UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from___________________ to _____________________
Commission file number 333-63081
USA Group Secondary Market Services, Inc.
(Exact name of registrant as specified in its charter)
Delaware 35-1872185
State or other jurisdiction of (I.R.S. Employer
Incorporation or organization Identification No.)
30 South Meridian Street, Indianapolis, Indiana 46204
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (317) 951-5644
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of each exchange on which registered
None Not Applicable
Securities registered pursuant to Section 12 (g) of the Act:
Asset-Backed Securities, SMS Student Loan Trust 1999-A, Floating Rate Asset
Backed Senior Notes
and
Asset-Backed Securities, SMS Student Loan Trust 1999-B, Floating Rate Asset
Backed Senior Notes
<PAGE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months ( or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulations S-K (ss. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within 60 days prior to the date of filing. (See
definition of affiliate in Rule 405, 17 CFR 230.405.)
Note: If a determination as to whether a particular person is an affiliate
cannot be made without involving unreasonable effort and expense, the aggregate
market value of the common stock held by non-affiliates may be calculated on the
basis of assumptions reasonable under the circumstances, provided that the
assumptions are set forth in this Form: NOT APPLICABLE.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. [ ] Yes [ ] No
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as
of the latest practicable date. NOT APPLICABLE
DOCUMENTS INCORPORATED BY REFERENCE
List here under the following documents if incorporated by reference and the
Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) Any annual report to security holders; (2) any proxy or
information statement; and (3) Any prospectus filed pursuant to Rule 424 (b) or
(c) under the Securities Act of 1933. The listed documents should be clearly
described for identification purposes (e.g., annual report to security holders
for fiscal year ended December 24, 1980). NOT APPLICABLE
<PAGE>
Part I
Item 1. Not Applicable
Item 2. Properties - The Officers' Certificates of Compliance for the Servicer
and Administrator with respect to the assets of the Trusts and the
report of the independent auditors with respect to compliance with the
Administration are included herein as Exhibits under Item 14 hereof.
Item 3. Legal Proceedings - None.
Item 4. Submission of Matters to a Vote of Security Holders - None.
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
There is no established public trading market.
Item 6. Not Applicable
Item 7. Not Applicable
Item 8. Not Applicable
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure. - None
Part III
Item 10. Not Applicable
Item 11. Not Applicable
Item 12. Security Ownership of Certain Beneficial Owners and Management
- Not Applicable
<PAGE>
Item 13. Certain Relationships and Related Transactions - None.
Item 14. Exhibits
(a) (3) Listing of Exhibits
Exhibit Number Description
99.01 (A1) Officers' Certificate of the Administrator
regarding compliance with the Administration
Agreement for the SMS Student Loan Trust 1999-A.
(A2) Officers' Certificate of the Servicer regarding
compliance with the Servicing Agreement for the
SMS Student Loan Trust 1999-A.
(B1) Officers' Certificate of the Administrator
regarding compliance with the Administration
Agreement for the SMS Student Loan Trust 1999-B.
(B2) Officers' Certificate of the Servicer regarding
compliance with the Servicing Agreement for the SMS Student
Loan Trust 1999-B.
99.02 Report of Independent Auditors as to
Administrator's Compliance with Administration
Agreement.
(A) Reports on Form 8-K With Respect to SMS Student Loan
Trust 1999-A. The Trustee filed (1) Form 8-K dated as
of November 12, 1999, providing a copy of the Quarterly
Report of Distribution for the period from July 1, 1999
through September 30, 1999, which distribution was made
on October 28, 1999 for SMS Student Loan Trust 1999-A
and (2) Form 8-K dated as of August 12, 1999 providing
a copy of the Quarterly Report of Distribution for the
period from February 1, 1999 through June 30, 1999,
which distribution was made on July 28, 1999 for SMS
Student Loan Trust 1999-A.
(B) Reports on Form 8-K With Respect to SMS Student Loan
Trust 1999-B. The Trustee filed (1) Form 8-K dated as
of November 12, 1999, providing a copy of the Quarterly
Report of Distribution for the period from April 1,
1999 through September 30, 1999, which distribution was
made on October 28, 1999 for SMS Student Loan Trust
1999-B.
99.03 Independent Accountants' Report. Independent
Accountants' Report on Assertions on Compliance
with-and Internal Control Over Compliance
with-Specified FFEL Program Requirements Under Standard
Engagement
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
USA GROUP SECONDARY MARKET SERVICES, INC.
(Registrant)
By: Bank One, National Association, not solely but in
its capacity as Eligible Lender Trustee of SMS Student
Loan Trusts 1999-A and 1999-B
By: /S/ Steve Husbands
Steve Husbands
Assistant Vice President
Date: March 31, 2000
SMS STUDENT LOAN TRUST 1999-A
OFFICERS' CERTIFICATE
In accordance with Section 3(a) of the Administration Agreement, dated as of
February 1, 1999,among SMS Student Loan Trust 1999-A, a Delaware trust (the
"Issuer"), USA Group Secondary Market Services, Inc., a Delaware corporation, as
administrator (the "Administrator"), and Bankers Trust Company, a New York
banking corporation, not in its individual capacity but solely as Indenture
Trustee (the "Indenture Trustee"), the undersigned, in their official capacities
as Authorized Officers, on behalf of the Administrator, hereby certify that a
review of the activities of the Administrator during the period from the closing
date to September 30, 1999 and of its performance under the Administration
Agreement has been made under our supervision, and to the best of our knowledge,
based on such review, the Administrator has fulfilled all its obligations under
the Administration Agreement throughout such period.
Terms used herein and not specifically herein defined shall have the meaning
ascribed to them in the Administration Agreement.
In witness whereof, the undersigned, on behalf of the Administrator, have signed
their names as of September 30, 1999.
USA GROUP SECONDARY MARKET SERVICES, INC.,
Administrator
By: /s/ Stephen W. Clinton, President
Stephen W. Clinton, President
By:/s/ Cheryl E. Watson
Cheryl E. Watson, Vice President
SMS STUDENT LOAN TRUST 1999-A
OFFICERS' CERTIFICATE
To: i) Bank One, National Association, not in its individual capacity but
solely as Eligible Lender Trustee,
ii) Bankers Trust Company, New York, N.Y., Indenture Trustee,
iii) General Re Financial Products Corporation, Swap Counterparty
In accordance with Section 3.08 of the Servicing Agreement among SMS
Student Loan Trust 1999-A, as Issuer, USA Group Loan Services, Inc., as
Servicer ("Servicer"), USA Group Secondary Market Services, Inc., as
Seller, and Bank One, National Association, not in its individual capacity
but solely as Eligible Lender Trustee, dated as of February 1, 1999
("Servicing Agreement"), the undersigned, in their official capacities as
Authorized Officers of Servicer, hereby certify as follows:
a) a review of the activities of Servicer during the period from the
Closing Date to September 30, 1999 and of its performance has been made
under such officers' supervision, and
b) to the best of such officers' knowledge, based on such review,
Servicer has fulfilled all its obligations under the Servicing
Agreement in all material respects throughout such period.
Unless otherwise indicated, capitalized terms have the meanings ascribed to them
in the Servicing Agreement.
In witness whereof, USA Group Loan Services, Inc., has caused this Annual
Statement as to Compliance to be duly executed as of September 30, 1999.
USA GROUP LOAN SERVICES, INC.
by /s/ Laura S. Blackburn
Laura S. Blackburn, Vice President
by /s/ Daniel L. Yost
Daniel L. Yost, Senior Vice President
cc: USA Group Secondary Market Services, Inc.
SMS STUDENT LOAN TRUST 1999-B
OFFICERS' CERTIFICATE
In accordance with Section 3(a) of the Administration Agreement, dated as of
February 1, 1999,among SMS Student Loan Trust 1999-B, a Delaware trust (the
"Issuer"), USA Group Secondary Market Services, Inc., a Delaware corporation, as
administrator (the "Administrator"), and Bankers Trust Company, a New York
banking corporation, not in its individual capacity but solely as Indenture
Trustee (the "Indenture Trustee"), the undersigned, in their official capacities
as Authorized Officers, on behalf of the Administrator, hereby certify that a
review of the activities of the Administrator during the period from the closing
date to September 30, 1999 and of its performance under the Administration
Agreement has been made under our supervision, and to the best of our knowledge,
based on such review, the Administrator has fulfilled all its obligations under
the Administration Agreement throughout such period.
Terms used herein and not specifically herein defined shall have the meaning
ascribed to them in the Administration Agreement.
In witness whereof, the undersigned, on behalf of the Administrator, have signed
their names as of September 30, 1999.
USA GROUP SECONDARY MARKET SERVICES, INC.,
Administrator
By: /s/ Stephen W. Clinton, President
Stephen W. Clinton, President
By:/s/ Cheryl E. Watson
Cheryl E. Watson, Vice President
SMS STUDENT LOAN TRUST 1999-B
OFFICERS' CERTIFICATE
To: i) Bank One, National Association, not in its individual capacity but
solely as Eligible Lender Trustee,
ii) Bankers Trust Company, New York, N.Y., Indenture Trustee,
iii) General Re Financial Products Corporation, Swap Counterparty
In accordance with Section 3.08 of the Servicing Agreement among SMS
Student Loan Trust 1999-B, as Issuer, USA Group Loan Services, Inc., as
Servicer ("Servicer"), USA Group Secondary Market Services, Inc., as
Seller, and Bank One, National Association, not in its individual capacity
but solely as Eligible Lender Trustee, dated as of February 1, 1999
("Servicing Agreement"), the undersigned, in their official capacities as
Authorized Officers of Servicer, hereby certify as follows:
a) a review of the activities of Servicer during the period from the
Closing Date to September 30, 1999 and of its performance has been made
under such officers' supervision, and
b) to the best of such officers' knowledge, based on such review,
Servicer has fulfilled all its obligations under the Servicing
Agreement in all material respects throughout such period.
Unless otherwise indicated, capitalized terms have the meanings ascribed to them
in the Servicing Agreement.
In witness whereof, USA Group Loan Services, Inc., has caused this Annual
Statement as to Compliance to be duly executed as of September 30, 1999.
USA GROUP LOAN SERVICES, INC.
by /s/ Laura S. Blackburn
Laura S. Blackburn, Vice President
by /s/ Daniel L. Yost
Daniel L. Yost, Senior Vice President
cc: USA Group Secondary Market Services, Inc.
ERNST & YOUNG (Letterhead)
Independent Auditors Report on Compliance
SMS Student Loan Trust 1999-A
USA Group Secondary Market Services, Inc.
30 South Meridian
Indianapolis, Indiana 46204
and
Bankers Trust Company
Four Albany Street
New York, New York 10006
and
The First National Bank of Chicago
153 West 51st Street, 8th Floor
New York, New York 10019
and
General Re Financial Products Corporation
Rockefeller Center
630 Fifth Avenue, Suite 450
New York, New York 10111
We are independent public accountants with respect to USA Group Secondary
Market Services, Inc. ("SMS") within the meaning of the Code of Professional
Ethics of the American Institute of Certified Public Accountants.
We have audited, in accordance with generally accepted auditing standards,
the consolidated balance sheet of SMS and subsidiary as of September 30, 1999
and the related consolidated statements of income, shareholder's equity and cash
flows for the year then ended, and have issued our report thereon dated November
24, 1999.
In connection with our audit, nothing came to our attention that caused us
to believe that SMS failed to comply with the terms, covenants, provisions, or
conditions of Sections 2(a) through (g) of the Administration Agreement ("the
Agreement") dated February 1, 1999 between SMS, as administrator, and Bankers
Trust Company ("the Trustee"), as indenture trustee on behalf of the noteholders
and certificateholders of SMS Student Loan Trust 1999-A ("the Issuer"), for the
period February 1, 1999 through September 30, 1999 insofar as they relate to
accounting matters. However, our audit was not directed primarily toward
obtaining knowledge of such noncompliance. Further, we make no representations
as to the sufficiency of the foregoing procedures for your purposes.
We have performed the procedures enumerated below, which were agreed to by
SMS, the Eligible Lender Trustee, and the Indenture Trustee, solely to assist
you with respect to SMS's administration of the Student Loan Trust 1999-A
receivables pursuant to sections 2 (c) (i through iii), 2 (d), 2 (e) (i), and 2
(g) of the Agreement. This engagement to apply agreed-upon procedures was
performed in accordance with standards established by the American Institute of
Certified Public Accountants. The sufficiency of the procedures is solely the
responsibility of the specified users of the report. Consequently, we make no
representation regarding the sufficiency of the procedures described below
either for the purpose for which this report has been requested or for any other
purpose.
<PAGE>
Our procedures and findings were as follows:
1. We compared the initial deposit to the reserve account required by
section 2 (e) (i) of the Agreement to the respective bank statement, noting such
amount to be in agreement.
2. We obtained the Quarterly Servicing Report - SMS Student Loan Trust
1999-A for the collection period February 1, 1999 through June 30, 1999 prepared
by SMS pursuant to section 2 (d) and 2 (g) of the Agreement and performed the
following:
a. We compared the January 31, 1999 amounts and percentages reported
in segment I "Deal Parameters" (A) through (D)(iv) to amounts derived from
the SMS Student Loan Trust 1999-A prospectus, noting agreement. We compared
the January 31, 1999 amounts reported in segment I (D)(v) and E)(ii) to
bank statements, noting agreement.
b. We compared the amounts reported in segment II "Inputs from
Previous Quarterly Servicer Reports" (A) through (O) to amounts derived
from the SMS Student Loan Trust 1999-A prospectus, noting agreement. We
compared the amount reported in segment II (P) to bank statements, noting
agreement.
c. We compared the "Interest Period Index Value - 3 Month Libor"
percentage in segment IV "Interest Rate Calculation" to a quoted market
rate, noting agreement. We compared the amounts reported in segment III
"Inputs for Servicing, Administrative and Consolidation Rebate Fees" (D)
through (F) and IV (D) through (F) and (J) to system reports prepared by
USA Group Loan Services, Inc. ("Loan Services"), noting agreement. We
compared the amount in segment IV (L) to external verification of the net
swap payment, noting agreement. We recalculated the amounts in segment IV
(G) through (I) and "Net Expected Interest Collections" and the "Adjusted
Student Loan Rate" percentage and compared the resulting amounts and
percentage to those reported, noting agreement.
d. We compared the amounts reported in segments V "Servicing Fee
Calculation" (A) and (D); VI "Cash Inputs" (A) and (B); VII "Other Servicer
Inputs" (A)(ii) through (A)(iv), (C)(i), and (C)(ii); IX "Quarterly Flow of
Loan Principal" (A)(i) through (A)(iv), (B)(ii), (C)(i), and (C)(ii); and X
"Quarterly Uninsured Loss and Recoveries Reporting" (A)(ii) and (B) to
system reports prepared by Loan Services, noting agreement. We compared the
amount in segment VII(A)(i) to the Student Loan Trust 1999-A prospectus,
noting agreement. We recalculated the amounts reported in segment V (C),
(E), and (F); segment VII (A)(v); segment IX (A)(vi), B)(iv), (C)(iii),
(D), and (E); and segment X (A)(i), (A)(iii), (C), and (D) and compared the
resulting amounts to those reported, noting agreement.
<PAGE>
e. We compared the amounts reported in segment VIII "Inputs from Other
Sources" (A) through (C) to bank statements, noting agreement. We
recalculated the amount reported in segment VIII (E), (F), (H), and (I) and
compared amounts to that reported, noting agreement.
f. We recalculated the amounts and percentages in the segments
"Summary of Quarterly Cash Generation and Usage" (A) through (O);
"Distributions of Cash" (A)(i), (A)(iii), (B)(i), (B)(iii), (C)(iii),
(C)(v), (D)(i), and (D)(iii); "Reconciliation of Reserve Account" (A), (B),
and (E); and "Reconciliation of Collateral Reinvestment Account" (A), (B),
and (D) through (I); and "Additional Reporting Requirements" (A), (B), (D),
(E), and (G) and compared the amounts and percentages to that reported,
noting agreement.
g. We compared the amounts in the segments "Reconciliation of Reserve
Account" (E) and "Reconciliation of Collateral Reinvestment Account" (I) to
the reconciliations of trust accounts performed by SMS pursuant to section
2 (c) (i through iii) of the Agreement, noting agreement. We compared the
bank balances per the reconciliations of trust accounts to bank statements,
noting agreement.
We were not engaged to, and did not perform an audit of the Quarterly
Servicing Report - SMS Student Loan Trust 1999-A, the objective of which would
be the expression of an opinion on the specified elements, accounts, or items
thereof. Accordingly, we do not express such an opinion. Had we performed
additional procedures, other matters might have come to our attention that would
have been reported to you.
For your information, we have audited, in accordance with generally
accepted auditing standards, the statement of financial position of Loan
Services as of September 30, 1999 and the related statements of revenues and
expenses and changes in net assets and cash flows for the year then ended, and
have issued our report thereon dated November 18, 1999. At the request of SMS,
however, we did not perform any tests of Loan Services' servicing of the Student
Loan Trust 1999-A receivables, because a separate single auditor report of Loan
Services' servicing systems has been issued. Had we performed additional
procedures or had we made an examination of Loan Services' servicing of the
Student Loan Trust 1999-A, other matters may have come to our attention that
would have been reported to you.
This report is intended solely for the use of the specified users listed
above and should not be used by those who have not agreed to the procedures and
taken responsibilities for the sufficiency of the procedures for their purposes.
Ernst & Young LLP /s/
Indianapolis, Indiana
November 24, 1999
ERNST & YOUNG (Letterhead)
Independent Auditor's Report on Compliance
SMS Student Loan Trust 1999-B
USA Group Secondary Market Services, Inc.
30 South Meridian Street
Indianapolis, Indiana 46204-3503
and
HSBC Bank USA
140 Broadway
12th Floor
New York, New York 10005
and
The First National Bank of Chicago
153 West 51st Street, 8th Floor
New York, New York 10019
and
Merrill Lynch Derivative Products AG
Stauffacherstrasse 5, 1st Floor
8004 Zurich
Switzerland
We are independent public accountants with respect to USA Group Secondary
Market Services, Inc. ("SMS") within the meaning of the Code of Professional
Ethics of the American Institute of Certified Public Accountants.
We have audited, in accordance with generally accepted auditing standards,
the consolidated balance sheet of SMS and subsidiary as of September 30, 1999
and the related consolidated statements of income, shareholder's equity and cash
flows for the year then ended, and have issued our report thereon dated November
24, 1999.
In connection with our audit, nothing came to our attention that caused us
to believe that SMS failed to comply with the terms, covenants, provisions, or
conditions of Sections 2(a) through (g) of the Administration Agreement ("the
Agreement") dated April 19, 1999 between SMS, as administrator, and HSBC Bank
USA ("the Trustee"), as indenture trustee on behalf of the noteholders and
certificateholders of SMS Student Loan Trust 1999-B ("the Issuer"), for the
period April 19, 1999 through September 30, 1999 insofar as they relate to
accounting matters. However, our audit was not directed primarily toward
obtaining knowledge of such noncompliance. Further, we make no representations
as to the sufficiency of the foregoing procedures for your purposes.
We have performed the procedures enumerated below, which were agreed to by
SMS, the Eligible Lender Trustee, and the Indenture Trustee, solely to assist
you with respect to SMS's administration of the Student Loan Trust 1999-B
receivables pursuant to sections 2 (c) (i through iii), 2 (d), 2 (e) (i), and 2
(g) of the Agreement. This engagement to apply agreed-upon procedures was
performed in accordance with standards established by the American Institute of
Certified Public Accountants. The sufficiency of the procedures is solely the
responsibility of the specified users of the report. Consequently, we make no
representation regarding the sufficiency of the procedures described below
either for the purpose for which this report has been requested or for any other
purpose.
Our procedures and findings were as follows:
1. We compared the initial deposit to the reserve account required by
section 2 (e) (i) of the Agreement to the respective bank statement, noting such
amount to be in agreement.
2. We obtained the Quarterly Servicing Report - SMS Student Loan Trust
1999-B for the collection period April 19, 1999 through September 30, 1999
prepared by SMS pursuant to section 2 (d) and 2 (g) of the Agreement and
performed the following:
a. We compared the April 18, 1999 amounts and percentages
reported in segment I "Deal Parameters" (A) through (D) to
the SMS Student Loan Trust 1999-B prospectus, noting
agreement. We compared the April 18, 1999 amount reported in
segment I (E)(ii) to bank statements, noting agreement.
b. We compared the amounts reported in segment II "Inputs
from Previous Quarterly Servicer Reports" (A) through (O) to
the SMS Student Loan Trust 1999-B prospectus, noting
agreement. We compared the amount reported in segment II (P)
to bank statements, noting agreement.
c. We compared the "Interest Period Index Value - 3 Month
Libor" percentage in segment IV "Interest Rate Calculation"
to a quoted market rate, noting agreement. We compared the
amounts reported in segment III "Inputs for Servicing,
Administrative and Consolidation Rebate Fees" (D) through
(F) and segment IV (D) through (F) and (J) to system reports
prepared by USA Group Loan Services, Inc. ("Loan Services"),
noting agreement. We compared the amount in segment IV (L)
to external verification of the net swap payment, noting
agreement. We recalculated the amounts in segment IV (G)
through (I) and "Net Expected Interest Collections" and the
"Adjusted Student Loan Rate" percentage and compared the
resulting amounts and percentage to those reported, noting
agreement.
d. We compared the amounts reported in segments V "Servicing
Fee Calculation" (A) and (D); VI "Cash Inputs" (A) and (B);
VII "Other Servicer Inputs" (A)(ii) through (A)(iv), (C)(i),
and (C)(ii); IX "Quarterly Flow of Loan Principal" (A)(i)
through (A)(iv), (B)(ii), (C)(i), and (C)(ii); and X
"Quarterly Uninsured Loss and Recoveries Reporting" (A)(ii)
and (B) to system reports prepared by Loan Services, noting
agreement. We compared the amount in segment VII(A)(i) to
the Student Loan Trust 1999-A prospectus, noting agreement.
We recalculated the amounts reported in segment V (C), (E),
and (F); segment VII (A)(v); segment IX (A)(vi), B)(iv),
(C)(iii), (D), and (E); and segment X (A)(i), (A)(iii), (C),
and (D) and compared the resulting amounts to those
reported, noting agreement.
e. We compared the amounts reported in segment VIII "Inputs
from Other Sources" (A) through (C) to bank statements,
noting agreement. We recalculated the amount reported in
segment VIII (E), (F), (H), and (I) and compared the amounts
to those reported, noting agreement.
f. We recalculated the amounts and percentages in the
segments "Summary of Quarterly Cash Generation and Usage"
(A) through (O); "Distributions of Cash" (A)(i), (A)(iii),
(B)(i), (B)(iii), C(iii), C(v), D(i) and (D)(iii);
"Reconciliation of Reserve Account" (A), (B), and (E); and
"Reconciliation of Collateral Reinvestment Account" (A),
(B), and (D) through (I); and "Additional Reporting
Requirements" (A), (B), and (D) through (G) and compared the
amounts and percentages to that reported, noting agreement.
g. We compared the amounts in the segments "Reconciliation
of Reserve Account" (E) and "Reconciliation of Collateral
Reinvestment Account" (I) to the reconciliations of trust
accounts performed by SMS pursuant to section 2 (c) (i
through iii) of the Agreement, noting agreement. We compared
the bank balances per the reconciliations of trust accounts
to bank statements, noting agreement.
We were not engaged to, and did not perform an audit of the Quarterly
Servicing Report - SMS Student Loan Trust 1999-B, the objective of which would
be the expression of an opinion on the specified elements, accounts, or items
thereof. Accordingly, we do not express such an opinion. Had we performed
additional procedures, other matters might have come to our attention that would
have been reported to you.
For your information, we have audited, in accordance with generally
accepted auditing standards, the statement of financial position of Loan
Services as of September 30, 1999 and the related statements of revenues and
expenses and changes in net assets and cash flows for the year then ended, and
have issued our report thereon dated November 18, 1999. At the request of SMS,
however, we did not perform any tests of Loan Services' servicing of the Student
Loan Trust 1999-B receivables, because a separate single auditor report of Loan
Services' servicing systems has been issued. Had we performed additional
procedures or had we made an examination of Loan Services' servicing of the
Student Loan Trust 1999-B, other matters may have come to our attention that
would have been reported to you.
This report is intended solely for the use of the specified users listed
above and should not be used by those who have not agreed to the procedures and
taken responsibilities for the sufficiency of the procedures for their purposes.
Ernst & Young LLP /s/
Indianapolis, Indiana
November 24, 1999
[Ernst & Young Letterhead]
IV. Independent Accountants' Report on Assertions on Compliance with-and
Internal Control Over Compliance with Specified FFEL Program Requirements Under
Standard Engagement
Board of Directors
USA Group Loan Services, Inc.
We have examined management's assertions that USA Group Loan Services, Inc.
(Loan Services) complied with certain Federal Family Education Loan (FFEL)
Program compliance requirements relative to Loan Services' administration of the
FFEL Program on behalf of its lender clients listed in Exhibit A of this report
during the year ended September 30, 1999 and about the effectiveness of Loan
Service' internal control over compliance with the aforementioned compliance
requirements as of September 30, 1999 that are described in the accompanying
reported titled "Servicer Management Assertions on Compliance with-and Internal
Control Over Compliance with-Specified Federal Family Education Loan Program
Requirements". Management is responsible for Loan Services' compliance with-and
the effectiveness of Loan Services' internal control over compliance with-those
requirements. Our responsibility is to express an opinion on management's
assertions about Loan Services' compliance with-and the effectiveness of Loan
Services' internal control over compliance with-the specified compliance
requirements based on our examination.
Our examination was made in accordance with Government Audit Standards,
issued by the Comptroller General of the United States; standards established by
the American Institute of Certified Public Accountants; and the 1996 Audit
Guide, Compliance Audits (Attestation Engagements) for Lenders and Lender
Servicers Participating in the Federal Family Education Loan Program, issued by
the U.S. Department of Education (ED), Office of Inspector General, and,
accordingly, included obtaining an understanding of the internal control over
compliance with the specified requirements; testing and evaluating the design
and operating effectiveness of internal control over compliance; and examining,
on a test basis, evidence about Loan Services' compliance with those
requirements and performing such other procedures a we considered necessary in
the circumstances. We believe that our examination provides a reasonable basis
for our opinion. Our examination does not provide a legal determination on Loan
Services' compliance with specified requirements.
Because of inherent limitations in controls, errors or irregularities may
occur and not be detected. Also, projections of any evaluation of the controls
over compliance with the specified requirements to future periods are subject to
the risk that controls over compliance may become inadequate because of changes
in conditions, or that the degree of compliance with the controls may
deteriorate.
In our opinion, management's assertions that Loan Services complied with
the aforementioned requirements for the year ended September 30, 1999 and that
Loan Services maintained effective internal control over compliance with the
aforementioned compliance requirements as of September 30, 1999 are fairly
stated, in all material respects, based upon the criteria for internal control
described in the "Internal Control-Integrated Framework" issued by the Committee
of Sponsoring Organizations of the Treadway Commission.
This report is intended solely for the information of the board of
directors and management of Loan Services and the ED. However, this report is a
matter of public record and its distribution is not limited.
Ernst & Young LLP
November 30, 1999
