the Registrant
23.1 -- Consent of Ernst & Young LLP
*23.2 -- Consents of Persons Who Have Agreed to Serve as Directors of the Holding Company
Board
*24 -- Power of Attorney contained in the signature page of the registration statement
27 -- Financial Data Schedule
99.1 -- Charter of Sallie Mae
99.2 -- By-Laws of Sallie Mae
</TABLE>

- ---------------
* To be filed by an amendment to this Registration Statement.

(b) Financial statement schedules required by Regulation S-X and Item
14(e), Item 17(a) or Item 17(b)(9) of S-4 -- None

II-1
<PAGE> 155

ITEM 22. UNDERTAKINGS.

The undersigned Registrant hereby undertakes as follows:

(1) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.

(2) That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act of 1933, as amended, and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will not
be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.

(3) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

(4) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.

II-2
<PAGE> 156

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Washington,
District of Columbia, on February 5, 1997.

SLM Holding Corporation

By: /s/ LAWRENCE A. HOUGH
------------------------------------
Lawrence A. Hough
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.

/s/ LAWRENCE A. HOUGH
- ----------------------------------------------------
Lawrence A. Hough
President and Chief Executive Officer and Director
(Principal Executive Officer)

/s/ DENISE B. MCGLONE
- ----------------------------------------------------
Denise B. McGlone
Chief Financial Officer
(Principal Financial Officer)

/s/ MARK G. OVEREND
- ----------------------------------------------------
Mark G. Overend
Controller
(Principal Accounting Officer)

II-3
<PAGE> 157

EXHIBIT INDEX

<TABLE>
<CAPTION>
PAGE IN
SEQUENTIAL
NUMBERING
EXHIBIT NO. SYSTEM
- ----------- ---------
<C> <C> <S> <C>
2 -- Agreement and Plan of Reorganization dated as of ,
1997, by and among the Student Loan Marketing Association ("Sallie
Mae"), SLM Holding Corporation ("Registrant"), and [Sallie Mae Merger
Company] ("MergerCo") (Appendix A to the Proxy Statement/Prospectus
contained in this Registration Statement)............................
3.1 -- Form of Amended and Restated Certificate of Incorporation of
Registrant...........................................................
3.2 -- By-Laws of Registrant................................................
4 -- Reference is made to Article Fourth of the Form of Amended and
Restated Certificate of Incorporation of Registrant (Exhibit 3.1
herein)..............................................................
*5 -- Opinion of Timothy G. Greene, Executive Vice President and General
Counsel, as to the legality of the securities being registered.......
*8 -- Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to certain tax
matters..............................................................
*10 -- Benefit Plans of SLM Holding Corporation.............................
*21 -- Subsidiaries of the Registrant.......................................
23.1 -- Consent of Ernst & Young LLP.........................................
*23.2 -- Consent of Persons Who Have Agreed to Serve as Directors of the
Holding Company Board
*24 -- Power of Attorney contained in the signature page of the registration
statement............................................................
*27 -- Financial Data Schedule..............................................
99.1 -- Charter of Sallie Mae................................................
99.2 -- By-Laws of Sallie Mae................................................
</TABLE>

- ---------------
* To be filed by an amendment to this Registration Statement.

<PAGE> 1
EXHIBIT 3.1

CERTIFICATE OF INCORPORATION

SLM HOLDING CORPORATION

FIRST: The name of the Corporation is SLM Holding Corporation
(hereinafter the "Corporation").

SECOND: The address of the registered office of the
Corporation in the State of Delaware is 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered agent at that
address is The Corporation Trust Company.

THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which a corporation may be organized under the
General Corporation Law of the State of Delaware as set forth in Title 8 of the
Delaware Code (the "GCL").

FOURTH: The total number of shares of stock which the
Corporation shall have authority to issue is [__________] shares of capital
stock, consisting of (i) [__________] shares of common stock, par value $.20
per share (the "Common Stock"), and (ii) [__________] shares of preferred stock
(the "Preferred Stock").

a. Common Stock. The powers, preferences and rights,
and the qualifications, limitations and restrictions, of the Common Stock are
as follows:

(1) Voting. Except as otherwise expressly required by
law or provided in this Certificate of Incorporation, and subject to any voting
rights provided to holders of Preferred Stock at any time outstanding, at each
annual or special meeting of stockholders, each holder of record of shares of
Common Stock on the relevant record date shall be entitled to cast one vote in
person or by proxy for each share of the Common Stock standing in such holder's
name on the stock transfer records of the Corporation.

(2) Dividends. Subject to the rights of the holders of
Preferred Stock, and subject to any other provisions of this Certificate of
Incorporation, as it may be amended from time to time, holders of shares of
Common Stock shall be
<PAGE> 2
entitled to receive such dividends and other distributions in cash, stock or
property of the Corporation when, as and if declared thereon by the Board of
Directors from time to time out of assets or funds of the Corporation legally
available therefor.

(3) Liquidation, Dissolution, etc. In the event of any
liquidation, dissolution or winding up (either voluntary or involuntary) of the
Corporation, the holders of shares of Common Stock shall be entitled to receive
the assets and funds of the Corporation available for distribution after
payments to creditors and to the holders of any Preferred Stock of the
Corporation that may at the time be outstanding, in proportion to the number of
shares held by them.

(4) No Preemptive or Subscription Rights. No holder of
shares of Common Stock shall be entitled to preemptive or subscription rights.

b. Preferred Stock. The Board of Directors is hereby
expressly authorized to provide for the issuance of all or any shares of the
Preferred Stock in one or more classes or series, and to fix for each such
class or series such voting powers, full or limited, or no voting powers, and
such designations, preferences and relative, participating, optional or other
special rights and such qualifications, limitations or restrictions thereof, as
shall be stated and expressed in the resolution or resolutions adopted by the
Board of Directors providing for the issuance of such class or series,
including, without limitation, the authority to provide that any such class or
series may be (i) subject to redemption at such time or times and at such price
or prices; (ii) entitled to receive dividends (which may be cumulative or
non-cumulative) at such rates, on such conditions, and at such times, and
payable in preference to, or in such relation to, the dividends payable on any
other class or classes or any other series; (iii) entitled to such rights upon
the dissolution of, or upon any distribution of the assets of, the Corporation;
or (iv) convertible into, or exchangeable for, shares of any other class or
classes of stock, or of any other series of the same or any other class or
classes of stock, of the Corporation at such price or prices or at such rates
of exchange and with such adjustments; all as may be stated in such resolution
or resolutions.

c. Power to Sell and Purchase Shares. Subject to the
requirements of applicable law, the Corporation shall have the power to issue
and sell all or any part of any shares of any class of stock herein or
hereafter authorized to such persons, and for such consideration, as the Board
of Directors shall from time to time, in its discretion, determine, whether or
not greater consideration could be received upon the issue or sale of the same
number of shares of another class, and as otherwise permitted by law. Subject
to the requirements of applicable law, the

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<PAGE> 3
Corporation shall have the power to purchase any shares of any class of stock
herein or hereafter authorized from such persons, and for such consideration,
as the Board of Directors shall from time to time, in its discretion,
determine, whether or not less consideration could be paid upon the purchase of
the same number of shares of another class, and as otherwise permitted by law.

FIFTH: The name and mailing address of the Sole Incorporator
is as follows:

Name Address
---- -------

Timothy G. Greene 1050 Thomas Jefferson St., N.W.
Washington, D.C. 20007

SIXTH: The following provisions are inserted for the
management of the business and the conduct of the affairs of the Corporation,
and for further definition, limitation and regulation of the powers of the
Corporation and of its directors and stockholders:

(1) The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors.

(2) The directors shall have concurrent power with the
stockholders to make, alter, amend, change, add to or repeal the By-Laws of the
Corporation.

(3) (a) The number of directors of the Corporation
shall initially be [ ], and thereafter shall be such number as from time to
time is fixed by resolution of the Board of Directors, provided that the fixed
number of directors shall not be fewer than 9 nor more than [19]. Election of
directors need not be by written ballot unless the By-Laws so provide. The
directors shall be divided into three classes, designated Class I, Class II and
Class III. Each class shall consist, as nearly as may be possible, of
one-third of the total number of directors constituting the entire Board of
Directors. The initial division of the Board of Directors into classes shall
be made by the decision of the affirmative vote of the holders of a majority of
the issued and outstanding shares of Common Stock. Subject to the provisions
of this Article SIXTH (b), the term of the initial Class I directors shall
terminate on the date of the 1998 annual meeting; the term of the initial Class
II directors shall terminate on the date of the 1999 annual meeting; and the
term of the initial Class III directors shall terminate on the date of the 2000
annual meeting. Subject to the provisions of this Article SIXTH (b), at each
succeeding annual meet-

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<PAGE> 4
ing of stockholders beginning in 1998, successors to the class of directors
whose term expires at that annual meeting shall be elected for a three-year
term. If the number of directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of directors in each
class as nearly equal as possible, but in no case will a decrease in the number
of directors shorten the term of any incumbent director.

(b) A director shall hold office until the annual meeting
for the year in which his or her term expires and until his or her successor
shall be elected and shall qualify, subject, however, to prior death,
resignation, retirement, disqualification or removal from office.

(c) Subject to the terms of any one or more classes or
series of Preferred Stock, any vacancy on the Board of Directors that results
from an increase in the number of directors may not be filled by stockholders
of the Corporation but may be filled by a majority of the Board of Directors
then in office, provided that a quorum is present, and any other vacancy
occurring on the Board of Directors may not be filled by stockholders of the
Corporation but may be filled by a majority of the Board of Directors then in
office, even if less than a quorum, or by a sole remaining director. Any
additional director elected to fill a vacancy resulting from an increase in
the number of directors of such class shall hold office for a term that shall
coincide with the remaining term of that class. If the number of directors is
increased, any such increase shall be apportioned among the classes of
directors so as to maintain the number of directors in each class as nearly
equal as possible, provided that, to the extent not otherwise inconsistent with
any applicable rules of any exchange on which securities of the Corporation are
then listed, in the event that any such increase cannot be apportioned equally
among the classes of directors, the Board of Directors shall apportion the
additional directors among the classes in such a way so that the class of
directors that is apportioned the greatest number of additional directors is
the class of directors whose term is next scheduled to expire. Any director
elected to fill a vacancy not resulting from an increase in the number of
directors shall have the same remaining term as that of his predecessor.
Subject to the rights, if any, of the holders of shares of Preferred Stock then
outstanding, any or all of the directors of the Corporation may be removed from
office at any time, but only for cause and only by the affirmative vote of the
holders of at least a majority of the voting power of the Corporation's then
outstanding capital stock entitled to vote at an election of directors.
Notwithstanding the foregoing, whenever the holders of any one or more classes
or series of Preferred Stock issued by the Corporation shall have the right,
voting separately by class or series, to elect directors at an annual or
special meeting of stockholders, the election, term of

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<PAGE> 5
office, filling of vacancies and other features of such directorships shall be
governed by the terms of this Certificate of Incorporation applicable thereto,
and such directors so elected shall not be divided into classes pursuant to
this Article SIXTH unless expressly provided by such terms.

(4) No director shall be personally liable to the
Corporation or any of its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) pursuant to Section 174 of the GCL or (iv)
for any transaction from which the director derived an improper personal
benefit. Any repeal or modification of this Article SIXTH by the stockholders
of the Corporation shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or modification
with respect to acts or omissions occurring prior to such repeal or
modification.

(5) In addition to the powers and authority hereinbefore
or by statute expressly conferred upon them, the directors are hereby empowered
to exercise all such powers and do all such acts and things as may be exercised
or done by the Corporation, subject, nevertheless, to the provisions of the
GCL, this Certificate of Incorporation, and any By-Laws adopted by the
stockholders; provided, however, that no By-Laws hereafter adopted by the
stockholders shall invalidate any prior act of the directors which would have
been valid if such By-Laws had not been adopted.

(d) Notwithstanding any other provision of this
Certificate of Incorporation (and in addition to any other vote that may be
required by law), the affirmative vote of the holders of at least eighty
percent (80%) of the voting power of the shares entitled to vote at an election
of directors shall be required to amend, alter, change or repeal, or to adopt
any provision as part of this Certificate of Incorporation inconsistent with
the purpose and intent of this Article SIXTH.

SEVENTH: Meetings of stockholders may be held within or
without the State of Delaware, as the By-Laws may provide. The books of the
Corporation may be kept (subject to any provision contained in the GCL) outside
the State of Delaware at such place or places as may be designated from time to
time by the Board of Directors or in the By-Laws of the Corporation.

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<PAGE> 6
EIGHTH: No action by shareholders shall be valid unless taken
at a duly constituted meeting pursuant to the terms of the By-Laws of the
Corporation and no action may be taken by stockholders by written consent
without a meeting.

NINTH: The Corporation reserves the right to amend, alter,
change or repeal any provision contained in this Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation; provided,
however, that notwithstanding any other provision of this Certificate of
Incorporation (and in addition to any other vote that may be required by law),
the affirmative vote of the holders of at least eighty percent (80%) of the
voting power of the shares entitled to vote at an election of directors shall
be required to amend, alter, change or repeal, or to adopt any provision as
part of this Certificate of Incorporation inconsistent with the purpose and
intent of Article SIXTH of this Certificate of Incorporation. In furtherance
and not in limitation of the powers conferred upon it by the laws of the State
of Delaware, the Board of Directors shall have the power to adopt, amend, alter
or repeal the Corporation's By-Laws. The affirmative vote of at least a
majority of the entire Board of Directors shall be required to adopt, amend,
alter or repeal the Corporation's By-Laws.

<PAGE> 1
EXHIBIT 3.2

BY-LAWS

SLM HOLDING CORPORATION

(hereinafter called the "Corporation")

ARTICLE I

OFFICES

Section 1. Registered Office. The registered office of the
Corporation shall be in the City of Wilmington, County of New Castle, State of
Delaware.

Section 2. Offices. The principal office of the Corporation
shall be located in the City and Jurisdiction as the Board of Directors may,
from time to time, determine. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine.

ARTICLE II

MEETINGS OF STOCKHOLDERS

Section 1. Place of Meetings. Meetings of the stockholders
for the election of directors or for any other purpose shall be held at such
time and place, either within or without the State of Delaware, as shall be
designated from time to
<PAGE> 2
time by the Board of Directors and stated in the notice of the meeting or in a
duly executed waiver of notice thereof.

Section 2. Annual Meetings. The Annual Meetings of
Stockholders shall be held on such date and at such time as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting, at which meetings the stockholders shall elect by a plurality vote a
Board of Directors, and transact such other business as may properly be brought
before the meeting.
Written notice of the Annual Meeting stating the place, date and hour of the
meeting shall be given to each stockholder entitled to vote at such meeting not
less than ten nor more than sixty days before the date of the meeting.

Section 3. Special Meetings. Unless otherwise prescribed by
law or by the Certificate of Incorporation, Special Meetings of Stockholders,
for any purpose or purposes, shall be called by the Secretary (i) at the
direction of either (x) the Chairman or (y) the President, if the President is
a member of the Board of Directors, or (ii) at the request in writing of either
(x) a majority of the Board of Directors or (y) the holders of one-third of the
capital stock of the Corporation issued and outstanding and entitled to vote at
an election of directors. Any such request shall state the purpose or purposes
of the proposed meeting. Written notice of a Special Meeting stating the
place, date and hour of the meeting and purpose or purposes for which the
meeting is called shall be given not less than ten nor more

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<PAGE> 3
than sixty days before the date of the meeting to each stockholder entitled to
vote at such meeting.

Section 4. Quorum. Except as otherwise provided by law or by
the Certificate of Incorporation, the holders of a majority of the capital
stock issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. If, however, such quorum shall
not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present
or represented. At such adjourned meeting at which a quorum shall be present
or represented, any business may be transacted which might have been transacted
at the meeting as originally noticed. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder entitled to vote at the meeting.

Section 5. Voting. Unless otherwise required by law, the
Certificate of Incorporation or these By-Laws, any question brought before any
meeting of stockholders shall be decided by the vote of the holders of a
majority of the stock represented and entitled to vote thereat. Each
stockholder represented at a meeting

3
<PAGE> 4
of stockholders shall be entitled to cast one vote for each share of the
capital stock entitled to vote thereat held by such stockholder. Such votes
may be cast in person or by proxy but no proxy shall be voted on or after three
years from its date, unless such proxy provides for a longer period. The Board
of Directors, in its discretion, or the officer of the Corporation presiding at
a meeting of stockholders, in his discretion, may require that any votes cast
at such meeting shall be cast by written ballot.

Section 6. List of Stockholders Entitled to Vote. The officer
of the Corporation who has charge of the stock ledger of the Corporation shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder of the Corporation who is
present.

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<PAGE> 5
Section 7. Stock Ledger. The stock ledger of the Corporation
shall be the only evidence as to who are the stockholders entitled to examine
the stock ledger, the list required by Section 6 of this Article II or the
books of the Corporation, or to vote in person or by proxy at any meeting of
stockholders.

Section 8. Meeting Business. No business shall be brought
before any meeting of shareholders unless it has been properly brought before
the meeting in accordance with the procedures set forth in these By-laws;
provided, however, that nothing in this Section shall be deemed to preclude
discussion by any shareholder of any business properly brought before such
meeting.

To be properly brought before an annual meeting, such business
must be either (a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors (or any duly
authorized committee thereof), (b) otherwise properly brought before the annual
meeting by or at the direction of the Board of Directors (or any duly
authorized committee thereof), or (c) otherwise brought before the annual
meeting by any shareholder of the Corporation who is a shareholder of record on
the date of the giving of the notice provided for in Section 2 of this Article
and on the record date for the determination of shareholders entitled to vote
at the such annual meeting. To be properly brought before an annual meeting,
such business also must be a proper subject for action by

5
<PAGE> 6
shareholders, provided that the law of Delaware shall govern whether such
business is a proper subject for action by shareholders.

In addition to any other applicable requirements, for business
to be properly brought before an annual meeting by a shareholder, the
shareholder must have given timely notice thereof in proper written form to the
Secretary of the Corporation. To be timely, a shareholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than sixty (60) nor more than ninety (90) days prior to
the anniversary date of the immediately preceding annual meeting; provided,
however, that in the event that the annual meeting is called for a date that is
not within thirty (30) days before or after such anniversary date, notice by
the shareholder in order to be timely must be so received not later than the
close of business on the tenth day following the day on which such notice of
the date of such annual meeting was mailed or such public disclosure of the
date of the annual meeting was made, whichever first occurs. When a date is
set for the determination of the timeliness of a shareholder's notice, such
date shall apply to any adjournment of such meeting. To be in proper written
form, a shareholder's notice to the Secretary must set forth as to each matter
such shareholder proposes to bring before the annual meeting (a) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (b) the name
and record address of

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<PAGE> 7
such shareholder, (c) the number of shares of the Corporation which are owned
(beneficially or of record) by such shareholder, (d) a description of all
arrangements or understandings between such shareholder and any other person or
persons (including their names) in connection with the proposal of such
business by such shareholder and any material interest of such shareholder in
such business, and (e) a representation that such shareholder intends to appear
in person or by proxy at the annual meeting to bring such business before the
meeting. This provision shall not prevent the consideration and approval or
disapproval at the annual meeting of the reports of officers and committees,
but in connection with such reports no new business shall be acted upon at such
annual meeting unless brought before the meeting in accordance with the
procedures set forth in this Section.

The business conducted at any special meeting of shareholders
shall be limited to the purposes stated in the notice of a special meeting.

The Chairman shall determine the order of business and the
procedure at any shareholder meeting, including such regulation of the manner
of voting and the conduct of discussion as seem to the Chairman in order and
not inconsistent with these By-laws. If the Chairman determines that business
was not properly brought before the meeting in accordance with these By-laws,
the Chairman shall so declare and such business shall not be conducted.

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<PAGE> 8
No action by shareholders shall be valid unless taken at a
duly constituted meeting pursuant to Section 2 or Section 3 of this Article II.

Section 9. Board Nominations. Only persons who are nominated
in accordance with the following procedures shall be eligible for election as
directors at any annual meeting of shareholders. Nominations of persons for
election to the Board of Directors may be made at any annual meeting of
shareholders (a) by or at the direction of the Board of Directors (or any duly
authorized committee thereof), or (b) by any shareholder of the Corporation who
is a shareholder of record on the date of the giving of the notice provided for
in Section 2 of this Article II and on the record date for the determination of
shareholders entitled to vote at such annual meeting.

In addition to any other applicable requirements, for a nomination to
be made by a shareholder, the shareholder must have given timely notice thereof
in proper written form to the Secretary of the Corporation. To be timely, a
shareholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation not less than sixty (60) nor
more than ninety (90) days prior to the anniversary date of the immediately
preceding annual meeting; provided, however, that in the event that the annual
meeting is called for a date that is not within thirty (30) days before or
after such anniversary date, notice by the shareholder in order to be timely
must be so received not later than the close of business on the

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<PAGE> 9
tenth day following the day on which such notice of the date of such annual
meeting was mailed or such public disclosure of the date of the annual meeting
was made, whichever first occurs. When a date is set for the determination of
the timeliness of a shareholder's notice, such date shall apply to any
adjournment of such meeting. To be in proper written form, a shareholder's
notice to the Secretary must set forth (a) as to each person whom such
shareholder proposes to nominate for election as a director (i) the name, age,
business address and residence address of the person, (ii) the principal
occupation or employment of the person and the purported basis for such
person's eligibility to serve on the Board of Directors, if elected, (iii) the
number of shares of the Corporation which are owned beneficially or of record
by the person and (iv) any other information relating to the person that would
be required by law to be disclosed in a proxy statement or other filings
required to be made in connection with solicitations of proxies for election of
directors including information required pursuant to Section 14 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and the rules
and regulations promulgated thereunder; and (b) as to the shareholder giving
the notice (i) the name and record address of such shareholder, (ii) the number
of shares of the Corporation which are owned beneficially or of record by such
shareholder, (iii) a description of all arrangements or understandings between
such shareholder and each proposed nominee and any other person or persons
(including their names) pursuant to which

9
<PAGE> 10
the nomination(s) are to be made by such shareholder, (iv) a representation
that such shareholder intends to appear in person or by proxy at the annual
meeting to nominate the persons named in its notice and (v) any other
information relating to such shareholder that would be required by law to be
disclosed in a proxy statement or other filings required to be made in
connection with solicitations of proxies for election of directors including
information required pursuant to Section 14 of the Exchange Act and the rules
and regulations promulgated thereunder. Such notice must be accompanied by a
written consent of each proposed nominee to being named as a nominee and to
serve as a director if elected.

If the Chairman determines that a nomination was not properly brought
before the meeting in accordance with these By-laws, the Chairman shall so
declare and such defective nomination shall be disregarded.

ARTICLE III

DIRECTORS

Section 1. Election of Directors. Except as provided in
Section 2 of this Article, directors shall be elected by a plurality of the
votes cast at Annual Meetings of Stockholders, and each director so elected
shall hold office until the Annual Meeting for the year in which his term
expires and until his successor is duly elected and qualified, or until his
earlier resignation or removal. Any

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<PAGE> 11
director may resign at any time upon notice to the Corporation. Such
resignation shall take effect at the time specified therein or, if the time be
not specified, upon the receipt thereof and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective. Directors need not be stockholders.

Section 2. Vacancies. Vacancies and newly created
directorships resulting from any increase in the authorized number of directors
shall be filled in accordance with the provisions of the Corporation's
Certificate of Incorporation.

Section 3. Duties and Powers. The business of the
Corporation shall be managed by or under the direction of the Board of
Directors which may exercise all such powers of the Corporation and do all such
lawful acts and things as are not by statute or by the Certificate of
Incorporation or by these By-Laws directed or required to be exercised or done
by the stockholders.

Section 4. Meetings. The Board of Directors of the
Corporation may hold meetings, both regular and special, either within or
without the State of Delaware. Regular meetings of the Board of Directors may
be held at such time and at such place as may from time to time be determined
by the Board of Directors. Special meetings of the Board of Directors shall be
called by the Secretary (i) at the direction of (x) the Chairman or (y) the
President, if the President is a member of the Board of Directors, or (ii) at
the written request of a majority of the entire

11
<PAGE> 12
Board of Directors. Notice of a meeting of the Board of Directors stating the
place, date and hour of the meeting shall be given to each director either by
mail not less than forty-eight (48) hours before the date of such meeting, by
telephone or telegram or facsimile transmission not less than twenty-four (24)
hours before the date of such meeting, or on such shorter notice as the person
or persons calling such meeting may deem necessary or appropriate under the
circumstances.

Section 5. Quorum. Except as may be otherwise specifically
provided by law, the Certificate of Incorporation or these By-Laws, at all
meetings of the Board of Directors, a majority of the entire Board of Directors
shall constitute a quorum for the transaction of business and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors. If a quorum shall not be present
at any meeting of the Board of Directors, the directors present thereat may
adjourn the meeting from time to time, without notice other than announcement
at the meeting, until a quorum shall be present.

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<PAGE> 13
Section 6. Actions of Board. Unless otherwise provided by
the Certificate of Incorporation or these By-Laws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all of the members of the
Board of Directors or committee, as the case may be, consent thereto in
writing, and the writing or writings, setting forth the action so taken, are
filed with the minutes of proceedings of the Board of Directors or committee.

Section 7. Meetings by Means of Conference Telephone. Unless
otherwise provided by the Certificate of Incorporation or these By-Laws,
members of the Board of Directors of the Corporation, or any committee
designated by the Board of Directors, may participate in a meeting of the Board
of Directors or such committee by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
Section 7 shall constitute presence in person at such meeting.

Section 8. Committees. The Board of Directors shall adopt
resolutions establishing the following committees: (i) Executive, (ii) Audit,
(iii) Nominations and Board Affairs and (iv) Compensation and Personnel. In
addition, the Board of Directors may, by resolution passed by a majority of the
entire Board of Directors, designate one or more additional committees. Each
committee shall

13
<PAGE> 14
consist of one or more of the directors of the Corporation. The Board of
Directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
any such committee. In the absence or disqualification of a member of a
committee, and in the absence of a designation by the Board of Directors of an
alternate member to replace the absent or disqualified member, the member or
members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any
absent or disqualified member. Any committee, to the extent allowed by law and
provided in the resolution establishing such committee, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation. Each committee shall
keep regular minutes and report to the Board of Directors when required.

Section 9. Compensation. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of
Directors or a stated salary as director. No such payment shall preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor. Members

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<PAGE> 15
of special or standing committees may be allowed like compensation for
attending committee meetings.

Section 10. Interested Directors. No contract or transaction
between the Corporation and one or more of its directors or officers, or
between the Corporation and any other corporation, partnership, association, or
other organization in which one or more of its directors or officers are
directors or officers, or have a financial interest, shall be void or voidable
solely for this reason, or solely because the director or officer is present at
or participates in the meeting of the Board of Directors or committee thereof
which authorizes the contract or transaction, or solely because his or their
votes are counted for such purpose if (i) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of
Directors or committee in good faith authorizes the contract or transaction by
the affirmative votes of a majority of the disinterested directors, even though
the disinterested directors be less than a quorum; or (ii) the material facts
as to his or their relationship or interest and as to the contract or
transaction are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved in good faith
by vote of the stockholders; or (iii) the contract or transaction is fair as to
the Corporation as of the time it is authorized, approved or ratified, by the
Board of Directors, a committee thereof or the stockholders.

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<PAGE> 16
Common or interested directors may be counted in determining the presence of a
quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.

Section 11. Qualification of Directors. Notwithstanding any
other provision of these By-Laws, (i) the Board of Directors shall consist of a
majority of Independent directors, (ii) the Executive Committee of the Board of
Directors shall consist of a majority of Independent directors, and (iii) the
Audit, Nominations and Board Affairs and Compensation and Personnel Committees
of the Board of Directors shall consist entirely of Independent directors. For
purposes hereof, a director will not generally be considered Independent if he
or she: (a) has been employed by the Corporation or one of its affiliates in
an executive capacity; (b) is an employee or owner of a firm that is one of the
Corporation's or its affiliate's paid advisers or consultants; (c) is employed
by a significant customer or supplier; (d) has a personal services contract
with the Corporation or one of its affiliates; (e) is employed by a foundation
or university that receives significant grants or endowments from the
Corporation or one of its affiliates; (f) is a relative of an executive of the
Corporation or one of its affiliates; (g) is part of an interlocking
directorate in which an executive officer of the Corporation serves on the
board of another corporation that employs the director.

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<PAGE> 17
ARTICLE IV

OFFICERS

Section 1. General. The officers of the Corporation shall be
chosen by the Board of Directors and shall be a Chairman of the Board (who must
be a director), a President, a General Counsel, a Secretary and a Treasurer.
The Board of Directors, in its discretion, may also choose one or more Vice
Presidents, Assistant Secretaries, Assistant Treasurers and other officers.
Any number of offices may be held by the same person, unless otherwise
prohibited by law, the Certificate of Incorporation or these By-Laws. The
officers of the Corporation need not be stockholders of the Corporation nor,
except in the case of the Chairman of the Board of Directors, need such
officers be directors of the Corporation.

Section 2. Election. The Board of Directors at its first
meeting held after each Annual Meeting of Stockholders shall elect the officers
of the Corporation who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time
to time by the Board of Directors; and all officers of the Corporation shall
hold office until their successors are chosen and qualified, or until their
earlier resignation or removal. Any officer elected by the Board of Directors
may be removed at any time by the affirmative vote of a majority of the Board
of Directors. Any vacancy occurring in any office

17
<PAGE> 18
of the Corporation shall be filled by the Board of Directors. The salaries of
all officers of the Corporation shall be fixed by the Board of Directors.

Section 3. Voting Securities Owned by the Corporation.
Powers of attorney, proxies, waivers of notice of meeting, consents and other
instruments relating to securities owned by the Corporation may be executed in
the name of and on behalf of the Corporation by the President or the General
Counsel or such other authorized officer of the Corporation, and any such
officer may, in the name of and on behalf of the Corporation, take all such
action as any such officer may deem advisable to vote in person or by proxy at
any meeting of security holders of any corporation in which the Corporation may
own securities and at any such meeting shall possess and may exercise any and
all rights and power incident to the ownership of such securities and which, as
the owner thereof, the Corporation might have exercised and possessed if
present. The Board of Directors may, by resolution, from time to time confer
like powers upon any other person or persons.

Section 4. Chairman of the Board of Directors. The Chairman
of the Board of Directors shall preside at all meetings of the stockholders and
of the Board of Directors. The Chairman of the Board of Directors shall also
perform such other duties and may exercise such other powers as from time to
time may be assigned to him by these By-Laws or by the Board of Directors.

18
<PAGE> 19
Section 5. President. The President shall, subject to the
control of the Board of Directors and the Chairman of the Board of Directors,
have general supervision of the business of the Corporation and shall see that
all orders and resolutions of the Board of Directors are carried into effect.
He shall be the Chief Executive Officer of the Corporation and shall execute
all bonds, mortgages, contracts and other instruments of the Corporation
requiring a seal, under the seal of the Corporation, except where required or
permitted by law to be otherwise signed and executed and except that the other
officers of the Corporation may sign and execute documents when so authorized
by these By-Laws, the Board of Directors or the President. In the absence or
disability of the Chairman of the Board of Directors, the President shall
preside at all meetings of the stockholders and the Board of Directors. The
President shall also perform such other duties and may exercise such other
powers as from time to time may be assigned to him by these By-Laws or by the
Board of Directors.

Section 6. Vice Presidents. At the request of the President
or in his absence or in the event of his inability or refusal to act, the Vice
President or the Vice Presidents if there is more than one (in the order
designated by the Board of Directors) shall perform the duties of the
President, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the President. Each Vice President shall perform
such other duties and have such other powers as the Board

19
<PAGE> 20
of Directors from time to time may prescribe. If there be no Vice President,
the Board of Directors shall designate the officer of the Corporation who, in
the absence of the President or in the event of the inability or refusal of the
President to act, shall perform the duties of the President, and when so
acting, shall have all the powers of and be subject to all the restrictions
upon the President.

Section 7. The General Counsel. The General Counsel shall (a)
be the principal consulting officer of the Corporation for all legal matters;
(b) be responsible for and direct all counsel, attorneys, employees and agents
in the performance of all legal duties and services for and on behalf of the
Corporation; (c) perform such other duties and have such other powers as are
ordinarily incident to the office of the General Counsel; and (d) perform such
other duties as from time to time may be assigned to him by the President or by
the Board of Directors.

Section 8. Secretary. The Secretary shall attend all meetings
of the Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the Board of Directors,
and shall perform such other duties as may be prescribed by the Board of
Directors or President, under whose supervision he shall be. If the Secretary
shall be unable or shall refuse to cause to be given notice of all

20
<PAGE> 21
meetings of the stockholders and special meetings of the Board of Directors,
and if there be no Assistant Secretary, then either the Board of Directors or
the President may choose another officer to cause such notice to be given. The
Secretary shall have custody of the seal of the Corporation and the Secretary
or any Assistant Secretary, if there be one, shall have authority to affix the
same to any instrument requiring it and when so affixed, it may be attested by
the signature of the Secretary or by the signature of any such Assistant
Secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the Corporation and to attest the affixing by his
signature. The Secretary shall see that all books, reports, statements,
certificates and other documents and records required by law to be kept or
filed are properly kept or filed, as the case may be.

Section 9. Treasurer. The Treasurer shall have the custody
of the corporate funds and securities and shall keep full and accurate accounts
of receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as Treasurer and of the

21
<PAGE> 22
financial condition of the Corporation. If required by the Board of Directors,
the Treasurer shall give the Corporation a bond in such sum and with such
surety or sureties as shall be satisfactory to the Board of Directors for the
faithful performance of the duties of his office and for the restoration to the
Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the Corporation.

Section 10. Assistant Secretaries. Except as may be
otherwise provided in these By-Laws, Assistant Secretaries, if there be any,
shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the President and Chief Executive
Officer, or the Secretary, and in the absence of the Secretary or in the event
of his disability or refusal to act, shall perform the duties of the Secretary,
and when so acting, shall have all the powers of and be subject to all the
restrictions upon the Secretary.

Section 11. Assistant Treasurers. Assistant Treasurers, if
there be any, shall perform such duties and have such powers as from time to
time may be assigned to them by the Board of Directors, the President and Chief
Executive Officer, or the Treasurer, and in the absence of the Treasurer or in
the event of his disability or refusal to act, shall perform the duties of the
Treasurer, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the

22
<PAGE> 23
Treasurer. If required by the Board of Directors, an Assistant Treasurer shall
give the Corporation a bond in such sum and with such surety or sureties as
shall be satisfactory to the Board of Directors for the faithful performance of
the duties of his office and for the restoration to the Corporation, in case of
his death, resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in his possession
or under his control belonging to the Corporation.

Section 12. Other Officers. Such other officers as the Board
of Directors may choose shall perform such duties and have such powers as from
time to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and powers.

Section 13. Employee Conduct. No officer or employee shall
engage, directly or indirectly, in any personal business transaction or private
arrangement for personal profit which accrues from or is based upon his
official position or authority or upon confidential information which he gains
by reason of such position or authority, and he shall reasonably restrict his
personal business affairs so as to avoid conflicts of interest with his
official duties. No officer or employee shall divulge confidential information
to any unauthorized person, or release any such information in advance of
authorization for its release, nor shall he accept, directly or indirectly,

23
<PAGE> 24
any valuable gift, favor or service from any person with whom he transacts
business on behalf of the Corporation.

Section 14. Outside or Private Employment. No officer or
employee shall have any outside or private employment or affiliation with any
firm or organization incompatible with his concurrent employment by the
Corporation, and he shall not accept or perform any outside or private
employment which the President of the Corporation determines will interfere
with the efficient performance of his official duties.

ARTICLE V

STOCK

Section 1. Form of Certificates. Every holder of stock in
the Corporation shall be entitled to have a certificate signed, in the name of
the Corporation (i) by the Chairman of the Board of Directors, the President or
a Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the Corporation, certifying the number
of shares owned by him in the Corporation.

Section 2. Signatures. Any or all of the signatures on a
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to

24
<PAGE> 25
be such officer, transfer agent or registrar before such certificate is issued,
it may be issued by the Corporation with the same effect as if he were such
officer, transfer agent or registrar at the date of issue.

Section 3. Lost Certificates. The Board of Directors may
direct a new certificate to be issued in place of any certificate theretofore
issued by the Corporation alleged to have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming the certificate
of stock to be lost, stolen or destroyed. When authorizing such issue of a new
certificate, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate, or his legal representative, to advertise the same in
such manner as the Board of Directors shall require and/or to give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate
alleged to have been lost, stolen or destroyed.

Section 4. Transfers. Stock of the Corporation shall be
transferable in the manner prescribed by law and in these By-Laws. Transfers
of stock shall be made on the books of the Corporation only by the person named
in the certificate or by his attorney lawfully constituted in writing and upon
the surrender of the certificate therefor, which shall be cancelled before a
new certificate shall be issued.

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<PAGE> 26
Section 5. Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock,
or for the purpose of any other lawful action, the Board of Directors may fix,
in advance, a record date, which shall not be more than sixty days nor less
than ten days before the date of such meeting, nor more than sixty days prior
to any other action. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.

Section 6. Beneficial Owners. The Corporation shall be
entitled to recognize the exclusive right of a person registered on its books
as the owner of shares to receive dividends, and to vote as such owner, and to
hold liable for calls and assessments a person registered on its books as the
owner of shares, and shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by law.

ARTICLE VI

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<PAGE> 27
NOTICES

Section 1. Notices. Whenever written notice is required by
law, the Certificate of Incorporation or these By-Laws, to be given to any
director, member of a committee or stockholder, such notice may be given by
mail, addressed to such director, member of a committee or stockholder, at his
address as it appears on the records of the Corporation, with postage thereon
prepaid, and such notice shall be deemed to be given at the time when the same
shall be deposited in the United States mail. Written notice may also be given
personally or by telegram, telex or cable.

Section 2. Waivers of Notice. Whenever any notice is
required by law, the Certificate of Incorporation or these By-Laws, to be given
to any director, member of a committee or stockholder, a waiver thereof in
writing, signed, by the person or persons entitled to said notice, whether
before or after the time stated therein, shall be deemed equivalent thereto.

ARTICLE VII

GENERAL PROVISIONS

Section 1. Dividends. Dividends upon the capital stock of
the Corporation, subject to the provisions of the Certificate of Incorporation,
if any, may be declared by the Board of Directors at any regular or special
meeting, and may be paid in cash, in property, or in shares of the capital
stock. Before payment of any

27
<PAGE> 28
dividend, there may be set aside out of any funds of the Corporation available
for dividends such sum or sums as the Board of Directors from time to time, in
its absolute discretion, deems proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the Corporation, or for any proper purpose, and the Board of
Directors may modify or abolish any such reserve.

Section 2. Acquisition of Common Stock by the Corporation.
Unless approved by holders of a majority of the outstanding capital stock of
the Corporation then entitled to vote at an election of directors, the
Corporation shall not take any action that would result in the acquisition by
the Corporation, directly or indirectly, of 5% or more of the shares of Common
Stock then outstanding, in one or a series of related transactions, at a price
in excess of the prevailing market price of such stock, other than pursuant to
a tender offer made to all holders of Common Stock or to all holders of less
than 100 shares of Common Stock.

Section 3. Disbursements. All checks or demands for money
and notes of the Corporation shall be signed by such officer or officers or
such other person or persons as the Board of Directors may from time to time
designate.

Section 4. Fiscal Year. The fiscal year of the Corporation
shall be fixed by resolution of the Board of Directors.

28
<PAGE> 29
Section 5. Corporate Seal. The corporate seal shall have
inscribed thereon the name of the Corporation, the year of its organization and
the words "Corporate Seal, Delaware". The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.

ARTICLE VIII

INDEMNIFICATION

Section 1. Power to Indemnify in Actions, Suits or
Proceedings other than those by or in the Right of the Corporation. Subject to
Section 3 of this Article VIII, the Corporation shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
Corporation) by reason of the fact that he is or was a director or officer of
the Corporation, or is or was a director or officer of the Corporation serving
at the request of the Corporation as a director or officer, employee or agent
of another corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of

29
<PAGE> 30
the Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.

Section 2. Power to Indemnify in Actions, Suits or
Proceedings by or in the Right of the Corporation. Subject to Section 3 of
this Article VIII, the Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he is or was a director or
officer of the Corporation, or is or was a director or officer of the
Corporation serving at the request of the Corporation as a director or officer,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Corporation; except that

30
<PAGE> 31
no indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.

Section 3. Authorization of Indemnification. Any
indemnification under this Article VIII (unless ordered by a court) shall be
made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the director or officer is proper in the
circumstances because he has met the applicable standard of conduct set forth
in Section 1 or Section 2 of this Article VIII, as the case may be. Such
determination shall be made (i) by a majority vote of the directors who are not
parties to such action, suit or proceeding, even though less than a quorum, or
(ii) if there are no such directors, or if such directors so direct, by
independent legal counsel in a written opinion, or (iii) by the stockholders.
To the extent, however, that a director or officer of the Corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding described above, or in defense of any claim, issue or matter
therein, he shall be indemnified

31
<PAGE> 32
against expenses (including attorneys' fees) actually and reasonably incurred
by him in connection therewith, without the necessity of authorization in the
specific case.

Section 4. Good Faith Defined. For purposes of any
determination under Section 3 of this Article VIII, a person shall be deemed to
have acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation, or, with respect to any
criminal action or proceeding, to have had no reasonable cause to believe his
conduct was unlawful, if his action is based on the records or books of account
of the Corporation or another enterprise, or on information supplied to him by
the officers of the Corporation or another enterprise in the course of their
duties, or on the advice of legal counsel for the Corporation or another
enterprise or on information or records given or reports made to the
Corporation or another enterprise by an independent certified public accountant
or by an appraiser or other expert selected with reasonable care by the
Corporation or another enterprise. The term "another enterprise" as used in
this Section 4 shall mean any other corporation or any partnership, joint
venture, trust, employee benefit plan or other enterprise of which such person
is or was serving at the request of the Corporation as a director, officer,
employee or agent. The provisions of this Section 4 shall not be deemed to be
exclusive or to limit in any way the circumstances in which a person may be
deemed to have met the applicable

32
<PAGE> 33
standard of conduct set forth in Sections 1 or 2 of this Article VIII, as the
case may be.

Section 5. Indemnification by a Court. Notwithstanding any
contrary determination in the specific case under Section 3 of this Article
VIII, and notwithstanding the absence of any determination thereunder, any
director or officer may apply to any court of competent jurisdiction in the
State of Delaware for indemnification to the extent otherwise permissible under
Sections 1 and 2 of this Article VIII. The basis of such indemnification by a
court shall be a determination by such court that indemnification of the
director or officer is proper in the circumstances because he has met the
applicable standards of conduct set forth in Sections 1 or 2 of this Article
VIII, as the case may be. Neither a contrary determination in the specific
case under Section 3 of this Article VIII nor the absence of any determination
thereunder shall be a defense to such application or create a presumption that
the director or officer seeking indemnification has not met any applicable
standard of conduct. Notice of any application for indemnification pursuant to
this Section 5 shall be given to the Corporation promptly upon the filing of
such application. If successful, in whole or in part, the director or officer
seeking indemnification shall also be entitled to be paid the expense of
prosecuting such application.

33
<PAGE> 34
Section 6. Expenses Payable in Advance. Expenses incurred by
a director or officer in defending or investigating a threatened or pending
action, suit or proceeding may be paid by the Corporation, upon the
determination by the Board of Directors, in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by or on behalf
of such director or officer to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the Corporation as
authorized in this Article VIII, provided the Corporation approves in advance
counsel selected by the director or officer (which approval shall not be
unreasonably withheld).

Section 7. Non-exclusivity of Indemnification and Advancement
of Expenses. The indemnification and advancement of expenses provided by or
granted pursuant to this Article VIII shall not be deemed exclusive of any
other rights to which those seeking indemnification or advancement of expenses
may be entitled under the Certificate of Incorporation or any By-Law,
agreement, contract, vote of stockholders or disinterested directors or
pursuant to the direction (howsoever embodied) of any court of competent
jurisdiction or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, it being the policy of
the Corporation that indemnification of the persons specified in Sections 1 and
2 of this Article VIII shall be made to the fullest extent permitted by law.
The provisions of this Article VIII shall not be deemed to preclude the

34
<PAGE> 35
indemnification of any person who is not specified in Sections 1 or 2 of this
Article VIII but whom the Corporation has the power or obligation to indemnify
under the provisions of the General Corporation Law of the State of Delaware,
or otherwise.

Section 8. Insurance. The Corporation may purchase and
maintain insurance on behalf of any person who is or was a director or officer
of the Corporation, or is or was a director or officer of the Corporation
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power or the obligation to
indemnify him against such liability under the provisions of this Article VIII.

Section 9. Certain Definitions. For purposes of this Article
VIII, references to "the Corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent
of a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors or officers, so that any person who is or was a director or officer
of such constituent corporation, or is or was a director or officer of such
constituent corporation serving at the request of such constituent corporation
as a director, officer, employee or agent of another

35
<PAGE> 36
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, shall stand in the same position under the provisions of this
Article VIII with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued. For purposes of this Article VIII, references to "fines" shall
include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the Corporation"
shall include any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves services by, such director or
officer with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this
Article VIII.

Section 10. Survival of Indemnification and Advancement of
Expenses. The indemnification and advancement of expenses provided by, or his
or her heirs, executors or personal or legal representatives) or advance
expenses granted pursuant to, this Article VIII shall, unless otherwise
provided when authorized or ratified, continue as to a person who has ceased to
be a director or officer and shall inure to the benefit of the heirs, executors
and administrators of such a person.

36
<PAGE> 37
Section 11. Limitation on Indemnification. Notwithstanding
anything contained in this Article VIII to the contrary, except for proceedings
to enforce rights to indemnification (which shall be governed by Section 5
hereof), the Corporation shall not be obligated to indemnify any director or
officer (in connection with a proceeding (or part thereof) initiated by such
person unless such proceeding (or part thereof) was authorized or consented to
by the Board of Directors of the Corporation.

Section 12. Indemnification of Employees and Agents. The
Corporation may, to the extent authorized from time to time by the Board of
Directors, provide rights to indemnification and to the advancement of expenses
to employees and agents of the Corporation similar to those conferred in this
Article VIII to directors and officers of the Corporation.

ARTICLE IX

AMENDMENTS

Section 1. Amendments. These By-Laws may be altered, amended
or repealed, in whole or in part, or new By-Laws may be adopted by the
stockholders or by the Board of Directors, provided, however, that notice of
such alteration, amendment, repeal or adoption of new By-Laws be contained in
the notice of such meeting of stockholders or Board of Directors as the case
may be. All such

37
<PAGE> 38
amendments must be approved by either the holders of a majority of the
outstanding capital stock entitled to vote thereon or by a majority of the
entire Board of Directors.

Section 2. Entire Board of Directors. As used in this
Article IX and in these By-Laws generally, the term "entire Board of Directors"
means the total number of directors which the Corporation would have if there
were no vacancies.

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4 No. 333- ) and related Prospectus of SLM
Holding Corporation for the registration of 54,600,000 shares of its common
stock and to the use of our report dated February 3, 1997, with respect to
the balance sheet as of February 3, 1997 of SLM Holding Corporation and our
report dated January 13, 1997 with respect to the consolidated financial
statements of the Student Loan Marketing Association for the year ended
December 31, 1996 included in the Prospectus and Registration Statement filed
with the Securities and Exchange Commission.

/s/ Ernst & Young LLP

Washington, D.C.
February 5, 1997

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 270,887
<SECURITIES> 7,435,582
<RECEIVABLES> 37,932,279
<ALLOWANCES> 84,063
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 410,480
<DEPRECIATION> (168,723)
<TOTAL-ASSETS> 47,629,890
<CURRENT-LIABILITIES> 0
<BONDS> 44,762,774
0
213,883
<COMMON> 13,139
<OTHER-SE> 820,808
<TOTAL-LIABILITY-AND-EQUITY> 47,629,890
<SALES> 0
<TOTAL-REVENUES> 3,590,124
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 405,652
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,576,772
<INCOME-PRETAX> 607,700
<INCOME-TAX> 183,498
<INCOME-CONTINUING> 424,202
<DISCONTINUED> 0
<EXTRAORDINARY> (4,792)
<CHANGES> 0
<NET-INCOME> 419,410
<EPS-PRIMARY> 7.32
<EPS-DILUTED> 7.32

</TABLE>

<PAGE> 1

HIGHER EDUCATION ACT OF 1965
TITLE IV, PART B
SECTION 439
20 U.S.C. SECTION 1087-2
(AS AMENDED BY THE STUDENT LOAN MARKETING
ASSOCIATION REORGANIZATION ACT OF 1996 PUB. L. 104-208)

STUDENT LOAN MARKETING ASSOCIATION

SEC. 439

(a)Purpose.The Congress hereby declares that it is the purpose of this
section (1) to establish a private corporation which will be financed by
private capital and which will serve as a secondary market and warehousing
facility for student loans, including loans which are insured by the Secretary
under this part or by a guaranty agency, and which will provide liquidity for
student loan investments; (2) in order to facilitate secured transactions
involving student loans, to provide for perfection of security interests in
student loans either through the taking of possession or by notice filing; and
(3) to assure nationwide the establishment of adequate loan insurance programs
for students, to provide for an additional program of loan insurance to be
covered by agreements with the Secretary. (b)Establishment.

(1) In General. There is hereby created a body corporate to be known as
the Student Loan Marketing Association (hereinafter referred to as the
"Association"). The Association shall have succession until dissolved. It
shall maintain its principal office in the District of Columbia and shall
be deemed, for purposes of venue and jurisdiction in civil actions, to be a
resident and citizen thereof. Offices may be established by the Association
in such other place or places as it may deem necessary or appropriate for
the conduct of its business.

(2) Exemption from State and Local Taxes. The Association, including its
franchise, capital, reserves, surplus, mortgages, or other security
holdings, and income shall be exempt from all taxation now or hereafter
imposed by any State, territory, possession, Commonwealth, or dependency of
United States, or by the District of Columbia, or by any county,
municipality, or local taxing authority, except that any real property of
the Association shall be subject to State, territorial, county, municipal,
or local taxation to the same extent according to its value as other real
property is taxed.

(3) Appropriations Authorized for Establishment. There is hereby
authorized to be appropriated to the Secretary $5,000,000 for making
advances for the purpose of helping to establish the Association. Such
advances shall be repaid within such period as the Secretary may deem to be
appropriate in light of the maturity and solvency of the Association. Such
advances shall bear interest at a rate not less than (A) a rate determined
by the Secretary of the Treasury taking into consideration the current
average market yield on outstanding marketable obligations of the United
States with remaining period to maturity comparable to the maturity of such
advances, adjusted to the nearest one-eighth of 1 percent, plus (B) an
allowance adequate in the judgment of the Secretary to cover administrative
costs and probable losses. Repayments of such advances shall be deposited
into miscellaneous receipts of the Treasury. (c)Board Of Directors.

(1) Composition Of Board; Chairman.

(A) The Association shall have a Board of Directors which shall
consist of 21 persons, 7 of whom shall be appointed by the President
and shall be representative of the general public. The remaining 14
directors shall be elected by the common stockholders of the
Association entitled to vote pursuant to subsection (f). Commencing
with the annual shareholders meeting to be held in 1993

(i) 7 of the elected directors shall be affiliated with an
eligible institution; and

(ii) 7 of the elected directors shall be affiliated with an
eligible lender.

(B) The President shall designate 1 of the directors to serve as
Chairman.
<PAGE> 2
(2) Terms Of Appointed And Elected Members. The directors appointed by the
President shall serve at the pleasure of the President and until their
successors have been appointed and have qualified. The remaining directors
shall each be elected for a term ending on the date of the next annual
meeting of the common stockholders of the Association, and shall serve
until their successors have been elected and have qualified. Any appointive
seat on the Board which becomes vacant shall be filled by appointment of
the President. Any elective seat on the Board which becomes vacant after
the annual election of the directors shall be filled by the Board, but only
for the unexpired portion of the term.

(3) Affiliated Members. For the purpose of this subsection, the references
to a director "affiliated with the eligible institution" or a director
"affiliated with an eligible lender" means an individual who is, or within
5 years of election to the Board has been, an employee, officer, director,
or similar official of

(A) an eligible institution or an eligible lender;

(B) an association whose members consist primarily of eligible
institutions or eligible lenders; or

(C) a State agency, authority, instrumentality, commission, or
similar institution, the primary purpose of which relates to
educational matters or banking matters.

(4) Meetings and Functions of the Board. The Board of Directors shall meet
at the call of its Chairman, but at least semiannually. The Board shall
determine the general policies which shall govern the operations of the
Association. The Chairman of the Board shall, with the approval of the
Board, select, appoint, and compensate qualified persons to fill the
offices as may be provided for in the bylaws, with such functions, powers,
and duties as may be prescribed by the bylaws or by the Board of Directors,
and such persons shall be the officers of the Association and shall
discharge all such functions, powers, and duties. (d)Authority Of
Association.

(1) In General. The Association is authorized, subject to the provisions
of this section

(A) pursuant to commitments or otherwise to make advances on the
security of, purchase, or repurchase, service, sell or resell, offer
participations, or pooled interests or otherwise deal in, at prices and
on terms and conditions determined by the Association, student loans
which are insured by the Secretary under this part or by a guaranty
agency;

(B) to buy, sell, hold, underwrite, and otherwise deal in
obligations, if such obligations are issued, for the purpose of making
or purchasing insured loans, by a guaranty agency or by an eligible
lender in a State described in section 435(d)(1)(D) or (F);

(C) to buy, sell, hold, insure, underwrite, and otherwise deal in
obligations issued for the purpose of financing or refinancing the
construction, reconstruction, renovation, improvement, or purchase at
institutions of higher education of any of the following facilities
(including the underlying property) and materials (including related
equipment, instrumentation and furnishings) at an eligible institution
of higher education:

(i) educational and training facilities;

(ii) housing for students and faculties, facilities
generally open for promoting fitness and health for students,
faculty and staff or for physical education courses, dining
halls, and student unions; and

(iii) library facilities, including the acquisition of
library materials at institutions of higher education; except
that not more than 30 percent of the value of transactions
entered into under this subparagraph shall involve
transactions of the types described in clause (ii);
<PAGE> 3
(D) to undertake a program of loan insurance pursuant to agreements
with the Secretary under section 428, and except with respect to loans
under subsection (o) of this section or under section 428C, the
Secretary may enter into an agreement with the Association for such
purpose only if the Secretary determines that (i) eligible borrowers
are seeking and unable to obtain loans under this part, and (ii) no
guaranty agency is capable of or willing to provide a program of loan
insurance for such borrowers; and

(E) to undertake any other activity which the Board of Directors of
the Association determines to be in furtherance of the programs of
insured student loans authorized under this part or will otherwise
support the credit needs of students, except that

(i) in carrying out all such activities the purpose shall
always be to provide secondary market and other support for
lending programs offered by other organizations and not to
replace or compete with such other programs;

(ii) nothing in this subparagraph (E) shall be deemed to
authorize the Association to acquire, own, operate, or control
any bank, savings and loan association, savings bank or credit
union; and

(iii) not later than 30 days prior to the initial
implementation of a program undertaken pursuant to this
subparagraph (E), the Association shall advise the Chairman
and the Ranking Member on the Committee on Labor and Human
Resources of the Senate and the Chairman and the Ranking
Member of the Committee on Education and Labor of the House of
Representatives in writing of its plans to offer such program
and shall provide information relating to the general terms
and conditions of such program.

The Association is further authorized to undertake any activity with
regard to student loans which are not insured or guaranteed as provided for in
this subsection as it may undertake with regard to insured or guaranteed
student loans. Any warehousing advance made on the security of such loans shall
be subject to the provisions of paragraph (3) of this subsection to the same
extent as a warehousing advance made on the security of insured loans.

(2) Warehousing Advances. Any warehousing advance made under paragraph
(1)(A) of this subsection shall be made on the security of (A) insured
loans, (B) marketable obligations and securities issued, guaranteed, or
insured by, the United States, or for which the full faith and credit of
the United States is pledged for the repayment of principal and interest
thereof, or (C) marketable obligations issued, guaranteed, or insured by
any agency, instrumentality, or corporation of the United States for which
the credit of such agency, instrumentality, or corporation is pledged for
the repayment of principal and interest thereof, in an amount equal to the
amount of such advance. The proceeds of any such advance secured by insured
loans shall either be invested in additional insured loans or the lender
shall provide assurances to the Association that during the period of the
borrowing it will maintain a level of insured loans in its portfolio not
less than the aggregate outstanding balance of such loans held at the time
of the borrowing. The proceeds from any such advance secured by collateral
described in clauses (B) and (C) shall be invested in additional insured
student loans.

(3) Perfection of Security Interests in Student Loans. Notwithstanding the
provisions of any State law to the contrary, including the Uniform
Commercial Code as in effect in any State, a security interest in insured
student loans created on behalf of the Association or any eligible lender
as defined in section 435(a) may be perfected either through the taking of
possession of such loans or by the filing of notice of such security
interest in such loans in the manner provided by such State law for
perfection of security interests in accounts.

(4) Forms of Securities. Securities issued pursuant to the offering of
participations or pooled interests under paragraph (1) of this subsection
may be in the form of debt obligations, or trust certificates of beneficial
ownership, or both. Student loans set aside pursuant to the offering of
participations or pooled interests shall at all times be adequate to ensure
the timely principal and interest payments on such securities.

(5) Restrictions on Facilities and Housing Activities. Not less than 75
percent of the aggregate dollar amount of obligations bought, sold, held,
insured, underwritten, and otherwise supported in accordance with the
authority
<PAGE> 4
contained in paragraph (1)(C) shall be obligations which are listed by a
nationally recognized statistical rating organization at a rating below the
second highest rating of such organization. (e)Advances To Lenders That Do
Not Discriminate.The Association, pursuant to such criteria as the Board of
Directors may prescribe, shall make advances on security or purchase
student loans pursuant to subsection (d) only after the Association is
assured that the lender (1) does not discriminate by pattern or practice
against any particular class or category of students by requiring that, as
a condition to the receipt of a loan, the student or his family maintain a
business relationship with the lender, except that this clause shall not
apply in the case of a loan made by a credit union, savings and loan
association, mutual savings bank, institution of higher education, or any
other lender with less than $75,000,000 in deposits, and (2) does not
discriminate on the basis of race, sex, color, creed, or national origin.
(f)Stock Of The Association.

(1) Voting Common Stock. The Association shall have voting common stock
having such par value as may be fixed by its Board of Directors from time
to time. Each share of voting common stock shall be entitled to one vote
with rights of cumulative voting at all elections of directors.

(2) Number of Shares; Transferability. The maximum number of shares of
voting common stock that the Association may issue and have outstanding at
any one time shall be fixed by the Board of Directors from time to time.
Any voting common stock issued shall be fully transferable, except that, as
to the Association, it shall be transferred only on the books of the
Association.

(3) Dividends. To the extent that net income is earned and realized,
subject to subsection (g)(2), dividends may be declared on voting common
stock by the Board of Directors. Such dividends as may be declared by the
Board of Directors shall be paid to the holders of outstanding shares of
voting common stock, except that no such dividends shall be payable with
respect to any share which has been called for redemption past the
effective date of such call.

(4) Single Class of Voting Common Stock. As of the effective date of the
Higher Education Amendments of 1992, all of the previously authorized
shares of voting common stock and nonvoting common stock of the Association
shall be converted to shares of a single class of voting common stock on a
share-for-share basis, without any further action on the part of the
Association or any holder. Each outstanding certificate for voting or
nonvoting common stock shall evidence ownership of the same number of
shares of voting stock into which it is converted. All preexisting rights
and obligations with respect to any class of common stock of the
Association shall be deemed to be rights and obligations with respect to
such converted shares. (g)Preferred Stock.

(1) Authority of Board. The Association is authorized to issue nonvoting
preferred stock having such par value as may be fixed by its Board of
Directors from time to time. Any preferred share issued shall be freely
transferable, except that, as to the Association, it shall be transferred
only on the books of the Association.

(2) Rights of Preferred Stock. The holders of the preferred shares shall
be entitled to such rate of cumulative dividends and such shares shall be
subject to such redemption or other conversion provisions as may be
provided for at the time of issuance. No dividends shall be payable on any
share of common stock at any time when any dividend is due on any share of
preferred stock and has not been paid.

(3) Preference on Termination of Business. In the event of any
liquidation, dissolution, or winding up of the Association's business, the
holders of the preferred shares shall be paid in full at par value thereof,
plus all accrued dividends, before the holders of the common shares receive
any payments. (h)Debt Obligations.

(1) Approval by Secretaries of Education and the Treasury. The
Association is authorized with the approval of the Secretary of Education
and the Secretary of the Treasury to issue and have outstanding obligations
having such maturities and bearing such rate or rates of interest as may be
determined by the Association. The authority of the Secretary of Education
to approve the issuance of such obligations is limited to obligations
issued by the Association and guaranteed by the Secretary pursuant to
paragraph (2) of this subsection. Such obligations may be redeemable at the
option of the Association before maturity in such manner as may be
stipulated therein. The Secretary of the Treasury may not direct as a
condition of his approval that any such issuance of obligations by the
Association be made or sold to the Federal Financing Bank. To the extent
that the average outstanding amount of
<PAGE> 5
the obligations owned by the Association pursuant to the authority
contained in subsection (d)(1)(B) and (C) of this section and as to which
the income is exempt from taxation under the Internal Revenue Code of 1986
does not exceed the average stockholders' equity of the Association, the
interest on obligations issued under this paragraph shall not be deemed to
be interest on indebtedness incurred or continued to purchase or carry
obligations for the purpose of section 265 of the Internal Revenue Code of
1986.

(2) Guarantee of Debt. The Secretary is authorized, prior to October 1,
1984, to guarantee payment when due of principal and interest on
obligations issued by the Association in an aggregate amount determined by
the Secretary in consultation with the Secretary of the Treasury. Nothing
in this section shall be construed so as to authorize the Secretary of
Education or the Secretary of the Treasury to limit, control, or constrain
programs of the Association or support of the Guaranteed Student Loan
Program by the Association.

(3) Borrowing Authority to Meet Guarantee Obligations. To enable the
Secretary to discharge his responsibilities under guarantees issued by him,
he is authorized to issue to the Secretary of the Treasury notes or other
obligations in such forms and denominations, bearing such maturities, and
subject to such terms and conditions, as may be prescribed by the Secretary
with the approval of the Secretary of the Treasury. Such notes or other
obligations shall bear interest at a rate determined by the Secretary of
the Treasury, taking into consideration the current average market yield on
outstanding marketable obligations of the United States of comparable
maturities during the months preceding the issuance of the notes or other
obligations. The Secretary of the Treasury is authorized and directed to
purchase any notes and other obligations issued hereunder and for that
purpose he is authorized to use as a public debt transaction the proceeds
from the sale of any securities issued under the Second Liberty Bond Act,
as amended, and the purposes for which securities may be issued under that
Act, as amended, are extended to include any purchase of such notes and
obligations. The Secretary of the Treasury may at any time sell any of the
notes or other obligations acquired by him under this subsection. All
redemptions, purchases, and sales by the Secretary of the Treasury of such
notes or other obligations shall be treated as public debt transactions of
the United States. There is authorized to be appropriated to the Secretary
such sums as may be necessary to pay the principal and interest on the
notes or obligations issued by him to the Secretary of the Treasury.

(4) Action On Request For Guarantees. Upon receipt of a request from the
Association under this subsection requiring approvals by the Secretary of
Education or the Secretary of the Treasury, the Secretary of Education or
the Secretary of the Treasury shall act promptly either to grant approval
or to advise the Association of the reasons for withholding approval. In no
case shall such an approval be withheld for a period longer than 60 days
unless, prior to the end of such period, the Secretary of Education and the
Secretary of the Treasury submit to the Congress a detailed explanation of
reasons for doing so.

(5) Authority of Treasury to Purchase Debt. The Secretary of the Treasury
is authorized to purchase any obligations issued by the Association
pursuant to this subsection as now or hereafter in force, and for such
purpose the Secretary of the Treasury is authorized to use as a public debt
transaction the proceeds of the sale of any securities hereafter issued
under the Second Liberty Bond Act, as now or hereafter in force, and the
purposes for which securities may be issued under the Second Liberty Bond
Act, as now or hereafter in force are extended to include such purchases.
The Secretary of the Treasury shall not at any time purchase any
obligations under this subsection if such purchase would increase the
aggregate principal amount of his then outstanding holdings of such
obligations under this subsection to an amount greater than $1,000,000,000.
Each purchase of obligations by the Secretary of the Treasury under this
subsection shall be upon such terms and conditions as to yield a return at
a rate determined by the Secretary of the Treasury, taking into
consideration the current average rate on outstanding marketable
obligations of the United States of comparable maturities as of the last
day of the month preceding the making of such purchase. The Secretary of
the Treasury may, at any time, sell, upon such terms and conditions and at
such price or prices as he shall determine, any of the obligations acquired
by him under this subsection. All redemptions, purchases, and sales by the
Secretary of the Treasury of such obligations under this subsection shall
be treated as public debt transactions of the United States.

(6) Sale of Debt to Federal Financing Bank. Notwithstanding any other
provision of law the Association is authorized to sell or issue obligations
on the security of student loans, the payment of interest or principal of
which has at any time been guaranteed under section 428 or 429 of this
part, to the Federal Financing Bank.
<PAGE> 6
(7) Offset Fee.

(A) The Association shall pay to the Secretary, on a monthly basis,
an offset fee calculated on an annual basis in an amount equal to 0.30
percent of the principal amount of each loan made, insured, or
guaranteed under this part that the Association holds (except for loans
made pursuant to sections 428C, 439(o), or 439(q)) and that was
acquired on or after the date of enactment of this paragraph.

(B) If the Secretary determines that the Association has
substantially failed to comply with subsection (q), subparagraph (A)
shall be applied by substituting "1.0 percent" for ".30 percent".

(C) The Secretary shall deposit all fees collected pursuant to this
paragraph into the insurance fund established in section 431.
(i)General Corporate Powers.The Association shall have power

(1) to sue and be sued, complain and defend, in its corporate name and
through its own counsel;

(2) to adopt, alter, and use the corporate seal, which shall be judicially
noticed;

(3) to adopt, amend, and repeal by its Board of Directors, bylaws, rules,
and regulations as may be necessary for the conduct of its business;

(4) to conduct its business, carry on its operations, and have officers
and exercise the power granted by this section in any State without regard
to any qualification or similar statute in any State;

(5) to lease, purchase, or otherwise acquire, own, hold, improve, use, or
otherwise deal in and with any property, real, personal, or mixed, or any
interest therein, wherever situated;

(6) to accept gifts or donations of services, or of property, real,
personal, or mixed, tangible or intangible, in aid of any of the purposes
of the Association;

(7) to sell, convey, mortgage, pledge, lease, exchange, and otherwise
dispose of its property and assets;

(8) to appoint such officers, attorneys, employees, and agents as may be
required, to determine their qualifications, to define their duties, to fix
their salaries, require bonds for them, and fix the penalty thereof; and

(9) to enter into contracts, to execute instruments, to incur liabilities,
and to do all things as are necessary or incidental to the proper
management of its affairs and the proper conduct of its business.
(j)Accounting, Auditing, And Reporting.The accounts of the Association
shall be audited annually. Such audits shall be conducted in accordance
with generally accepted auditing standards by independent certified public
accountants or by independent licensed public accountants, licensed on or
before December 31, 1970, who are certified or licensed by a regulatory
authority of a State or other political subdivision of the United States,
except that independent public accountants licensed to practice by such
regulatory authority after December 31, 1970, and persons who, although not
so certified or licensed, meet, in the opinion of the Secretary, standards
of education and experience representative of the highest standards
prescribed by the licensing authorities of the several States which provide
for the continuing licensing of public accounts and which are prescribed by
the Secretary in appropriate regulations may perform such audits until
December 31, 1975. A report of each such audit shall be furnished to the
Secretary of the Treasury. The audit shall be conducted at the place or
places where the accounts are normally kept. The representatives of the
Secretary shall have access to all books, accounts, financial records,
reports, files, and all other papers, things, or property belonging to or
in use by the Association and necessary to facilitate the audit, and they
shall be afforded full facilities for verifying transactions with the
balances or securities held by depositories, fiscal agents, and custodians.
(k)Report On Audits By Treasury.A report of each such audit for a fiscal
year shall be made by the Secretary of the Treasury to the President and to
the Congress not later than 6 months following the close of such fiscal
year. The report shall set forth the scope of the audit and shall include a
statement (showing intercorporate relations) of assets and liabilities,
capital and surplus or deficit; a statement of surplus or deficit
<PAGE> 7
analysis; a statement of income and expense; a statement of sources and
application of funds; and such comments and information as may be deemed
necessary to keep the President and the Congress informed of the operations
and financial condition of the Association, together with such
recommendations with respect thereto as the Secretary may deem advisable,
including a report of any impairment of capital or lack of sufficient
capital noted in the audit. A copy of each report shall be furnished to the
Secretary, and to the Association. (l)Lawful Investment Instruments; Effect
Of And Exemptions From Other Laws.All obligations issued by the Association
including those made under subsection (d)(4) shall be lawful investments,
and may be accepted as security for all fiduciary, trust, and public funds,
the investment or deposit of which shall be under authority or control of
the United States or of any officer or officers thereof. All stock and
obligations issued by the Association pursuant to this section shall be
deemed to be exempt securities within the meaning of laws administered by
the Securities and Exchange Commission, to the same extent as securities
which are direct obligations of, or obligations guaranteed as to principal
or interest by, the United States. The Association shall, for the purposes
of section 14(b)(2) of the Federal Reserve Act, be deemed to be an agency
of the United States. The obligations of the association shall be deemed to
be obligations of the United States for the purpose of section 3124 of
title 31, United States Code. For the purpose of the distribution of its
property pursuant to section 726 of title 11, United States Code, the
Association shall be deemed a person within the meaning of such title. The
priority established in favor of the United States by section 3713 of title
31, United States Code, shall not establish a priority over the
indebtedness of the Association issued or incurred on before September 30,
1992. The Federal Reserve Banks are authorized to act as depositories,
custodians, or fiscal agents, or a combination thereof, for the Association
in the general performance of its powers under this section. (m)Preparation
Of Obligations.In order to furnish obligations for delivery by the
Association, the Secretary of the Treasury is authorized to prepare such
obligations in such form as the Board of Directors may approve, such
obligations when prepared to be held in the Treasury subject to delivery
upon order by the Association. The engraved plates, dies, bed pieces, and
so forth, executed in connection therewith shall remain in the custody of
the Secretary of the Treasury. The Association shall reimburse the
Secretary of the Treasury for any expenditures made in the preparation,
custody, and delivery of such obligations. The Secretary of the Treasury is
authorized to promulgate regulations on behalf of the Association so that
the Association may utilize the book-entry system of the Federal Reserve
Banks. (n)Report On Operations And Activities.The Association shall, as
soon as practicable after the end of each fiscal year, transmit to the
President and the Congress a report of the Association's operations and
activities, including a report with respect to all facilities transactions,
during each year. (o)Loan Consolidations.

(1) In General. The Association or its designated agent may, upon request
of a borrower, consolidate loans received under this title in accordance
with section 428C.

(2) Use of Existing Agencies as Agent. The Association in making loans
pursuant to this subsection in any State served by a guaranty agency or an
eligible lender in a State described in section 435(d)(1) (D) or (F) may
designate as its agent such agency or lender to perform such functions as
the Association determines appropriate. Any agreements made pursuant to
this subparagraph shall be on such terms and conditions as agreed upon by
the Association and such agency or lender.
<PAGE> 8
(p)Advances For Direct Loans By Guaranty Agencies.

(1) In General. The Association shall make advances in each fiscal year
from amounts available to it to each guaranty agency and eligible lender
described in subsection 428(h)(1) which has an agreement with the
Association which sets forth that advances are necessary to enable such
agency or lender to make student loans in accordance with section 428(h)
and that such advances will be repaid to the Association in accordance with
such terms and conditions as may be set forth in the agreement and agreed
to by the Association and such agency or lender. Advances made under this
subsection shall not be subject to subsection (d)(2) of this section.

(2) Limitation. No advance may be made under this subsection unless the
guaranty agency or lender makes an application to the Association, which
shall be accompanied by such information as the Association determines to
be reasonably necessary. (q)Lender Of Last Resort.

(1) Action at Request of Secretary.

(A) Whenever the Secretary determines that eligible borrowers are
seeking and are unable to obtain loans under this part, the Association
or its designated agent shall, not later than 90 days after the date of
enactment of the Student Loan Reform Act of 1993, begin making loans to
such eligible borrowers in accordance with this subsection at the
request of the Secretary. The Secretary may request that the
Association make loans to borrowers within a geographic area or for the
benefit of students attending institutions of higher education that
certify, in accordance with standards established by the Secretary,
that their students are seeking and unable to obtain loans.

(B) Loans made pursuant to this subsection shall be insurable by
the Secretary under section 429 with a certificate of comprehensive
insurance coverage provided for under section 429(b)(1) or by a
guaranty agency under paragraph (2)(A) of this subsection.

(2) Issuance and Coverage of Loans.

(A) Whenever the Secretary, after consultation with, and with
agreement of, representatives of the guaranty agency in a State, or an
eligible lender in a State described in section 435(d)(1)(D),
determines that a substantial portion of eligible borrowers in such
State or within an area of such State are seeking and are unable to
obtain loans under this part, the Association or its designated agent
shall begin making such loans to borrowers in such State or within an
area of such State in accordance with this subsection at the request of
the Secretary.

(B) Loans made pursuant to this subsection shall be insurable by
the agency identified in subparagraph (A) having an agreement pursuant
to section 428(b). For loans insured by such agency, the agency shall
provide the Association with a certificate of comprehensive insurance
coverage, if the Association and the agency have mutually agreed upon a
means to determine that the agency has not already guaranteed a loan
under this part to a student which would cause a subsequent loan made
by the Association to be in violation of any provision under this part.

(3) Termination of Lending. The Association or its designated agent shall
cease making loans under this subsection at such time as the Secretary
determines that the conditions which caused the implementation of this
subsection have ceased to exist.
<PAGE> 9
(r)Safety And Soundness Of Association.

(1) Reports by the Association. The Association shall promptly furnish to
the Secretary of Education and Secretary of the Treasury copies of all

(A) periodic financial reports publicly distributed by the
Association;

(B) reports concerning the Association that are received by the
Association and prepared by nationally recognized statistical rating
organizations; and

(C)(i) financial statements of the Association within 45 days of
the end of each fiscal quarter; and

(ii) reports setting forth the calculation of the capital
ratio of the Association, within 45 days of the end of each
fiscal quarter.

(2) Audit by Secretary of the Treasury

(A) The Secretary of the Treasury may

(i) appoint auditors or examiners to conduct audits of the
Association from time to time to determine the condition of
the Association for the purpose of assessing the Association's
financial safety and soundness and to determine whether the
requirements of this section and section 440 are being met;
and

(ii) obtain the services of such experts as the Secretary
of the Treasury determines necessary and appropriate, as
authorized by section 3109 of title 5, United States Code, to
assist in determining the condition of the Association for the
purpose of assessing the Association's financial safety and
soundness, and to determine whether the requirements of this
section and section 440 are being met.

(B) Each auditor appointed under this paragraph shall conduct an
audit of the Association to the extent requested by the Secretary of
the Treasury and shall prepare and submit a report to the Secretary of
the Treasury concerning the results of such audit. A copy of such
report shall be furnished to the association and the Secretary of
Education on the date on which it is delivered to the Secretary of the
Treasury.

(C) The Association shall provide full and prompt access to the
Secretary of the Treasury to its books and records and other
information requested by the Secretary of the Treasury.

(D) Annual Assessment.

(i) In General. For each fiscal year beginning on or after
October 1, 1996, the Secretary of the Treasury may establish
and collect from the Association an assessment (or
assessments) in amounts sufficient to provide for reasonable
costs and expenses of carrying out the duties of the Secretary
of the Treasury under this section and section 440 during such
fiscal year. In no event may the total amount so assessed
exceed, for any fiscal year, $800,000 adjusted for each fiscal
year ending after September 30, 1997 by the ratio of the
Consumer Price Index for All Urban Consumers (issued by the
Bureau of Labor Statistics) for the final month of the fiscal
year preceding the fiscal year for which the assessment is
made to the Consumer Price Index for All Urban Consumers for
September 1997.

(ii) Deposit. Amounts collected from assessments under
this subparagraph shall be deposited in an account within the
Treasury of the United States as designated by the Secretary
of the Treasury for that purpose. The Secretary of the
Treasury is authorized and directed to pay out of any funds
available in such account the reasonable costs and expenses of
carrying out the duties of the
<PAGE> 10
Secretary of the Treasury under this section and section 440.
None of the funds deposited into such account shall be
available for any purpose other than making payments for such
costs and expenses.

(E) Obligation to Obtain, Maintain, and Report Information.

(i) In General. The Association shall obtain such
information and make and keep such records as the Secretary of
the Treasury may from time to time prescribe concerning

(I) the financial risk to the Association
resulting from the activities of any associated
person, to the extent such activities are reasonably
likely to have a material impact on the financial
condition of the Association, including the
Association's capital ratio, the Association's
liquidity, or the Association's ability to conduct and
finance the Association's operations; and

(II) the Association's policies, procedures, and
systems for monitoring and controlling any such
financial risk.

(ii) Summary Reports. The Secretary of the Treasury may
require summary reports of such information to be filed no
more frequently than quarterly. If, as a result of adverse
market conditions or based on reports provided pursuant to
this subparagraph or other available information, the
Secretary of the Treasury has concerns regarding the financial
or operational condition of the Association, the Secretary of
the Treasury may, notwithstanding the preceding sentence and
clause (i), require the Association to make reports concerning
the activities of any associated person, whose business
activities are reasonably likely to have a material impact on
the financial or operational condition of the Association.

(iii) Definition. For purposes of this subparagraph, the
term "associated person" means any person, other than a
natural person, directly or indirectly controlling, controlled
by, or under common control with the Association.

(3) Monitoring of Safety and Soundness. The Secretary of the Treasury
shall conduct such studies as may be necessary to monitor the financial
safety and soundness of the Association. In the event that the Secretary of
the Treasury determines that the financial safety and soundness of the
Association is at risk, the Secretary of the Treasury shall inform the
Chairman and ranking minority member of the Committee on Labor and Human
Resources of the Senate, the Chairman and ranking minority member of the
Committee on Education and Labor of the House of Representatives, and the
Secretary of Education of such determination and identify any corrective
actions that should be taken to ensure the safety and soundness of the
Association.

(4) Capital Standard. If the capital ratio is less than 2 percent and is
greater than or equal to 1.75 percent at the end of the Association's most
recent calendar quarter the Association shall, within 60 days of such
occurrence, submit to the Secretary of the Treasury a capital restoration
plan, in reasonable detail, that the Association believes is adequate to
cause the capital ratio to equal or exceed 2 percent within 36 months.

(5) Capital Restoration Plan.

(A) Submission, Approval, And Implementation. The Secretary of the
Treasury and the Association shall consult with respect to any capital
restoration plan submitted pursuant to paragraph (4) and the Secretary
of the Treasury shall approve such plan (or a modification thereof
accepted by the Association) or disapprove such plan within 30 days
after such plan is first submitted to the Secretary of the Treasury by
the Association, unless the Association and Secretary of the Treasury
mutually agree to a longer consideration period. If the Secretary of
the Treasury approves a capital restoration plan (including a
modification of a plan accepted by the Association), the Association
shall forthwith proceed with diligence to implement such plan to the
best of its ability.
<PAGE> 11
(B) Disapproval. If the Secretary of the Treasury does not approve
a capital restoration plan as provided in subparagraph (A), then not
later than the earlier of the date the Secretary of the Treasury
disapproves of such plan by written notice to the Association or the
expiration of the 30- day consideration period referred to in
subparagraph (A) (as such period may have been extended by mutual
agreement), the Secretary of the Treasury shall submit the
Association's capital restoration plan, in the form most recently
proposed to the Secretary of the Treasury by the Association, together
with a report on the Secretary of the Treasury's reasons for
disapproval of such plan and an alternative capital restoration plan,
to the Chairman and ranking minority member of the Senate Committee on
Labor and Human Resources and to the Chairman and ranking minority
member of the House Committee on Education and Labor. A copy of such
submission simultaneously shall be sent to the Association and the
Secretary of Education by the Secretary of the Treasury.

(C) Association Implementation and Response. Upon receipt of the
submission by the Association, the Association shall forthwith proceed
with diligence to implement the most recently proposed capital
restoration plan of the Association. The Association, within 30 days
after receipt from the Secretary of the Treasury of such submission,
shall submit to such Chairmen and ranking minority members a written
response to such submission, setting out fully the nature and extent of
the Association's agreement or disagreement with the Secretary of the
Treasury with respect to the capital restoration plan submitted to the
Secretary of the Treasury and any findings of the Secretary of the
Treasury.

(6) Substantial Capital Ratio Reduction.

(A) Additional Plan Required. If the capital ratio is less than
1.75 percent and is greater than or equal to 1 percent at the end of
the Association's most recent calendar quarter, the Association shall
submit to the Secretary of the Treasury within 60 days after such
occurrence a capital restoration plan (or an appropriate modification
of any plan previously submitted or approved under paragraph (4)) to
increase promptly its capital ratio to equal or exceed 1.75 percent.
The Secretary of the Treasury and the Association shall consult with
respect to any plan or modified plan submitted pursuant to this
paragraph. The Secretary of the Treasury shall approve such plan or
modified plan (or a modification thereof accepted by the Association)
or disapprove such plan or modified plan within 30 days after such plan
or modified plan is first submitted to the Secretary of the Treasury by
the Association, unless the Association and Secretary of the Treasury
mutually agree to a longer consideration period. If the Secretary of
the Treasury approves a plan or modified plan (including a modification
of a plan accepted by the Association), the Association shall forthwith
proceed with diligence to implement such plan or modified plan to the
best of the Association's ability.

(B) Disapproval. If the Secretary of the Treasury disapproves a
capital restoration plan or modified plan submitted pursuant to
subparagraph (A), then, not later than the earlier of the date the
Secretary of the Treasury disapproves of such plan or modified plan (by
written notice to the Association) or the expiration of the 30-day
consideration period described in subparagraph (A) (as such period may
have been extended by mutual agreement), the Secretary of the Treasury
shall prepare and submit an alternative capital restoration plan,
together with a report on his reasons for disapproval of the
Association's plan or modified plan, to the Chairman and ranking
minority member of the Committee on Labor and Human Resources of the
Senate and to the Chairman and ranking minority member of the Committee
on Education and Labor of the House of Representatives. A copy of such
submission simultaneously shall be sent to the Association and the
Secretary of Education by the Secretary of the Treasury. The
Association, within 5 days after receipt from the Secretary of the
Treasury of such submission, shall submit to the Chairmen and ranking
minority members of such Committees, and the Secretary of the Treasury,
a written response to such submission, setting out fully the nature and
extent of the Association's agreement or disagreement with the
Secretary of the Treasury with respect to the disapproved plan and the
alternative plan of the Secretary of the Treasury and any findings of
the Secretary of the Treasury.

(C) Review by Congress; Association Implementation. Congress shall
have 60 legislative days after the date on which Congress receives the
alternative plan under subparagraph (B) from the Secretary of the
<PAGE> 12
Treasury to review such plan. If Congress does not take statutory
action with respect to any such plan within such 60-day period, the
Association shall immediately proceed with diligence to implement the
alternative capital restoration plan of the Secretary of the Treasury
under subparagraph (B). If Congress is out of session when any such
alternative plan is received, such 60-day period shall begin on the
first day of the next session of Congress.

(7) Actions by Secretary of the Treasury. If the capital ratio of the
Association does not equal or exceed 1.75 percent at the end of the
Association's most recent calendar quarter, the Secretary of the Treasury
may, until the capital ratio equals or exceeds 1.75 percent, take any one
or more of the following actions:

(A) Limit Increase In Liabilities. Limit any increase in, or order
the reduction of, any liabilities of the Association, except as
necessary to fund student loan purchases and warehousing advances.

(B) Restrict Growth. Restrict or eliminate growth of the
Association's assets, other than student loans purchases and
warehousing advances.

(D) Require Issuance of New Capital. Require the Association to
issue new capital in any form and in any amount sufficient to restore
at least a 1.75 percent capital ratio.

(E) Limit Executive Compensation. Prohibit the Association from
increasing for any executive officer any compensation including bonuses
at a rate exceeding that officer's average rate of compensation during
the previous 12 calendar months and prohibiting the Board from adopting
any new employment severance contracts.

(8) Critical Capital Standard.

(A) If the capital ratio is less than 1 percent at the end of the
Association's most recent calendar quarter and the Association has
already submitted a capital restoration plan to the Secretary of the
Treasury pursuant to paragraph (4) or (6)(A), the Association shall
forthwith proceed with diligence to implement the most recently
proposed plan with such modifications as the Secretary of the Treasury
determines are necessary to cause the capital ratio to equal or exceed
2 percent within 60 months.

(B) If the capital ratio is less than 1 percent at the end of the
Association's most recent calendar quarter and the Association has not
submitted a capital restoration plan to the Secretary of the Treasury
pursuant to paragraph (4) or (6)(A), the Association shall

(i) within 14 days of such occurrence submit a capital
restoration plan to the Secretary of the Treasury which the
Association believes is adequate to cause the capital ratio to
equal or exceed 2 percent within 60 months; and

(ii) forthwith proceed with diligence to implement such
plan with such modifications as the Secretary of the Treasury
determines are necessary to cause the capital ratio to equal
or exceed 2 percent within 60 months.

(C) Immediately upon a determination under subparagraph (A) or (B)
to implement a capital restoration plan, the Secretary of the Treasury
shall submit the capital restoration plan to be implemented to the
Chairman and ranking minority member of the Committee on Labor and
Human Resources of the Senate, the Chairman and ranking minority member
of the Committee on Education and Labor of the House of
Representatives, and the Secretary of Education.

(9) Additional Reports To Committees. The Association shall submit a copy
of its capital restoration plan, modifications proposed to the Secretary of
the Treasury, and proposed modifications received from the Secretary of
<PAGE> 13
the Treasury to the Congressional Budget Office and General Accounting
Office upon their submission to the Secretary of the Treasury or receipt
from the Secretary of the Treasury. Notwithstanding any other provision of
law, the Congressional Budget Office and General Accounting Office shall
maintain the confidentiality of information received pursuant to the
previous sentence. In the event that the Secretary of the Treasury does not
approve a capital restoration plan as provided in paragraph (5)(A) or
(6)(A), or in the event that a capital restoration plan is modified by the
Secretary of the Treasury pursuant to paragraph (6)(B) or (8), the
Congressional Budget Office and General Accounting Office shall each submit
a report within 30 days of the Secretary of the Treasury's submission to
the Chairmen and ranking minority members as required in paragraphs (5)(B),
(6)(B), and(8)(C) to such Chairmen and ranking members

(A) analyzing the financial condition of the Association;

(B) analyzing the capital restoration plan and reasons for
disapproval of the plan contained in the Secretary of the Treasury's
submission made pursuant to paragraph (5)(B), or the capital
restoration plan proposed by the Association and the modifications made
by the Secretary of the Treasury pursuant to paragraph (6)(B) or (8);

(C) analyzing the impact of the capital restoration plan and
reasons for disapproval of the plan contained in the Secretary of the
Treasury's submission made pursuant to paragraph (5)(B), or the impact
of the capital restoration plan proposed by the Association and the
modifications made by the Secretary of the Treasury pursuant to
paragraph (6)(B) or (8), and analyzing the impact of the
recommendations made pursuant to subparagraph (D) of this paragraph, on

(i) the ability of the Association to fulfill its purpose
and authorized activities as provided in this section, and

(ii) the operation of the student loan programs; and

(D) recommending steps which the Association should take to
increase its capital ratio without impairing its ability to perform its
purpose and authorized activities as provided in this section.

(10) Review by Secretary of Education. The Secretary of Education shall
review the Secretary of the Treasury's submission required pursuant to
paragraph (5)(B), (6)(B), or (8) and shall submit a report within 30 days
to the Chairman and ranking minority member of the Senate Committee on
Labor and Human Resources and to the Chairman and ranking minority member
of the House Committee on Education and Labor

(A) describing any administrative or legislative provisions
governing the student loan programs which contributed to the decline in
the Association's capital ratio; and

(B) recommending administrative and legislative changes in the
student loan programs to maintain the orderly operation of such
programs and to enable the Association to fulfill its purpose and
authorized activities consistent with the capital ratio specified in
paragraph (4).

(11) Safe Harbor. The Association shall be deemed in compliance with the
capital ratios described in paragraphs (4) and (6)(A) if the Association is
rated in 1 of the 2 highest full rating categories (such categories to be
determined without regard to designations within categories) by 2
nationally recognized statistical rating organizations, determined without
regard to the Association's status as a federally chartered corporation.

(12) Treatment of Confidential Information. Notwithstanding any other
provision of law, the Secretary of the Treasury, the Secretary of
Education, the Congressional Budget Office, and the General Accounting
Office shall not disclose any information treated as confidential by the
Association or the Association's associated persons and obtained pursuant
to this subsection. Nothing in this paragraph shall authorize the Secretary
of the Treasury, the Secretary of Education, the Congressional Budget
Office, and the General Accounting Office to withhold information from
Congress, or prevent the Secretary of Education, the Congressional Budget
Office, and the
<PAGE> 14
General Accounting Office from complying with a request for information
from any other Federal department or agency requesting the information for
purposes within the scope of its jurisdiction, or complying with an order
of a court of the United States in an action brought by the United States.
For purposes of section 552 of title 5, United States Code, this paragraph
shall be considered a statute described in subsection (b)(3) of such
section 552.

(13) Enforcement of Safety and Soundness Requirements. The Secretary of
Education or the Secretary of the Treasury, as appropriate, may request
that the Attorney General bring an action in the United States District
Court for the District of Columbia for the enforcement of any provisions of
this section, or may, under the direction or control of the Attorney
General, bring such an action. Such court shall have jurisdiction and power
to order and require compliance with this section.

(14) Actions By Secretary.

(A) In General. For any fiscal quarter ended after January 1, 2000,
the Association shall have a capital ratio of at least 2.25 percent.
The Secretary of the Treasury may, whenever such capital ratio is not
met, take any one or more of the actions described in paragraph (7),
except that

(i) the capital ratio to be restored pursuant to
paragraph (7)(D) shall be 2.25 percent; and

(ii) if the relevant capital ratio is in excess of or
equal to 2 percent for such quarter, the Secretary of the
Treasury shall defer taking any of the actions set forth in
paragraph (7) until the next succeeding quarter and may then
proceed with any such action only if the capital ratio of the
Association remains below 2.25 percent.

(B) Applicability. The provisions of paragraphs (4), (5), (6), (8),
(9), (10), and (11) shall be of no further application to the
Association for any period after January 1, 2000.

(15) Definitions. As used in this subsection:

(A) The term "nationally recognized statistical rating
organization" means any entity recognized as such by the Securities and
Exchange Commission.

(B) The term "capital ratio" means the ratio of total stockholders'
equity, as shown on the Association's most recent quarterly
consolidated balance sheet prepared in the ordinary course of its
business, to the sum of

(i) the total assets of the Association, as shown on the
balance sheet prepared in the ordinary course of its business;
and

(ii) 50 percent of the credit equivalent amount of the
following off-balance sheet items of the Association as of
the date of such balance sheet

(I) all financial standby letters of credit and
other irrevocable guarantees of the repayment of
financial obligations of others; and

(II) all interest rate contracts and exchange rate
contracts, including interest exchange agreements,
floor, cap, and collar agreements and similar
arrangements.

For purposes of this subparagraph, the calculation of the
credit equivalent amount of the items set forth in clause (ii)
of this subparagraph, the netting of such items and
elimination for the purpose of avoidance of double-counting of
such items shall be made in accordance with the measures for
computing credit conversion factors for off-balance sheet
items for capital maintenance purposes established for
commercial banks from time to time by the Federal Reserve
Board, but without regard to any risk weighing provisions in
such measures.
<PAGE> 15
(C) The term "legislative days" means only days on which either
House of Congress is in session.

(16) Dividends. The Association may pay dividends in the form of cash or
noncash distributions so long as the time of the declaration of such
dividends, after giving effect to the payment of such dividends as of the
date of such declaration by the Board of Directors of the Association, the
Association's capital would be in compliance with the capital standards set
forth in this section.

(17) Certification Prior to Payment of Dividend. Prior to the payment of
any dividend under paragraph (16), the Association shall certify to the
Secretary of the Treasury that the payment of the dividend will be made in
compliance with paragraph (16) and shall provide copies of all calculations
needed to make such certification. (s)Charter Sunset.

(1) Application of Provisions. This subsection applies beginning 18 months
and one day after the date of enactment of this subsection if no
reorganization of the Association occurs in accordance with the provisions
of section 440.

(2) Sunset Plan.

(A) Plan Submission by the Association. Not later than July 1,
2007, the Association shall submit to the Secretary of the Treasury and
to the Chairman and Ranking Member of the Committee on Labor and Human
Resources of the Senate and the Chairman and Ranking Member of the
Committee on Economic and Educational Opportunities of the House of
Representatives, a detailed plan for the orderly winding up, by July 1,
2013, of business activities conducted pursuant to the charter set
forth in this section. Such plan shall

(i) ensure that the Association will have adequate assets
to transfer to a trust, as provided in this subsection, to
ensure full payment of remaining obligations of the
Association in accordance with the terms of such obligations;

(ii) provide that all assets not used to pay liabilities
shall be distributed to shareholders as provided in this
subsection; and

(iii) provide that the operations of the Association shall
remain separate and distinct from that of any entity to which
the assets of the Association are transferred;

(B) Amendment of the Plan by the Association. The Association shall
from time to time amend such plan to reelect changed circumstances, and
submit such amendments to the Secretary of the Treasury and to the
Chairman and Ranking Minority Member of the Committee on Labor and
Human Resources of the Senate and Chairman and Ranking Minority Member
of the Committee on Economic and Educational Opportunities of the House
of Representatives. In no case may any amendment extend the date for
full implementation of the plan beyond the dissolution date provided in
paragraph (3).

(C) Plan Monitoring. The Secretary of the Treasury shall monitor
the Association's compliance with the plan and shall continue to review
the plan (including any amendments thereto).

(D) Amendment of the Plan by the Secretary of the Treasury. The
Secretary of the Treasury may require the Association to amend the plan
(including any amendments to the plan), if the Secretary of the
Treasury deems such amendments are necessary so as to ensure full
payment of all obligations of the Association.

(E) Implementation by the Association. The Association shall
promptly implement the plan (including any amendments to the plan,
whether such amendments are made by the Association or are required to
be made by the Secretary of the Treasury).
<PAGE> 16
(3) Dissolution of the Association. The Association shall dissolve and the
Association's separate existence shall terminate on July 1, 2013, after
discharging of all outstanding debt obligations and liquidation pursuant to
this subsection. The Association may dissolve pursuant to this subsection
prior to such date by notifying the Secretary of Education and the
Secretary of the Treasury of the Association's intention to dissolve,
unless within 60 days of receipt of such notice the Secretary of Education
notifies the Association that the Association continues to be needed to
serve as a lender of last resort pursuant to subsection (q) or continues to
be needed to purchase loans under an agreement with the Secretary described
in paragraph (4)(A). On dissolution date, the Association shall take the
following actions:

(A) Establishment of a Trust. The Association shall, under the
terms of an irrevocable trust agreement in form and substance
satisfactory to the Secretary of the Treasury, the Association, and the
appointed trustee, irrevocably transfer all remaining obligations of
the Association to a trust and irrevocably deposit or cause to be
deposited into such trust, to be held as trust funds solely for the
benefit of holders of the remaining obligations, money or direct
noncallable obligations of the United States or any agency thereof for
which payment the full faith and credit of the United States is
pledged, maturing as to principal and interest in such amounts and at
such times as are determined by the Secretary of the Treasury to be
sufficient, without consideration of any significant reinvestment of
such interest, to pay the principal of, and interest on, the remaining
obligations in accordance with their terms.

(B) Use of Trust Assets. All money, obligations or financial assets
deposited into the trust pursuant to this subsection shall be applied
by the trustee to the payment of the remaining obligations assumed by
the trust. Upon the fulfillment of the trustee's duties under the
trust, any remaining assets of the trust shall be transferred to the
persons who, at the time of the dissolution, were the shareholders of
the Association, or to the legal successors or assigns of such persons.

(C) Obligations Not Transferred to the Trust. The Association shall
make proper provision for all other obligations of the Association,
including the repurchase or redemption, or the making of proper
provision for the repurchase or redemption, of any preferred stock of
the Association outstanding.

(D) Transfer of Remaining Assets. After compliance with
subparagraphs (A) and (C), the Association shall transfer to the
shareholders of the Association any remaining assets of the
Association.

(4) Restrictions Relating to Winding Up.

(A) Restrictions on New Business Activity or Acquisition of Assets
by the Association.

(i) In General. Beginning on July 1, 2009, the Association
shall not engage in any new business activities or acquire any
additional program assets (including acquiring assets pursuant
to contractual commitments) described in subsection (d) other
than in connection with the Association

(I) serving as a lender of last resort pursuant to
subsection (q); and

(II) purchasing loans insured under this part, if
the Secretary, with the approval of the Secretary of
the Treasury, enters into an agreement with the
Association for the continuation or resumption of the
Association's secondary market purchase program
because the Secretary determines there is inadequate
liquidity for loans made under this part.

(ii) Agreement. The Secretary is authorized to enter into
an agreement described in subclause (II) of clause (i) with
the Association covering such secondary market activities. Any
agreement entered into under such subclause shall cover a
period of 12 months, but may be renewed if the Secretary
determines that liquidity remains inadequate. The fee provided
under subsection (h)(7) shall not apply to loans acquired
under any such agreement with the Secretary.
<PAGE> 17
(B) Issuance of Debt Obligations During the Winding Up Period;
Attributes Of Debt Obligations. The Association shall not issue debt
obligations which mature later than July 1, 2013, except in connection
with serving as a lender of last resort pursuant to subsection (q) or
with purchasing loans under an agreement with the Secretary as
described in subparagraph (A). Nothing in this subsection shall modify
the attributes accorded the debt obligations of the Association by this
section, regardless of whether such debt obligations are transferred to
a trust in accordance with paragraph (3).

(C) Use of Association Name. (i) The Association may not transfer
or permit the use of the name "Student Loan Marketing Association",
"Sallie Mae", or any other variation thereof, to or by any other entity
other than a subsidiary of the Association.

11/96

<PAGE> 1

EXHIBIT 99.2

BY-LAWS
OF
STUDENT LOAN MARKETING ASSOCIATION

EFFECTIVE JANUARY 26, 1996

[SALLIE MAE LOGO]

<PAGE> 2

TABLE OF CONTENTS

ARTICLE I

NAME, LOCATION OF OFFICES, AND SERVICE OF PROCESS

SECTION 1. Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2. Location of Offices . . . . . . . . . . . . . . . . . . . . . 1
SECTION 3. Service of Process . . . . . . . . . . . . . . . . . . . . . 1

ARTICLE II

PURPOSES

SECTION 1. Statutory Purposes . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2. Ancillary Purposes . . . . . . . . . . . . . . . . . . . . . 2

ARTICLE III

BOARD OF DIRECTORS

SECTION 1. Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 2. Number and Type of Directors . . . . . . . . . . . . . . . . 4
SECTION 3. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 4. Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 5. Resignation . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 6. Regular Meeting . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 7. Other Meetings . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 8. Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 9. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 10. Majority Vote . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 11. Assumption of Assent . . . . . . . . . . . . . . . . . . . . 6
SECTION 12. Action Without a Meeting . . . . . . . . . . . . . . . . . . 6
SECTION 13. Executive, Other Committees and
Directors' Advisory Council . . . . . . . . . . . . . . . . . 7
SECTION 14. Conflicts of Interest . . . . . . . . . . . . . . . . . . . . 8
SECTION 15. Compensation . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 16. Chairman and Vice Chairmen . . . . . . . . . . . . . . . . . 9

ARTICLE IV

EXECUTIVE COMMITTEE

SECTION 1. Appointment . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 2. Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 3. Tenure and Qualification . . . . . . . . . . . . . . . . . . 10

i
<PAGE> 3

SECTION 4. Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 5. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 6. Majority Voting . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 7. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 8. Resignations and Removal . . . . . . . . . . . . . . . . . . 12
SECTION 9. Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 10. Compensation . . . . . . . . . . . . . . . . . . . . . . . . 12

ARTICLE V

OFFICERS AND EMPLOYEES

SECTION 1. Number and Type . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 2. Appointment and Confirmation . . . . . . . . . . . . . . . . 13
SECTION 3. Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 4. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 5. The President . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 6. The Executive Vice President . . . . . . . . . . . . . . . . 14
SECTION 7. The Secretary . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 8. The Treasurer . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 9. The General Counsel . . . . . . . . . . . . . . . . . . . . . 15
SECTION 10. Assistant Treasurers . . . . . . . . . . . . . . . . . . . . 15
SECTION 11. Assistant Secretaries . . . . . . . . . . . . . . . . . . . . 15
SECTION 12. Compensation . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 13. Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 14. Employee Conduct . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 15. Outside or Private Employment . . . . . . . . . . . . . . . . 16

ARTICLE VI

SHAREHOLDERS

SECTION 1. Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 2. Special Meetings . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 3. Meeting Business . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 4. Board of Directors Nominations . . . . . . . . . . . . . . . 20
SECTION 5. Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 6. Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 7. Record Date . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 8. Voting Lists . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 9. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 10. Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 11. Organization . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 12. Voting of Shares . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 13. Inspectors of Votes . . . . . . . . . . . . . . . . . . . . . 26

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<PAGE> 4

ARTICLE VII

SHARES OF STOCK

SECTION 1. Issuance and Conditions . . . . . . . . . . . . . . . . . . . 27
SECTION 2. Common Stock . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 3. Reports of Beneficial Ownership . . . . . . . . . . . . . . . 28
SECTION 4. Dividends on Common Stock . . . . . . . . . . . . . . . . . . 28
SECTION 5. Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 6. Dividends, Redemption, Conversion of
Preferred Shares . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 7. Preference on Liquidation . . . . . . . . . . . . . . . . . . 29
SECTION 8. Purchase of Own Shares . . . . . . . . . . . . . . . . . . . 29
SECTION 9. Rights and Options to Acquire Shares . . . . . . . . . . . . 29
SECTION 10. Consideration for Shares . . . . . . . . . . . . . . . . . . 30
SECTION 11. Stated Capital . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 12. No Preemptive Rights . . . . . . . . . . . . . . . . . . . . 31
SECTION 13. Liability of Shareholders . . . . . . . . . . . . . . . . . . 31

ARTICLE VIII

CERTIFICATES FOR SHARES AND THEIR TRANSFER

SECTION 1. Certificates . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 2. Contents . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 3. Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 4. Lost, Stolen or Destroyed Certificates . . . . . . . . . . . 33
SECTION 5. Records . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

ARTICLE IX

INDEMNIFICATION AND LIABILITY

SECTION 1. Indemnification in Third Party Actions . . . . . . . . . . . 34
SECTION 2. Indemnification in Actions By or in the
Right of the Corporation . . . . . . . . . . . . . . . . . . 35
SECTION 3. Indemnification in Cases of Successful
Defense . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 4. Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 5. Advance Payments . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 6. Other Rights to Indemnification . . . . . . . . . . . . . . . 37
SECTION 7. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 8. Indemnification After Merger or
Consolidation . . . . . . . . . . . . . . . . . . . . . . . . 38

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<PAGE> 5

SECTION 9. Indemnification under Employee Benefit Plans . . . . . . . . 38
SECTION 10. Heirs, Executors and Administrators . . . . . . . . . . . . . 39
SECTION 11. Limitation of Liability . . . . . . . . . . . . . . . . . . . 39

ARTICLE X

FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . . . 40

ARTICLE XI

CONTRACTS, LOANS, CHECKS AND DEPOSITS

SECTION 1. Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 2. Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 3. Checks, Drafts, etc. . . . . . . . . . . . . . . . . . . . . 40
SECTION 4. Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . 40

ARTICLE XII

FACSIMILE SIGNATURES . . . . . . . . . . . . . . . . . . . . 41

ARTICLE XIII

AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . 41

<PAGE> 6
BY-LAWS
OF
STUDENT LOAN MARKETING ASSOCIATION

ARTICLE I

NAME, LOCATION OF OFFICES, AND SERVICE OF PROCESS

SECTION 1. Name

The Corporation shall do business as Student Loan
Marketing Association.

SECTION 2. Location of Offices

The principal office of the Corporation shall be
located in Washington, D.C. The Corporation may establish other offices in such
other places, within or without the District of Columbia, as the Board of
Directors shall from time to time deem useful for the conduct of the
Corporation's business.

SECTION 3. Service of Process

The General Counsel, or the Corporate Secretary or
any Assistant Secretary of the Corporation shall be agents of the Corporation
upon whom any process, notice or demand required or permitted by law to be
served upon the Corporation may be served.

ARTICLE II

PURPOSES

SECTION 1. Statutory Purposes

The Corporation is organized pursuant to the
governing statute, Section 439 of the Higher Education Act of 1965, as amended,
to serve as a secondary market and warehousing facility for student loans and
to undertake such other activities authorized by said Act or the Public Health
Service Act as may be necessary and appropriate to further the availability of
funds for postsecondary education and education facilities.

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<PAGE> 7
SECTION 2. Ancillary Purposes

The Corporation is further organized to engage in
such other related activities as are not prohibited and as the Board of
Directors shall from time to time determine to be in furtherance of its
statutory purpose.

ARTICLE III

BOARD OF DIRECTORS

SECTION 1. Powers

Except as otherwise provided in these By-laws, the
powers of the Corporation shall be exercised by the Board of Directors.
Pursuant to the governing statute, and in furtherance of the purposes expressed
therein, the Corporation by the Board of Directors shall have all powers
granted to it by its governing statute, as it may be amended from time to time,
and such other powers including but not limited to the power:

A. To have perpetual succession by its corporate name
until dissolved;

B. To sue and be sued, complain and defend, in its
corporate name and through its own counsel;

C. To adopt, alter and use the corporate seal, which
shall be circular in form and shall have inscribed thereon the name of the
Corporation, the year and fact of its creation by Act of Congress and the words
"Corporate Seal";

D. To lease, purchase, or otherwise acquire, own,
hold, improve, use, or otherwise deal in and with any property, real, personal,
mixed, or any interest therein, wherever situated;

E. To sell, convey, mortgage, pledge, lease, exchange
and otherwise dispose of its property and assets;

F. To enter into contracts, to execute instruments
and to incur liabilities, including but not limited to, obligations guaranteed
by the Secretary of Education or issued with the approval of the Secretary of
the Treasury, having such maturities and bearing such rate

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<PAGE> 8
or rates of interest as may be determined by the Board of Directors or such
committee of the Board of Directors, officer or officers as the Board of
Directors may by resolution stipulate, such obligations being redeemable at the
option of either the noteholder or the Corporation before maturity as the Board
of Directors may stipulate therein;

G. To lend money, to enter into purchase and lending
commitments including letters of credit, and to service, purchase or
repurchase, sell or resell, offer participations or pooled interests in, insure
or otherwise deal in, student loans, either insured or uninsured, or other
obligations issued for the purpose of financing or refinancing the
construction, reconstruction, renovation or purchase of educational and
training facilities and related equipment, instrumentation and furnishings at
prices and on terms and conditions determined by the Board of Directors or such
committee of the Board of Directors, officer or officers as the Board of
Directors may by resolution stipulate;

H. To conduct its business, carry on its operations,
and have officers and exercise the power granted by the governing statute in
any State without regard to any qualification or similar statute in any such
State;

I. To appoint such officers, attorneys, employees,
special consultants, advisors and agents as may be required, to determine their
qualifications, to define their duties, fix their compensation, require bonds
and fix the penalty thereof in the same manner;

J. To accept gifts or donations of services, or of
property, real, personal or mixed, tangible or intangible;

K. To pay pensions and establish pension plans,
pension trusts and profit sharing plans for any or all of its directors,
officers and employees; and

L. To do all things as are necessary or incidental to
the proper management of its affairs and the proper conduct of its business.

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<PAGE> 9
SECTION 2. Number and Type of Directors

The Board of Directors shall consist of those
directors appointed or elected as provided in Section 439 of Part B of Title IV
of the Higher Education Act of 1965, as amended. Each director shall hold
office for the term for which he is elected or appointed and until his
successor is elected or appointed and shall qualify.

SECTION 3. Vacancies

Any vacancy occurring in the Board of Directors
resulting from the death, resignation, removal or disqualification of any
elected director may be filled by the affirmative vote of a majority of the
remaining directors though they may constitute less than a quorum of the Board
of Directors.

Any vacancy occurring in the Board of Directors
resulting from the death, resignation, removal or disqualification of any
appointed director may be filled by appointment by the President of the United
States.

SECTION 4. Removal

Any elected director may be removed for cause by a
vote of two-thirds of the remaining directors in office and qualified,
providing that at least a majority of the elected directors shall consent to
such removal.

SECTION 5. Resignation

Any director may resign at any time upon written
notice to the President and Secretary of the Corporation. Any such resignation
shall take effect at the time specified therein or, if the time be not
specified, upon receipt thereof, and the acceptance of such resignation, unless
required by the terms thereof, shall not be necessary to make such resignation
effective.

SECTION 6. Regular Meeting

A regular meeting of the Board of Directors shall be
held, without other notice than these By-laws, immediately after, and at the
same place as, the annual meeting of the shareholders. All or any one or more
of the directors may participate in a meeting of the Board of

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<PAGE> 10
Directors by means of a conference telephone or similar communications
equipment by means of which all persons participating in such meeting can hear
each other. Participation in a meeting pursuant to such communications shall
constitute presence in person at such meeting. The minutes of any meeting of
the Board of Directors held by conference telephone or similar communications
equipment shall be prepared in the same manner as a meeting of the Board of
Directors held in person.

SECTION 7. Other Meetings

At least one other meeting of the Board of Directors,
but more if deemed appropriate, shall be held annually either within or without
the District of Columbia, at the call of the Chairman of the Board of
Directors, or upon his request, or upon the written request of a majority of
the directors. Meetings may be held by attendance in person at a place
prescribed or by use of a conference telephone or similar communications
equipment as provided in Section 6 of this Article. Notice shall be given to
all directors as to the time and manner of the meeting by the Secretary or by a
person calling the meeting by mail, postage prepaid, not later than the fifth
day before the meeting, or personally or by telecopy, telegraph or telephone
not later than the day before the meeting. If in writing and mailed, such
notice shall be deemed delivered when deposited in the United States mail,
properly addressed, with postage thereon prepaid. If notice be in writing and
by telegram, such notice shall be deemed to be delivered when the telegram is
delivered to the carrier. In all other cases such notice shall be deemed given
when actually received at the office or residence of the recipient.

SECTION 8. Waiver of Notice

The presence of a director at a meeting shall
constitute a waiver of notice of such meeting, except where a director attends
a meeting for the express purpose of objecting to the transaction of any
business because the meeting is not lawfully called or convened. A director may
execute a written waiver of notice either before or after a meeting. Neither
the business to be transacted at, nor the purpose of, any regular or other
meeting of the Board of Directors need be specified in the notice or waiver of
notice of the meeting.

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<PAGE> 11
SECTION 9. Quorum

A majority of the directors authorized by the
governing statute serving at the time of a meeting shall constitute a quorum
for the transaction of business, but if less than such majority are present at
any meeting of the Board of Directors, a majority of the directors present may
adjourn the meeting from time to time without further notice.

SECTION 10. Majority Vote

Except as otherwise provided in these By-laws, the
act of a majority of directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors.

SECTION 11. Assumption of Assent

Any director of the Corporation who is present at a
meeting of the Board of Directors at which any corporate action is taken shall
be presumed to have assented to the taking of such action unless his dissent
shall be entered in the minutes of the meeting, or unless he shall file his
written dissent to such action with a person acting as the secretary of the
meeting before the adjournment thereof or shall forward such dissent by
registered mail to the Secretary of the Corporation within ten days after the
adjournment of the meeting. Such right to dissent shall not apply to a director
who voted in favor of such action.

SECTION 12. Action Without a Meeting

Any action required to be taken by the Board of
Directors at a meeting, or by a committee of the Board of Directors at a
meeting, may be taken without a meeting, if a consent in writing, setting forth
the action so taken, is signed by a majority of the directors, or a majority of
the members of the committee, as the case may be. Such consent shall have the
same effect as a majority vote of the Board of Directors or committee, as the
case may be. Written notice of any action taken pursuant to this section by a
majority of the directors, or members of a committee, as the case may be,
shall, within ten days of such action, be given to all directors or members of
a committee not signing such action by written consent.

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<PAGE> 12
SECTION 13. Executive, Other Committees and Directors' Advisory Council

The Chairman of the Board, with the approval of a
majority of the Board of Directors may designate from among the members of the
Board of Directors an Executive Committee as provided in these By-laws, and one
or more other committees, each of which, to the extent provided in any
resolution designating such membership and in these By-laws shall have and may
exercise all the authority of the Board of Directors. No such committee shall
have the authority of the Board of Directors in reference to any powers
reserved to the full Board of Directors by the resolution or these By-laws.
Unless otherwise provided by the Board of Directors, a majority of any such
committee (or the member thereof, if only one) shall constitute a quorum for
the transaction of business, and the vote of a majority of the members of such
committee present at a meeting at which a quorum is present shall be the act of
such committee. Each committee shall keep a record of its acts and proceedings
and shall report thereon to the Board of Directors whenever requested so to do.
Any or all members of any such committee may be removed, with or without cause,
by resolution of the Board of Directors, passed by a majority of the whole
Board. All notice provisions and provisions regarding telephonic meetings with
respect to the Executive Committee set forth in these By-laws shall apply
equally to such other committees of the Board.

In addition, the Board of Directors may appoint a
Directors' Advisory Council to consist of such persons as the Board of
Directors may select, who shall not be, and shall not be deemed to be,
directors, officers or employees of the Corporation and whose functions shall
not include participation in the policy making or operating management of the
Corporation. The members of the Directors' Advisory Council shall meet
individually or as a body at such place and at such times as the Board of
Directors or the Chairman of the Board of Directors may from time to time
determine. The members of the Directors' Advisory Council shall be entitled to
such compensation as shall be fixed by resolution of the Board of Directors.
The Directors' Advisory Council shall consider, advise upon and make
recommendations to the Board of Directors and to the Chairman of the Board of
Directors with respect to matters relating to the general conduct of the
business of the

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<PAGE> 13
Corporation and with respect to such questions relating thereto as may be
submitted to it by the Board of Directors, the Executive Committee or the
Chairman of the Board of Directors. The members of the Directors' Advisory
Council shall be appointed annually at the regular meeting of the Board of
Directors held pursuant to Article Vl, Section 1 hereof and serve at the
pleasure of the Chairman of the Board of Directors. Additional members may be
appointed at any regular or special meeting of the Board of Directors to fill
vacancies which may arise from time to time.

SECTION 14. Conflicts of Interest

No contract or other transaction between the
Corporation and one or more of its directors or any other corporation, firm,
association or entity in which one or more of its directors are directors or
officers, or financially interested, shall be either void or voidable because
of such relationship or interest, or because such director or directors are
present at the meeting of the Board of Directors or a committee thereof which
authorizes, approves or ratifies such contract or transaction or because his or
their votes are counted for such purpose if:

A. The fact of such relationship or interest is
disclosed or known to the Board of Directors or committee which in good faith
authorizes, approves or ratifies the contract or transaction by a vote or
consent sufficient for the purpose without counting the votes or consents of
such interested directors; or

B. The fact of such relationship or interest is
disclosed or known to the shareholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by the
affirmative vote of the holders of a majority of shares; or

C. The contract or transaction is fair and reasonable
to the Corporation as of the time it is authorized, approved or ratified, by
the Board of Directors, a committee or the shareholders.

Common or interested directors may be counted in determining the presence of a
quorum at a meeting of the Board of Directors or a committee thereof which
authorizes, approves or ratifies such contract or transaction.

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<PAGE> 14
SECTION 15. Compensation

Each director shall be paid such compensation as may
be fixed from time to time by resolution of the Board of Directors, and each
director shall also be reimbursed for his travel and subsistence expenses
incurred while attending meetings of the Board of Directors or committees
thereof.

SECTION 16. Chairman and Vice Chairmen

The President of the United States shall appoint one
director to be Chairman of the Board of Directors, and the Board of Directors
shall meet at his call at such time and place as may be designated by him. The
Chairman shall preside over meetings of the Board of Directors.

The Chairman of the Board with the approval of a
majority of the Board of Directors shall appoint two Vice Chairmen, who shall
be representatives of the two classes of directors of which the Chairman is not
a representative, and who shall serve at the pleasure of the Board of Directors
until the next regular annual meeting of the Board of Directors described in
Section 6 of this Article following his appointment and until his successor has
been elected and qualified or until his successor has been appointed and
qualified. Either Vice Chairman of the Board of Directors shall act as
Chairman in the latter's absence and at any time when there is no incumbent
Chairman. If both Vice Chairmen are present, they shall act as Chairman by
order of their seniority on the Board of Directors.

ARTICLE IV

EXECUTIVE COMMITTEE

SECTION 1. Appointment

The Chairman of the Board with the approval of a
majority of the Board of Directors, may designate five or more of the members
of the Board of Directors, one of whom shall be the Chairman of the Board of
Directors, to constitute an Executive Committee. Each of the three groups of
directors shall be represented on the Executive Committee. The designation of
any such Commit-

9
<PAGE> 15

tee and the delegation thereto of authority shall not operate to relieve the
Board of Directors or any member thereof of any responsibility imposed by law.

SECTION 2. Powers

The Executive Committee, when the Board of Directors
is not in session, shall have and may exercise all of the authority of the
Board of Directors except to the extent, if any, that such authority shall be
limited by the resolution appointing the Executive Committee, and except also
that the Executive Committee shall not have the authority of the Board of
Directors to submit to shareholders any action requiring shareholders'
authorizations; remove any director; fill vacancies on the Board of Directors
or the Executive Committee; fix the compensation of directors for serving on
the Board of Directors or on the Executive Committee; amend or repeal these
By-laws or adopt new By-laws; declare dividends (unless specifically authorized
by resolution of this Board of Directors to do so); and amend or repeal any
resolution of the Board of Directors which by its terms are not amendable or
repealable by the Executive Committee.

SECTION 3. Tenure and Qualification

Each director who is designated by the Board of
Directors to become a member of the Executive Committee shall serve at the
pleasure of the Board of Directors and shall hold office until the next regular
annual meeting of the Board of Directors described in Article III, Section 6
hereof, following his designation and until his successors are elected and
qualified or until his successors have been appointed and qualified.

SECTION 4. Meetings

Regular meetings of the Executive Committee may be
held without notice and at such time and places as the Executive Committee may
fix from time to time by resolution. All or any one or more of the members of
the Executive Committee may participate in a meeting of the Executive Committee
by means of a conference telephone or similar communications equipment, by
means of which all persons participating in such meeting can hear each other.
Participation in a meeting pursuant to such communications shall constitute
presence in person

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<PAGE> 16

at such meeting. The minutes of any meeting of the Executive Committee held by
a conference telephone or similar communications equipment shall be prepared in
the same manner as a meeting of the Executive Committee held in person. Special
meetings of the Executive Committee may be called by the Chairman of the Board
of Directors or by a majority of the members of the Executive Committee upon
oral or written notice, including by telecopy, before such meeting, stating the
place, date and hour of the meeting. If in writing and mailed, notice shall be
deemed to be delivered when deposited in the United States mail with
first-class postage thereon prepaid, addressed to the member of the Executive
Committee at his business address. If in writing and by telegram, notice shall
be deemed delivered when the telegram is delivered to the carrier.

Any member of the Executive Committee may waive
notice of any meeting and no notice of any meeting need be given to any member
thereof who attends in person or by use of a conference telephone or similar
communications equipment. The notice of a meeting of the Executive Committee
need not state the purpose of, or business proposed to be transacted at, the
meeting.

SECTION 5. Quorum

A majority of the members of the Executive Committee
then qualified shall constitute a quorum for the transaction of business at any
meeting thereof.

SECTION 6. Majority Voting

Except as otherwise specified in the resolution
establishing the Executive Committee, the action of a majority of the members
present at a meeting at which a quorum is present shall be the act of the
Executive Committee.

SECTION 7. Vacancies

Any vacancy in the Executive Committee may be filled
by the Chairman of the Board with the approval of a majority of the Board of
Directors.

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<PAGE> 17

SECTION 8. Resignations and Removal

Any member of the Executive Committee may be removed
at any time with or without cause by resolution adopted by a majority of the
Board of Directors. Any member of the Executive Committee may resign from the
Executive Committee at any time by giving written notice to the Chairman of the
Board, President or Secretary of the Corporation, and acceptance of such
resignation shall not be necessary to make it effective.

SECTION 9. Procedure

The Chairman of the Board of Directors shall be
Chairman of the Executive Committee, and the Committee shall fix its own rules
of procedure, which shall not be inconsistent with these By-laws. It shall keep
regular minutes of the proceedings and report the same to the Board of
Directors for its information.

SECTION 10. Compensation

Each member of the Executive Committee shall be paid
a fee, to be fixed from time to time by resolution of the Board of Directors,
for attending each meeting of the Committee which is not held on the same day
and in the same city as a meeting of the Board of Directors, and each member of
the Committee shall also be reimbursed for his travel and subsistence expenses
while attending any such meeting.

ARTICLE V

OFFICERS AND EMPLOYEES

SECTION 1. Number and Type

The officers of the Corporation shall be a President,
one or more Vice Presidents (the number thereof to be determined by the Board
of Directors), a General Counsel, a Secretary, and a Treasurer, each of whom
shall be appointed by the Chairman of the Board of Directors subject to
confirmation by resolution of the Board of Directors. Such other officers and
assistant officers as may be deemed necessary may be appointed by the Chairman
subject to confirmation by resolution of the Board of

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<PAGE> 18

Directors. Any of the above offices may be held by the same person, except the
offices of President and Secretary.

SECTION 2. Appointment and Confirmation

The Board of Directors may provide for the election
or appointment of officers in such manner as the Board of Directors may
determine or delegate. The officers shall be appointed and confirmed annually
at the first meeting of the Board of Directors held after each annual meeting
of the shareholders. Each officer shall hold office until his successor shall
have been duly appointed and confirmed or until his death or until he shall
resign or shall have been removed in the manner hereinafter provided.

SECTION 3. Removal

Any officer may be removed, with or without cause, by
the Chairman of the Board of Directors, subject to the approval of the Board of
Directors. Appointment or confirmation of an officer shall not create contract
rights.

SECTION 4. Vacancies

A vacancy in an office because of death, resignation,
removal, disqualification or otherwise, may be filled by the Chairman of the
Board of Directors, subject to confirmation by the Board of Directors at the
meeting next following the appointment, for the unexpired portion of the term.

SECTION 5. The President

The President shall be the principal executive
officer of the Corporation and, subject to the control of the Board of
Directors, shall, in general, supervise and control all of the business and
affairs of the Corporation. He may sign, singly or with the Secretary or any
other proper officer of the Corporation authorized by the Board of Directors,
certificates for shares of the Corporation, any deeds, mortgages, bonds,
contracts, or other instruments which the Board of Directors has authorized to
be executed, except where the signing and execution thereof shall be expressly
delegated by the Board of

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<PAGE> 19

Directors to some other officer or agent of the Corporation, or shall be
required to be otherwise signed or executed, and, in general, shall perform all
duties incident to the office of President and such other duties as may be
prescribed by the Board of Directors from time to time.

SECTION 6. The Executive Vice President

In the absence of the President or in the event of
his death, inability, or refusal to act, the Executive Vice President (or in
the event there be more than one Executive Vice President, the Executive Vice
Presidents in the order designated at the time of their election) shall perform
the duties of the President, and when so acting, shall have all the powers of
and be subject to all the restrictions upon the President. Any Executive Vice
President may sign, with the Secretary or Assistant Secretary, certificates for
shares of the Corporation, and shall perform such other duties as from time to
time may be assigned to him by the President or by the Board of Directors.

SECTION 7. The Secretary

The Secretary shall (a) keep the minutes of the
shareholders' and the Board of Directors' meetings in one or more books
provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these By-laws; (c) be the custodian of the
corporate records and of the seal of the Corporation and see that the seal of
the Corporation is affixed to all documents the execution of which on behalf of
the Corporation under its seal is duly authorized; (d) keep a register of the
post office address of each registered shareholder which shall be furnished to
the Secretary by such shareholder; (e) sign with the President, or an Executive
Vice President, certificates for shares of the Corporation, the issuance of
which shall have been authorized by resolution of the Board of Directors; (f)
have general control of the stock transfer books of the Corporation; and (g) in
general, perform all duties incident to the office of Secretary and such other
duties as from time to time may be assigned to him by the President or by the
Board of Directors, and shall be authorized to designate such assistants from
among the officers or employees of the Corporation to assist in the performance
of any such duties.

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SECTION 8. The Treasurer

The Treasurer shall (a) have charge and custody of
and be responsible for all funds and securities of the Corporation, receive and
give receipts for monies due and to be payable to the Corporation from any
source whatsoever, and deposit all such monies in the name of the Corporation
in such banks, trust companies or other depositories as shall be selected in
accordance with a resolution of the Board of Directors; and (b) in general,
perform all of the duties incident to the office of the Treasurer and such
other duties as from time to time may be assigned to him by the President or by
the Board of Directors, and shall be authorized to designate such assistants
from among the officers or employees of the Corporation to assist in the
performance of any such duties.

SECTION 9. The General Counsel

The General Counsel shall (a) be the principal
consulting officer of the Corporation for all legal matters; (b) be responsible
for and direct all counsel, attorneys, employees and agents in the performance
of all legal duties and services for and on behalf of the Corporation; (c)
perform such other duties and have such other powers as are ordinarily incident
to the office of the General Counsel; and (d) perform such other duties as from
time to time may be assigned to him by the President or by the Board of
Directors.

SECTION 10. Assistant Treasurers

In the absence or inability to act of the Treasurer,
any Assistant Treasurer may perform all the duties and exercise all the powers
of the Treasurer. The performance of any such duty shall, in respect of any
other person dealing with the Corporation, be conclusive evidence of his or her
power to act. An Assistant Treasurer shall also perform such other duties as
the Treasurer or the Board of Directors may assign to him or her.

SECTION 11. Assistant Secretaries

In the absence or inability to act of the Secretary,
any Assistant Secretary may perform all the duties and exercise all the powers
of the Secretary. The

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<PAGE> 21

performance of any such duty shall, in respect of any other person dealing with
the Corporation, be conclusive evidence of his or her power to act. An
Assistant Secretary shall also perform such other duties as the Secretary or
the Board of Directors may assign to him or her.

SECTION 12. Compensation

The compensation of the officers shall be fixed from
time to time by the Board of Directors and no officer shall be prevented from
receiving such compensation by reason that he is also a director of the
Corporation.

SECTION 13. Bonds

If required by the Board of Directors, the Treasurer
and any other officer or employee specified by the Board of Directors shall
give a bond for the faithful discharge of his duties in such sum and with such
surety or sureties as the Board of Directors shall by resolution require.

SECTION 14. Employee Conduct

No officer or employee shall engage, directly or
indirectly, in any personal business transaction or private arrangement for
personal profit which accrues from or is based upon his official position or
authority or upon confidential information which he gains by reason of such
position or authority, and he shall reasonably restrict his personal business
affairs so as to avoid conflicts of interest with his official duties. No
officer or employee shall divulge confidential information to any unauthorized
person, or release any such information in advance of authorization for its
release, nor shall he accept, directly or indirectly, any valuable gift, favor
or service from any person with whom he transacts business on behalf of the
Corporation.

SECTION 15. Outside or Private Employment

No officer or employee shall have any outside or
private employment or affiliation with any firm or organization incompatible
with his concurrent employment by the Corporation, and he shall not accept or
perform any outside or private employment which the President

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<PAGE> 22

of the Corporation determines will interfere with the efficient performance of
his official duties. Any officer who intends to perform services for
compensation or to engage in any business shall report the intention to do so
to the President and to the General Counsel of the Corporation prior to such
acceptance or performance. Any employee who intends to perform such services or
engage in any business shall report the intention to do so to the General
Counsel or the General Counsel's designee.

ARTICLE VI

SHAREHOLDERS

SECTION 1. Annual Meeting

An annual meeting of shareholders entitled to vote,
for the purpose of selecting directors and transacting such other business as
may properly be brought before the meeting, shall be held either (a) on the
third Thursday in May of each year, unless such day is not a business day, in
which event the meeting shall be held on the next business day or (b) at such
other time and date, not more than thirteen months after the last preceding
annual meeting, as the Board of Directors shall designate. The annual meeting
shall be held at such time and place within or without the District of Columbia
as shall be fixed by the Board of Directors and as shall be designated in the
notice of such meeting. If the Board of Directors shall fail to designate a
place for the holding of the annual meeting, the place of the meeting shall be
the principal office of the Corporation. At such meeting, the shareholders, to
the extent they are entitled by the Higher Education Act of 1965, as amended,
and these By-laws to do so, may elect directors and transact other business
with the same force and effect as at an annual meeting duly called and held.

SECTION 2. Special Meetings

Special meetings of the shareholders shall be held
upon the call of either the Chairman or a majority of the directors of the
Corporation, and shall be called by the Chairman upon the written request of
holders of at least one-third of the shares of the Corporation having voting
power. A special meeting may be called for any purpose or purposes for which
shareholders may legally

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<PAGE> 23

meet, and shall be held, within or without the District of Columbia, at such
place as may be determined by the Chairman or a majority of the directors of
the Corporation, whichever shall call the meeting.

SECTION 3. Meeting Business

No business shall be brought before any meeting of
shareholders unless it has been properly brought before the meeting in
accordance with the procedures set forth in these By-laws; provided, however,
that nothing in this Section shall be deemed to preclude discussion by any
shareholder of any business properly brought before such meeting.

To be properly brought before an annual meeting, such
business must be either (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors (or
any duly authorized committee thereof), (b) otherwise properly brought before
the annual meeting by or at the direction of the Board of Directors (or any
duly authorized committee thereof), or (c) otherwise brought before the annual
meeting by any shareholder of the Corporation who is a shareholder of record on
the date of the giving of the notice provided for in Section 5 and on the
record date for the determination of shareholders entitled to vote at the such
annual meeting. To be properly brought before an annual meeting, such business
also must be a proper subject for action by shareholders, provided that the law
of Delaware (assuming for purposes of this determination that the Corporation
would be subject to the laws of Delaware) shall govern whether such business is
a proper subject for action by shareholders.

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<PAGE> 24

timely must be so received not later than the close of business on the tenth day
following the day on which such notice of the date of such annual meeting was
mailed or such public disclosure of the date of the annual meeting was made,
whichever first occurs. When a date is set for the determination of the
timeliness of a shareholder's notice, such date shall apply to any adjournment
of such meeting. To be in proper written form, a shareholder's notice to the
Secretary must set forth as to each matter such shareholder proposes to bring
before the annual meeting (a) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (b) the name and record address of such shareholder, (c)
the number of shares of the Corporation which are owned (beneficially or of
record) by such shareholder, (d) a description of all arrangements or
understandings between such shareholder and any other person or persons
(including their names) in connection with the proposal of such business by such
shareholder and any material interest of such shareholder in such business, and
(e) a representation that such shareholder intends to appear in person or by
proxy at the annual meeting to bring such business before the meeting. This
provision shall not prevent the consideration and approval or disapproval at the
annual meeting of the reports of officers and committees, but in connection with
such reports no new business shall be acted upon at such annual meeting unless
brought before the meeting in accordance with the procedures set forth in this
Section.

The business conducted at any special meeting of
shareholders shall be limited to the purposes stated in the notice of a special
meeting.

The Chairman shall determine the order of business
and the procedure at any shareholder meeting, including such regulation of the
manner of voting and the conduct of discussion as seem to the Chairman in order
and not inconsistent with these By-laws. If the Chairman determines that
business was not properly brought before the meeting in accordance with these
By-laws, the Chairman shall so declare and such business shall not be conducted.

Any shareholder of the Corporation who desires to
present a proposal in the Corporation's proxy statement and form of proxy
relating to the solicitation

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<PAGE> 25

of votes at an annual meeting of shareholders must follow the procedures
(including without limitation the 120 day prior notice requirement) set forth in
Rule 14a-8 adopted by the Securities and Exchange Commission (SEC) pursuant to
Section 14(a) of the Securities Exchange Act of 1934 (the "Exchange Act"), as
modified by the statement of the General Counsel dated June 1, 1995 (and any
subsequent modifications or replacements thereof), a copy of which shall be
available to any shareholder of record by contacting the Secretary of the
Corporation at the principal executive offices of the Corporation. All
references to the Exchange Act and any rules promulgated thereunder shall mean
such statute or such rules as amended and in effect from time to time, including
any successor statute or rules.

No action by shareholders shall be valid unless taken
at a duly constituted meeting pursuant to Section 1 or Section 2 of this
Article VI.

SECTION 4. Board of Directors Nominations

Only persons who are nominated in accordance with the
following procedures shall be eligible for election as directors at any annual
meeting of shareholders. Nominations of persons for election to the Board of
Directors may be made at any annual meeting of shareholders (a) by or at the
direction of the Board of Directors (or any duly authorized committee thereof),
or (b) by any shareholder of the Corporation who is a shareholder of record on
the date of the giving of the notice provided for in Section 5 and on the
record date for the determination of shareholders entitled to vote at such
annual meeting; provided, however, that all nominees must meet the
qualifications set forth in Section 439 of the Higher Education Act of 1965, as
amended.

In addition to any other applicable requirements, for
a nomination to be made by a shareholder, the shareholder must have given
timely notice thereof in proper written form to the Secretary of the
Corporation. To be timely, a shareholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation not
less than 60 nor more than 90 days prior to the date of such annual meeting;
provided, however, that in the event that less than 70 days' notice or prior
public disclosure of the date of the annual meeting

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<PAGE> 26

is given or made to shareholders, notice by the shareholder in order to be
timely must be so received not later than the close of business on the tenth day
following the day on which such notice of the date of such annual meeting was
mailed or such public disclosure of the date of the annual meeting was made,
whichever first occurs. When a date is set for the determination of the
timeliness of a shareholder's notice, such date shall apply to any adjournment
of such meeting. To be in proper written form, a shareholder's notice to the
Secretary must set forth (a) as to each person whom such shareholder proposes to
nominate for election as a director (i) the name, age, business address and
residence address of the person, (ii) the principal occupation or employment of
the person and the purported basis for such person's eligibility to serve on the
Board of Directors, if elected, (iii) the number of shares of the Corporation
which are owned beneficially or of record by the person and (iv) any other
information relating to the person that would be required to be disclosed in a
proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Exchange Act and the rules and regulations promulgated thereunder; and (b) as to
the shareholder giving the notice (i) the name and record address of such
shareholder, (ii) the number of shares of the Corporation which are owned
beneficially or of record by such shareholder, (iii) a description of all
arrangements or understandings between such shareholder and each proposed
nominee and any other person or persons (including their names) pursuant to
which the nomination(s) are to be made by such shareholder, (iv) a
representation that such shareholder intends to appear in person or by proxy at
the annual meeting to nominate the persons named in its notice and (v)
any other information relating to such shareholder that would be required to be
disclosed in a proxy statement or other filings required to be made in
connection with solicitations of proxies for election of directors pursuant to
Section 14 of the Exchange Act and the rules and regulations promulgated
thereunder. Such notice must be accompanied by a written consent of each
proposed nominee to being named as a nominee and to serve as a director if
elected.

If the Chairman determines that a nomination was not
properly brought before the meeting in accor-

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<PAGE> 27

dance with these By-laws, the Chairman shall so declare and such defective
nomination shall be disregarded.

SECTION 5. Notice

Written or printed notice stating the place, day and
hour of any meeting and, in the case of a special meeting, the purpose for
which the meeting is called, shall be delivered not less than 10 nor more than
60 days before the date of the meeting, either personally or by mail, by or at
the direction of the President, or the Secretary, or the officer or persons
calling the meeting, to each shareholder of record entitled to vote at such
meeting. If mailed, such notice shall be deemed to be delivered when deposited
in the United States mail with postage there on prepaid, addressed to the
shareholder at his address as it appears on the stock transfer books of the
Corporation or such other address as the shareholder has in writing instructed
the Secretary.

SECTION 6. Waiver of Notice

Attendance by a shareholder at a meeting of
shareholders, whether in person or by proxy, without objection to the notice or
lack thereof, shall constitute a waiver of notice of the meeting. Any
shareholder may either before or after the time of the meeting execute a waiver
of notice of such meeting.

SECTION 7. Record Date

For the purpose of determining shareholders entitled
to notice or to vote at any meeting of shareholders or any adjournment thereof,
or shareholders entitled to receive payment of any dividend, or in order to
make a determination of shareholders for any other proper purpose, the Board of
Directors shall fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than 60
days and in case of a meeting of shareholders not less than 10 days prior to
the date on which the particular action requiring such determination of
shareholders is to be taken. If the Board of Directors fails to designate such
a date, the date on which notice of the meeting is mailed or the date on which
the resolution of the Board of Directors declaring such dividends is adopted,
as the case may be, shall be the record date for such determination of
share-

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<PAGE> 28

holders. When a date is set for the determination of shareholders entitled to
vote at any meeting of shareholders, such determination shall apply to any
adjournment thereof.

SECTION 8. Voting Lists

The officer or agent having charge of the stock
transfer books for shares of the Corporation shall make a complete record of
the shareholders entitled to vote at each meeting of the shareholders or any
adjournment thereof, arranged in alphabetical order, with the address and the
number of shares held by each. Such record shall be produced and kept open at
the time and place of the meeting and shall be subject to inspection by any
shareholder during the whole time of the meeting for the purposes thereof.

SECTION 9. Quorum

A majority of the outstanding shares of the
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders. If less than a majority of
the outstanding shares are represented at a meeting, a majority of the shares
so represented may adjourn a meeting from time to time without further notice.
At such adjourned meeting at which a quorum shall be present or represented,
any business may be transacted which might have been transacted at the meeting
as originally notified. The shareholders present at a duly organized meeting
may continue to transact business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum. Shares of its
own stock belonging to the Corporation shall not be counted in determining the
total number of outstanding shares at any given time.

SECTION 10. Proxies

At all meetings of shareholders, a shareholder
entitled to vote may vote by proxy executed in writing by a shareholder or by
its duly authorized attorney-in-fact. Shares standing in the name of another
corporation may be voted by such officer, agent or proxy as the by-laws of such
corporation may prescribe, or, in the absence of such provision, as the board
of directors of such corporation may determine. All proxies shall be filed

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<PAGE> 29

with the Secretary of the Corporation before or at the time of the meeting, and
shall be revocable, if such revocation be in writing, until exercised. No proxy
shall be valid after eleven months from the date of its execution, unless
otherwise provided in the proxy.

The Board of Directors may solicit proxies from
shareholders to be voted by such person or persons as shall be designated by
resolution of the Board of Directors. The Corporation shall assume the expense
of solicitations undertaken by the Board of Directors.

Any solicitation of proxies by the Corporation shall
contain the names of all persons the Corporation proposes to nominate for
directorships to be filled at the next meeting, their business addresses, and a
brief summary of their business experience during the last five years. Each
proxy solicitation shall be accompanied or preceded by a copy of the most
recent annual report of the Corporation, which report, to the satisfaction of
the Board of Directors, shall reasonably represent the financial situation of
the Corporation as of the time of its preparation.

If a shareholder seeks to solicit proxies from any
other shareholder, the soliciting shareholder shall first notify the
Corporation in writing of the intent to make such solicitation and provide the
Corporation with a copy of the material to be sent to other shareholders.

If any shareholder entitled to vote at a meeting of
shareholders shall seek a list of shareholders for the purpose of soliciting
proxies from any other shareholders, the Corporation may at its option, either
(a) provide the soliciting shareholder with a complete and current list
containing the names of all shareholders of the Corporation entitled to vote at
such meeting and their addresses as they appear on the transfer books of the
Corporation or (b) mail such proxy solicitations on behalf of the soliciting
shareholders, upon being furnished the material to be mailed and the reasonable
cost of the mailing.

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SECTION 11. Organization

Meetings of the shareholders shall be presided over
by the Chairman of the Board of Directors, or if he is not present, by such of
the Vice Chairmen as provided in Section 15 of Article III of these By-laws, or
if neither the Chairman nor any of the Vice Chairmen is present, by a Chairman
to be chosen by holders of a majority of the shares entitled to vote who are
present in person or by proxy at the meeting. The Secretary of the Corporation
shall act as secretary of every meeting, and if the Secretary is not present,
the Chairman shall choose any person present to act as secretary of the
meeting.

SECTION 12. Voting of Shares

Except as provided in this Section, at every meeting
of the shareholders, every holder of common stock entitled to vote on a matter
coming before such meeting shall be entitled to one vote for each share of
common stock registered in its name on the stock transfer books of the
Corporation at the close of the record date.

At each election of directors, the Chairman of the
meeting shall inform the shareholders present of the persons appointed by the
President of the United States to be the appointed directors of the
Corporation.

Every holder of common stock entitled to vote for the
election of directors shall have the right to cast the number of votes that is
equal to the product of the number of shares owned by it multiplied by the
number of directors to be elected, and it may cast all such votes for one
person or may distribute them evenly or unevenly among any number of persons
not greater than the number of such directors to be elected, at its option.
Shares of its own stock belonging to the Corporation shall not be eligible to
vote on any matter.

Whenever directors are to be elected at a
shareholders meeting, they shall be elected by a plurality of the votes cast at
the meeting by the shareholders entitled to vote. Whenever any corporate
action, other than the election of directors, is to be taken by vote of
shareholders at a meeting, it shall, except as otherwise required by law
(including without limitation Section 439 of the Higher Education Act of 1965,
as amended) or by these By-laws, be authorized by a majority of the votes

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<PAGE> 31

cast at the meeting by the shareholders entitled to vote thereon.

SECTION 13. Inspectors of Votes

The Board of Directors, in advance of any meeting of
shareholders, may appoint one or more Inspectors of Votes to act at the meeting
or any adjournment thereof. In case any person so appointed resigns or fails to
act, the vacancy may be filled by appointment by the Chairman of the meeting.
The Inspectors of Votes shall determine all questions concerning the
qualification of voters, the validity of proxies, and the acceptance or
rejection of votes and, with respect to each vote by ballot, shall collect and
count the ballots and report in writing to the secretary of the meeting the
result of the vote. The Inspectors of Votes need not be shareholders of the
Corporation. No person who is an officer or director of the Corporation, or who
is a candidate for election as a director, shall be eligible to be an Inspector
of Votes.

ARTICLE VII

SHARES OF STOCK

SECTION 1. Issuance and Conditions

The Board of Directors shall have power in accordance
with the provisions of the governing statute to authorize the issuance of
voting common, non-voting common, and preferred shares of stock. The Board of
Directors may by resolution impose a stock purchase requirement as a
prerequisite to participation in any program of the Corporation. Any stock
purchase requirement shall not apply to any participant who is prohibited by
law from acquiring stock of the Corporation, provided such participant
undertakes to make such purchase when such legal restrictions are alleviated,
or to such otherwise eligible participants as the Board of Directors may by
resolution provide.

SECTION 2. Common Stock

The Corporation shall have voting common stock having
such par value as may be fixed by the Board of Directors. Each share of common
stock shall be entitled

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<PAGE> 32

to one vote, with rights of cumulative voting at all elections of directors.

Except as otherwise provided in these By-laws, the
powers, preferences and relative and other special rights and the
qualifications, limitations and restrictions applicable to all shares of common
stock shall be identical in every respect.

Except as provided in this Section, the common stock
shall be fully transferable, except that, as to the Corporation, it shall be
transferred only on the books of the Corporation.

SECTION 3. Reports of Beneficial Ownership

Any beneficial owner (as such term is defined in Rule
13d-3 under the Securities Exchange Act of 1934 (the "Exchange Act") of the
outstanding voting common stock shall furnish the Secretary of the Corporation
such statements of beneficial ownership of the voting common stock, and
amendments thereto, on such forms, in such time periods and in such manner as
would be required by Sections 13(d) and 13(g) of the Exchange Act and rules
thereunder if the voting common stock were an equity security of a class
registered under Section 12 of the Exchange Act. All references to the Exchange
Act and any rules promulgated thereunder shall mean such statute or such rules
as amended and in effect from time to time, including any successor statute or
rules.

Statements of beneficial ownership furnished to the
Corporation under this Section 3 shall be available to registered holders of
voting common stock upon written request and payment of any costs therefor, and
the Corporation shall assume no liability for the contents of such documents.

Each certificate representing shares of voting common
stock issued after July 23, 1992 shall bear a legend to the effect that
ownership of the voting common stock is subject to the reporting requirements
of Article VII, Section 3 of these By-laws.

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<PAGE> 33

SECTION 4. Dividends on Common Stock

To the extent that income is earned and realized, the Board of Directors may
from time to time declare, and the Corporation shall pay, dividends on the
common stock. No dividend shall be declared or paid on any share of common
stock at any time when any dividend is due on the shares of preferred stock and
has not been paid.

SECTION 5. Preferred Stock

The Corporation may issue shares of preferred stock
having such par value, and such other powers, preferences and relative and
other special rights, and qualifications, limitations and restrictions
applicable thereto, as may be fixed by the Board of Directors. Such shares shall
be freely transferable, except that, as to the Corporation, such shares shall be
transferred only on the books of the Corporation.

SECTION 6. Dividends, Redemption, Conversion of Preferred Shares

The holders of the preferred shares shall be entitled
to such rate of dividends and such shares shall be subject to such redemption
or conversion provisions as may be provided for at the time of issuance. Such
dividends shall be paid out of the net income of the Corporation, to the extent
earned and realized.

SECTION 7. Preference on Liquidation

In the event of any liquidation, dissolution, or
winding up of the Corporation's business, the holders of shares of preferred
stock shall be paid in full at par value thereof, plus all accrued dividends,
before the holders of the common stock receive any payment.

SECTION 8. Purchase of Own Shares

The Corporation shall have the right, pursuant to
resolution by the Board of Directors, to purchase, take, receive or otherwise
acquire its own shares, but purchases, whether direct or indirect, shall be
made only to the extent of unreserved and unrestricted earned or capital
surplus available therefor.

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<PAGE> 34

SECTION 9. Rights and Options to Acquire Shares

The Corporation may create and issue, pursuant to
resolution by the Board of Directors, rights or options entitling the holders
thereof to purchase from the Corporation shares of any class or classes of
shares. Such rights or options shall be evidenced in such manner as the Board
of Directors shall stipulate and shall be issued and become exercisable upon
such terms and conditions, for such duration and at such prices, subject to
the provisions of these By-laws governing consideration, as the resolution
shall provide.

SECTION 10. Consideration for Shares

The Corporation shall issue shares of stock for such
consideration, expressed in dollars, but not less than the par value thereof,
as shall be fixed from time to time by the Board of Directors. That part of the
surplus of the Corporation which is transferred to stated capital upon issuance
of shares as a share dividend shall be deemed to be the consideration for the
shares so issued.

The consideration for the issuance of shares may be
paid, in whole or in part, in cash or other property acceptable to the Board of
Directors, except that a promissory note shall not constitute payment or
partial payment for the issuance of shares of the Corporation.

SECTION 11. Stated Capital

The consideration received upon the issuance of any
share of stock shall constitute stated capital to the extent of the par value
of such shares, and the excess, if any, of such consideration shall constitute
capital surplus. The stated capital of the Corporation may be increased from
time to time by resolution of the Board of Directors directing that all or a
part of the surplus of the Corporation be transferred to stated capital. The
Board of Directors may direct that the amount of the surplus so transferred
shall be deemed to be stated capital in respect of any designated class of
shares.

The Board of Directors may by resolution from time to
time reduce the stated capital of the Corporation but only in the amount of the
aggregate par value of any shares of the Corporation which shall have been
reacquired and cancelled or to the extent of any reduction in the par value of
outstanding shares in accordance with

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<PAGE> 35

these By-laws. Any surplus created by virtue of a reduction of stated capital
shall be deemed to be capital surplus.

SECTION 12. No Preemptive Rights

No holder of the shares of the Corporation of any
class, now or hereafter authorized, shall as such holder have any preemptive or
preferential right to subscribe to, purchase, or receive any shares of the
Corporation of any class, now or hereafter authorized, or any rights or options
for any such shares or any rights or options to subscribe to or purchase any
such shares or other securities convertible into or exchangeable for or
carrying rights or options to purchase shares of any class or other securities,
which may at any time be issued, sold, or offered for sale by the Corporation
or subjected to the rights or options to purchase granted by the Corporation.

SECTION 13. Liability of Shareholders

A holder of shares of the Corporation shall be under
no obligation to the Corporation with respect to such shares other than the
obligation to pay to the Corporation the full consideration for which such
shares were or are to be issued.

Any person becoming a transferee of shares in good
faith and without notice or knowledge that the full consideration thereof had
not been paid shall not be personally liable to the Corporation for any unpaid
portion of such consideration.

ARTICLE VIII

CERTIFICATES FOR SHARES AND THEIR TRANSFER

SECTION 1. Certificates

The interest of each shareholder of the Corporation
shall be evidenced by certificates representing shares of stock of the
Corporation, certifying the number of shares represented thereby, and shall be
in such form not inconsistent with the governing statute of the Corporation as
the Board of Directors may from time to time prescribe.

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<PAGE> 36

The certificates of stock shall be signed by the
President or an Executive Vice President and by the Secretary or Assistant
Secretary and sealed with the corporate seal or an engraved or printed
facsimile thereof. The signatures of such officers upon a certificate may be
facsimile if the certificate is manually signed on behalf of a transfer agent
or a registrar other than the Corporation itself or one of its employees. In
the event that any officer who has signed or whose facsimile signature has been
placed upon such certificate shall have ceased to be such before such
certificate is issued, it may be issued by the Corporation with the same effect
as if such officer had not ceased to be such at the time of the issue.

Each certificate or share shall be consecutively
numbered or otherwise identified. The name and address of the person to whom
the shares represented thereby are issued, with the number of shares and date
of issue, shall be entered on the stock transfer books of the Corporation. All
certificates surrendered to the Corporation for transfer shall be cancelled,
and no new certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and cancelled, except that in the
case of a lost, destroyed or mutilated certificate, a new certificate may be
issued upon such terms and with such indemnity to the Corporation as the Board
of Directors may prescribe.

SECTION 2. Contents

Each certificate representing shares shall state the following:

A. That the Corporation is organized pursuant to an Act of Congress;

B. The name of the person to whom issued;

C. The number and class of shares, and the designation of the series, if any,
which such certificate represents;

D. The par value of each share represented by such certificate;

E. The provisions by which such shares may be redeemed; and

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<PAGE> 37

F. That the shares represented shall not have any preemptive rights to purchase
unissued or treasury shares of the Corporation.

Each certificate representing shares of preferred
stock shall state upon the face thereof the annual dividend rate for such
shares, and shall state upon the reverse side thereof the powers, preferences
and relative and other special rights, and the qualifications, limitations and
restrictions applicable to such shares of preferred stock.

No certificate shall be issued for any share until
such share is fully paid.

SECTION 3. Transfer

Transfer of shares of the Corporation shall be made
only on the stock transfer books of the Corporation by the holder of record
thereof or by his legal representative, who shall furnish proper evidence of
the authority to transfer, or by his attorney thereto authorized by power of
attorney duly executed and filed with the Secretary of the Corporation, and on
surrender for cancellation of the certificate for such shares.

The person in whose name shares stand in the books of
the Corporation shall be deemed by the Corporation to be the owner thereof for
all purposes.

SECTION 4. Lost, Stolen or Destroyed Certificates

The Corporation may issue a new stock certificate in
the place of any certificate theretofore issued by it, alleged to have been
lost, stolen or destroyed, and the Corporation may require the owner of the
lost, stolen or destroyed certificate or his or her legal representative to
give the Corporation a bond sufficient to indemnify it against any claim that
may be made against it on account of the alleged loss, theft or destruction of
any such certificate or the issuance of any such new certificate. The Board of
Directors may require such owner to satisfy other reasonable requirements.

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SECTION 5. Records

Except as otherwise provided by Article VI, Section
10 of these Bylaws, any shareholder of record, in person or by attorney or
other agent, shall, upon written demand under oath stating with reasonable
particularity the purpose thereof, have the right during the Corporation's
usual hours for business to inspect for any proper purpose the Corporation's
stock ledger, a list of its shareholders, and its other books and records, and
to make copies or extracts therefrom. A proper purpose shall mean a purpose
reasonably related to such person's interest as a shareholder and the records
requested shall be directly connected with such shareholder's stated purpose.
For purposes of determining whether a shareholder has demonstrated a proper
purpose, the law of Delaware (assuming for purposes of this determination that
the Corporation is subject to the laws of Delaware) shall govern. In every
instance where an attorney or other agent shall be the person who seeks the
right to inspection, the demand under oath shall be accompanied by a power or
attorney or such other writing which authorizes the attorney or other agent to
so act on behalf of the shareholder. The demand under oath shall be directed
to the Secretary of the Corporation at its principal executive offices and
shall be received by the Secretary at least five business days prior to the
date such inspection is requested.

ARTICLE IX

INDEMNIFICATION AND LIABILITY

SECTION 1. Indemnification in Third Party Actions

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tion, partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding, if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.

SECTION 2. Indemnification in Actions By or in the Right of the Corporation

The Corporation shall indemnify, to the extent
permitted by the Delaware General Corporation Law (as the same exists or may
hereinafter be amended) for a corporation subject to such law, any person who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the Corporation to
procure a judgment in its favor by reason of the fact that he is or was a
director, officer, or employee of the Corporation, or is or was serving at the
request of the Corporation as a member of the Directors' Advisory Council, the
Shareholder Advisory Council, or as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit, if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and only to the extent that
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such

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person is fairly and reasonably entitled to indemnity for such expenses which
such court shall deem proper.

SECTION 3. Indemnification in Cases of Successful Defense

To the extent that a director, officer, employee,
member of the Directors' Advisory Council, or member of the Shareholder
Advisory Council of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Sections
1 and 2 of this Article, or in defense of any claim, issue or matter therein,
he shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection therewith.

SECTION 4. Procedure

Any indemnification under Sections 1 and 2 of this
Article (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon determination that indemnification of the
director, officer, employee, member of the Directors' Advisory Council, or
member of the Shareholder Advisory Council is proper in the circumstances
because he has met the applicable standard of conduct set forth in Sections 1
and 2 of this Article. Such determination shall be made (a) by the Board of
Directors, or a duly designated committee thereof, by a majority vote of a
quorum consisting of directors who were not parties to such action, suit or
proceeding, or (b) if such a quorum is not obtainable or, even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (c) by the shareholders at the next meeting of
shareholders. In making a determination under this Article, the Board of
Directors or shareholders may rely, as to all questions of law, on the advice of
independent legal counsel.

SECTION 5. Advance Payments

Expenses (including attorneys' fees) incurred by an
officer, director, member of the Directors' Advisory Council, or member of the
Shareholder Advisory Council in defending any civil, criminal, administrative
or investigative action, suit or proceeding may be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding, provided
the Corporation

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approves in advance counsel selected by the director, officer, member of the
Directors' Advisory Council, or member of the Shareholder Advisory Council
(which approval shall not be unreasonably withheld), and upon receipt of an
undertaking by or on behalf of such director, officer, member of the Directors'
Advisory Council, or member of the Shareholder Advisory Council to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the Corporation as authorized in this Article. Such expenses
(including attorneys' fees) incurred by other employees of the Corporation may
also be paid upon such terms and conditions, if any, as the Corporation deems
appropriate.

SECTION 6. Other Rights to Indemnification

The indemnification and advancement of expenses
provided by or granted pursuant to the other sections of this Article shall not
be deemed exclusive of any other rights to which those seeking indemnification
or advancement of expenses may be entitled under any by-law, agreement, vote of
shareholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, but no person shall be entitled to indemnification by the Corporation
to the extent he is indemnified by any other party (other than a wholly-owned
subsidiary of the Corporation), including an insurer.

SECTION 7. Insurance

The Corporation may purchase and maintain insurance
on behalf of any person who is or was a director, officer, or employee of the
Corporation, or is or was serving at the request of the Corporation as a member
of the Directors' Advisory Council, the Shareholder Advisory Council, or as a
director or officer of another corporation, partnership, joint venture, trust
or other enterprise against any liability asserted against him and incurred by
him in any such capacity, or arising out of his status as such, whether or not
the Corporation would have the power to indemnify him against such liability
under this Article.

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SECTION 8. Indemnification After Merger or Consolidation

For purposes of this Article, references to "the
Corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed
in a consolidation or merger with the Corporation which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees, members of the Directors' Advisory Council, or
members of the Shareholder Advisory Council, so that any person who is or was a
director, officer, or employee of such constituent corporation, or is or was
serving at the request of such constituent corporation as a member of a
Directors' Advisory Council, as a member of the Shareholder Advisory Council,
or as a director or officer of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under this Article
with respect to the resulting or surviving corporation as he would have with
respect to such constituent corporation if its separate existence had
continued.

SECTION 9. Indemnification under Employee Benefit Plans

For purposes of this Article, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to any employee
benefit plan; and references to "serving at the request of the Corporation"
shall include any service as a director or officer of the corporation which
imposes duties on, or involves services by, such director, officer, member of
the Directors' Advisory Council, or member of the Shareholder Advisory Council
with respect to an employee benefit plan, its participants or beneficiaries; and
a person who acted in good faith and in a manner he reasonably believed to be in
the interest of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests of
the Corporation" as referred to in this Article.

SECTION 10. Heirs, Executors and Administrators

The indemnification and advancement of expenses
provided by, or granted pursuant to, this Article shall, unless otherwise
provided when authorized or ratified, continue as to a person who has ceased to
be a director, officer, employee, member of the Directors'

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Advisory Council, or member of the Shareholder Advisory Council and shall inure
to the benefit of the heirs, executors and administrators of such a person.

SECTION 11. Limitation of Liability

Directors, officers, members of the Directors'
Advisory Council, and members of the Shareholder Advisory Council of the
Corporation shall not be personally liable to the Corporation or to
shareholders for monetary damages for breach of fiduciary duty acting in their
respective capacities, provided, however, such limitation of liability shall
not apply to (a) any breach of the party's duty of loyalty to the Corporation
or its shareholders, (b) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, or (c) any transaction
from which the party derived an improper personal benefit. This provision
shall not limit the liability of any party for any act or omission occurring
prior to September 18, 1992.

ARTICLE X

FISCAL YEAR

The fiscal year of the Corporation shall begin on the
first day of January and end on the thirty-first day of December in each year.

ARTICLE XI

CONTRACTS, LOANS, CHECKS AND DEPOSITS

SECTION 1. Contracts

The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the Corporation, and such
authority may be general or confined to specific instances.

SECTION 2. Loans

No loans shall be contracted on behalf of the
Corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of

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the Board of Directors. Such authority may be general or confined to specific
instances.

SECTION 3. Checks, Drafts, etc.

All checks, drafts or other orders for the payment of
money, notes or other evidences of indebtedness issued in the name of the
Corporation shall be signed by such officer or officers, agent or agents, of
the Corporation and in such manner as shall from time to time be determined by
resolution of the Board of Directors.

SECTION 4. Deposits

All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositories as the Board of Directors may
select.

ARTICLE XII

FACSIMILE SIGNATURES

The Board of Directors may by resolution authorize
the use of facsimile signatures in lieu of manual signatures.

ARTICLE XIII

AMENDMENTS

These By-laws may be altered, amended or repealed and
new By-laws, consistent with the governing statute, may be adopted by the
majority vote of the Board of Directors.