PROSPECTUS SUPPLEMENT
(To Prospectus dated March 25, 1997)
$8,000,000
GATE(sm) RECEIVABLE ASSET-BACKED DEBT SECURITIES (GRADS(sm))
$5,250,000 7.45% CLASS A COLLATERALIZED STUDENT LOAN BONDS
SERIES 1997-S1
$2,750,000 8.25% CLASS B COLLATERALIZED STUDENT LOAN BONDS
SERIES 1997-S1
THE NATIONAL COLLEGIATE TRUST 1997-S1
The Class A Collateralized Student Loan Bonds, Series 1997-S1 (the
"Class A Bonds") have an aggregate initial principal amount of $5,250,000 and a
fixed interest rate per annum of 7.45% (the "Class A Interest Rate"). The Class
B Collateralized Student Loan Bonds, Series 1997-S1 (the "Class B Bonds";
together with the Class A Bonds, the "Bonds"), have an aggregate initial
principal amount of $2,750,000 and a fixed interest rate per annum of 8.25% (the
"Class B Interest Rate"). Interest on the Bonds will be payable semiannually on
the 20th day of each March and September or, if such 20th day is not a Business
Day, on the first Business Day thereafter (each, an "Interest Payment Date"),
commencing on September 20, 1997. Interest will be payable on the Bonds in an
amount equal to the interest accrued on the unpaid principal amount of Bonds
during the six-month period (or for the initial Interest Payment Date, the
period commencing with the Closing Date) ending on the last day preceding each
such Interest Payment Date. Principal on the Bonds will be payable semiannually,
pro rata among each Class
(COVER CONTINUED ON NEXT PAGE)
PROSPECTIVE INVESTORS SHOULD CONSIDER THE INFORMATION SET FORTH UNDER
"RISK FACTORS" ON PAGE S-8 OF THIS PROSPECTUS SUPPLEMENT AND
ON PAGE 11 OF THE ACCOMPANYING PROSPECTUS.
PROCEEDS OF THE ASSETS OF THE ISSUER ARE THE SOLE SOURCE OF PAYMENTS ON THE
BONDS. THE BONDS DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE DEPOSITOR
OR ANY OF ITS AFFILIATES. NEITHER THE BONDS NOR THE STUDENT LOANS ARE INSURED OR
GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
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 PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Underwriting Discounts Proceeds to
Price to Public and Commissions Issuer (1)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Class A Bond 96.390625% 1.2% 91.75253%
- -----------------------------------------------------------------------------------------------------------------------------
Per Class B Bond 95.3125% 2.0% 89.87614%
- -----------------------------------------------------------------------------------------------------------------------------
Total $7,681,602 $118,000 $7,288,602
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) After deducting expenses payable by the Issuer, estimated at $275,000,
including the payment of a Structural Advisory Fee to The First
Marblehead Corporation, the structural advisor to the Issuer, equal to
1.4% of the aggregate initial principal amount of the Bonds and the
payment of a Loan Origination Processing Fee to The First Marblehead
Corporation in the amount of $26,570. See "Summary of the Prospectus
Supplement--Depositor" herein and "The Depositor" in the Prospectus for
a further description of The First Marblehead Corporation.
BancAmerica Securities, Inc. (the "Underwriter") intends to make a secondary
market in the Bonds, but has no obligation to do so. There can be no assurance
that a secondary market for the Bonds will develop or, if it does develop, that
it will continue. The Bonds are offered by the Underwriter, subject to prior
sale, to withdrawal, cancellation or modifications of the offer without notice,
to receipt and acceptance by the Underwriter and to certain additional
conditions. It is expected that the Bonds will be delivered in book-entry form
through the same day funds settlement system of The Depository Trust System
against payment therefor in immediately available funds in New York, New York on
or about April 10, 1997.
BANCAMERICA SECURITIES, INC.
The date of this Prospectus Supplement is April 7, 1997.
<PAGE>
(COVER CONTINUED)
on the basis of the principal balance thereof, on the 20th day of each March and
September or, if such 20th day is not a Business Day, on the first Business Day
thereafter (each, a "Principal Payment Date"), commencing (i) with respect to
the Class A Bonds, on September 20, 2000 and (ii) with respect to the Class B
Bonds, following the payment in full of the Class A Bonds (which initially may
be the same Principal Payment Date on which the Class A Bonds are paid in full).
The Stated Maturity Date for the Bonds will be on the Interest Payment Date in
September 2013, the latest scheduled maturity date of the Student Loans pledged
to secure the Bonds. However, the actual payment in full of the Bonds could
occur sooner than the Stated Maturity, as provided herein.
It is a condition to issuance that the Class A Bonds and the Class B
Bonds offered hereby be rated not lower than "Aa2" and "Baa2" respectively, by
Moody's Investors' Service, Inc. See "Rating" herein.
The Bonds will be collateralized by a pool of loans (the "Student
Loans") to students at the educational institutions identified herein (the
"Owner Participants") purchased by The National Collegiate Trust 1997-S1 (the
"Issuer") directly from the Originators simultaneously with the closing for the
sale of the Bonds. As of April 10, 1997 (the "Closing Date"), the outstanding
principal balance of the Student Loans is expected to be $6,484,747. The pool of
Student Loans will be pledged by the Issuer to State Street Bank and Trust
Company (the "Indenture Trustee") for the benefit of the holders of the Bonds
(the "Bondholders").
The Student Loans were originated by the Originators identified herein
in connection with the Guaranteed Access to Education ("GATE(sm)") Student Loan
Program established by The National Collegiate Trust, a Delaware business trust,
which was the initial depositor (the "Depositor") of the Issuer. The Student
Loans were made to full-time students to provide financing for the costs of
attending the educational institutions that are the Owner Participants in the
Issuer and for certain other expenses in connection therewith. The Student Loans
will be serviced by the Pennsylvania Higher Education Assistance Agency (the
"Servicer"), subject to the requirements set forth herein and in the
accompanying Prospectus.
On the Closing Date, the Indenture Trustee will apply approximately
$2,445,000 from the proceeds of the sale of the Bonds to acquire a portfolio of
Eligible Investments that will return payments of principal and interest so that
on each Interest Payment Date during the period commencing on the Closing Date
and ending on September 20, 2000 (the "Interest Support Period"), an amount
equal to the applicable Interest Support Payment is available from the proceeds
of such Eligible Investments. The "Interest Support Payment" with respect to
each Interest Payment Date during the Interest Support Period is equal to (a)
all accrued interest on the Bonds together with expenses of the Issuer to be
paid on such date minus (b) funds in the Collateral Proceeds Account, if any,
available to pay the amount determined in clause (a) hereof. During a student's
full-time enrollment at the Participating Institution, payment of accrued
interest will be deferred unless the borrower elects otherwise. All accrued and
unpaid interest will be capitalized, to the extent permitted by law, upon the
termination of the student's enrollment and will be repaid by the borrower as
part of the principal balance of the related Student Loan. Assuming that the
student graduates on the expected graduation date of such student's entering
class, the borrower will be responsible for the payment of interest only during
the next five years (the "Interest Only Period"). Amortization of the principal
of a Student Loan, subject to permitted additional deferrals or forbearances
under certain circumstances, will begin after the end of the Interest Only
Period and continue for the next eight years. See "The GATE(sm) Student Loan
Program--The GATE(sm) Student Loans" in the Prospectus.
The yield to maturity on the Bonds will be affected by, among other
things, the rate and timing of principal payments (including prepayments,
defaults and liquidations) on the Student Loans and the timing of receipt of
such payments. See "Certain Yield and Prepayment Considerations" herein and
"Yield Considerations" in the Prospectus.
THE PROSPECTUS THAT ACCOMPANIES THIS PROSPECTUS SUPPLEMENT CONTAINS
IMPORTANT INFORMATION REGARDING THIS OFFERING THAT IS NOT CONTAINED HEREIN, AND
PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THE PROSPECTUS AND THIS PROSPECTUS
SUPPLEMENT IN FULL TO OBTAIN MATERIAL INFORMATION CONCERNING THE BONDS. SALES OF
THE BONDS MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THE
PROSPECTUS AND THIS PROSPECTUS SUPPLEMENT.
-----------
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE BONDS, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
-----------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
BONDS, INCLUDING BY ENTERING STABILIZING BIDS AND PURCHASING THE BONDS TO COVER
ANY SHORT POSITION IN THE BONDS MAINTAINED BY THE UNDERWRITER, DURING AND AFTER
THE OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
ii
<PAGE>
SUMMARY OF PROSPECTUS SUPPLEMENT
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT AND IN
THE ACCOMPANYING PROSPECTUS. CERTAIN CAPITALIZED TERMS USED IN THIS SUMMARY MAY
BE DEFINED ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT OR IN THE PROSPECTUS. A
"GLOSSARY OF PRINCIPAL TERMS" IS INCLUDED AT THE END OF THE PROSPECTUS. TERMS
THAT ARE USED BUT NOT DEFINED IN THIS PROSPECTUS SUPPLEMENT WILL HAVE THE
MEANINGS SPECIFIED IN THE PROSPECTUS.
SECURITIES OFFERED.................. 7.45% Class A Collateralized Student Loan
Bonds, Series 1997-S1 and 8.25% Class B
Collateralized Student Loan Bonds, Series
1997-S1, issued pursuant to an indenture
(the "Indenture"), between the Owner
Trustee (as defined herein), as trustee
for the Issuer, and the Indenture Trustee.
The Bonds will be issued in minimum
denominations of $25,000 and multiples of
$1,000 in excess thereof. See "Description
of the Bonds" and "Description of the
Indenture" herein and "Description of the
Indenture" in the Prospectus.
ISSUER ........................... The National Collegiate Trust 1997-S1, a
trust established by the Depositor for the
sole purpose of acquiring, owning, holding
and pledging the Student Loans and issuing
and selling the Bonds. The Issuer will
have no significant assets other than the
Trust Estate pledged as collateral for the
Bonds. See "The Issuer" in the Prospectus.
DEPOSITOR........................... The National Collegiate Trust, a Delaware
business trust, owned by NCT Holdings,
Inc., a Delaware corporation and a
wholly-owned subsidiary of The First
Marblehead Corporation. The registered
office of the Depositor is c/o Delaware
Trust Capital Management, Inc., 900 Market
Street, Wilmington, Delaware 19801. The
First Marblehead Corporation will receive
a Structural Advisory Fee and a Loan
Origination Processing Fee, as set forth
on the cover page of this Prospectus
Supplement, from the Issuer upon the
issuance and sale of the Bonds. See "The
Depositor" in the Prospectus.
SERVICER ........................... The Pennsylvania Higher Education
Assistance Agency, a public corporation
and a governmental instrumentality of the
Commonwealth of Pennsylvania. The primary
compensation of the Servicer for servicing
the Student Loans will be a monthly fee
(the "Servicing Fee") set forth herein.
See "The Servicer" and "The
Servicer--Servicing Compensation" herein
and "The Servicer" in the Prospectus.
INDENTURE TRUSTEE................... State Street Bank and Trust Company, a
Massachusetts trust company. See
"Description of the Indenture--The
Indenture Trustee" herein.
OWNER TRUSTEE....................... Delaware Trust Capital Management, Inc., a
Delaware trust company acting as trustee
for the Depositor and for the Issuer. See
"The Owner Trustee" herein.
ADMINISTRATOR....................... First Marblehead Data Services Inc., a
Delaware corporation. See "The
Administrator" herein and in the
Prospectus.
S-1
<PAGE>
ORIGINATORS......................... The First National Bank of Boston with
respect to the Student Loans originated by
The First National Bank of Boston ("FNBB")
and Bank of America National Association
("BANA") with respect to Student Loans
originated by BANA. See "The Originators"
herein and in the Prospectus and
"Description of the Student Loans" herein.
CLOSING DATE........................ April 10, 1997.
DESCRIPTION OF THE
BONDS.......................... The Bonds will be issued pursuant to an
Indenture, to be dated as of April 1,
1997, between the Owner Trustee, as
trustee for the Issuer, and the Indenture
Trustee, as trustee for the Bondholders.
Each class of Bonds will initially be
represented by one or more certificates
registered in the name of CEDE & Co., the
nominee of The Depository Trust Company
("DTC"), and will only be available in the
form of book-entries on the records of
DTC, DTC Participants and Indirect DTC
Participants for the benefit of the Bond
Owners. The Bonds will be issued in
definitive form only under the limited
circumstances described in the Prospectus.
See "Risk Factors--Difficulty in Pledging"
and "--Potential Delays in Receipt of
Distributions" herein and "Risk Factors"
and "Description of the
Indenture--Book-Entry Registration and
Definitive Bonds" in the Prospectus.
A. INTEREST................... The Class A Bonds will bear a fixed
interest rate equal to 7.45% per annum.
The Class B Bonds will bear a fixed
interest rate equal to 8.25% per annum.
Interest on the Bonds will be payable
semiannually on the 20th day of each March
and September or, if such 20th day is not
a Business Day, on the first Business Day
thereafter (each, an "Interest Payment
Date"), commencing on September 20, 1997.
Interest is payable on the Bonds in an
amount equal to the interest accrued on
the unpaid principal amount of the Bonds
during the six-month period (or, for the
initial Interest Payment Date, the period
commencing with the Closing Date) ending
on the last day preceding each such
Interest Payment Date (each such period,
the "Interest Accrual Period"). See
"Description of the Bonds--Payments of
Interest" herein and in the Prospectus.
B. PRINCIPAL.................. Principal payments on the Bonds will be
payable semiannually on each class of
Bonds, pro rata among each Class on the
basis of the principal balance thereof, on
the 20th day of each March and September
or, if such 20th day is not a Business
Day, on the first Business Day thereafter
(each, a "Principal Payment Date" and
together with the related Interest Payment
Date, a "Payment Date"), commencing (a)
with respect to the Class A Bonds, on
September 20, 2000, and (b) with respect
to the Class B Bonds, after retirement in
full of the Class A Bonds, from all
amounts on deposit in the Reserve Fund,
less the Interest Reserve Amount, and,
thereafter, in an aggregate amount equal
to the sum (net of the Servicing Fee) of:
(i) all monthly interest collected with
respect to the Student Loans during the
six-month period ending on the 15th day of
the calendar month in which the related
Payment Date occurs (each such period, a
"Collection Period") in excess of the
S-2
<PAGE>
amount needed to make the interest payment
on the Bonds and to pay certain expenses
on such Principal Payment Date; (ii) all
monthly principal collected with respect
to the Student Loans during the related
Collection Period together with any and
all prepayments received with respect to
the Student Loans during the Collection
Period; (iii) net liquidation proceeds
related to defaulted Student Loans
received during the Collection Period,
including late payment charges on the
Student Loans, if any; (iv) reinvestment
income deposited in the Collateral
Proceeds Account during the Collection
Period; and (v) funds in the Reserve Fund
in excess of the Interest Reserve Amount
and less payment of certain expenses. See
"Description of the Bonds--Payment of
Principal" herein and in the Prospectus.
C. STATED MATURITY............ September 20, 2013. However, the actual
date on which payment in full may be made
on the Bonds may be earlier than the
Stated Maturity date due to, among other
factors, principal prepayments on the
Student Loans. No assurance can be given
as to the actual maturity date of the
Bonds or the payment experience of the
Student Loans or the Bonds. See "Certain
Yield and Prepayment Considerations"
herein and "Risk Factors--Average Life of
Bonds; Prepayments; Yields" and "Yield
Considerations" in the Prospectus.
D. OPTIONAL REDEMPTION........ The Issuer will have the right, at its
option, to redeem (i) the Class B Bonds,
at a redemption price of 100% of their
unpaid principal amount, plus accrued
interest in whole, on any date on which
the Aggregate Current Principal Amount of
all Bonds outstanding has declined to 10%
or less of their initial Aggregate Current
Principal Amount, (ii) the Class A Bonds
and upon their retirement, the Class B
Bonds on any Payment Date prior to the
first Principal Payment Date, in an amount
equal to any principal prepayments on the
Student Loans collected by the Servicer
during the Collection Period, and (iii)
the Class A Bonds and the Class B Bonds,
pro rata among each Class, during the
60-day period following the Closing Date,
in an amount not to exceed 5% of the
Aggregate Current Principal Amount of the
Bonds at a price equal to 100% of their
unpaid principal amount, plus accrued
interest. See "Description of the
Bonds--Optional Redemption" in the
Prospectus.
TRUST ESTATE........................ The collateral pledged by the Issuer to
the Indenture Trustee, for the exclusive
benefit of the Bondholders, as security
for the bonds consisting primarily of the
Student Loans and the Collateral Proceeds
Account, the Reserve Fund and the Interest
Support Account (including all income from
investments of funds in each of such
accounts).
USE OF PROCEEDS..................... The net proceeds from the sale of the
Bonds, as set forth on the cover of this
Prospectus Supplement, will be used by the
Issuer to acquire the Student Loans at a
discount directly from the Originators
simultaneously with the closing of the
sale of the Bonds. See "Use of Proceeds"
herein and in the Prospectus.
S-3
<PAGE>
THE STUDENT LOANS .................. As of the Closing Date, 2,657 GATE(sm)
Student Loans, with an aggregate initial
principal amount of $6,484,747 will be
acquired directly by the Issuer from the
Originators. None of the Student Loans
will be secured by any assets of the
borrowers, nor will the Student Loans be
guaranteed by any entity.
2,595 Student Loans, with an initial
principal amount of $6,339,000 were
originated by The First National Bank of
Boston, and 62 Student Loans, with an
initial principal amount of $145,747 were
originated by BANA.
8 GATE(sm) Student Loans, with an
aggregate initial principal amount of
$21,598 were originated as of September 5,
1996; 29 Student Loans, with an aggregate
initial principal amount of $107,572 were
originated as of October 5, 1996; 430
Student Loans, with an aggregate initial
principal amount of $1,686,114 were
originated as of November 5, 1996; 103
Student Loans, with an aggregate initial
principal amount of $248,131 were
originated as of December 5, 1996; 1,086
Student Loans, with an aggregate initial
principal amount of $2,028,485 were
originated as of January 6, 1997; 865
Student Loans, with an aggregate initial
principal amount of $2,193,899 were
originated as of February 5, 1997; 136
Student Loans, with an aggregate initial
principal amount of $198,948 were
originated as of March 5, 1997; and all of
the Student Loans are scheduled to mature
between September 1, 2010 and September 1,
2013.
The Student Loans will conform to the
description herein and in "The GATE(sm)
Student Loan Program" in the Prospectus.
The Student Loans in the Trust Estate are
expected to have the following additional
characteristics as of the Closing Date
(percentages of the Student Loans are as
of the aggregate initial principal amount
of the Student Loans):
(i) a weighted average interest rate of
9.185% per annum;
(ii) an average principal amount of
approximately $2,441; and
(iii) a weighted average original term to
scheduled maturity of approximately
187 months.
For additional discussion of the Student
Loans, see "Description of the Student
Loans" herein.
COLLATERAL PROCEEDS ACCOUNT......... All amounts collected on the Student
Loans, net of the Servicing Fee, will be
remitted to a trust account or accounts
(collectively, the "Collateral Proceeds
Account"), to be established by the
Indenture Trustee for the benefit of the
Bondholders. All funds deposited in the
Collateral Proceeds Account during the
related Collection Period, together with
the reinvestment earnings thereon, will be
available for application to the payment
of principal and/or interest on the Bonds
on the next Payment Date; provided,
however, that if there is a shortfall in
the Interest Reserve Amount
S-4
<PAGE>
on any Payment Date, such amount as is
necessary to fund such shortfall will be
deposited in the Reserve Fund prior to any
payment of principal on the Bonds.
On each Payment Date, the Trustee will
apply all amounts held in the Collateral
Proceeds Account and the Reserve Fund in
excess of the Interest Reserve Amount,
FIRST, to the Class A Bonds for the
payment of accrued interest on the Class A
Bonds at the Class A Interest Rate;
SECOND, to the Class B Bonds for the
payment of accrued interest on the Class B
Bonds at the Class B Interest Rate, THIRD,
to the payment of any shortfall in the
Interest Reserve Amount for the related
Interest Accrual Period (provided that, if
after giving effect to all payments of
interest and principal on the Bonds on
such Payment Date, the Interest Reserve
Amount equals or exceeds the Aggregate
Current Principal Amount of the
Outstanding Bonds, then the Bonds will be
immediately due and payable); FOURTH, to
the payment of any unpaid amount due the
Indenture Trustee pursuant to the
Indenture; FIFTH, to the payment of any
unpaid amount due any firm of independent
accountants pursuant to the related
Indenture; SIXTH, to the payment of any
unpaid amount due the Owner Trustee of the
Issuer pursuant to the Trust Agreement
between the Owner Trustee and the Owner
Participants; SEVENTH, to the payment of
any unpaid amount due the Administrator
pursuant to the Administration Agreement;
EIGHTH, on each Principal Payment Date, to
the Class A Bonds for the payment of any
unpaid principal amount of the Class A
Bonds; NINTH, on each Principal Payment
Date following payment in full of the
Class A Bonds (which initially may be the
same Principal Prepayment Date on which
the Class A Bonds are paid in full), to
the Class B Bonds for the payment of any
unpaid principal amount of the Class B
Bonds, and TENTH, if such Payment Date is
not a Principal Payment Date, any
remaining amounts in the Collateral
Proceeds Account will be deposited in the
Reserve Fund.
Any amounts remaining in the Collateral
Proceeds Account immediately following
retirement of the Bonds in full and
payment of any unpaid administrative fees
and expenses will be paid to the Issuer.
See "Description of the Bonds--Collateral
Proceeds Account" herein.
RESERVE FUND........................ The Indenture Trustee will establish and
maintain a reserve fund (the "Reserve
Fund") for the benefit of holders of the
Bonds. On the Closing Date the Indenture
Trustee will apply approximately $255,000
from the proceeds of the sale of the Bonds
to acquire a U.S. Treasury security (that
is an Eligible Investment) that will
return payments of principal and interest
so that on September 20, 2000, the
Interest Reserve Amount for the Interest
Accrual Period commencing on such date
will be available from the proceeds of
such Eligible Investment. All funds
remaining in the Collateral Proceeds
Account on each Payment Date commencing
with the initial Payment Date and ending
on, but including, the Payment Date on
September 20, 2000, after making all
payments due on the Bonds on such Payment
Dates, shall be deposited in the Reserve
Fund. On each Payment Date thereafter,
upon the payment of all
S-5
<PAGE>
interest accrued and owing on the Bonds,
any remaining funds in the Collateral
Proceeds Account will be deposited in the
Reserve Fund, to the extent necessary, so
that the amount therein will equal the
amount of interest payable on the Bonds on
the next succeeding Payment Date (the
"Interest Reserve Amount"). If after
giving effect to all payments of interest
and principal on the Bonds on such Payment
Date, the Interest Reserve Amount equals
or exceeds the original principal amount
of the Bonds, minus all prior payments, if
any, made with respect to principal of the
Bonds (the "Aggregate Current Principal
Amount"), then the Bonds will be
immediately due and payable. Amounts held
in the Reserve Fund will be available to
meet debt service requirements on the
Bonds payable on any Payment Date, to the
extent necessary, if insufficient amounts
are held in the Collateral Proceeds
Account. See "Description of the
Bonds--Reserve Fund" herein.
INTEREST SUPPORT ACCOUNT............ The Indenture Trustee will establish and
maintain an interest support account (the
"Interest Support Account") for the
benefit of the holders of the Bonds. On
the Closing Date, the Indenture Trustee
will apply approximately $2,445,000 from
the proceeds of the sale of the Bonds to
acquire a portfolio of U.S. Treasury
securities (that are Eligible
Investments), that will return payments of
principal and interest so that on each
Interest Payment Date during the period
commencing on the Closing Date and ending
on September 20, 2000 (the "Interest
Support Period"), an amount equal to the
applicable Interest Support Payment is
available from the proceeds of such
Eligible Investments. The Indenture
Trustee will deposit the proceeds from the
Eligible Investments in the Interest
Support Account. The "Interest Support
Payment" with respect to each Interest
Payment Date during the Interest Support
Period, is equal to (a) all accrued
interest on the Bonds together with
expenses of the Issuer to be paid on such
date minus (b) funds in the Collateral
Proceeds Account, if any, available to pay
the amount determined in clause (a)
hereof. On each Interest Payment Date
during the Interest Support Period, the
Indenture Trustee will withdraw the
related Interest Support Payment from the
Interest Support Account and deposit such
Interest Support Payment in the Collateral
Proceeds Account. See "Description of the
Bonds-The Interest Support Account"
herein.
CERTAIN FEDERAL INCOME
TAX CONSEQUENCES............... Upon the issuance of the Bonds, Thacher
Proffitt & Wood, counsel to the Issuer,
will deliver its opinion generally to the
effect that, under the law in effect on
the date thereof, and assuming compliance
with the Indenture and related documents,
for federal income tax purposes: (i) the
Bonds will constitute indebtedness of and
not equity interests in the Issuer or in a
separate association taxable as a
corporation and (ii) the Issuer will not
be classified as an association taxable as
a corporation. Prospective investors
should be aware, however, that the Issuer
will not seek any ruling from the Internal
Revenue Service on the federal income tax
characterization of the Bonds or the
classification of the Issuer and opinions
of counsel are not binding on the Internal
Revenue Service
S-6
<PAGE>
or the courts. See "Certain Federal Income
Tax Consequences" herein and in the
Prospectus.
The Class A Bonds and the Class B Bonds
will be treated as having been issued with
original issue discount for federal income
tax reporting purposes. In addition, a
purchaser of a Bond with market discount
generally will be subject to the market
discount rules of the Code. The prepayment
assumption with respect to the Student
Loans used in determining the rate of
accrual of market discount, if any, for
federal income tax purposes will be that
the Student Loans will not be prepaid. No
representation is made that the Student
Loans will not prepay or that they will
prepay at any other rate. See "Certain
Federal Income Tax Consequences--Taxation
of Owners of Bonds--Market Discount" in
the Prospectus.
ERISA CONSIDERATIONS................ The terms of the offering do not generally
restrict the issuance or subsequent
transfer of Bonds to employee benefit
plans that are subject to the Employee
Retirement Income Security Act of 1974, as
amended ("ERISA") or section 4975 of the
Code. Fiduciaries of a plan considering an
investment in the Bonds should carefully
review with their legal advisors whether
the purchase or holding of Bonds would be
restricted by the application of ERISA or
section 4975 of the Code to such plan.
See, "ERISA Considerations".
RATING ........................... It is a condition of issuance that the
Class A Bonds be rated not lower than
"Aa2" and the Class B Bonds be rated not
lower than "Baa2" by Moody's Investors
Service, Inc. (the "Rating Agency"). A
security rating is not a recommendation to
buy, sell or hold securities and may be
subject to revision or withdrawal at any
time by the assigning rating organization.
A security rating does not address the
frequency of prepayments of Student Loans,
or the corresponding effect on yield to
investors. See "Rating" herein and in the
Prospectus.
S-7
<PAGE>
RISK FACTORS
Prospective purchasers of Bonds should consider, among other things,
the following risk factors (as well as the risk factors set forth under "Risk
Factors" in the Prospectus) in connection with an investment therein.
DIFFICULTY IN PLEDGING
Since transactions in the Bonds can be effected only through DTC, DTC
Participants and DTC Indirect Participants, the ability of a Bond Owner to
pledge a Bond to persons or entities that do not participate in the DTC system,
or otherwise take actions in respect of such Bonds, may be limited due to a lack
of a physical certificate representing such Bond. See "Description of the
Indenture--Book-Entry Registration and Definitive Bonds" in the Prospectus.
POTENTIAL DELAYS IN RECEIPT OF DISTRIBUTIONS
Bond Owners may experience some delay in their receipt of distributions
on the book-entry Bonds since such distributions will be forwarded by the
Trustee to DTC and DTC will credit such distributions to the accounts of the DTC
Participants which will thereafter credit them to the accounts of Bond Owners
either directly or indirectly through Indirect DTC Participants. See
"Description of the Indenture--Book-Entry Registration and Definitive
Certificates" in the Prospectus.
LIMITED LIQUIDITY
There is, and at issuance there will be, no market for the Bonds, and
there can be no assurance that a secondary market will develop or, if it does
develop, that it will provide holders with liquidity of investment or will
continue for the life of the Bonds. Any such secondary market may provide less
liquidity to investors than any comparable market for securities that evidence
interests in student loans. In addition, the market value of the Bonds will
fluctuate with changes in prevailing rates of interest. Consequently, sale of
the Bonds by a holder in any secondary market that may develop may be at a
discount from 100% of their original principal balance or from their purchase
price. Furthermore, secondary market purchasers may look only hereto and to the
reports to Bondholders delivered pursuant to the Indenture as described herein
under the heading "Description of the Bonds--Reports to Bondholders" for
information concerning the Bonds. Except to the extent described herein,
Bondholders will have no redemption rights and the Bonds are subject to early
retirement only under certain specified circumstances described herein. The
Bonds will not be listed on any securities exchange.
AVERAGE LIFE OF BONDS; PREPAYMENTS; YIELDS
Prepayments by borrowers on the Student Loans generally will result in
a faster rate of principal payments on the Bonds than if payments on the Student
Loans were made as scheduled. Thus, the prepayment experience on the Student
Loans may affect the average life of the Bonds. The rate of principal payments
on pools of the student loans varies between pools and from time to time is
influenced by a variety of economic, demographic, geographic, social, tax, legal
and other factors. There can be no assurance as to the rate of prepayment on the
Student Loans or that the rate of payments will conform to any model described
herein. If prevailing interest rates fall significantly below the applicable
rates borne by the Student Loans, principal prepayments are likely to be higher
than if prevailing rates remain at or above the rates borne by the Student
Loans. Furthermore, there can be no assurance that student loan programs, such
as programs being implemented or proposed by the federal or state government,
will not result in significant prepayment of the Student Loans. Additionally,
the Class B Bonds are subject to redemption in whole at the option of the
Issuer, on any date on which the Aggregate Current Principal Amount of the Bonds
outstanding has declined to 10% of their initial Aggregate Current Principal
Amount. As a result, the retirement of the Bonds could occur significantly
earlier than expected. Only limited information regarding historic prepayment
rates for GATE(sm) Student Loans is provided herein. See "Repayment History
Regarding GATE(sm) Student Loans" herein. In addition, no information regarding
historic prepayment rates for other student loans to students of the Owner
Participants or for student loans serviced by the Servicer is provided herein,
because the Depositor believes that the terms of the GATE(sm) Student Loan
Program are materially different from
S-8
<PAGE>
the terms of student loans originated under existing student loan programs
administered by the Owner Participants or any other student loans serviced by
the Servicer, and that any information regarding historic prepayment rates on
such loans would not only be irrelevant, but might mislead investors into making
erroneous judgments as to the likely level of prepayments under the GATE(sm)
Student Loan Program. See "Yield Considerations--Yield and Prepayment
Considerations" in the Prospectus for a discussion of the major differences
between the GATE(sm) Student Loan Program and other existing loan programs,
which the Depositor believes are likely to affect the level of prepayments. See
also "Certain Yield and Prepayment Considerations" herein.
RISKS DIFFER BETWEEN THE CLASS A BONDS AND THE CLASS B BONDS
Payments of principal and interest on the Class B Bonds are subordinate
in priority of payment to interest and principal payments on the Class A Bonds.
The Class B Bonds bear a greater risk of loss of principal than do the Class A
Bonds because the Class B Bonds do not receive principal payments until the
Class A Bonds are paid in full.
LIMITED NATURE OF RATING
The rating assigned by the Rating Agency to the Bonds reflects only its
assessment of the likelihood that holders of the Bonds will receive payments to
which such Bondholders are entitled under the Indenture. Such rating does not
constitute an assessment of the likelihood that principal prepayments on the
related Student Loans will be made, the degree to which the rate of such
prepayments might differ from that originally anticipated or the likelihood of
early retirement of the Bonds. Neither does rating address the possibility that
prepayment at higher or lower rates than anticipated by an investor may cause
such investor to experience a lower than anticipated yield or that an investor
that purchases a Bond at a significant premium might fail to recoup its initial
investment under certain prepayment scenarios. See "Rating" herein.
FAILURE TO COMPLY WITH LOAN ORIGINATION AND SERVICING PROCEDURES; LIMITED
LIABILITY OF SERVICER
The Depositor's GATE(sm) Student Loan Program prescribes rules and
procedures applicable to originating and servicing the Student Loans. See "The
GATE(sm) Student Loan Program" in the Prospectus. In addition, numerous federal
and state consumer protection laws and related regulations impose substantial
requirements upon the origination and servicing of the Student Loans. See
"Certain Legal Aspects of the GATE(sm) Student Loans" in the Prospectus. If the
Originator fails to originate a Student Loan in compliance with the Program
Manual and state and federal consumer lending laws, the Originator will be
obligated to indemnify the Indenture Trustee on behalf of the related Issuer for
any losses incurred as a result thereof or repurchase the related Student Loans,
as set forth in the related Origination Agreement. See "The Originators" herein.
In addition, because the Servicer remits to the Indenture Trustee only on a
monthly basis, pursuant to the Servicing Agreement, the Servicer will agree to
indemnify the Depositor and the Issuer for any claim, loss, liability or
expense, including reasonable attorney's fees, that arise out of or relate to
the Servicer's acts or omissions with respect to the servicing of the Student
Loans under the Servicing Agreement, where a final determination of liability on
the part of the Servicer is established by an arbitrator, court of law or by way
of settlement agreed to by the Servicer. However, the maximum liability of the
Servicer under the Servicing Agreement with respect to each pool of Student
Loans for all losses incurred by the Issuer as a result of servicing
deficiencies with respect to such pool of Student Loans will not exceed ten
percent (10%) of the initial aggregate principal balance of such pool of Student
Loans (the "Pool Limit"); provided that the Servicer will be liable for such
losses incurred with respect to each pool of Student Loans in excess of the Pool
Limit until such time as the aggregate losses incurred by the Depositor, the
Issuer and other issuers organized by the Depositor, collectively, as a result
of servicing deficiencies with respect to all Student Loans serviced by the
Servicer is equal to ten percent (10%) of the initial aggregate principal
balance of all such Student Loans. Proceeds from such indemnification will be
deposited with the Indenture Trustee in the Collateral Proceeds Account and will
be used to make interest and principal payments on the Bonds.
Therefore, failure to originate or service properly a Student Loan in
accordance with those rules, procedures or laws could adversely affect the total
collections for any Interest Accrual Period and the Issuer's ability to pay
principal and interest on the Bonds. See "The Servicer--The Servicing Agreement"
herein and in the Prospectus.
S-9
<PAGE>
ACTUAL CASH FLOW RESULTS MAY BE MATERIALLY AND ADVERSELY DIFFERENT; INABILITY OF
INDENTURE TRUSTEE TO LIQUIDATE STUDENT LOANS
The interest and principal payments received with respect to the
Student Loans for a particular Interest Accrual Period may vary greatly in both
timing and amount from the payments actually due on the Student Loans as of such
Interest Accrual Period for a variety of economic, social and other factors,
including both individual factors, such as additional periods of deferral,
customary servicer forbearance or forbearance required by applicable bankruptcy
or insolvency laws prior to or after a borrower's commencement of repayment, and
general factors, such as a general economic downturn which could increase the
amount of defaulting Student Loans. Failures by borrowers to pay timely the
principal and interest on the Student Loans will affect the total collections
during the Interest Accrual Period which may reduce the amount of principal and
interest paid to the Bondholders on a Payment Date. In addition, in the event of
the bankruptcy or insolvency of the Servicer, delays could result in the payment
to the Indenture Trustee of collections on the Student Loans held by the
Servicer. The occurrence of one or more of these factors is impossible to
predict, and no estimate can be given of the point at which the effect of such
factors would impair the Issuer's ability to pay principal and interest on the
Bonds.
In the event that the Issuer is unable to pay principal on the Bonds on
their Stated Maturity, the Indenture will authorize the Indenture Trustee to
declare an Event of Default and sell the Student Loans. There can be no
assurance, however, that the Indenture Trustee will be able to find a purchaser
for the Student Loans in a timely manner or one who is willing to pay the
aggregate outstanding principal amount of the Student Loans. If the proceeds of
any such sale do not, together with other available assets under the Indenture,
exceed the aggregate outstanding principal amount of the Bonds and accrued
interest with respect to the Bonds, the Bondholders may suffer a loss.
See "The GATE(sm) Student Loan Program" in the Prospectus for a
complete discussion of the characteristics of the GATE(sm) Student Loan Program
and GATE(sm) Student Loans, including the terms for the payment of principal and
interest thereof.
UNSECURED NATURE OF STUDENT LOANS; LIMITED ASSETS; NO GUARANTEE
The Student Loans are not secured by any assets of the respective
borrowers pursuant to the requirements of the GATE(sm) Student Loan Program. If
the Trust Estate has insufficient assets to make payments on the Bonds, no other
assets will be available for payment of the deficiency. The Issuer will not
have, nor will it be permitted or expected to have, any significant assets or
sources of funds other than the Student Loans and the Collateral Proceeds
Account, the Interest Support Account and the Reserve Fund and all investment
income thereon. The Bonds represent obligations solely of the Issuer and will
not be insured or guaranteed by any governmental agency or instrumentality, or
by the Owner Participants, the Servicer or any other person or entity. Although
the Indenture Trustee will sell the Student Loans in accordance with the
Indenture following an acceleration of the Bonds upon an Event of Default, there
can be no assurance that the market value of the Student Loans will at any time
be equal to or greater than the Aggregate Current Principal Amount of, and
accrued interest on, the outstanding Bonds or that there will even be a market
for the Student Loans. Further, on the Closing Date, the aggregate outstanding
principal balance of the Student Loans will be less than the Aggregate Current
Principal Amount of the Bonds. See "Credit Enhancement--Overcollateralization"
herein. Therefore, upon an Event of Default with respect to the Bonds, there can
be no assurance that sufficient funds will be available to repay Bondholders in
full. In addition, the amount of principal required to be distributed to
Bondholders under the Indenture is generally limited to amounts available to be
so distributed. Therefore, the failure to pay principal on the Bonds will not
result in the occurrence of an Event of Default until the Stated Maturity of the
Bonds. See "Description of the Indenture--Events of Default" herein and in the
Prospectus.
S-10
<PAGE>
USE OF PROCEEDS
The net proceeds to the Issuer set forth on the cover page to this
Prospectus Supplement, estimated to be $7,288,602 (or 91.11% of the aggregate
proceeds of the sale of the Bonds) will be used by the Issuer (i) to purchase
the Student Loans at a discount directly from the Originators simultaneously
with the closing of the sale of the Bonds, (ii) to acquire for the Reserve Fund,
a U.S. Treasury security (that is an Eligible Investment) to fund the Interest
Reserve Amount on September 20, 2000, for the Interest Accrual Period commencing
on such date and (iii) to acquire for the Interest Support Account, a portfolio
of U.S. Treasury securities (that are Eligible Investments) to fund the Interest
Support Payments during the Interest Support Period. See "Description of the
Bonds--Credit Enhancement--Reserve Fund" herein and in the Prospectus for a
description of the Interest Reserve Amount and "Description of the Bonds--Credit
Enhancement--The Interest Support Account" herein and in the Prospectus for a
description of the Interest Support Account.
DESCRIPTION OF THE STUDENT LOANS
The Issuer will pledge for the benefit of the Bondholders the Trust
Estate, consisting of 2,657 Student Loans with an initial aggregate principal
amount (calculated as of the Closing Date) of $6,484,747. The Student Loans will
be fixed rate GATE(sm) Student Loans, as more fully described herein and in the
Prospectus. See "The GATE(sm) Student Loan Program" in the Prospectus for a
general description of the provisions of the Student Loans originated pursuant
to the GATE(sm) Student Loan Program.
The Student Loans will conform to the description herein and in "The
GATE(sm) Student Loan Program" in the Prospectus. The Participating Institutions
that hold the beneficial ownership interests in the Issuer (the "Owner
Participants") and the number, Original Principal Amount and Interest Rate of
the Student Loans in the Trust Estate are as follows (measured as of the Closing
Date):
<TABLE>
<CAPTION>
TOTAL 1997-S1
STUDENT LOANS
-------------
Name of Owner Original
Participant Number Principal Amount $ Interest Rate
- ----------- ------ ------------------ -------------
<S> <C> <C> <C>
Albright College 65 $237,887 9.250%
Allegheny College 1 10,000 8.750%
8 31,506 9.000%
Babson College 1 3,000 9.250%
Beaver College 221 253,150 8.250%
Bennington College 1 1,875 9.250%
Clarkson University 1003 1,921,795 9.250%
Franciscan University of 10 24,700 8.750%
Steubenville
Franklin Pierce College 113 175,553 9.500%
Geneva College 1 5,500 9.250%
Hartwick College 713 2,822,596 9.250%
Illinois Institute of 1 5,000 9.250%
Technology
Linfield College 16 74,300 9.250%
Lycoming College 22 22,000 9.250%
Mount Ida College 34 89,531 9.250%
Oglethorpe University 7 24,350 9.000%
S-11
<PAGE>
<S> <C> <C> <C>
St. Anselm College 212 240,000 9.250%
Santa Clara University 45 66,447 8.750%
Seton Hill College 29 72,050 9.250%
Tulane University 22 82,603 9.250%
Utica College of Syracuse 14 41,369 9.000%
University
Wesleyan College (Ga) 118 279,535 8.750%
=== ======= ======
Total/Wtd. Avg. Int. Rate 2,657 6,484,747 9.185%
</TABLE>
The Student Loans in the Trust Estate are expected to have the
following additional characteristics as of the Closing Date:
(i) All of the Student Loans to students of Illinois Institute of
Technology, Santa Clara University and Linfield College were originated by BANA,
and all of the remaining Student Loans were originated by FNBB.
(ii) An average principal amount of approximately $2,441.
(iii) A weighted average original term to scheduled maturity of
approximately 187 months.
(iv) 126 of the related Student Loan Notes with an initial
principal amount of $399,230 were executed by a student
borrower and a cosignor.
S-12
<PAGE>
The expected graduation dates of each of the students are as follows:
<TABLE>
<CAPTION>
EXPECTED GRADUATION DATES
(INITIAL PRINCIPAL AMOUNT OF STUDENT LOANS)
Name of Owner
Participant 12/96-8/97 9/97-8/98 9/98-8/99 9/99-8/00 Total
- ----------- ---------- --------- --------- --------- -----
<S> <C> <C> <C> <C> <C>
Albright College 55,798 27,958 84,885 69,246 237,887
Allegheny College 15,627 12,750 13,129 -- 41,506
Babson College 3,000 -- -- -- 3,000
Beaver College 20,250 23,500 71,150 138,250 253,150
Bennington College -- -- -- 1,875 1,875
Clarkson University 235,450 323,823 439,675 922,847 1,921,795
Franciscan University 2,100 13,200 1,500 7,900 24,700
of Steubenville
Franklin Pierce 30,900 38,100 46,503 60,050 175,553
College
Geneva College -- -- -- 5,500 5,500
Hartwick College 622,925 912,494 557,603 729,574 2,822,596
Illinois Institute of -- -- 5,000 -- 5,000
Technology
Linfield College 24,200 14,800 17,000 18,300 74,300
Lycoming College -- -- -- 22,000 22,000
Mount Ida College 47,214 42,317 -- -- 89,531
Oglethorpe College 9,350 15,000 -- -- 24,350
St. Anselm -- -- -- 240,000 240,000
University
Santa Clara 19,581 4,132 17,400 25,334 66,447
University
Seton Hill College 13,600 13,600 30,400 14,450 72,050
Tulane University 56,403 12,800 13,400 -- 82,603
Utica College of 19,250 18,119 4,000 -- 41,369
Syracuse University
Wesleyan College 19,269 56,263 100,852 103,151 279,535
(Ga)
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL 1,194,917 1,528,856 1,402,497 2,358,447 6,484,747
% OF POOL 18.43% 23.58% 21.63% 36.37%
</TABLE>
S-13
<PAGE>
THE SERVICER
GENERAL
The Student Loans will be serviced by the Pennsylvania Higher Education
Assistance Agency (the "Servicer"), pursuant to a servicing agreement (the
"Servicing Agreement") dated January 6, 1995, as amended, between the Servicer
and the Depositor. On the Closing Date, the Depositor, with the consent of the
Servicer, will assign its interest in the Servicing Agreement with respect to
the Student Loans, to the Issuer. Pursuant to the terms of the Servicing
Agreement, the Servicer will remit to the Indenture Trustee on a monthly basis
all funds held on account for the Issuer since the last remittance to the
Indenture Trustee. See "The Servicer" and "The Servicer--Servicing Standards and
Procedures" in the Prospectus for a description of the Servicer and the
servicing standards to be followed by the Servicer.
SERVICING COMPENSATION
The Servicer will be entitled to a monthly fee for its services (the
"Servicing Fee") in an amount based upon the aggregate principal balance of the
Student Loans serviced at the end of each month, multiplied by the applicable
Servicing Fee divided by twelve, equal to the following:
Time Period Servicing Fee
----------- -------------
through September 2000 0.46%
October 2000 through September 2005 0.66%
October 2005 through September 2009 0.86%
October 2009 through September 2013 1.00%
In addition, while at this time the Servicer does not collect late
charges from Student Loan borrowers, the Issuer expects that in the future a
late charge will be implemented, to the extent permitted by law. At such time,
it is anticipated that a portion of any such late charge will be retained by the
Servicer with the remaining amount being delivered to the Trustee for deposit in
the Collateral Proceeds Account.
ORIGINATION SERVICES AGREEMENT
The Servicer will provide certain origination services to the
Originators pursuant to an origination services agreement (the "Origination
Services Agreement"), dated January 6, 1995, between the Servicer and the
Depositor. On the Closing Date, the Depositor, with the consent of the Servicer,
will assign its interest in the Origination Services Agreement with respect to
the Student Loans, to the Issuer. The Servicer will be entitled to an
origination services fee in an aggregate amount equal to approximately $13,000
from the proceeds from sale of the Bonds.
REPAYMENT HISTORY REGARDING GATE(sm) STUDENT LOANS
The following chart is provided by way of information only and sets
forth the actual delinquency, prepayment and forbearance experience of all
GATE(sm) student loans as of February 28, 1997. THERE CAN BE NO ASSURANCE THAT
THE STUDENT LOANS THAT SECURE THE CLASS A AND THE CLASS B BONDS WILL BE IN ANY
MANNER COMPARABLE TO THE HISTORICAL INFORMATION SET FORTH BELOW. Because the
first GATE(sm) student loans were originated in 1994, the age of the portfolio
of GATE(sm) student loans serviced by the Servicer is fairly recent, and,
S-14
<PAGE>
more importantly, less than fifty percent of such student loans are in repayment
status. Consequently, the repayment experience with respect to GATESM student
loans is insufficient to provide reliable predictive information based on the
historical repayment performance of the Servicer's GATE(sm) student loan
portfolio. The source for the information in the following table is the monthly
servicer reports prepared by the Servicer in connection with all GATE(sm)
Student Loans since the first issuance of Collateralized Student Loan Bonds
under the GATE(sm) Program in 1994.
[Space intentionally left blank.]
S-15
<PAGE>
<TABLE>
<CAPTION>
DELINQUENCY, PREPAYMENT AND FORBEARANCE EXPERIENCE ON
GATE(sm) STUDENT LOANS(1),(2)
Aggregate
Number Principal
of Loans Amount ($)
------------- --------------
<S> <C> <C>
Total Student Loans Outstanding 7,161 18,523,208
Total Student Loans that have entered Repayment to Date(3) -- 8,096,992
Total Prepayments(4) -- 679,610
Total Student Loans currently in Repayment 2,233 7,417,382
Delinquency(5)
Period of Delinquency:
31-60 Days 169 617,298
61-90 Days 31 149,641
91-120 Days 15 73,326
121-150 Days 21 103,698
151-180 Days 79 259,110
Total Delinquencies 315 1,203,073
Delinquencies as a Percentage of Total Student Loans in Repayment 14.1% 16.2%
Delinquencies as a Percentage of Total Student Loans Outstanding 4.4% 6.5%
Defaults
Total Student Loans forwarded to a Collection Agent(6) 160 745,160
Defaults as a Percentage of Total Student Loans that have entered -- 9.2%
Repayment To Date
Defaults as a Percentage of Total Student Loans Outstanding 2.2% 4.0%
Forbearance
Total Student Loans in Forbearance(7) 106 446,743
Total Forbearance Loans as a Percentage of Total Student Loans that -- 5.5%
have entered Repayment To Date
Total Forbearance Loans as a Percentage of Total Student Loans 1.5% 2.4%
Outstanding
</TABLE>
- --------
(1) Excludes Student Loans securing the 1997-S1 Bonds.
(2) All information as of February 28, 1997.
(3) Approximately 6% of these student loans entered repayment more than 2.5
years ago; approximately 27% entered repayment more than 1.5 years ago;
approximately 65% entered repayment more than six months ago. Includes Student
Loans that have been paid in full.
(4) Includes Student Loans that were cancelled by the related Participating
Institutions during the 60 day period following the related Closing Date. The
Student Loans securing the GRADS(sm) Series 1994 S-1 Collateralized Student Loan
Bonds having an outstanding principal balance of $3,378,022, contain a provision
for a significant prepayment penalty. None of the other Student Loans have any
prepayment penalties.
(5) Excludes Student Loans that were delinquent in the past and are now current.
Excludes Student Loans in Forbearance. Delinquent Student Loans are forwarded to
a Collection Agent at 180 days.
(6) Includes 46 Student Loans having an aggregate principal value of $190,097,
that have made some payments since being turned over to a collection agent; does
not include Student Loans 151-180 days delinquent that have not yet been
forwarded to a collection agent. None of the student loans have been written off
as uncollectible.
(7) Temporary deferment due to hardship.
S-16
<PAGE>
THE ORIGINATORS
The Student Loans were originated by the Originators as of the dates set
forth in the summary of this Prospectus Supplement. See "The GATE(sm) Student
Loan Program" and "The Originator" in the Prospectus. The Originators will be
responsible for ensuring that all of the Student Loans are originated in
compliance with the Program Manual and applicable state and federal consumer
lending laws. If an Originator fails to originate a Student Loan in compliance
with the Program Manual and state and federal consumer lending laws, the
Originator will be obligated to indemnify the Issuer for losses incurred with
respect to such Student Loan or repurchase the related Student Loan, as set
forth in the related Origination Agreement. Proceeds from such indemnification
will be deposited with the Indenture Trustee in the Collateral Proceeds Account
and will be used to make interest and principal payments on the Bonds. See
"Description of the Bonds--Collateral Proceeds Account" herein.
Each of the Student Loans originated by The First National Bank of Boston
("FNBB") was originated pursuant to an Origination and Funding Agreement between
FNBB and the related Owner Participant (each, a "FNBB Origination Agreement").
Such Student Loans will be sold to the Issuer simultaneously with the closing of
the sale of the Bonds pursuant to that certain Master Purchase and
Securitization Agreement, dated as of August 31, 1995, between FNBB and the
Depositor. Each of the Student Loans originated by Bank of America National
Association ("BANA") was originated pursuant to a Loan Packaging and Funding
Agreement between BANA and the related Owner Participant (each, a "BANA
Origination Agreement"; together with each FNBB Origination Agreement, an
"Origination Agreement"). Such Student Loans will be sold to the Issuer
simultaneously with the closing of the sale of the Bonds pursuant to that
certain Note Purchase Agreement, dated as of August 1, 1996, between BANA and
the Depositor. See "Certain Legal Aspects of the Student Loans--Consumer
Protection Laws" in the Prospectus.
THE OWNER PARTICIPANTS
The following table sets forth information regarding each of the Owner
Participants of the National Collegiate Trust 1997- S1. The source for the
statistical information regarding the Owner Participants is THE COLLEGE HANDBOOK
- - 1995, published by The College Entrance Examination Board and PETERSON'S FOUR
YEAR COLLEGES 1996, published by Peterson's.
<TABLE>
<CAPTION>
Full-Time Enrollment Historical Percentage
Initial
Principal % of Pool
Name and Location Balance of (by initial Receiving Pursuing
of Owner Accrediting Student Principal Graduating Financial Graduate
Participant Association Loans Balance) Undergrad Graduate In 4 Years Aid Study
- ----------- ----------- ----- -------- --------- -------- ---------- --- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Albright College Middle States $237,887 3.67% 963 -- 76% 91% 33%
Reading, PA Assn. of
Colleges and
Schools
Allegheny College Middle States $41,506 0.64% 1,838 -- 65% 78% 35%
Meadville, PA Assn. of
Colleges and
Schools
Babson College New England $3,000 0.05% 1680 378 84% 49% 4%
Babson Park, MA Assn. of
Schools and
Colleges
Beaver College Middle States $253,150 3.90% 872 1036 68% 68% 12%
Glenside, PA Assn. of
Colleges and
Schools
Bennington College New England $1,875 0.03% 373 23 60% 78% 26%
Bennington, VT Assn. of
Schools and
Colleges
Clarkson University Middle States $1,921,795 29.64% 2332 459 73% 89% 11%
Potsdam, NY Assn. of
Colleges and
Schools
Franciscan North Central $24,700 0.38% 1,554 410 55% 75% -
University of Assn. of
Steubenville Colleges and
Steubenville, OH Schools
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<PAGE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Franklin Pierce New England $175,553 2.71% 1188 -- 48% 77% 13%
College Assn. of
Rindge, NH Schools and
Colleges
Geneva College Middle States $5,500 0.08% 1306 23 59% 94% 9%
Beaver Falls, PA Assn. of
Colleges and
Schools
Hartwick College Middle States $2,822,596 43.53% 1502 -- 58% 65% 20%
Oneonta, NY Assn. of
Colleges and
Schools
Illinois Institute of North Central $5,000 0.08% 2,546 4,611 - 58% -
Technology Assn. of
Chicago, Illinois Colleges and
Schools
Linfield College Northwest $74,300 1.15% 1561 37 58% 75% 15%
McMinnville, OR Assn. of
Schools and
Colleges
Lycoming College Middle States $22,000 0.34% 1363 -- 58% 83% 11%
Williamsport, PA Assn. of
Colleges and
Schools
Mount Ida College New England $89,531 1.38% 1528 -- NA 64% NA
Newton Centre, MA Assn. of
Schools and
Colleges
Oglethorpe Southern Assn. $24,350 0.38% 765 66 71% 76% 25%
University of Colleges
Atlanta, GA and Schools
St. Anselm College New England $240,000 3.70% 1873 -- 76% 71% 17%
Manchester, NH Assn. of
Schools and
Colleges
Santa Clara Western Assn. $66,447 1.02% 3882 1320 81% 64% 21%
University of Schools and
Santa Clara, CA Colleges
Seton Hill College Middle States $72,050 1.11% 880 12 48% 80% 14%
Greensburg, PA Assn. of
Colleges and
Schools
Tulane University Southern Assn. $82,603 1.27% 4946 3132 75% 56% 43%
New Orleans, LA of Colleges
and Schools
Utica Coll. of Middle States $41,369 0.64% 1630 -- 51% 85% 13%
Syracuse U. Assn. of
Utica, NY Colleges and
Schools
Wesleyan College Southern Assn. $279,535 4.31% 386 -- 42% 91% 34%
Macon, GA of Colleges
and Schools
- ------------------------------------------------------------------------------------------------------------------------------------
Total $6,484,747 100%
</TABLE>
As discussed herein and in the Prospectus, the Owner Participants will own
all of the beneficial interests in the Issuer based primarily upon the
proportion of Student Loans to students of such Owner Participant in the Trust
Estate. See "The Issuer" in the Prospectus.
The following is a table of the default experience of each of the Owner
Participants for the year ended September 30, 1994, and the weighted average for
the years ended September 30, 1994, 1993 and 1992 with respect to the Federal
Family Education Loan Program (the "FFEL Program") at such Owner Participant.
The largest component of the FFEL Program is the Stafford Loan Program, which
provides for the origination of loans ("Stafford Loans") by eligible lenders in
accordance with the Higher Education Act to eligible students, based on
financial need, to finance a portion of the costs of attending an eligible
institution of higher education or a vocational school. The Higher Education Act
limits the
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amount of Stafford Loans that may be made to a student in any given academic
year. Holders of Stafford Loans complying with the limitations of the Higher
Education Act will be entitled to the benefits of: (i) a guarantee of the
payment of principal and interest with respect to such Stafford Loan; (ii)
federal interest support payments equal to the interest payable on such Stafford
Loans prior to the time the student begins to repay such loans; and (iii)
federal special allowance payments during the term of the Stafford Loans that
ensure that interest payments on such loans approximate current market interest
rates.
INVESTORS SHOULD NOTE THAT THE GATE(sm) STUDENT LOANS BEAR NO RELATIONSHIP
TO THE PRIVATE AND GOVERNMENT SPONSORED STUDENT LOANS, INCLUDING THE STAFFORD
LOANS DESCRIBED ABOVE. ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT EXPERIENCE ON
THE GATE(sm) STUDENT LOANS WILL BE SIMILAR. THE INFORMATION SET FORTH BELOW
SHOULD NOT BE CONSIDERED TO REFLECT THE CREDIT QUALITY OF THE GATE(sm) STUDENT
LOANS OR AS A BASIS FOR ASSESSING THE LIKELIHOOD, AMOUNT OR SEVERITY OF LOSSES
ON THE GATE(sm) STUDENT LOANS. SUCH INFORMATION IS INCLUDED ONLY AS AN
INDICATION OF THE EXPERIENCE OF THE STUDENTS ATTENDING THE OWNER PARTICIPANTS.
The source of the following statistics is the Department of Education
publication dated February 1996 and entitled:
<TABLE>
<CAPTION>
FEDERAL FAMILY EDUCATION LOAN PROGRAM
1992, 1993 AND 1994
COHORT DEFAULT RATE FOR SCHOOLS
No. of
Borrowers Cohort Default
Year Ended Entering Rate on
Name Of Institution September 30 Repayment FFEL Loans(1)
- ------------------- ------------ --------- -----------
<S> <C> <C> <C>
Albright College 1994 2.4%
1992-1994 Avg. 3.7%
Allegheny College 1994 2.2%
1992-1994 Avg. 3.5%
Babson College 1994 1.5%
1992-1994 Avg. 2.0%
Beaver College 1994 1.4%
1992-1994 Avg. 2.2%
Bennington College 1994 7.0%
1992-1994 Avg. 4.5%
Clarkson University 1994 3.4%
1992-1994 Avg. 3.3%
Franciscan University of 1994 3.9%
Steubenville 1992-1994 Avg. 3.8%
Franklin Pierce College 1994 6.5%
1992-1994 Avg. 6.8%
Geneva College 1994 3.7%
1992-1994 Avg. 4.2%
Hartwick College 1994 5.1%
1992-1994 Avg. 3.0%
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<PAGE>
<S> <C> <C> <C>
Illinois Institute of Technology 1994 3.4%
1992-1994 Avg. 3.8%
Linfield College 1994 3.8%
1992-1994 Avg. 3.9%
Lycoming College 1994 1.6%
1992-1994 Avg. 3.3%
Mount Ida College 1994 20.4%
1992-1994 Avg. 14.2%
Oglethorpe College 1994 7.0%
1992-1994 Avg. 5.9%
St. Anselm 1994 5.0%
1992-1994 Avg. 3.5%
Santa Clara University 1994 3.0%
1992-1994 Avg. 2.8%
Seton Hill College 1994 5.0%
1992-1994 Avg. 6.4%
Tulane University 1994 4.2%
1992-1994 Avg. 3.8%
Utica College 1994 6.3%
1992-1994 Avg. 5.0%
Wesleyan College 1994 10.8%
1992-1994 Avg. 9.9%
</TABLE>
<TABLE>
By Total #
By School(2) Of Loans(3)
------------ -----------
<S> <C> <C> <C>
National Average - 564 Publics 1994 7.71% 6.67%
1992-1994 Avg. 7.86% 6.85%
National Average - 1349 Privates 1994 6.42% 6.27%
1992-1994 Avg. 6.40% 6.25%
</TABLE>
(1) The cohort default rate for a given year is the ratio of the number of
borrowers in default to the number of borrowers entering into repayment during
the indicated academic year (October 1 to September 30). For example, a school's
cohort default rate for the year ended September 30, 1992 is the percentage of
students whose loans entered repayment from October 1, 1991 to September 30,
1992 and who defaulted between October 1, 1991 and September 30, 1993.
(2) Based on the average of each school's cohort default rate to the total
number of schools.
(3) Based on the number of all loans in default to the total number of loans in
repayment status.
THE OWNER TRUSTEE
Delaware Trust Capital Management, Inc., a Delaware trust company, is the
Owner Trustee for the Depositor and the Issuer. The Owner Trustee's primary
corporate trust offices are located at 900 Market Street, Wilmington, Delaware
19801, telephone number (302) 421-7748.
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<PAGE>
THE ADMINISTRATOR
First Marblehead Data Services Inc., a Delaware corporation, will act as
the administrator (the "Administrator") for the Issuer. Pursuant to the
Administration Agreement, dated as of April 1, 1997 (the "Administration
Agreement"), among the Issuer, the Indenture Trustee, the Owner Trustee and the
Administrator, the Issuer and the Owner Trustee have appointed the Administrator
to act as their agents to perform the duties and the obligations of the Issuer
under the Indenture. In addition, pursuant to the Trust Agreement, each of the
Owners has given the Administrator its power of attorney to act on its behalf in
certain circumstances under the Trust Agreement. While the Bonds remain
outstanding, the Administrator will receive an administration fee on each
Payment Date equal to 0.075% of the outstanding principal balance of the Bonds
as of the immediately preceding Payment Date.
DESCRIPTION OF THE BONDS
GENERAL
The Bonds will be issued pursuant to the Indenture, dated as of April 1,
1997 (the "Indenture"), between Delaware Trust Capital Management, Inc., as
owner trustee (the "Owner Trustee") for the Issuer, and State Street Bank and
Trust Company, as the Indenture Trustee (the "Indenture Trustee") for the 7.45%
Class A Collateralized Student Loan Bonds, Series 1997-S1 and the 8.25% Class B
Collateralized Student Loan Bonds, Series 1997-S1. The Indenture will be an
exhibit to the Current Report on Form 8-K to be filed with the Commission by the
Issuer promptly following the closing of the sale of the Bonds.
On the Closing Date, the Indenture Trustee will establish and maintain a
Reserve Fund into which it will deposit a U.S. Treasury security (which is an
Eligible Investment) purchased from the proceeds from the sale of the Bonds, in
an amount that will return payments of principal and interest so that on
September 20, 2000, the Interest Reserve Amount for the Interest Accrual Period
commencing on such date will be available from the proceeds of such Eligible
Investment. In addition, on the Closing Date, the Indenture Trustee will
establish an Interest Support Account into which the Indenture Trustee will
deposit a portfolio of Eligible Investments (which are U.S. Treasury securities)
purchased from proceeds from the sale of the Bonds, in an amount that will
return payments of principal and interest so that on each Interest Payment Date
during the Interest Support Period, an amount equal to the Interest Support
Payment for the related Interest Accrual Period is available from the proceeds
of such Eligible Investments. Finally, the Indenture Trustee will establish and
maintain as of the Closing Date the Collateral Proceeds Account into which will
be deposited for payment to the Bondholders all amounts collected on the Student
Loans, net of the Servicing Fee, and amounts withdrawn either from the Interest
Support Account or the Reserve Fund, except as otherwise provided for herein and
in the Prospectus.
The Bonds will be issued in fully registered form in minimum denominations
of $25,000 and integral multiples of $1,000 in excess thereof. The Bonds in
certificated form may be transferred or exchanged for Bonds of the same class
and series, without the payment of any service charge other than any tax or
government charge payable in connection with such registration of transfer or
exchange.
Payments of principal of, and interest on, the Bonds will be made on the
dates (the "Payment Dates") set forth herein by check mailed to Bondholders
registered as such (which initially shall be CEDE & Co., the nominee of DTC) on
the related record date preceding such Payment Date at the addresses of such
Bondholders appearing on the Bond Register, except that final payments of
principal in retirement of each Bond will be made only upon presentation and
surrender of such Bonds at the office or agency of the Issuer maintained for
that purpose. Notice will be mailed not less than five days before the Payment
Date on which the final payment of principal on any Bond is expected to be made
to the holder of such Bond. See "Description of the Bonds--Payments of Interest"
and "Payments of Principal" herein.
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<PAGE>
Payments of principal of and interest on, the Bonds will be made by the
Indenture Trustee as the Paying Agent of the Issuer out of the Collateral
Proceeds Account established under the Indenture. All distributions with respect
to the Student Loans and all investments made with those distributions,
including all income or other gain from such investments, will be deposited into
such Collateral Proceeds Account and thereafter will be available to make
payments on the Bonds on the next succeeding Payment Date.
The Indenture Trustee will include with each payment on a Bond, which
includes both interest and principal, a statement showing the amount of such
payment that constitutes interest and principal, respectively, and the remaining
unpaid principal amount of a Bond of minimum denomination. Payments on Bonds
which include only interest will be accompanied by a statement showing the
aggregate unpaid principal amount of the Bonds.
PAYMENTS OF INTEREST
The Class A Bonds and the Class B Bonds will bear a fixed interest rate
from the date of issuance at 7.45% and 8.25%, respectively, per annum
(calculated on the basis of a 360-day year of twelve 30-day months) until the
principal amount of the related class of Bonds is paid in full. Interest on the
Bonds will be payable semiannually on each Interest Payment Date. Each such
payment of interest will represent interest accrued for the six-month period
from the most recent Interest Payment Date (or, with respect to the first
Interest Payment Date, from the Closing Date) through the last day preceding the
related Interest Payment Date (an "Interest Accrual Period").
PAYMENTS OF PRINCIPAL
Principal payments on the Bonds will be payable semiannually on each
Principal Payment Date, commencing with respect to the Class A Bonds, on
September 20, 2000, and with respect to the Class B Bonds, upon payment in full
of the Class A Bonds. Payment of principal on the first Principal Payment Date
will be made from all amounts on deposit in the Reserve Fund less the Interest
Reserve Amount for such Payment Date. Thereafter, principal payments on the
Bonds will be made from the sum (net of the Servicing Fee and any unpaid amounts
due to the Indenture Trustee, the Independent Accountants, the Owner Trustee or
the Administrator) of: (i) all monthly interest collected with respect to the
Student Loans during the related Collection Period, in excess of the amount
needed to make the interest payment on the Bonds on such Principal Payment Date;
(ii) all monthly principal collected with respect to the Student Loans during
the related Collection Period together with any and all prepayments received
with respect to the Student Loans during the Collection Period; (iii) net
liquidation proceeds related to defaulted Student Loans received during the
Collection Period, including late payment charges on the Student Loans, if any;
(iv) reinvestment income deposited in the Collateral Proceeds Account during the
Collection Period; and (v) funds in the Reserve Fund in excess of the Interest
Reserve Amount.
INTEREST SUPPORT ACCOUNT
As provided in the Indenture, the Indenture Trustee will establish and
maintain the Interest Support Account for the benefit of the holders of the
Bonds. On the Closing Date, the Indenture Trustee will apply approximately
$2,445,000 from the proceeds of the sale of the Bonds, to acquire a portfolio of
Eligible Investments which are U.S. Treasury securities, that will return
payments of principal and interest so that on each Interest Payment Date during
the period commencing on the Closing Date and ending on September 20, 2000 (the
"Interest Support Period"), an amount equal to the applicable Interest Support
Payment is available from the proceeds of such Eligible Investments. The
"Interest Support Payment" with respect to each Interest Payment Date during the
Interest Support Period is equal to (a) all accrued interest on the Bonds
together with expenses of the Issuer to be paid on such date minus (b) funds in
the Collateral Proceeds Account, if any, available to pay the amount determined
in clause (a) hereof. The Indenture Trustee will deposit the proceeds from the
Eligible Investments in the Interest
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<PAGE>
Support Account. On each Interest Payment Date during the Interest Support
Period, the Indenture Trustee will withdraw the related Interest Support Payment
for the related Interest Accrual Period from the Interest Support Account and
deposit such Interest Support Payment in the Collateral Proceeds Account.
Immediately following the Interest Support Period, amounts in the Interest
Support Account, if any, will be available to fund shortfalls in the payment of
interest on the Bonds or the Interest Reserve Amount. On September 20, 2003, the
Trustee shall deposit in the Collateral Proceeds Account any remaining funds
then on deposit in the Interest Support Account.
THE RESERVE FUND
As provided in the Indenture, the Indenture Trustee will establish and
maintain the Reserve Fund for the benefit of the holders of the Bonds. On the
Closing Date, approximately $255,000 from the proceeds of the sale of the Bonds
will be applied by the Indenture Trustee to acquire an Eligible Investment (that
is a U.S. Treasury security) that will return payments of principal and interest
so that on September 20, 2000, the Interest Reserve Amount for the Interest
Accrual Period commencing on such date is available from the proceeds of such
Eligible Investment. All funds remaining in the Collateral Proceeds Account on
each Payment Date commencing with the initial Payment Date and ending but
including March 20, 2000, after making all interest payments due on the Bonds on
such Payment Dates, will be deposited in the Reserve Fund. On each Payment Date
thereafter, upon the payment of all interest accrued and owing on the Bonds, any
remaining funds in the Collateral Proceeds Account will be deposited in the
Reserve Fund, to the extent necessary, so that the amount therein will equal the
amount of interest payable on the Bonds on the next succeeding Payment Date (the
"Interest Reserve Amount").
On any Payment Date, if the amount in the Collateral Proceeds Account is
not sufficient to pay interest due and unpaid on the Bonds, the Indenture
Trustee will withdraw (to the extent of available funds) from the Reserve Fund
or the Interest Support Account and deposit in the Collateral Proceeds Account
an amount equal to such shortfall. If after giving effect to all payments of
interest and principal and all other payments on the Bonds on a Payment Date,
the Interest Reserve Amount equals or exceeds the outstanding principal amount
of all the Bonds (the "Aggregate Current Principal Amount"), then the Bonds will
be immediately due and payable.
COLLATERAL PROCEEDS ACCOUNT
All amounts collected on the Student Loans, together with amounts
transferred from the Interest Support Account and the Reserve Fund, net of the
Servicing Fee, will be used to pay interest and principal on the Bonds for the
related Payment Date; provided, however, that if there is a shortfall in amounts
to be held in the Reserve Fund, as described above, such amounts will be
deposited in the Reserve Fund to make up such shortfall. On each Payment Date,
the Indenture Trustee will apply amounts in the Collateral Proceeds Account
FIRST, to the Class A Bonds for the payment of accrued interest on the Class A
Bonds at the related Bond Interest Rate, SECOND, to the Class B Bonds for the
payment of accrued interest on the Class B Bonds at the related Bond Interest
Rate, THIRD, to the payment of any shortfall in the Reserve Fund (provided that
after payment of interest and principal on such Payment Date, if the Interest
Reserve Amount equals or exceeds the aggregate principal amount of the Bonds
outstanding, the Bonds will be immediately due and payable), FOURTH, to the
payment of any unpaid amounts due the Indenture Trustee under the Indenture,
FIFTH, to the payment of any unpaid amounts due to any firm of Independent
Accountants pursuant to the Indenture, SIXTH, to the payment of unpaid amounts
owed the Owner Trustee, SEVENTH, to the payment of unpaid amounts owed the
Administrator pursuant to the Administration Agreement, EIGHTH, on each
Principal Payment Date, to the Class A Bonds for the payment of principal on the
Class A Bonds, NINTH, on each Principal Payment Date following payment in full
of the Class A Bonds (which initially may be the same Principal Payment Date on
which the Class A Bonds are paid in full), to the Class B Bonds for the payment
of any unpaid principal on the Class B Bonds, and TENTH, if such Payment Date is
not a Principal Payment Date, any remaining amounts
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<PAGE>
will be deposited in the Reserve Fund. See "Description of the Bonds--Collateral
Proceeds Account" in the Prospectus.
Any amounts remaining in the Collateral Proceeds Account immediately
following retirement of the Bonds in full and payment of any unpaid
administrative fees and expenses will be paid to the Issuer. The funds so paid
to the Issuer may be used to pay the Issuer's general operating expenses and to
make distributions to the related Owner Participants.
COST OF ISSUANCE ACCOUNT
On the Closing Date, the Indenture Trustee will establish a cost of
issuance account (the "Cost of Issuance Account") into which the Issuer will
cause the Indenture Trustee to deposit approximately $275,000 (the "Cost of
Issuance Amount"). Promptly after the Closing Date, the Indenture Trustee will
withdraw amounts in the Cost of Issuance Account pursuant to an Issuer Order to
pay the actual costs and expenses incurred by the Issuer in connection with the
issuance of the Bonds. Thereafter, the Indenture Trustee will withdraw any
remaining amounts from the Cost of Issuance Account and deposit the same in the
Collateral Proceeds Account.
OPTIONAL REDEMPTION
To avoid excessive administrative expense, the Issuer will be permitted, at
its option, to redeem (i) the Class B Bonds, on any date on which the Aggregate
Current Principal Amount of Bonds outstanding has declined to 10% or less of
their initial Aggregate Current Principal Amount and (ii) Class A Bonds and upon
their payment in full, Class B Bonds, on any Payment Date prior to the first
Principal Payment Date, in an amount equal to any principal prepayments on the
Student Loans collected by the Servicer during the related Prepayments
Collection Period in each case at a price equal to 100% of their unpaid
principal amount, plus accrued interest. In addition, the Issuer will have the
right, at its option, to redeem the Class A Bonds, and the Class B Bonds, pro
rata among each Class, during the 60-day period following the Closing Date, in
an amount not to exceed 5% of the Aggregate Current Principal Amount of the
Bonds at a redemption price of 100% of their unpaid principal amount, plus
accrued interest. Notice of redemption shall be given to Bondholders not less
than fifteen days prior to such redemption. See "Limited Withdrawal and
Substitution of Student Loan Collateral" below.
LIMITED WITHDRAWAL AND SUBSTITUTION OF STUDENT LOAN COLLATERAL
During the 60-day period following the Closing Date, the Issuer will have
the right, at its option, to withdraw and substitute Student Loans having an
original principal balance up to 5% of the aggregate principal balance of the
Student Loans in the Trust Estate. Such withdrawal or substitution of Student
Loans is intended to permit Owner Participants to cancel Student Loans of
students who choose not to attend or who leave soon after arrival, and to make
loans to students, who had not made timely application, in unusual or emergency
circumstances. Any withdrawn Student Loans may be released from the Trust Estate
if the Issuer deposits with the Indenture Trustee additional Student Loans
having the same terms, including interest rates, as the Student Loans being
withdrawn, and/or cash in the aggregate amounts specified in the Indenture. See
"Description of the Bonds -- Optional Redemption" herein.
REPORTS TO BONDHOLDERS
The Indenture Trustee will prepare and deliver to the Issuer, the Rating
Agency and each Bondholder no later than one (1) Business Day following each
Payment Date, a statement (a "Payment Date Statement") with respect to such
Payment Date setting forth the following information:
(a) the Available Payment Amount on deposit in the Collateral Proceeds
Account and the Reserve Fund, itemizing (i) Servicer Remittances received
during the related Interest Accrual Period, (ii) the aggregate amount of
reinvestment income received during the Interest Accrual Period, (iii)
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<PAGE>
Interest Support Payments withdrawn from the Interest Support Account and
(iv) the amount of any payment then being made from the Interest Reserve
Amount;
(b) the aggregate amount of interest accrued during the immediately
preceding Interest Accrual Period on all Outstanding Bonds;
(c) the aggregate amount of interest accrued during the immediately
preceding Interest Accrual Period on all Outstanding Class A Bonds;
(d) the aggregate amount of interest accrued during the immediately
preceding Interest Accrual Period on all Outstanding Class B Bonds;
(e) the aggregate amount of all payments then being made with respect
to the Bonds;
(f) the aggregate amount of all payments then being made with respect
to the Class A Bonds;
(g) the aggregate amount of all payments then being made with respect
to the Class B Bonds;
(h) the aggregate amount of all payments then being made with respect
to the Bonds that represents principal;
(i) the aggregate amount of all payments then being made with respect
to the Class A Bonds that represents principal;
(j) the aggregate amount of all payments then being made with respect
to the Class B Bonds that represents principal;
(k) the amount of any payment then being made with respect to an
Individual Bond;
(l) the amount of the payment then being made with respect to an
Individual Bond that represents interest;
(m) the amount of the payment then being made with respect to an
Individual Bond that represents principal;
(n) the outstanding principal amount of an Individual Bond after giving
effect to any repayment of principal made on such date;
(o) the sum of (i) the outstanding principal balance after giving
effect to all payments and recoveries of principal and (ii) any interest in
excess of interest payable at the interest rate of the Bonds, paid or
payable by the Servicer to the Indenture Trustee, of all Student Loans
still subject to the lien of the Indenture;
(p) the Aggregate Current Principal Amount of Class A Bonds after
giving effect to the principal payments to be made on such Payment Date;
(q) the Aggregate Current Principal Amount of Class B Bonds after
giving effect to the principal payments to be made on such Payment Date;
and
(r) the number and aggregate outstanding principal balance of Student
Loans that are more than 150 days delinquent, if any, as of the related
Payment Date.
In addition, the Issuer, to the extent required by applicable law, will
prepare and file any and all tax returns, information statements or other
filings required to be delivered to any governmental taxing
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<PAGE>
authority and to Bondholders pursuant to any applicable law with respect to the
Trust Estate and the transactions contemplated hereby.
CREDIT ENHANCEMENTS
In order to provide sufficient security for the payment of interest and
principal on the Bonds, the Issuer established the following additional form of
credit enhancement with respect to the Bonds:
DIFFERENCE BETWEEN STUDENT LOAN INTEREST RATE AND BOND INTEREST RATE
The weighted average interest rate on the pool of Student Loans will equal
9.185% per annum. Because the weighted average interest rate paid on the Class A
Bonds and the Class B Bonds will be 7.784% per annum, the difference between (i)
the Student Loan interest rate (net of the Servicing Fee) and (ii) the weighted
average bond interest rate of the Class A and the Class B Bonds provides the
holders of the Bonds an additional form of credit support on the payment of
interest and, to a limited extent, principal on the Bonds.
OVERCOLLATERALIZATION
On the Closing Date the collateralization ratio of Student Loans to Bonds
will be 81%, since the initial aggregate outstanding principal balance of
Student Loans and of Bonds will be $6,484,787 and $8,000,000, respectively.
However, this ratio is expected to increase by the end of the Interest Support
Period, since accrued interest on the Student Loans will be capitalized upon the
graduation of each student. Further, on the Closing Date the collateralization
ratio of all assets in the Trust Estate (i.e., Student Loans, and approximately
$2,700,000 representing the purchase price to the Issuer of U.S. Treasury
securities to be deposited in the Interest Support Account and the Reserve Fund)
to Bonds will be 114.8% since the initial aggregate outstanding principal
balance of Student Loans and the cost basis of the U.S. Treasury Securities in
the Trust Estate will be $9,185,000 and the initial outstanding principal
balance of the Bonds will be $8,000,000.
On the Closing Date, the Issuer will acquire the Student Loans with the
proceeds from the sale of the Bonds. The Issuer will pledge the Student Loans to
the Indenture Trustee as security for the Bonds. The Owner Participants may
receive distributions from their residual interests in the Student Loans only
after all of the Bonds are paid in full. See "The Issuer" and "The GATE(sm)
Student Loan Program" in the Prospectus.
SUBORDINATION
The Class B Bonds are subordinate to and support the Class A Bonds since
principal payments on the Class B Bonds will commence only after retirement of
the Class A Bonds.
DESCRIPTION OF THE INDENTURE
The Bonds offered hereby will be issued pursuant to a Trust Indenture, to
be dated as of April 1, 1997 (the "Indenture") between the Owner Trustee and the
Indenture Trustee. Reference is made to the Prospectus for important information
additional to that set forth herein regarding the terms of the Indenture and the
Bonds. The Issuer will provide to prospective or actual Bondholders, without
charge, on written request, a copy (without exhibits) of the Indenture. Requests
should be addressed to The National Collegiate Trust 1997-S1, 7.45% Class A
Collateralized Student Loan Bonds, Series 1997-S1 8.25% Class B Collateralized
Student Loan Bonds, Series 1997-S1, c/o State Street Bank and Trust Company, Two
International Place, 5th Floor, Boston, Massachusetts 02110.
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<PAGE>
THE INDENTURE TRUSTEE
State Street Bank and Trust Company is the Indenture Trustee for the Bonds
pursuant to the Indenture. The Indenture Trustee's principal corporate trust
offices are located at 225 Franklin Street, Boston, Massachusetts 02110.
MODIFICATION OF INDENTURE
With the consent of the holders of not less than 66 2/3% of the Aggregate
Current Principal Amount of the outstanding Bonds of each class affected
thereby, the Indenture Trustee and the Issuer may execute a supplemental
indenture to add provisions to, or change in any manner or eliminate any
provisions of, the Indenture with respect to the Bonds or modify (except as
provided below) in any manner the rights of the Bondholders.
Without the consent of the holder of each outstanding Bond affected
thereby, however, no supplemental indenture shall (i) change the Stated Maturity
of, or the Interest Payment Date for any Bond or reduce the principal amount
thereof, the interest rate specified thereon or the redemption price with
respect thereto, or change any place of payment where, or the coin or currency
in which, any Bond or any interest thereon is payable, or impair the right to
institute suit for the enforcement of certain provisions of the Indenture
regarding payment, (ii) reduce the percentage of the Aggregate Current Principal
Amount of the outstanding Bonds, the consent of the holders of which is required
for any such supplemental indenture, or the consent of the holders of which is
required for any waiver of compliance with certain provisions of the Indenture
or of certain defaults thereunder and their consequences as provided for in the
Indenture, (iii) modify the provisions of the Indenture specifying the
circumstances under which such a supplemental indenture may not change the
provisions of the Indenture without the consent of each outstanding Bond
affected thereby, or the provisions of the Indenture without the consent of each
outstanding Bond affected thereby, or the provisions of the Indenture with
respect to certain remedies available in an Event of Default, except to increase
any percentage specified therein or to provide that certain other provisions of
the Indenture cannot be modified or waived without the consent of the holder of
each outstanding Bond affected thereby, (iv) modify the definition of
"Outstanding Bonds", (v) permit the creation of any lien ranking prior to or on
a parity with the lien of the Indenture with respect to any part of the assets
subject to the lien of the Indenture or terminate the lien of the Indenture on
any property at any time subject thereto or deprive the holder of any Bond of
the security afforded by the lien of the Indenture, (vi) modify any of the
provisions of the Indenture in such manner as to affect the calculation of
principal and interest payable on the Bonds on any Payment Date (including the
components of any such calculations), adversely affect the rights of the
Bondholders to the benefits of any provisions for the mandatory redemption of
Bonds, or to adversely affect the rights of the Bondholders to any amounts
deposited in the Reserve Fund or the Interest Support Account, (vii) modify or
alter the provisions of the Indenture with respect to the sale of the Trust
Estate under certain circumstances, (viii) impair or adversely affect the Trust
Estate except as otherwise permitted under the Indenture, or (ix) change the
percentage required to declare an acceleration of the Bonds.
The Issuer and the Indenture Trustee may also enter into supplemental
indentures, without obtaining the consent of Bondholders, to cure ambiguities or
make minor corrections, to provide for the maintenance of the rating of the
Bonds at the Issuer's option, and to do such other things as would not adversely
affect the interests of the Bondholders.
EVENTS OF DEFAULT
An event of default ("Event of Default") with respect to the Bonds is
defined in the Indenture as being (i) a default in the payment of principal of
any Bond; (ii) a default in the payment of interest on any Bond which continues
for one Business Day; (iii) a default in the payment of the redemption price of
any Bond that has been called for redemption which continues for five days; (iv)
a default in the observance of any other covenant of the Indenture, and the
continuation of any such default for a period
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of thirty days after notice to the Issuer by the Indenture Trustee or to the
Issuer and the Indenture Trustee by the holders of at least 25% of the Aggregate
Current Principal Amount of the Bonds then outstanding; or (vi) certain events
of bankruptcy, insolvency, receivership or reorganization of the Issuer. See
"Description of the Indenture--Events of Default" in the Prospectus.
RIGHTS UPON EVENTS OF DEFAULT
In case an Event of Default should occur and be continuing with respect to
the Bonds, the Indenture Trustee or holders of at least 66 2/3% of the Aggregate
Current Principal Amount of the Bonds then outstanding (100% of the Aggregate
Current Principal Amount if the Event of Default is not a payment default) may
declare the Bonds to be immediately due and payable. Such declaration may under
certain circumstances be rescinded by the holders of not less than 66 2/3% of
the Aggregate Current Principal Amount of the Bonds then outstanding. See also
"Description of the Indenture--Rights Upon Events of Default" in the Prospectus
for additional considerations with respect to Events of Default.
CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS
GENERAL
The yield on the Bonds will depend on the price paid by the Bondholder, the
receipt and timing of receipt of payments on the Bonds and the weighted average
coupon and term to maturity of the Student Loans.
YIELD AND PREPAYMENT CONSIDERATIONS
A Bond's yield to maturity will be affected by the rate of principal
payments on the Student Loans and the allocation thereof to reduce the principal
balance of such Bond. The rate of principal payments on the Student Loans will
in turn be affected by the amortization schedules thereof and the rate of
principal prepayments thereon. Prepayments on the Student Loans will result in
distributions on the Bonds of amounts that would otherwise accrue interest and
be distributed over the remaining terms of the Student Loans. Assuming the Bonds
are sold at par, a higher than anticipated rate of principal prepayments on the
Student Loans will not affect the yield to maturity on the Bonds, although it
will affect the average life of the Bonds. Thus, although the Bonds will be paid
in full they may be retired earlier than expected. If the Bonds are sold at a
discount or at a premium, a higher rate of prepayment on the Student Loans will
increase or decrease, respectively, the yield to maturity on the Bonds.
Because the rates of payment of principal on the Student Loans will depend
on future events and a variety of factors (as described more fully below), no
assurance can be given as to such rate or the rate of principal prepayments in
particular. In general, the earlier a prepayment of principal on the Student
Loans is distributed on a Bond, the greater will be the effect on the investor's
yield to maturity. As a result, the effect on such investor yield of principal
payments occurring at a rate higher (or lower) than the rate anticipated by the
investor during any particular period would not be fully offset by a subsequent
like reduction (or increase) in the rate of principal payments.
The extent of prepayments of principal of the Student Loans varies from
time to time and may be affected by a number of factors including without
limitation, economic, demographic, geographic, social, legal and tax. In
addition, the rate of prepayment on the Student Loans may be affected by
prevailing market interest rates for student loans. When the prevailing market
interest rate is below a student loan coupon, a borrower may have an increased
incentive to refinance his or her student loan. There can be no assurance as to
the rate of prepayment on the Student Loans in the Trust Estate or that the rate
of payments will conform to any model described herein. Furthermore, there can
be no assurance that student loan programs, such as programs currently proposed
and being implemented by the Clinton Administration, or other federal or state
government programs, will not result in significant prepayment
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of the Student Loans. The Issuer will not make any representation as to the
particular factors that will affect the prepayments of the Student Loans, as to
the relative importance of such factors, as to the percentage of the principal
balance of the Student Loans that will be paid as of any date or as to the
overall rate of prepayment on the Student Loans. See also "Yield Considerations"
in the Prospectus.
Only limited information regarding historic prepayment rates for GATE(sm)
Student Loans is provided in this Prospectus Supplement. See "Repayment History
Regarding GATE(sm) Student Loans" herein. Because the first GATE(sm) Student
Loans were originated in 1994, the age of the portfolio of GATE(sm) student
loans serviced by the Servicer is fairly recent, and, more importantly, only a
small portion of such student loans are in repayment status. Thus, the repayment
experience with respect to GATE(sm) student loans is insufficient to provide
reliable predictive information based on the historical repayment performance of
GATE(sm) student loans. There can be no assurance that the Student Loans that
secure the Bonds will be in any manner comparable to the limited historical
information provided herein. In addition, no information regarding historic
prepayment rates for other student loans to students of the Owner Participants
or for other student loans serviced by the Servicer is provided herein, because
the Depositor believes that the terms of the GATE(sm) Student Loan Program are
materially different from the terms of student loans originated under existing
student loan programs or any of the other student loans serviced by the
Servicer, and that any information regarding historic prepayment rates on such
loans would not only be irrelevant, but might mislead investors into making
erroneous judgments as to the likely level of prepayments under the GATE(sm)
Student Loan Program. See "Yield Considerations--Yield and Prepayment
Considerations" in the Prospectus for a discussion of the major differences
between the GATE(sm) Student Loan Program and other existing loan programs,
which the Depositor believes are likely to affect the level of prepayments.
The rates at which principal payments are received on the Student Loans and
the rate at which payments are made from the Reserve Fund for the Bonds may
affect the ultimate maturity and the weighted average life of the Bonds.
Weighted average life refers to the average amount of time that will elapse from
the date of issue of an instrument until each dollar of principal of such
instrument is repaid to the investor.
The weighted average life of the Bonds will be influenced by the rate at
which principal on the related Student Loans, whether in the form of scheduled
amortization or prepayments, is paid on such series of Bonds. Prepayment rates
on loans are commonly measured relative to a prepayment standard or model.
However, there is no standard or model specifically available for GATE(sm)
student loans.
Subject to the foregoing discussions and assumptions, the following table
indicates the weighted average life and final maturity of the Class A and the
Class B Bonds based on the conditional prepayment rate ("CPR") prepayment model.
CPR is determined by the percentage of principal outstanding at the beginning of
a period that prepays during that period, stated as an annualized rate. THE CPR
PREPAYMENT MODEL, LIKE ANY PREPAYMENT MODEL, DOES NOT PURPORT TO BE EITHER AN
HISTORICAL DESCRIPTION OF PREPAYMENT EXPERIENCE OR A PREDICTION OF THE
ANTICIPATED RATE OF PREPAYMENT.
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EFFECT OF PREPAYMENT OF STUDENT LOANS ON WEIGHTED AVERAGE LIFE AND FINAL
MATURITY OF THE BONDS1
<TABLE>
<CAPTION>
Prepayment Experience 0CPR 1CPR(2) 2CPR(3) 3CPR(4) 4CPR(5) 5CPR(6) 6CPR(7) 7CPR(8)
- --------------------- ---- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Average Life (in Years)
Class A Bonds 9.0 8.1 7.3 6.7 6.2 5.7 5.3 4.9
Class B Bonds 13.2 12.8 12.5 12.2 11.8 11.5 11.1 10.7
Final Maturity (in Years)
Class A Bonds 3/09 9/08 3/08 9/07 3/07 9/06 3/06 9/05
Class B Bonds 9/11 3/11 3/11 9/10 9/10 9/10 3/10 3/10
</TABLE>
- --------------------
(1) This table has been prepared using the following assumptions:
(i) defaults are assumed to occur with respect to Student Loans
constituting 11.93% (2.5 x the weighted average Stafford Loan default
rate for the Owner Participants, which is based on the number of loans
defaulted - see "The Owner Participants" herein) of the aggregate
principal balance of the Student Loans in the Trust Estate and
liquidations of defaulted Student Loans are assumed to result in
recoveries of 20% of the aggregate principal balance of defaulted
loans, for an aggregate loss of 9.54% of the aggregate principal
balance of the Student Loans in the Trust Estate (plus interest
thereon); 43% of these defaults are assumed to occur in the first year
in which repayment commences, 20% in the second year, 14% in the third
year, 10% in the fourth year and 3.25% in each of years five through
eight;
(ii) students to whom Student Loans were made constituting 15% of the
Trust Estate leave school prior to the graduation of the student's
entering class;
(iii) students to whom Student Loans were made constituting 25% of the
Trust Estate defer for an average of 2.5 years the payment of interest
on the loans commencing with the Payment Date immediately after
termination of the Interest Support Period; and
(iv) the interest rate on the Student Loans is 9.185%; the interest
rate on the Outstanding Class A and Class B Bonds is 7.45% and 8.25%,
respectively, and reinvestment income on funds in the Reserve Fund, the
Interest Support Account and the Collateral Proceeds Account is earned
at the rate of 5% per year.
(2) Assumes 1% (on an annualized basis) of the principal outstanding on the
Student Loan at the beginning of each Interest Accrual Period prepays
during that period and prepayments received prior to the first
Principal Payment Date are used to retire Bonds as received.
(3) Assumes 2% (on an annualized basis) of the principal outstanding on the
Student Loan at the beginning of each Interest Accrual Period prepays
during that period and prepayments received prior to the first
Principal Payment Date are used to retire Bonds as received.
(4) Assumes 3% (on an annualized basis) of the principal outstanding on the
Student Loan at the beginning of each Interest Accrual Period prepays
during that period and prepayments received prior to the first
Principal Payment Date are used to retire Bonds as received.
(5) Assumes 4% (on an annualized basis) of the principal outstanding on the
Student Loan at the beginning of each Interest Accrual Period prepays
during that period and prepayments received prior to the first
Principal Payment Date are used to retire Bonds as received.
(6) Assumes 5% (on an annualized basis) of the principal outstanding on the
Student Loan at the beginning of each Interest Accrual Period prepays
during that period and prepayments received prior to the first
Principal Payment Date are used to retire Bonds as received.
(7) Assumes 6% (on an annualized basis) of the principal outstanding on the
Student Loan at the beginning of each Interest Accrual Period prepays
during that period and prepayments received prior to the first
Principal Payment Date are used to retire Bonds as received.
(8) Assumes 7% (on an annualized basis) of the principal outstanding on the
Student Loan at the beginning of each Interest Accrual Period prepays
during that period and prepayments received prior to the first
Principal Payment Date are used to retire Bonds as received.
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OTHER FACTORS AFFECTING WEIGHTED AVERAGE LIFE
INCREASED PRINCIPAL PAYMENTS; EXTENSIONS OF MATURITY The Student Loans
require that for the first five years after graduation (the "Interest Only
Period") interest payments only be made, and no such interest is required to be
paid. Principal amortization commences after the Interest Only Period. In
addition, the amortization of principal due and owing each year increases. Thus,
monthly loan payments will gradually increase in size. The ability of a borrower
to make increased principal payments may depend upon his or her wages over time
and other economic factors, and, therefore, there is a risk that the Student
Loans may default during the eight years of principal amortization after the
Interest Only Period, or that the maturity of a Student Loan may be extended in
connection with a workout. See "Yield Considerations--Other Factors Affecting
Weighted Average Life" in the Prospectus.
NEGATIVE AMORTIZATION The weighted average life of the Bonds may be
affected by (i) students that defer repayment of their respective Student Loans
to attend graduate school or (ii) by servicerapproved forbearance periods during
which a student's monthly payments on the related Student Loan may be deferred
or reduced due to such student's inability to make scheduled payments. In
addition to interest accrued during the Interest Support Period, during any such
deferment or forbearance period, interest accrued on a Student Loan will be
added to the outstanding principal balance of such Student Loan, thus causing
negative amortization. To the extent that deferred interest is added to the
principal balance of a Student Loan, future interest accruals are computed on
that higher principal balance and the scheduled payment is increased to amortize
the unpaid principal over the remaining amortization term of the Student Loan.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In general, except as supplemented or otherwise described herein, the
discussion that appears in the Prospectus under the heading "Certain Federal
Income Tax Consequences" will apply to purchasers of the Bonds. Upon the
issuance of the Bonds, Thacher Proffitt & Wood, counsel to the Depositor and the
Issuer, will deliver its opinion generally to the effect that, under the law in
effect on the date thereof and assuming compliance with the Indenture and
related documents, for federal income tax purposes (i) the Bonds constitute
indebtedness of, and not equity interests in, the Issuer or in a separate
association taxable as a corporation and (ii) the Issuer will not be classified
as an association taxable as a corporation.
The Class A Bonds and the Class B Bonds will be treated as having been
issued with original issue discount for federal income tax reporting purposes.
In addition, a purchaser of a Bond with market discount generally will be
subject to the market discount rules of the Code. The prepayment assumption with
respect to the Student Loans used in determining the rate of accrual of market
discount, if any, for federal income tax purposes will be that the Student Loans
will not be prepaid. No representation is made that the Student Loans will not
prepay or that they will prepay at any other rate. See "Certain Federal Income
Tax Consequences--Taxation of Owners of Bonds--Market Discount" in the
Prospectus.
For further information regarding the federal income tax consequences
of investing in the Bonds, see "Certain Federal Income Tax Consequences" in the
Prospectus.
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ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended
("ERISA") and the Code impose certain requirements on employee benefit plans,
and on certain other retirement plans and arrangements, including individual
retirement accounts and annuities and Keogh plans that are subject to the
fiduciary responsibility provisions of ERISA or Section 4975 of the Code and on
collective investment funds and insurance company separate accounts in which
such plans, accounts or arrangements are invested (all of which are hereinafter
referred to as "Plans"), and on persons who are fiduciaries with respect to
Plans, in connection with the investment of Plan assets.
ERISA generally imposes on fiduciaries of Plans to which it applies
certain fiduciary requirements, including those of investment prudence and
diversification and the requirement that a Plan's investments be made in
accordance with the documents governing the Plan. In addition, ERISA and the
Code prohibit a broad range of transactions involving assets of a Plan (as
described below) and persons ("Parties in Interest") who have certain specified
relationships to the Plan, unless a statutory or administrative exemption is
available. Certain Parties in Interest that participate in a prohibited
transaction may be subject to an excise tax imposed pursuant to Section 4975 of
the Code, and civil money penalties and other sanctions under ERISA, unless a
statutory or administrative exemption is available. These prohibited
transactions generally are set forth in Section 406 of ERISA and Section 4975 of
the Code.
PLAN ASSET REGULATIONS
Section 2510.3-101 of the regulations of the United States Department
of Labor ("Regulations") governs the determination a of Plan's assets in cases
where a Plan makes an investment in an entity which itself has assets. Under the
Regulations, a Plan's assets include its investments but do not include the
assets of the entities in which it invests unless the Plan's investment is an
equity interest, other than a publicly offered security (as defined in the
Regulations) or a security issued by an investment company registered under the
Investment Company Act of 1940, in a company which is not an operating company
(as defined in the Regulations) and in which equity participation by benefit
plan investors is not significant (as defined in the Regulations). The
Regulations define "equity interest" as any interest in an entity other than an
instrument that is treated as indebtedness under applicable local law and which
has no substantial equity features. The Seller has been advised by counsel that
in its opinion the Bonds will be treated as indebtedness under the laws of the
State of Delaware and, although there is no relevant precedent, the Seller
believes that the Bonds possess no substantial equity features. Accordingly, the
Seller believes that the assets of a Plan which invests in Bonds would include
the Bonds acquired but would not, by virtue of such investment, include the
assets of the Issuer. In such event, the ERISA fiduciary requirements and the
prohibited transaction rules of ERISA and the Code would apply to a Plan's
investment in Bonds but would not, by virtue of such investment, apply to the
assets and activities of the Issuer.
For a discussion of the ERISA fiduciary requirements and the prohibited
transaction rules that would apply in the event that the Bonds are treated as
equity interests, see "ERISA Considerations" in the Prospectus.
Any Plan fiduciary that proposes to cause a Plan to purchase Bonds
should consult with its counsel with respect to the potential applicability of
ERISA and the Code to such investment and the availability of (and scope of
relief provided by) any prohibited transaction exemption in connection
therewith. In addition, any Plan fiduciary that proposes to cause a Plan to
purchase Bonds should consider whether such purchase would be appropriate under
the general fiduciary standards of prudence and diversification, taking into
account the overall investment policy of the Plan and its existing portfolio,
and should consult with its counsel with respect to the potential applicability
of ERISA and the Code.
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OTHER PLAN INVESTORS
Certain employee benefit plans, such as governmental plans (as defined
in Section 3(32) of ERISA and Section 414(d) of the Code), and, if no election
has been made under Section 410(d) of the Code, church plans (as defined in
Section 3(33) of ERISA and 414(e) of the Code) are not subject to ERISA
requirements. Accordingly, such plans' investments in Bonds are not subject to
the ERISA considerations described above. Any such plan which is qualified and
exempt from taxation under Sections 401(a) and 501(a) of the Code, however, is
subject to certain prohibited transaction rules set forth in Section 503 of the
Code.
UNDERWRITING
BancAmerica Securities, Inc. (the "Underwriter") has agreed, subject to
the terms and conditions of the Underwriting Agreement, to purchase all of the
principal amount of the Bonds, if any are purchased.
Distribution of the Bonds will be made by the Underwriter from time to
time in negotiated transactions or otherwise at varying prices to be determined
at the time of sale. Proceeds to the Issuer from the sale of the Bonds will be
approximately 91.75253% of the aggregate principal balance initially represented
by the Class A Bonds, plus 89.87614% of the aggregate principal balance
initially represented by the Class B Bonds, plus accrued interest at the related
Bond Interest Rate from the Closing Date, after deducting expenses payable by
the Issuer. The Underwriter may effect such transactions by selling the Bonds to
or through dealers, and such dealers may receive compensation in the form of
underwriting discounts, concessions or commissions from the Underwriter for whom
they act as agent. In connection with the purchase and sale of the Bonds, the
Underwriter may be deemed to have received compensation from the Issuer in the
form of underwriting discounts. The Underwriter and any dealers that participate
with the Underwriter in the distribution of the Bonds may be deemed to be
underwriters and any profit on the resale of the Bonds positioned by them may be
deemed to be underwriting discounts and commissions under the Securities Act of
1933, as amended (the "1933 Act").
The Underwriting Agreement provides that the Issuer will indemnify the
Underwriter against certain civil liabilities, including liabilities under the
1933 Act, or will contribute to payments the Underwriter may be required to make
in respect thereof.
Purchasers of the Bonds, including dealers, may, depending on the facts
and circumstances of such purchases, be deemed to be "underwriters" within the
meaning of the 1933 Act in connection with reoffers and sales by them of Bonds.
Bondholders should consult with their legal advisors in this regard prior to any
such reoffer or sale.
In connection with this offering, the Underwriter may engage in
transactions that stabilize, maintain or otherwise affect the market price of
the Bonds in accordance with Regulation M under the Exchange Act, including by
entering into stabilizing bids and purchasing the Bonds to cover any short
position in the Bonds maintained by the Underwriter, during or after the
offering. A stabilizing bid means the placing any bid or effecting of any
purchase for the purpose of pegging, fixing or maintaining the price of the
Bonds. The Underwriter may create a short position for the account of the
Underwriter by selling more Bonds in connection with the offering that it is
committed to purchase from the Issuer and, in such case, may purchase Bonds in
the open market following completion of the offering to cover all or a portion
of such short position. Any of the transactions described in this paragraph
could cause the price of the Bonds to be higher than it might be in the absence
of such transactions. The Underwriter is not committed to enter into stabilizing
transactions and, if any such transactions are entered into, they may be
discontinued at any time.
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BancAmerica Securities, Inc., the Underwriter, is an affiliate of BANA,
an Originator of 62 Student Loans, with an initial principal amount of $145,747.
The proceeds of the sale of the Bonds will be used to purchase the Student Loans
from the Originators, including BANA.
LEGAL MATTERS
Certain legal matters relating to the Bonds, including certain federal
income tax matters, will be passed upon for the Depositor and the Issuer by
Thacher Proffitt & Wood, New York, New York.
RATING
It is a condition to issuance that the Class A Bonds and the Class B
Bonds offered hereby be rated no less than "Aa2" and "Baa2", respectively, by
Moody's Investors Service, Inc. (the "Rating Agency").
The Rating Agency's rating of the Bonds addresses the likelihood of the
receipt by Bondholders of payments required under the Indenture. Moody's
Investors Service, Inc. ratings take into consideration the credit quality of
the Student Loan pool, structural and legal aspects associated with the Bonds,
and the extent to which the payment stream on the Student Loan pool is adequate
to make payments required under the Bonds. A "Aa2" or "Baa2" rating on the Bonds
does not, however, constitute a statement regarding frequency of prepayments on
the Student Loans.
The rating of "Aa2" assigned to the Class A Bonds and "Baa2" assigned
to the Class B Bonds also addresses the likelihood of the receipt by Bondholders
of all distributions to which such Bondholders are entitled. The rating process
addresses the structural and legal aspects associated with the Bonds, including
the nature of the underlying Student Loans. The ratings assigned to
collateralized student loan pools do not represent any assessment of the
likelihood or rate of principal prepayments. The ratings do not address the
possibility that Bondholders might suffer a lower than anticipated yield or that
they may fail to recoup their initial investment. See "Certain Yield and
Prepayment Considerations" herein.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each security rating should be evaluated
independently of any other security rating.
S-34
