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
S-27
<PAGE>
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
S-28
<PAGE>
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.
S-29
<PAGE>
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.
S-30
<PAGE>
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.
S-31
<PAGE>
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.
S-32
<PAGE>
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.
S-33
<PAGE>
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
<PAGE>
PROSPECTUS
GATE(sm) RECEIVABLE ASSET-BACKED DEBT SECURITIES (GRADS(sm))
COLLATERALIZED STUDENT LOAN BONDS
(ISSUABLE IN SERIES)
THE NATIONAL COLLEGIATE TRUST
AND SIMILAR TRUSTS OF WHICH
THE NATIONAL COLLEGIATE TRUST IS DEPOSITOR
--------
The National Collegiate Trust (the "Depositor") proposes to establish
separate trusts (each, an "Issuer") which will sell from time to time under this
Prospectus and related Prospectus Supplements up to $50,000,000 aggregate
principal amount of collateralized student loan bonds, issuable in series (the
"Bonds"). As described in the related Prospectus Supplement, the Bonds of each
series may consist of
(COVER CONTINUED ON NEXT PAGE)
PROSPECTIVE INVESTORS SHOULD CONSIDER THE INFORMATION SET FORTH UNDER "RISK
FACTORS" ON PAGE 11 OF THIS PROSPECTUS AND IN THE RELATED PROSPECTUS SUPPLEMENT.
--------
EACH SERIES OF BONDS REPRESENTS OBLIGATIONS OF THE RELATED ISSUER ONLY AND WILL
NOT BE INSURED OR GUARANTEED BY ANY GOVERNMENT AGENCY OR INSTRUMENTALITY, OR BY
ANY EDUCATIONAL INSTITUTION HAVING ANY INTEREST IN SUCH ISSUER, OR BY ANY OTHER
PERSON OR ENTITY.
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. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE BONDS BEING OFFERED HEREUNDER DO NOT REPRESENT AN INTEREST IN, OR OBLIGATION
OF, ANY ORIGINATOR OR ITS PARENT ENTITY, INCLUDING, WITHOUT LIMITATION, THE
FIRST NATIONAL BANK OF BOSTON OR BANKAMERICA CORPORATION. NO PURCHASER OF THE
BONDS SHALL HAVE ANY RECOURSE TO ANY ORIGINATOR OR TO ITS PARENT ENTITY. THE
UNDERWRITING CRITERIA EMPLOYED BY ANY ORIGINATOR IN ORIGINATING THE STUDENT
LOANS MAY DIFFER FROM THOSE UTILIZED BY SUCH ORIGINATOR AND ITS AFFILIATES IN
ORIGINATING STUDENT LOANS UNDER OTHER STUDENT LOAN PROGRAMS. SUCH DIFFERENCES
INCLUDE, WITHOUT LIMITATION, THE FACT THAT THE STUDENT LOAN UNDERWRITING
STANDARDS ARE NOT INTENDED TO ANALYZE IN DETAIL THE ABILITY OF INDIVIDUAL
BORROWERS TO REPAY THEIR STUDENT LOANS.
--------
PRIOR TO ISSUANCE THERE WILL HAVE BEEN NO MARKET FOR THE BONDS OF ANY
SERIES AND THERE CAN BE NO ASSURANCE THAT A SECONDARY MARKET FOR ANY BONDS WILL
DEVELOP OR THAT, IF IT DOES DEVELOP, IT WILL CONTINUE. THIS PROSPECTUS MAY NOT
BE USED TO CONSUMMATE SALES OF THE BONDS OF ANY SERIES UNLESS ACCOMPANIED BY THE
PROSPECTUS SUPPLEMENT FOR SUCH SERIES.
The Bonds of any series may be offered through one or more different
methods, including offerings through underwriters, as more fully described under
"Underwriting" herein and in the related Prospectus Supplement.
The date of this Prospectus is March 25, 1997
<PAGE>
(COVER CONTINUED)
one or more classes of Bonds that, among other things: (i) are senior or
subordinate to one or more other classes of Bonds in entitlement to certain
payments of interest, principal and other amounts payable on the Bonds or (ii)
provide for payments of interest thereon or principal thereof that commence only
following the occurrence of certain events, such as the retirement of one or
more other classes of Bonds of such series.
Unless otherwise specified in the related Prospectus Supplement,
principal on each series of Bonds will be payable in semiannual installments on
the dates set forth in the related Prospectus Supplement (each, a "Principal
Payment Date") commencing no later than the fourth anniversary of the issuance
of such series of Bonds. Unless otherwise specified in the related Prospectus
Supplement, interest on each class of each series of Bonds will be payable
semiannually on the dates set forth in the related Prospectus Supplement (the
"Interest Payment Dates") at a fixed rate per annum as specified in the related
Prospectus Supplement, in an amount equal to the interest accrued on the unpaid
principal amount of the related class of each series of Bonds during the
six-month period ending on the last day preceding each such Interest Payment
Date (each such period, an "Interest Accrual Period"). Each series of Bonds will
be collateralized by a segregated pool of fixed-rate loans to students (the
"Student Loans").
Each Issuer will issue a series of Bonds pursuant to a trust indenture
(an "Indenture") and will use the proceeds thereof to purchase the Student Loans
directly or indirectly from the Originator (as defined herein). The Student
Loans will be pledged as collateral by the related Issuer to an independent
indenture trustee (the "Indenture Trustee") for the benefit of the holders of
the related series of Bonds.
The Student Loans will be originated by one or more financial
institution originators identified in the related Prospectus Supplement (the
"Originator") under the GATE (Guaranteed Access to Education)SM Student Loan
Program to students enrolled full-time at participating educational institutions
and to recent graduates. The Student Loans will be made to provide financing for
the costs of attending the related participating educational institution and for
certain other expenses in connection therewith, or in the case of recent
graduates to refinance amounts owed to, or previously borrowed from, the
educational institution. Unless otherwise specified in the related Prospectus
Supplement, the Pennsylvania Higher Education Assistance Agency will act as
servicer (the "Servicer") for the Student Loans.
The Issuer may, at its option, redeem Senior Bonds, and upon their
retirement, redeem Subordinate Bonds, on any date on which the Aggregate Current
Principal Amount of a series of Bonds outstanding has declined to 10% or less of
their initial Aggregate Current Principal Amount, in whole, but not in part. In
addition, unless otherwise specified in the related Prospectus Supplement, the
Issuer may, at its option (i) redeem Senior Bonds and the Subordinate Bonds, pro
rata, in part during the 60-day period following the related Closing Date, in an
amount not to exceed five percent (5%) of the Aggregate Current Principal Amount
of such series of Bonds, and (ii) redeem Senior Bonds, and upon their
retirement, redeem Subordinate Bonds, on any Payment Date prior to the first
Principal Payment Date, in an amount equal to any principal prepayments
collected by the Servicer during the six-month period ending on the 15th day of
the calendar month preceding the month in which the related Payment Date occurs
(the "Prepayments Collection Period").
Unless otherwise specified in the related Prospectus Supplement, each
class of each series of Bonds will initially be represented by a single bond
registered in the name of Cede & Co., the nominee of the Depository Trust
Company. The interests of Bondholders will be represented by book-entries only.
Certificated Bonds will be available only under the limited circumstances
described herein. See "Description of the Bonds--Book--Entry Registration and
Definitive Bonds" herein. The Bonds may be purchased in minimum denominations of
$25,000 and integral multiples of $1,000 in excess thereof.
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It is a condition of issuance that each class of each series of Bonds
be rated not lower than investment grade by one or more nationally recognized
statistical rating agencies (each, a "Rating Agency").
The yield on each series of Bonds will be affected by, among other
things, the rate of payment of principal (including prepayments) on Student
Loans in the related pool and the timing of receipt of such payments as
described under the caption "Yield Considerations" herein and "Certain Yield and
Prepayment Considerations" in the related Prospectus Supplement.
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PROSPECTUS SUPPLEMENT
As more particularly described herein, the Prospectus Supplement
relating to the Bonds of each series will, among other things, set forth, as
appropriate: (i) information as to the trust estate (with respect to any series,
the "Trust Estate") consisting primarily of the related pool of Student Loans,
including the general characteristics of the Student Loans included therein;
(ii) additional information with respect to the method of distribution of the
Bonds; and (iii) additional information with respect to any series of Bonds.
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission
(the "Commission") a Registration Statement (of which this Prospectus forms a
part) under the Securities Act of 1933, as amended, with respect to the Bonds.
This Prospectus and the Prospectus Supplement relating to each series of Bonds
contain summaries of the material terms of the documents referred to herein and
therein, but do not contain all of the information set forth in the Registration
Statement pursuant to the rules and regulations of the Commission. For further
information, reference is made to such Registration Statement and the exhibits
thereto. Such Registration Statement and exhibits can be inspected and copied at
prescribed rates at the public reference facilities maintained by the Commission
at its Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at its Regional Offices located as follows: Chicago Regional Office, 500
West Madison, 14th Floor, Chicago, Illinois 60661; and New York Regional Office,
Seven World Trade Center, New York, New York 10048.
No person has been authorized to give any information or to make any
representation not contained in this Prospectus and any related Prospectus
Supplement and, if given or made, such information or representation must not be
relied upon. This Prospectus and any related Prospectus Supplement do not
constitute an offer to sell or a solicitation of an offer to buy any securities
other than the Bonds, or an offer of the Bonds to any person in any state or
other jurisdiction in which such offer would be unlawful. The delivery of this
Prospectus at any time does not imply that information herein is correct as of
any time subsequent to its date; however, if any material change occurs while
this Prospectus is required by law to be delivered, this Prospectus will be
amended or supplemented accordingly.
The Servicer or the Indenture Trustee will be required to mail to
holders of Bonds of each series periodic, unaudited reports concerning the
related Trust Estate. Unless and until Definitive Bonds are issued, or unless
otherwise provided in the related Prospectus Supplement, such reports will be
sent on behalf of the related Trust Estate to Cede & Co., the nominee of The
Depository Trust Company ("DTC"), as registered holder of the Bonds, pursuant to
the related Indenture. Such reports may be available to holders of interests in
the Bonds (the "Bondholders") upon request to their respective DTC participants.
See "Description of the Bonds--Reports to Bondholders". The Owner Trustee on
behalf of the related Issuer will file or cause to be filed with the Commission
such periodic reports with respect to each related Trust Estate as are required
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
the rules and regulations of the Commission thereunder.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein by reference all documents and reports
filed or caused to be filed by each Issuer with respect to the related Trust
Estate pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior
to the termination of an offering of Bonds evidencing interests therein. The
Owner Trustee on behalf of the related Issuer will provide or cause to be
provided without charge to each person to whom this Prospectus is delivered in
connection with the offering of Bonds, a copy of any or all documents or reports
incorporated herein by reference, other than the exhibits to such documents
(unless such exhibits are specifically incorporated by reference in such
documents). Requests to an Issuer should be directed in writing to its principal
executive office as set forth in the related Prospectus Supplement.
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SUMMARY OF PROSPECTUS
THE FOLLOWING SUMMARY OF CERTAIN PERTINENT INFORMATION IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED INFORMATION APPEARING ELSEWHERE
IN THIS PROSPECTUS AND BY REFERENCE TO THE INFORMATION WITH RESPECT TO EACH
SERIES OF BONDS CONTAINED IN THE PROSPECTUS SUPPLEMENT TO BE PREPARED AND
DELIVERED IN CONNECTION WITH THE OFFERING OF BONDS OF SUCH SERIES. A GLOSSARY OF
PRINCIPAL TERMS IS INCLUDED AT THE END OF THIS PROSPECTUS.
SECURITIES OFFERED.................. Collateralized student loan bonds,
issuable in series (the "Bonds"). The
Bonds will be issued from time to time
pursuant to Indentures between a bank,
trust company or other fiduciary acting as
trustee for each Issuer (the "Owner
Trustee") and a bank or trust company
acting as trustee for the Bondholders
under the related Indenture (the
"Indenture Trustee"). Unless otherwise
specified in the related Prospectus
Supplement, the Bonds of each series will
be issued in minimum denominations of
$25,000 and multiples of $1,000 in excess
thereof. See "Risk Factors", "Description
of the Bonds", and "Description of the
Indenture".
As described in the related Prospectus
Supplement, the Bonds of each series may
consist of one or more classes of Bonds
that, among other things: (i) are senior
("Senior Bonds") or subordinate
("Subordinate Bonds") to one or more other
classes of Bonds in entitlement to certain
payments of interest, principal and other
amounts payable on the Bonds, or (ii)
provide for payments of interest thereon
or principal thereof that commence only
after the occurrence of certain events,
such as the retirement of one or more
other classes of Bonds of such series.
ISSUER.............................. The Issuer with respect to each series of
Bonds will be a trust established by The
National Collegiate Trust (the
"Depositor"). The related Issuer will not
engage in any activities other than
issuing and selling the Bonds and, in
connection therewith, acquiring, owning,
holding and pledging the Student Loans.
The Issuer will have no significant assets
other than those pledged as collateral for
the Bonds. The beneficial owners of the
Issuer will be the educational
institutions holding all or any portion of
the beneficial ownership of the Issuer
(the "Owner Participants"). See "The
Issuer".
DEPOSITOR........................... The Depositor is a Delaware business trust
formed for the purpose of creating one or
more trusts, each of which will issue one
or more series of Bonds, and for the
purpose of developing and promoting the
GATE(sm) student loan program. The Bonds
of any series will be
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obligations solely of the related Issuer.
The beneficial owner of the Depositor is
NCT Holdings, Inc. See "The Depositor".
SERVICER............................ Unless otherwise specified in the related
Prospectus Supplement, the Pennsylvania
Higher Education Assistance Agency, a
public corporation and a government
instrumentality of the Commonwealth of
Pennsylvania. See "The Servicer".
INDENTURE TRUSTEE................... Unless otherwise identified in the related
Prospectus Supplement, State Street Bank
and Trust Company, a Massachusetts trust
company. See "The Indenture Trustee".
OWNER TRUSTEE....................... Delaware Trust Capital Management, Inc., a
Delaware trust company acting as trustee
for the Depositor and for each Issuer.
ADMINISTRATOR....................... First Marblehead Data Services Inc., a
Delaware corporation and the wholly-owned
subsidiary of The First Marblehead
Corporation. See "The Administrator"
herein and in the accompanying Prospectus
Supplement and "The Depositor" herein.
INTEREST PAYMENTS................... Unless otherwise specified in the related
Prospectus Supplement, interest on each
class of each series of Bonds will be
payable semiannually on the dates set
forth in the related Prospectus Supplement
(each, an "Interest Payment Date"), at a
fixed rate per annum as set forth in the
related Prospectus Supplement, in an
amount equal to the interest accrued on
the unpaid principal amount of the related
class of such series of Bonds during the
six-month period ending on the last day
preceding each such Interest Payment Date
(each such period, an "Interest Accrual
Period"). See "Description of the
Bonds--Payments of Interest".
PRINCIPAL PAYMENTS.................. Unless otherwise specified in the related
Prospectus Supplement, principal payments
on each series of Bonds will be payable
semiannually on the dates specified in the
related Prospectus Supplement (each, a
"Principal Payment Date"; an Interest
Payment Date and a Principal Payment Date
may also be referred to herein as a
"Payment Date"), commencing with respect
to the Senior Bonds, no later than the
fourth anniversary of the issuance of such
series of Bonds, and with respect to the
Subordinate Bonds, if any, commencing upon
the event specified in the related
Prospectus Supplement, from all amounts on
deposit in the Reserve Fund less the
Interest
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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 fifteenth day of the
calendar month in which the related
Payment Date occurs (or such other period
as specified in the related Prospectus
Supplement) (each such period, a
"Collection Period"), in excess of the
amount needed to make the interest payment
on such series of 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 any late
payment charges on the Student Loans; (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--Payments of Principal".
STATED MATURITY..................... Unless otherwise specified in the related
Prospectus Supplement, the scheduled
maturity date of each class of each series
of Bonds (the "Stated Maturity") will be
on the 17th anniversary of the initial
Interest Payment Date set forth in the
related Prospectus Supplement. However,
the actual payment in full of each class
of each series of Bonds could occur
earlier than the related Stated Maturity
due to, among other things, principal
prepayments on the related Student Loans,
and no assurance can be given as to the
actual payment experience of the Bonds or
the related Student Loans. See "Risk
Factors--Average Life of Bonds;
Prepayments; Yields" and "Yield
Considerations".
OPTIONAL REDEMPTION................. Unless otherwise specified in the related
Prospectus Supplement, the Issuer will
have the right, at its option, (a) to
redeem the Senior Bonds and, upon
retirement in full of all Senior Bonds, to
redeem Subordinate Bonds (i) in whole, on
any date on which the Aggregate Current
Principal Amount of all Bonds outstanding
of such series has declined to 10% or less
of their initial Aggregate Current
Principal Amount and (ii) in part, on any
Payment Date prior to the first Principal
Payment Date, in an amount equal to any
prepayments collected by the Servicer on
the Student Loans during the related
Prepayments Collection Period and (b) to
redeem the Senior Bonds and the
Subordinate Bonds, pro rata in
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part, during the 60-day period following
the related Closing Date, in an amount not
to exceed five percent (5%) of the
Aggregate Current Principal Amount of such
series of Bonds, at a redemption price of
100% of their unpaid principal amount,
plus accrued interest. See "Description of
the Bonds--Optional Redemption."
USE OF PROCEEDS..................... Unless otherwise specified in the related
Prospectus Supplement, the Student Loans
will initially be funded by the
Originator. The net proceeds of each
series of Bonds, unless otherwise
specified in the related Prospectus
Supplement, will be used by the Issuer to
acquire the related Student Loans at a
discount from the Originator
simultaneously with the closing of the
sale of such series of Bonds. See "Use of
Proceeds" and "The Originator" herein and
in the accompanying Prospectus Supplement.
SECURITY FOR THE BONDS.............. Unless otherwise specified in the related
Prospectus Supplement, the Bonds are
secured by collateral including the
following (the "Trust Estate"):
A. STUDENT LOANS................... The Student Loans will consist of loans to
students (the "Student Loans") described
below and will include all rights of the
Issuer to receive any and all payments of
any nature and from any source with
respect to the Student Loans.
The Student Loans will be originated by
the Originator under the GATE(sm)
(Guaranteed Access to Education) student
loan program. See "Risk Factors" and "The
GATE(sm) Student Loan Program".
Unless otherwise specified in the related
Prospectus Supplement, during the 60 day
period following the related Closing Date,
the Issuer will have the right, at its
option, to withdraw Student Loans having
an original principal balance up to five
percent (5%) of the aggregate principal
balance of the Student Loans constituting
the related Trust Estate. Such withdrawn
Student Loans may be released from the
Trust Estate only 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 amount specified in the
Indenture. See "Description of the
Bonds--Limited Withdrawal and Substitution
of Student Loan Collateral". Under limited
circumstances, as set forth in the related
Prospectus Supplement, the Issuer will
have the right to acquire additional
Student Loans
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within a specified period following the
related Closing Date. An amount specified
in the related Prospectus Supplement will
be deposited by the Indenture Trustee into
an account for such purpose, from the
proceeds of the sale of the related series
of Bonds.
B. COLLATERAL PROCEEDS ACCOUNT..... For each series of Bonds, 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 of such
series; provided, however, that if there
is a shortfall in the Interest Reserve
Amount, such amount as is necessary to
fund such shortfall will be deposited in
the Reserve Fund. All funds deposited in
the Interest Reserve Account, together
with the reinvestment earnings thereon,
will be available for application to the
payment of the principal and interest on
the Bonds on the next Payment Date.
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 Senior Bonds for the payment
of accrued interest at the related Bond
Interest Rate; SECOND, to the Subordinate
Bonds for the payment of accrued interest
at the related Bond 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 Trustee will
declare all the Bonds to be immediately
due and payable by a notice in writing to
the Issuer); 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 related
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 Senior
Bonds for the payment, pro rata, of any
unpaid principal amount of the Senior
Bonds; NINTH, on each Principal Payment
Date following payment in full of the
Senior Bonds (which initially may be the
same Principal Payment Date on which the
Senior
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Bonds are paid in full), to the
Subordinate Bonds, if any, for the
payment, pro rata, of any unpaid principal
amount of the Subordinate 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".
C. RESERVE FUND.................. Unless otherwise specified in the related
Prospectus Supplement, the Indenture
Trustee will establish and maintain a
reserve fund (the "Reserve Fund") for the
benefit of holders of each series of
Bonds. On the related Closing Date, the
Indenture Trustee will apply funds in an
amount specified in the related Prospectus
Supplement to acquire an Eligible
Investment that will return payments of
principal and interest so that an amount
specified in the related Prospectus
Supplement at least equal to the interest
payments due on such series of Bonds for
the first Interest Accrual Period
following the termination of the Interest
Support Period, will be available from the
proceeds of such Eligible Investment. The
Indenture Trustee will deposit such
Eligible Investment in the Reserve Fund on
the related Closing Date. Unless otherwise
specified in the related Prospectus
Supplement, all funds remaining in the
Collateral Proceeds Account on each
Payment Date commencing with the initial
Payment Date and ending but including the
Payment Date that is on the fourth
anniversary of the initial Payment Date,
after making all payments due on such
series of Bonds on such Payment Dates,
shall be deposited in the Reserve Fund. On
each Payment Date thereafter, upon the
payment of all interest accrued and owing
on the related series of Bonds, any
remaining funds in the Collateral Proceeds
Account shall be deposited in the Reserve
Fund, to the extent necessary, so that the
amount therein shall equal the amount of
interest payable on such series of Bonds
on the next succeeding Payment Date (the
"Interest Reserve Amount"); provided that,
if after giving effect to all payments of
interest and principal on the related
series of Bonds on such Payment Date, the
Interest Reserve Amount equals or exceeds
the original principal amount of such
series of Bonds, minus all prior payments,
if any, made with respect to principal of
such
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series of Bonds (the "Aggregate Current
Principal Amount") of Outstanding Bonds,
then the Indenture Trustee shall declare
all the Bonds to 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--Credit
Enhancement--Reserve Fund".
D. 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 each related
series of Bonds. On the related Closing
Date, the Indenture Trustee will acquire
from the proceeds of the sale of the
related series of Bonds, a portfolio of
eligible investments, as defined in the
related Indenture (the "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 the Interest Payment Date thereafter
specified in the related Prospectus
Supplement (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. 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. See "Description of the
Bonds--Credit Enhancement--The Interest
Support Account".
COST OF ISSUANCE ACCOUNT........... The Indenture Trustee will establish and
maintain a cost of issuance account (the
"Cost of Issuance Account"). On the
related Closing Date, an amount (the "Cost
of Issuance Amount") equal to the
anticipated costs or expenses incurred by
the Issuer in connection with the issuance
of the related series of Bonds (the "Costs
of Issuance") will be deposited in the
Cost of Issuance Account from the proceeds
of sale of such series of Bonds. Promptly
after the related Closing Date, amounts in
the cost of Issuance Account will be
withdrawn and used by the Indenture
Trustee to pay the Costs of Issuance. See
"Description of the Bonds--Credit
Enhancement--The Cost of Issuance
Account".
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CREDIT SUPPORT THROUGH
OVERCOLLATERALIZATION............. Unless otherwise specified in the related
Prospectus Supplement, on the related
Closing Date for the sale of a series of
Bonds, the aggregate principal amount of
assets (i.e. Student Loans and Eligible
Investments deposited in the Reserve Fund
and the Interest Support Account) included
in the related Trust Estate will exceed
the related aggregate principal amount of
Bonds issued and sold on such date by a
percentage set forth in the related
Prospectus Supplement. The related
Prospectus Supplement may specify other
forms of credit support, such as insurance
policies or subordination, for a series of
Bonds, in addition to or in place of such
overcollateralization. See "Description of
the Bonds--Credit
Enhancement--Overcollateralization".
BOOK-ENTRY BONDS.................... Unless otherwise specified in the related
Prospectus Supplement, each class of each
series of Bonds will initially be
represented by a single certificate for
each class of such series of Bonds
registered in the name of Cede & Co., as
the nominee of The Depository Trust
Company ("DTC"). No person acquiring an
interest in the Bonds will be entitled to
receive a definitive certificate
representing such person's interest in the
Bonds unless definitive certificates
representing interests in the Bonds are
issued under the limited circumstances
described herein. See "Description of the
Bonds--Book-Entry Registration and
Definitive Bonds".
TAX STATUS OF THE
BONDS............................. The Bonds will constitute indebtedness of
the related Issuer and the stated interest
on a Bond generally will be taxable as
ordinary income in accordance with the
Bondholder's normal accounting method. See
"Certain Federal Income Tax Consequences".
ERISA CONSIDERATIONS................ The acquisition of a Bond by or for any
employee benefit plan subject to the
Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or any plan
described in Section 4975(e)(1) of the
Code (a "Plan") could result in a
prohibited transaction under Section 406
of ERISA or Section 4975 of the Code,
unless such acquisition is subject to a
statutory or administrative exemption. In
addition, if, by virtue of such
acquisition, assets held by the related
Issuer were deemed to be assets of the
acquiring Plan, the Servicer or other
parties may be considered to be a
fiduciary with respect to such Plan. See
"ERISA Considerations".
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RATING.............................. At their respective dates of issuance,
each class of each series of Bonds will be
rated not lower than investment grade by
one or more nationally recognized
statistical rating agencies (each, a
"Rating Agency"). See "Rating".
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RISK FACTORS
In considering an investment in any series of the Bonds, investors
should consider, among other things, the following risk factors and any other
risk factors set forth under the heading "Risk Factors" in the related
Prospectus Supplement.
LIMITED LIQUIDITY
The Bonds will not be listed on any national securities exchange. There
is, and at issuance there will be, no market for the Bonds of any series, 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 of such series. 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, to the
related Prospectus Supplement and to the reports to Bondholders delivered
pursuant to the related Indenture as described herein under the heading
"Description of the Bonds--Reports to Bondholders", "Book-Entry Registration and
Definitive Bonds" and "Description of the Indenture--Servicer's Annual
Compliance Statement" for information concerning the Bonds. Except to the extent
described herein and in the related Prospectus Supplement, Bondholders will have
no redemption rights and the Bonds are subject to early retirement only under
certain specified circumstances described herein and in the related Prospectus
Supplement.
AVERAGE LIFE OF BONDS; PREPAYMENTS; YIELDS
Prepayments on the Student Loans in any Trust Estate generally will
result in a faster rate of principal payments on the related Bonds than if
payments on such Student Loans were made as scheduled. Thus, the prepayment
experience on the Student Loans may affect the average life of such Bonds. The
rate of principal payments on pools of Student Loans varies between pools and
from time to time is influenced by a variety of economic, demographic,
geographic, social, tax, legal and other risk factors. There can be no assurance
as to the rate of prepayment on the Student Loans in any Trust Estate or that
the rate of payments will conform to any model described herein or in any
Prospectus Supplement. If prevailing interest rates fall significantly below the
applicable rates borne by the Student Loans included in a Trust Estate,
principal prepayments are likely to be higher than if prevailing rates remain at
or above the rates borne by those 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. As a result, the retirement of any series of
Bonds could occur significantly earlier than expected. In addition, only limited
information regarding historic prepayment rates for GATE(sm) Student Loans will
be provided in the related Prospectus Supplement. Further, no information
regarding historic prepayment rates for other student loans serviced by the
Servicer is expected to be provided in the related Prospectus Supplement. See
"Yield Considerations" herein and "Certain Yield and Prepayment Considerations"
and "Repayment History Regarding GATE(sm) Student Loans" in the related
Prospectus Supplement.
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RISKS DIFFER BETWEEN THE SENIOR BONDS AND THE SUBORDINATE BONDS
The Subordinate Bonds bear a greater risk of loss of principal than do
the Senior Bonds because the Subordinate Bonds do not receive principal payments
until the Senior Bonds are paid in full.
LIMITED NATURE OF RATINGS
Any rating assigned by a 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 related Indenture. Such rating
will 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 series of Bonds. Neither will such 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 and in the related Prospectus Supplement.
FAILURE TO COMPLY WITH LOAN ORIGINATION AND SERVICING PROCEDURES
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 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". 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 affected Student Loans, as set forth in the related Origination
Agreement. In addition, pursuant to the Servicing Agreement, the Servicer will
agree to indemnify the Depositor and the related 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 related 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
and the Issuers, 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 "The Originator" herein and in the related Prospectus Supplement.
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ACTUAL CASH FLOW RESULTS MAY BE MATERIALLY AND ADVERSELY DIFFERENT; INABILITY OF
INDENTURE TRUSTEE TO LIQUIDATE FINANCED 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 risk
factors, including both individual risk 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 risk 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. The occurrence
of one or more of these risk factors is impossible to predict, and no estimate
can be given of the point at which the effect of such risk 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 related 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 such Student Loans. If the
proceeds of any such sale do not, together with other available assets held
under the Indenture, exceed the aggregate outstanding principal amount of, and
accrued interest on, the Bonds, the Bondholders may suffer a loss.
See "The GATE(sm) Student Loan Program" herein 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. No
series of Bonds will have any claim or security interest in the Trust Estate for
any other series. If the related Trust Estate has insufficient assets to make
payments on such Bonds, no other assets will be available for payment of the
deficiency. Unless otherwise specified in the related Prospectus Supplement, 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, unless otherwise specified in the related Prospectus Supplement, the
Bonds will not be insured or guaranteed by any governmental agency or
instrumentality, or by any Owner Participants, the Originator, the Servicer or
any other person or entity. Although the Issuer will covenant to sell the
Student Loans if directed to do so by the Indenture Trustee 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, together
with other available assets held under the Indenture, will at any time be equal
to or greater than the Aggregate Current Principal Amount of and accrued
interest on the outstanding Bonds. 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 Date of the related series of Bonds. See "Description
of the Indenture--Events of Default".
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BOOK-ENTRY REGISTRATION
Unless otherwise specified in the related Prospectus Supplement, each
class of each series of Bonds will be initially represented by one or more bonds
registered in the name of Cede & Co., the nominee for DTC, and will not be
registered in the names of the Bondholders or their nominees. Because of this,
unless and until corresponding Definitive Bonds are issued, beneficial owners of
the Bonds will not be recognized by the Trustee as "Bondholders" (as that term
is to be used in the related Indenture). Thus, until such time, those beneficial
owners will be able to exercise the rights of Bondholders only indirectly
through DTC and its participating organizations. Because DTC can act only on
behalf of DTC Participants, who in turn act on behalf of Indirect DTC
Participants and certain banks, the ability of a Bond Owner to pledge its
interest in the Bonds to persons or entities that do not participate in the DTC
system, or otherwise take actions in respect of its interest in the Bonds, may
be limited due to the lack of a physical certificate evidencing such interest.
See "Description of the Bonds--Book--Entry Registration and Definitive Bonds".
THE DEPOSITOR
The National Collegiate Trust (the "Depositor") is a business trust
established under the laws of the State of Delaware in July 1992. NCT Holdings,
Inc., a Delaware corporation and the wholly-owned subsidiary of The First
Marblehead Corporation, a Delaware corporation ("First Marblehead"), owns all of
the beneficial ownership of the Depositor. The Depositor maintains a registered
office at c/o Delaware Trust Capital Management, Inc., 900 Market Street,
Wilmington, Delaware 19801, telephone number (302) 421-7339, and its principal
place of business is 237 Park Avenue, New York, New York, 10017, telephone
number (212) 551-1470. First Marblehead is engaged in the business of investment
banking and maintains its principal office at 7 Tuckers Wharf, Marblehead,
Massachusetts 01945, telephone number (617) 639-2000.
With the issuance of each series of Bonds, First Marblehead may be paid
a structural advisory fee and/or a loan origination processing fee in amounts to
be negotiated with the Owner Participants participating in each series. The
structural advisory fee is expected to range between 0.5% and 1.5% of the
aggregate principal amount of the Bonds, while the loan origination processing
fee is expected to be $10.00 per Student Loan. The structural advisory fee will
be paid only upon condition that First Marblehead provides services in
connection with the issuance of such series, while the loan origination
processing fee will be paid only upon condition that First Marblehead assists
the Owner Participants in the origination process as to Student Loans
constituting such series. The factors that will determine the amount of the
structural advisory and loan origination processing fees include, among others,
the aggregate number and principal amount of Student Loans securing the Bonds
and the extent of services provided by First Marblehead. The amount of each
structural advisory fee and loan origination processing fee shall be disclosed
in the related Prospectus Supplement.
The Depositor was formed for the purpose of creating one or more
trusts, each of which will issue one or more series of Bonds, and for the
purpose of developing and promoting the GATE(sm) student loan program. The Bonds
of any series will be obligations solely of the related Issuer.
THE ISSUER
Each trust established to act as Issuer of a series of Bonds will be
created pursuant to a deposit trust agreement among the Depositor, the Issuer
and a bank, trust company or other fiduciary specified in the related Prospectus
Supplement acting as Owner Trustee (the "Owner Trustee"). The Owner Trustee will
control the Issuer at the direction of the beneficiaries thereof. All
beneficiaries of the Issuer
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will be subject to certain restrictions regarding the transfer of their
beneficial interests. The proportion of ownership by each Owner Participant will
be determined primarily by the initial aggregate principal balance of each Owner
Participant's related Student Loans deposited in the Trust Estate. The Issuer
will pay fees and expenses for legal, structuring, underwriting and accounting
services rendered in connection with each series of Bonds.
The Issuer will acquire the Student Loans from the Originator. The
Student Loans will be pooled and pledged to the Indenture Trustee as security
for the issuance by the Issuer of a series of Bonds. After the payment of
certain fees and expenses, and the funding of the related Interest Reserve
Amount and the Interest Support Payments on the related closing date, the Issuer
will remit the remaining proceeds of the sale of the Bonds to the Originator.
Through its beneficial ownership of the Issuer, each Owner Participant will own
a residual interest in the GATE(sm) Student Loans related to its students in the
pool.
The Issuer will not engage in any business activity other than
acquiring and holding the Student Loans and other assets of the Issuer and
proceeds therefrom, issuing the Bonds, and making payments thereon and other
activities that are necessary, suitable or convenient to accomplish the
foregoing or are incidental thereto or connected therewith.
THE ADMINISTRATOR
First Marblehead Data Services Inc., a Delaware corporation and
wholly-owned subsidiary of First Marblehead, will act as the administrator (the
"Administrator") for each Issuer. Pursuant to an Administration Agreement to be
entered into among the Issuer, the Owner Trustee, the Indenture Trustee and the
Administrator, the Issuer and the Owner Trustee will appoint the Administrator
to act as their agents to perform the duties and the obligations of the Issuer
under the related Indenture. The Administrator will receive an administration
fee for its services. The amount of such fee shall be disclosed in the related
Prospectus Supplement.
USE OF PROCEEDS
Unless otherwise specified in the related Prospectus Supplement, the
Student Loans will be funded initially by the Originator. The net proceeds to be
received from the sale of a series of Bonds, unless otherwise specified in the
related Prospectus Supplement, will be applied by the Issuer (i) to the purchase
of the Student Loans at a discount directly or indirectly from the Originator
simultaneously with the closing of the sale of such series of Bonds, (ii) for
the Reserve Fund, to acquire Eligible Investments to fund the related initial
Interest Reserve Amount as set forth in the related Prospectus Supplement; (iii)
for the Interest Support Account, to acquire Eligible Investments to fund the
Interest Support Payments during the Interest Support Period; and (iv) for the
Cost of Issuance Account, to fund the Cost of Issuance Amount. The Depositor
expects to sell the Bonds from time to time, but the timing and amount of
offerings of Bonds will depend on a number of risk factors, including prevailing
interest rates and general market conditions.
THE GATE(sm) STUDENT LOAN PROGRAM
The following summaries describe certain provisions of GATE(sm) Student
Loans to be originated pursuant to the GATE(sm) Student Loan Program's Policies
and Procedures Manual (the "Program Manual"). Although all material provisions
of the Program Manual are described herein and in the related Prospectus
Supplement, the summaries do not purport to be complete and are qualified in
their entirety by reference to the Program Manual. The Depositor reserves the
right to alter the Program Manual, and the Originator will also be permitted to
allow certain variations, to waive certain
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requirements or to impose additional conditions on the Student Loans. The
Prospectus Supplement for each series of Bonds will describe any such variations
or additional conditions to the Student Loans securing such series of Bonds.
GENERAL
The GATE Student Loan Program (the "Program") is a private, subsidized
educational loan program established by the Depositor available to:
(i) students enrolled full-time in participating professional schools
or four-year public or private undergraduate colleges and universities (each, a
"Participating Institution") that are recognized as such by one or more of the
following accrediting associations: The Middle States Association of Colleges
and Schools; The New England Association of Schools and Colleges; The North
Central Association of Colleges and Schools; The Northwest Association of
Schools and Colleges; The Southern Association of Colleges and Schools; and The
Western Association of Schools and Colleges; and in the case of a professional
school that is not affiliated with an accredited undergraduate school, an
accrediting association acceptable to the Depositor;
(ii) students who have received their undergraduate degree and are
currently enrolled full-time in a graduate program at a Participating
Institution which is either affiliated with an institution recognized by one of
the aforementioned accrediting associations, or, if not so affiliated, is
recognized by an accrediting association to the Depositor; and
(iii) former students who have received an undergraduate or graduate
degree (or have completed all requirements toward that degree) within the past
three years from a Participating Institution recognized by one of the
aforementioned accrediting associations, and who desire to refinance amounts
currently owed to, or previously borrowed from, that institution to finance
education expenses incurred during enrollment.
The accrediting associations for the related Participating Institutions will be
disclosed in the Prospectus Supplement for the related series of Bonds. Any
additions or deletions to the accrediting associations shall also be disclosed
therein.
Each Participating Institution will, upon receipt and acceptance of a
Program application and a promissory note from a GATE borrower, forward the
documents to the Originator. If the Originator approves the application, it will
forward proceeds of the Student Loan directly to the Participating Institution,
net of expected securitization reserves. On the related Closing Date, certain
reserves will be deposited with the Indenture Trustee for the benefit of the
related Bondholders by the Issuer through the retention of bond sale proceeds.
Such reserves include an amount specified in the related Prospectus Supplement
that will be applied by the Indenture Trustee to acquire a portfolio of Eligible
Investments 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
applicable Interest Support Payment is available from the proceeds of such
Eligible Investments. 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. If not permitted to be capitalized and
added to the principal balance, the borrower will be requested to execute an
additional or consolidated note, reflecting the deferred interest, which will in
turn bear interest at the same rate as the related Student Loan. Additional
interest deferments and principal and interest forbearances are available for
those students who either need additional time to complete their
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undergraduate degree full-time or who continue their education in
post-undergraduate studies full-time, or whose ability to make scheduled
payments is inhibited. As described below, in most circumstances, payments of
principal are deferred for an additional five years from the termination of the
student's enrollment.
THE GATE(sm) STUDENT LOANS
All full-time students and certain recent graduates at Participating
Institutions who are U.S. citizens or certified permanent residents are eligible
for a Student Loan (foreign students may be eligible under certain
circumstances). Under the Program Manual, applications are subjected to a
limited credit test under which prior defaults on student loans, bankruptcy
and/or loan chargeoffs of any type in excess of $2,000 will disqualify a student
applicant. The amount of each Student Loan may be set by the Participating
Institution and can be up to the total cost of education for a student, as
determined by each Participating Institution.
Students enroll in the Program by submitting a combined application,
note and disclosure form that is prepared at the Participating Institution on
forms provided by Originator. Except in very limited cases, only the borrower's
name, social security number, and certain identifying information is collected
in the application form. Borrowers under legal age must provide a cosigner,
which cosigner is not credit tested. Nonresident, noncitizen borrowers and
students with outstanding or unpaid balances and expenses with the related
Participating Institution must provide a fully credit-tested, United States
resident cosigner. The Participating Institution then certifies the student's
enrollment and its approval of the loan amount on each application form. The
application, note and disclosure form is then forwarded to the Originator for
review and acceptance or rejection. If accepted and approved by the Originator,
the Student Loan will be funded by direct transfer of loan proceeds to the
Participating Institution. The Participating Institution will then credit the
student's account with the face amount of the Student Loan minus origination
fees, if any. The Originator will fund to the Participating Institution from the
gross amount of the Student Loan 75% of expected gross securitization proceeds
minus expected securitization reserves, which reserves include amounts expected
to fund the Reserve Fund, the Interest Support Account and
overcollateralization, plus expected transactional costs of securitization and
the Originator's origination fees.
The Issuer will purchase the Student Loans from the Originator
simultaneously with its receipt of proceeds of the Bonds. The Originator
receives from the proceeds of the sale of the related series of Bonds, as the
purchase price, an amount equal to the amount already funded to the
Participating Institutions, an origination fee, and accrued interest on the
Student Loans purchased by the Issuer. Excess proceeds, if any, are paid to the
Participating Institution, pursuant to agreements among the Depositor, the
Originator and the Participating Institution. See "Description of the
Bonds--Interest Support Account." Under limited circumstances, as set forth in
the related Prospectus Supplement, the Issuer will have the right to acquire
additional Student Loans within a specified period following the related Closing
Date. An amount specified in the related Prospectus Supplement will be deposited
by the Indenture Trustee into an account for such purpose, from the proceeds of
the sale of the related series of Bonds.
The Student Loan interest rate, which will be fixed over the entire
life of the loan, will be determined at or about the time of issuance. No
payments of interest are due from the borrower for so long as the borrower
remains a full-time student.
Assuming that the student graduates on the expected graduation date of
such Student's entering class, or for a borrower using a Student Loan to
refinance amounts currently owed to, or previously
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borrowed from, a Participating Institution, commencing immediately, the borrower
would then be responsible for the payment of interest only over the next five
years (such period, the "Interest Only Period"). For those borrowers who have
taken more than one Student Loan, amounts due under all of the Student Loans of
that borrower may be consolidated for payment purposes, so that only one monthly
payment is due; provided, however, Student Loans made with a cosigner will only
be consolidated with other Student Loans with the same cosigner. Students
needing more than the scheduled time to complete their undergraduate degree, or
who pursue graduate study and who enroll full-time at an accredited institution,
may defer interest payments on their Student Loans during any part of the
Interest Only Period, for up to the entire period. Such deferral need not begin
immediately following scheduled graduation, but can only last during the
originally scheduled Interest Only Period. Interest payments that are so
deferred will be added to the outstanding loan balance on each Student Loan at
the end of such deferral period.
In addition to the foregoing, the Servicer may grant a forbearance
period to a GATE(sm) borrower if such borrower's ability to make scheduled
payments of principal and/or interest is inhibited. The total of all forbearance
periods for any one borrower may not exceed one year. If the Servicer grants a
forbearance period to a GATE(sm) borrower, the amount of deferred principal and
interest will be added at the end of such deferral period, on a pro rata basis,
to each future payment.
A student transferring full-time to another eligible school, either as
an undergraduate or graduate student and whether during the original enrollment
period or during deferment, retains all deferment privileges, whether or not the
new school is a Participating Institution. A student graduating early and not
qualifying for deferment and a student leaving school before receiving a degree
or changing to part-time status will begin making loan payments within
approximately four months. Whether or not a borrower qualifies as a "full-time"
student will be determined solely by the Participating Institution or new school
at which that borrower is or was enrolled. Students and the Participating
Institutions will be obligated to notify the Servicer immediately of any such
transfer or other change in enrollment status.
Amortization of the principal of a Student Loan will begin after the
end of the Interest Only Period (the "Amortization Date") and continue for the
next eight years. Generally, the final principal payment will be due thirteen
years and five months following the graduation of the student borrower's
entering class. Therefore, the term of a Student Loan granted to an entering
freshman will be seventeen years (four years as a full time student in the
Interest Support Period, five years after graduation in the Interest Only Period
and the remaining eight years paying interest and principal), while the term of
a Student Loan to a sophomore will be sixteen years (one less undergraduate year
in the Interest Support Period). Student Loan amortization is scheduled as
follows:
% of Principal
October 1 to September 30 Scheduled to
Period following the Be Repaid During
Amortization Date Such 12-Month Period
----------------- --------------------
1 5%
2 7%
3 9%
4 11%
5 13.5%
6 15.5%
7 18%
8 21%
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Unless otherwise specified in the related Prospectus Supplement, the average
life of a Student Loan will be 10.45 years following the graduation of the
student's class.
Any monthly payment overdue by more than 15 days will be considered
delinquent. Although at this time the Servicer does not collect late charges
from Student Loan borrowers, the Issuer expects that in the future the Servicer
on behalf of the Issuer will impose a late charge 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 and the remaining amount will be delivered to the
Indenture Trustee for deposit in the Collateral Proceeds Account. Student Loans
which remain overdue for more than 150 days will be deemed to be in default and,
approximately 30 days thereafter, will be referred by the Servicer to an
appropriate agency for collection.
Student Loans may be prepaid at any time at their then current
outstanding principal amount without penalty. Such prepayment of principal will
be used to reduce the total principal amount outstanding on a Student Loan in
inverse order of scheduled principal due dates.
THE SERVICER
The Student Loans will be serviced by the Pennsylvania Higher Education
Assistance Agency (the "Servicer"), pursuant to the Servicing Agreement between
the Servicer and the Depositor, dated January 6, 1995, as amended (the
"Servicing Agreement"). On the Closing Date for each series of Bonds, the
Depositor will assign its interest in the Servicing Agreement with respect to
the related Student Loans to the related Issuer. The Servicer is a public
corporation and a government instrumentality of the Commonwealth of
Pennsylvania. The Servicer was formed in 1964 and has its principal place of
business at 1200 North Seventh Street, Harrisburg, Pennsylvania 17102 (Tel. No.
(717) 720-2750). In addition to servicing student loans, the Servicer guarantees
loans under the federal Title IV programs, administers certain state scholarship
and financial aid programs, and issues tax-exempt and taxable notes to finance
its direct lending secondary market purchases of student loan portfolios. As of
December 31, 1995, the Servicer had total assets of approximately $2.5 billion.
As of that date, the Servicer serviced approximately 1.1 million student loan
borrower accounts, with an aggregate principal balance of over $10.1 billion.
The Servicer is one of the largest servicers of education loans in the United
States. PHEAA has approximately 2,200 employees.
Pursuant to the Servicing Agreement, the Servicer has agreed to
service, and perform all other related tasks with respect to the Student Loans.
The Servicer will be required to perform all services and duties customary to
the servicing of Student Loans and to do so in compliance with all applicable
standards and procedures. See "Description of the Servicing Agreement--Servicing
Standards and Procedures".
THE SERVICING AGREEMENT
Except as otherwise specified in the related Prospectus Supplement, the
following summary describes certain terms of the servicing agreement entered
into between the Depositor and the Servicer (the "Servicing Agreement"),
pursuant to which the Servicer has agreed to service the Student Loans. This
summary does not purport to be complete and is subject to, and qualified in its
entirety by reference to, all of the provisions of the Servicing Agreement.
Pursuant to the Servicing Agreement, the Servicer will agree to perform
all services and duties customary to the servicing of student loans on behalf of
each Issuer with respect to the GATE(sm) Student Loans including, without
limitation, the following:
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(i) Prepare schedules of repayment and coupon books or
invoices for each borrower;
(ii) Collect and maintain records of all payments on the
Student Loans;
(iii) Remit payments received on each Student Loan to the
Indenture Trustee monthly;
(iv) Respond to inquiries and communications from borrowers
regarding their Student Loans;
(v) Ensure the safekeeping of loan documents delivered to the
Servicer relating to the Student Loans in accordance with procedures
that the Servicer has established for such purposes; and
(vi) Furnish the Issuer with a monthly report of collections.
Pursuant to the Servicing Agreement, the Servicer will agree to
indemnify the Depositor and the related 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 related 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 and the
Issuers, 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.
SERVICING COMPENSATION
The Servicer will be entitled to a monthly fee for its services (the
"Servicing Fee") in an amount specified or to be calculated in a manner
described in the related Prospectus Supplement.
SERVICING STANDARDS AND PROCEDURES
Subject to applicable law and the terms of the Servicing Agreement and
the Student Loans, the Servicer is required to service the Student Loans in
accordance with its customary and usual standards of practice, and with a view
to the maximization of timely recovery of principal and interest on the Student
Loans, but without regard to: (i) any relationship that the Servicer or any
affiliate of the Servicer may have with a related borrower, and (ii) the
ownership of any Bond by the Servicer or any affiliate of the Servicer. To the
extent that the Servicing Agreement does not specify the practices to be
followed by the Servicer with respect to any particular servicing matter, and if
there are specific servicing procedures with respect to such particular
servicing matter set forth in the GATE(sm) Student Loan Program's Policies and
Procedure Manual (the "Program Manual"), those procedures will be deemed to
comply with the foregoing standards. The Servicer will make reasonable efforts
to collect all payments due with respect to the Student Loans. If the Servicer
determines that eventual payment in full of a Student Loan is unlikely, the
Servicer will follow the procedures set forth in the Program Manual to attempt
to collect the outstanding amounts payable under the Student Loan.
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The Servicer will remit to the Indenture Trustee all collections on the
Student Loans at the times and in the manner specified herein and in the related
Prospectus Supplement.
THE ORIGINATOR
The Student Loans will be originated by (i) The First National Bank of
Boston ("FNBB"), (ii) Bank of America National Association ("BANA") or (iii)
another originator identified on the Prospectus Supplement (FNBB, BANA or the
originator identified in the related Prospectus Supplement, in such capacity,
the "Originator"). See "The GATE(sm) Student Loan Program". The Originator 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. Except as otherwise set forth in the related Prospectus
Supplement, 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. 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".
The identity of the Owner Participants with respect to a series of
Bonds will be disclosed in the related Prospectus Supplement. Each Owner
Participant must be a Participating Institution. See "The GATE(sm) Student Loan
Program--General".
If FNBB is the Originator of Student Loans to students of an Owner
Participant, such Owner Participant will enter into (i) a Participation
Agreement with the Depositor, pursuant to which such Owner Participant will
participate in the Program, and (ii) an Origination and Funding Agreement with
FNBB, pursuant to which FNBB will agree to originate Student Loans to students
of such Owner Participant. Pursuant to that certain Master Purchase and
Securitization Agreement, dated as of August 31, 1995, between FNBB and the
Depositor, FNBB has agreed to sell all of such Student Loans to an Issuer
designated by the Depositor.
If BANA is the Originator of Student Loans to students of an Owner
Participant, such Owner Participant will enter into (i) a Participation
Agreement with the Depositor, pursuant to which such Owner Participant will
participate in the Program, and (ii) a Loan Packaging and Funding Agreement with
BANA, pursuant to which BANA will agree to originate Student Loans to students
of such Owner Participant. Pursuant to that certain Note Purchase Agreement,
dated as of August 1, 1996, between BANA and the Depositor, BANA has agreed to
sell all of such Student Loans to an Issuer designated by the Depositor.
ORIGINATION SERVICES AGREEMENT
The Servicer will provide certain origination services for the
Originator pursuant to an origination services agreement to be entered into with
respect to each series of Bonds between the Servicer and the related Issuer. The
Servicer will be entitled to an origination services fee as set forth in the
related Prospectus Supplement for the Student Loans that it assists in
originating.
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DESCRIPTION OF THE BONDS
GENERAL
The Bonds offered hereby and by the related Prospectus Supplements will
be issued pursuant to Indentures between each Owner Trustee and the Indenture
Trustee for each series as specified in the related Prospectus Supplement. A
form of Indenture is an exhibit to the Registration Statement of which this
Prospectus forms a part. The Indenture relating to each series of Bonds will be
attached as an exhibit to a Current Report on Form 8-K to be filed with the
Commission by the related Issuer promptly following the closing of the sale of
such series of Bonds. The Prospectus Supplement for such series of Bonds will
describe any provisions of the particular Indenture relating to such series of
Bonds that materially differ from the form of Indenture filed as an exhibit to
the Registration Statement.
Each Prospectus Supplement relating to a series of Bonds will include
information, as of the date of such Prospectus Supplement as to specific
characteristics regarding the Student Loans securing such series, including
without limitation (i) the aggregate principal amount of the Student Loans, (ii)
the number of Student Loans issued by each Owner Participant and (iii) the
original stated maturity of the Student Loans. Specific information will also be
set forth in a Current Report on Form 8-K which will be filed with the
Commission by the related Issuer as soon as practicable after the closing of the
sale of the related series of Bonds.
The Bonds are issuable in series. As described in the related
Prospectus Supplement, the Bonds of each series may consist of one or more
classes of Bonds that, among other things, (i) are senior (the "Senior Bonds")
or subordinate (the "Subordinate Bonds") to one or more other classes of Bonds
in entitlement to certain payments of interest, principal and other amounts
payable on the Bonds or (ii) provide for payments of interest thereon or
principal thereof that commence only following the occurrence of certain events,
such as the retirement of one or more other classes of Bonds of such series. The
following summaries describe certain provisions common to each series of Bonds.
The summaries do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, the Prospectus Supplement and the
provisions of the Indenture relating to each series of Bonds. When particular
provisions or terms used in the Indenture are referred to, the actual provisions
(including definitions of terms) are incorporated by reference as part of such
summaries.
Each series of Bonds will be issued in fully registered book-entry form
in minimum denominations of $25,000 and integral multiples of $1,000 in excess
thereof, unless specified otherwise in the related Prospectus Supplement.
(Indenture, Section 2.03) The Bonds in certificated form may be transferred or
exchanged for Bonds of the same 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.
(Indenture, Section 2.05)
Payments of principal of, and interest on, each series of Bonds will be
made on the dates (the "Payment Dates") set forth in the Prospectus Supplement
relating to such series in the case of Bonds in certificated form by check
mailed to Bondholders of such series registered as such 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. (Indenture, Section
3.02(a)) Payment and transfer procedures for Bonds in book-entry form will be
specified in the related Prospectus Supplement. 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.
(Indenture, Section 3.02(b))
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Payments of principal of, and interest on, each series of Bonds will be
made by the Indenture Trustee as the Paying Agent of the Issuer out of the
related 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 such series of Bonds on the next succeeding
Payment Date. (Indenture, Section 3.03)
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 of the same series. (Indenture,
Section 8.03). See "Reports to Bondholders" below.
COLLATERAL PROCEEDS ACCOUNT
For each series of Bonds, all amounts collected on the Student Loans
will be remitted directly to a trust account or accounts (collectively, the
"Collateral Proceeds Account"), to be established by the Indenture Trustee for
the benefit of the Bondholders of such series; provided, however, that if there
is a shortfall in the Interest Reserve Amount, such amount as is necessary to
fund such shortfall will be deposited in the Reserve Fund. (Indenture, Section
3.03) All funds deposited in the Collateral Proceeds Account, together with the
reinvestment earnings thereon, will be available for application to the payment
of principal and interest on the Bonds on the next Payment Date. The Indenture
Trustee will invest the funds in the Collateral Proceeds Account, at the
direction of the Issuer, in Eligible Investments maturing no later than the day
preceding the next Payment Date for the related series of Bonds. (Indenture,
Section 3.04)
On each Payment Date, the Indenture 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 Senior Bonds for the payment of accrued
interest at the related Bond Interest Rate; SECOND, to the Subordinate Bonds for
the payment of accrued interest at the related Bond 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 Indenture Trustee will declare all the Bonds to be
immediately due and payable by a notice in writing to the Issuer); 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 related
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 Senior
Bonds for the payment of any unpaid principal amount of the Senior Bonds; NINTH,
on each Principal Payment Date following payment in full of the Senior Bonds
(which initially may be the same Principal Payment Date on which the Senior
Bonds are paid in full), to the Subordinate Bonds for the payment of any unpaid
principal amount of the Subordinate 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. (Indenture, Section 3.03)
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.
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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.
PAYMENTS OF INTEREST
The Bonds of each class of each series will bear interest from the date
and at the rate per annum specified in the related Prospectus Supplement
(calculated on the basis of a 360-day year of twelve 30-day months) until the
principal amount of the Bonds of each class of such series is paid in full.
Unless otherwise specified in the related Prospectus Supplement, interest on the
Bonds will be due and payable semiannually on the Payment Dates specified in the
related Prospectus Supplement. Each such payment of interest will represent
interest accrued for the six-month period from the most recent Payment Date (or
from the date specified in the related Prospectus Supplement, in the case of the
first such payment) through the last day preceding the related Payment Date, or
such other period as is specified in the related Prospectus Supplement (an
"Interest Accrual Period").
PAYMENTS OF PRINCIPAL
Unless otherwise specified in the related Prospectus Supplement,
principal payments on each series of Bonds will be payable semiannually on the
dates specified in the related Prospectus Supplement (each, a "Principal Payment
Date"; an Interest Payment Date and a Principal Payment Date may also be
referred to herein as a "Payment Date"), commencing with respect to the Senior
Bonds, no later than the fourth anniversary of the issuance of such series of
Bonds and with respect to the Subordinate Bonds, commencing upon retirement of
the Senior 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 related Collection Period, in excess of
the amount needed to make the interest payment on such series of 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, together with any late payment charges on
the Student Loans; (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.
OPTIONAL REDEMPTION
Unless otherwise provided in the related Prospectus Supplement, to
avoid excessive administrative expense, the Issuer will be permitted, at its
option, to redeem the Senior Bonds and, upon retirement in full of all Senior
Bonds, to redeem Subordinate Bonds on any date on which the Aggregate Current
Principal Amount of all Bonds outstanding of such series has declined to 10% or
less of their initial Aggregate Current Principal Amount at a price equal to
100% of their unpaid principal amount, plus accrued interest. In addition,
unless otherwise specified in the related Prospectus Supplement, the Issuer will
have the right, as its option, (a) to redeem Senior Bonds and Subordinate Bonds
in part, pro rata, during the 60-day period following the related Closing Date,
in an amount not to exceed five percent (5%) of the Aggregate Current Principal
Amount of such series of Bonds and (b) to redeem Senior Bonds and upon their
retirement, to redeem Subordinate Bonds, (i) on any Payment Date prior to the
first Principal Payment Date, in an amount equal to principal prepayments
collected by the Servicer during the related Prepayments Collection Period, at a
redemption price of at least 100% of their unpaid principal amount, plus accrued
interest and (ii) in part, on any Payment Date prior to the first Principal
Payment Date, in an amount equal to any prepayments collected by the Servicer on
the Student Loans
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during the related Prepayments Collection Period. Notice of redemption shall be
given to Bondholders not less than fifteen days prior to such redemption.
LIMITED WITHDRAWAL AND SUBSTITUTION OF STUDENT LOAN COLLATERAL
Unless otherwise specified in the related Prospectus Supplement, during
the 60-day period following the related Closing Date, the Issuer will have the
right, at its option, to withdraw Student Loans having an original principal
balance up to five percent (5%) of the aggregate principal balance of the
Student Loans constituting the related Trust Estate, 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. Such 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 amount
specified in the Indenture.
COST OF ISSUANCE ACCOUNT
On the related Closing Date, the Indenture Trustee will establish a
cost of issuance account (the "Cost of Issuance Account") into which the
Indenture Trustee will deposit funds in an amount specified in the related
Prospectus Supplement (the "Cost of Issuance Amount"), which amount shall be
equal to anticipated costs or expenses incurred by the related Issuer in
connection with the issuance of the Bonds (the "Costs of Issuance"). Promptly
after the related Closing Date, the Indenture Trustee will withdraw amounts in
the Cost of Issuance Account to pay the actual Costs of Issuance. Thereafter,
the Indenture Trustee will withdraw any remaining amounts from the Cost of
Issuance Account and deposit the same in the Collateral Proceeds Account.
CREDIT ENHANCEMENT
OVERCOLLATERALIZATION
Unless otherwise specified in the related Prospectus Supplement, on the
related Closing Date, the aggregate principal amount of assets (i.e. Student
Loans and Eligible Investments deposited in the Reserve Fund and the Interest
Support Account) included in the related Trust Estate will exceed the related
aggregate principal amount of Bonds issued and sold on such date by a percentage
set forth in the related Prospectus Supplement. See "The GATE(sm) Student Loan
Program".
The amount of the initial overcollateralization provided with respect
to a series of Bonds will be determined on the basis of criteria established by
each Rating Agency rating each series of Bonds. Those criteria are sometimes
based upon an actuarial analysis of the behavior of student loans in a larger
group. However, there can be no assurance that the historical data supporting
any such actuarial analysis will accurately reflect future experience, or that
the data derived from a large pool of student loans will accurately predict the
delinquency, foreclosure or loss experience of any particular pool of GATE(sm)
Student Loans. The related Prospectus Supplement may specify other forms of
credit support, such as insurance policies or subordination, for a series of
Bonds, in addition to or in place of such overcollateralization.
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RESERVE FUND
The Indenture Trustee will establish and maintain a reserve fund (the
"Reserve Fund") pursuant to the related Indenture for the benefit of the holders
of the related series of Bonds. On the related Closing Date, the Indenture
Trustee will apply funds in an amount specified in the related Prospectus
Supplement to acquire an Eligible Investment that will return payments of
principal and interest so that an amount specified in the related Prospectus
Supplement at least equal to the interest payments due on the Bonds for the
first Interest Accrual Period following the termination of the Interest Support
Period, will be available from the proceeds of such Eligible Investment. Unless
otherwise specified in the related Prospectus Supplement, all funds remaining in
the Collateral Proceeds Account on each Payment Date commencing with the initial
Payment Date as set forth in the related Prospectus Supplement and ending but
including the Payment Date that is on the fourth anniversary of the initial
Payment Date, after making all interest payments due on such series of 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 related
series of 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 such series of 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; provided that, if after giving effect to all
payments of interest and principal and all other payments on the related series
of Bonds on such Payment Date, the Interest Reserve Amount equals or exceeds the
outstanding principal amount of all Bonds of such series (the "Aggregate Current
Principal Amount"), then the Indenture Trustee will declare all the Bonds of
such series to be immediately due and payable.
INTEREST SUPPORT ACCOUNT
The Indenture Trustee will establish and maintain an interest support
account (the "Interest Support Account") pursuant to the related Indenture for
the benefit of the holders of the related series of Bonds. On the related
Closing Date, the Indenture Trustee will acquire from the proceeds of the sale
of the related series of Bonds, a portfolio of eligible investments, as defined
in the related Indenture ("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 the Payment Date thereafter
specified in the related Prospectus Supplement (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. On each
Interest Payment Date during the Interest Support Period, the Indenture Trustee
will withdraw the applicable 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.
Following the Interest Support Period until such Payment Date specified
in the related Prospectus Supplement, any remaining amounts in the Interest
Support Account will be available to fund shortfalls in the payment of interest
on the Bonds or in the Interest Reserve Amount. Thereafter, the Indenture
Trustee shall deposit in the Collateral Proceeds Account any remaining funds on
deposit in the Interest Support Account.
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SUBORDINATION
The Subordinate Bonds will be subordinate to and support the Senior
Bonds since principal payments on the Subordinate Bonds will commence only after
retirement of the Senior Bonds.
REPORTS TO BONDHOLDERS
The Indenture Trustee will prepare and deliver to the Issuer and each
Bondholder not later than the first Business Day following each Payment Date, a
statement (a "Payment Date Statement") with respect to such Payment Date setting
forth (Indenture, Section 3.05):
(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) 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 Senior
Bonds;
(d) the aggregate amount of interest accrued during the
immediately preceding Interest Accrual Period on all Subordinate 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 Senior Bonds;
(g) the aggregate amount of all payments then being made with
respect to the Subordinate Bonds;
(h) the aggregate amount of all payments then being made with
respect to the Bonds which represents principal;
(i) the aggregate amount of all payments then being made with
respect to the Senior Bonds which represents principal;
(j) the aggregate amount of all payments then being made with
respect to the Subordinate Bonds which 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 which represents interest;
(m) the amount of the payment then being made with respect to
an Individual Bond which represents principal;
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(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 (A) the outstanding principal balance after
giving effect to all payments and recoveries of principal and (B) any
interest in excess of interest payable at the interest rate of the
related series of Bonds, paid or payable by the Servicer to the related
Indenture Trustee, of all Student Loans still subject to the lien of
the related Indenture;
(p) the Aggregate Current Principal Amount of Senior Bonds
after giving effect to the principal payments to be made on such
Payment Date;
(q) the Aggregate Current Principal Amount of Subordinate
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 authority and to
Bondholders pursuant to any applicable law with respect to the Trust Estate and
the transactions contemplated hereby.
DESCRIPTION OF THE INDENTURE
The following summaries describe certain provisions of the form of
Indenture not described elsewhere in this Prospectus. The summaries do not
purport to be complete and are qualified in their entirety by reference to the
provisions of the Indenture. Where particular provisions or terms used in the
Indenture are referred to, the actual provisions (including definitions of
terms) are incorporated by reference as part of such summaries. The Indenture
relating to each Series of Bonds will be attached as an exhibit to a Current
Report on Form 8-K to be filed with the Commission promptly following the
closing of the sale of such series of Bonds. The Prospectus Supplement for such
series of Bonds will describe any provisions of the particular Indenture
relating to such series of Bonds which materially differ from the form of
Indenture filed as an exhibit to the Registration Statement of which this
Prospectus forms a part.
MODIFICATION OF INDENTURE
With the consent of the holders of Bonds of each class affected thereby
representing not less than 66 2/3% of the Aggregate Current Principal Amount of
the outstanding Bonds on each such class, 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 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,
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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 or alter the provisions of the Indenture regarding 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 effect 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. (Indenture, Section
10.02)
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 issuance of Bonds in bearer form or
registered form or for the conversion of any outstanding Bonds to or from bearer
form, to provide for the maintenance of the rating of such series of Bonds at
the Issuer's option, and to do such other things as would not adversely affect
the interests of the Bondholders.
(Indenture, Section 10.01)
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 five days; (iii) a default in the payment of the redemption price of any
Bond that has been called for redemption which continues for ten days; (iv) a
default in the observance of any other covenant of the Indenture, and the
continuation of any such default for a period of thirty days after notice to the
Issuer by the Indenture Trustee or to the Issuer and the Indenture Trustee by
the holders of Bonds representing 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.
(Indenture, Section 6.01)
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 Bonds representing at least 66
2/3% of the Aggregate Current Principal Amount of the Bonds then outstanding 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.
(Indenture, Section 6.02).
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If an Event of Default occurs and is continuing, the Indenture Trustee
may do one or more of the following: (i) institute proceedings for the
collection of all amounts then payable on the Bonds or under the Indenture,
whether by declaration or otherwise, enforce any judgment obtained, and collect
from the Trust Estate securing the Bonds and from the Issuer amounts adjudged
due; (ii) sell the Trust Estate securing the Bonds or any portion thereof or
rights or interest therein, at one or more public or private sales called and
conducted in any manner permitted by law; (iii) institute proceedings from time
to time for the complete or partial foreclosure of the Indenture with respect to
the Trust Estate securing the Bonds; and (iv) exercise any remedies of a secured
party under the Uniform Commercial Code and take any other appropriate action to
protect and enforce the rights and remedies of the Indenture Trustee of the
Bondholders; provided, however, that unless a declaration of acceleration has
been made, the Indenture Trustee may not sell or otherwise liquidate the Trust
Estate securing the Bonds.
Subject to certain provisions for indemnification and certain
limitations contained in the Indenture, the holders of not less than 66 2/3% of
the Aggregate Current Principal Amount of the outstanding Bonds shall have the
right to direct the time, method and place of conducting any proceeding or any
remedy available to the Indenture Trustee or exercising any trust or power
conferred on the Indenture Trustee with respect to the Bonds; and the holders of
each class of Bonds affected by such default representing not less than 66 2/3%
of the Aggregate Current Principal Amount of the Bonds then outstanding may, in
certain cases, waive any default with respect thereto, except a default in the
payment of principal or interest or a default in respect of a covenant or
provision of the Indenture that cannot be modified without the waiver or consent
of the holder of each outstanding Bond affected thereby. (Indenture, Sections
6.12 and 6.13)
No holder of any Bond will have the right to institute any proceedings
with respect to the Indenture, unless (i) such holder previously has given to
the Indenture Trustee written notice of an Event of Default, (ii) the holders of
not less than 25% of the Aggregate Current Principal Amount of the outstanding
Bonds have made written request of the Indenture Trustee to institute such
proceedings in its own name as Indenture Trustee and have offered the Indenture
Trustee reasonable indemnity, (iii) the Indenture Trustee has for 60 days
neglected or refused to institute any such proceeding, and (iv) no direction
inconsistent with such written request has been given to the Indenture Trustee
during such 60 day period by the holders of not less than 66 2/3% of the
Aggregate Current Principal Amount of the outstanding Bonds. (Indenture, Section
6.08)
LIST OF BONDHOLDERS
Three or more holders of the Bonds (each of whom has owned a Bond for
at least six months) may, by written request to the Indenture Trustee, obtain
access to the list of all Bondholders maintained by the Indenture Trustee for
the purpose of communicating with other Bondholders with respect to their rights
under the Indenture. The Indenture Trustee may elect not to afford the
requesting Bondholders access to the list of Bondholders if it agrees to mail
the desired communication or proxy, on behalf of the requesting Bondholders, to
all Bondholders. (Indenture, Section 8.02)
SERVICER'S ANNUAL COMPLIANCE STATEMENT
The Issuer will cause the Servicer to file annually with the Indenture
Trustee a written statement as to the fulfillment of the Servicer's obligations
under the Servicing Agreement. (Indenture, Section 9.07)
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REPORTS TO THE SECURITIES AND EXCHANGE COMMISSION
The Issuer will be required to file with the Indenture Trustee within
15 days after it files them with the Commission, copies of any and all reports,
statements and information respecting the related Trust Estate and the Bonds
required to be filed pursuant to Section 13 or 15(d) of the Exchange Act. The
Issuer will be required to promptly file, and exercise its reasonable best
efforts to obtain a favorable response to, no-action requests to, or other
exemptive relief from, the Commission seeking the usual and customary exemption
from such reporting requirements granted to issuers of securities similar to the
Bonds. (Indenture, Section 8.04)
SERVICER'S EVIDENCE AS TO COMPLIANCE
For such time as the Issuer is required to file reports or information
pursuant to Section 13 or 15(d) of the Exchange Act, the Issuer will be required
to cause the Servicer (and the Servicing Agreement so provides) on or before
March 31 of each calendar year, beginning on the first March 31 following the
related Closing Date, to cause a firm of nationally recognized independent
public accountants to furnish a report to the effect that such firm has examined
certain documents and records relating to the servicing of the Student Loans,
compared the information contained in the Servicer's reports delivered during
the period covered by the report with such documents and records relating to the
servicing of the Student Loans and that, on the basis of such examination and
comparison, nothing has come to the attention of such accountants to indicate
that such servicing was not in compliance with the Program Manual and the
Servicing Agreement except for such exceptions or errors as such firm shall
believe to be immaterial and such other exceptions as shall be set forth in such
statement. (Indenture, Section 9.12)
INDENTURE TRUSTEE'S PLEDGED ACCOUNTS REPORTS
The Indenture Trustee will be required to prepare and deliver to the
Issuer not later than the tenth (10th) Business Day after the end of each
calendar quarter, a report, with respect to each of the Reserve Fund, the
Collateral Proceeds Account and the Interest Support Account, setting forth the
following information: (1) the balance in each of such accounts at the beginning
and end of such calendar quarter; (2) the cash and eligible investments (as
defined in the related Indenture) held in each such account at the end of such
calendar quarter; and (3) the aggregate amount of reinvestment income with
respect to each such account received during such calendar quarter. (Indenture,
Section 3.06)
INDENTURE TRUSTEE'S ANNUAL REPORT
To the extent required by applicable law, the Indenture Trustee will
mail each year to all Bondholders a brief report relating to its eligibility and
qualifications to continue as the Indenture Trustee under each Indenture, any
amounts advanced by it under each Indenture, the property and funds physically
held by the Indenture Trustee as such and any action taken by it which
materially affects the Bonds and which has not been previously reported.
(Indenture, Section 8.03)
SATISFACTION AND DISCHARGE OF INDENTURE
Each Indenture will be discharged with respect to the Student Loans
securing the related Bonds upon the delivery to the Indenture Trustee for
cancellation of all the Bonds or, with certain limitations, upon deposit with
the Indenture Trustee of funds sufficient for the payment in full of all of the
Bonds.(Indenture, Section 5.01)
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BOOK-ENTRY REGISTRATION AND DEFINITIVE BONDS
Unless otherwise specified in the related Prospectus Supplement, the
Bonds may be purchased only in book-entry form in minimum denominations of
$25,000 and integral multiples of $1,000 in excess thereof, and initially will
be represented by a single certificate registered in the name of the nominee of
the Depository Trust Company ("DTC" and, together with any successor depository,
the "Depository"). The Issuer has been advised by DTC that DTC's nominee will be
Cede & Co. ("Cede"). Accordingly, Cede is expected to be the holder of record of
the Bonds. No person acquiring an interest in the Bonds (a "Bond Owner") will be
entitled to receive a certificate representing such person's interest in the
Bonds except in the event that Bonds in fully registered, certificated form are
issued to Bond Owners or their nominees ("Definitive Bonds"), instead of to DTC
under the following limited circumstances: (i) if the Issuer advises the
Indenture Trustee in writing that DTC is no longer willing or able to properly
discharge its responsibilities as Depository with respect to the Bonds, and the
Indenture Trustee or the Issuer is unable to locate a qualified successor, or
(ii) if the Issuer, in its sole discretion (but only with the express prior
written consent of the Trustee), elects to terminate the book-entry system
through DTC, or (iii) after the occurrence of an Event of Default under the
Indenture, Bond Owners representing not less than two-thirds in Aggregate
Current Principal Amount of such Book--Entry Bonds advise DTC through DTC
Participants in writing that the continuation of a book-entry system through DTC
(or a successor thereto) is no longer in the best interest of the Bond Owners.
(Indenture, Section 2.09)
Upon occurrence of any of the foregoing events, DTC is required to
notify all DTC Participants of the availability through DTC of Definitive Bonds.
Upon surrender by DTC of the certificate representing the Bonds and instructions
for re-registration, the Indenture Trustee will issue the entire Aggregate
Current Principal Amount of Bonds then outstanding in Definitive Bonds as
holders under the Indenture.
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities and Exchange Act of 1934, as amended. DTC was created to hold
securities for its participating organizations ("DTC Participants") and
facilitate the clearance and settlement of securities transactions between DTC
Participants through electronic book-entry changes in their accounts, thereby
eliminating the need for physical movement of certificates. DTC Participants
include securities brokers and dealers, banks, trust companies and clearing
corporations and may include certain other organizations. Indirect access to the
DTC system also is available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a DTC
Participant, either directly or indirectly ("Indirect DTC Participants").
Unless otherwise provided in the related Prospectus Supplement, Bond
Owners that are not DTC Participants or Indirect DTC Participants but desire to
purchase, sell or otherwise transfer ownership of, or other interests in,
Book-Entry Bonds may do so only through DTC Participants and Indirect DTC
Participants. In addition, such Bond Owners will receive all distributions on
the Book-Entry Bonds through DTC and its DTC Participants. Under a book-entry
format, Bond Owners will receive payments after the related Payment Date
because, while payments are required to be forwarded to DTC's nominee, on each
such date, DTC will forward such payments to its DTC Participants which
thereafter will in turn be required to forward them to Indirect DTC Participants
or Bond Owners. Unless otherwise provided in the related Prospectus Supplement,
the only "Bondholder" (as such term is used in the related Indenture) will be
Cede, as nominee of DTC, and the Bond Owners will not be recognized by the
Trustee as Bondholders under the Indenture. Bond Owners will be permitted to
exercise the rights of Bondholders under the related Indenture only indirectly
through the DTC Participants who in turn will
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exercise their rights through DTC. The Depositor is informed that DTC will take
action permitted to be taken by a Bondholder under an Indenture only at the
direction of one or more DTC Participants to whose account with DTC interests in
the Bonds are credited.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers among DTC
Participants on whose behalf it acts with respect to the Bonds and is required
to receive and transmit distributions of principal of and interest on the Bonds.
DTC Participants and Indirect DTC Participants with which Bond Owners have
accounts with respect to the Book-Entry Bonds similarly are required to make
book-entry transfers and receive and transmit such payments on behalf of their
respective Bond Owners.
Because DTC can act only on behalf of DTC Participants, who in turn act
on behalf of Indirect DTC Participants and certain banks, the ability of a Bond
Owner to pledge its interest in the Bonds to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of its
interest in the Bonds, may be limited due to the lack of a physical certificate
evidencing such interest.
CERTAIN LEGAL ASPECTS OF THE GATE(sm) STUDENT LOANS
The following discussion contains general summaries of certain legal
aspects of student loans. Because such legal aspects are governed by applicable
federal and state laws (which laws may differ substantially), the summaries do
not purport to be complete or to reflect the laws of any particular state.
Accordingly, the summaries are qualified in their entirety by reference to the
applicable laws of those states.
CONSUMER PROTECTION LAWS
Numerous federal and state consumer protection laws and related
regulations impose substantial requirements upon lenders and servicers involved
in consumer finance, including the making of student loans. These laws include
the Truth-in-Lending Act, the Equal Credit Opportunity Act, the Federal Trade
Commission Act, the Fair Credit Reporting Act, the Fair Debt Collection
Practices Act, the MagnusonMoss Warranty Act, the Federal Reserve Board's
Regulations B and Z, the Soldiers' and Sailors' Civil Relief Act of 1940, state
adaptations of the National Consumer Act and of the Uniform Consumer Credit Code
(the "UCCC") and state sales finance and other similar laws. Also, some state
laws impose finance charge ceilings and other restrictions on certain consumer
transactions and require contract disclosures in addition to those required
under federal law. These requirements impose specific statutory liabilities upon
lenders who fail to comply with their provisions. In certain circumstances, the
related Issuer may be liable for certain violations of consumer protection laws
that apply to the GATE(sm) Student Loans, either as assignee from the Originator
or as the party directly responsible for obligations arising after the transfer.
This liability could affect an assignee's ability to enforce consumer finance
contracts.
The Originator will represent and warrant to the Issuer that all
Student Loan notes and accompanying notices and disclosures comply with all
applicable state and federal laws, rules and regulations. The Originator will be
liable to the Issuer either for indemnification or repurchase of the related
Student Loans for breach of such representations and warranties.
The so-called "Holder-in-Due-Course" Rule of the Federal Trade
Commission (the "FTC Rule"), the provisions of which are generally duplicated by
the UCCC, other state statutes or the common law, has the effect of subjecting a
seller in a consumer credit transaction (and certain related creditors and their
assignees) to all claims and defenses that the obligor in the transaction could
assert against the seller. Liability under the FTC Rule is limited to the
amounts paid by an obligor under the contract, and the
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holder of the contract may also be unable to collect any balance remaining due
thereunder from the obligor. Since the Student Loans are subject to the
requirements of the FTC Rule, the related Indenture Trustee, as holder of such
Student Loans, will be subject to any claims or defenses that the borrower may
assert against the Originator of the Student Loan. Such claims are limited to a
maximum liability equal to the amounts paid by the borrower on the Student Loan.
If a borrower were successful in asserting any such claim or defense, such claim
or defense would constitute a breach of the Originator's warranties with respect
to such Student Loan and would create an obligation of the Originator and the
Participating Institution to indemnify the Indenture Trustee for all losses
arising out of such claim or defense.
OTHER LIMITATIONS
In addition to consumer protection laws, numerous other statutory
provisions, including federal bankruptcy laws and related state laws, may
interfere with or affect the ability of the Servicer to collect payments on the
Student Loans. For example, a bankruptcy court may reduce the monthly payments
due under a contract or change the rate of finance charge and time or repayment
of the indebtedness.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a summary of certain anticipated federal income tax
consequences of the purchase and ownership of the Bonds. The summary and the
opinions referenced below are based upon the provisions of the Internal Revenue
Code of 1986 (the "Code"), the legislative history thereto and the regulations
promulgated thereunder, and the judicial and administrative rulings and
decisions now in effect (or in the case of certain regulations, proposed), all
of which are subject to change, possibly on a retroactive basis, and to
differing interpretations. Taxpayers and preparers of tax returns should be
aware that under applicable Treasury regulations a provider of advice on
specific issues of law is not considered an income tax return preparer unless
the advice (i) is given with respect to events that have occurred at the time
the advice is rendered and is not given with respect to the consequences of
contemplated actions, and (ii) is directly relevant to the determination of an
entry on a tax return. Accordingly, taxpayers should consult their own tax
advisors and tax return preparers regarding the preparation of any item on a tax
return, even where the anticipated tax treatment has been discussed herein.
The summary does not purport to deal with all aspects of federal income
taxation that may affect particular investors in light of their individual
circumstances, nor with certain types of investors who do not hold the Bonds as
capital assets or who are subject to special treatment under the federal income
tax laws (including, without limitation, banks, thrifts, insurance companies,
dealers in securities, and real estate investment trusts). Prospective investors
in the Bonds are advised to consult their own tax advisors concerning the
federal, state, local, foreign or other tax consequences to them of the purchase
and ownership of the Bonds.
CHARACTERIZATION OF INVESTMENTS IN BONDS
Upon the issuance of each series 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
related Indenture and other 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
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from the Internal Revenue Service on the federal income tax classification of
the Bonds or the classification of the Issuer and opinions of counsel are not
binding on the Internal Revenue Service or the courts.
TAXATION OF OWNERS OF BONDS
STATED INTEREST INCOME
Unless otherwise stated in the related Prospectus Supplement, the
stated interest paid or accrued on a Bond generally will be taxable as ordinary
income in accordance with the Bondholder's normal accounting method.
ORIGINAL ISSUE DISCOUNT
Some or all of the Bonds may be issued with "original issue discount"
within the meaning of Section 1273(a) of the Code ("OID"). Any holders of Bonds
having OID generally will be required to include OID in income as it accrues, in
accordance with the method described below, in advance of the receipt of the
cash attributable to such income. The related Prospectus Supplement will state
whether the related Bonds are expected to be issued with OID.
The following discussion is based in part upon the rules governing
original issue discount that are set forth in Sections 1271-1273 and 1275 of the
Code and in the Treasury regulations issued thereunder (the "OID Regulations").
The OID Regulations do not adequately address certain issues relevant to, or are
not applicable to, prepayable securities, such as the Bonds. In addition,
Section 1272(a)(6) of the Code provides special rules applicable to Bonds having
original issue discount. Regulations have not been issued under that Section.
The Code requires that a reasonable assumed prepayment rate (the
"Prepayment Assumption") be used with respect to the Student Loans securing the
Bonds and that adjustments be made in the amount and rate of accrual of such
discount to reflect differences between the actual prepayment rate and the
Prepayment Assumption. The prepayment assumption is to be determined in a manner
prescribed in Treasury regulations; as noted above, those regulations have not
been issued. The Conference Committee Report accompanying the Tax Reform Act of
1986 (the "Committee Report") indicates that the regulations will provide that
the prepayment assumption used with respect to a Bond must be the same as that
used in pricing the initial offering of such Bond. The Prepayment Assumption
used in reporting original issue discount for each series of Bonds will be
consistent with this standard. The Prepayment Assumption used in reporting OID
for the Bonds will be disclosed in the related Prospectus Supplement. However,
neither the Depositor, any Servicer nor any Issuer will make any representation
that the Student Loans will in fact prepay at a rate conforming to the
Prepayment Assumption or at any other rate. Although the Treasury regulations
have not been issued, upon such issuance, it will be necessary to determine the
Prepayment Assumption in a manner prescribed by the Treasury regulations. Thus,
the Prepayment Assumption may have to be adjusted.
The OID, if any, on a Bond will be the excess of its stated redemption
price at maturity over its issue price. The issue price of a Bond will be the
first cash price at which a substantial amount of the Bonds of that class are
sold (excluding bond houses, brokers and underwriters) on the date of their
initial issuance (the "Closing Date"). Under the OID Regulations, the stated
redemption price of a Bond is equal to the total of all payments to be made on
such Bond other than "qualified stated interest." With respect to any Bond
bearing OID, "qualified stated interest" will be the interest that is
unconditionally
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payable at least annually at a single fixed rate. (It is anticipated that all
Bonds will bear only fixed rate interest. The use of variable rate interest will
be disclosed in the related Prospectus Supplement.)
If the accrued interest to be paid on the first Interest Payment Date
is computed with respect to a period that begins prior to the Closing Date for a
sale of a series of Bonds, a portion of the purchase price paid for a Bond will
reflect such accrued interest. In any such case, unless otherwise disclosed in
the applicable Prospectus Supplement, information returns to the Bondholders and
the Servicer will be based on the position that the portion of the purchase
price paid for the interest accrued with respect to the periods prior to the
Closing Date is treated as part of the overall cost of such Bond (and not as a
separate asset the cost of which is recovered entirely out of interest received
on the first Interest Payment Date) and that portion of the interest paid on the
first Interest Payment Date in excess of interest accrued for a number of days
corresponding to the number of days from the Closing Date to the first Interest
Payment Date should be included in the stated redemption price of such Bond.
However, the OID Regulations suggest that all or some portion of such accrued
interest "may" be treated as a separate asset, the cost of which is recovered
entirely out of interest paid on the first Interest Payment Date. It is unclear
how an election to do so would be made under the OID Regulations and whether
such an election could be made unilaterally by a Bondholder. Where the interval
between the issue date and the first Interest Payment Date on a Bond is either
longer or shorter than the interval between subsequent Interest Payment Dates,
all or part of the interest foregone, in the case of the longer interval, and
all of the additional interest, in the case of the shorter interval, will be
included in the stated redemption price at maturity and tested under the DE
MINIMIS rule described below. Although not entirely certain, the OID Regulations
suggest that all interest on a long first period Bond that is issued with non-DE
MINIMIS OID may be treated as OID. Bondholders should consult their own tax
advisers to determine the issue price and stated redemption price at maturity of
a Bond.
Notwithstanding the general definition of OID, OID on a Bond will be
considered to be DE MINIMIS if it is less than 0.25% of the stated redemption
price of the Bond multiplied by its weighted average life. For this purpose, the
weighted average life of a Bond is computed as the sum, for all payments of
amounts included in the stated redemption price of such Bond, of the amounts
determined by multiplying (i) the number of complete years (rounding down for
partial years) until each payment is expected to be made (presumably taking into
account the Prepayment Assumption) by (ii) a fraction, the numerator of which is
the amount of such payment and the denominator of which is the stated redemption
price of such Bond. Under the OID Regulations, OID of only a DE MINIMIS amount
will be included in income as each payment of stated principal is made, based on
the product of the total amount of such DE MINIMIS OID and a fraction, the
numerator of which is the amount of such principal payment and the denominator
of which is the stated principal balance of the Bond. The OID Regulations also
would permit a Bondholder to elect to accrue DE MINIMIS OID into income on a
current yield method. See "Market Discount," below.
If OID on a Bond is in excess of a DE MINIMIS amount, the holder of
such Bond must include in ordinary gross income the sum of the "daily portions"
of OID for each day during its taxable year on which it held such Bond,
including the purchase date but excluding the disposition date. In the case of
an original holder of a Bond, the daily portions of OID will be determined as
follows.
As to each "accrual period", that is, unless otherwise stated in the
related Prospectus Supplement, each period that ends on a date that corresponds
to an Interest Payment Date and begins on the first day following the
immediately preceding accrual period (or in the case of the first such period,
begins on the Closing Date), a calculation will be made of the portion of the
OID that accrued during such accrual period. Unless otherwise disclosed in the
related Prospectus Supplement, the following method will be used in making that
calculation. The portion of OID that accrues in any accrual period will equal
the
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excess, if any, of (i) the sum of (A) the present value, as of the end of the
accrual period of all of the distributions remaining to be made on the Bond, if
any, in future periods and (B) the distributions made on such Bond during the
accrual period of amounts included in the stated redemption price, over (ii) the
adjusted issue price of such Bond at the beginning of the accrual period. The
present value of the remaining distributions referred to in the preceding
sentence will be calculated (i) assuming that distributions on the Bond will be
received in future periods based on the Student Loans being prepaid at a rate
equal to the Prepayment Assumption, (ii) using a discount rate equal to the
original yield to maturity of the Bond and (iii) taking into account events
(including actual prepayments) that have occurred before the close of the
accrual period. For these purposes, the original yield to maturity of the Bond
will be calculated based on the Student Loans being prepaid at a rate equal to
the Prepayment Assumption. The adjusted issue price of a Bond at the beginning
of any accrual period will equal the issue price of such Bond, increased by the
aggregate amount of OID with respect to such Bond that accrued in prior accrual
periods, and reduced by the amount of any distributions made on such Bond in any
prior accrual period of amounts included in the stated redemption price. The OID
accruing during any accrual period, computed as described above, will be
allocated ratably to each day during the period to determine the daily portion
of original issue discount for such day.
A subsequent purchaser of a Bond that purchases such Bond at a cost
(not including payments for accrued qualified stated interest) less than its
remaining stated redemption price will also be required to include in gross
income the daily portions of any original issue discount with respect to such
Bond. However, each such daily portion will be reduced, if such cost is in
excess of its "adjusted issue price," in proportion to the ratio such excess
bears to the aggregate original issue discount remaining to be accrued on such
Bond. The adjusted issue price of a Bond on any given day equals the sum of (i)
the adjusted issue price (or, in the case of the first accrual period, the issue
price) of the Bond at the beginning of the accrual period which incudes such day
and (ii) the daily portions of original issue discount for all days during such
accrual period prior to such day.
MARKET DISCOUNT
A Bondholder that purchases a Bond at a market discount, that is, in
the case of a Bond issued without OID, at a purchase price less than its
remaining stated principal amount, or in the case of a Bond issued with OID, at
a purchase price less than its adjusted issue price (as defined in the preceding
paragraph) will recognize gain upon receipt of each distribution representing
stated redemption price. In particular, under Section 1276 of the Code, such a
holder generally will be required to allocate each such principal distribution
first to accrued market discount not previously included in income, and to
recognize ordinary income to that extent. A Bondholder may elect to include
market discount in income currently as it accrues rather than including it on a
deferred basis in accordance with the foregoing. If made, such election will
apply to all market discount bonds acquired by such Bondholder on or after the
first day of the first taxable year to which such election applies. In addition,
the OID Regulations permit a Bondholder using the accrual method of accounting
to elect to accrue all interest, discount (including DE MINIMIS market or
original issue discount) and premium in income as interest, based on a constant
yield method. If such an election is made with respect to a Bond with market
discount, the Bondholder is deemed to have made an election to include market
discount in income currently with respect to all other debt instruments having
market discount that such Bondholder acquires during the year of the election or
thereafter. Similarly, a Bondholder that makes this election for a Bond that is
acquired at a premium is deemed to have made an election to amortize bond
premium with respect to all debt instruments having amortizable bond premium
that such Bondholder owns or acquires. See "Premium." The election to accrue
interest, discount and premium on a constant yield method with respect to a Bond
is irrevocable.
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Market discount with respect to a Bond will be considered to be DE
MINIMIS for purposes of Section 1276 of the Code if such market discount is less
than 0.25% of the stated redemption price of such Bond multiplied by the number
of complete years to maturity remaining after the date of its purchase. In
interpreting a similar rule with respect to OID on obligations payable in
installments, the OID Regulations refer to the weighted average maturity of the
obligations, and it is likely that the same rule will be applied with respect to
market discount, presumably taking into account the Prepayment Assumption. If
market discount is treated as DE MINIMIS under this rule, it appears that the
actual discount will be treated in a manner similar to original issue discount
of a DE MINIMIS amount. See "Original Issue Discount". Such treatment would
result in discount being included in income at a slower rate than discount would
be required to be included in income using the method described above.
Section 1276(b)(3) of the Code specifically authorizes the Treasury
Department to issue regulations providing for the method of accruing market
discount on debt instruments the principal of which is payable in more than one
installment. Until regulations are issued by the Treasury Department, certain
rules described in the Committee Report apply. The Committee Report indicates
that, in each accrual period, market discount on a Bond should accrue, at the
Bondholder's option: (i) on the basis of a constant yield method, (ii) in the
case of a Bond issued without OID, in an amount that bears the same ratio to the
total remaining market discount as the stated interest paid in the accrual
period bears to the total amount of stated interest remaining to be paid on the
Bond as of the beginning of the accrual period, or (iii) in the case of a Bond
issued with OID, in an amount that bears the same ratio to the total remaining
market discount as the OID accrued in the accrual period bears to the total OID
remaining on the Bond at the beginning of the accrual period. Moreover, if Bonds
were issued with OID, the Prepayment Assumption used in calculating the accrual
of OID would also be used in calculating the accrual of market discount. The
related Prospectus Supplement will disclose the Prepayment Assumption used with
respect to OID Bonds, if any. Because the regulations referred to in this
paragraph have not been issued, it is not possible to predict what effect such
regulations might have on the tax treatment of a Bond purchased at a discount in
the secondary market.
To the extent that a Bond provides for monthly or periodic
distributions throughout the term, the effect of these rules may be to require
market discount to be includible in income at a rate that is not significantly
slower than the rate at which such discount would accrue if it were OID.
Moreover, in any event a holder of a Bond generally will be required to treat a
portion of any gain on the sale or exchange of such Bond as ordinary income to
the extent of the market discount accrued to the date of disposition under one
of the foregoing methods, less any accrued market discount previously reported
as ordinary income.
Further, under Section 1277 of the Code, a purchaser may be required to
defer a portion of its interest deductions for the taxable year attributable to
any indebtedness incurred or continued to purchase or carry a Bond purchased
with market discount. For these purposes, the DE MINIMIS rule referred to above
applies. Any such deferred interest expense will not exceed the market discount
that accrued during such taxable year and, in general, will be allowed as a
deduction not later than the year in which such market discount is includible in
income. If such holder elects to include market discount in income currently as
it accrues on all market discount instruments acquired by such holder in that
taxable year or thereafter, the interest deferral rule described above will not
apply.
PREMIUM
A Bond purchased at a cost (not including accrued qualified stated
interest) greater than its remaining stated redemption price will be considered
to be purchased at a premium. The holder of such a Bond may elect to amortize
such premium under the constant yield method over the life of the Bond.
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Such an election applies to all debt instruments having amortizable bond premium
that the holder owns or subsequently acquires. Amortizable premium will be
treated as an offset to interest income on the related debt instrument, rather
than as a separate interest deduction. The OID Regulations also permit certain
Bondholders to elect to include all interest, discount and premium in income
based on a constant yield method, treating the Bondholder as having made the
election to amortize premium generally. See "Market Discount".
The Committee Report states that the same rules that apply to accrual
of market discount (which rules will require use of a Prepayment Assumption in
accruing market discount with respect to Bonds without regard to whether such
Bonds have original issue discount) will also apply in amortizing bond premium
under Section 171 of the Code.
REALIZED LOSSES
Under Section 166 of the Code, both corporate holders of the Bonds and
noncorporate holders of the Bonds that acquire such Bonds in connection with a
trade or business should be allowed to deduct, as ordinary losses, any losses
sustained during a taxable year in which their Bonds become wholly or partially
worthless as the result of one or more realized losses on the Student Loans.
However, it appears that a noncorporate holder that does not acquire a Bond in
connection with a trade or business will not be entitled to deduct a loss under
Section 166 of the Code until such holder's Bond becomes wholly worthless (i.e.,
until its outstanding principal balance has been reduced to zero) and that the
loss will be characterized as a short-term capital loss.
Each holder of a Bond will be required to accrue interest and original
issue discount with respect to such Bond, without giving effect to any
reductions in distributions attributable to defaults or delinquencies on the
Student Loans until it can be established that any such reduction ultimately
will not be recoverable. As a result, the amount of taxable income reported in
any period by the holder of a Bond could exceed the amount of economic income
actually realized by the holder in such period. Although the holder of a Bond
eventually will recognize a loss or reduction in income attributable to
previously accrued and included income that as the result of a realized loss
ultimately will not be realized, the law is unclear with respect to the timing
and character of such loss or reduction in income.
SALE OR EXCHANGE OF REGULAR BONDS
A Bondholder's tax basis in its Bond is the price such holder pays for
a Bond, plus amounts of market discount and original issue discount included in
income and reduced by any payments received (other than qualified stated
interest payments) and any amortized premium. Gain or loss recognized on a sale,
exchange, or redemption of a Bond, measured by the difference between the amount
realized and the Bond's basis as so adjusted, will generally be capital gain or
loss, assuming that the Bond is held as a capital asset. Except as provided in
the following three paragraphs, any such gain or loss will be capital gain or
loss, provided such Bond is held as a capital asset (generally, property held
for investment) within the meaning of Section 1221 of the Code. For taxable
years beginning after December 31, 1992, the maximum marginal tax rate on
ordinary income for individual taxpayers is 39.6%, and the maximum marginal tax
rate on long-term capital gains reported after December 31, 1992 for such
taxpayers is 28%. The maximum tax rate on both ordinary income and long-term
capital gains of corporate taxpayers is 35%. Taxpayers other than corporations
should be aware that the Code may limit deductions for interest on loans
incurred to acquire Bonds held for investment if gain realized on a sale or
exchange of such Bonds would be taxable at capital gains rates.
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Gain recognized on the sale of a Bond by a seller who purchased such
Bond at a market discount will be taxable as ordinary income in an amount not
exceeding the portion of such market discount that accrued during the period
such Bond was held by such holder, reduced by any market discount included in
income under the rules described above under " -- Market Discount" and " --
Premium".
A portion of any gain from the sale of a Bond that might otherwise be
capital gain may be treated as ordinary income to the extent that such Bond is
held as part of a "conversion transaction" within the meaning of Section 1258 of
the Code. A conversion transaction generally is one in which the taxpayer has
taken two or more positions in the same or similar property that reduce or
eliminate market risk, if substantially all of the taxpayer's return is
attributable to the time value of the taxpayer's net investment in such
transaction. The amount of gain so realized in a conversion transaction that is
recharacterized as ordinary income generally will not exceed the amount of
interest at 120% of the appropriate "applicable Federal rate" (which rate is
computed and published monthly by the Service) at the time the taxpayer enters
into the conversion transaction, subject to appropriate reduction for prior
inclusion of interest and other ordinary income items from the transaction.
Finally, a taxpayer may elect to have net capital gain taxed at
ordinary income rates rather than capital gains rates in order to include such
net capital gain in total net investment income for the taxable year, for
purposes of the rule that limits the deduction of interest on indebtedness
incurred to purchase or carry property held for investment to a taxpayer's net
investment income.
REPORTING
Reporting of interest income, including any OID, with respect to the
Bonds will be required annually, and may be required more frequently under
Treasury regulations. These information reports generally are required to be
sent to individual Bondholders and the Internal Revenue Service; Bondholders
that are corporations, trusts, securities dealers and certain other
non-individuals will be provided interest and original issue discount income
information and the information set forth in the following paragraph upon
request in accordance with the requirements of the applicable regulations. The
information must be provided by the later of 30 days after the end of the
quarter for which the information was requested, or two weeks after the receipt
of the request. The Issuer must also comply with rules requiring a Bond with
original issue discount to disclose on its face the amount of original issue
discount and the issue date, and requiring such information to be reported to
the Internal Revenue Service.
The information reports will include a statement of the adjusted issue
price of the OID Bonds at the beginning of each accrual period. In addition, the
reports will include information required by regulations with respect to
computing the accrual of any market discount. Because exact computation of the
accrual of market discount on a constant yield method would require information
relating to the holders purchase price that the Issuer may not have, the
applicable regulations only require that information pertaining to the
appropriate proportionate method of accruing market discount be provided.
See "Market Discount".
Unless otherwise specified in the related Prospectus Supplement, the
responsibility for complying with the foregoing reporting rules will be borne by
the Owner Trustee.
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BACKUP WITHHOLDING WITH RESPECT TO BONDS
Payments of interest and principal, as well as payments of proceeds
from the sale of Bonds may be subject to the "backup withholding tax" under
Section 3406 of the Code at a rate of 31% if recipients of such payments fail to
furnish to the payor certain information, including their taxpayer
identification numbers or otherwise fail to establish an exemption from such
tax. Any amount deducted and withheld from a distribution to a recipient would
be allowed as a credit against such recipient's federal income tax. Certain
penalties may also be imposed by the Service on a recipient of payments that is
required to supply information but does not do so in the proper manner.
The Indenture Trustee will report to the holders and to the Service for
each calendar year the amount of any "reportable payments" during such year and
the amount of tax withheld, if any, with respect to payments on the Bonds.
STATE TAX CONSEQUENCES
In addition to the federal income tax consequences described in
"Certain Federal Income Tax Consequences," potential investors should consider
the state and local income tax consequences of the acquisition, ownership and
disposition of the Bonds. State income tax laws may differ substantially from
the corresponding federal law, and this discussion does not purport to describe
any aspect of the income tax laws of any state. Therefore, potential investors
should consult their own tax advisers with respect to the various state and
local tax consequences of investments in the Bonds.
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. 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
Section 414(e) of the Code) are not subject to ERISA requirements. Accordingly,
assets of such plans may be invested in Bonds without regard to the ERISA
considerations described below, subject to the provisions of other applicable
federal and state law. Any such plan which is qualified and exempt from taxation
under Sections 401(a) and 501(a) of the Code, however, is subject to the
prohibited transaction rules set forth in Section 503 of the Code.
ERISA generally imposes on Plan fiduciaries 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 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
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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
A Plan's investment in Bonds may cause the assets constituting the
related Trust Estate (the "Trust Assets") to be deemed Plan assets. Section
2510.3-101 of the regulations ("Regulations") of the United States Department of
Labor ("DOL") provides that when a Plan acquires an equity interest in an
entity, the Plan's assets include both such equity interest and an undivided
interest in each of the underlying assets of the entity, unless certain
exceptions apply. The Regulations only apply to the purchase by a Plan of an
"equity interest" in an entity. Accordingly, if the Bonds do not constitute
equity interests for purposes of the Regulations, the related Issuer would not
be deemed to hold Plan assets by reason of the acquisition of the Bonds by a
Plan. In order not to be an equity interest under the Regulations, (i) the Bonds
must be treated as indebtedness under applicable local law and (ii) the Bonds
must lack any substantial equity features. Assuming that the Bonds are equity
interests, the Regulations contain an exception that provides that a Plan's
assets will not include an undivided interest in each asset of an entity in
which it makes an equity investment if: (i) the entity is an operating company;
or (ii) the equity investment made by the Plan is either 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, as amended; or
(iii) Benefit Plan Investors do not own 25% or more in value of any class of
equity securities issued by the entity. For this purpose, "Benefit Plan
Investors" include Plans, as well as any "employee benefit plan" as defined in
section 3(3) of ERISA which is not subject to Title I of ERISA, such as
governmental plans (as defined in Section 3(32) of ERISA) and church plans (as
defined in Section 3(33) of ERISA) which have not made an election under Section
410(d) of the Code, and any entity whose underlying assets include Plan assets
by reason of a plan's investment in the entity. One requirement for a class of
securities to be a publicly-offered security as defined in the Regulations is
that the class must be owned by 100 or more investors who are independent of the
Issuer and of one another.
There can be no assurance that any of the exceptions set forth in the
Regulations will apply to the purchase of Bonds offered hereby. Under the terms
of the Regulations, if the Trust were deemed to hold Plan assets by reason of a
Plan's investment in Bonds, such Plan assets would include an undivided interest
in the Student Loans and any other assets held by the Trust.
Any person who has discretionary authority or control respecting the
management or disposition of Plan assets, and any person who provides investment
advice with respect to such assets for a fee, is a fiduciary of the investing
Plan. If the Trust Assets constitute Plan assets, then any party exercising
management or discretionary control regarding those assets, such as the Servicer
or the Administrator, may be deemed to be a Plan "fiduciary" with respect to the
investing Plan, and thus subject to the fiduciary responsibility provisions and
prohibited transaction provisions of ERISA and the Code. In addition, if the
related Issuer were deemed to hold Plan assets, each Bondholder may be subject
to the fiduciary responsibility provisions of Title I of ERISA with respect to
its right to consent or withhold consent to amendments to the Indenture.
If the Trust Assets constitute Plan assets, the purchase of Bonds by a
Plan, as well as the operation of the Trust Estate, may constitute or involve a
prohibited transaction under ERISA and the Code and subject to excise taxes
under Section 4975 of the Code, and penalties and other sanctions under Section
502 of ERISA unless an exemption is applicable. In addition, the persons
providing services with respect to the assets of the Issuer, including the
Servicer and the related Indenture Trustee, may be subject to the fiduciary
responsibility provisions of Title I of ERISA and be subject to the prohibited
transaction provisions of ERISA and Section 4975 of the Code with respect to
transactions involving such
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assets. There are certain statutory and class exemptions issued by the DOL that
could apply in such event including DOL Prohibited Transaction Exemptions 84-14
(Class Exemption for Plan Asset Transactions Determined by Independent Qualified
Professional Asset Managers), 91-38 (Class Exemption for Certain Transactions
Involving Bank Collective Investment Funds), 90-1 (Class Exemption for Certain
Transactions Involving Insurance Company Pooled Separate Accounts), 95-60 (Class
Exemption for Certain Transactions Involving Insurance Company General Accounts)
and 96-23 (Class Exemption for In-House Asset Managers). There is no assurance
that these exemptions, even if all of the conditions specified therein are
satisfied, will apply to all transactions involving the related Issuer's assets.
INSURANCE COMPANY GENERAL ACCOUNTS
In addition to any exemption that may be available under PTCE 95-60 for
the purchase and holding of the Bonds by an insurance company general account,
the Small Business Job Protection Act of 1996 added a new Section 401(c) to
ERISA, which provides certain exemptive relief from the provisions of Part 4 of
Title I of ERISA and Section 4975 of the Code, including the prohibited
transaction restrictions imposed by ERISA and the related excise taxes imposed
by the Code, for transactions involving an insurance company general account.
Pursuant to Section 401(c) of ERISA, the DOL is required to issue final
regulations ("401(c) Regulations") no later than December 31, 1997 which are to
provide guidance for the purpose of determining, in cases where insurance
policies supported by an insurer's general account are issued to or for the
benefit of a Plan on or before December 31, 1998, which general account assets
constitute Plan assets. Section 401(c) of ERISA generally provides that, until
the date which is 18 months after the 401(c) Regulations become final, no person
shall be subject to liability under Part 4 of Title I of ERISA and Section 4975
of the Code on the basis of a claim that the assets of an insurance company
general account constitute Plan assets, unless (i) as otherwise provided by the
Secretary of Labor in the 401(c) Regulations to prevent avoidance of the
regulations or (ii) an action is brought by the Secretary of Labor for certain
breaches of fiduciary duty which would also constitute a violation of federal or
state criminal law. Any assets of an insurance company general account which
support insurance policies issued to a Plan after December 31, 1998 or issued to
Plans on or before December 31, 1998 for which the insurance company does not
comply with the 401(c) Regulations may be treated as Plan assets. In addition,
because Section 401(c) does not relate to insurance company separate accounts,
separate account assets are still treated as Plan assets of any Plan invested in
such separate account. Insurance companies contemplating the investment of
general account assets in the Bonds should consult with their legal counsel with
respect to the applicability of Section 401(c) of ERISA, including the general
account's ability to continue to hold the Bonds after the date which is 18
months after the date the 401(c) Regulations become final.
In addition, certain affiliates of the Servicer, the related Issuers,
the Indenture Trustees, the Owner Trustees, the Depositor, the Administrator,
the Originator and the Owner Participants are considered to be Parties in
Interest or fiduciaries with respect to many Plans. An investment by such a Plan
in Bonds may be a prohibited transaction under ERISA and the Code unless such
investment is subject to a statutory or administrative exemption.
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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YIELD CONSIDERATIONS
GENERAL
The yield on any Bond will depend on the price paid by the Bondholder,
the receipt and timing of receipt of payments on the Bonds and the weighted
average coupons and terms to maturity of the Student Loans in the related Trust
Estate.
PAYMENT DELAYS
With respect to any series of Bonds, a period of time will elapse
between the date upon which payments or distributions on the Student Loans are
collected and the Payment Date on which interest and principal on the Bonds are
paid to Bondholders. That delay will likely effectively reduce the yield that
could otherwise be produced if payments to Bondholders were made on or near the
date payments on the Student Loans were collected.
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 after the fifth
anniversary of issuance (and before under certain circumstances) 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 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's
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
between pools and from time to time may be affected by a number of factors,
including, without limitation, economic, demographic, geographic, social, legal
and tax. The rate of prepayment on a pool of Student Loans is also 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 any Trust Estate or that the rate
of payments will conform to any model described herein or in any Prospectus
Supplement. Furthermore, there can be no assurance that student loan programs,
such as programs currently implemented or proposed by the federal or state
government, will not result in significant prepayment of the Student Loans.
Neither the Issuer nor the Depositor will make any representation as to the
particular factors that will affect the prepayment of the Student Loans, as to
the relative importance of such factors,
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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.
Only limited information regarding historic prepayment rates for
GATE(sm) Student Loans will be provided in the related Prospectus Supplement.
See "Repayment History Regarding GATE(sm) Student Loans" in the related
Prospectus Supplement. 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 any series
of Bonds will be in any manner comparable to the limited historical information
provided in the related Prospectus Supplement. In addition, no information
regarding historic prepayment rates for other student loans serviced by the
Servicer is expected to be provided in the related Prospectus Supplement,
because the Depositor believes that the terms of the GATE(sm) Student Loan
Program are materially different from 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. The major differences between the GATE(sm) Student Loan
Program and other existing loan programs, which the Registrant believes are
likely to affect the level of prepayments, are:
(i) While the Student Loans carry a fixed interest rate over their
term, most other student loan programs carry a variable
interest rate which fluctuates with market conditions. Those
other programs which are fixed-rate generally bear interest at
a below-market, subsidized rate, while the GATE(sm) fixed-rate
is based on actual market conditions at the time of
origination. Since borrowers will generally not prepay a loan
bearing interest at a below-market rate, prepayment speeds for
such loans may be significantly slower than what could be
expected for the Student Loans.
(ii) While Student Loan repayments are of interest only for five
years and then rise over time to include escalating
amortization of principal, most other student loan repayment
schedules require immediate amortization of principal and are
either level over their terms or decline over time. As a
result, the borrower's repayment burden is significantly
different under the GATE(sm) Student Loan Program than under
other student loan programs, and could also significantly
affect the prepayment speeds of the Student Loans.
PREPAYMENTS--MATURITY AND WEIGHTED AVERAGE LIFE
The rates at which principal payments are received on the Student Loans
and the rate at which payments are made from the Collateral Proceeds Account or
the Reserve Fund for a related series of Bonds may affect the ultimate maturity
and the weighted average life of the Bonds of such series. 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 a series of 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. The related Prospectus Supplement will describe specific
prepayment standards or models.
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The Prospectus Supplement with respect to each series of Bonds will
contain tables, if applicable, setting forth the projected weighted average life
of such series of Bonds and the percentage of the initial Aggregate Current
Principal Amount of such series that would be outstanding on specified Payment
Dates based on the assumptions stated in such Prospectus Supplement, including
assumptions that prepayments on the related Student Loans are made at rates
corresponding to various percentages of specified models, or at such other rates
specified in such Prospectus Supplement. Such tables and assumptions will
illustrate the sensitivity of the weighted average lives of the Bonds to various
assumed prepayment rates and will not be intended to predict, or to provide
information that will enable investors to predict, the actual weighted average
lives of the Bonds.
OTHER FACTORS AFFECTING WEIGHTED AVERAGE LIFE
INCREASED PRINCIPAL PAYMENTS; EXTENSIONS OF MATURITY The Student Loans
require that principal payments only be made after the first five years after
graduation (the "Interest Only Period"). Thus, monthly loan payments will
gradually increase in size. The ability of a borrower to make increased
principal payments may depend upon its ability to refinance the loan 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. In the case of defaults, recovery of proceeds may be delayed by,
among other things, bankruptcy of the borrower. In order to minimize losses on
defaulted Student Loans, the Servicer, to the extent and under the circumstances
set forth in the related Prospectus Supplement, may be authorized to modify
Student Loans that are in default or as to which a payment default is imminent.
Any defaulted principal payment or modification that extends the maturity of a
Student Loan will tend to extend the weighted average life of the Bonds, thereby
lengthening the period of time elapsed from the date of issuance of a Bond until
it is retired.
NEGATIVE AMORTIZATION The weighted average life of a series of Bonds
may be affected by (i) students that defer repayment of their respective Student
Loans to attend graduate school or (ii) by Servicer approved 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.
Accordingly, the weighted average lives of the Bonds will increase.
UNDERWRITING
The Bonds offered hereby and by the Supplements to this Prospectus will
be offered in series. The distribution of the Bonds may be effected from time to
time in one or more transactions, including negotiated transactions, at a fixed
public offering price or at varying prices to be determined at the time of sale
or at the time of commitment therefor. If so specified in the related Prospectus
Supplement, the Bonds will be distributed in a firm commitment underwriting,
subject to the terms and conditions of an underwriting agreement to be entered
into between the Issuer and an underwriter or underwriters named therein. In
such event, the Prospectus Supplement may also specify that the underwriters
will not be obligated to pay for any Bonds agreed to be purchased by purchasers
pursuant to purchase agreements acceptable to the Issuer. In connection with the
sale of Bonds, underwriters may receive compensation from the Issuer or from
purchasers of Bonds in the form of discounts, concessions or commissions. The
Prospectus Supplement will describe any such compensation paid by the Issuer.
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Alternatively, the Prospectus Supplement may specify that Bonds will be
distributed by an underwriter or underwriters acting as agent, or in some cases
as principal, with respect to Bonds that it has previously purchased or agreed
to purchase. If an underwriter acts as agent in the sale of Bonds, it will
receive a selling commission with respect to such Bonds, depending on market
conditions, expressed as a percentage of the Aggregate Current Principal Balance
of such Bonds as of the related closing date. The exact percentage for each
series of Bonds will be disclosed in the related Prospectus Supplement. To the
extent that an underwriter or underwriters elect to purchase Bonds as principal,
such underwriter or underwriters may realize losses or profits based upon the
difference between the purchase price and the sales price. The Prospectus
Supplement with respect to any series offered other than through underwriters
will contain information regarding the nature of such offering and any
agreements to be entered into between the Issuer and purchasers of Bonds of such
series.
Each Issuer of a series of Bonds will indemnify the underwriter or
underwriters thereof against certain civil liabilities, including liabilities
under the Securities Act of 1933, or will contribute to payments such
underwriter or underwriters may be required to make in respect thereof.
The Depositor anticipates that the Bonds will be sold primarily to
institutional investors. Purchasers of Bonds, including dealers, may, depending
on the facts and circumstances of such purchases, be deemed to be "underwriters"
within the meaning of the Securities Act of 1933 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.
FINANCIAL INFORMATION
A new Issuer will be formed with respect to each series of Bonds and no
Issuer will engage in any business activities or have any assets or obligations
prior to the issuance of the related series of Bonds. Accordingly, no financial
statements with respect to any Issuer will be included in this Prospectus or in
the related Prospectus Supplement.
RATING
It is a condition to the issuance of each class of any series of Bonds
that they shall have been rated not lower than investment grade, that is, in one
of the four highest rating categories, by a Rating Agency; provided, however,
unless otherwise specified in the related Prospectus Supplement neither the
Depositor nor any Issuer will be obligated to maintain such rating.
Ratings on collateralized student loan bonds address the likelihood of
receipt by bondholders of all payments due on the bonds. These ratings address
the structural, legal and issuer-related aspects associated with such bonds and
the nature of the underlying student loans. Ratings on collateralized student
loan bonds do not represent any assessment of the likelihood of principal
prepayments by borrowers or of the degree by which such prepayments might differ
from those originally anticipated. As a result, bondholders might suffer a lower
than anticipated yield. In addition, the default experience of the Student Loans
securing a series of Bonds may exceed anticipated default levels, thus causing
the Rating Agency to lower its rating on such series of Bonds and in extreme
cases Bondholders might fail to recoup their initial investments.
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.
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LEGAL MATTERS
Unless otherwise specified in the related Prospectus Supplement,
certain legal matters in connection with the Bonds, including certain federal
income tax consequences, will be passed upon for the Depositor and the Issuer by
Thacher Proffitt & Wood, New York, New York.
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GLOSSARY OF PRINCIPAL TERMS
AGGREGATE CURRENT PRINCIPAL AMOUNT: With respect to any series of Bonds, an
amount equal to the original principal amount of such series of Bonds, minus all
prior payments, if any, made with respect to principal of such series of Bonds.
BANA ORIGINATION AGREEMENT: A Loan Packaging and Funding Agreement between BANA
and an Owner Participant.
BOND INTEREST RATE: The rate of interest payable on the Bonds as set forth in
the related Prospectus Supplement.
BOND OWNER: A person acquiring an interest in the Bonds.
BONDHOLDERS: Holders of interests in the Bonds.
BONDS: Collectively, each class of collateralized student loan bonds, issuable
in series pursuant to an Indenture.
CEDE: Cede & Co.
CLOSING DATE: The closing date for a sale of a series of Bonds as set forth in
the related Prospectus Supplement.
CODE: The Internal Revenue Code of 1986, as amended.
COLLATERAL PROCEEDS ACCOUNT: For each series of Bonds, a trust account or
accounts into which all amounts collected on the Student Loans, net of the
Servicing Fee, will be remitted.
COLLECTION PERIOD: The six month period ending the 15th day of the calendar
month in which a related Payment Date occurs, or the date specified in the
related Prospectus Supplement.
COMMISSION: The Securities and Exchange Commission.
COST OF ISSUANCE ACCOUNT: For each series of Bonds, a trust account into which
the Cost of Issuance Amount shall be deposited.
COST OF ISSUANCE AMOUNT: For each series of Bonds, the amount specified in the
related Prospectus Supplement.
COST OF ISSUANCE: The costs or expenses incurred by the related Issuer in
connection with the issuance of a series of Bonds.
DEFINITIVE BONDS: Bonds in fully registered, certificated form issued to Bond
Owners or their nominees.
DEPOSITOR: The National Collegiate Trust.
DEPOSITORY: The Depository Trust Company and any successor depository.
DOL: United States Department of Labor.
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DTC: The Depository Trust Company.
DTC PARTICIPANTS: DTC's participating organizations.
ERISA: The Employee Retirement Income Security Act of 1974, as amended.
EVENT OF DEFAULT: With respect to the Bonds, an event of default under the
Indenture.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
FNBB ORIGINATION AGREEMENT: An Origination and Funding Agreement between FNBB
and an Owner Participant.
INDENTURE: A trust indenture pursuant to which each Issuer will issue a series
of Bonds.
INDENTURE TRUSTEE: A bank or trust company acting as trustee for the Bondholders
under the related Indenture and to whom the Student Loans will be pledged as
collateral by the related Issuer.
INDIRECT DTC PARTICIPANTS: Banks, brokers, dealers, trust companies and others
that clear through or maintain a custodial relationship with a DTC Participant,
either directly or indirectly.
INTEREST ACCRUAL PERIOD: The six-month period from the most recent Payment Date
(or from the date specified in the related Prospectus Supplement, in the case of
the first payment of interest on the Bonds) through the last day preceding the
related Payment Date, or such other period as is specified in the related
Prospectus Supplement.
INTEREST ONLY PERIOD: The five year period following the end of the Interest
Support Period.
INTEREST PAYMENT DATE: The date on which interest is payable on the Bonds.
INTEREST RESERVE AMOUNT: With respect to any Payment Date, an amount equal to
the amount of interest payable on the related series of Bonds on the next
succeeding Payment Date.
INTEREST SUPPORT ACCOUNT: An interest support account established and maintained
by the Indenture Trustee for the benefit of the holders of the related series of
Bonds.
INTEREST SUPPORT PAYMENT: With respect to each Interest Payment Date during the
Interest Support Period, an amount equal to (a) all accrued interest on the
Bonds together with expenses of the related 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.
INTEREST SUPPORT PERIOD: The period commencing on the Closing Date and ending on
the Payment Date thereafter as specified in the related Prospectus Supplement.
ISSUER: Separate trusts established by the Depositor to issue Bonds.
OID: "Original issue discount" within the meaning of Section 1273(a) of the
Code.
ORIGINATION AGREEMENT: An FNBB Origination Agreement or an BANA Origination
Agreement.
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ORIGINATOR: An originator of Student Loans, which may be The First National Bank
of Boston, Bank of America National Association or an originator of student
loans identified in the related Prospectus Supplement.
OWNER PARTICIPANTS: Educational institutions holding all or any portion of the
beneficial ownership of an Issuer.
OWNER TRUSTEE: A bank, trust company or other fiduciary acting as owner trustee
for the Issuer.
PARTICIPATING INSTITUTION: A professional school or four-year public or private
undergraduate college, or university that participates in the Program.
PARTIES IN INTEREST: Persons who have certain specified relationships to a Plan.
PAYMENT DATE: An Interest Payment Date and/or a Principal Payment Date.
PAYMENT DATE STATEMENT: With respect to any Payment Date, a statement regarding
the Bonds and the Student Loans prepared by the Indenture Trustee and delivered
to the Issuer and each Bondholder, not later than the first business day
following each Payment Date.
PLANS: Employee benefit plans, 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 collective investment funds and insurance company separate
accounts in which such plans, accounts or arrangements are investments.
PREPAYMENT ASSUMPTION: A reasonable, assumed prepayment rate with respect to the
Student Loans securing the Bonds.
PREPAYMENTS COLLECTION PERIOD: With respect to each Payment Date, the six-month
period ending on the 15th day of the calendar month preceding the month in which
the related Payment Date occurs.
PRINCIPAL PAYMENT DATE: The date on which principal is payable on the Bonds.
PROGRAM: The GATE(sm) Student Loan Program.
PROGRAM MANUAL: The GATE(sm) Student Loan Program's Policies and Procedure
Manual.
PROPOSED OID REGULATIONS: The proposed Treasury regulations issued under the
rules governing original issue discount that are set forth in Sections 1271-1273
and 1275 of the Code.
RATING AGENCY: A nationally recognized statistical rating agency.
REGULATIONS: The regulations of the DOL.
RESERVE FUND: A reserve fund established and maintained by the Indenture Trustee
pursuant to the related Indenture for the benefit of the holders of the related
series of Bonds.
SENIOR BONDS: With respect to any series of Bonds, the class of bonds that is
senior in right of payment of principal to any other class of Bonds of such
series.
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SCHEDULED DEFERMENT END DATE: With respect to each Student Loan, the September
30th immediately following the expected graduation date for the related student
as set forth in the related Student Loan promissory note.
SERVICER: The Pennsylvania Higher Education Assistance Agency.
SERVICING AGREEMENT: The servicing agreement entered into between the Depositor
and the Servicer pursuant to which the Servicer has agreed to service the
Student Loans.
SERVICING FEE: The monthly fee payable to the Servicer for its services.
STATED MATURITY: The scheduled maturity date of the related series of Bonds.
STUDENT LOANS: The fixed-rate loans with students securing each series of Bonds.
SUBORDINATE BONDS: With respect to any series of Bonds, the Class of Bonds that
is subordinate in right to payment of principal to any other Class of Bonds of
such series.
TRUST ASSETS: The assets constituting a Trust Estate.
TRUST ESTATE: The trust estate with respect to a series of Bonds, consisting
primarily of the related pool of Student Loans.
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NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
DEPOSITOR OR BY THE UNDERWRITER. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO
BUY, THE SECURITIES OFFERED HEREBY TO ANYONE IN ANY JURISDICTION IN WHICH THE
PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE
TO WHOM IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
INFORMATION HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SINCE THE DATE OF THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS.
TABLE OF CONTENTS
PAGE
PROSPECTUS SUPPLEMENT
Summary of Prospectus Supplement............................................S-1
Risk Factors................................................................S-8
Use of Proceeds............................................................S-11
Description of the Student Loans...........................................S-11
The Servicer...............................................................S-14
The Originators............................................................S-17
The Owner Participants.....................................................S-17
The Owner Trustee..........................................................S-20
The Administrator..........................................................S-21
Description of the Bonds...................................................S-21
Credit Enhancements........................................................S-26
Description of the Indenture...............................................S-26
Certain Yield and Prepayment Considerations................................S-28
Certain Federal Income Tax Consequences....................................S-31
ERISA Considerations.......................................................S-32
Underwriting...............................................................S-33
Legal Matters..............................................................S-34
Rating.....................................................................S-34
PROSPECTUS
Prospectus Supplement.........................................................1
Available Information.........................................................1
Incorporation Of Certain
Information By Reference....................................................1
Summary Of Prospectus.........................................................2
Risk Factors.................................................................11
The Depositor................................................................14
The Issuer...................................................................14
The Administrator............................................................15
Use Of Proceeds..............................................................15
The GATE(sm) Student Loan Program............................................15
The Servicer.................................................................19
The Originator...............................................................21
Description Of The Bonds.....................................................22
Description Of The Indenture.................................................28
Certain Legal Aspects Of The GATE(sm)
Student Loans..............................................................33
Certain Federal Income Tax Consequences......................................34
State Tax Consequences.......................................................41
Erisa Considerations.........................................................41
Yield Considerations.........................................................44
Underwriting.................................................................46
Financial Information........................................................47
Rating.......................................................................47
Legal Matters................................................................48
Glossary Of Principal Terms..................................................49
THE NATIONAL
COLLEGIATE TRUST 1997-S1
GRADS(sm)
7.45% CLASS A COLLATERALIZED STUDENT
LOAN BONDS
SERIES 1997-S1
8.25% CLASS B COLLATERALIZED STUDENT
LOAN BONDS
SERIES 1997-S1
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PROSPECTUS SUPPLEMENT
APRIL 7, 1997
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BANCAMERICA SECURITIES, INC.
