$159,950,000 MASSACHUSETTS EDUCATIONAL FINANCING AUTHORITY

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1 In the opinion of Bond Counsel, under existing law, assuming continued compliance with the Internal Revenue Code of 1986, as amended, interest on the Series 2003 Bonds will not be included in the gross income of holders of the Series 2003 Bonds for federal income tax purposes. Interest on the Series 2003 Bonds is an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations. In the opinion of Bond Counsel, under existing law, interest on the Series 2003 Bonds and any profit made on the sale thereof are exempt from Massachusetts personal income taxes, and the Series 2003 Bonds are exempt from Massachusetts personal property taxes. As a condition to conversion of the Series 2003A Bonds, Series 2003B Bonds, Series 2003C Bonds, Series 2003D Bonds or Series 2003E Bonds from an Auction Rate to a Weekly Rate or to a Fixed Rate, a new opinion of Bond Counsel is required to the effect that such a change will not impair the exclusion of interest on the Series 2003 Bonds in question from gross income for purposes of federal income taxation or the exemption from taxation by The Commonwealth of Massachusetts. The Series 2003 Bonds and the income therefrom may also be subject to taxation under the laws of states other than The Commonwealth of Massachusetts. See TAX EXEMPTION herein. NEW ISSUE BOOK-ENTRY ONLY $159,950,000 MASSACHUSETTS EDUCATIONAL FINANCING AUTHORITY Education Loan Revenue and Refunding Bonds, Issue E, Series 2003 This Official Statement relates to the issuance by the Massachusetts Educational Financing Authority of the Series 2003A Bonds, the Series 2003B Bonds, the Series 2003C Bonds, the Series 2003D Bonds and the Series 2003E Bonds (collectively, the Series 2003 Bonds ) as Auction Rate Certificates - ARCs ( ARCs ) dated, maturing, bearing interest and priced as set forth on the inside cover page hereof. The Series 2003 Bonds will be issued only as fully registered bonds under a book-entry method, registered in the name of Cede & Co., as nominee of The Depository Trust Company ( DTC ). Interest on and principal of the Series 2003 Bonds will be paid to DTC by U.S. Bank National Association, Boston, Massachusetts, as Trustee. So long as DTC or its nominee is the Bondholder, disbursement of such payments to DTC Participants is the responsibility of DTC and disbursements of such payments to the ultimate purchasers ( Beneficial Owners ) is the responsibility of DTC Participants or other nominees of the Beneficial Owners. There will be no distribution of Series 2003 Bonds to the Beneficial Owners thereof. See BOOK-ENTRY ONLY SYSTEM herein. The Series 2003 Bonds are subject to redemption prior to maturity, including optional redemption and special optional redemption, as described herein. The Series 2003 Bonds are also subject to mandatory tender for purchase prior to maturity at par plus accrued interest as described herein. Payment of the principal of and interest on the Series 2003 Bonds when due will be insured by a financial guaranty insurance policy to be issued by Ambac Assurance Corporation simultaneously with the delivery of the Series 2003 Bonds. The Series 2003 Bonds are special obligations of the Massachusetts Educational Financing Authority, which has no taxing power. Neither The Commonwealth of Massachusetts nor any political subdivision thereof is or shall be obligated to pay the principal or redemption or purchase price of or interest on the Series 2003 Bonds, and neither the full faith and credit nor the taxing power of the Commonwealth or any political subdivision thereof is pledged to such payment. The Series 2003 Bonds are offered when, as and if issued and received by the Underwriters, subject to approval of legality by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Boston, Massachusetts, Bond Counsel, and certain other conditions. Certain legal matters are subject to the approval of Gadsby Hannah LLP, Boston, Massachusetts, and of Hawkins, Delafield & Wood, New York, New York, Co-counsel to the Underwriters. It is expected that the Series 2003 Bonds will be available for delivery to DTC in New York, New York on or about March 13, UBS PaineWebber Inc. February 26, 2003 ARCs is a registered trademark of UBS PaineWebber Inc. Bear, Stearns & Co. Inc.

2 MASSACHUSETTS EDUCATIONAL FINANCING AUTHORITY Education Loan Revenue and Refunding Bonds, Issue E $45,000,000 Series 2003A (Auction Rate Certificates) Dated: Date of Delivery Price: 100% Due: January 1, 2038 $30,000,000 Series 2003B (Auction Rate Certificates) Dated: Date of Delivery Price: 100% Due: January 1, 2038 $20,000,000 Series 2003C (Auction Rate Certificates) Dated: Date of Delivery Price: 100% Due: January 1, 2038 $20,000,000 Series 2003D (Auction Rate Certificates) Dated: Date of Delivery Price: 100% Due: January 1, 2038 $44,950,000 Series 2003E (Auction Rate Certificates) Dated: Date of Delivery Price: 100% Due: January 1, 2038

3 The respective initial interest rates on the Series 2003 Bonds will be determined prior to the date of delivery. The first Auction applicable to the Series 2003A Bonds is to be held on April 23, 2003, the first Auction applicable to the Series 2003B Bonds is to be held on March 3, 2004, the first Auction applicable to the Series 2003C Bonds is to be held on April 30, 2003, the first Auction applicable to the Series 2003D Bonds is to be held on April 30, 2003, and the first Auction applicable to the Series 2003E Bonds is to be held on May 7, Thereafter, an Auction is to be held on the respective Auction Dates applicable to each successive one-year period, with respect to the Series 2003B Bonds, or each successive 35-day Auction Period, with respect to the Series 2003A Bonds, Series 2003C Bonds, Series 2003D Bonds and Series 2003E Bonds, to determine the interest rate on such Series 2003 Bonds for such Auction Period, except as described herein. See THE SERIES 2003 BONDS Interest Interest Payments and Auctions herein. The Market Agent and the Authority may change any Auction Period or Auction Date to conform to then-current market practice or to accommodate economic or financial factors. See THE SERIES 2003 BONDS Changes in Auction Periods or Auction Date herein. Interest on the Series 2003 Bonds while outstanding as Auction Rate Certificates shall be payable on the first Business Day of each January and July, commencing July 1, Interest on such Series 2003 Bonds for each Auction Period shall be computed on the basis of the actual number of days in each period or part thereof divided by 365 or 366, as applicable. The Series 2003 Bonds bearing interest as Auction Rate Certificates are available in denominations of $50,000 or any integral multiple thereof. The Underwriters have provided the following statement for inclusion in this Official Statement. The Underwriters have reviewed the information in this Official Statement in accordance with, and as part of, their respective responsibilities to investors under the federal securities laws as applicable to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. No dealer, broker, salesperson or other person has been authorized by the Authority or by the Underwriters to give any information or to make any representations, other than as contained in this Official Statement, and, if given or made, such other information or representations must not be relied upon as having been authorized by any of the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Series 2003 Bonds by any person in any jurisdiction which it is unlawful for such person to make such offer, solicitation or sale. This Official Statement is not to be construed as a contract with purchasers or Holders of the Series 2003 Bonds. The information set forth herein has been furnished by the Authority and by other sources which are believed to be reliable but is not guaranteed as to accuracy or completeness. The information and expressions of opinion herein are subject to change without notice and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of said Authority since the date hereof.

4 This Official Statement contains statements which, to the extent they are not recitations of historical fact, constitute forward-looking statements. In this respect, the words estimate, project, anticipate, expect, intend, believe and similar expressions are intended to identify forward-looking statements. A number of important factors affecting the Authority s business and financial results could cause actual results to differ materially from those stated in the forward-looking statements. See SECURITY FOR THE BONDS AND SOURCES OF PAYMENT Projection of Revenues, RISK FACTORS Dependence Upon Cash Flow Projections and General Economic Conditions and OTHER LENDING SOURCES. In connection with this offering, the Underwriters may overallot or effect transactions which stabilize or maintain the market price of the Series 2003 Bonds at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. The Underwriters may offer and sell the Series 2003 Bonds to certain dealers (including dealers depositing the Series 2003 Bonds into investment trusts) and certain dealer banks and banks acting as agents at prices lower than the public offering prices or yields stated on the inside front cover page hereof and said offering prices or yields may be changed from time to time by the Underwriters. TABLE OF CONTENTS SUMMARY STATEMENT... (i) INTRODUCTORY STATEMENT...2 THE AUTHORITY...4 THE SERIES 2003 BONDS...7 BOOK-ENTRY ONLY SYSTEM...19 PLAN OF FINANCING...21 ESTIMATED SOURCES AND USES OF FUNDS...22 SECURITY FOR THE BONDS AND SOURCES OF PAYMENT...22 FINANCIAL GUARANTY INSURANCE...28 RISK FACTORS...31 THE MEFA LOAN PROGRAM...35 THE AUTHORITY FFEL PROGRAM...46 AUTHORITY LOAN PORTFOLIO...49 OTHER LENDING SOURCES...56 LEGALITY OF BONDS FOR INVESTMENT...56 BONDS AS SECURITY FOR DEPOSIT...56 NO LITIGATION...56 CERTAIN LEGAL MATTERS...56 TAX EXEMPTION...57 UNDERWRITING...58 RATINGS...58 NEGOTIABLE INSTRUMENTS...58 COMMONWEALTH NOT LIABLE ON BONDS...58 CONTINUING DISCLOSURE...59 AVAILABILITY OF FINANCIAL AND OTHER INFORMATION...59 FINANCIAL ADVISOR...59 MISCELLANEOUS...59 APPENDIX A AUDITED FINANCIAL STATEMENTS OF THE AUTHORITY...A-1 APPENDIX B DEFINITIONS OF CERTAIN TERMS... B-1 APPENDIX C SUMMARY OF CERTAIN PROVISIONS OF THE RESOLUTION... C-1 APPENDIX D PROPOSED FORM OF OPINION OF BOND COUNSEL...D-1 APPENDIX E FORM OF FINANCIAL GUARANTY INSURANCE POLICY... E-1 APPENDIX F PROPOSED FORM OF CONTINUING DISCLOSURE AGREEMENT...F-1 APPENDIX G AUCTION PROCEDURES...G-1 APPENDIX H SETTLEMENT PROCEDURES...H-1 APPENDIX I SUMMARY OF CERTAIN PROVISIONS OF THE FEDERAL FAMILY EDUCATION LOAN PROGRAM... I-1

5 SUMMARY STATEMENT This Summary Statement, being part of this Official Statement, is subject in all respects to more detailed information appearing herein. The offering of the Series 2003 Bonds to potential investors is made only by means of this entire Official Statement, including the cover page and the Appendices attached hereto. Reference must be made to this entire Official Statement, including the cover page and the Appendices attached hereto, to evaluate the Series 2003 Bonds. No person is authorized to detach this Summary Statement from this Official Statement or to otherwise use it without this entire Official Statement. All capitalized terms used in this Official Statement and not otherwise defined herein shall have the meanings specified in APPENDIX B hereto. Issuer... Series 2003 Bonds... Use of Bond Proceeds... Interest Payments on Series 2003 Bonds... Sources of Payments for the Series 2003 Bonds... The Massachusetts Educational Financing Authority, a body politic and corporate constituting a public instrumentality of The Commonwealth of Massachusetts established pursuant to the Act to assist in the financing and refinancing of the costs of education (the Authority ). See INTRODUCTORY STATEMENT and THE AUTHORITY. $159,950,000 aggregate principal amount of Education Loan Revenue and Refunding Bonds, Issue E, Series 2003 (the Series 2003 Bonds ), consisting of five series (the Series 2003A Bonds, the Series 2003B Bonds, the Series 2003C Bonds, the Series 2003D Bonds and the Series 2003E Bonds ) of Auction Rate Certificates ( ARCs ), dated, maturing, bearing interest and priced as set forth on the inside cover page hereof. The Series 2003 Bonds will be issued and secured under a resolution dated as of May 1, 1992, as amended and restated as of February 6, 2003 (the General Resolution ) and as supplemented and amended by a Series Resolution dated as of February 6, 2003 (the Ninth Series Resolution and, together with the General Resolution, the Resolution ). The proceeds of the Series 2003 Bonds are to be used to: (i) finance Issue E Loans; (ii) refund certain prior bonds; (iii) pay capitalized interest related to the Series 2003 Bonds; and (iv) pay certain costs of issuance as described herein. See PLAN OF FINANCING herein. Interest on the Series 2003 Bonds, while outstanding as ARCs, shall accrue at the applicable rate established on a series by series basis for each Interest Period and shall be payable in arrears on each succeeding Interest Payment Date, as described herein. The Interest Periods and Interest Payment Dates are subject to change. See THE SERIES 2003 BONDS Interest, Changes in Auction Periods or Auction Date and Conversion of the Series 2003A Bonds, Series 2003B Bonds, Series 2003C Bonds, Series 2003D Bonds or Series 2003E Bonds. The Series 2003 Bonds are secured by and payable from the following sources (the Trust Assets ): (1) All Revenues. (2) All Education Loan Notes evidencing Issue E Loans and any other Revenue-producing contracts and all rights and interests of the Authority incident thereto, except for certain reserved rights of the Authority.

6 (3) All moneys and securities on deposit in all funds and accounts created by or pursuant to the Resolution as described herein (except for the Rebate Fund and the Escrow Fund), including without limitation any Reserve Fund Facilities, any funds drawn on Reserve Fund Facilities and any Investment Obligations in which such moneys are invested. (4) The proceeds of any of the foregoing whether any of the foregoing is now existing or is hereafter acquired. Issue E Loans... Derivatives; Interest Rate Exchange Agreements... The Authority has established a number of proprietary, unsecured consumer loan programs for financing fixed and variable rate loans for undergraduate and graduate students, including credit-based and needbased loans (collectively, the MEFA Loan Program and the MEFA Loans ). Capitalized terms used herein and not otherwise defined to identify certain components of the MEFA Loan Program and the MEFA Loans financed thereunder are defined in APPENDIX B DEFINITIONS OF CERTAIN TERMS. Under the MEFA Loan Program, each MEFA Loan is evidenced by a promissory note signed by the Borrower and, with respect to certain types of MEFA Loans, by other co-signers. The Authority also finances certain loans originated pursuant to the Federal Family Education Loan Program, as provided in Title IV of the federal Higher Education Act of 1965, as amended (the Authority FFEL Program and the FFELP Loans ). The FFELP Loans financed by the Authority ( Authority FFELP Loans ) will, subject to compliance with specific origination and servicing procedures prescribed by federal and guaranty agency regulations, be guaranteed in accordance with the Higher Education Act as described herein. The Authority currently expects that all FFELP Loans will be guaranteed by American Student Assistance or by certain other guaranty agencies in accordance with the Resolution (each, a Guaranty Agency ). MEFA Loans and Authority FFELP Loans are referred to, collectively, herein as Authority Loans and, to the extent funded through application of the proceeds of, or other funds allocated to, Bonds, as Issue E Loans. See THE MEFA LOAN PROGRAM, THE AUTHORITY FFEL PROGRAM and APPENDIX I SUMMARY OF CERTAIN PROVISIONS OF THE FEDERAL FAMILY EDUCATION LOAN PROGRAM. The Authority expects to enter into one or more interest rate exchange agreements with respect to a portion of the Series 2003 Bonds contemporaneously with the delivery thereof in order to effectively fix the rate on such Bonds for a period of time, and reserves the right to enter into additional interest rate exchange agreements with respect to Bonds and to terminate any such agreements. The Authority also expects to enter into certain such interest rate exchange agreements entitling the Authority to receive payments equivalent to the amount by which a variable rate of interest exceeds a specified rate, with respect to a notional amount equivalent to affected Series 2003 Bonds, in order to permit it to offer a cap on its variable rate MEFA Loans. Authority payments with respect to such interest rate exchange agreements shall be secured under the Resolution on a parity with the Bonds. The Insurer is expected to issue a surety bond with respect to such interest rate exchange agreements to guarantee the payment of certain amounts (ii)

7 payable by the Authority thereunder. See SECURITY FOR THE BONDS AND SOURCES OF PAYMENT Certain Interest Rate Exchange Agreements, RISK FACTORS Interest Rate Exchange Agreements and APPENDIX A AUDITED FINANCIAL STATEMENTS OF THE AUTHORITY Note 7 Bonds Payable Issue E Series 2001A, 2001B, 2001C and 2001D and Issue E Series 2002A, 2002B, 2002C, 2002D and 2002E. Financial Guaranty Insurance... Ambac Assurance Corporation (the Insurer ) has issued a commitment for a financial guaranty insurance policy to be issued concurrently with the delivery of the Series 2003 Bonds to guarantee the payment of the regularly scheduled principal of and interest on the Series 2003 Bonds (but not of any prepayment premium). The Ninth Series Resolution permits the Insurer to take certain actions without the consent of Holders of the Series 2003 Bonds, including actions bearing upon the enforcement of remedies under the Resolution, and does not permit the Holders of the Series 2003 Bonds to exercise rights without the consent of the Insurer in most situations. See SECURITY FOR THE BONDS AND SOURCES OF PAYMENT Certain Rights of the Insurer, FINANCIAL GUARANTY INSURANCE and APPENDIX C SUMMARY OF CERTAIN PROVISIONS OF THE RESOLUTION Insurer Deemed Holder of the Series 2003 Bonds for Certain Purposes. Risk Factors... Additional Bonds... Book-Entry Only System... Servicing... Certain factors which should be considered by investors in connection with investment decisions concerning the Series 2003 Bonds are identified herein under the caption RISK FACTORS. These factors do not constitute the only risks attendant to ownership of the Series 2003 Bonds and the brief descriptions included therein are intended to indicate the nature of the factors identified and not as exhaustive discussions of the potential effects of such factors. See RISK FACTORS. The Authority has previously issued twenty series of Bonds under the Resolution, all of which will be secured on a parity with the Series 2003 Bonds. The Resolution provides for the issuance of additional Bonds secured on a parity with or a subordinate basis with the Series 2003 Bonds from time to time. The Authority has issued debt, and reserves the right to issue further debt under documents other than the General Resolution and secured on a basis separate and apart from the Bonds. See SECURITY FOR THE BONDS AND SOURCES OF PAYMENT Additional Bonds and Subordinated Bonds. The Series 2003 Bonds, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company ( DTC ), New York, New York. Individual purchases of beneficial ownership of the Series 2003 Bonds will be made in book-entry only form. Purchasers of beneficial ownership interests will not receive certificates representing their beneficial interests in the Series 2003 Bonds and will receive notices and exercise certain rights through DTC. See BOOK- ENTRY ONLY SYSTEM. Affiliated Computer Services, Inc. currently acts as Loan Servicer for the Authority Loan Program and as originator for all MEFA Loans. American Student Assistance currently performs origination services for Authority FFELP Loans. The Resolution permits additional or (iii)

8 successor servicers and originators to be appointed. See THE MEFA LOAN PROGRAM Loan Servicing, THE AUTHORITY FFEL PROGRAM, APPENDIX C SUMMARY OF CERTAIN PROVISIONS OF THE RESOLUTION and APPENDIX I SUMMARY OF CERTAIN PROVISIONS OF THE FEDERAL FAMILY EDUCATION LOAN PROGRAM Servicer Provisions and Third-Party Servicer Requirements and Loan Origination and Servicing Procedures Applicable to FFELP Loans. Limitations on Issue E Loan Portfolio Composition... Redemption or Acceleration... Special Obligations... Changes to the Federal Family Education Loan Program... Certain limitations exist upon the aggregate principal amount of various types of MEFA Loans which may be financed under the General Resolution; however, such limitations may be modified with the Insurer s consent. See THE MEFA LOAN PROGRAM Loan Terms. The Series 2003 Bonds are subject to redemption at par and acceleration prior to maturity under the circumstances described herein. See THE SERIES 2003 BONDS Redemption Provisions and APPENDIX C SUMMARY OF CERTAIN PROVISIONS OF THE RESOLUTION Acceleration. The Series 2003 Bonds are special obligations of the Authority, which has no taxing power, payable solely from the Revenues and the funds and accounts established and pledged under the Resolution. Neither The Commonwealth of Massachusetts nor any political subdivision thereof is or shall be obligated to pay the principal or redemption or purchase price of or interest on the Series 2003 Bonds, and neither the full faith and credit nor the taxing power of the Commonwealth or any political subdivision thereof is pledged to such payment. The programs authorized by Title IV of the Higher Education Act have been the subject of frequent statutory and regulatory changes since their initial authorization, including changes that have resulted in material modifications to such programs. Origination of FFELP Loans is authorized only for limited periods of time. For example, initial disbursement of FFELP Loans to new borrowers pursuant to such programs is currently authorized through September 30, No assurance can be given that authorization of the origination of FFELP Loans pursuant to such programs will be extended beyond the existing cut-off dates or that relevant federal laws, including the Higher Education Act, will not be changed in a manner that might adversely affect the Authority FFEL Program. Funding under the Higher Education Act is subject to the annual budget and appropriation process by Congress. Congress may amend the Higher Education Act at any time. See APPENDIX I SUMMARY OF CERTAIN PROVISIONS OF THE FEDERAL FAMILY EDUCATION LOAN PROGRAM The Federal Family Education Loan Program and the Federal Direct Student Loan Program Legislative and Administrative Matters. (iv)

9 Ratings... The Series 2003 Bonds are expected to be rated AAA by Fitch, Inc. and AAA by Standard & Poor s Credit Market Services on the basis of the financial guaranty insurance policy to be issued by the Insurer with respect thereto. Neither the Authority nor the Underwriters have undertaken any responsibility either to bring to the attention of the Holders of the Series 2003 Bonds any proposed change in or withdrawal of such ratings or to oppose any such proposed revision. See RATINGS. (v)

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11 MASSACHUSETTS EDUCATIONAL FINANCING AUTHORITY Members of the Authority John R. Smith, Chairman Joseph F. Hunt, Esq., Vice Chairman Mary Egan Boland, Esq. Margaret Dwyer James P. McIntyre Richard J. Santagati Secretary of Administration and Finance, ex officio Director of Economic Development Affairs, ex officio 125 Summer Street Boston, Massachusetts Thomas M. Graf, Executive Director OFFICIAL STATEMENT Relating to $159,950,000 MASSACHUSETTS EDUCATIONAL FINANCING AUTHORITY EDUCATION LOAN REVENUE AND REFUNDING BONDS, ISSUE E, SERIES 2003 The purpose of this Official Statement is to set forth information in connection with the sale of $159,950,000 aggregate principal amount of Education Loan Revenue and Refunding Bonds, Issue E, Series 2003 (the Series 2003 Bonds ) by the Massachusetts Educational Financing Authority (the Authority ), pursuant to Chapter 15C of the General Laws of The Commonwealth of Massachusetts (the Commonwealth ), as amended (the Act ), and a resolution dated as of May 1, 1992, as amended and restated as of February 6, 2003 (the General Resolution ) and as supplemented and amended by a Series Resolution dated as of February 6, 2003 (the Ninth Series Resolution, and, together with the General Resolution, the Resolution ). The Resolution constitutes a contract among the Authority, U.S. Bank National Association, Boston, Massachusetts, as trustee (the Trustee ), and the holders from time to time of the bonds issued thereunder. The Series 2003 Bonds consist of five series of Auction Rate Certificates in the aggregate respective principal amounts of $45,000,000 (the Series 2003A Bonds ), $30,000,000 (the Series 2003B Bonds ), $20,000,000 (the Series 2003C Bonds ), $20,000,000 (the Series 2003D Bonds ) and $44,950,000 (the Series 2003E Bonds, and, collectively with the Series 2003A Bonds, the Series 2003B Bonds, the Series 2003C Bonds and the Series 2003D Bonds, while bearing interest as ARCs, ARCs ). The Series 2003 Bonds will be issued and secured under the provisions of the General Resolution on a parity with all outstanding bonds previously issued thereunder. The Authority has previously issued twenty series of bonds under the General Resolution (the Prior Bonds ), in addition to a number of series of bonds under separate resolutions. The Prior Bonds, the Series 2003 Bonds and any other bonds which may be issued hereafter under the Resolution on a parity with such bonds, are referred to herein as the Bonds. Additional series of Bonds, either secured on a parity with the Prior Bonds and the Series 2003 Bonds or secured on a subordinate basis to such Bonds, may be issued under the Resolution. The Authority has also issued, and may in the future issue, under separate trust documents, Education Loan Revenue Bonds other than the Bonds which are not secured by the General Resolution. Certain terms used in this Official Statement have the meanings set forth in APPENDIX B hereto. ARCs is a registered trademark of UBS PaineWebber Inc.

12 INTRODUCTORY STATEMENT The Authority is a body politic and corporate, constituting a public instrumentality of the Commonwealth. The Authority was established pursuant to the Act to assist students, their parents and others responsible for paying the costs of education as well as institutions of higher education in the Commonwealth in the financing and refinancing of the costs of education. The Authority has established a number of proprietary, unsecured consumer loan programs for this purpose, including fixed rate and variable rate, undergraduate and graduate and credit-based and need-based loans. These loans and programs are referred to, collectively, herein, as MEFA Loans and the MEFA Loan Program. Capitalized terms used herein and not otherwise defined to identify certain components of the MEFA Loan Program and the MEFA Loans financed thereunder are defined in APPENDIX B hereto. In addition, the Authority has recently established a program for financing certain loans originated pursuant to the Federal Family Education Loan Program, authorized by Title IV of the federal Higher Education Act of 1965, as amended ( FFELP Loans, the FFEL Program and, to the extent so financed by the Authority, the Authority FFELP Loans and the Authority FFEL Program ). MEFA Loans and Authority FFELP Loans are referred to herein, collectively, as Authority Loans and, to the extent funded through application of proceeds of, or other funds allocable to, Bonds, as Issue E Loans. The MEFA Loan Program and the Authority FFEL Program are referred to herein, collectively, as the Authority Loan Program and, to the extent so funded, the Issue E Loan Program. The Series 2003 Bonds are being issued: (i) to make moneys available to finance Issue E Loans; (ii) to refund certain outstanding advances incurred under an Authority line of credit in connection with the redemption and scheduled principal payment of Bonds in order to permit the Authority to refund such redeemed or maturing Bonds in conjunction with the issuance of the Series 2003 Bonds; (iii) to pay capitalized interest related to the Series 2003 Bonds; and (iv) to pay certain costs of issuance of the Series 2003 Bonds. See PLAN OF FINANCING, ESTIMATED SOURCES AND USES OF FUNDS, THE MEFA LOAN PROGRAM, THE AUTHORITY FFEL PROGRAM and APPENDIX I SUMMARY OF CERTAIN PROVISIONS OF THE FEDERAL FAMILY EDUCATION LOAN PROGRAM. The MEFA Loan Program currently provides supplemental assistance for Students receiving other forms of financial aid and primary assistance for Students not eligible for other forms of financial aid. MEFA Loans are originated by or on behalf of participating non-profit independent and public colleges and universities and other sponsors, if any, designated from time to time by the Authority, which may include the Authority itself (collectively, the Participating Institutions ). The principal components of the existing MEFA Loan Program currently include: (i) the Fixed Rate Undergraduate MEFA Loan Program; (ii) the Variable Rate Undergraduate MEFA Loan Program; and (iii) the MEFA Loans for Graduate Education Program. The Authority finances Fixed Rate Undergraduate MEFA Loans and Variable Rate Undergraduate MEFA Loans to parents or other sponsors of undergraduate Students who meet certain credit standards established by the Authority. Except for certain need-based loans, each MEFA Loan for an undergraduate is evidenced by a promissory note jointly and severally obligating the parent or sponsor and the Student to repay the MEFA Loan. The Authority also finances MEFA Loans for Graduate Education, which are evidenced by promissory notes signed by the graduate Student, who must meet certain credit standards established by the Authority. The MEFA Loans for Graduate Education originated to date generally bear interest at a fixed rate and permit deferral of repayment during the in-school period. Beginning with the academic year, the Authority is planning to offer variable rate MEFA Loans for Graduate Education and deferral of repayment, during the in-school period, on certain undergraduate MEFA Loans. For information concerning the Authority s other proprietary loan programs see THE MEFA LOAN PROGRAM Loan Terms. Fixed Rate Undergraduate MEFA Loans, Variable Rate Undergraduate MEFA Loans and MEFA Loans for Graduate Education have a maximum repayment term of fifteen years. Repayment of Fixed Rate Undergraduate MEFA Loans and Variable Rate Undergraduate MEFA Loans in the existing MEFA Loan portfolio begins upon the making of the MEFA Loans. Repayment of certain graduate MEFA Loans generally begins after expiration of the applicable Deferral Period, which may extend up to eight years. The principal 2

13 amount of all MEFA Loans includes the amount to be used to pay education costs and an Authority origination fee. In addition, interest during the applicable Deferral Period is included in the principal amount of a MEFA Loan for Graduate Education and, beginning with the academic year, will be included in the principal amount of a deferred repayment undergraduate MEFA Loan. The MEFA Loan origination and servicing process is a joint effort among the Authority, Participating Institutions and the Loan Servicer. See THE MEFA LOAN PROGRAM Loan Servicing. Fixed Rate Undergraduate MEFA Loan, Variable Rate Undergraduate MEFA Loan and MEFA Loan for Graduate Education applications are submitted directly to the Loan Servicer by the applicants for credit analysis. After approval of a Borrower s application, confirmation by the Participating Institution and execution by the Borrower and co-signer, if any, of a promissory note, the promissory note is delivered to the Loan Servicer to be held in custody. The Authority finances the MEFA Loan by disbursing funds to the Loan Servicer. The Loan Servicer transfers such funds upon receipt to the Participating Institution for credit to the Student s account. Each MEFA Loan is serviced by the Loan Servicer, whose performance is monitored by the Authority. For further information concerning the loan origination and servicing process, see THE MEFA LOAN PROGRAM Loan Origination and Loan Servicing. In January 2003, the Authority completed a survey of the eighty-two (82) Massachusetts colleges and universities participating in the MEFA Loan Program in order to determine their need for additional funds under the MEFA Loan Program. The survey results indicate that the Participating Institutions project an aggregate demand of approximately $120 million for the purchase of MEFA Loans for the academic year. In addition, the Authority expects demand for MEFA Loans for Non-Massachusetts Colleges to be approximately $5 million for the academic year. The Authority established its Authority FFEL Program during The General Resolution permits Bond proceeds to be applied to finance FFELP Loans without limitation. Such FFELP Loans are currently originated and guaranteed by American Student Assistance pursuant to agreements with the Authority. The Authority reserves the right, however, to apply Bond proceeds to the origination or acquisition of FFELP Loans which are guaranteed by other guaranty agencies, with the consent of the Insurer. The Loan Servicer currently also services Authority FFELP Loans. See THE MEFA LOAN PROGRAM Loan Servicing, THE AUTHORITY FFEL PROGRAM and APPENDIX I SUMMARY OF CERTAIN PROVISIONS OF THE FEDERAL FAMILY EDUCATION LOAN PROGRAM. The Authority has sized the Series 2003 Bonds on the basis of the currently projected aggregate demand for Authority Loans and expects to meet such demand in part from funds available from the Series 2003 Bonds, in part from Issue E Loan repayment and prepayment proceeds and in part from other funds available from other Authority financings. See THE SERIES 2003 BONDS Redemption Provisions Special Optional Redemption, PLAN OF FINANCING and THE MEFA LOAN PROGRAM General and Participating Institutions. However, due to a variety of factors that may influence demand for the MEFA Loans, including, without limitation, loan terms available under the FFEL Program and, in particular, the Federal Parent Loans for Undergraduate Students Loan Program, as well as student and parent loans offered by other parties, there can be no assurance that the actual demand for MEFA Loans and Authority FFELP Loans will be sufficient to fully expend the funds available to the Authority for such programs. The Resolution does not require the application of Series 2003 Bond proceeds prior to the application of other funds available to the Authority for such purpose. See THE SERIES 2003 BONDS Redemption Provisions Special Optional Redemption and RISK FACTORS Other Lending Sources. The Ninth Series Resolution requires that any original proceeds of each Series of the Series 2003 Bonds not used to finance Issue E Loans by May 15, 2006 be used to redeem such Series of Series 2003 Bonds on or after July 1, 2006; in each case unless such period in which such proceeds may be used to finance Issue E Loans is extended in accordance with the Resolution. Such an extension may occur if the Authority files with the Trustee: (i) the written consent of the Insurer to such extension; and (ii) a Projection of Revenues showing 3

14 that after giving effect to the extension being requested, expected Revenues and other funds available for the purpose will be at least sufficient to pay, in the current and each subsequent Bond Year, Debt Service when due and all Program Expenses. See THE SERIES 2003 BONDS Redemption Provisions Special Optional Redemption. In addition to the Prior Bonds, the Authority has issued bonds and notes under separate resolutions to fund the Authority Loan Program and has entered into a line of credit arrangement with a financial institution to capitalize the Authority s program of current refunding certain maturing bonds (including, but not limited to, certain of the Prior Bonds, Prior Obligations ). The Authority expects MEFA Loans to be acquired through application of the proceeds of Series 2003 Bonds and of other amounts available under the Resolution during the period of such application to have substantially similar payment performance characteristics, except for the interest rate applicable to certain such MEFA Loans, as the MEFA Loans that have been acquired to date. The Authority expects to apply certain available proceeds of Prior Obligations, including Prior Bonds, to the financing of such MEFA Loans during the same period in which Series 2003 Bond proceeds are to be applied to finance Issue E Loans. MEFA Loans financed, or to be financed, by the Authority through application of the proceeds of or of funds allocable to Prior Obligations other than Prior Bonds will not secure the Bonds. For information concerning the MEFA Loan Program, including historical information with respect to delinquencies and the gross and net default rates for MEFA Loans funded through application of the proceeds of Prior Obligations issued under certain of the Authority s general resolutions (with respect to each general resolution, an Issue ), see AUTHORITY LOAN PORTFOLIO. The Bonds are special obligations of the Authority, which has no taxing power, payable solely from the Revenues and the funds and accounts established and pledged under the Resolution. Neither the Commonwealth nor any political subdivision thereof is or shall be obligated to pay the principal or redemption price of or interest on the Bonds and neither the full faith and credit nor the taxing power of the Commonwealth or any political subdivision thereof is pledged to such payment. See SECURITY FOR THE BONDS AND SOURCES OF PAYMENT. Payment of the principal of and interest on the Series 2003 Bonds when due will be insured under a financial guaranty insurance policy (the Financial Guaranty Insurance Policy ) to be issued by Ambac Assurance Corporation (the Insurer ), which shall be deemed to be the Holder of the Series 2003 Bonds for certain purposes under the Resolution. See SECURITY FOR THE BONDS AND SOURCES OF PAYMENT Certain Rights of the Insurer and FINANCIAL GUARANTY INSURANCE. There follows in this Official Statement a description of the Authority, summaries of the terms of the Series 2003 Bonds while bearing interest as ARCs, the sources of payment for the Series 2003 Bonds, a description of the Authority Loan Program and the FFEL Program and certain information with respect to the Authority Loans which have been financed by the Authority. All references herein to the Resolution and other documents are qualified in their entirety by reference to the final form thereof and all references to the Series 2003 Bonds are further qualified by reference to the information with respect thereto contained in the Resolution. See AVAILABILITY OF FINANCIAL AND OTHER INFORMATION. THE AUTHORITY The Authority was created by the Act in recognition of the increasingly burdensome costs connected with post-secondary education. Declaring that it is essential that this and future generations of youth be given the fullest opportunity to learn and to develop their intellectual capacity and skills, the Legislature of the Commonwealth created the Authority for the purpose of assisting parents, students and institutions of higher education in financing and refinancing the costs of education. The Authority provides financial assistance to students attending post-secondary school through the financing of education loans. In 1990, the Act was amended to add to the Authority s functions that of developing and administering one or more savings programs designed to facilitate and encourage savings by or on behalf of students, future students and parents 4

15 for the purposes of paying the costs of attendance at institutions of higher education. In connection with that amendment, the Authority s name was changed from the Massachusetts Education Loan Authority to its current name, and the number of members of the Authority was increased from seven to nine. In 1994, the Authority established the U. Plan Prepaid Tuition Plan, which is a prepaid tuition program that currently includes over eighty public and private Massachusetts colleges and universities. In 1999, the Authority established the Commonwealth s Qualified State Tuition Program, the U. Fund College Investing Plan, which gives families an opportunity to save for qualified educational expenses through investments in mutual funds. Investments can be used at any accredited college in the country. In 2002, the Authority initiated a program to fund Authority FFELP Loans through the application of amounts available therefor under the General Resolution, including proceeds of Series 2003 Bonds, proceeds of certain Prior Bonds and proceeds of any Bonds which may be issued hereafter under the General Resolution. The Authority reserves the right to apply such funds to finance other loans to fund or refund education costs from such sources pursuant to terms and conditions to be established under a supplemental resolution to be adopted with the consent of the Insurer. All Authority FFELP Loans and any other Issue E Loans that are so funded would secure the Bonds. FFELP Loans have, and other loans which fund or refund education costs may have, credit and repayment characteristics which differ substantially from those of MEFA Loans. See PLAN OF FINANCING, RISK FACTORS Dependence Upon Cash Flow Projections, THE MEFA LOAN PROGRAM Participating Institutions, THE AUTHORITY FFEL PROGRAM, APPENDIX C SUMMARY OF CERTAIN PROVISIONS OF THE RESOLUTION Issuance of Additional Bonds and APPENDIX I SUMMARY OF CERTAIN PROVISIONS OF THE FEDERAL FAMILY EDUCATION LOAN PROGRAM. The Authority solicits participation in its loan programs by qualifying independent and public educational institutions and assists institutions in establishing and administering the loan origination process. The Authority monitors Authority Loan origination and servicing, delinquencies and defaults, investment results and revenue projections. In addition to developing and operating its loan programs, the Authority conducts seminars on student financial aid and financing higher education for educational personnel and for parents across the Commonwealth. Members and Staff The Authority consists of nine members, seven of whom are appointed by the Governor of the Commonwealth. The two other members, ex officio, are the Secretary for Administration and Finance and the Director of the Department of Economic Development Affairs of the Commonwealth, or their designees. At least four of the members are required to be trustees, directors, officers or employees of institutions for higher education and three are required to be persons having a favorable reputation in the fields of state and municipal finance, banking, law or investment advice or management. There is currently one vacancy in the membership of the Authority. The Executive Director is appointed by the Authority. Members The members, the Executive Director and other staff of the Authority are listed below: JOHN R. SMITH, Chairman; term expires July 1, Mr. Smith is President of New England Fiduciary Company. He served as Vice President and Treasurer of Boston College until retiring in He currently serves as Vice Chairman of Power Options, Inc. and as a Trustee of Framingham State College. For twenty-three years he served as Vice Chairman of the Massachusetts Health and Educational Facilities Authority. He recently retired as an independent Trustee of ING Pilgrim Mutual Funds. Before his employment with Boston College, 5

16 Bendix Corporation and Raytheon Company employed Mr. Smith in executive financial analysis and management positions. He is a Certified Public Accountant. JOSEPH F. HUNT, ESQ., Vice Chairman; term expires July 1, Mr. Hunt is Of Counsel in the law firm of Bingham McCutchen LLP. He formerly served as Managing Partner. MARY EGAN BOLAND, ESQ.; term expires July 1, Mrs. Boland is a Partner in the law firm of Egan, Flanagan and Cohen, P.C. She was formerly Member and President of the Springfield City Council. Mrs. Boland is currently Director of First Massachusetts Bank. She is Trustee of the MML Series Investment Fund and the Mass Mutual Institutional Funds. She is also special counsel to the College of Our Lady of the Elms. MARGARET DWYER; term expires July 1, Ms. Dwyer is a Senior Consultant at Bingham Consulting Group. She previously worked in senior level government positions in Michigan and the Commonwealth of Massachusetts representing issues related to education and workforce training. JAMES P. MCINTYRE; term expires July 1, Dr. McIntyre is Senior Vice President of Boston College. He formerly served as Vice President for University Relations from 1976 to 1986 and prior to that as Vice President for Student Affairs from 1968 to He began his career at Boston College in In addition to his administrative responsibilities, he has also taught a variety of courses and has published numerous articles in professional journals. Dr. McIntyre has been actively involved in numerous professional and civic organizations through his career. RICHARD J. SANTAGATI; term expires July 1, Mr. Santagati is President of Merrimack College. Prior to his appointment as President, Mr. Santagati served as Interim President of the College and as Chairman of its Board of Trustees. He is the former Chairman of the Board, President, and Chief Executive Officer of Artel Communications Corporation. Previous to Artel, President Santagati was a partner at Lighthouse Capital Management, Inc. and Chief Executive Officer of the law firm of Gaston & Snow. President Santagati also held positions of President and Chairman of NYNEX Business Information Systems and Vice President of Marketing at NYNEX Corporation. SECRETARY FOR ADMINISTRATION AND FINANCE OF THE COMMONWEALTH, ex-officio The Secretary for Administration and Finance of the Commonwealth is Eric A. Kriss. DIRECTOR OF THE DEPARTMENT OF ECONOMIC DEVELOPMENT OF THE COMMONWEALTH, ex-officio Berke. The Director of the Department of Economic Development of the Commonwealth is Barbara 6

17 Staff THOMAS M. GRAF, Executive Director. Mr. Graf joined the Authority in December, Prior to joining the Authority, he served as Budget Director for the Commonwealth of Massachusetts; Deputy Budget Director, Fiscal Affairs Division; and Director of Legislative Affairs/Fiscal Affairs for the Office of the Governor. Mr. Graf received his B.S. in Business Administration from Merrimack College. ELIZABETH K. FONTAINE, Deputy Executive Director. Ms. Fontaine joined the Authority in February, Prior to joining the Authority, she served as Director of the Massachusetts State Scholarship Office and held several related college financing positions. Ms. Fontaine received a B.A. from Assumption College and completed graduate study at Clark University. JAMES S. LEIGHTON, Director of Finance. Mr. Leighton joined the Authority in November, Formerly, he was Portfolio Administrator for Mercantile Bank & Trust Company and a Financial Analyst for U.S. Trust and Fleet Management & Recovery Corporation. Mr. Leighton received his B.S. and his M.B.A. from Northeastern University. THOMAS G. MURPHY, Director of MEFA Loan Operations & Marketing. Mr. Murphy joined the Authority in September, Previously he was Regional Representative for the Health Professions Loan program and Assistant Supervisor in the Authority s Loan Department at Knight College Resources Group. Mr. Murphy received his B.A. from St. Michael s College and his M.B.A. from Boston University. THE SERIES 2003 BONDS The Series 2003A Bonds, Series 2003B Bonds, Series 2003C Bonds, Series 2003D Bonds and Series 2003E Bonds are initially issued as ARCs, shall be dated the date of initial delivery thereof and shall mature on the respective dates shown on the inside cover page of this Official Statement. Certain capitalized terms used herein with respect to Series 2003 Bonds outstanding as ARCs are defined in APPENDIX G to this Official Statement. References in this section of the Official Statement to ARCs refer separately to the Series 2003A Bonds, the Series 2003B Bonds, the Series 2003C Bonds, the Series 2003D Bonds and the Series 2003E Bonds, and except as otherwise noted, are applicable to such Series 2003 Bonds only while outstanding as ARCs. ARCs are issuable only as book-entry securities. To the extent that DTC determines to discontinue providing its services with respect to the Series 2003 Bonds and no satisfactory substitute depository is found, no further auctions shall be held and the Trustee shall calculate the Maximum Rate on the Business Day immediately preceding the first day of each Interest Period commencing after delivery of certificates representing the Series 2003 Bonds, and with respect to the Series 2003B Bonds such next succeeding Interest Period will be a thirty-five (35) day Auction Period. In such event, the Series 2003 Bonds will likely be converted to Weekly Rate Bonds or Fixed Rate Bonds. Interest Interest Payments. Interest on the Series 2003 Bonds while outstanding as ARCs shall accrue for each Interest Period and shall be payable in arrears, on each succeeding Interest Payment Date. An Interest Period means, with respect to ARCs, so long as interest is payable on January 1 and July 1 with respect thereto, and unless otherwise changed as described below under Changes in Auction Periods or Auction Date Changes in Auction Period or Period : (i) with respect to the Series 2003B Bonds, the interest period 7

18 commencing on and including the Issue Date of the ARCs and ending on and including Wednesday, March 3, 2004 and, thereafter, each successive one-year period commencing on the first Thursday of March and (ii) with respect to the Series 2003A Bonds, the Series 2003C Bonds, the Series 2003D Bonds and the Series 2003E Bonds, the interest period commencing on and including the Issue Date of the ARCs and ending on and including April 23, 2003, with respect to the Series 2003A Bonds, on and including April 30, 2003, with respect to the Series 2003C Bonds, on and including April 30, 2003, with respect to the Series 2003D Bonds, and on and including May 7, 2003, with respect to the Series 2003E Bonds and, thereafter, each respective successive 35-day period (or such other changed period); provided, however, that if, and for so long as, Interest Payment Dates are specified to occur at the end of each Auction Period, as described below under Changes in Auction Periods or Auction Date Changes in Auction Period or Periods, an Interest Period shall mean, with respect to ARCs, each period commencing on an Interest Payment Date and ending on but excluding the next succeeding Interest Payment Date. An Interest Payment Date for the Series 2003 Bonds, while the Series 2003 Bonds are outstanding as ARCs, means initially July 1, 2003 and each January 1 and July 1 thereafter and at maturity or earlier redemption or conversion, or if any such date is not a Business Day, the next succeeding Business Day (but only for interest accrued through the preceding June 30 or December 31, as the case may be). The amount of interest distributable to holders of ARCs in respect of each $50,000 in principal amount thereof for any Interest Period or part thereof shall be calculated by the Trustee by applying the Applicable Auction Rate for such Interest Period or part thereof to the principal amount of $50,000, multiplying such product by the actual number of days in the Interest Period or part thereof divided by 365 or 366, as applicable, and truncating the resultant figure to the nearest cent. Interest on the ARCs shall be computed by the Trustee on the basis of a 365-day year for the number of days actually elapsed; except that for any such calculation with respect to an Interest Payment Date occurring after January 1 of any year preceding a leap year through January 1 of the next succeeding year (being the leap year) such interest shall be computed on the basis of a 366-day-year period. In the event an Interest Payment Date occurs in any Interest Period on a date other than the first day of such Interest Period, the Trustee, after confirming the calculation required above, shall calculate the portion payable on the next succeeding Interest Payment Date. The Auction Agent shall make the calculation described above not later than the close of business on each Auction Date. Interest payments on the Series 2003 Bonds are to be made by the Paying Agent to the persons who are Registered Owners of such Series 2003 Bonds, as of the Record Date preceding each Interest Payment Date. The Series 2003 Bonds are to be initially registered in the name of Cede & Co., as nominee of DTC, which is acting as the depository for the Series 2003 Bonds. See BOOK-ENTRY ONLY SYSTEM herein for a description of how DTC, as owner, is expected to disburse such payments to the Beneficial Owners. Applicable Auction Rate. The rate of interest on the ARCs for each Interest Period to but not including the Fixed Rate Conversion Date or the Variable Rate Conversion Date shall be equal to the annual rate of interest that results from implementation of the Auction Procedures described in APPENDIX G (the Auction Rate and an Auction ); provided that if, on any Auction Date, an Auction is not held for any reason, then the rate of interest for the next succeeding Interest Period shall equal the Maximum Rate on such Auction Date; and further provided that if an Auction is scheduled to occur for the next Interest Period on a date that was reasonably expected to be a Business Day, but such Auction does not occur because such date is later not considered to be a Business Day, the Auction shall nevertheless be deemed to have occurred, and the applicable Auction Rate in effect for the next Interest Period will be the Auction Rate in effect for the preceding Interest Period and the length of such Interest Period with respect to each Series of the Series 2003 Bonds, if the length of the preceding Interest Period was generally 35 days in duration, will generally be 35 days in duration, beginning on the calendar day following the date of the deemed Auction and ending on (and including) the applicable Auction Date (unless such date is not followed by a Business Day, in which case on the next succeeding day that is followed by a Business Day). If the length of the preceding Interest Period was other than generally 35 days in duration, the length of the next Interest Period shall be determined by the Market Agent, but shall not be less than 7 days nor exceed the length of the preceding Auction Period, and the Auction Rate for the deemed Auction will instead be the rate of interest determined by the Market Agent on the basis of equivalently rated auction securities with a comparable length of auction period. Notwithstanding 8

19 the foregoing, (a) if the ownership of the ARCs is no longer maintained in book-entry form, the rate of interest on the ARCs for any Interest Period commencing after the delivery of certificates representing ARCs as described above shall equal the Maximum Rate on the Business Day immediately preceding the first day of such Interest Period; (b) if a Payment Default occurs, Auctions will be suspended and the Applicable Auction Rate (as defined below) for the Interest Period commencing on or after such Payment Default and for each Interest Period thereafter to and including the Interest Period, if any, during which, or commencing less than two Business Days after, such Payment Default is cured will equal the Default Rate; or (c) if a proposed conversion to a Fixed Rate or Variable Rate shall have failed, as described below under the caption Inadequate Funds for Tenders; Failed Conversion, and the next succeeding Auction Date shall be two or fewer Business Days after (or on) any such failed Fixed Rate Conversion Date or Variable Rate Conversion Date, then an Auction shall not be held on such Auction Date and the rate of interest on the ARCs subject to the failed conversion for the next succeeding Interest Period shall be equal to the Maximum Rate calculated as of the first Business Day of such Interest Period. The rate per annum at which interest is payable on the ARCs for any Interest Period is herein referred to as the Applicable Auction Rate. The Applicable Auction Rate cannot exceed the maximum rate permitted by the laws of the Commonwealth. The Ninth Series Resolution provides that notwithstanding anything therein to the contrary, if any Series 2003 Bonds or portion thereof have been selected for redemption or conversion during the next succeeding Interest Period, such Series 2003 Bonds or portion thereof will not be included in the Auction preceding such Redemption Date, and will continue to bear interest until the Redemption Date or Conversion Date at the rate established for the Interest Period prior to said Auction. Auction Participants Existing Holders and Potential Holders. Participants in each Auction will include (a) Existing Holders, which shall mean any Person who is listed as the owner of record of ARCs in the records of the Auction Agent (described below) at the close of business on the Business Day preceding each Auction; and (b) Potential Holders, which shall mean any Person, including any Existing Holder, who may be interested in acquiring ARCs (or in the case of an Existing Holder, an additional principal amount of ARCs). By purchasing ARCs, whether in an Auction or otherwise, each prospective purchaser of ARCs or its Broker-Dealer must agree and will be deemed to have agreed: (i) to participate in Auctions on the terms set forth in APPENDIX G hereto, (ii) so long as the beneficial ownership of the ARCs is maintained in book-entry form by DTC, to sell, transfer or otherwise dispose of ARCs only pursuant to a Bid or a Sell Order (each as defined in APPENDIX G) in an Auction, or to or through a Broker-Dealer to the Auction Agent, provided that in the case of all transfers other than those pursuant to an Auction, the Existing Holder of ARCs so transferred, its agent member or its Broker-Dealer advises the Auction Agent of such transfer, and (iii) to have its beneficial ownership of ARCs maintained at all times in book-entry form by the securities depository for the account of its Participants of DTC, which in turn will maintain records of such beneficial ownership, and to authorize such Participant to disclose to the Auction Agent such information with respect to such beneficial ownership as the Auction Agent may request. Auction Agent. The Bank of New York, New York, New York, is appointed as the initial Auction Agent for the Series 2003 Bonds. The Trustee is directed under the Ninth Series Resolution to enter into the initial Auction Agency Agreement with The Bank of New York. Any substitute Auction Agent shall be (a) a bank or trust company duly organized under the laws of the United States of America or any state or territory thereof having its principal place of business in the Borough of Manhattan, The City of New York, and having a combined capital stock, surplus and undivided profits of at least $50,000,000 or (b) a member of the National Association of Securities Dealers, Inc., having a capitalization of at least $50,000,000 and, in either case, authorized by law to perform all the duties imposed upon it under the Resolution and under the Auction 9

20 Agency Agreement. The Auction Agent may resign and be discharged of the duties and obligations created by the Resolution by giving at least 90 days written notice to the Authority, the Trustee and the Market Agent (or 30 days written notice if the Auction Agent has not been paid its fees for more than 30 days). The Auction Agent may be removed at any time by the Trustee if the Auction Agent is an entity other than the Trustee, acting at the direction of either (i) the Authority or (ii) the holders of not less than 66-2/3% of the aggregate principal amount of the Series 2003 Bonds then Outstanding by an instrument signed by the Trustee and filed with the Auction Agent, the Authority and the Market Agent upon at least 90 days notice; provided that, if required by the Market Agent, an agreement in substantially the form of the Auction Agency Agreement shall be entered into with a successor Auction Agent. If the Auction Agent and the Trustee are the same entity, the Auction Agent may be removed as described above, with the Authority acting in lieu of the Trustee. If the Auction Agent shall resign or be removed or dissolved, or if the property or affairs of the Auction Agent shall be taken under the control of any state or federal court or administrative body because of bankruptcy or insolvency, or for any other reason, the Authority shall use its best efforts to appoint a successor as Auction Agent, and the Trustee shall thereupon enter into an Auction Agency Agreement with such successor. The Auction Agent is acting as agent for the Trustee as trustee, registrar and paying agent for the ARCs and the Authority in connection with Auctions. In the absence of bad faith or negligence on its part, the Auction Agent shall not be liable for any action taken, suffered or omitted or for any error of judgment made by it in the performance of its duties under the Auction Agency Agreement and shall not be liable for any error of judgment made in good faith unless the Auction Agent shall have been negligent in ascertaining (or failing to ascertain) the pertinent facts necessary to make such judgment. Broker-Dealer. So long as the ownership of the ARCs is maintained in book-entry form by DTC, Existing Holders and Potential Holders may participate in Auctions only by submitting orders (in the manner described below) through UBS PaineWebber Inc. as the initial Broker-Dealer for the Series 2003 Bonds or any other broker or dealer (each as defined in the Securities Exchange Act of 1934, as amended), commercial bank or other entity permitted by law to perform the functions required of a Broker-Dealer set forth below which (a) is a Participant (i.e., a member of, or participant in, DTC or any successor securities depository) or an affiliate of a Participant, (b) has capital and surplus of at least $50,000,000, (c) has been selected by the Authority and (d) has entered into a Broker-Dealer Agreement with the Auction Agent that remains effective, in which the Broker-Dealer agrees to participate in Auctions as described in the Auction Procedures, as from time to time amended or supplemented. Market Agent. The Market Agent, initially UBS PaineWebber Inc., acting pursuant to the Market Agent Agreement with the Trustee and in connection with the ARCs shall act solely as agent of the Trustee and shall not assume any obligation or relationship of agency or trust for or with any of the Beneficial Owners. Auctions Prior to a Fixed Rate Conversion Date or a Variable Rate Conversion Date, Auctions to establish the Applicable Auction Rate are to be held on each Auction Date, except as described above under Interest Applicable Auction Rate, by application of the Auction Procedures described in APPENDIX G. Auction Date shall mean, initially, with respect to the Series 2003A Bonds outstanding as ARCs, April 23, 2003, with respect to the Series 2003B Bonds outstanding as ARCs, March 3, 2004, with respect to the Series 2003C Bonds outstanding as ARCs, April 30, 2003, with respect to the Series 2003D Bonds outstanding as ARCs, April 30, 2003, and, with respect to the Series 2003E Bonds outstanding as ARCs, May 7, 2003, and, thereafter, in each instance, the Business Day immediately preceding the first day of each related Interest Period, other than: (a) each Interest Period commencing after the ownership of such Series of ARCs is no longer maintained in book-entry form; (b) each Interest Period commencing after the occurrence and during the continuance of a Payment Default; or (c) any Interest Period commencing less than two Business Days 10

21 after the cure or waiver of a Payment Default. Notwithstanding the foregoing, the Auction Date for one or more Auction Periods may be changed as described below under Changes in Auction Periods or Auction Date Changes in Auction Period or Periods. The Auction Agent shall calculate the Maximum Rate and the All-Hold Rate on each Auction Date. Upon receipt of notice from the Trustee of a failed Fixed Rate conversion or Variable Rate conversion as described below under the caption Inadequate Funds For Tenders; Failed Conversion, and if the next succeeding Auction Date shall be two or fewer Business Days after (or on) the failed Fixed Rate Conversion Date or Variable Rate Conversion Date, the Auction Agent shall not hold an Auction on such Auction Date but shall calculate the Maximum Rate as of the first Business Day of the next succeeding Interest Period and give notice thereof as provided and to the parties specified in the Auction Agency Agreement; provided that, with respect to the Series 2003B Bonds such next succeeding Interest Period will be a thirty-five (35) day Auction Period. If the ownership of the ARCs is no longer maintained in book-entry form, the Trustee shall calculate the Maximum Rate on the Business Day immediately preceding the first day of each Interest Period commencing after delivery of certificates representing the ARCs. If a Payment Default shall have occurred, the Trustee shall calculate the Default Rate on the first day of (i) each Interest Period commencing after the occurrence and during the continuance of such Payment Default and (ii) any Interest Period commencing less than two Business Days after the cure of any Payment Default. The Auction Agent shall determine the AA Financial Commercial Paper Rate for each Interest Period other than the first Interest Period; provided that, if the ownership of the ARCs is no longer maintained in book-entry form, or if a Payment Default has occurred, then the Trustee shall determine the AA Financial Commercial Paper Rate for each such Interest Period. The determination by the Trustee or the Auction Agent, as the case may be, of the AA Financial Commercial Paper Rate shall (in the absence of manifest error) be final and binding upon the Bondholders and all other parties. If calculated or determined by the Auction Agent, the Auction Agent shall promptly advise the Trustee of the AA Financial Commercial Paper Rate. So long as the ownership of the ARCs is maintained in book-entry form, an Existing Holder may sell, transfer or otherwise dispose of its beneficial interest in ARCs only pursuant to a Bid or Sell Order (as defined in APPENDIX G) placed in an Auction or through a Broker-Dealer; provided that, in the case of all transfers other than pursuant to Auctions or mandatory tenders, such Existing Holder, its Broker-Dealer or its Participant advises the Auction Agent of such transfer. Auctions shall be conducted on each Auction Date, if there is an Auction Agent on such Auction Date, in the manner described in APPENDIX G. A description of the Settlement Procedures to be used with respect to Auctions is contained in APPENDIX H. Adjustment in Percentages The Market Agent shall adjust the percentage used in determining the All-Hold Rate, the Applicable Percentage used in determining the Maximum Rate and the Applicable Percentage of the Kenny Index used in determining the Default Rate, if any such adjustment is necessary, in the judgment of the Market Agent, to reflect any Change of Preference Law such that ARCs paying the Maximum Rate, ARCs paying the All-Hold Rate and ARCs paying the Default Rate shall have, respectively, equal market values before and after such Change of Preference Law. Prior to any such adjustment, the Authority shall give notice thereof to the Rating Agencies and the Insurer and no such adjustment shall be made unless the Authority and the Trustee shall receive the consent of the Insurer with respect to such adjustment. In making any such adjustment, the Market Agent shall take the following factors, as in existence both before and after such Change of Preference Law, into account: (a) short-term taxable and tax-exempt market rates and indices of such short-term rates; (b) the market supply and demand for short-term tax-exempt securities; (c) yield curves for short-term and long-term tax-exempt securities or obligations having a credit rating that is comparable to the ARCs; (d) general economic conditions; and (e) economic and financial factors present in the securities industry that may affect or that may be relevant to the ARCs. 11

22 The Market Agent shall effectuate an adjustment in the percentage used in determining the All-Hold Rate, the Applicable Percentage used in determining the Maximum Rate and the Applicable Percentage of the Kenny Index used to determine the Default Rate by delivering written notice and a Favorable Opinion to the Authority, the Trustee, the Insurer and the Auction Agent at least 10 days prior to the Auction Date on which the Market Agent desires to effect such change. Changes in Auction Periods or Auction Date Any change in Auction terms described below may be made with respect to the Series 2003 Bonds outstanding as ARCs. In connection with any change in the Auction terms described below, the Auction Agent shall provide such further notice to such parties as is specified in the Auction Agency Agreement. No change shall be made to the Auction Period or Auction Date unless the Authority shall have received the consent of the Insurer with respect to such change. Changes in Auction Period or Periods. While any Series 2003 Bonds are outstanding as ARCs, the Market Agent: (a) in order to conform with then current market practice with respect to similar securities, shall; or (b) in order to accommodate economic and financial factors that may affect or be relevant to the length of the Auction Period and the interest rate borne by the ARCs and upon receipt of a Favorable Opinion and with the written consent of an Authorized Officer of the Authority and the Insurer, may change, from time to time, the length of one or more Auction Periods. In connection with any such change, or otherwise, but for the same stated purpose, the Market Agent: (a) in order to conform with then current market practice with respect to similar securities, shall; and (b) upon receipt of a Favorable Opinion and with the written consent of an Authorized Officer of the Authority and the Insurer, may change Interest Payment Dates to or from semiannual payments on January 1 and July 1 of each year or to or from Interest Payment Dates specified in the notice described below corresponding to the end of each Interest Period and Auction Period, any such change shall be considered a change in the length of one or more Auction Periods for purposes of the Ninth Series Resolution. The Authorized Officer of the Authority shall not consent to such change in the length of the Auction Period, if such consent is required as described above, unless he or she shall have received from the Market Agent not less than three days nor more than 20 days prior to the effective date of such change a written request for consent together with a certificate demonstrating the need for change in reliance on such factors. The Market Agent shall initiate the change in the length of one or more Auction Periods by giving written notice to the Trustee, the Auction Agent, the Authority and DTC insubstantially the form of, or containing substantially the information contained in, the Ninth Series Resolution at least 10 days prior to the Auction Date for such Auction Period. Any such changed Auction Period shall not be less than seven days; provided, however, that if the Auction Period is being changed from an Auction Period of more than one year to an Auction Period of less than one year, the notice described above will be effective only if it is accompanied by a Favorable Opinion with respect to such changed Auction Period. The change in the length of one or more Auction Periods shall not be allowed unless Sufficient Clearing Bids (as defined in APPENDIX G) existed at both the Auction before the date on which the notice of 12

23 the proposed change was given as described above and the Auction immediately preceding the proposed change. The change in length of one or more Auction Periods shall take effect only if (a) the Trustee and the Auction Agent receive, by 11:00 a.m. on the Business Day before the Auction Date for the first such Auction Period, a certificate from the Market Agent in substantially the form of, or containing substantially the information contained in, the Ninth Series Resolution, authorizing the change in the length of one or more Auction Periods specified in such certificate and (b) Sufficient Clearing Bids exist at the Auction on the Auction Date for such first Auction Period. If the condition referred to in (a) above is not met, the Applicable Auction Rate for the next Auction Period shall be determined pursuant to the Auction Procedures and the Auction Period shall be the Auction Period determined without reference to the proposed change. If the condition referred to in (a) above is met but the condition referred to in (b) above is not met, the Applicable Auction Rate for the next Auction Period shall be the Maximum Rate and the Auction Period shall be the Auction Period determined without reference to the proposed change. Changes in the Auction Date. While any of the Series 2003 Bonds are outstanding as ARCs, the Market Agent: (a) in order to conform with then current market practice with respect to similar securities, shall; or (b) in order to accommodate economic and financial factors that may affect or be relevant to the day of the week constituting an Auction Date and the interest rate borne on the ARCs and upon receipt of a Favorable Opinion with the written consent of an Authorized Officer of the Authority and the Insurer, may specify an earlier Auction Date (but in no event more than five Business Days earlier) than the Auction Date that would otherwise be determined in accordance with the definition of Auction Date in APPENDIX G with respect to one or more specified Auction Periods. The Authorized Officer of the Authority shall not consent to such change in the Auction Date, if such consent is required as described above, unless he or she shall have received from the Market Agent not less than three days nor more than 20 days prior to the effective date of such change a written request for consent together with a certificate demonstrating the need for change in reliance on such factors. The Market Agent shall provide notice of any determination to specify an earlier Auction Date for one or more Auction Periods by means of a written notice delivered at least 10 days prior to the proposed changed Auction Date to the Trustee, the Auction Agent, the Authority and DTC. Such notice shall be substantially in the form of, or contain substantially the information contained in, the Resolution. Redemption Provisions Optional Redemption. Each Series of the Series 2003 Bonds while outstanding as ARCs will be subject to redemption prior to maturity, at the option of the Authority, in whole or in part, at any time, with respect to ARCs to which an Interest Period of less than six months applies, or on any Interest Payment Date, with respect to ARCs to which an Interest Period of six months or more applies, at a redemption price equal to 100% of the principal amount thereof, plus accrued interest to the redemption date. Under certain circumstances, the interest rate on all or a portion of any Series of the Series 2003 Bonds may be adjusted by the Authority to a Variable Rate other than the Auction Rate or converted to a Fixed Rate. In the event of such adjustment or conversion, the affected Series 2003 Bonds will thereafter be subject to redemption as set forth in the Resolution. See SECURITY FOR THE BONDS AND SOURCES OF PAYMENT Certain Rights of the Insurer. Mandatory Sinking Fund Redemption. The Series 2003A Bonds are additionally subject to mandatory sinking fund redemption in part by lot at a redemption price equal to 100% of the principal amount redeemed, 13

24 plus accrued interest to the redemption date, on the respective dates, and in the principal amounts specified below. January 1 Principal Amount 2009 $ 200, ,850, ,550, ,800, ,900, ,100, ,400, ,550, ,100, ,500,000 If any of the Series 2003 Bonds to be redeemed are Series 2003 Bonds for which Sinking Fund Installments have been established, such Sinking Fund Installments shall be reduced as designated by the Authority. Special Optional Redemption. The Series 2003A Bonds are additionally subject to special optional redemption in whole or in part at any time, on or after July 1, 2006 or such later date as may be permitted under the Resolution, at a redemption price equal to the principal amount thereof, plus accrued interest, if any, to the redemption date, from amounts deposited in the Series 2003 Redemption Account from: (i) moneys in the Series 2003 Purchase Account (other than amounts deposited thereto from the Revenue Fund) allocable to the Series 2003A Bonds which have not been used to finance Issue E Loans by May 15, 2006 or such later date as may be permitted under the Resolution; (ii) moneys deposited to the Series 2003 Purchase Account from the Revenue Fund which are intended to be recycled to finance additional Issue E Loans, but which have not been used to finance Issue E Loans by July 1, 2006 or such later date as may be permitted under the Resolution; (iii) excess Revenues which may be available under the Resolution after payment of the principal of and interest on the Bonds and Program Expenses and provision for amounts required to maintain the Reserve Fund at required levels, including excess Revenues derived from full or partial prepayment of Issue E Loans allocable to any Series of Bonds; and (iv) excess moneys in the Reserve Fund. See SECURITY FOR THE BONDS AND SOURCES OF PAYMENT Certain Rights of the Insurer and RISK FACTORS Dependence Upon Cash Flow Projections and Competition. The Series 2003B Bonds are additionally subject to special optional redemption in whole or in part at any time, on or after July 1, 2006 or such later date as may be permitted under the Resolution, at a redemption price equal to the principal amount thereof, plus accrued interest, if any, to the redemption date, from amounts deposited in the Series 2003 Redemption Account from: (i) moneys in the Series 2003 Purchase Account (other than amounts deposited thereto from the Revenue Fund) allocable to the Series 2003B Bonds which have not been used to finance Issue E Loans by May 15, 2006 or such later date as may be permitted under the Resolution; (ii) moneys deposited to the Series 2003 Purchase Account from the Revenue Fund which are intended to be recycled to finance additional Issue E Loans, but which have not been used to finance Issue E Loans by July 1, 2006 or such later date as may be permitted under the Resolution; (iii) excess Revenues which may be available under the Resolution after payment of the principal of and interest on the Bonds and Program Expenses and provision for amounts required to maintain the Reserve Fund at required levels, including excess Revenues derived from full or partial prepayments of Issue E Loans allocable to any Series of Bonds; and (iv) excess moneys in the Reserve Fund. See SECURITY FOR THE BONDS AND SOURCES OF PAYMENT Certain Rights of the Insurer and RISK FACTORS Dependence Upon Cash Flow Projections and Competition. 14

25 The Series 2003C Bonds are additionally subject to special optional redemption in whole or in part at any time, on or after July 1, 2006 or such later date as may be permitted under the Resolution, at a redemption price equal to the principal amount thereof, plus accrued interest, if any, to the redemption date, from amounts deposited in the Series 2003 Redemption Account from: (i) moneys in the Series 2003 Purchase Account (other than amounts deposited thereto from the Revenue Fund) allocable to the Series 2003C Bonds which have not been used to finance Issue E Loans by May 15, 2006 or such later date as may be permitted under the Resolution; (ii) moneys deposited to the Series 2003 Purchase Account from the Revenue Fund which are intended to be recycled to finance additional Issue E Loans, but which have not been used to finance Issue E Loans by July 1, 2006 or such later date as may be permitted under the Resolution; (iii) excess Revenues which may be available under the Resolution after payment of the principal of and interest on the Bonds and Program Expenses and provision for amounts required to maintain the Reserve Fund at required levels, including excess Revenues derived from full or partial prepayment of Issue E Loans allocable to any Series of Bonds; and (iv) excess moneys in the Reserve Fund. See SECURITY FOR THE BONDS AND SOURCES OF PAYMENT Certain Rights of the Insurer and RISK FACTORS Dependence Upon Cash Flow Projections and Competition. The Series 2003D Bonds are additionally subject to special optional redemption in whole or in part at any time, on or after July 1, 2006 or such later date as may be permitted under the Resolution, at a redemption price equal to the principal amount thereof, plus accrued interest, if any, to the redemption date, from amounts deposited in the Series 2003 Redemption Account from: (i) moneys in the Series 2003 Purchase Account (other than amounts deposited thereto from the Revenue Fund) allocable to the Series 2003D Bonds which have not been used to finance Issue E Loans by May 15, 2006 or such later date as may be permitted under the Resolution; (ii) moneys deposited to the Series 2003 Purchase Account from the Revenue Fund which are intended to be recycled to finance additional Issue E Loans, but which have not been used to finance Issue E Loans by July 1, 2006 or such later date as may be permitted under the Resolution; (iii) excess Revenues which may be available under the Resolution after payment of the principal of and interest on the Bonds and Program Expenses and provision for amounts required to maintain the Reserve Fund at required levels, including excess Revenues derived from full or partial prepayment of Issue E Loans allocable to any Series of Bonds; and (iv) excess moneys in the Reserve Fund. See SECURITY FOR THE BONDS AND SOURCES OF PAYMENT Certain Rights of the Insurer and RISK FACTORS Dependence Upon Cash Flow Projections and Competition. The Series 2003E Bonds are additionally subject to special optional redemption in whole or in part at any time, on or after July 1, 2006 or such later date as may be permitted under the Resolution, at a redemption price equal to the principal amount thereof, plus accrued interest, if any, to the redemption date, from amounts deposited in the Series 2003 Redemption Account from: (i) moneys in the Series 2003 Purchase Account (other than amounts deposited thereto from the Revenue Fund) allocable to the Series 2003E Bonds which have not been used to finance Issue E Loans by May 15, 2006 or such later date as may be permitted under the Resolution; (ii) moneys deposited to the Series 2003 Purchase Account from the Revenue Fund which are intended to be recycled to finance additional Issue E Loans, but which have not been used to finance Issue E Loans by July 1, 2006 or such later date as may be permitted under the Resolution; (iii) excess Revenues which may be available under the Resolution after payment of the principal of and interest on the Bonds and Program Expenses and provision for amounts required to maintain the Reserve Fund at required levels, including excess Revenues derived from full or partial prepayment of Issue E Loans allocable to any Series of Bonds; and (iv) excess moneys in the Reserve Fund. See SECURITY FOR THE BONDS AND SOURCES OF PAYMENT Certain Rights of the Insurer and RISK FACTORS Dependence Upon Cash Flow Projections and Competition. For purposes of allocating amounts transferred to the Series 2003 Redemption Account from the Series 2003 Purchase Account (other than amounts deposited thereto from the Revenue Fund) among each Series of Series 2003 Bonds, the Trustee is directed, to the extent practicable, to apply unspent original proceeds of any Series of Series 2003 Bonds to the special optional redemption of the allocable Series of 15

26 Series 2003 Bonds. If, however, the Authority files with the Trustee a Projection of Revenues meeting the criteria of the Resolution, such redemptions may be made as selected by the Authority among any Series of Series 2003 Bonds eligible for such redemption. The Trustee is directed to apply all other amounts described in the immediately preceding five paragraphs allocable to the Series 2003 Bonds to the special optional redemption of such Series of Series 2003 Bonds then eligible for redemption as the Authority may from time to time designate. See SECURITY FOR THE BONDS AND SOURCES OF PAYMENT Certain Rights of the Insurer. If moneys in the Series 2003 Redemption Account of the type described under Special Optional Redemption are by Authority designation to be applied pro rata to redemption of a portion of all Series of Series 2003 Bonds, except as otherwise required or permitted by the Resolution, moneys in the Redemption Fund will be applied to the redemption of Bonds of each Series eligible for redemption treating for such purposes: (i) each affected Series of Series 2003 Bonds as a single Series; and (ii) any portion of a Series of Variable Rate Bonds converted to a Fixed Rate on a common date as a separate Series of Bonds. Redemption After Conversion to Variable Rate or Fixed Rate. From and after any conversion to a Fixed Rate or adjustment to a Variable Rate, such affected Series 2003 Bonds shall be subject to redemption on the terms and conditions determined at the time of such conversion to the Fixed Rate or adjustment to the Variable Rate, as provided in the Ninth Series Resolution. Selection of Series 2003A Bonds, Series 2003B Bonds, Series 2003C Bonds, Series 2003D Bonds and Series 2003E Bonds to be Redeemed or Converted. If less than all of any Series of Series 2003 Bonds shall be redeemed or converted, the particular 2003 Bonds or portions thereof to be redeemed or converted shall be selected at random by the Trustee in such manner as the Trustee in its discretion may deem fair and appropriate. So long as DTC or its nominee is the Bondholder, if less than all of any Series of Series 2003 Bonds are redeemed or converted, the particular Series of Series 2003 Bonds or portions of such Series of Series 2003 Bonds to be redeemed or converted shall be selected by lot by DTC or in such other customary manner as DTC may determine. For the purpose of such selection, any Series of Series 2003 Bond of a denomination greater than the minimum denomination permitted by the Series of Series 2003 Bonds at the time shall be deemed to consist of several Bonds each in the minimum denomination and shall be redeemable or convertible in part in multiples of such minimum denomination or in whole in accordance with the results of such selection process. Notice of Redemption of Series 2003A Bonds, Series 2003B Bonds, Series 2003C Bonds, Series 2003D Bonds and Series 2003E Bonds. At least 10 days prior to the date fixed for the redemption of any Series of the Series 2003 Bonds Outstanding as ARCs, notice of redemption shall be mailed by first-class mail to the Registered Owner (which initially will be DTC or its nominee) of such Series of Series 2003 Bonds or portions thereof to be redeemed at its last address as it appears on the books of registry, stating the Series of the Series 2003 Bonds, to be redeemed, the redemption date, the place or places where the amounts due upon such redemption will be paid and the redemption price of such Series of the Series 2003 Bonds to be redeemed and, if less than all of the Bonds of any like Series are to be redeemed, the letters and numbers or other distinguishing marks of such Bonds to be redeemed, and in the case of Bonds to be redeemed in part only, such notice shall also specify the respective portions of the principal amount thereof to be redeemed. Such notice shall further state that on the redemption date each affected Series 2003 Bond, or portion thereof to be redeemed shall be due and payable at the applicable redemption price, plus accrued interest to the redemption date and that interest on such Series 2003 Bonds to be redeemed shall cease to accrue from and after the redemption date. Notice having been given as provided above, the affected Series 2003 Bonds or portions thereof designated in the notice shall become due and payable at the applicable redemption price, plus interest accrued thereon to the redemption date, and, upon surrender in accordance with the notice, shall be paid, together with interest accrued thereon to the date fixed for redemption; provided, however, that failure so to provide such 16

27 notice to any one or more owners of any Bonds designated for redemption will not affect the sufficiency of the proceedings for redemption of Bonds with respect to owners to whom such notice was made. Conversion of the Series 2003A Bonds, Series 2003B Bonds, Series 2003C Bonds, Series 2003D Bonds or Series 2003E Bonds All or any portion of any Series of the Series 2003 Bonds Outstanding as ARCs may be converted to bear interest at a Fixed Rate to their final maturity or may be converted to bear interest at a Variable Rate, in either case upon the delivery by the Authority to the Trustee of a Favorable Opinion and the delivery of certain notices and other showings, all as described in the Ninth Series Resolution. Once any or all of any Series of the Series 2003 Bonds have been converted to bear interest at a Fixed Rate to maturity, the affected Series 2003 Bonds may not be subsequently converted to bear interest at an Auction Rate or a Variable Rate. The Conversion Date shall be such Business Day as may be designated by the Authority, with respect to the ARCs to which an Interest Period of less than six months applies, or on any Interest Payment Date, with respect to ARCs to which an Interest Period of six months or more applies. No such conversion shall occur unless the Authority has received the written consent of the Insurer. In the event that the Authority determines that the conversion to a Fixed Rate or Variable Rate will not occur on a scheduled Conversion Date, the Market Agent may schedule a new Auction Date as provided above under Changes in Auction Periods or Auction Date. Mandatory Tender Upon Conversion; Certain Notices Mandatory Tender Upon Conversion. Any Series 2003 Bonds to be converted to bear interest at a Fixed Rate or a Variable Rate shall be subject to mandatory tender for purchase on the applicable Conversion Date, at a price equal to the principal amount thereof plus accrued interest, if any, to the Conversion Date. Notice to Registered Holders. Any notice of conversion given to Holders as required by the Resolution shall specify that all Outstanding Bonds of any Series of Series 2003 Bonds subject to such conversion are subject to mandatory tender pursuant to the provisions thereof and of the Ninth Series Resolution and will be purchased on the applicable Conversion Date by payment of a purchase price equal to the principal amount thereof plus accrued interest, if any, to the Conversion Date. Payment of Purchase Price by Trustee. On any Fixed Rate Conversion Date or Variable Rate Conversion Date, the Trustee shall pay the purchase price of the affected Series 2003 Bonds required to be tendered for purchase, surrendered as described below properly endorsed for transfer in blank with all signatures guaranteed, to the selling Holders thereof on or before 3:00 p.m. Such payments shall be made in immediately available funds, but solely from moneys representing proceeds of the remarketing of the applicable Series of Series 2003 Bonds, to any person other than the Authority, and none of the Authority, the Trustee, the Paying Agent or the Remarketing Agent shall have any obligation to use funds from any other source. Delivery of Bonds; Effect of Failure to Surrender Bonds. All Series 2003 Bonds to be purchased on any Conversion Date shall be required to be delivered to the designated office of the Trustee or its designated agent for such purposes at or before 12:00 Noon on such date. If the Holder of any Bond that is subject to purchase as described herein fails to deliver such Bond to the Trustee, or its designated agent for such purposes, for purchase on the Purchase Date, and if the Trustee, or its designated agent for such purposes, is in receipt of the purchase price therefor, such Bond shall nevertheless be deemed tendered and purchased on the Conversion Date and shall be an Undelivered Bond as described below under Undelivered Bonds and registration of the ownership of such Bond shall be transferred to the purchaser thereof as described below under Undelivered Bonds. The Trustee shall, as to any Undelivered Bonds, (a) promptly notify the 17

28 Remarketing Agent, the Auction Agent, the Paying Agent and the Registrar of such non-delivery and (b) the Registrar shall place a stop transfer against an appropriate amount of Bonds subject to conversion registered in the name of the Holder(s) on the Bond Register. The Registrar shall place such stop transfer(s), commencing with the lowest serial numbers on each affected Series of Series 2003 Bonds, against Bonds subject to conversion registered in the name of such Holder(s) (until stop transfers have been placed against an appropriate amount of the applicable Series of Series 2003 Bonds) until the appropriate tendered Bonds are delivered to the Trustee or its designated agent. Upon such delivery, the Registrar shall make any necessary adjustments to the Bond Register. Pending delivery of such tendered Bonds, the Trustee, or its designated agent, shall hold the purchase price therefor uninvested in a segregated subaccount for the benefit of such Holder(s). Inadequate Funds for Tenders; Failed Conversion If the funds available for the purchase of any Series of Series 2003 Bonds are inadequate for the purchase of all Bonds of such Series required to be tendered on any Conversion Date or if a proposed conversion to a Fixed Rate or Variable Rate otherwise fails as described above, the Trustee shall: (a) return all tendered Series 2003 Bonds of such Series to the Holders thereof; (b) return all moneys received for the purchase of such Series 2003 Bonds to the persons providing such moneys; and (c) notify the Authority, the Auction Agent, the Insurer, the Broker-Dealer, the Remarketing Agent and the Paying Agent of the return of such Series 2003 Bonds and moneys and the failure to make payment for such tendered Bonds. After any such failed conversion, any Series of Series 2003 Bonds subject to the failed conversion shall remain outstanding as ARCs. Auctions shall be conducted beginning on the first Auction Date occurring more than two Business Days after the failed Fixed Rate Conversion Date or Variable Rate Conversion Date, and interest payable thereon shall be determined and paid according to the Resolution. No Tender Purchases After Call for Redemption Any Series of Series 2003 Bonds (or portions thereof) called for redemption shall not be subject to tender and purchase on a subsequent Fixed Rate Conversion Date or Variable Rate Conversion Date. Undelivered Series 2003A Bonds, Series 2003B Bonds, Series 2003C Bonds, Series 2003D Bonds and Series 2003E Bonds Any Series of Series 2003 Bonds which are required to be tendered on a Conversion Date and that are not delivered on such Conversion Date, and for the payment of which there has been irrevocably held in trust in a segregated subaccount for the benefit of such Holder an amount of money sufficient to pay the purchase price, including any accrued interest due to (but not after) such Purchase Date with respect to such Series 2003 Bonds, shall be deemed to have been purchased, and shall be Undelivered Bonds. In the event of a failure by a Bondholder to tender its Series 2003 Bonds of the affected Series 2003 Bonds on or prior to the required date, such Holder shall not be entitled to any payment other than the Purchase Price due on the Purchase Date and such Undelivered Series 2003 Bonds in the hands of such non-delivering Holder shall no longer accrue interest or be entitled to the benefits of the Resolution, except for the payment of the Purchase Price due on the Purchase Date; provided, however, that the indebtedness represented by such Undelivered Series 2003 Bonds shall not be extinguished, and the Paying Agent and Registrar shall transfer, authenticate and deliver such Series 2003 Bonds as provided in the Resolution. The Paying Agent shall give telephonic notice to the Trustee and the Registrar, promptly confirmed by mail, of all Undelivered Bonds. With respect to any Undelivered Bond, the Paying Agent acting under the Ninth Series Resolution and pursuant to the power of attorney granted by such Bondholder in the Bonds, shall do or cause the Registrar to do the following: 18

29 (a) thereof; assign, endorse and register the transfer of such Bond to the purchaser or purchasers (b) authenticate and deliver a new Series 2003A Bond, Series 2003B Bond, Series 2003C Bond, Series 2003D Bond or Series 2003E Bond, as appropriate, to the purchaser or purchasers thereof; (c) execute an acknowledgment that the Holder of an Undelivered Bond holds such Undelivered Bond for the benefit of the new purchaser or purchasers thereof, who shall be identified in such acknowledgment; (d) promptly notify by first-class mail the Holder of such Undelivered Bond that: (i) the Paying Agent has acted pursuant to such power of attorney to transfer the Undelivered Bond and to perform the other acts described under this caption; (ii) the Undelivered Bond is no longer Outstanding; and (iii) funds equal to the applicable purchase price for the affected Series of Series 2003 Bonds are being held on behalf of such Holder, without interest, in the segregated subaccount established for such purpose by and with the Trustee or Paying Agent; (e) enter on the Bond Register that the Undelivered Bond is no longer Outstanding; and (f) subject to the other provisions of the Resolution, hold the Purchase Price for such Series 2003 Bond in the subaccount established for such purpose, without interest, and pay such Purchase Price and any unpaid interest due on the Purchase Date to such Holder upon presentation of the certificate representing the Undelivered Bond. Bonds presented on or before 12:00 Noon on any Business Day are to be paid on or before the close of business on that day. Prior Holders of Series 2003 Bonds purchased or deemed purchased pursuant to the Ninth Series Resolution shall not be entitled to interest thereon which accrues on and after the related Purchase Date, provided moneys are on hand in the subaccount established therefor to pay the Purchase Price and any unpaid interest due on the Purchase Date. BOOK-ENTRY ONLY SYSTEM The information in this section concerning The Depository Trust Company ( DTC ), New York, New York, and its book-entry system has been obtained from sources that the Authority believes to be reliable, but the Authority does not take responsibility for the accuracy thereof. References in this section of the Official Statement to the Series 2003 Bonds refer separately to the Series 2003A Bonds, the Series 2003B Bonds, the Series 2003C Bonds, the Series 2003D Bonds and the Series 2003E Bonds. DTC will act as securities depository for the Series 2003 Bonds. Each Series of the Series 2003 Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fullyregistered Bond certificate will be issued for each separately stated maturity of each Series of the Series 2003 Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. 19

30 DTC is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, 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 Exchange Act of DTC holds securities that its participants (the Direct Participants ) deposit with DTC. DTC also facilitates the settlement among Direct Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in Direct Participants accounts thereby eliminating the need for physical movement of securities certificates. Direct Participants include securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is owned by a number of its direct Participants and by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as securities brokers and dealers, banks and trust companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (the Indirect Participants ). The Rules applicable to DTC and its Direct and Indirect Participants are on file with the Securities and Exchange Commission. Purchases of Series 2003 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2003 Bonds on DTC s records. The ownership interest of each actual purchaser of each Series 2003 Bond ( Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase, but Beneficial Owners are expected to receive written confirmation providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Series 2003 Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Series 2003 Bonds, except in the event that use of the book-entry only system for the Series 2003 Bonds is discontinued (see Certificated Series 2003 Bonds below). To facilitate subsequent transfers, all Series 2003 Bonds deposited by Direct Participants with DTC are registered in the name of DTC s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Series 2003 Bonds with DTC and their registration in the name of Cede & Co. or such other nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series 2003 Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such Series 2003 Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Series 2003 Bonds may wish to take certain steps to augment transmission to them of notices of significant events with respect to the Series 2003 Bonds, such as redemptions, tenders, defaults, and proposed amendments to the security documents. Beneficial Owners of Series 2003 Bonds may wish to ascertain that the nominee holding the Series 2003 Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners, or in the alternative, Beneficial Owners may wish to provide their names and addresses to the Trustee and request that copies of the notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Series 2003 Bonds within a single maturity are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. 20

31 Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to the Series 2003 Bonds. Under its usual procedures, DTC mails an Omnibus Proxy to the Authority as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts the Series 2003 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal (including sinking fund installments), redemption premium, if any, and interest payments on the Series 2003 Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC s practice is to credit Direct Participants accounts, upon DTC s receipt of funds and corresponding detail information from the Trustee, on the payable date in accordance with their respective holdings shown on DTC s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of DTC, the Trustee or the Authority, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, redemption premium, if any, and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Trustee, disbursement of such payments to Direct Participants shall be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners shall be the responsibility of Direct and Indirect Participants. Certificated Series 2003 Bonds DTC may discontinue providing its services as securities depository with respect to the Series 2003 Bonds at any time by giving reasonable notice to the Authority. In addition, the Authority may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository) with respect to the Series 2003 Bonds. If for either reason the Book-Entry Only System is discontinued, the Series 2003 Bond certificates will be delivered as described in the Resolution and the Beneficial Owner, upon registration of certificates held in the Beneficial Owner s name, will become the Bondholder. Thereafter Series 2003 Bonds may be exchanged for an equal aggregate principal amount of Series 2003 Bonds in other authorized denominations and of the same series and maturity, upon surrender thereof at the principal corporate trust office of the Trustee. The transfer of any Series 2003 Bond may be registered on the books maintained by the Trustee for such purpose only upon the surrender thereof to the Trustee with a duly executed assignment in form satisfactory to the Trustee. For every exchange or registration of transfer of Series 2003 Bonds, the Authority and the Trustee may make a charge sufficient to reimburse them for any tax or other governmental charge required to be paid with respect to such exchange or registration of transfer, but no other charge may be made to the owner for any exchange or registration of transfer of the Series 2003 Bonds. PLAN OF FINANCING Upon the issuance and delivery of the Series 2003 Bonds, the proceeds of the sale thereof, together with other available funds, are expected to be applied or deposited by the Trustee as follows: (i) to the Series 2003 Purchase Account, an amount approximately equal to $152,601,000; (ii) to retire on or before April 30, 2003 the outstanding balance under an Authority line of credit resulting from the interim refinancing of certain of the Prior Bonds, an amount equal to $24,950,000, resulting in the deposit of an equivalent amount to the Series 2003 Purchase Account; (iii) to pay capitalized interest, an amount equal to $5,599,000; and (iv) to pay certain costs of issuance of the Series 2003 Bonds. See ESTIMATED SOURCES AND USES OF FUNDS. Series 2003 Bond proceeds and additional amounts deposited into the Series 2003 Purchase Account in connection with the current refunding of the Refunded Bonds, along with other amounts available to the Authority for such purpose under the General Resolution and under the general resolutions securing other Issues, are currently expected to be applied or committed for application to fund demand for Authority Loans during the period ending July 1, As of February 1, 2003, approximately $165,000,000 of the original proceeds of the Series 2001 Bonds and of the Series 2002 Bonds remain available to fund Issue E Loans. See 21

32 THE SERIES 2003 BONDS Redemption Provisions Special Optional Redemption, RISK FACTORS Dependence Upon Cash Flow Projections and THE MEFA LOAN PROGRAM General. ESTIMATED SOURCES AND USES OF FUNDS Sources of Funds: Principal Amount of Series 2003 Bonds... $159,950,000 Other Available Funds... 24,950,000 Total... $184,900,000 Uses of Funds: Deposit to Series 2003 Purchase Account... $152,601,000 Refunding of Certain Bonds ,950,000 Deposit to Capitalized Interest Account... 5,599,000 Payment of Costs of Issuance ,750,000 Total... $184,900,000 1 To be applied to the current refunding of the Refunded Bonds which were refunded on an interim basis through application of proceeds of a 2 line of credit. Includes Underwriters discount and fees and premiums paid to the Insurer in connection with the Financial Guaranty Insurance Policy and Reserve Fund Surety Bond. SECURITY FOR THE BONDS AND SOURCES OF PAYMENT The Series 2003 Bonds are special obligations of the Authority payable from and secured solely by a pledge and grant of a security interest in: (i) all Revenues; (ii) all Issue E Loans and promissory notes or other documentation evidencing the Authority s interest in Issue E Loans, the Loan Origination Agreements and any other Revenue-producing contracts and all rights and interests of the Authority incident thereto, excluding any amounts to be paid to the Authority as indemnification under the Loan Origination Agreements; (iii) all moneys and securities on deposit in the funds and accounts established pursuant to the Resolution, except the Rebate Fund and the Escrow Fund; and (iv) proceeds of any of the foregoing (collectively, the Trust Assets ), subject to the application of such amounts for the purposes permitted under the Resolution. Amendment and Restatement of the Resolution At the Authority s request, in connection with the issuance of the Series 2003 Bonds, the Insurer has consented to the amendment and restatement of the General Resolution under which the Prior Bonds were issued and to certain amendments of the Program Documents generally intended to provide, among other matters, for the elimination of the obligations imposed on Participating Institutions to repurchase certain defaulted MEFA Loans and to provide commitment deposits as a condition of the Authority s origination of Issue E Loans for their students. See Certain MEFA Loan Program Modifications. The General Resolution, each Series Resolution for the Prior Bonds, and the Program Documents are available from the Authority to any Holder upon request, in the form of such documents prior to the amendment and restatement described above and after such amendment and restatement. Revenues Revenues include: (i) all amounts paid or required to be paid with respect to principal and interest on Issue E Loans including, without limitation, Issue E Loan Payments, Late Charges, if any, amounts received upon the sale or other disposition of Issue E Loans and, with respect to Issue E Loans which are FFELP Loans, any guarantee payments and any interest subsidy, special allowance or other federal payments received, and including any amounts held by persons collecting such amounts on behalf of the Authority; (ii) amounts received from Participating Institutions pursuant to Loan Origination Agreements, excluding any amounts paid to the Authority as indemnification; (iii) all interest, investment gains and other income received on moneys or 22

33 securities held in the funds and accounts established pursuant to the Resolution; and (iv) all payments received pursuant to interest rate exchange agreements applicable to any Series of Bonds. The Resolution provides that the Revenues shall be deposited in the various funds and accounts and used for the purposes set forth therein. Revenues are used to pay interest on and Principal Installments of the Bonds, to pay Program Expenses and to make up any deficiency in any fund or account established under the Resolution, including the Reserve Fund and the Rebate Fund. Any Revenues available after such payments and transfers may be applied to finance additional Issue E Loans (but only until the end of the Recycling Period for the applicable Series of Bonds or such other date as may be provided in a particular Series Resolution) and otherwise transferred to the Redemption Fund to be used either to purchase or to redeem Bonds. In lieu of a transfer to the Redemption Fund, the Authority may direct the Trustee to retain all or any portion of the balance in the Revenue Fund to provide for subsequent payments of Debt Service or Program Expenses or required transfers to the Rebate Fund. If Revenues are not sufficient to pay Principal Installments of and interest on the Bonds, moneys in the Debt Service Fund, Redemption Fund, Capitalized Interest Account and Reserve Fund will be applied, in that order of priority, to make up the deficiency. Under certain circumstances Revenues may be withdrawn from the Revenue Fund and transferred to the Authority free and clear of the lien of the Resolution. See APPENDIX C SUMMARY OF CERTAIN PROVISIONS OF THE RESOLUTION Semi-Annual Transfers from Revenue Fund. Projection of Revenues The General Resolution requires that the Authority file with the Trustee a Projection of Revenues: (i) upon delivery of any Series of Bonds; (ii) prior to the withdrawal of certain funds from the Revenue Fund as described in APPENDIX C SUMMARY OF CERTAIN PROVISIONS OF THE RESOLUTION Semi-Annual Transfers from Revenue Fund ; (iii) prior to the conversion of certain Bonds, including any Series of Series 2003 Bonds to Fixed Rate Bonds or Bonds bearing interest at a Variable Rate; (iv) prior to entering into certain interest rate exchange agreements; (v) prior to selling certain Issue E Loans; and (vi) prior to the redemption of all Outstanding Bonds of a Series from moneys in the Redemption Fund attributable to excess amounts on deposit in the funds and accounts held under the Resolution attributable to such Series as described in APPENDIX C SUMMARY OF CERTAIN PROVISIONS OF THE RESOLUTION Application of Certain Funds to Redeem Bonds. Such projection is required to show that after such moneys are applied for their intended purposes, including the financing of Issue E Loans or redemption of Bonds, anticipated Revenues and other funds expected thereafter to be available for the purpose will be sufficient to pay, for the then current and each subsequent Bond Year, the Principal Installments of and interest on all Outstanding Bonds when due and all Program Expenses. In the case of transfers from the Revenue Fund to a Purchase Account or in the case of certain redemptions, such projection may show instead that such financing or redemption will produce the greatest availability of Revenues in relation to the amount of such Debt Service and Program Expenses in each Bond Year for the greatest number of Bond Years. The Resolution further provides that whenever a Projection of Revenues is filed for purposes of establishing sufficiency of Revenues to pay Debt Service when due and Program Expenses, for such purposes Debt Service shall exclude Debt Service on any Variable Rate Escrow Bonds, to the extent that an Investment Agreement applicable to such Series of Bonds pays interest at a variable rate at least equal to the Variable Rate borne by such Series of Bonds, and only interest paid by any such Investment Agreement in excess of the amount required to pay interest on the applicable Series of Bonds, if any, shall be included as Revenues. The Authority will prepare a Projection of Revenues in connection with the issuance of the Series 2003 Bonds (the Series 2003 Projection of Revenues ). Based upon the results of its preliminary estimation of the Series 2003 Projection of Revenues, the Authority expects that Revenues and other available moneys held in the funds and accounts under the Resolution will be sufficient to pay when due the Principal Installments of and interest on all Bonds, including the Series 2003 Bonds, and Program Expenses. 23

34 The Authority s preliminary estimation of the Series 2003 Projection of Revenues is based, among other things, on the assumptions that: (i) the MEFA Loans financed by the Authority with amounts allocable to the Series 2003 Bonds will include origination fees and bear interest at rates which the Authority currently expects to establish for the academic year prior to delivery of the Series 2003 Bonds; (ii) such MEFA Loans will be amortized, for Fixed Rate Undergraduate MEFA Loans, Variable Rate Undergraduate MEFA Loans and MEFA Loans for Graduate Education, after any applicable Deferral Period, over a maximum of fifteen years; (iii) Deferral Periods for Fixed Rate Undergraduate MEFA Loans and Variable Rate Undergraduate Loans will be limited to two years and Deferral Periods for certain MEFA Loans for Graduate Education will be limited to eight years; and (iv) all Issue E Loans financed with original proceeds of the Series 2003 Bonds and other amounts currently available under the Resolution therefor will be so financed by May 15, The Authority has also assumed that moneys in the various funds and accounts established under the Resolution will be invested prior to application: (i) in Investment Obligations at actual yields available to the Authority pursuant to existing investment contracts or arrangements; or (ii) if such moneys are not so invested, at yields not in excess of the Three Month Treasury Bill Yield, in either case not to exceed the applicable adjusted bond yield. The Authority has made additional assumptions with respect to the amounts and timing of prepayments, the level of Borrower delinquency and default and the amount of Program Expenses to be due in each year. The Authority has also made certain assumptions with respect to the proportion of Fixed Rate Undergraduate MEFA Loans and Variable Rate Undergraduate MEFA Loans, MEFA Loans for Graduate Education, MEFA Loans for Non-Massachusetts Colleges and FFELP Loans to be financed, which may provide Deferral Periods of various lengths, all within the limits established as provided in the Resolution. In addition, the Authority currently expects to enter into an interest rate exchange agreement with respect to the Series 2003A Bonds, which will be structured to amortize, on the basis of the projected amortization payments on the Issue E Loans expected to be financed. The Series 2003 Projection of Revenues also assumes that all available Revenues allocable to the Series 2003 Bonds are recycled and used to finance additional Issue E Loans until July 1, The assumptions described in this paragraph relate solely to Issue E Loans financed by the Authority with moneys allocable to Series 2003 Bonds. The Authority believes that these assumptions are reasonable. The Authority, in addition to preparing the Series 2003 Projection of Revenues, has prepared other projections of revenues testing a range of assumptions in order to determine the effect of a variation of these assumptions on the sufficiency of Revenues to be generated under the Loan Program to pay Principal Installments of and interest on the Bonds and Program Expenses. See RISK FACTORS Reliance Upon Cash Flow Projections and AUTHORITY LOAN PORTFOLIO. The Authority anticipates, in part based on its experience with the MEFA Loan Program, that a portion of the Issue E Loans which are MEFA Loans will be partially or completely prepaid prior to their respective final maturity dates as a result of Borrower prepayment. However, the Authority cannot predict the actual average life of the portfolio of MEFA Loans. Moreover, the Authority anticipates that the rate of prepayment of the Issue E Loans which are Authority FFELP Loans may vary substantially from its experience with the MEFA Loan Program. A portion of the Series 2003 Bonds are likely to be redeemed prior to maturity or conversion to a fixed rate pursuant to the special optional redemption or optional redemption provisions of the Resolution, and the amount of such redemption will be influenced by the amount of Issue E Loan prepayments. Series 2003 Bonds may also be redeemed prior to conversion to a fixed rate under the special optional redemption or optional redemption provisions from unexpended funds in the Series 2003 Purchase Account allocable to the Series 2003 Bonds, and excess Revenues available under the Resolution. See THE SERIES 2003 BONDS Redemption Provisions Optional Redemption and Special Optional Redemption and AUTHORITY LOAN PORTFOLIO Special Redemption Experience. Issue E Loans The Bonds are secured by a pledge of and lien upon all Issue E Loans, as evidenced by Issue E Loan Notes or, with respect to Issue E Loans which are Authority FFELP Loans, by other appropriate 24

35 documentation, which are financed with proceeds of the Bonds or other moneys available therefor under the Resolution. The Authority has covenanted in the General Resolution that it will use and apply funds made available in connection with the issuance of the Bonds, to the extent not reasonably required for other Program purposes of the Authority, to finance Issue E Loans, in a manner consistent with the Act and with the provisions of the Resolution. In addition, in order to receive and collect Revenues, the Authority has covenanted to do all such acts and things necessary and to take all steps, actions and proceedings necessary in the judgment of the Authority to enforce all terms, covenants and conditions of Issue E Loans, in a manner consistent with the Act and with the provisions of the Resolution. The General Resolution requires that all Issue E Loans financed by the Authority have terms of repayment which, together with other moneys available therefor, shall be at least sufficient to pay Principal Installments of and interest on the Bonds when due and all reasonably anticipated Program Expenses. For a further description of the Issue E Loans to be made under the Loan Program see THE MEFA LOAN PROGRAM and THE AUTHORITY FFEL PROGRAM. Reserve Fund The General Resolution requires that a Reserve Fund be established and provides for its funding and maintenance in an amount at least equal to the Reserve Fund Requirement. Moneys on deposit in the Reserve Fund, including the proceeds of drawings upon Reserve Fund Facilities, may be used to pay principal of and interest on the Bonds if amounts in the Capitalized Interest Account, the Redemption Fund and the Debt Service Fund are insufficient therefor. In certain circumstances, moneys in the Reserve Fund may also be used to make up deficiencies in the Program Expense Fund. Under the General Resolution, as amended and restated, the Reserve Fund Requirement means, as of any date of calculation, an amount equal to two percent (2%) of the principal amount of Outstanding Bonds, but in no event less than $500,000 as long as any Bonds are Outstanding. Satisfaction of the Series 2003 Reserve Fund Requirement is expected to be initially effected through the issuance by the Insurer of its surety bond (the Series 2003 Surety Bond ) simultaneously with the delivery of the Series 2003 Bonds. See Reserve Fund Surety Bond. The Authority reserves the right to substitute cash for the Series 2003 Surety Bond at any time. Investments allocable to the Reserve Fund are valued at amortized cost. Whenever the balance in the Reserve Fund is less than the Reserve Fund Requirement, available moneys in the Revenue Fund are required to be deposited in the Reserve Fund to the extent necessary to eliminate the deficiency. See APPENDIX C SUMMARY OF CERTAIN PROVISIONS OF THE RESOLUTION Reserve Fund. Reserve Fund Surety Bond The following information has been furnished by Ambac Assurance Corporation ( Ambac Assurance or the Insurer ) for use in this Official Statement. The Authority does not guarantee or make any representation as to the accuracy, completeness or accuracy thereof or the absence of material adverse change in such information or in the condition of the Insurer subsequent to the date hereof. See FINANCIAL GUARANTY INSURANCE Ambac Assurance Corporation. The Resolution authorizes the Authority to obtain a surety bond in place of fully funding the Reserve Fund. Accordingly, application has been made to Ambac Assurance for the issuance of a surety bond for the purpose of funding a portion of the Reserve Fund (see Reserve Fund ). The Series 2003 Bonds will only be delivered upon the issuance of such surety bond. The premium on the Series 2003 Surety Bond is to be fully paid at or prior to the issuance and delivery of the Series 2003 Bonds. The Series 2003 Surety Bond provides that upon the later of (i) one (1) day after receipt by Ambac Assurance of a demand for payment executed by the Trustee certifying that provision for the payment of principal of or interest on the Series 2003 Bonds when due has not been made or (ii) the interest payment date specified in the Demand for Payment submitted to Ambac Assurance, Ambac Assurance will promptly deposit funds with the Trustee sufficient to enable the Trustee to make such payments due on the Series 2003 Bonds, but in no event exceeding the Series 2003 Surety Bond Coverage, as defined in the Series 2003 Surety Bond. 25

36 Pursuant to the terms of the Series 2003 Surety Bond, the Series 2003 Surety Bond Coverage is automatically reduced to the extent of each payment made by Ambac Assurance under the terms of the Series 2003 Surety Bond and the Authority is required to reimburse Ambac Assurance for any draws under the Series 2003 Surety Bond with interest at a market rate. Upon such reimbursement, the Series 2003 Surety Bond is reinstated to the extent of each principal reimbursement up to but not exceeding the Series 2003 Surety Bond Coverage. The reimbursement obligation of the Authority is subordinate to the Authority s obligations with respect to the Series 2003 Bonds. In the event the amount on deposit, or credited to the Reserve Fund, exceeds the amount of the Series 2003 Surety Bond, any draw on the Series 2003 Surety Bond shall be made only after all the funds in the Reserve Fund have been expended. In the event that the amount on deposit in, or credited to, the Reserve Fund, in addition to the amount available under the Series 2003 Surety Bond, includes amounts available under a letter of credit, insurance policy, surety bond or other such funding instrument (the Additional Funding Instrument ), draws on the surety bond and the Additional Funding Instrument shall be made on a pro rata basis to fund the insufficiency. The Resolution provides that the Reserve Fund shall be replenished in the following priority: (i) principal and interest on the Series 2003 Surety Bond shall be paid from first available Revenues; and (ii) after all such amounts are paid in full, amounts necessary to fund the Reserve Fund to the required level, after taking into account the amounts available under the Series 2003 Surety Bond shall be deposited from next available Revenues. The Series 2003 Surety Bond does not insure against nonpayment caused by the insolvency or negligence of the Trustee. Certain MEFA Loan Program Modifications Effective the date of issuance of the Series 2003 Bonds, the Authority will: (i) eliminate on both a prospective basis and a retroactive basis, with respect to most types of MEFA Loans, the obligation imposed on Participating Institutions to repurchase defaulted Issue E MEFA Loans which previously applied under certain circumstances; (ii) introduce variable rate MEFA Loans for Graduate Education; (iii) eliminate commitment fees payable by Participating Institutions; (iv) offer deferment of repayment of interest and principal during an in school period with respect to undergraduate MEFA Loans for up to two years and for MEFA Loans for Graduate Health Professions for up to eight years; and (v) alter certain credit approval criteria applicable to MEFA Loans for Graduate Education. The Authority does not believe that these actions, taken together, will materially affect the sufficiency of Revenues and other moneys held in the funds and accounts under the Resolution to pay when due the Principal Installments of and interest on Bonds and Program Expenses. See RISK FACTORS and AUTHORITY LOAN PORTFOLIO. Additional Bonds The General Resolution permits the issuance of additional Bonds thereunder for the purpose of providing funds for the Program and, in addition, to refund Outstanding Bonds issued under the General Resolution or other bonds or notes of the Authority issued to finance Authority Loans qualifying under the Resolution. Any additional Bonds issued under the General Resolution (other than certain Variable Rate Escrow Bonds which the Authority may issue in the future, prior to their conversion to Fixed Rate Bonds or to Variable Rate Program Bonds) will be on a parity with the Outstanding Bonds and will be entitled to the equal benefit, protection and security of the provisions, covenants and agreements of the General Resolution. The General Resolution provides that upon the issuance of any such additional Bonds there is to be deposited in the Reserve Fund, if necessary, an amount sufficient to increase the amount therein to be equal to the Reserve Fund Requirement, calculated after such issuance. Prior to the delivery of any additional Bonds, the Authority is required to file a Projection of Revenues with the Trustee and to satisfy other conditions contained in the General Resolution. 26

37 The General Resolution also provides that no Series of additional Bonds shall be delivered thereunder unless there is delivered to the Trustee letters from each Nationally Recognized Rating Agency rating any Series of Bonds theretofore issued to the effect that the rating by each such agency of such previous Series of Bonds will not be reduced as a result of the issuance of the additional Series of Bonds. Subordinated Bonds The General Resolution also provides, with the prior written consent of the Insurer, for the issuance of Subordinated Bonds secured by a pledge of Trust Assets on a subordinate basis to the Bonds. Funds on deposit in the Reserve Fund shall not, unless otherwise provided in the applicable Series Resolution, be available to pay principal of or interest on Subordinated Bonds, but the Series Resolution authorizing such Subordinated Bonds may establish separate reserves for the benefit of such Bonds. Under the General Resolution, prior to the issuance of Subordinated Bonds, the Authority is required to satisfy the conditions applicable to the issuance of additional Bonds, including the filing of a Projection of Revenues with the Trustee. To date, the Authority has not issued any Subordinated Bonds. Certain Interest Rate Exchange Agreements The Authority currently expects to enter into one or more interest rate exchange agreements with respect to all or a portion of the Series 2003 Bonds contemporaneously with the delivery thereof. Such agreements would have the effect of requiring the Authority to make periodic payments calculated on the basis of a fixed rate of interest applied to a notional amount initially equivalent to the initial principal amount of the affected Series 2003 Bonds, subject to scheduled amortization, in exchange for periodic payments calculated on the basis of a variable rate of interest applied to such notional amount. Such notional amount, however, amortizes on a schedule reflecting anticipated receipts of MEFA Loan repayments, assuming currently approved periods of MEFA Loan origination, which schedule is not reflected in the scheduled principal amortization of the affected Series 2003 Bonds. Such Authority payments shall be secured under the Resolution on a parity with the Bonds. The Insurer is expected to issue a surety bond with respect to such interest rate exchange agreements to guarantee such Authority payments. The Authority may also enter into certain such interest rate exchange agreements having the effect of entitling the Authority to receive payments equivalent to the amount by which a variable rate of interest exceeds a specified rate, with respect to a notional amount equivalent to certain affected Series 2003 Bonds, in order to permit it to offer a cap on its variable rate MEFA Loans. The Authority reserves the right to enter into additional interest rate exchange agreements with any counter party with respect to Bonds, and to terminate any such interest rate exchange agreements, at any time. The Authority has entered into certain such interest rate exchange agreements with respect to other Series of Bonds. See SECURITY FOR THE BONDS AND SOURCES OF PAYMENT Certain Rights of the Insurer and APPENDIX A AUDITED FINANCIAL STATEMENTS OF THE AUTHORITY NOTE 7 Bonds Payable Issue E 2001A, 2001B, 2001C and 2001D and Issue E Series 2002A, 2002B, 2002C, 2002D and 2002E. Certain Rights of the Insurer The General Resolution provides that, so long as the Insurer is not in default under the Financial Guaranty Insurance Policy, the Insurer shall have certain rights, including: (i) to consent to all amendments of the Resolution; (ii) to approve all such amendments, other than amendments which require unanimous Bondholder consent, on behalf of Bondholders; (iii) to direct the Trustee to undertake or refrain from taking certain actions, including the exercise of remedies under the Resolution; (iv) to consent to certain Authority actions, including actions with respect to interest rate exchange agreement; and (v) to consent to redemptions of Bonds to which an interest rate exchange agreement applies. See FINANCIAL GUARANTY INSURANCE and APPENDIX C SUMMARY OF CERTAIN PROVISIONS OF THE RESOLUTION Enhancement. 27

38 FINANCIAL GUARANTY INSURANCE The following information is separately applicable to each Series of Series 2003 Bonds and has been furnished by Ambac Assurance Corporation ( Ambac Assurance or the Insurer ) for use in this Official Statement. The Authority does not guarantee or make any representation as to the accuracy or completeness thereof. Reference is made to APPENDIX E for a specimen of the Insurer s policy which has been provided by the Insurer for use herein. The Ninth Series Resolution provides that the Insurer shall be deemed the Holder of all Series 2003 Bonds for purposes of exercising certain consents or directions required or permitted under the Resolution. See APPENDIX C SUMMARY OF CERTAIN PROVISIONS OF THE RESOLUTION Insurer Deemed Holder of Series 2003 Bonds for Certain Purposes. Payment Pursuant to Financial Guaranty Insurance Policy Ambac Assurance has made a commitment to issue a financial guaranty insurance policy (the Financial Guaranty Insurance Policy ) relating to the Series 2003 Bonds effective as of the date of issuance of the Series 2003 Bonds. Under the terms of the Financial Guaranty Insurance Policy, Ambac Assurance will pay to The Bank of New York, in New York, New York or any successor thereto (the Insurance Trustee ) that portion of the principal of and interest on the Series 2003 Bonds which shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Authority (as such terms are defined in the Financial Guaranty Insurance Policy). Ambac Assurance will make such payments to the Insurance Trustee on the later of the date on which such principal and interest becomes Due for Payment or within one business day following the date on which Ambac Assurance shall have received notice of Nonpayment from the Trustee/Paying Agent. The insurance will extend for the term of the Series 2003 Bonds and, once issued, cannot be canceled by Ambac Assurance. The Financial Guaranty Insurance Policy will insure payment only on stated maturity dates and on mandatory sinking fund installment dates, in the case of principal, and on stated dates for payment, in the case of interest. If the Series 2003 Bonds become subject to mandatory redemption and insufficient funds are available for redemption of all outstanding Series 2003 Bonds, Ambac Assurance will remain obligated to pay principal of and interest on outstanding Series 2003 Bonds on the originally scheduled interest and principal payment dates including mandatory sinking fund redemption dates. In the event of any acceleration of the principal of the Series 2003 Bonds, the insured payments will be made at such times and in such amounts as would have been made had there not been an acceleration. In the event the Trustee/Paying Agent has notice that any payment of principal of or interest on a Series 2003 Bond which has become Due for Payment and which is made to a Bondholder by or on behalf of the Authority has been deemed a preferential transfer and theretofore recovered from its registered owner pursuant to the United States Bankruptcy Code in accordance with a final, nonappealable order of a court of competent jurisdiction, such registered owner will be entitled to payment from Ambac Assurance to the extent of such recovery if sufficient funds are not otherwise available. The Financial Guaranty Insurance Policy does not insure any risk other than Nonpayment, as defined in the Policy. Specifically, the Financial Guaranty Insurance Policy does not cover: 1. payment on acceleration, as a result of a call for redemption (other than mandatory sinking fund redemption) or as a result of any other advancement of maturity; 2. payment of any redemption, prepayment or acceleration premium; 28

39 3. nonpayment of principal or interest caused by the insolvency or negligence of any Trustee or Paying Agent, if any. The Financial Guaranty Insurance Policy does not insure against loss relating to payments made in connection with the sale of the Series 2003 Bonds at Auctions or losses suffered as a result of a Bondholder s inability to sell Series 2003 Bonds. If it becomes necessary to call upon the Financial Guaranty Insurance Policy, payment of principal requires surrender of Series 2003 Bonds to the Insurance Trustee together with an appropriate instrument of assignment so as to permit ownership of such Series 2003 Bonds to be registered in the name of Ambac Assurance to the extent of the payment under the Financial Guaranty Insurance Policy. Payment of interest pursuant to the Financial Guaranty Insurance Policy requires proof of Bondholder entitlement to interest payments and an appropriate assignment of the Bondholder s right to payment to Ambac Assurance. Upon payment of the insurance benefits, Ambac Assurance will become the owner of the Series 2003 Bonds, appurtenant coupon, if any, or right to payment of principal of or interest on such Series 2003 Bonds and will be fully subrogated to the surrendering Bondholder s rights to payment. Ambac Assurance Corporation Ambac Assurance is a Wisconsin-domiciled stock insurance corporation regulated by the Office of the Commissioner of Insurance of the State of Wisconsin and licensed to do business in 50 States, the District of Columbia, the Territory of Guam and the Commonwealth of Puerto Rico, with admitted assets of approximately $5,802,000,000 (unaudited) and statutory capital of $3,564,000,000 (unaudited) as of September 30, Statutory capital consists of Ambac Assurance s policyholders surplus and statutory contingency reserve. Standard & Poor s Credit Markets Services, a Division of The McGraw-Hill Companies, Moody s Investors Service and Fitch, Inc., have each assigned a triple-a financial strength rating to Ambac Assurance. Ambac Assurance has obtained a ruling from the Internal Revenue Service to the effect that the insuring of an obligation by Ambac Assurance will not affect the treatment for federal income tax purposes of interest on such obligation and that insurance proceeds representing maturing interest paid by Ambac Assurance under policy provisions substantially identical to those contained in its Financial Guaranty Insurance Policy shall be treated for federal income tax purposes in the same manner as if such payments were made by the Authority of the Series 2003 Bonds. Ambac Assurance makes no representation regarding the Series 2003 Bonds or the advisability of investing in the Series 2003 Bonds and makes no representation regarding, nor has it participated in the preparation of, the Official Statement other than the information supplied by Ambac Assurance and presented under the heading FINANCIAL GUARANTY INSURANCE. Available Information The parent company of Ambac Assurance, Ambac Financial Group, Inc. (the Company ), is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the Exchange Act ), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the SEC ). Such reports, proxy statements and other information may be read and copied at the SEC s public reference room at 450 Fifth Street, N.W., Washington, D.C Please call the SEC at SEC-0330 for further information on the public reference room. The SEC maintains an internet site at < that contains reports, proxy and information statements and other information regarding companies that file electronically with the SEC, including the Company. These reports, proxy 29

40 statements and other information can also be read at the offices of the New York Stock Exchange, Inc. (the NYSE ), 20 Broad Street, New York, New York Copies of Ambac Assurance s financial statements prepared in accordance with statutory accounting standards are available from Ambac Assurance. The address of Ambac Assurance s administrative offices and its telephone number are One State Street Plaza, 19th Floor, New York, New York and (212) Incorporation of Certain Documents by Reference The following documents filed by the Company with the SEC (File No ) are incorporated by reference in this Official Statement: (1) The Company s Annual Report on Form 10-K for the fiscal year ended December 31, 2001 and filed on March 26, 2002; (2) The Company s Current Report on Form 8-K dated April 17, 2002 and filed on April 18, 2002; (3) The Company s Quarterly Report on Form 10-Q for the fiscal quarterly period ended March 31, 2002 and filed on May 13, 2002; (4) The Company s Current Report on Form 8-K dated July 17, 2002 and filed on July 19, 2002; (5) The Company s Current Report on Form 8-K dated August 14, 2002 and filed on August 14, 2002; (6) The Company s Quarterly Report on Form 10-Q for the fiscal quarterly period ended June 30, 2002 and filed on August 14, 2002; (7) The Company s Current Report on Form 8-K dated October 16, 2002 and filed on October 17, 2002; (8) The Company s Quarterly Report on Form 10-Q for the fiscal quarterly period ended September 30, 2002 and filed on November 14, 2002; (9) The Company s Current Report on Form 8-K dated November 18, 2002 and filed November 20, 2002; and (10) The Company s Current Report on Form 8-K dated January 23, 2003 and filed on January 24, All documents subsequently filed by the Company pursuant to the requirements of the Exchange Act after the date of this Official Statement will be available for inspection in the same manner as described above in Available Information. Each rating of the Insurer should be evaluated independently. The ratings reflect the respective rating agency s current assessment of the creditworthiness of the Insurer and its ability to pay claims on its policies of insurance. Any further explanation as to the significance of the above ratings may be obtained only from the applicable rating agency. See RATINGS. The above ratings are not recommendations to buy, sell or hold the Series 2003 Bonds, and such ratings may be subject to revision or withdrawal at any time by the rating agencies. Any downward revision or 30

41 withdrawal of any of the above ratings may have an adverse effect on the market price of the Series 2003 Bonds. The Insurer does not guarantee the market price of the Series 2003 Bonds nor does it guarantee that the ratings on the Series 2003 Bonds will not be revised or withdrawn. RISK FACTORS Attention should be given to the risk factors identified below, which, among others, could affect the sufficiency of Revenues and other funds held under the Resolution to fund the timely payment of Principal Installments of and interest on Bonds, including the Series 2003 Bonds, and Program Expenses. See SECURITY FOR THE BONDS AND SOURCES OF PAYMENT and FINANCIAL GUARANTY INSURANCE. This section of this Official Statement does not include all risk factors and does not constitute a comprehensive description of the risk factors addressed, but is an attempt to describe in summary fashion certain such risk factors. Investors should read this Official Statement in its entirety, including the Appendices hereto. Dependence Upon Cash Flow Projections The Authority expects that the Revenues and other moneys held in certain funds and accounts under the Resolution will be sufficient to pay when due the Principal Installments of and interest on the Bonds and the Program Expenses. This expectation is based upon projections and cash flow assumptions, which the Authority believes are reasonable, regarding the financing and repayment performance of Issue E Loans to be held pursuant to the Resolution, and the occurrence of certain future events and conditions. See SECURITY FOR THE BONDS AND SOURCES OF PAYMENT Projection of Revenues and Certain Recent MEFA Loan Program Modifications and AUTHORITY LOAN PORTFOLIO. There can be no assurance, however, that interest and principal payments from the Issue E Loans will be received as anticipated, that the projected yield on the Issue E Loans will be realized, that the reinvestment rates assumed with respect to the investment of various funds and accounts will be realized, or that Program Expenses will be incurred at the levels and on the schedule anticipated. Furthermore, future events over which the Authority has no control may adversely affect the Authority s actual receipt of Revenues pursuant to the Resolution. Receipt of principal and interest on Issue E Loans may be accelerated, causing an unanticipated redemption of Bonds, including the Series 2003 Bonds, due to various factors, including, without limitation: (i) faster than anticipated Issue E Loan origination; (ii) default claims or claims due to the disability, death or bankruptcy of the borrowers; (iii) actual principal amortization periods which are shorter than those assumed; (iv) the commencement of principal repayment by Borrowers on earlier dates than are assumed; and (v) economic conditions that induce Borrowers to refinance or repay their loans prior to maturity. Delay in the receipt of principal of and interest on Issue E Loans may adversely affect payment when due of the Principal Installments of and interest on the Bonds, including the Series 2003 Bonds, and Program Expenses. Principal of and interest on Issue E Loans may be delayed due to numerous factors, including, without limitation: (i) more Borrowers electing Deferral Periods than are assumed; (ii) slower than assumed Issue E Loan origination; (iii) less than full Issue E origination; (iv) forbearance being granted to Borrowers; (v) loans in delinquency more frequently or for periods longer than assumed; and (vi) the commencement of principal repayment by Borrowers at dates later than those assumed based upon the current analysis of the Authority Loan Portfolio. Additional factors which may have a material effect on the sufficiency of Revenues include, but are not limited to, Program Expenses or Fund investment results which vary materially from those projected by the Authority. Revenues actually received with respect to Issue E Loans may vary greatly in both timing and amount from the payments due on such Issue E Loans as a result of a variety of economic, social and other factors, 31

42 including both individual factors, such as additional periods of deferral or forbearance prior to or after a Borrower s commencement of repayment, loan consolidations or refundings, and general factors, such as a general economic downturn which could increase the amount of defaulted Issue E Loans. The effect of these factors, including the effect on the timing and amount of available Revenues and the payment of Principal Installments of and interest on the Series 2003 Bonds and Program Expenses, is impossible to predict. See Uncertainty as to Available Remedies and General Economic Conditions. Prepayment of MEFA Loans Issue E Loans may be prepaid by Borrowers at any time prior to their respective final maturity dates. For this purpose the term prepayments includes repayments in full or in part and (with respect to certain loan programs) repurchases by a Participating Institution. The rate of prepayments on the Issue E Loans may be influenced by a variety of economic, social and other factors affecting Borrowers, including interest rates, the availability of alternative financing and the general job market for graduates of institutions of higher education. The Authority cannot predict with certainty the actual average life of the Issue E Loans. To the extent that Issue E Loans are prepaid, or (with respect to certain loan programs) repurchased, the proceeds of such prepayments, purchases or repurchases may be used to redeem Series 2003 Bonds prior to maturity pursuant to the special optional redemption or optional redemption provisions of the Resolution. See THE SERIES 2003 BONDS Redemption Provisions Optional Redemption and Special Optional Redemption. Redemption of Bonds MEFA Loans to be purchased by the Authority with the proceeds of the Series 2003 Bonds are expected to bear, at purchase, an effective interest rate competitive with loans which are currently made available by other lenders. However, prevailing interest rates may decline significantly during the loan origination period or other material changes may occur in competing loan programs. There is no assurance that the Authority will be able to apply the full amount of Series 2003 Bond proceeds and allocable Revenues which are currently expected to be made available therefor to the purchase of MEFA Loans or to the financing of Authority FFELP Loans. In this event, unless otherwise applied with the consent of the Insurer, unexpended moneys in the Series 2003 Purchase Account would be transferred to the Redemption Fund and used to redeem Series 2003 Bonds. See THE SERIES 2003 BONDS Redemption Provisions Special Optional Redemption, PLAN OF FINANCING and SECURITY FOR THE BONDS AND SOURCES OF PAYMENT Projection of Revenues. Uncertainty as to Available Remedies In the event that Revenues to be received under the Resolution are insufficient to pay when due the Principal Installments of and interest on the Bonds and Program Expenses, the Resolution authorizes, and under certain circumstances requires, the Trustee to declare an Event of Default and accelerate the payment of the Bonds, including the Series 2003 Bonds. If an Event of Default occurs under the Resolution, subject to the rights of Bondholders and the Insurer acting on behalf of the Bondholders to direct remedies, the Trustee is authorized to sell the Issue E Loans pledged thereunder. There can be no assurance, however, that the Trustee would be able to find a purchaser for such Issue E Loans in a timely manner or that the proceeds of any such sale, together with amounts then available in the Debt Service Fund, would be sufficient to pay Principal Installments of and interest on the Outstanding Bonds and accrued interest thereon and to pay Program Expenses. There is currently no established market for alternative education loans, which may adversely affect the sale of Issue E MEFA Loans if such an event occurs, and there can be no assurance that one will develop in the future. See 32

43 SECURITY FOR THE BONDS AND SOURCES OF PAYMENT Certain Rights of the Insurer and APPENDIX C SUMMARY OF CERTAIN PROVISIONS OF THE RESOLUTION. The remedies available to owners of the Bonds upon an Event of Default under the Resolution are in many respects dependent upon regulatory and judicial actions which often are subject to discretion and delay. Under existing constitutional and statutory law and judicial decisions, including specifically Title 11 of the United States Code (the federal bankruptcy code), the remedies specified by the Resolution and such other documents may not be readily available or may be limited. The various legal opinions to be delivered concurrently with the issuance of the Series 2003 Bonds will be qualified, as to the enforceability of the various legal instruments and by limitations imposed by bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors generally. General Economic Conditions The Authority s current projections of the performance of Issue E Loans are based upon historical MEFA Loan performance. Future performance of Issue E Loans may be adversely affected by a continued or further downturn in the economy. Increasing or sustained unemployment, either regionally or nationally, may result in increased Borrower delinquency and default. Failures by Borrowers to pay timely the principal of and interest on the Issue E Loans or an increase in deferments or forbearances could affect the timing and amount of available funds for any collection period and the ability of the Authority to pay the Principal Installments of and interest on the Series 2003 Bonds and Program Expenses. The effect of these factors, including the effect on the timing and amount of available funds for any collection period and the ability of the Authority to pay the Principal Installments of and interest on the Series 2003 Bonds and Program Expenses, is impossible to predict. Insurer Can Permit Certain Actions to be Taken Without Bondholder Approval The Resolution provides that the Insurer may approve any action, determination or election under the Resolution in lieu of obtaining the consent of owners of the Series 2003 Bonds, including in connection with amendments to the Resolution, direction of remedies upon the occurrence of any Event of Default or otherwise. In addition, the Resolution provides that the Authority and the Trustee may take, or refrain from taking, various actions based in whole or in part upon the consent, approval or direction of the Insurer including certain amendments to the MEFA Loan Program, the issuance of additional Bonds or Subordinate Bonds, optional redemption of the Series 2003 Bonds, release of assets from the Resolution, required levels of reserves, and periods for recycling Revenues with respect to MEFA Loans. See APPENDIX C SUMMARY OF CERTAIN PROVISIONS OF THE RESOLUTION Supplemental Resolutions and Insurer Deemed Holder of Series 2003 Bonds for Certain Purposes. To the extent such actions are taken after issuance of the Series 2003 Bonds, investors in the Series 2003 Bonds will be relying on the evaluation by the Insurer of such actions and their impact on credit quality. Consumer Protection Lending Laws Numerous federal and state consumer protection laws and related regulations impose substantial requirements upon lenders and servicers involved in consumer finance. Some state and federal laws impose finance charge restrictions and other restrictions on certain consumer transactions and require certain disclosures of legal rights and obligations. Furthermore, to the extent applicable, these laws can impose specific statutory liabilities upon creditors who fail to comply with their provisions and may affect the enforceability of the loan. In addition, the remedies available to the Trustee or the Bondholders upon an Event of Default under the Resolution may not be readily available or may be limited by applicable state and federal laws. As they relate to FFELP Loans, such laws are generally preempted by the Higher Education Act. MEFA Loans are subject to applicable laws regulating loans to consumers. If the application of consumer protection laws were to cause the MEFA Loans, or any of the terms of the MEFA Loans, to be unenforceable 33

44 against the Borrowers or co-signers, the Authority s ability to pay when due the Principal Installments of and interest on the Bonds, including the Series 2003 Bonds, and Program Expenses could be adversely affected. Certain Military Events Delaying Borrower Payments The Soldiers and Sailors Civil Relief Act of 1940 provides relief to Borrowers who enter active military service and to Borrowers in reserve status who are called to active duty after the origination of their student loans. Loans entered into by persons on active duty in military service prior to their period of active duty may bear interest at no more than 6% per year for the period of such person s active service. Accordingly, payments received by the Authority on Issue E Loans to a Borrower who qualifies for such relief may be subject to such limitation during the Borrower s period of active military duty. The response of the United States to terrorist attacks and other security threats may increase the number of citizens who are in active military service, including persons in reserve status who have been called or will be called to active duty. As a result, there may be delays in or limitation of payment and increased losses on the Issue E Loans. The Authority does not know how many Issue E Loans have been or may be affected by the application of the Soldiers and Sailors Civil Relief Act of Composition and Characteristics of the Issue E Loan Portfolio Will Continually Change The Issue E Loans the Authority currently intends to finance with the proceeds of the Series 2003 Bonds are described in this Official Statement. Certain amounts received with respect to the Issue E Loans may be recycled and proceeds of additional Bonds may be used to finance additional Issue E Loans in the future. The characteristics of the Issue E Loan Portfolio will change from time to time as new MEFA Loans and FFELP Loans are financed and may also change as a result of changes in the MEFA Loan Program and in the Authority FFEL Program. Dependence Upon Third-Party Servicers and Originators The Authority is currently dependent upon third parties to originate and service Authority Loans. As of the date of this Official Statement, Affiliated Computer Services, Inc. ( ACSI ) is acting as originator, servicer and custodian with respect to MEFA Loans pursuant to an agreement that is currently scheduled to expire on December 31, 2005, and as servicer and custodian with respect to Authority FFELP Loans pursuant to an agreement that is currently scheduled to expire on February 1, 2005 and Massachusetts Higher Education Assistance Corporation, d.b.a. American Student Assistance ( ASA ), is currently acting as originator with respect to Authority FFELP Loans pursuant to an agreement which may be terminated by either party upon 30 days written notice. Under the Resolution, the Insurer has the right to approve successor servicers and servicing agreements. The cash flow projections relied upon by the Authority in structuring the bond issue were based upon assumptions with respect to servicing costs which the Authority based upon these existing agreements. No assurance can be given that the Authority will be able to extend the term of the agreements, or to enter into agreements with other servicers acceptable to the Insurer at the assumed level of servicing cost upon scheduled expiration of the current agreements. Although ACSI and ASA are obligated to cause the Issue E Loans to be originated and serviced in accordance with the terms of the respective servicing agreements, the timing of payments will be directly affected by the ability of ACSI and ASA, respectively, to adequately service the Issue E Loans. In addition, investors will be relying on each of ACSI s and ASA s compliance with applicable federal and state laws and regulations. In the event of default by the Loan Servicer, resulting solely from certain events of insolvency or bankruptcy, a court, conservator, receiver or liquidator may have the power to prevent either the Trustee or the Bondholders from appointing a successor Loan Servicer or originator, as the case may be, and delays in collections in respect of the Issue E Loans may occur. Delays in the receipts of payments with respect to Issue E Loans in excess of the delinquency and default assumptions adopted by the Authority for purposes of 34

45 preparing cash flow projections as a basis for structuring the issue may delay the timely payment of Principal installments of and interest on the Series 2003 Bonds and Program Expenses. Competition Certain other lending sources, including but not limited to the federal PLUS Loan Program, may impact adversely the financing and refinancing of loans under the Authority Loan Program depending upon their availability. See OTHER LENDING SOURCES and APPENDIX I SUMMARY OF CERTAIN PROVISIONS OF THE FEDERAL FAMILY EDUCATION LOAN PROGRAM PLUS and SLS Loan Programs. Interest Rate Exchange Agreements Under the Resolution, the Authority may enter into interest rate exchange agreements if certain requirements are met. In certain circumstances an interest rate exchange agreement is subject to early termination. In the event of an early termination of an interest rate exchange agreement, the Trust Estate or the swap counterparty may be liable to pay the other a termination payment (regardless of which party has caused the termination), which will be based on the market value of such interest rate exchange agreement computed in accordance with the procedures set forth therein. Any such termination payment required to be made by the Trust Estate could be substantial, and could reduce the amounts otherwise payable with respect to the payment of the Principal Installments of and interest on the Series 2003 Bonds and Program Expenses. The Authority has entered into interest rate exchange agreements with respect to Bonds and intends to enter into interest rate exchange agreements with respect to one or more Series of the Series 2003 Bonds. See SECURITY FOR THE BONDS AND SOURCES OF PAYMENT Certain Interest Rate Exchange Agreements and APPENDIX A AUDITED FINANCIAL STATEMENT OF THE AUTHORITY Note 7 Bonds Payable Issue E Series 2001A, 2001B, 2001C, 2001D and 2001E and Issue E Series 2002A, 2002B, 2002C, 2002D and 2002E. Secondary Market for the Series 2003 Bonds May Not Develop The Underwriters may assist in resales of the Series 2003 Bonds but are not required to do so. A secondary market for the Series 2003 Bonds may not develop. If a secondary market does develop, it might not continue or it might not be sufficiently liquid for resales of any of the Series 2003 Bonds. Furthermore, the auction procedures and transfer requirements described herein may limit the liquidity and marketability of Series 2003 Bonds and therefore may not yield a Bondholder the best possible price for a Series 2003 Bond. See RATINGS. Series 2003 Bonds are Not Suitable Investments for All Investors The Series 2003 Bonds are complex investments that should be considered only by investors who, either alone or with their financial, tax and legal advisors, have the expertise to analyze the prepayment, reinvestment, default and market risk, the tax consequences of an investment, and the interaction of these factors. General THE MEFA LOAN PROGRAM Under the MEFA Loan Program, the Authority purchases MEFA Loans originated by or on behalf of the Participating Institutions. The MEFA Loan Program has been implemented in accordance with the provisions of the Loan Origination Agreements, the Operations Manual, the Servicing Agreement, and the provisions of certain other related documents (collectively, the MEFA Program Documents ). The provisions 35

46 of the MEFA Program Documents described herein which are required by the Resolution or the Act are so identified and may only be modified by an amendment of the Resolution or the Act, as the case may be. The Authority reserves the right to modify, if necessary, to enter into an amendment with respect to or to waive, on a case-by-case basis, all other provisions of the MEFA Program Documents. The Authority currently expects to apply: (i) approximately $120 million of Issue E Bond proceeds which will be available upon delivery of the Series 2003 Bonds to fund the acquisition of Fixed Rate Undergraduate MEFA Loans, Variable Rate Undergraduate MEFA Loans and MEFA Loans for Graduate Education during the academic year; and (ii) approximately $35 million which will then be available to finance other MEFA Loans or FFELP Loans during the academic year. The Authority currently expects such Fixed Rate Undergraduate MEFA Loans, Variable Rate Undergraduate MEFA Loans and MEFA Loans for Graduate Education to have substantially similar terms, except as described under SECURITY AND SOURCES OF PAYMENT FOR THE BONDS Certain MEFA Loan Program Modifications, and substantially similar repayment performance as previously financed MEFA Loans originated under the respective MEFA Loan programs. The Authority reserves the right, however, to apply different respective amounts of available Bond proceeds to finance MEFA Loans originated pursuant to various MEFA Loan programs and FFELP Loans and, pursuant to terms and conditions established by a supplemental resolution adopted with the consent of the Insurer, to apply Bond proceeds or other amounts available therefor under the General Resolution to finance other education loans. Any Issue E Loans so funded would secure the Bonds. FFELP Loans have, and other loans which fund or refund education costs may have, credit and repayment characteristics which differ substantially from those of MEFA Loans. See RISK FACTORS Dependence Upon Cash Flow Projections, PLAN OF FINANCING, SECURITY FOR THE BONDS AND SOURCES OF PAYMENT Projection of Revenues, THE AUTHORITY FFEL PROGRAM The Authority s Stafford Loan Borrower Benefits, APPENDIX C SUMMARY OF CERTAIN PROVISIONS OF THE RESOLUTION Issuance of Additional Bonds and APPENDIX I SUMMARY OF CERTAIN PROVISIONS OF THE FEDERAL FAMILY EDUCATION LOAN PROGRAM. MEFA Loans will be purchased by the Authority under the Issue E Loan Program, from moneys in the Series 2003 Purchase Account and other Purchase Accounts established under the General Resolution during the respective loan origination periods applicable thereto and from other funds available therefor under the General Resolution. Such moneys include proceeds of and amounts allocable to the Series 2003 Bonds, proceeds of and amounts allocable to other Bonds, recycled funds made available by the repayment or prepayment of Issue E Loans, and other moneys available to the Authority therefor. The Authority has implemented the MEFA Loan Program as described herein with the assistance of Participating Institutions and the MEFA Loan Servicer, which will perform credit evaluations during the origination process and thereafter service MEFA Loans purchased by the Authority. The Authority believes that the MEFA Loan Program will continue to be an attractive source of financial assistance to parents, students and others responsible for paying the costs of education and that the Authority will be able to purchase additional MEFA Loans under the MEFA Loan Program notwithstanding the availability of education financing from other sources. The Authority believes that there are several sources of competition to the MEFA Loan Program, including, but not limited to, the federal PLUS Loan Program. In addition, there are other Authority Loan Programs offering assistance to finance education costs of students attending school in the Commonwealth. See SECURITY FOR THE BONDS AND SOURCES OF PAYMENT, THE AUTHORITY FFEL PROGRAM and OTHER LENDING SOURCES. There follows in this section a description of the MEFA Loan Program, eligible borrowers, loan terms, loan origination process, including borrower eligibility and credit analysis, and loan servicing process. 36

47 Eligible Borrowers Borrowers in the Undergraduate MEFA Loan Program may be a parent, legal guardian or working spouse of the Student or any other individual meeting the credit standards established by the Authority for this program. In each case, the Student will be a co-signer on the Undergraduate MEFA Loan. In the MEFA Loans for Graduate Education Program, the Borrower is the Student. The Authority does not require a co-signer on MEFA Loans for Graduate Education, but Students may choose to rely on a cosigner who meets certain credit standards established by the Authority and most MEFA Loans for Graduate Education originated to date have been cosigned. In all cases, the Student must be enrolled or admitted to a degree program on at least a half-time basis at a Participating Institution and be in good standing and making satisfactory academic progress, as defined by such Institution. Borrowers in the MEFA Loans for Graduate Education Program must be in a program of study leading to a post-baccalaureate degree or engaged in post-doctoral study at a Participating Educational Institution. The Authority has established credit guidelines for applicants for specific types of MEFA Loans under the MEFA Loan Program. See THE MEFA LOAN PROGRAM Loan Terms MEFA Loans for Non-Massachusetts Colleges and Loan Origination. Loan Terms The Authority has covenanted in the Resolution that Issue E Loans will have scheduled payments of principal and interest or other legally enforceable payment requirements which, together with other money available therefor under the Resolution, will be at least sufficient to pay when due the Principal Installments or redemption price of and interest on the Bonds and Program Expenses. The Authority s policy is to set the interest rate on MEFA Loans and establish other terms of MEFA Loans on an annual basis for MEFA Loans to be originated during the next academic year, although the Authority reserves the right to vary the interest rate or other terms during an academic year, if necessary, and reserves the right to apply amounts available therefor under the Resolution, including proceeds of additional Bonds, to finance education loans with interest rate or other terms which vary from MEFA Loans. See THE AUTHORITY, PLAN OF FINANCING, THE MEFA LOAN PROGRAM Participating Institutions, OTHER LENDING SOURCES and APPENDIX C SUMMARY OF CERTAIN PROVISIONS OF THE RESOLUTION Issue of Additional Bonds. The Authority anticipates that MEFA Loans financed through initial application of proceeds of the Series 2003 Bonds will have the following terms: 37

48 MEFA Loan Programs Name Origination Fee Borrowing Limit Term Deferment ** Loan Volume Outstanding Issue E Fixed Rate Undergraduate MEFA Loan 3.75% Cost of attendance less other financial aid 15 years In school deferment option at a higher interest rate; repayment begins 6 months after graduation or upon other dematriculation $398,700,000 MEFA Loan for Graduate Education 3.75% with a coapplicant; 7.00% without a co-applicant Cost of attendance less other financial aid 15 years 5 year deferment option at a higher interest rate; repayment begins 6 months after graduation or other dematriculation $99,300,000 Variable Rate Undergraduate MEFA Loan MEFA Loan for Non- Massachusetts Colleges MEFA Career Education Loan 3.75% Cost of attendance less other financial aid 3.75% Cost of attendance less other financial aid 3.75% with a coapplicant; 7.00% without a co-applicant Cost of attendance less other financial aid Aspire Loan None Lesser of $5,000 or Borrower s cost of attendance less other financial aid MEFA Loan for Non- Massachusetts Colleges for Graduate Education Massachusetts High Tech Entry Ramp Loan MEFA Loan for Graduate Health Professions 3.75% with a coapplicant; 7.00% with a co-applicant * Less than $5 million outstanding loan volume. ** Subject to certain limitations. Cost of attendance less other financial aid None Lesser of $10,000 or Borrower s cost of attendance less other financial aid; minimum loan amount of $1, % Cost of attendance less other financial aid years In school deferment option at a higher interest rate; repayment begins 6 months after graduation or upon other dematriculation 15 years In school deferment option at a higher interest rate; repayment begins 6 months after graduation or upon other dematriculation 15 years In school deferment option; repayment begins 6 months following program completion 15 years In school deferment option; repayment begins 6 months following program completion 15 years 5 year deferment option at a higher interest rate; repayment begins 6 months after graduation or upon other dematriculation 10 years In school deferment option; repayment begins 6 months following program completion 15 years 8 year deferment option during in school and in residency at a higher interest rate; repayment begins 6 months after graduation or other dematriculation $22,500,000 * * * * * N/A

49 Except as noted with respect to Aspire Loans and the Massachusetts High Tech Entry Ramp Loans, all of the MEFA Loans described below may be originated in amounts up to 100% of the Borrower s cost of attendance, less other financial aid. Fixed Rate Undergraduate MEFA Loans. The Authority expects to establish the interest rate applicable to Fixed Rate Undergraduate MEFA Loans prior to delivery of the Series 2003 Bonds. Within forty-five (45) days of loan disbursement, the Borrower is required to begin repayment in level monthly installments over a maximum of 15 years. Beginning with the academic year, Borrowers who elect to defer their Fixed Rate Undergraduate MEFA Loans during the in school period will pay a higher rate of interest upon entering deferred repayment status. Fixed Rate Undergraduate MEFA Loans may be prepaid in full or in part at any time without penalty. Fixed Rate Undergraduate MEFA Loans may range in size from a minimum of $2,000 ($1,500 at Public Participating Institutions) (or such lesser amounts as the Authority may determine from time to time) to a maximum of the cost of attendance for the academic year at the institution in which the Student is enrolled, less other financial aid for the year. Students attending a Participating Institution which accepts multiple-year tuition payments may be eligible to receive a Fixed Rate Undergraduate MEFA Loan for the full multiple-year payment. MEFA Loans for Graduate Education. MEFA Loans for Graduate Education are originated in principal amounts which will include in the Borrower s loan amount interest accruing during the Deferral Period. The resulting monthly payments and annual percentage rate are dependent on the length of the Deferral Period. Repayment is made in level monthly installments over a maximum of 15 years. Repayment begins after the Borrower s Deferral Period, which is ordinarily six (6) months following graduation or a change of enrollment status to less than half-time. MEFA Loans for Graduate Education may be prepaid in full or in part at any time without penalty. MEFA Loans for Graduate Education may range in size from a minimum of $2,000 ($1,500 at Public Participating Institutions) (or such lesser amounts as the Authority may determine from time to time) to a maximum of the cost of attendance for the academic year at the institution in which the Student is enrolled, less other financial aid for the year. MEFA Loans for Graduate Education originated to date bear interest and include origination fees as set forth above with respect to fixed rate MEFA Loans. Beginning with the academic year, the Authority will offer variable rate MEFA Loans for Graduate Education. See SECURITY FOR THE BONDS AND SOURCES OF PAYMENT Certain MEFA Loan Program Modifications. Variable Rate Undergraduate MEFA Loans. Variable Rate Undergraduate MEFA Loans bear a variable rate of interest based upon a spread in excess of the Authority s applicable cost of financing. The interest rate on such Variable Rate Undergraduate MEFA Loans is expected to be reset annually. The effective annual percentage rate will vary. Within 45 days of loan disbursement, the Borrower will be required to begin repayment in monthly installments sufficient to amortize the loan over a maximum of 15 years. Beginning with the academic year, Borrowers who elect to defer their Variable Rate Undergraduate MEFA Loans during the in school period will pay a higher rate of interest upon entering deferred repayment status. Monthly payments will fluctuate based on the annual interest rate in effect during the life of the loan. Variable Rate Undergraduate MEFA Loans may be prepaid in full or in part at any time without penalty. Variable Rate Undergraduate MEFA Loans may range in size from a minimum of $2,000 ($1,500 at Public Participating Institutions) (or such lesser amounts as the Authority may determine from time to time) to a maximum of the cost of attendance for the academic year at the institution in which the Student is enrolled, less other financial aid for the year. Aspire Loans. Aspire Loans are made to academically qualified Borrowers who were proposed by the Participating Institution which they are attending. Aspire Loans are originated on a credit-blind basis and bear interest at a fixed rate with interest capitalized during deferment. Repayment begins after the Borrower s Deferral Period, which is ordinarily six (6) months following program completion. The Borrower is required to begin repayment in monthly installments over a maximum of 15 years. Aspire Loans have an annual borrowing limit of the lesser of $5,000 or the Borrower s cost of attendance, less other financial aid. 39

50 Participating Institutions may propose Borrowers for Aspire Loans upon executing an amendment to their Loan Origination Agreement providing for an increased Participating Institution repurchase obligation applicable to Aspire Loans. The amount of defaulted Aspire Loans that the Participating Institution is required to repurchase is 50% of the aggregate original amount of the Aspire Loans. The aggregate amount of loans to be purchased under this program is set currently at a maximum of $2,000,000, subject to increase with the consent of the Bond Insurer. MEFA Loans for Non-Massachusetts Colleges. Since 1998, the Authority has offered Fixed Rate Undergraduate MEFA Loans under the MEFA Loan Program and MEFA Loans for Graduate Education to Massachusetts residents attending out-of-state colleges and universities. Colleges and universities at which recipients of such loans are enrolled will not execute Loan Origination Agreements with the Authority. The Authority requires that: (i) the Borrower be a resident of the Commonwealth; and (ii) the institution be a non-profit, degree-granting, duly accredited institution authorized by law to provide a program of education beyond the secondary level. The Authority may make loans under this program to Massachusetts residents attending such out-of-state institutions in any State in the United States that assists students resident therein in obtaining education loans, including federal Stafford Loans, that may be used to pay the costs of attendance at colleges and universities located in the Commonwealth. The aggregate amount of Issue E Loans to be purchased under this program in the academic year is expected to be not more than $5 million. Loans to Massachusetts residents attending out-of-state institutions to date have borne higher interest rates and origination fees than loans to persons attending Massachusetts institutions as shown above. The Authority currently expects to fully integrate the MEFA Loans for Non-Massachusetts Colleges with its Fixed Rate Undergraduate MEFA Loans and MEFA Loans for Graduate Education effective with the academic year. Massachusetts High Tech Entry Ramp Loans. Massachusetts High Tech Entry Ramp Loans are made to Borrowers engaged in certain specialized educational programs. The Massachusetts High Tech Entry Ramp Loans are originated on a creditworthy basis and bear a variable rate of interest based upon a spread in excess of the Authority s applicable cost of financing, with interest capitalized during deferment. The interest rate of such MEFA Loans is reset annually. The effective annual percentage rate will vary. Repayment begins after the Borrower s Deferral Period which is ordinarily six (6) months following program completion. The Borrower is required to begin repayment in minimum monthly installments of $50 over a maximum of 10 years. Massachusetts High Tech Entry Ramp Loans have an annual borrowing limit of the lesser of $10,000 or the Borrower s cost of attendance, less other financial aid for the year. A dedicated reserve account is funded in an amount equivalent to 20% of the aggregate outstanding principal amount of MEFA Loans originated under this program. The aggregate amount of loans which may be purchased under this program as Issue E Loans is set currently at a maximum of $1,000,000, subject to increase with the consent of the Insurer. MEFA Loans for Graduate Health Professions. MEFA Loans for Graduate Health Professions bear a variable rate of interest based upon a spread in excess of the Authority s applicable cost of financing. The interest rate on such MEFA Loans is expected to be reset annually. The effective annual percentage rate will vary. Such MEFA Loans are originated in principal amounts, which will include in the Borrower s loan amount interest accruing during the Deferral Period. Capitalization of accrued interest will occur once at the start of repayment. The resulting monthly payments and annual percentage rate are dependent on the length of the Deferral Period. Repayment is made in level monthly installments over 15 years. Repayment begins after the Borrower s Deferral Period, which is ordinarily six (6) months following graduation, completion of postgraduate residency program or a change of enrollment status to less than half time. Such Deferral Period will not exceed a maximum of eight years. MEFA Loans for Graduate Health Professions may be prepaid in full or in part at any time without penalty. MEFA Loans for Graduate Health Professions may range in size from a minimum of $2,000 ($1,500 at Public Participating Institutions) (or such lesser amounts as the Authority may determine from time to time) to a maximum of the cost of attendance for the academic year at the institution in which the Student is enrolled, less other financial aid for the year. MEFA Loans for Graduate Health 40

51 Professions will be originated beginning with the academic year with proceeds of the Bonds and will have terms as set forth above. MEFA Career Education Loans. The Authority has created a MEFA Career Education Loan to help Participating Institutions address a growing need to assist students participating in specialized training programs, often in technology-based skills to enhance employment opportunities. As with other MEFA Loans, students can borrow up to the cost of attendance in an authorized program at a Participating Institution, less any other financial aid received, and can defer the start of repayment until six months after the completion of their training. MEFA Career Education Loans can be repaid over a period of up to fifteen years, with no penalty for early prepayment. MEFA Career Education Loans are made available only under a special agreement between the Authority and a Participating Institution which may specify the terms of repayment, and applicants are subject to credit qualifications, established by the Authority, comparable to the qualifications for a MEFA Loans for Graduate Education. The amount of defaulted MEFA Career Education Loans that the Participating Institution is required to repurchase is 15% of the aggregate original amount of the MEFA Career Education Loans. The aggregate amount of loans which may be purchased under this program as Issue E Loans is set currently at a maximum of $10,000,000, subject to increase with the consent of the Insurer. Home Equity Option. Borrowers under the MEFA Loan Program are not required to provide collateral to secure MEFA Loans. Borrowers may, however, at their option secure Undergraduate MEFA Loans, MEFA Loans for Graduate Education and MEFA Loans for Non-Massachusetts Colleges with a mortgage on their primary or secondary residence either when made or at a later point in time. Such Borrowers may obtain special program considerations and may be able to obtain certain individual federal income tax benefits. The Authority began offering the Home Mortgage Option in As of December 31, 2002, 2,061 loans under the MEFA Loan Program representing approximately $28.8 million in face value were secured under the home equity option. Loan Origination Applications for MEFA Loans are submitted directly to the Loan Servicer and are processed according to guidelines established by the Authority. The Loan Servicer initially completes a preliminary eligibility determination with respect to MEFA Loans for Graduate Education applicants. The Loan Servicer then completes a credit evaluation for the Fixed Rate Undergraduate MEFA Loan applicants, the Variable Rate Undergraduate MEFA Loan applicants and the MEFA Loans for Graduate Education applicants. For any subsequent MEFA Loan, a previously eligible Borrower is again subject to credit evaluation by the Loan Servicer. Credit Evaluation by the Loan Servicer. The Loan Servicer must review all MEFA Loan applications it receives. The Loan Servicer s primary responsibility during loan origination is to perform a credit analysis of the applicant. The Loan Servicer s review must be conducted as described below. With respect to all MEFA Loan applications, the Loan Servicer will request one or more credit bureau reports on the applicant and any co-applicant. The Loan Servicer cannot base its credit analysis on any credit report dated more than ninety (90) days before the date of approval of the application by the Loan Servicer. In conducting its credit analysis, the Loan Servicer will use a combination of credit scoring and a review of application data. For applicants with a credit score at or above a certain threshold established in the Operations Manual, the Loan Servicer will approve the application without a debt service-to-income verification. For applicants below this threshold, the Loan Servicer s review will include an analysis of the applicant s monthly debt service for installment debt relative to gross monthly income. For new applicants, the debt service-to-income ratio cannot exceed 42%. For repeat borrowers in good standing, the debt service-to-income ratio cannot exceed 45%. 41

52 If any of the following circumstances exist without an explanation satisfactory to the Loan Servicer, the Loan Servicer may in its reasonable judgment reject the application: excessive payment delinquencies; garnishment; attachment; foreclosure; repossession; or legal proceedings against the applicant or co-applicant which may affect the borrower s ability to repay or the Authority s ability to collect a MEFA Loan. In addition, the absence of a credit history may be grounds for denial of a Fixed Rate Undergraduate MEFA Loan or a Variable Rate Undergraduate MEFA Loan, but may not alone be grounds for denial of a MEFA Loan for Graduate Education. The Loan Servicer may reject an application for reasons other than failure to meet the specific credit requirements outlined above, provided that the Loan Servicer s rejection is in accordance with applicable law. See Loan Servicing. Loan Origination Agreements. Except as described above with respect to the Authority s out-of-state MEFA Loan program, the Authority may enter into a Loan Origination Agreement with an eligible institution at any time there are available funds under the MEFA Loan Program. Under a Loan Origination Agreement, a Participating Institution will use reasonable efforts so that MEFA Loans will be originated on its behalf, in a specified amount and on a specified schedule. If the Participating Institution fails to originate MEFA Loans in accordance with this schedule, the Authority may reallocate a portion of the Participating Institution s Commitment Amount but, as a result of recent changes in the MEFA Loan Program, the Participating Institution will face no financial consequences. Evaluation by the Participating Institution. The Participating Institution must reject an application for a Fixed Rate Undergraduate MEFA Loan, a Variable Rate Undergraduate MEFA Loan or a MEFA Loan for Graduate Education if the information contained in the application indicates that the applicant, co-applicant and/or Student has ever defaulted on any educational assistance loans or failed to refund an educational grant required to be refunded or is currently in arrears to the Participating Institution in an amount in excess of $100 and the Participating Institution has demanded payment. Loan Purchase. MEFA Loans are originated by or on behalf of Participating Institutions. All promissory notes of Borrowers are delivered by such Borrowers directly to the Loan Servicer which holds such promissory notes in its custody on behalf of the Trustee. The authorized representatives of the Participating Institutions certify certain information regarding the loans. After such certification, the loan is processed through the Loan Servicer s origination system. Subsequent to such loan processing by the Authority, the Authority will direct the Trustee to transfer funds to the Loan Servicer. The Loan Servicer will then transfer such funds received from the Authority to the Participating Institution for credit to the Student s account. Participating Institutions Any non-profit, post-secondary, degree-granting educational institution located within the Commonwealth, may participate in the MEFA Loan Program. To participate, an institution must enter into a Loan Origination Agreement with the Authority. For a description of the out-of-state MEFA Loan program, see THE MEFA LOAN PROGRAM Loan Terms MEFA Loans for Non-Massachusetts Colleges. The following eighty-two (82) Massachusetts institutions of higher education are participating in the MEFA Loan Program as of the date hereof, having executed Loan Origination Agreements with the Authority or having originated or committed to originate Fixed Rate Undergraduate MEFA Loans, Variable Rate Undergraduate MEFA Loans, in some cases, MEFA Loans for Graduate Education and, in some cases, other types of MEFA Loans: 42

53 Participating Institutions Amherst College Anna Maria College Assumption College Babson College Bay Path College Bay State College Becker College Bentley College Berklee College of Music Berkshire Community College Boston College Boston University Brandeis University Bridgewater State College Bristol Community College Cape Cod Community College Clark University College of Our Lady of the Elms College of the Holy Cross Curry College Dean College Eastern Nazarene College Emerson College Emmanuel College Endicott College Fitchburg State College Framingham State College Gordon College Greenfield Community College Hampshire College Harvard College Holyoke Community College Lasell College Lesley College Marian Court College Mass Bay Community College Massachusetts College of Liberal Arts Massachusetts College of Art Massachusetts College of Pharmacy and Health Sciences Massachusetts Institute of Technology Massachusetts Maritime Academy Massasoit Community College Merrimack College MGH Institute of Health Professions Middlesex Community College Montserrat College of Art Mount Holyoke College Mount Ida College Mt. Wachusett Community College New England College of Optometry Newbury College Nichols College Northeastern University Northern Essex Community College North Shore Community College Pine Manor College Quincy College Quinsigamond Community College Regis College Salem State College School of Museum of Fine Arts Simmons College Smith College Springfield College Springfield Technical Community College Stonehill College Suffolk University Tufts University University of Massachusetts - Amherst University of Massachusetts - Boston University of Massachusetts - Dartmouth University of Massachusetts - Lowell University of Massachusetts - Medical Center at Worcester Wellesley College Wentworth Institute of Technology Western New England College Westfield State College Wheaton College Wheelock College Williams College Worcester Polytechnic Institute Worcester State College 43

54 The eighty-two (82) institutions currently participating in the MEFA Loan Program represent an enrollment of approximately 95% of the total enrollment of post-secondary students in the Commonwealth and are among a total of 99 eligible institutions of higher education located in the Commonwealth. The Authority expects that all such 82 institutions will participate in the MEFA Loan Program financed with proceeds of the Series 2003A Bonds. The aggregate purchase price of MEFA Loans expected to be purchased by the Authority from these institutions during the academic year is currently expected to exceed $125 million. The Authority expects that this demand will be funded, in part, from funds allocable to the Series 2003 Bonds and, in part, from funds allocable to other Issue E Bonds. See PLAN OF FINANCING, RISK FACTORS Dependence Upon Cash Flow Projections and THE MEFA LOAN PROGRAM General, and Participating Institutions. MEFA Loans to foreign students, including those borrowers from Canada, satisfying the credit standards and other eligibility requirements of the MEFA Loan Program may be purchased from a Participating Institution. Loan Servicing After purchase by the Authority, MEFA Loans will be serviced by the Authority with the assistance of its Loan Servicer. Role of the Loan Servicer. The Loan Servicer plays a key role in the MEFA Loan Program and the performance of the Loan Servicer is closely monitored at all times by the Authority. The MEFA Loan Servicing Agreement and the Operations Manual specify the duties, obligations and functions of the MEFA Loan Servicer. As described above under Loan Origination Credit Evaluation by the Loan Servicer, the Loan Servicer assists the Authority in the evaluation of applicants for MEFA Loans by performing a credit analysis of each applicant. After MEFA Loans have been purchased by the Authority, the Loan Servicer is required to prepare and deliver to each Borrower a periodic billing invoice, or coupon books, for the repayment of MEFA Loans and to use its best efforts to collect all payments of principal of and interest on the MEFA Loans. The Loan Servicer is required to service delinquent MEFA Loans so as to enable, to the maximum extent possible, payment in full of such notes on their respective original repayment schedules. The Loan Servicer must notify the Borrower of the delinquency by repeated telephone calls and letters at specified intervals, with copies of all servicer aging reports produced going to the applicable Participating Institution when and after any payment is forty-five (45) days overdue, all as set forth in the Operations Manual. The Loan Servicer s duties include recording all payments and all adjustments including overpayments and prepayments of MEFA Loans and forgiveness of MEFA Loans. The Loan Servicer is also required to maintain files concerning each MEFA Loan, preparing and maintaining appropriate accounting records with respect to all transactions related to each MEFA Loan, preparing various reports to the Authority of the status and activity of each application for a MEFA Loan, and updating weekly and maintaining an off-site duplicate of the computer file pertaining to each MEFA Loan. Defaults. When a MEFA Loan is one hundred eighty (180) days past due (or such later date as the Authority may determine in writing) it is deemed to be Defaulted and the MEFA Loan Servicer is required to cease contact with the Borrower unless and until instructed otherwise by the Authority or the Trustee. When a MEFA Loan becomes Defaulted it is the Authority s practice to refer the default to a collection agent or an attorney. The Authority retains continuous oversight and responsibility for enforcement and settlement decisions related to defaulted and delinquent accounts. See AUTHORITY LOAN PORTFOLIO. 44

55 The Loan Servicer. From the inception of its loan programs in 1983 until October 1, 1995, the Authority s MEFA Loans were serviced by Knight Tuition Payment Plans, Inc. ( Knight ), which also assisted in the origination process for the Authority s MEFA Loan portfolio. EduServ Technologies, Inc. ( EduServ ) serviced MEFA Loans and provided origination services for the period from October 1, 1995 to February 28, Knight originated and serviced MEFA Loans from March 1, 1997 until January 1, Effective on January 1, 1999, Knight and its parent Knight Insurance Agency, Inc. ( Knight Insurance ) were liquidated into Key Bank USA, National Association. Key Bank expressly assumed Knight s obligations under the MEFA Loan Servicing Agreement in connection with such transaction. Prior to such transaction Knight and Knight Insurance had been wholly owned subsidiaries of Key Bank. ACSI, the Authority s current Loan Servicer, assumed responsibility for servicing and for subsequent origination of MEFA Loans effective on January 1, ACSI has acted as Loan Servicer for Authority FFEL Program loans since its acquisition in June, 2002 of AFSA Data Corporation ( AFSA ), the initial Loan Servicer for the Authority FFEL Program. The following information has been furnished by Affiliated Computer Services, Inc. for use in this Official Statement. The Authority does not guarantee or make any representation as to the accuracy or completeness thereof or the absence of material adverse change in such information or in the condition of Affiliated Computer Services, Inc. subsequent to the date hereof. ACSI is a premier provider of diversified business process outsourcing ( BPO ) and information technology ( IT ) outsourcing solutions to commercial and government clients worldwide. A Fortune 1000 company focusing exclusively on services, ACSI is comprised of nearly 40,000 people in multiple locations around the world. In June, 2002, ACSI best known in the student aid community as the primary contractor for the U.S. Department of Education s Direct Loan Program acquired AFSA, the nation s largest and most experienced education services company. With the addition of AFSA, now known as ACS Education Services, Inc., ACSI now offers complete outsourcing solutions to the education industry. As a result of the acquisition, the two companies service FFELP, Perkins, and Direct loans for more than 8.2 million borrowers with outstanding loans totaling more than $89 billion. ACSI files periodic reports with the Securities and Exchange Commission (the Commission ) as required by the Securities Exchange Act of 1934, as amended. Reports filed with the Commission are available for inspection without charge at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C , and at its regional offices located as follows: Midwest Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois ; and Northeast Regional Office, 233 Broadway, New York, New York Copies of periodic reports and exhibits thereto may be obtained at the above locations at prescribed rates. Information as to the operation of the public reference facilities is available by calling the Commission at SEC Information filed with the Commission can also be inspected at the Commission site on the World Wide Web at < ACSI also currently provides information through ACSI s website at < inc.com>. Information filed by ACSI with the Commission or contained on ACSI s website is not intended to be incorporated as part of this Official Statement and information contained on ACSI s website is not a part of the documents that ACSI files with the Commission. Under the MEFA Loan Servicing Agreement, ACSI is responsible for processing applications for MEFA Loans, reviewing required documentation prior to the Authority s purchase of a MEFA Loan, and, after such purchase, tracking all information necessary to service the MEFA Loan. Servicing activities of ACSI under the MEFA Loan Servicing Agreement include maintaining all records of the origination and payment of MEFA Loans, mailing coupon books or invoices to Borrowers, preparing activity and status reports for the Authority and for Participating Institutions, following procedures required under the Operations Manual for delinquent MEFA Loans and responding to inquiries and complaints pertaining to the MEFA Loan Programs 45

56 from Participating Institutions, Borrowers, the Trustee and the Authority. The compensation payable to ACSI under the MEFA Loan Servicing Agreement for origination services is a specified flat fee per application processed, and for loan servicing is a flat fee per account. General THE AUTHORITY FFEL PROGRAM The Authority FFEL Program was initiated during the academic year primarily for the purpose of streamlining the delivery of education financing for Borrowers and their families by offering both federal and alternative education loans from a single source. The Authority s current FFEL Program offerings include FFELP Loans for parents as well as subsidized and unsubsidized FFELP Loans for undergraduate and graduate students. MEFA is working closely with Massachusetts colleges to introduce its Authority FFEL Program combining cost-saving FFELP Loan options with quality service delivered by MEFA in partnership with American Student Assistance, a Massachusetts-based guarantor and originator, as well as ACS, which currently services the Authority FFELP Loans. For more information regarding loan servicing, see THE MEFA LOAN PROGRAM Loan Servicing. The Authority reserves the right to finance FFELP Loans guaranteed by other guaranty agencies, and to assign responsibility for the origination and servicing of FFELP Loans to other entities in accordance with the Resolution. The Authority FFEL Program features substantial cost savings available to undergraduate and graduate student borrowers using the Authority FFELP Loans. As of November 30, 2002, approximately $1.2 million of Subsidized Stafford Loans, $1.1 million of Unsubsidized Stafford Loans and $1.1 million of PLUS Loans had been financed pursuant to the Authority FFEL Program. The Authority expects, however, that the percentage of Issue E Loans which are FFELP Loans will increase over the next few years. In addition, the Authority expects demand for Authority FFELP Loans to exceed $25 million for the academic year. The Authority s FFELP Loan Borrower Benefits The Authority currently intends to apply a portion of available Series 2003 Bond proceeds and certain Prior Bond proceeds to fund the origination of FFELP Loans and to offer borrowers terms with respect to Stafford Loans and PLUS Loans, as such terms are defined in APPENDIX I SUMMARY OF CERTAIN PROVISIONS OF THE FEDERAL FAMILY EDUCATION LOAN PROGRAM, which would reduce borrower cost as compared with the applicable legally permissible FFELP Loans loan terms. With respect to Stafford Loans, such loan terms currently include a zero guarantee fee and a reduced (2%) origination fee paid the by the borrower. The Authority also currently expects that borrowers obtaining such Stafford Loans may additionally benefit from significant discounts while in repayment, with an immediate 1/2% interest rate reduction for all such Stafford Loans entering repayment, an additional 1/2% interest rate reduction for borrowers electing an automatic monthly payment option, and a further 2% interest rate deduction following forty-eight (48) consecutive on-time payments at the start of repayment. With respect to PLUS Loans, such loan terms currently include a zero guarantee fee and an interest only payments option during the in-school period, and an additional benefit while in repayment of a 0.25% interest rate reduction for borrowers electing an automatic monthly payment option. The Authority reserves the rights to modify such terms, to make available different or additional Authority FFELP Loan terms intended to reduce borrower cost, with the consent of the Insurer, or to discontinue the availability of any such Authority FFELP Loan terms at any time. No assurance can be given that such actions may not affect the demand for Authority FFELP Loans or the receipt by the Authority of currently projected Revenues. See SECURITY FOR THE BONDS AND SOURCES OF PAYMENT Projection of Revenues and APPENDIX I SUMMARY OF CERTAIN PROVISIONS OF THE FEDERAL FAMILY EDUCATION LOAN PROGRAM. 46

57 American Student Assistance Massachusetts Higher Education Assistance Corporation, doing business as American Student Assistance, is a not-for-profit corporation chartered by the Massachusetts Legislature in 1956 to promote access to higher education and currently acts as an independent agent of the U.S. Department of Education to ensure that the public policy purposes and regulatory requirements of the FFEL Program are met. In keeping with its corporate charter, ASA guarantees education loans made pursuant to certain loan programs under the Higher Education Act. ASA provides nationwide guarantee, origination, and disbursement services to eligible borrowers, lenders, and educational institutions. ASA is one of the oldest and largest guaranty agencies in the United States, and is the designated guarantor for the Commonwealth. In its role as a national guarantor, ASA offers Stafford Loans and PLUS, as such term is defined in APPENDIX I SUMMARY OF CERTAIN PROVISIONS OF THE FEDERAL FAMILY EDUCATION LOAN PROGRAM. Since 1956, ASA has been a leading provider of higher education financing products and services to students, parents, schools, and lenders across the country, guaranteeing more than $19 billion in loans. In addition to providing the federal guarantee for Authority FFELP Loans, ASA is expected to provide full service loan origination assistance to the Authority, including application processing and disbursement of loan proceeds to participating colleges. For the Authority s PLUS Loans, such assistance is expected to include a credit analysis on behalf of the Authority in accordance with federal guidelines. For approved borrowers, ASA is expected to provide a federal guarantee, generate a promissory note, and disburse loan proceeds to colleges. ASA guaranteed over $779 million net (guarantees less cancellation activity) new FFELP Loans in the year ending June Net guarantees in excess of $12 billion as of February 7, 2003 were outstanding. Assets as of June 30, 2002 totaled $24.8 million. Under the Higher Education Act, ASA and the Secretary of Education, as of January 1, 2001, entered into a voluntary flexible agreement ( VFA ), whereby provisions of the VFA supersede certain provisions of the Higher Education Act. The VFA includes a fundamental restructuring of ASA s federally funded revenue streams. Under this fee-for-service model, ASA s financial incentives are aligned with its public purpose mission of assisting students in successfully completing a program of higher education financing and repayment. Additionally, the agreement provides for the return of all liquid assets from ASA s Federal Fund to the Department of Education. Those Federal Fund assets have been escrowed in favor of the Department of Education. The financial incentives include monthly loan maintenance fees payable only on loans on which the borrower is in good standing (that is, not in claim or pre-claim status), loan processing and issuance fees and fees for collection of defaulted loans. Additionally, ASA provides disbursement services on behalf of the Department of Education to pay lender default claims under this new FFEL Program financing model. This key change replaced the reinsurance and reserve requirement provisions otherwise applicable to Guarantee Agencies. 47

58 Guarantee Volume. The following table sets forth the principal balance of FFELP Loans (excluding Consolidation Loans and net of cancellations) guaranteed by ASA in each of the last five fiscal years: Fiscal Year (Ending June 30) Net FFELP Loans Guaranteed by ASA (Dollars in Millions) 1998 $ Claims Rate. ASA s claims rate represents the percentage of loans in repayment at the beginning of a federal fiscal year which default during the ensuing federal fiscal year. The following table sets forth the claims rate of ASA for the last five federal fiscal years: Federal Fiscal Year Claims Rate % Net Loan Default Claims. The following table sets forth the dollar value of default claims paid, net of repurchases and refunds for the last five years. Fiscal Year (Ending June 30) Net Default Claims (Dollars in Millions) 1998 $ Default Recoveries. The following table sets forth the amount of recoveries returned to the U.S. Department of Education for the last five years. Fiscal Year (Ending June 30) Default Recoveries (Dollars in Millions) 1998 $ As of December 31, 2002, ASA employed approximately 381 individuals at its principal offices located at 330 Stuart Street, Boston, MA A copy of ASA s annual report can be obtained through a 48

59 written request directed to American Student Assistance, 330 Stuart Street, 6 th Floor, Boston, MA , Attn: Vice-President Business Development. AUTHORITY LOAN PORTFOLIO The Authority began purchasing MEFA Loans in 1983 and since that time has issued thirty-one series of Prior Obligations to finance MEFA Loan purchases. This section provides information relating to the historical results of the MEFA Loan Portfolio. The Authority has compared the performance of MEFA Loans originated through application of proceeds of its Issue A Bonds, Issue B Bonds and Issue C Bonds to the performance to date of MEFA Loans originated through application of proceeds of its Issue D Bonds, Issue E Bonds and Issue G Bonds. Based upon this review, the Authority believes that MEFA Loans originated throughout the history of the MEFA Loan Program have experienced substantially similar patterns and rates of delinquency and gross default. The Authority does not expect the payment performance of MEFA Loans to be acquired through application of proceeds of the Series 2003 Bonds and other amounts to be available for such purpose under the Resolution during such period of application, to differ substantially (except as to applicable interest rates) from historical overall MEFA Loan portfolio performance. See SECURITY FOR THE BONDS AND SOURCES OF PAYMENT Certain Recent MEFA Loan Program Modifications and RISK FACTORS Dependence Upon Cash Flow Projections. All of the original lendable proceeds of the Prior Obligations, other than a portion of the proceeds of the Issue E, Series 2001 and Series 2002 Bonds, have been fully expended to purchase MEFA Loans or Authority FFELP Loans or redeem bonds. The table on the following page shows the status of MEFA Loan and Authority FFELP Loan purchases by the Authority from Prior Obligations proceeds as of November 30, All information presented is based on Authority records. Generally, the total lendable proceeds for each Issue shown in the table exceeds the original lendable proceeds because the Authority has been able to apply certain revenues derived from loan prepayments, certain defaulted loan sales and other sources during the applicable loan origination period to purchase additional MEFA Loans. The Participating Institutions repurchase obligations giving rise to such defaulted loan sales in the past have been eliminated for the most part effective upon the date of delivery of the Series 2003 Bonds. In addition, the aggregate original note amounts (face value) exceed the total lendable proceeds because the note amounts include origination fees and interest deferred or to be deferred during the applicable Deferral Periods. 49

60 Massachusetts Educational Financing Authority Historic Loan Purchases (As of November 30, 2002) (In $000 s, except for percentages) Prior Bonds Amount of Original Lendable Proceeds Total Amount of Lendable Proceeds (and percentage) Expended Total Accreted Note Amount Number of Loans Issue A 1 (1983) $15,308 $15,374 (100%) $16,444 2,407 Issue B 1 (1984) 16,877 16,640 (99%) 18,365 2,376 Issue C 1 (1985) 71,021 76,549 (108%) 87,031 10,570 Issue D 1 ( ) 110, ,812 (112%) 139,119 14,488 Issue E 2, 3 ( , 1999, 2001, 2002) 693, ,474 (76%) 558,364 47,246 Issue G (1998, 2000) 252, ,721 (114%) 307,904 23,955 Total Bonds 3 $1,159,320 $1,044,570 $1,127, ,042 1 The Authority has fully paid the Issue A Bonds, the Issue B Bonds, the Issue C Bonds and the Issue D 1989 Bonds and any remaining current loans made with the proceeds of these issues have been forgiven and are therefore no longer outstanding. 2 Approximately $30,546,500 of the remaining lendable proceeds of the Series 1992A Bonds were transferred to the Series 1994 purchase account and the reserve fund in connection with the refunding of $30,870,000 of the Series 1992A Bonds. 3 Includes approximately $3.4 million Authority FFELP Loans. 50

61 Since the inception of the MEFA Loan Program in 1983, the volume, number of borrowers, number and kinds of participating institutions, and the types of MEFA Loans offered have expanded significantly. In 1983, thirteen (13) independent institutions participated in the program and 1,230 borrowers received MEFA Loans financed through the Authority. As of the current academic year, eighty-two (82) independent and public institutions are participating in the MEFA Loan Program. Annual MEFA Loan volume grew from approximately $7.5 million in face value for the academic year to approximately $92 million in face value for the academic year to date. The Authority projects additional MEFA Loan volume for the remainder of the academic year to be approximately $8 million in face value. The Authority s historic largest amount of MEFA Loan volume was $124 million in the academic year. Public institutions began participating in In the same year, the Authority introduced the MEFA Loans for Graduate Education Program for independent institutions. Participation by students at public institutions in the MEFA Loan Program has generally increased since The average size of MEFA Loans has grown steadily since 1983, reflecting rising education costs. The average initial principal amount of MEFA Loans financed during the academic year was $6,120. The average initial principal amounts of Undergraduate MEFA Loans and of MEFA Loans for Graduate Education financed during the academic year were $13,079 and $15,632, respectively. During the same period, the average MEFA Loan size at public institutions was $6,932. It is the Authority s usual practice to treat a MEFA Loan as Defaulted when such loan becomes 180 days past due. However, in certain limited circumstances, the Authority will not treat a MEFA Loan as Defaulted during a period of up to two years following the date it becomes 180 days past due if: (i) the Borrower has agreed to, and is complying with, a modified payment plan that is acceptable to the Authority and has agreed to bring the MEFA Loan current by the end of such two year period; or (ii) the Authority has reason to believe the delinquency is due to temporary circumstances and that the delinquency is likely to be cured during such two year period. It is also the Authority s practice not to treat a MEFA Loan as Defaulted while a bankruptcy proceeding involving the Borrower is pending. Such MEFA Loans are generally classified as delinquent. However, because MEFA Loans generally are nondischargeable in bankruptcy, payments on MEFA Loans of some Borrowers in bankruptcy proceedings are kept current, and in such cases it is the Authority s practice not to treat such MEFA Loans as Defaulted or delinquent. The Authority and the MEFA Loan Servicer continuously work with individual Borrowers in order to bring MEFA Loans current. As of December 31, 2002, approximately $5,647,334 or 0.50% of the accreted value of MEFA Loans purchased under the MEFA Loan Program had been repurchased by Participating Institutions for reasons of ineligibility, withdrawals from school, or delinquencies occurring shortly after repayment had commenced. The Authority will, with the Insurer s consent, for the most part eliminate the repurchase obligation with respect to all Participating Institutions, both retroactively and prospectively, effective upon the issuance of the Series 2003 Bonds. Based on the historical performance of the MEFA Loan portfolio, the Authority does not expect the elimination of this provision under the Loan Origination Agreements to materially adversely affect the sufficiency of Revenues and other moneys held in the funds and accounts under the Resolution to pay when due the Principal Installments of and interest on Bonds and Program Expenses. See SECURITY AND SOURCES OF PAYMENT Certain Recent MEFA Loan Program Modifications. 51

62 The following table shows the cumulative default experience of the MEFA Loan Program. Massachusetts Educational Financing Authority Default Experience (As of November 30, 2002) (In $000 s, except for percentages) Prior Bonds Original Accreted Note Value Gross Defaults Defaults Net of Recoveries 30-Nov Nov Nov Nov Nov Nov-02 Issue A (1983) $ 16,444 $ 16,444 $ % $ % $ % $ % Issue B (1984) 18,365 18, % % % % Issue C (1985) 87,031 87,031 3, % 3, % % % Issue D ( ) 139, ,119 5, % 5, % 1, % 1, % Issue E ( , 1999, 2001, 2002) 464, ,364 3, % 4, % 1, % 2, % Issue G (1998, 2000) 288, , % % % % Total Bonds $1,014,320 $1,127,227 $14, % $15, % $4, % $5, % 52

63 The following table shows the delinquency experience of the Authority under the MEFA Loan Program (other than Issue A, Issue B, Issue C and Issue D 1989): Massachusetts Educational Financing Authority Delinquency Experience (As of November 30, 2002) (In $000 s, except for percentages) Prior Bonds Original Accreted Note Value Outstanding Loan Balance Delinquent 30 to 90 days (or < 120 days for MEFA Loans for Graduate Education) Delinquent 90 to 180 days (or > 120 days for MEFA Loans for Graduate Education) Delinquent > 180 days (all Programs) 30-Nov Nov Nov Nov Nov Nov Nov Nov Nov Nov-02 Issue D ( ) $107,744 $107,744 $ 34,659 $ 30,478 $ 2, % $1, % $ % $ % $ % $ % Issue E ( , 1999, 2001, 2002) 464, , , ,983 11, % 10, % % % % % Issue G (1998, 2000) 288, , , ,085 5, % 6, % % % % % Total Bonds $861,105 $974,012 $657,072 $729,546 $18, % $18, % $1, % $1, % $ % $ % Total November 30, 2001 Delinquencies represent 2.34% of the Original Accreted Note Value. Total November 30, 2002 Delinquencies represent 2.05% of the Original Accreted Note Value. 53

64 Special and Optional Redemption Experience The following table sets forth the special and optional bond redemption experience of the Authority as of January 1, 2003, for each series of Prior Obligations which has experienced special or optional redemption within the past five years. In the case of special redemptions, the table sets forth the principal amount of Prior Obligations redeemed in the indicated calendar years from unexpended proceeds, prepayments and excess revenues. It does not include scheduled redemptions through sinking fund installments. The Authority cannot predict the actual average life of the Series 2003 Bonds, which is likely to be affected by the average life of the portfolio of Issue E Loans financed and the Authority s ability to recycle loan repayments and prepayments. The Authority s historical bond redemption experience does not reflect the financing of FFELP Loans. See THE SERIES 2003 BONDS Redemption Provisions Special Optional Redemption and SECURITY FOR THE BONDS AND SOURCES OF PAYMENT Projection of Revenues. 54

65 Massachusetts Educational Financing Authority Special Redemption Experience (1) (As of January 1, 2003) (In $000 s, except for percentages) Calendar Year Issue D (1990) Issue D (1991) (2) (3) Issue E (1992) Issue E (1994) Issue E (1995) Issue E (1996) Issue E (1997) Issue G (1998) Issue E (1999) Issue G (2000) Issue E (2001) Issue E (2002) 1993 $2, $4,850 $30, ,830 4, ,845 2,975 1, ,750 3,065 1,755 $1, ,505 2, ,480 $8,100 $0 $0 $ ,470 3,185 1,340 3,670 3,320 7, $ ,410 5,755 1,820 4,535 3,295 4,810 4, $ ,070 2,930 1,575 2,820 2,900 3,065 3,240 8, $ ,060 3,050 12,775 3,355 3,760 9,340 4,760 13,685 16,070 7,990 0 $ $ 1,040 $1,465 - $2,305 $ 2,575 $ 3,425 $ 3,590 $0 $ 5,245 $0 $0 $0 Total $26,675 $34,145 $54,260 $22,400 $23,950 $28,295 $16,500 $21,705 $21,315 $7,990 $0 $0 Debt Outstanding $4,335 $9,900 $0 $20,365 $18,595 $32,895 $40,290 $101,130 $75,270 $131,900 $153,275 $202,415 (1) Issue A of 1983 (fully paid in 1994), Issue B of 1984 (fully paid in 1995), Issue C of 1985 (fully paid in 1999) and Issue D of 1989 (fully paid in 2001) are omitted. (2) Issue E of 1992 was optionally refunded in (3) The Issue E of 1992 redemption in 1994 represents unexpended proceeds. 55

66 OTHER LENDING SOURCES In addition to the Authority Loan Program, there are a number of other sources available to students and/or their parents to finance or refinance the costs of higher education. Such other sources include, but are not limited to, the federal PLUS Loan Program. The terms and availability of financing under such programs vary and are subject to change from time to time. Although the Authority believes that Authority Loans will be competitive in the currently prevailing market for education loans, the availability of such other lending sources in general and of the federal programs described herein in particular may impact adversely the number and amount of loans which may be financed under the Authority Loan Program. See RISK FACTORS Competition, THE MEFA LOAN PROGRAM, THE AUTHORITY FFEL PROGRAM and APPENDIX I SUMMARY OF CERTAIN PROVISIONS OF THE FEDERAL FAMILY EDUCATION LOAN PROGRAM. LEGALITY OF BONDS FOR INVESTMENT Under the provisions of the Act, bonds of the Authority are made securities in which all public officers and public bodies of the Commonwealth and its political subdivisions, and all Massachusetts insurance companies, trust companies, savings banks, co-operative banks, banking associates, investment companies, executors, administrators, trustees and other fiduciaries, may properly and legally invest funds, including capital in their control or belonging to them. BONDS AS SECURITY FOR DEPOSIT Under the provisions of the Act, bonds of the Authority are made securities which may properly and legally be deposited with and received by any Commonwealth or municipal officer or any agency or political subdivision of the Commonwealth for any purpose for which the deposit of bonds or other obligations of the Commonwealth is now or may hereafter be authorized by law. NO LITIGATION At the time of delivery of and payment for the Series 2003 Bonds, the Authority s general counsel will deliver an opinion to the effect that there is no litigation, inquiry or investigation before or by any court, public board or body known to be pending or, to the best of such counsel s knowledge, threatened against the Authority affecting the creation, organization or corporate existence of the Authority or the title of its present members or officers to their respective offices; seeking to prohibit, restrain or enjoin the issuance or delivery of the Series 2003 Bonds or the collection of Revenues of the Authority or the pledge of assets and Revenues under the Resolution; in any way contesting or affecting the validity or enforceability of the Series 2003 Bonds, the Resolution, the Servicing Agreement, or the Operations Manual; or contesting in any material respect the completeness or accuracy of this Official Statement. Such opinion shall also be to the effect that the Authority is not unreasonable in its opinion that any litigation which is pending against the Authority is routine litigation incidental to the operations of the Authority unlikely to have a material effect on its power or authority to satisfy its obligations with respect to the Series 2003 Bonds. CERTAIN LEGAL MATTERS All legal matters related to the authorization, issuance, sale and delivery of the Series 2003 Bonds are subject to the approval of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Boston, Massachusetts, Bond Counsel and general counsel to the Authority. The unqualified approving opinion of such Bond Counsel, 56

67 substantially in the form set forth in APPENDIX E hereto, will be delivered upon the issuance of the Series 2003 Bonds. Certain legal matters will be passed upon for the Underwriters by their Co-counsel, Gadsby Hannah LLP, Boston, Massachusetts, and Hawkins, Delafield & Wood, New York, New York. TAX EXEMPTION Bond Counsel is of the opinion that, under existing law, interest on the Series 2003 Bonds will not be included in the gross income of holders of the Series 2003 Bonds for federal income tax purposes. Bond Counsel s opinion is expressly conditioned upon compliance by the Authority with certain requirements of the Internal Revenue Code of 1986, as amended (the Code ), which requirements must be satisfied after the date of issuance of the Series 2003 Bonds in order to assure that the interest on the Series 2003 Bonds is and continues to be excludable from the gross income of the holders of the Series 2003 Bonds. In particular, and without limitation: (i) section 144(b) of the Code imposes requirements for a qualified student loan bond; and (ii) section 148 of the Code requires that certain proceeds of the Series 2003 Bonds be invested at a yield not materially higher than the yield on the Series 2003 Bonds (as calculated pursuant to the Code) and that certain profits earned from investment of proceeds of the Series 2003 Bonds be rebated to the United States. The Authority has provided certifications and covenants as to its continued compliance with such requirements. Failure to so comply could cause the interest on the Series 2003 Bonds to be included in the gross income of the holders thereof retroactive to the date of issuance of the Series 2003 Bonds. In the opinion of Bond Counsel, under existing law, interest on the Series 2003 Bonds will constitute a preference item under section 57(a)(5) of the Code for purposes of computation of the alternative minimum tax imposed on certain individuals and corporations under section 55 of the Code. Prospective purchasers of the Series 2003 Bonds should also be aware that: (i) section 265 of the Code denies a deduction for interest on indebtedness incurred or continued to purchase or carry the Series 2003 Bonds or, in the case of a financial institution, that portion of a holder s interest expense allocated to the Series 2003 Bonds; (ii) with respect to insurance companies subject to the tax imposed by section 831 of the Code, section 832(b)(5)(B)(i) reduces the deduction for losses incurred by 15 percent of the sum of certain items, including interest on the Series 2003 Bonds; (iii) interest on the Series 2003 Bonds earned by certain foreign corporations doing business in the United States could be subject to a branch profits tax imposed by section 884 of the Code; (iv) passive investment income, including interest on the Series 2003 Bonds, may be subject to federal income taxation under section 1375 of the Code for S corporations that have accumulated earnings and profits at the close of the taxable year if greater than 25% of the gross receipts of such S corporation is passive investment income; (v) section 86 of the Code requires recipients of certain Social Security and Railroad Retirement benefits to take into account, in determining gross income, receipts or accruals of interest on the Series 2003 Bonds; and (vi) receipt of investment income, including interest on the Series 2003 Bonds, may disqualify the recipient thereof from obtaining the earned income credit under Section 32(i) of the Code. In the opinion of Bond Counsel, interest on the Series 2003 Bonds and any profit on the sale thereof are exempt from Massachusetts personal income taxes, and the Series 2003 Bonds are exempt from Massachusetts personal property taxes. Bond Counsel has not opined as to other Massachusetts tax consequences arising with respect to the Series 2003 Bonds. Prospective purchasers should be aware, however, that the Series 2003 Bonds are included in the measure of Massachusetts estate and inheritance taxes, and the Series 2003 Bonds and the interest thereon are included in the measure of Massachusetts corporate excise and franchise taxes. Bond Counsel has not opined as to the taxability of the Series 2003 Bonds or the income therefrom under the laws of any state other than Massachusetts. Notwithstanding the above, no opinion is expressed as to a Series 2003A Bond, Series 2003B Bond, Series 2003C Bond, Series 2003D Bond or Series 2003E Bond for any period following a conversion from an Auction Rate to a Weekly Rate or to a Fixed Rate. The Resolution requires, as a condition of such conversion, that there be rendered an opinion of Bond Counsel to the effect that such conversion will not impair the 57

68 exclusion of interest on the Series 2003 Bonds in question from gross income for purposes of federal income taxation or the exemption from taxation by The Commonwealth of Massachusetts, subject to the exceptions described herein. UNDERWRITING The Series 2003 Bonds are being purchased by UBS PaineWebber Inc., as representative of the Underwriters (the Underwriters ). The Underwriters have agreed, subject to certain conditions, to purchase all of the Series 2003 Bonds at par in exchange for an aggregate fee equal to $831,741. The Underwriters may offer and sell the Series 2003 Bonds to certain dealers (including dealers depositing the Series 2003 Bonds into investment trusts) and certain dealer banks and banks acting as agents at prices lower than the public offering prices or yields stated on the inside front cover page hereof and said offering prices or yields may be changed from time to time by the Underwriters. RATINGS Fitch, Inc. and Standard & Poor s Credit Market Services, a division of The McGraw-Hill Companies, Inc., will assign their municipal bond ratings of AAA and AAA, respectively, to the Series 2003 Bonds with the understanding that upon delivery of such Bonds, the Financial Guaranty Insurance Policy will be issued by the Insurer. Such ratings reflect only the views of such rating agencies, respectively, and any desired explanation of the significance of such ratings should be obtained from the rating agency furnishing the same, at the following addresses: Fitch, Inc., One State Street Plaza, New York, New York and Standard & Poor s, 25 Broadway, New York, New York In addition, such ratings do not address the market liquidity of the Series 2003 Bonds. The above ratings are not a recommendation to buy, sell or own the Series 2003 Bonds. There is no assurance that either of the ratings will continue for any given period of time or that either or both will not be lowered or withdrawn entirely if, in the judgment of the respective rating agency, circumstances so warrant. Neither the Authority nor the Underwriters have undertaken any responsibility either to bring to the attention of the Holders of the affected Series 2003 Bonds any proposed change in or withdrawal of such ratings or to oppose any such proposed revision. Any such change in or withdrawal of the ratings could have an adverse effect on the market price of the affected Series 2003 Bonds. See CONTINUING DISCLOSURE. NEGOTIABLE INSTRUMENTS Pursuant to the Act, the Series 2003 Bonds are negotiable instruments, subject only to the provisions for registration of the Bonds. COMMONWEALTH NOT LIABLE ON BONDS The Bonds shall not be deemed to constitute a debt or liability of the Commonwealth or any political subdivision, thereof, or a pledge of the faith and credit of the Commonwealth or any such political subdivision, but shall be payable solely from the Revenues and other moneys derived by the Authority under the Resolution. Neither the faith and credit nor the taxing power of the Commonwealth or of any political subdivision thereof is pledged to the payment of the principal of or the interest on the Bonds. The Act does not in any way create a so-called moral obligation of the Commonwealth or of any political subdivision thereof to pay debt service in the event of a default. The Authority does not have taxing power. 58

69 CONTINUING DISCLOSURE In order to assist the Underwriters in complying with Rule 15c2-12(b)(5) promulgated by the Securities and Exchange Commission (the Rule ), the Authority will enter into continuing disclosure agreements, with respect to each Series of the Series 2003 Bonds (each a Continuing Disclosure Agreement ) with the Trustee for the benefit of owners of such Series of the Series 2003 Bonds setting forth the undertaking of the Authority regarding continuing disclosure with respect to such Bonds. The proposed form of the Continuing Disclosure Agreement is set forth in APPENDIX F. The Authority has not failed to comply with any previous undertaking to provide annual reports or notices of material events in accordance with the Rule. AVAILABILITY OF FINANCIAL AND OTHER INFORMATION The financial statements of the Authority as of and for the years ended June 30, 2001 and June 30, 2002 included in APPENDIX A have been audited by PricewaterhouseCoopers LLP, independent public accountants, as stated in their report appearing in APPENDIX A. Such financial statements include information with respect to the Authority Loan Program generally, and with respect to Authority programs which are unrelated to education lending, as well as with respect to the Loan Program. Since the Series 2003 Bonds are special obligations of the Authority, payable only from the Revenues and other Loan Program assets pledged under the General Resolution, the overall financial status of the Authority, or that of the Authority Loan Program, does not indicate and does not necessarily affect whether the Revenues and other assets so pledged will be sufficient to fund the timely payment of principal installments, premium, if any, and interest on the Series 2003 Bonds. See SECURITY FOR THE BONDS AND SOURCES OF PAYMENT. Under the Resolution, the Authority is required to prepare an annual report with respect to each Fiscal Year ending June 30. Each annual report will include information relating to Authority operations and financial statements for the Fiscal Year ending June 30. Copies of the most recent report may be obtained at the offices of the Authority. FINANCIAL ADVISOR Public Financial Management, Inc. ( PFM ) has acted as financial advisor to the Authority with respect to the Series 2003 Bonds and to certain interest rate exchange agreements which the Authority currently expects to enter into in connection with the Series 2003 Bonds. PFM is not obligated to undertake, and has not undertaken, either to make an independent verification of or to assume responsibility for, the accuracy, completeness, or fairness of the information contained in this Official Statement and the appendices hereto. PFM is an independent financial advisory firm and is not engaged in the business of underwriting, trading or distributing securities or other public securities. MISCELLANEOUS The references to the Act, the Resolution, the Loan Origination Agreements, the Servicing Agreements, the Operations Manual and the Federal Family Education Loan Program are brief summaries of certain provisions thereof. Such summaries do not purport to be complete, and reference is made thereto for full and complete statements of such and all provisions. The agreements of the Authority with the holders of the Bonds are fully set forth in the Resolution, and neither any advertisement of the Bonds nor this Official Statement is to be construed as constituting an agreement with the purchasers of the Bonds. So far as any statements are made in this Official Statement involving matters of opinion, whether or not expressly so stated, they are intended merely as such and not as representations of fact. Copies of the documents, other than the 59

70 Higher Education Act and administrative regulations and pronouncements thereunder, mentioned in this paragraph are on file at the offices of the Authority. The execution and delivery of this Official Statement have been duly authorized by the Authority. MASSACHUSETTS EDUCATIONAL FINANCING AUTHORITY Dated: February 26, 2003 By: /s/_thomas M. Graf Executive Director 60

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