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<B><FONT size="2">As filed with the Securities and Exchange
Commission on August&nbsp;19, 2003</FONT></B>
</DIV>

<DIV align="right">
<B><FONT size="2">Registration
No.&nbsp;333-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B>
</DIV>

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<B><FONT size="4">SECURITIES AND EXCHANGE COMMISSION</FONT></B>

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<B>Washington, DC 20549</B>
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<B><FONT size="5">Form S-1</FONT></B>

<DIV align="center">
<B>REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933</B>
</DIV>

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<P align="center">
<B><FONT size="6">Nelnet, Inc.</FONT></B>

<DIV align="center">
<I><FONT size="2">(Exact name of registrant as specified in its
charter)</FONT></I>
</DIV>

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    <TD width="34%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="32%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="28%"><FONT size="2">&nbsp;</FONT></TD>
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    <B><FONT size="2">Nebraska</FONT></B></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <B><FONT size="2">6141</FONT></B></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <B><FONT size="2">84-0748903</FONT></B></TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <I><FONT size="2">(State or other jurisdiction of<BR>
    incorporation or organization)</FONT></I></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <I><FONT size="2">(Primary Standard Industrial<BR>
    Classification Code Number)</FONT></I></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <I><FONT size="2">(I.R.S. Employer<BR>
    Identification No.)</FONT></I></TD>
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<B><FONT size="2">121 South 13th Street,
Suite&nbsp;201</FONT></B>

<DIV align="center">
<B><FONT size="2">Lincoln, Nebraska 68508</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">Telephone: (402)&nbsp;458-2370</FONT></B>
</DIV>

<DIV align="center">
<I><FONT size="2">(Address, including zip code, and telephone
number, including area code, of registrant&#146;s principal
executive offices)</FONT></I>
</DIV>

<P align="center">
<B><FONT size="2">Terry J. Heimes</FONT></B>

<DIV align="center">
<B><FONT size="2">Chief Financial Officer</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">Nelnet, Inc.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">121 South 13th Street,
Suite&nbsp;201</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">Lincoln, Nebraska 68508</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">Telephone: (402)&nbsp;458-2303</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">Facsimile: (402)&nbsp;458-2294</FONT></B>
</DIV>

<DIV align="center">
<I><FONT size="2">(Name, address, including zip code, and
telephone number, including area code, of agent for
service)</FONT></I>
</DIV>

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<B><I><FONT size="2">Copies to:</FONT></I></B>

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<TR>
    <TD width="24%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="47%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="23%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <B><FONT size="2">Gerald S. Tanenbaum, Esq.<BR>
    Cahill Gordon &#38; Reindel LLP<BR>
    80 Pine Street<BR>
    New York, New York 10005<BR>
    Telephone: (212)&nbsp;701-3000<BR>
    Facsimile: (212)&nbsp;269-5420</FONT></B></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <B><FONT size="2">Daniel F. Kaplan, Esq.<BR>
    Perry, Guthery, Haase&nbsp;&#38;
    Gessford,&nbsp;P.C.,&nbsp;L.L.O.<BR>
    233 South 13th Street, Suite&nbsp;1400<BR>
    Lincoln, Nebraska 68508<BR>
    Telephone: (402)&nbsp;476-9200<BR>
    Facsimile: (402)&nbsp;476-0094</FONT></B></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <B><FONT size="2">Joseph A. Hall, Esq.<BR>
    Davis Polk &#38; Wardwell<BR>
    450 Lexington Avenue<BR>
    New York, New York 10017<BR>
    Telephone: (212)&nbsp;450-4000<BR>
    Facsimile: (212)&nbsp;450-3800</FONT></B></TD>
</TR>

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<P align="center">
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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Approximate date of commencement of proposed
sale to the public:</FONT></B><FONT size="2"> As soon as
practicable after the effective date of this registration
statement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If any of the securities being registered on this
Form are to be offered on a delayed or continuous basis pursuant
to Rule&nbsp;415 under the Securities Act, check the following
box.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;</FONT>
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If this Form is filed to register additional
securities for an offering pursuant to Rule&nbsp;462(b) under
the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier
effective registration statement for the same
offering.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;</FONT>
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If this Form is a post-effective amendment filed
pursuant to Rule&nbsp;462(c) under the Securities Act, check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the
same
offering.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;</FONT>
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If this Form is a post-effective amendment filed
pursuant to Rule&nbsp;462(d) under the Securities Act, check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the
same
offering.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;</FONT>
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If delivery of the prospectus is expected to be
made pursuant to Rule&nbsp;434, please check the following
box.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;</FONT>
</FONT>

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<B><FONT size="2">CALCULATION OF REGISTRATION FEE</FONT></B>

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<TR>
    <TD width="49%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="21%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="24%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
</TR>

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    <TD colspan="5" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
</TR>

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    <TD colspan="5" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Proposed Maximum</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Title of Each Class of Securities to be Registered</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Aggregate Offering Price(1)</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Amount of Registration Fee</FONT></B></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
</TR>

<TR>
    <TD colspan="5" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Class&nbsp;A common stock, par value $0.01 per
    share
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">$200,000,000
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">$16,180
    </FONT></TD>
</TR>

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    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

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<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Estimated solely for the purpose of calculating
    the registration fee pursuant to Rule&nbsp;457(o) under the
    Securities Act.
    </FONT></TD>
</TR>

</TABLE>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">The registrant hereby amends this registration
statement on such date or dates as may be necessary to delay its
effective date until the registrant shall file a further
amendment which specifically states that this registration
statement shall thereafter become effective in accordance with
Section&nbsp;8(a) of the Securities Act or until the
registration statement shall become effective on such date as
the Commission, acting pursuant to said Section&nbsp;8(a), may
determine.</FONT></B>

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<TABLE width="100%" border="1" cellpadding="5"><TR><TD>
<FONT size="2" color="#E8112D">Information contained herein is
subject to completion or amendment. A registration statement
relating to these securities has been filed with the Securities
and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration
statement becomes effective. This prospectus shall not
constitute an offer to sell or the solicitation of an offer to
buy nor shall there be any sale of these securities in any state
in which such offer, solicitation or sale would be unlawful
prior to registration or qualification under the securities laws
of any such state.</FONT><FONT size="2"> <BR>
</FONT>
</TD></TR></TABLE>

<P align="center">
<FONT size="2"> <FONT color="#E8112D">Subject to completion,
dated August&nbsp;19, 2003</FONT>
</FONT>

<DIV align="left">
<B>Prospectus</B>
</DIV>

<DIV align="center">
<B><FONT size="5">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shares</FONT></B>
</DIV>

<P align="center">
<IMG src="y88696y8869600.gif" alt="(NELNET LOGO)">

<DIV align="center">
<B><FONT size="5">Class&nbsp;A Common Stock</FONT></B>
</DIV>

<P align="left">
<FONT size="2">Nelnet, Inc. is selling all of the shares of
Class&nbsp;A common stock in this offering. This is the initial
public offering of our Class&nbsp;A common stock. The estimated
initial public offering price is between
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;and
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share.
</FONT>

<P align="left">
<FONT size="2">Prior to this offering, there has been no public
market for our Class&nbsp;A common stock. We intend to apply for
the listing of shares of our Class&nbsp;A common stock on the
New York Stock Exchange under the symbol &#147;NNI.&#148;
</FONT>

<P align="left">
<FONT size="2">Each share of Class&nbsp;A common stock has one
vote and each share of Class&nbsp;B common stock has ten votes.
Following this offering, Michael S. Dunlap and Stephen F.
Butterfield, our Co-Chief Executive Officers, and persons
related to them will beneficially own Class&nbsp;A and
Class&nbsp;B common stock
representing &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
of the combined voting power of our common stock, and will
control substantially all matters requiring approval by our
shareholders.
</FONT>

<P align="left">
<B>Investing in our Class&nbsp;A common stock involves risks.
See &#147;Risk Factors&#148; beginning on page&nbsp;7.</B>

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<TR>
    <TD width="65%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="9"></TD>
</TR>

<TR>
    <TD colspan="9" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Per share</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
</TR>

<TR>
    <TD colspan="9"></TD>
</TR>

<TR>
    <TD colspan="9" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Initial public offering price
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="9" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Underwriting discounts
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="9" align="left"><HR size="1" noshade></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proceeds to Nelnet, before expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="9" align="left"><HR size="1" noshade></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<FONT size="2">We have granted the underwriters an option for a
period of 30&nbsp;days to purchase up
to &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;additional
shares of our Class&nbsp;A common stock on the same terms and
conditions set forth above to cover overallotments, if any.
</FONT>

<P align="left">
<B><FONT size="2">Neither the Securities and Exchange Commission
nor any state securities commission has approved or disapproved
of these securities or passed upon the adequacy or accuracy of
this prospectus. Any representation to the contrary is a
criminal offense.</FONT></B>

<P align="left">
<FONT size="2">The underwriters expect to deliver the shares of
Class&nbsp;A common stock to investors
on &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2003.
</FONT>

<P align="center">
<HR size="1" width="33%" align="center" noshade>

<P align="center">
<I><FONT size="2">Joint Book-Running Managers</FONT></I>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="50%"></TD>
    <TD width="50%"></TD>
</TR>

<TR valign="top">
    <TD align="left"><B><FONT size="4">JPMorgan</FONT></B></TD>
    <TD align="right"><B><FONT size="4">Banc of America Securities LLC</FONT></B></TD>
</TR>

</TABLE>

<P align="center">
<HR size="1" width="33%" align="center" noshade>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="50%"></TD>
    <TD width="50%"></TD>
</TR>

<TR valign="top">
    <TD align="left"><B><FONT size="4">Credit Suisse First Boston</FONT></B></TD>
    <TD align="right"><B><FONT size="4">Morgan Stanley</FONT></B></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2003
</FONT>

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<P align="center">
<B><FONT size="2">TABLE OF CONTENTS</FONT></B>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="90%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Page</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Prospectus Summary
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Risk Factors
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Forward-Looking Statements
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">18</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Use of Proceeds
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">19</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Dividend Policy
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">19</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Capitalization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">20</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Dilution
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">21</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Selected Consolidated Financial Data
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">22</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Management&#146;s Discussion and Analysis of
    Financial Condition and Results of Operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">24</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Industry Overview
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">40</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Business
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Management
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">57</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Principal Shareholders
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">67</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Certain Transactions
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">70</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Description of Capital Stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">76</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Shares Eligible for Future Sale
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">82</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">United States Tax Consequences to Non-U.S.
    Holders of Class&nbsp;A Common Stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">84</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Underwriting
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">86</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Legal Matters
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">89</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Experts
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">89</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Where You Can Find More Information
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">89</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Index to Financial Statements
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">F-1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Annex A&nbsp;&#151; The Federal Family Education
    Loan Program
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">A-1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">You should rely only on the information contained
in this prospectus. We have not authorized anyone to provide you
with information different from that contained in this
prospectus. We are offering to sell, and seeking offers to buy,
shares of our Class&nbsp;A common stock only in jurisdictions
where offers and sales are permitted. The information contained
in this prospectus is accurate only as of the date of this
prospectus, regardless of the time of delivery of this
prospectus or of any sale of our Class&nbsp;A common stock.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">No action is being taken in any jurisdiction
outside the United States to permit a public offering of the
Class&nbsp;A common stock or possession or distribution of this
prospectus in that jurisdiction. Persons who come into
possession of this prospectus in jurisdictions outside the
United States are required to inform themselves about and to
observe any restrictions as to this offering and the
distribution of this prospectus applicable to those
jurisdictions.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Until &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2003, all dealers that buy, sell or trade in our Class&nbsp;A
common stock, whether or not participating in this offering, may
be required to deliver a prospectus. This is in addition to the
dealers&#146; obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or
subscriptions.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The product and service names and logos used in
this prospectus are service marks/trademarks or registered
service marks/trademarks of Nelnet or its affiliates. Nelnet,
Nconcert, Ntrust, Ngenius, Nteract, Nservice, Nelnet Notes and
@theU are service marks of Nelnet, Inc. Other products, services
and company names mentioned in this prospectus are the service
marks/trademarks of their respective owners.
</FONT>

<P align="center">
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<!-- link1 "PROSPECTUS SUMMARY" -->

<P align="center">
<B><FONT size="2">PROSPECTUS SUMMARY</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">In this prospectus, unless the context
requires otherwise, &#147;Nelnet,&#148; &#147;we,&#148;
&#147;us&#148; and &#147;our&#148; refer to Nelnet, Inc., a
Nebraska corporation, and its subsidiaries, and not to the
underwriters. A detailed description of the Federal Family
Education Loan Program appears in Annex&nbsp;A to this
prospectus.</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">This summary highlights selected information
contained elsewhere in this prospectus. This summary does not
contain all the information you should consider before investing
in shares of our Class&nbsp;A common stock. You should read this
entire prospectus carefully, including &#147;Risk Factors&#148;
and our financial statements and the related notes, before
making an investment decision.</FONT></I>

<P align="center">
<B><FONT size="2">Nelnet, Inc.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We are a leading, vertically integrated education
finance company, focused on providing quality products and
services to participants in the education finance process.
Headquartered in Lincoln, Nebraska, we originate, hold and
service student loans, principally loans originated under the
Federal Family Education Loan Program, which we refer to as the
FFEL Program or FFELP. For 2002, we were the fourth largest
holder and second largest servicer of FFELP loans. In addition,
we, together with our branding partners, are a leading
originator of FFELP loans.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We offer a broad range of financial services and
technology-based products, including student loan origination
and lending, student loan and guarantee servicing and a suite of
software solutions. Our products are designed to simplify the
student loan process by automating financial aid delivery, loan
processing and funds disbursement. Our infrastructure,
technological expertise and breadth of product and service
offerings connect the key constituents of the student loan
process, including lenders, financial aid officers, guaranty
agencies, governmental agencies, student and parent borrowers,
servicers and the capital markets, thereby streamlining the
education finance process.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our business is divided into four primary
business units:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><I><FONT size="2">Student loan originations, acquisitions and
    portfolio management</FONT></I></B><FONT size="2">&nbsp;&#151;
    provides student loan sales, marketing, origination, acquisition
    and portfolio management.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><I><FONT size="2">Student loan
    servicing</FONT></I></B><FONT size="2">&nbsp;&#151; provides
    student loan servicing for our portfolio and for third parties.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><I><FONT size="2">Guarantee
    servicing</FONT></I></B><FONT size="2">&nbsp;&#151; provides
    software systems and sub-servicing to guaranty agencies.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><I><FONT size="2">Servicing
    software</FONT></I></B><FONT size="2">&nbsp;&#151; provides
    student loan servicing software internally and to third-party
    student loan holders and servicers.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We originate and acquire loans through a variety
of different channels, including originations through our direct
channel and acquisitions through our branding partner channel,
our forward flow channel and the secondary market. In 2002, we
originated and acquired $2.7&nbsp;billion in student loans,
including $859&nbsp;million in consolidation loans. As of
June&nbsp;30, 2003, our student loan portfolio was
$9.5&nbsp;billion. We currently service $18&nbsp;billion in
student loans, and our software is used by third parties to
service an additional $30&nbsp;billion in student loans. In
addition, we currently provide servicing support to guaranty
agencies that guarantee $18&nbsp;billion in student loans. We
have relationships with hundreds of colleges and universities
and provide student loan servicing either directly or through
our proprietary software to approximately 1.75&nbsp;million
borrowers.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We generate the majority of our earnings from the
spread between the yield we receive on our student loan
portfolio and the cost of funding these loans. While the spread
may vary due to fluctuations in interest rates, government
special allowance payments ensure that we receive a minimum
yield on our student loans, as long as certain requirements are
met. For the year ended December&nbsp;31, 2002, we generated net
interest income of $190.9&nbsp;million, total other income,
including loan servicing income, of $125.8&nbsp;million and net
income of $48.5&nbsp;million.
</FONT>

<P align="center"><FONT size="2">1
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="left">
<B><FONT size="2">Student Loan Industry</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Since the creation of federal student loan
programs, over $485&nbsp;billion in federal student loans have
financed the higher education of more than 67&nbsp;million
students at thousands of schools across the United States. More
students and families depend on federal student loans to cover
the costs of post-secondary education than any other single
source of financial aid, and the demand for student loans is
expected to grow along with the cost of a college education.
According to projections by the U.S.&nbsp;Department of
Education, or DOE, annual gross federal student loan volume is
expected to increase from $45.4&nbsp;billion in federal fiscal
year 2002 to $71.8&nbsp;billion in federal fiscal year 2009,
excluding consolidation loan volume.
</FONT>

<P align="left">
<B><FONT size="2">Competitive Strengths</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following competitive strengths distinguish
us in the education finance industry:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><I><FONT size="2">We are a focused leader with a vertically
    integrated platform.</FONT></I></B><FONT size="2"> We provide
    school financial aid offices and students with a comprehensive,
    full-service student lending package (Stafford, PLUS,
    consolidation and private loans), loan and guarantee servicing
    and loan servicing software. In doing so, we maintain a strong
    position and expertise in each of our primary business units and
    are well positioned to capitalize on industry growth.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><I><FONT size="2">We have established a high-quality loan
    portfolio through our concentration on FFELP
    loans.</FONT></I></B><FONT size="2"> As of June&nbsp;30, 2003,
    more than 99% of our student loan portfolio consisted of FFELP
    loans, which carry at least a 98% federal guarantee on principal
    and accrued interest.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><I><FONT size="2">We enjoy strong relationships with student
    loan market constituents.</FONT></I></B><FONT size="2"> We have
    established long-term strategic relationships with school
    financial aid offices and with eligible lenders that direct
    committed portions of their originations to us. The effort and
    cost to establish and maintain these relationships, as well as
    the low turnover of selected providers, act as a barrier to
    entry for competitors.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><I><FONT size="2">We have benefited from access to
    cost-effective financings.</FONT></I></B><FONT size="2"> Our
    $2&nbsp;billion loan warehousing capacity allows us to pool
    student loans in order to aggregate sufficient volume for
    cost-effective long-term financing and to time securitization
    market conditions effectively. As a result, our securitizations
    routinely price in line with our largest competitor within the
    student loan industry.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><I><FONT size="2">We have built a leading, cost-competitive
    servicing platform with a focus on asset
    protection.</FONT></I></B><FONT size="2"> Our student loan
    servicing platform, which facilitates interaction with
    borrowers, is critical to our success as a lender in the student
    loan marketplace. The quality of our servicing capability is
    also a key factor in preserving the federal guarantee on our
    FFELP loans. The quality of our servicing operation is best
    demonstrated by our low initial claim reject rate due to
    servicer error, which was 0.25% in 2002.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><I><FONT size="2">Our comprehensive suite of software
    products enables us to carry our brand forward to the key
    constituents of the student loan
    market.</FONT></I></B><FONT size="2"> Our products include an
    Internet-based financial aid delivery and management system, an
    Internet-based loan origination system and a centralized
    disbursement agent service. Our &#147;open architecture&#148;
    origination products afford schools the flexibility to work with
    multiple lenders.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><I><FONT size="2">We are run by a management team with
    significant operating and acquisition
    experience.</FONT></I></B><FONT size="2"> Our senior management
    employees have, on average, been with us or one of our
    predecessor companies for over ten years. We have a track record
    of successfully integrating the companies that we have acquired
    and retaining key employees. As a result, we have a management
    team with significant experience and knowledge in both student
    loan operations and portfolio and company acquisitions.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">Strategy</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We intend to achieve our corporate objective of
furthering our leadership position in the student loan industry
by executing the following strategies:
</FONT>

<P align="center"><FONT size="2">2
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><I><FONT size="2">Establish and maintain leadership in all
    business units by leveraging our
    technology.</FONT></I></B><FONT size="2"> We believe that our
    technology solutions position us as a leading provider for the
    student lending market. We will continue to invest, develop and
    upgrade our technology to help solidify our leadership position
    and further penetrate our potential market.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><I><FONT size="2">Maximize organic growth and profitability
    by maintaining low cost
    infrastructure.</FONT></I></B><FONT size="2"> We believe there
    is continued opportunity for significant growth in light of the
    DOE&#146;s projected growth rates for the student loan industry.
    We believe the infrastructure we have developed has positioned
    us to continue to achieve economies of scale and be a low-cost
    provider to our customers. In this regard, we decreased our
    operating expenses as a percentage of average student loans from
    0.78% in 1998 to 0.54% in 2002.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><I><FONT size="2">Strengthen existing relationships while
    establishing new ones.</FONT></I></B><FONT size="2"> We have
    extensive customer relationships with schools and lenders
    throughout the United States. We will continue to leverage the
    strength and depth of these relationships and will continue to
    broaden them while establishing new ones through our sales force.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><I><FONT size="2">Continue our commitment to highly focused
    and disciplined loan origination and acquisition
    practices.</FONT></I></B><FONT size="2"> We will continue to
    pursue our conservative approach to asset quality by
    concentrating on originating, acquiring and holding federally
    guaranteed loans through the FFEL Program, while maintaining a
    disciplined underwriting approach to private loans.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><I><FONT size="2">Opportunistically make company and
    portfolio acquisitions.</FONT></I></B><FONT size="2"> Although
    we have reached a point in our development where we offer a
    comprehensive set of products and services essential to our
    vertically integrated business model, we will still consider
    acquisitions of both individual companies and loan portfolios
    that we believe have the potential to enhance long-term
    shareholder value.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">Items Which Will Effect Future Operating
Results</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our third quarter operating results will reflect
compensation expense of $3.9&nbsp;million related to special
bonuses paid to two executive officers, as described under
&#147;Management&nbsp;&#151; Executive Compensation,&#148; and
to four other employees. In addition, in March 2003, we issued
331,800&nbsp;shares of our Class&nbsp;A common stock to
35&nbsp;employees for an aggregate consideration of $806,274. In
the quarter in which this offering is consummated, we will
recognize a compensation charge of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million,
which is equal to the difference between the initial public
offering price of that number of shares and the price paid by
the employees. There will be no net effect on shareholders&#146;
equity as a result of this transaction since additional paid-in
capital will be credited by an amount equal to the compensation
charge.
</FONT>

<P align="left">
<B><FONT size="2">Risk Factors</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">You should consider the risks that we face in
evaluating an investment in our Class&nbsp;A common stock. Among
these risks are the uncertainties surrounding the
reauthorization of the Higher Education Act of 1965, as amended,
and all regulations thereunder, which we refer to collectively
as the Higher Education Act, which is scheduled to expire in
September 2004, and the fact that we operate in a highly
competitive industry and compete directly against large and
well-financed competitors. See &#147;Risk Factors.&#148;
</FONT>

<P align="center">
<HR size="1" width="33%" align="center" noshade>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our principal executive offices are located at
121&nbsp;South 13th&nbsp;Street, Suite&nbsp;201, Lincoln,
Nebraska 68508, and our telephone number is (402)&nbsp;458-2370.
Our web site is <I>www.nelnet.net</I>. Information contained on
our web site is not a part of this prospectus.
</FONT>

<P align="center"><FONT size="2">3
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="center">
<B><FONT size="2">The Offering</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="34%"></TD>
    <TD width="1%"></TD>
    <TD width="65%"></TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Class&nbsp;A common stock offered by Nelnet
    </FONT></TD>
    <TD></TD>
    <TD valign="top">

<FONT size="2"><DIV style="margin-left: 0px; text-indent: 64px">shares</DIV>
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Common stock to be outstanding after this
    offering:
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Class&nbsp;A common
    stock
    </FONT></TD>
    <TD></TD>
    <TD valign="top">

<FONT size="2"><DIV style="margin-left: 0px; text-indent: 64px">shares</DIV>
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Class&nbsp;B common
    stock
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">14,023,454&nbsp;shares <BR>
     <HR size="1" align="left" noshade>
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total
    </FONT></TD>
    <TD></TD>
    <TD valign="top">

<FONT size="2"><DIV style="margin-left: 0px; text-indent: 64px">shares</DIV>
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Use of proceeds
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">To originate and acquire student loans, repay
    $30.0&nbsp;million of revolving credit indebtedness and for
    general corporate purposes, including capital expenditures,
    working capital and possible acquisitions of complementary
    businesses or assets. See &#147;Use of Proceeds.&#148;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Voting rights
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">Each share of Class&nbsp;A common stock has one
    vote and each share of Class&nbsp;B common stock has ten votes
    on all matters to be voted upon by our shareholders. In the
    event at any time the shares of Class&nbsp;B common stock
    outstanding constitute less than 50% of the Class&nbsp;B common
    stock outstanding on the date hereof, each remaining share of
    Class&nbsp;B common stock outstanding shall automatically be
    converted into one share of Class&nbsp;A common stock. See
    &#147;Description of Capital Stock&nbsp;&#151; Common
    Stock.&#148;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Dividend policy
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">Nelnet does not anticipate paying any cash
    dividends on its common stock.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Proposed New York Stock Exchange symbol
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">&#147;NNI.&#148;
    </FONT></TD>
</TR>

</TABLE>

<P align="center">
<HR size="1" width="33%" align="center" noshade>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Unless specifically stated otherwise, the
information in this prospectus:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">assumes no exercise of the underwriters&#146;
    overallotment option
    of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">assumes an initial public offering price of
    $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
    share, the midpoint of the estimated initial public offering
    price range indicated on the front cover of this prospectus; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">reflects our recapitalization described below
    under the heading &#147;Description of Capital Stock&nbsp;&#151;
    Recapitalization.&#148;
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">4
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="center">
<B><FONT size="2">Summary Consolidated Financial Data</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">You should read the summary consolidated
financial data set forth below in conjunction with
&#147;Management&#146;s Discussion and Analysis of Financial
Condition and Results of Operations&#148; and our financial
statements and the related notes included elsewhere in this
prospectus. We derived the financial data as of
December&nbsp;31, 2002 and 2001 and for the years ended
December&nbsp;31, 2002, 2001 and 2000 from our audited financial
statements included elsewhere in this prospectus. We derived the
financial data as of December&nbsp;31, 2000 from our audited
financial statements not included in this prospectus. We derived
the financial data as of June&nbsp;30, 2003 and for the six
months ended June&nbsp;30, 2003 and 2002 from our unaudited
financial statements included elsewhere in this prospectus.
Results for interim periods are not necessarily indicative of
results to be expected during the remainder of the fiscal year
or for any future periods. The as adjusted balance sheet data
set forth below have been adjusted to give effect to the sale
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our Class&nbsp;A common stock in this offering and the use of
$30.0&nbsp;million of the net proceeds from this offering to
repay revolving credit indebtedness. See
&#147;Capitalization.&#148;
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="35%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Six months ended June 30,</FONT></B></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Year ended December 31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2000</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">(dollars in thousands, except per share data)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Income Statement Data:</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net interest income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">91,923</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">116,135</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">190,900</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">114,565</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">64,853</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Less provision for loan losses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,860</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,116</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,587</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,925</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,370</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net interest income after provision for loan
    losses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">87,063</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">114,019</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">185,313</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">110,640</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">63,483</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Loan servicing and other fee income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">48,307</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">54,812</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">103,899</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">93,172</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">66,015</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Software services and other income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,454</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,392</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,909</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,713</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,431</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">114,510</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">115,863</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">229,873</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">191,478</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">126,485</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income before income taxes and minority interest
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,314</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">62,360</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">81,248</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,047</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,444</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,904</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37,788</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">48,538</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,147</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,520</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Earnings per share, basic and diluted
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.40</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.84</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.08</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.16</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.11</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Weighted average shares outstanding
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">45,010,490</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">44,971,290</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">44,971,290</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">44,331,490</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41,187,230</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="21"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Other Data:</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Origination and acquisition volume(a)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,835,954</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,076,345</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,665,786</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,448,607</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,027,498</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Average student loans
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,176,244</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,887,699</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,171,898</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,135,227</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,388,156</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Student loans serviced (at end of period)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,866,278</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,169,306</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,863,210</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,585,295</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,971,095</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="21"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Ratios:</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net interest margin(b)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.86</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.68</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.15</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.09</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.76</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Return on average total assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.35</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.83</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.52</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.12</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.12</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Return on average equity
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29.2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">80.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">46.7</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11.7</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8.2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loan charge-offs as a percentage of average
    student loans
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.033</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.014</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.047</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.042</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.055</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">5
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="37%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">As of June&nbsp;30, 2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">As of December 31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Actual</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">As adjusted</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2000</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">(in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Balance Sheet Data:</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and cash equivalents
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47,776</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,155</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">36,440</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,263</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Student loan receivables, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,466,523</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,559,420</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,423,872</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,585,943</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,413,114</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,766,583</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,134,560</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,021,948</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Bonds and notes payable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,179,726</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,447,682</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,926,362</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,934,130</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Shareholders&#146; equity
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">127,189</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">109,122</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">63,186</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">54,161</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(a)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Initial loans originated and acquired through
    various channels, including originations through our direct
    channel and acquisitions through our branding partner channel,
    our forward flow channel and the secondary market.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(b)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Net interest margin is computed by dividing net
    interest income by the sum of average student loans and the
    average balance of other interest earning assets.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">6
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<!-- link1 "RISK FACTORS" -->

<P align="center">
<B><FONT size="2">RISK FACTORS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">You should carefully consider the following
risk factors and all other information contained in this
prospectus before investing in shares of our Class&nbsp;A common
stock. Investing in our Class&nbsp;A common stock involves a
high degree of risk. If any of the following risks, or any other
risks and uncertainties that we have not yet identified or that
we currently think are immaterial, actually occur, our business,
financial condition and results of operations could be
materially and adversely affected. In that event, the trading
price of our Class&nbsp;A common stock could decline and you may
lose part or all of your investment.</FONT></I>

<P align="left">
<B><FONT size="2">Risks Related to Our Business and
Industry</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Failure to comply with governmental
    regulations or guaranty agency rules could harm our
    business.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our principal business is comprised of
originating, acquiring, holding and servicing student loans made
and guaranteed pursuant to the FFEL Program, which was created
by the Higher Education Act. Most significant aspects of our
lines of business are governed by the Higher Education Act. We
are also subject to rules and regulations of the agencies that
act as guarantors of the student loans, known as guaranty
agencies. In addition, we are subject to certain federal and
state banking laws, regulations and examinations, as well as
federal and state consumer protection laws and regulations in
connection with private loans, which do not carry a federal
guarantee.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The federal guarantee on our FFELP loans is
conditioned on compliance with origination, servicing and
collection standards set by the DOE and guaranty agencies. FFELP
loans that are not originated, disbursed or serviced in
accordance with DOE regulations risk loss of their guarantee, in
full or in part. If we experience a high rate of servicing
deficiencies or costs associated with remedial servicing, and if
we are unsuccessful in curing such deficiencies, the eventual
losses on the loans that are not cured could be material.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Regulations authorize the DOE to limit, suspend
or terminate lenders&#146; participation in the FFEL Program, as
well as to impose civil penalties, if lenders violate certain
program regulations. The regulations also authorize the DOE to
impose penalties on the servicer and/or limit, suspend or
terminate the servicer&#146;s eligibility to contract to service
FFELP loans if the servicer fails to meet standards of financial
responsibility or administrative capability included in the
regulations or violates certain other FFELP requirements. The
DOE conducts frequent on-site audits of our loan servicing
activities. Guaranty agencies conduct similar audits on a
regular basis. In addition, we engage independent third parties
to conduct compliance reviews, as required by the DOE, with
respect to our own student loan portfolio and the portfolios of
our third-party servicing clients.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our servicing customers that are financial
institutions are subject to examinations under certain banking
laws and regulations. We are in turn subject to examination and
audit under these laws and regulations. These examinations are
routinely performed by regulatory bodies such as the Federal
Deposit Insurance Corporation, the Office of the Comptroller of
the Currency or the Office of Thrift Supervision, depending upon
the type of financial institution being examined.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our private loan portfolio is also subject to
federal and state consumer protection laws and regulations,
including state usury laws and related regulations and the
Federal Truth in Lending Act. These laws and regulations impose
substantial requirements upon lenders and servicers involved in
consumer finance. Failure to comply with these laws and
regulations could result in our liability to borrowers, the
imposition of civil penalties and potential class action suits.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our failure to comply with any of the above
regulatory regimes due to, among other things, compliance
errors, breaches of our internal control system, technological
defects or fraud by our employees or other persons could subject
us to potential legal actions. Legal actions could also arise as
a result of an operational deficiency, failure to comply with
contractual commitments, imprudent business decisions and
customer attrition due to potential negative publicity.
</FONT>

<P align="center"><FONT size="2">7
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">We must satisfy certain requirements
    necessary to maintain the federal guarantees of our FFELP loans
    and we may incur penalties or lose our guarantees if we fail to
    meet these requirements.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We must meet various requirements in order to
maintain the federal guarantee on our FFELP loans. These
requirements establish servicing requirements and procedural
guidelines and specify school and borrower eligibility criteria.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A guaranty agency may reject a loan for claim
payment due to a violation of FFEL Program due diligence
collection and servicing requirements. In addition, a guaranty
agency may reject claims under other circumstances, including,
for example, if a claim is not timely filed or adequate
documentation is not maintained. Once a loan ceases to be
guaranteed, it is ineligible for federal interest subsidies and
special allowance payments. If a loan is rejected for claim
payment by a guaranty agency, we continue to pursue the borrower
for payment and/or institute a process to reinstate the
guarantee.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Rejections of claims as to portions of interest
may be made by guaranty agencies for certain violations of the
due diligence collection and servicing requirements, even though
the remainder of a claim may be paid. Examples of errors that
cause claim rejections include isolated missed collection calls
or failures to send collection letters as required.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">School eligibility requirements, which include
default rate limits, have been implemented by the DOE. In order
to maintain eligibility in the FFEL Program, schools must
maintain default rates below specified levels, and both guaranty
agencies and lenders are required to ensure that loans are made
to students attending schools that meet default criteria.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If we fail to comply with any of the above
requirements, we could incur penalties or lose the federal
guarantee on some or all of our FFELP loans.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Failure to comply with restrictions on
    inducements under the Higher Education Act could harm our
    business.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Higher Education Act generally prohibits a
lender from providing inducements to educational institutions or
individuals in order to secure applicants for FFELP loans. We
have entered into various agreements to acquire marketing lists
of prospective FFELP loan borrowers from sources such as college
alumni associations. We pay to acquire these lists and for the
completed applications for loans resulting therefrom. We believe
that such arrangements are permissible and do not violate
restrictions on inducements, as they fit within a regulatory
exception recognized by the DOE for generalized marketing and
advertising activities. The DOE has provided informal guidance
to us that such arrangements do not raise any improper
inducement issues, since such arrangements fall within the
generalized marketing exception. If the DOE were to change its
position, this could hurt our reputation and could potentially
result in the DOE imposing sanctions on us. These sanctions
could negatively impact our business.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Possible changes in legislation and
    regulations could have a negative impact upon our
    business.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Pursuant to the terms of the Higher Education
Act, the FFEL Program is periodically amended, and the Higher
Education Act must be reauthorized by Congress every five years
in order to prevent sunset of that Act. Changes in the Higher
Education Act made in the two most recent reauthorizations have
included reductions in student loan yields paid to lenders,
increased fees paid by lenders and a decreased level of federal
guarantee. Future changes could result in further negative
impacts on our business. Moreover, there can be no assurance
that the provisions of the Higher Education Act, which is
scheduled to expire on September&nbsp;30, 2004, will be
reauthorized. While Congress has consistently extended the
effective date of the Higher Education Act, it may elect not to
reauthorize the DOE&#146;s ability to provide interest
subsidies, special allowance payments and federal guarantees for
student loans. Such a failure to reauthorize would reduce the
number of federally guaranteed student loans available for us to
originate and/or acquire in the future and would materially
adversely affect us.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, funds for payment of interest
subsidies and other payments under the FFEL Program are subject
to annual budgetary appropriation by Congress. In recent years,
federal budget legislation has
</FONT>

<P align="center"><FONT size="2">8
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">contained provisions that have restricted
payments made under the FFEL Program to achieve reductions in
federal spending. Future legislation may adversely affect
expenditures by the DOE and the financial condition of guaranty
agencies.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Efforts are underway to pass legislation which
would permit borrowers holding consolidation loans made under
the Higher Education Act to refinance their loans under the FFEL
Program multiple times, rather than only once, which would open
approximately 39% of our student loan portfolio to further
refinancing. Similar legislation may also abolish the so-called
single holder rule, which restricts the ability of other lenders
to consolidate student loans away from a lender that owns all of
a particular borrower&#146;s loans. This would put approximately
one-third of our non-consolidated portfolio at risk of being
consolidated away by our competitors. In addition, if
legislation is enacted to allow variable-rate consolidation
loans or to extend the term of Stafford loans, we may experience
a decrease in our consolidation loan opportunities. Accordingly,
any of these legislative changes could have a material adverse
impact upon us. In addition, the DOE oversees and implements the
Higher Education Act and periodically issues regulations and
interpretations of that Act. Changes in such regulations and
interpretations could negatively impact our business.
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Market
risks to which we are subject may have an adverse impact upon
our business and operations.</I></FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our primary market risk exposure arises from
fluctuations in our borrowing and lending rates, the spread
between which could be impacted by shifts in market interest
rates. The borrower rates on our FFELP loans are generally reset
by the DOE each July 1st based on a formula determined by the
date of the origination of the loan, with the exception of rates
on consolidation loans which are fixed to term. The interest
rate we actually receive on our FFELP loans is the greater of
the borrower rate and a rate determined by a formula based on a
spread to either the 91-day Treasury Bill index or the 90-day
commercial paper index, depending on when the loans were
originated and the current repayment status of the loans.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We issue asset-backed securities, both fixed- and
variable-rate, to fund our student loan assets. The
variable-rate debt is generally indexed to 90-day LIBOR or set
by auction. The income generated by our student loan assets is
generally driven by different short-term indices than our
liabilities, which creates interest rate risk for us. We have
historically borne this risk internally through the net spread
on our portfolio while continuing to monitor our interest rate
risk.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Our hedging arrangements may not be
    successful in hedging our interest rate risks.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">When we utilize derivative instruments, we
utilize them to hedge our interest rate exposure. Although we do
not use derivative instruments to hedge assets or for
speculative purposes, our hedges may not qualify as effective
hedges for financial accounting purposes. The derivative
instruments we use are typically in the form of interest rate
swaps and interest rate caps. Interest rate swaps effectively
change variable-rate debt obligations either to fixed-rate debt
obligations or to variable-rate debt obligations based on a
different index. Interest rate caps effectively limit the
maximum interest on variable-rate debt obligations. Developing
an effective strategy for dealing with movements in interest
rates is complex, and no strategy can completely insulate us
from risks associated with such fluctuations. In addition, a
counterparty to a hedging arrangement could default on its
obligation thereby making the hedge ineffective, and we may have
to repay certain costs, such as transaction fees or brokerage
costs, if a hedging arrangement is terminated by us.
Furthermore, our hedging activities could expose us to
substantial losses if interest rates move materially differently
from our expectations. As a result, we cannot assure you that
our hedging activities will effectively hedge against our
interest rate exposure or have the desired beneficial impact on
our results of operations or financial condition.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Liquidity risks inherent in our funding
    needs pose risks to us.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We are subject to the risk that we may be unable
to meet financial commitments to creditors, branding partners,
forward flow lenders or borrowers when due. Our primary funding
needs are those
</FONT>

<P align="center"><FONT size="2">9
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">required to finance our student loan portfolio
and satisfy our cash requirements for new student loan
originations and acquisitions, operating expenses and
technological development.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We rely upon conduit warehouse loan financing
vehicles to support our funding needs on a short-term basis.
There can be no assurance that we will be able to maintain such
warehouse financing in the future. We currently have four such
conduit facilities in place, with various maturity dates.
Currently, the aggregate short-term commitment amount from our
conduit lenders is over $2&nbsp;billion. There can be no
assurance that we will be able to maintain such conduit
facilities, find alternative funding or increase the commitment
level of such facilities, if necessary. The term of each conduit
facility is less than one year, and each facility is renewable
at the option of the lender and may be terminated at any time
for cause. While our conduit facilities have historically been
renewed for successive terms, there can be no assurance that
this will continue in the future.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, we rely upon securitization vehicles
as our most significant source of funding for student loans on a
long-term basis. The net cash flow we receive from the
securitized student loans generally represents the excess
amounts, if any, generated by the underlying student loans over
the amounts required to be paid to the bondholders, after
deducting servicing fees and any other expenses relating to the
securitizations. In addition, some of the residual interests in
these securitizations have been pledged to secure additional
bond obligations. Our rights to cash flow from securitized
student loans are subordinate to bondholder interests and these
loans may fail to generate any cash flow beyond what is due to
pay bondholders.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The interest rates on certain of our asset-backed
securities are set and periodically reset via a &#147;dutch
auction&#148; utilizing remarketing agents. Investors and
potential investors submit orders through a broker-dealer as to
the principal amount of notes they wish to buy, hold or sell at
various interest rates. The broker-dealers submit their
clients&#146; orders to the auction agent or remarketing agent,
who determines the interest rate for the upcoming period. If
there are insufficient potential bid orders to purchase all of
the notes offered for sale or being repriced, we could be
subject to interest costs substantially above the anticipated
and historical rates paid on these types of securities. A failed
auction or remarketing could also reduce the investor base of
our other financing and debt instruments.
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Future
losses due to defaults on loans held by us present credit risk
which could adversely affect our earnings.</I></FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">More than 99% of our student loan portfolio as of
June&nbsp;30, 2003 was comprised of FFELP loans. These loans
benefit from a federal guarantee of between 98% and 100% of
their principal balance and accrued interest. We bear full risk
of losses experienced with respect to the unguaranteed portion
of the student loans.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Losses on our private loans will be borne by us,
with the exception of certain privately insured loans. Privately
insured loans constitute a minority of our private loan
portfolio. The loan loss pattern on our private loan portfolio
is not as developed as that on our FFELP loan portfolio. As of
June&nbsp;30, 2003, the aggregate principal balance of private
loans comprised less than 1% of our entire student loan
portfolio; however, it is expected to increase to between 1% and
2% over the next three years. There can be no assurance that
this percentage will not further increase over the long term.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The performance of student loans in our portfolio
is affected by the economy, and a prolonged economic downturn
may have an adverse effect on the credit performance of these
loans. While we have provided allowances estimated to cover
losses that may be experienced in both our student loans that
are federally guaranteed under the FFEL Program as well as our
private loan portfolio, there can be no assurance that such
allowances will be sufficient to cover actual losses in the
future.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">We could experience cash flow problems if a
    guaranty agency defaults on its guarantee
    obligation.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A deterioration in the financial status of a
guaranty agency and its ability to honor guarantee claims on
defaulted student loans could result in a failure of that
guaranty agency to make its guarantee payments
</FONT>

<P align="center"><FONT size="2">10
</FONT>

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<DIV align="left">
<FONT size="2">in a timely manner, if at all. The financial
condition of a guaranty agency can be adversely affected if it
submits a large number of reimbursement claims to the DOE, which
results in a reduction of the amount of reimbursement that the
DOE is obligated to pay the guaranty agency. The DOE may also
require a guaranty agency to return its reserve funds to the DOE
upon a finding that the reserves are unnecessary for the
guaranty agency to pay its FFELP expenses or to serve the best
interests of the FFEL Program.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If the DOE has determined that a guaranty agency
is unable to meet its guarantee obligations, the loan holder may
submit claims directly to the DOE, and the DOE is required to
pay the full guarantee claim. However, the DOE&#146;s obligation
to pay guarantee claims directly in this fashion is contingent
upon the DOE making the determination that a guaranty agency is
unable to meet its guarantee obligations. The DOE may not ever
make this determination with respect to a guaranty agency and,
even if the DOE does make this determination, payment of the
guarantee claims may not be made in a timely manner, which could
result in our experiencing cash shortfalls.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Competition created by the Federal Direct
    Loan Program and from other lenders and servicers may adversely
    impact our business.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In 1992, Congress created the William D. Ford
Federal Direct Loan Program, which we refer to as the FDL
Program or the FDLP. Under the FDL Program, the DOE makes loans
directly to student borrowers through the educational
institutions they attend. The volume of student loans made under
the FFEL Program and available for us to originate or acquire
may be reduced to the extent loans are made to students under
the FDL Program. In addition, if the FDL Program expands, to the
extent the volume of loans serviced by us is reduced, we may
experience reduced economies of scale, which could adversely
affect our earnings. Loan volume reductions could further reduce
amounts received by the guaranty agencies available to pay
claims on defaulted student loans.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In the FFELP market, we face significant
competition from SLM Corporation, the parent company of Sallie
Mae. SLM Corporation services nearly half of all outstanding
FFELP loans and is the largest holder of student loans, with a
portfolio of approximately $70&nbsp;billion. We also face
intense competition from other existing lenders and servicers.
As we expand our student loan origination and acquisition
activities, that expansion may result in increased competition
with some of our servicing customers. This has in the past
resulted in servicing customers terminating their contractual
relationships with us, and we could in the future lose more
servicing customers as a result. As we seek to further expand
our business, we will face numerous other competitors, many of
which will be well established in the markets we seek to
penetrate. Some of our competitors are much larger than we are,
have better name recognition than we do and have greater
financial and other resources than we do. In addition, several
of our competitors have large market capitalizations or cash
reserves and are better positioned to acquire companies or
portfolios in order to gain market share than we are.
Furthermore, many of the institutions with which we compete have
significantly more equity relative to their asset bases than we
do. Consequently, such competitors may have more flexibility to
address the risks inherent in the student loan business.
Finally, some of our competitors are tax-exempt organizations
which do not pay federal or state income taxes and which
generally receive floor income on certain tax-exempt obligations
on a greater percentage of their student loan portfolio than we
do because they have financed a greater percentage of their
student loans with tax-exempt obligations issued prior to
October&nbsp;1, 1993 than we have. These factors could give our
competitors a strategic advantage.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Higher rates of prepayments of student
    loans could reduce our profits.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Pursuant to the Higher Education Act, borrowers
may prepay loans made under the FFEL Program at any time.
Prepayments may result from consolidating student loans, which
tends to occur more frequently in low interest rate
environments, from borrower defaults, which will result in the
receipt of a guarantee payment, and from voluntary full or
partial prepayments, among other things. The rate of prepayments
of student loans may be influenced by a variety of economic,
social and other factors affecting borrowers, including interest
rates and the availability of alternative financing. Our profits
could be adversely affected by higher prepayments, which would
reduce the amount of interest we receive and expose us to
reinvestment risk.
</FONT>

<P align="center"><FONT size="2">11
</FONT>

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<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Increases in consolidation loan activity by
    us and our competitors present a risk to our loan portfolio and
    profitability.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our portfolio of FFELP loans is subject to
refinancing through the use of consolidation loans, which are
expressly permitted by the Higher Education Act. Consolidation
loan activity may result in three detrimental effects on us.
First, when we consolidate loans already held by us, the new
consolidation loans have a lower yield than the loans being
refinanced due to the statutorily mandated consolidation loan
rebate fee of 1.05% per year. Although consolidation loans
generally feature higher average balances, longer average lives
and slightly higher special allowance payments, such attributes
may not be sufficient to counterbalance the cost of the rebate
fees. Second, and more significantly, we may lose student loans
in our portfolio that are consolidated away by competing
lenders. In prior years, our competitors consolidated away more
student loans from us than we consolidated away from our
competitors. Increased consolidations of student loans away from
us by our competitors may result in a negative return on loans,
when considering the origination costs or acquisition premiums
paid with respect to these loans. Additionally, consolidation of
loans away from us can result in a decrease of our servicing
portfolio, thereby decreasing fee-based servicing income. Third,
increased consolidations by us of our own student loans create
cash flow risk because we incur upfront consolidation costs,
which are in addition to the origination or acquisition costs we
incurred in connection with the underlying student loans, while
extending the repayment schedule of the consolidated loans.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">The volume of available student loans may
    decrease in the future and may adversely affect our
    income.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our student loan originations generally are
limited to students attending eligible educational institutions
in the United States. Volumes of originations are greater at
some schools than others, and our ability to remain an active
lender at a particular school with concentrated volumes is
subject to a variety of risks, including the fact that each
school has the option to remove us from its &#147;preferred
lender&#148; list or to add other lenders to its &#147;preferred
lender&#148; list, the risk that a school may enter the FDL
Program or the risk that a school may begin making student loans
itself. We acquire student loans through forward flow
commitments with other student loan lenders, but each of these
commitments has a finite term. There can be no assurance that
these lenders will renew or extend their existing forward flow
commitments on terms that are favorable to us, if at all,
following their expiration.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, as of June&nbsp;30, 2003,
approximately 54% of the loans we serviced were owned by third
parties. To the extent that our third-party servicing clients
reduce the volume of student loans that we process on their
behalf, our income would be reduced, and, to the extent the
related costs could not be reduced correspondingly, our net
income could be materially adversely affected. Such volume
reductions occur for a variety of reasons, including if our
third-party servicing clients commence or increase internal
servicing activities, shift volume to another service provider,
perhaps because such other service provider does not compete
with the client in student loan originations and acquisitions or
exit the FFEL Program completely.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Special allowance payments on student loans
    originated or acquired with the proceeds of certain tax-exempt
    obligations may limit the interest rate on certain student loans
    to our detriment.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Student loans originated or acquired with the
proceeds of tax-exempt obligations issued prior to
October&nbsp;1, 1993, as well as student loans acquired with the
sale proceeds of those student loans, receive only a portion of
the special allowance payment which they would otherwise be
entitled to receive, but are guaranteed a minimum rate of return
of 9.5% per year, less the applicable interest rate for the
student loan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A portion of our student loan portfolio is
comprised of loans which have been previously financed with the
proceeds of tax-exempt obligations issued prior to
October&nbsp;1, 1993. Based upon provisions of the Higher
Education Act and related interpretations by the DOE, we believe
that, for each of these student loans, we will receive partial
special allowance payments, subject to the 9.5% minimum rate of
return. However, the DOE may change its regulations or its
interpretations of existing regulations, or the Higher
</FONT>

<P align="center"><FONT size="2">12
</FONT>

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<FONT size="2">Education Act may be amended, to eliminate this
special allowance payment treatment. In this event, we would
receive regular special allowance payments, but with no minimum
rate of return.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In the current low interest rate environment, we
generally receive partial special allowance payments and the
minimum 9.5% rate of return with respect to our eligible student
loans originated or acquired with qualifying tax-exempt
proceeds. In a higher interest rate environment, however, the
regular special allowance payments on loans not originated or
acquired with qualifying tax-exempt proceeds may exceed the
total subsidy to holders of eligible loans originated or
acquired with qualifying tax-exempt proceeds. Thus, in a higher
interest rate environment, these loans could have an adverse
effect upon our earnings. For further information regarding
special allowance payments, see &#147;Industry
Overview&nbsp;&#151; Student Loan Business Model.&#148;
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Failures in our information technology
    system could materially disrupt our business.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our servicing and operating processes are highly
dependent upon our information technology system infrastructure,
and we face the risk of business disruption if failures in our
information systems occur, which could have a material impact
upon our business and operations. We depend heavily on our own
computer-based data processing systems in servicing both our own
student loans and those of third-party servicing customers. On
January&nbsp;1, 2002, we converted the great majority of the
student loans we service to a computer hardware and software
platform developed and maintained by an affiliated company. In
November 2002, we converted our remaining approximately
$3&nbsp;billion of student loans to this same computer hardware
and software platform. Problems or errors of which we are not
currently aware may have occurred in connection with this
conversion, and problems or errors may occur in the future in
connection with the conversion of newly originated and acquired
loans to our platform. If servicing errors do occur, they may
result in a loss of the federal guarantee on the FFELP loans
that we service or in a failure to collect amounts due on the
student loans that we service. In addition, although we
regularly back up our data and believe that we have taken
sufficient precautions to protect our information systems, a
major physical disaster or other calamity that causes
significant damage to our offices or our systems would adversely
affect our business.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Transactions with affiliates and potential
    conflicts of interest pose risks to our
    shareholders.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have entered into certain contractual
arrangements with entities controlled by Michael S. Dunlap, our
Chairman and Co-Chief Executive Officer and one of our principal
shareholders, and members of his family and, to a lesser extent,
with entities in which other directors and members of management
hold equity interests or board or management positions. Such
arrangements constitute a significant portion of our business
and include, among other things, performance of servicing
duties, sales of student loans by such affiliates to us and
sales of student loan origination rights by such affiliates to
us. These arrangements may present potential conflicts of
interest.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Many of these arrangements are with Union Bank
and Trust Company, or Union Bank, in which Michael S. Dunlap
owns an indirect interest and of which he serves as
non-executive chairman. Union Bank is a significant source of
student loans to us and a significant servicing customer of ours.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In 2002 and the first six months of 2003,
approximately 14% and 24%, respectively, of the principal amount
of the student loans added to our portfolio were wholly
attributable to our relationship with Union Bank, which
originated such loans. Loans made by other lenders and sold to
Union Bank as a result of our relationship with such other
lenders were also then sold by Union Bank to us. We cannot
provide assurance that we acquired these student loans on terms
no less favorable than we could have obtained from an unrelated
third party. We intend to maintain our relationship with Union
Bank, which we believe provides substantial benefits to us,
although there can be no assurance that all transactions in
which we engage with Union Bank in the future will be on terms
that are no less favorable than we could obtain from an
unrelated third party.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The ability of Union Bank to continue to do
business with us will depend on the development of Union
Bank&#146;s own business, financial condition and results of
operations, which will be affected by competitive and other
factors beyond our control or knowledge. Because Union Bank is a
privately held company, an investor in our Class A common stock
might have little advance warning of problems
</FONT>

<P align="center"><FONT size="2">13
</FONT>

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<FONT size="2">affecting Union Bank, even though these problems
could have a material adverse effect on us. For further
information regarding affiliated transactions, see &#147;Certain
Transactions.&#148;
</FONT>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Imposition of personal holding company tax
    would decrease our net income.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A corporation is considered to be a
&#147;personal holding company&#148; under the U.S. Internal
Revenue Code of 1986, as amended, which we refer to as the Code,
if at least 60% of its adjusted ordinary gross income is
&#147;personal holding company income&#148; (generally, passive
income) and at any time during the last half of the taxable year
more than half, by value, of its stock is owned by five or fewer
individuals, as determined under attribution rules of the Code.
A personal holding company is subject to an additional tax on
its undistributed personal holding company income, currently at
a 15% rate. Before this offering, more than half the value of
our stock was held by five or fewer individuals, and immediately
after this offering, we expect that this will continue to be the
case. We believe that we can avoid current personal holding
company tax through intercompany distributions, and we expect to
be able to manage our exposure to this tax for the next two
years in this manner. However, it is possible that thereafter
more than 60% of our adjusted ordinary gross income could be
classified as personal holding company income. If that were to
occur, and if more than half of our value continued to be held
by five or fewer individuals, we could become subject to the
personal holding company tax. We have submitted a request for a
private letter ruling from the Internal Revenue Service seeking
a determination that our interest and fee income arising from
federally guaranteed student loans does not constitute personal
holding company income. If the Internal Revenue Service grants
our request, we expect that we will not be subject to the
personal holding company tax. If the Internal Revenue Service
does not grant our request, and if there is a likelihood that we
would incur personal holding company tax, then we and our
controlling shareholder, Michael S. Dunlap, have agreed to take
such steps as are necessary to avoid imposition of the tax by
ensuring that more than half the value of our stock is not owned
by five or fewer individuals. These steps could include the
conversion by Mr.&nbsp;Dunlap of shares of Class&nbsp;B common
stock that he owns into Class&nbsp;A common stock, divestitures
of common stock by Mr.&nbsp;Dunlap and public offerings of newly
issued shares of common stock. If Mr.&nbsp;Dunlap or we were to
fail to take these steps, or fail to take them in a timely
manner, then we could become subject to personal holding company
tax in the future.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Any future acquisitions or joint ventures
    will involve risks.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We may opportunistically seek to acquire
companies or enter into joint ventures that complement our
business, and our inability to complete acquisitions, integrate
acquired companies successfully or enter into joint ventures may
render us less competitive. We may be evaluating acquisitions or
engaging in acquisition negotiations at any given time. We
cannot assure you that we will be able to identify acquisition
candidates or joint venture partners on commercially reasonable
terms or at all. If we make acquisitions, we also cannot be sure
that any benefits anticipated from the acquisitions will
actually be realized. Likewise, we cannot be sure that we will
be able to obtain financing for acquisitions. Such financing
could be restricted by the terms of our debt agreements, or the
cost of financing an acquisition could be more expensive than
our current debt. In addition, our ability to control the
planning and operations of our joint ventures may be subject to
numerous restrictions imposed by the joint venture agreements.
Our joint venture partners may also have interests which diverge
from ours.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The process of integrating acquired operations
into our existing operations may result in unforeseen operating
difficulties and may require significant financial, operational
and managerial resources that would otherwise be available for
the ongoing development or expansion of our existing operations.
To the extent that we have miscalculated our ability to
integrate and operate the business to be acquired, we may have
difficulty in achieving our operating and strategic objectives.
The diversion of management attention, particularly in a
difficult operating environment, may affect our results of
operations. Future acquisitions could result in the incurrence
of additional debt and related interest expense, contingent
liabilities and amortization expenses related to intangible
assets, all of which could have a materially adverse effect on
our financial condition, operating results and/or cash flow.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">&#147;Do not call&#148; registries may
    limit our ability to market our products and
    services.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our direct marketing operations are or may become
subject to various federal and state &#147;do not call&#148;
list requirements. The Federal Trade Commission has recently
amended its rules to provide for a national
</FONT>

<P align="center"><FONT size="2">14
</FONT>
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<FONT size="2">&#147;do not call&#148; registry. Under these new
federal regulations, consumers may have their phone numbers
added to the national &#147;do not call&#148; registry.
Generally, we will be prohibited from calling anyone on that
registry. In September 2003, telemarketers will have access to
the registry and will be required to compare their call lists
against the national &#147;do not call&#148; registry at least
once every 90&nbsp;days. We also will be required to pay a fee
to access the registry on a quarterly basis. Enforcement of the
&#147;do not call&#148; provisions will begin in the fall of
2003, and the rule provides for fines of up to $11,000 per
violation and other possible penalties. This rule may restrict
our ability to market effectively our products and services to
new customers. Furthermore, compliance with this new rule may
prove difficult, and we may incur penalties for improperly
conducting our marketing activities.
</FONT>
</DIV>

<P align="left">
<B><FONT size="2">Risks Related to This Offering</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Our stock price may be volatile and your
    investment could decline in value.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The market price of our Class&nbsp;A common stock
may be volatile and subject to wide fluctuations in response to
various factors, including:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">regulatory or other changes in, and public
    concern or opinion as to, federal student loan programs;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">actual or anticipated variations in our quarterly
    operating results;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">changes in our financial estimates by securities
    analysts;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">conditions or trends in our industry;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">additions or departures of key personnel;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the loss of a significant student loan seller or
    servicing customer;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">announcements by us or our competitors of
    significant acquisitions, strategic partnerships, joint ventures
    or capital commitments; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">economic and political factors.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, the stock markets have experienced
significant price and volume fluctuations that have often been
unrelated or disproportionate to operating performance. These
broad market fluctuations may seriously harm the market price of
our Class&nbsp;A common stock, regardless of our operating
performance. In the past, following periods of volatility in the
market price of a company&#146;s securities, securities class
action litigation has often been instituted. A securities class
action suit brought against us could result in potential
liabilities, substantial costs and diversion of our
management&#146;s attention and resources, regardless of whether
we win or lose.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">There may not be an active, liquid trading
    market for our Class&nbsp;A common stock.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Prior to this offering, there has been no public
market for our Class&nbsp;A common stock. An active, liquid
trading market for our Class&nbsp;A common stock may not develop
or be maintained following this offering. As a result, you may
not be able to sell your shares of our Class&nbsp;A common stock
quickly or at the market price. The initial public offering
price of our Class&nbsp;A common stock is determined by
negotiation between us and the representatives of the
underwriters based upon a number of factors and may not be
indicative of market prices that will prevail following the
completion of this offering. The market price of our
Class&nbsp;A common stock may decline below the initial public
offering price, and you may not be able to resell your shares of
our Class&nbsp;A common stock at or above the initial public
offering price.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Future sales of our Class&nbsp;A common
    stock may depress our stock price.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The market price of our Class&nbsp;A common stock
could decline as a result of sales of substantial amounts of our
Class&nbsp;A common stock in the public market after this
offering, or the perception that these sales could occur. In
addition, these factors could make it more difficult for us to
raise funds through
</FONT>

<P align="center"><FONT size="2">15
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">future equity offerings. There will
be&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our Class&nbsp;A common stock and 14,023,454 shares of our
Class&nbsp;B common stock, which are convertible on a
one-for-one basis into shares of Class&nbsp;A common stock,
outstanding immediately after this offering.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">All of the shares of our Class&nbsp;A common
stock sold in this offering will be freely transferable by
persons other than our affiliates without restriction or further
registration under the Securities Act of 1933. All or
substantially all of the remaining shares of our Class&nbsp;A
common stock, including shares of Class&nbsp;A common stock
issued upon conversion of shares of Class&nbsp;B common stock,
will be eligible for sale in the public market pursuant to
Rule&nbsp;144 under the Securities Act of 1933, subject to
180-day lock-up agreements with the underwriters and to our
Share Retention Policy. See &#147;Description of Capital
Stock&nbsp;&#151; Share Retention Policy&#148; and &#147;Shares
Eligible for Future Sale&nbsp;&#151; Sales of Restricted
Shares&#148; and &#147;&#151;&nbsp;Lock-up Agreements.&#148;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We and our executive officers and directors and
all of our shareholders have entered into 180-day lock-up
agreements with the underwriters. The lock-up agreements
prohibit each of us from selling or otherwise disposing of
shares of common stock except in limited circumstances. The
lock-up agreements are only contractual agreements, and J.P.
Morgan Securities Inc. and Banc of America Securities LLC, at
their discretion, can waive the restrictions of any lock-up
agreement at an earlier time without prior notice or
announcement and allow any of us to sell shares of common stock.
If the restrictions in the lock-up agreement are waived, shares
of our Class&nbsp;A common stock will be available for sale into
the public market, subject to applicable securities laws and our
Share Retention Policy, which could reduce the market price for
shares of our Class&nbsp;A common stock. See &#147;Description
of Capital Stock&nbsp;&#151; Share Retention Policy&#148; and
&#147;Shares Eligible for Future Sale&nbsp;&#151; Sales of
Restricted Shares.&#148;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Michael S. Dunlap, Stephen F. Butterfield and
persons related to them have the right, subject to limitations,
to make two written demands of Nelnet for registration with the
Securities and Exchange Commission of all or part of their
common stock. These shareholders also have piggyback
registration rights for their common stock following the
consummation of this offering. See &#147;Description of Capital
Stock&nbsp;&#151; Registration Rights.&#148;
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">You will experience immediate and
    substantial dilution as a result of this offering.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">You will pay a price per share that substantially
exceeds the per share value of our tangible assets after
subtracting our total liabilities. As a result, if we were to
distribute our net tangible assets to our shareholders
immediately following this offering, you would receive less than
the amount you paid for your shares of our Class&nbsp;A common
stock. See &#147;Dilution.&#148;
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Our executive officers, directors and
    principal shareholders own a large percentage of our common
    stock and will be able to control substantially all corporate
    decisions.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Immediately after this offering, our executive
officers, directors and principal shareholders will beneficially
own, in the
aggregate, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
of our outstanding Class&nbsp;A common stock, and Michael S.
Dunlap and Stephen F. Butterfield, our Co-Chief Executive
Officers, and persons related to them will beneficially own
Class&nbsp;A and Class&nbsp;B common stock
representing &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
of the combined voting power of our common stock. Each share of
Class&nbsp;A common stock has one vote and each share of
Class&nbsp;B common stock has ten votes on all matters to be
voted upon by our shareholders. As a result, our executive
officers, directors and principal shareholders, as a group, and
Messrs.&nbsp;Dunlap and Butterfield, by themselves, will be able
to control substantially all matters requiring approval by our
shareholders, including the election of all directors, and they
may do so in a manner with which you may not agree or which may
not be in the best interest of other shareholders. See
&#147;Description of Capital Stock&nbsp;&#151; Common
Stock.&#148;
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Our management will have broad discretion
    in the use of net proceeds from this offering and may not use
    them effectively.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As of the date of this prospectus, we cannot
specify with certainty the amounts we will spend on particular
uses from the net proceeds that we will receive from this
offering. Our management will have
</FONT>

<P align="center"><FONT size="2">16
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">broad discretion in the application of these net
proceeds, but currently intends to use them as described in
&#147;Use of Proceeds.&#148; The failure by our management to
apply these net proceeds effectively could adversely affect our
ability to continue to develop our business.
</FONT>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Provisions of our charter and by-laws and
    Nebraska law may inhibit a takeover, which could negatively
    affect our stock price.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Provisions of our charter and by-laws could
discourage potential acquisition proposals or make it more
difficult for a third party to acquire control of us. These
provisions include, among others, the authority of our board of
directors to create and issue rights entitling the holders
thereof to purchase our securities or the securities of any
other corporation. In addition, we are subject to the provisions
of the Nebraska Shareholders Protection Act, an anti-takeover
law, which may also dissuade a potential acquiror of our common
stock. These provisions may make it more difficult or expensive
for a third party to acquire a majority of our outstanding
voting stock or may delay, prevent or deter a merger,
acquisition, tender offer or proxy contest, which may negatively
affect our stock price. See &#147;Description of Capital
Stock&nbsp;&#151; Nebraska Anti-takeover Law and Certain Charter
and By-law Provisions.&#148;
</FONT>

<P align="center"><FONT size="2">17
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<!-- link1 "FORWARD-LOOKING STATEMENTS" -->

<P align="center">
<B><FONT size="2">FORWARD-LOOKING STATEMENTS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">This prospectus contains forward-looking
statements within the meaning of Section&nbsp;27A of the
Securities Act of 1933 and Section&nbsp;21E of the Securities
Exchange Act of 1934. The forward-looking statements are
contained principally in the sections entitled &#147;Prospectus
Summary,&#148; &#147;Risk Factors,&#148; &#147;Management&#146;s
Discussion and Analysis of Financial Condition and Results of
Operations&#148; and &#147;Business.&#148; In some cases, you
can identify forward-looking statements by terminology such as
&#147;may,&#148; &#147;will,&#148; &#147;should,&#148;
&#147;could,&#148; &#147;would,&#148; &#147;expect,&#148;
&#147;plan,&#148; &#147;anticipate,&#148; &#147;believe,&#148;
&#147;estimate,&#148; &#147;project,&#148; &#147;predict,&#148;
&#147;intend,&#148; &#147;potential&#148; or the negative of
such terms or other similar expressions.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The forward-looking statements reflect our
current expectations and views about future events. The
forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause our actual
results, performance or achievements to be materially different
from any future results, performance or achievements expressed
or implied by the forward-looking statements. Given these risks
and uncertainties, you should not place undue reliance on the
forward-looking statements.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">You should understand that the following factors,
among other things, could cause our results to differ materially
from those expressed in forward-looking statements:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">changes in terms of student loans and the
    educational credit marketplace arising from the implementation
    of applicable laws and regulations and from changes in these
    laws and regulations that may reduce the volume, average term,
    costs and yields on education loans under the FFEL Program or
    for non-FFELP loans or result in loans being originated or
    refinanced under non-FFEL programs or affect the terms upon
    which banks and others agree to sell FFELP loans to us;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">changes in the demand for educational financing
    or in financing preferences of educational institutions,
    students and their families, which could reduce demand for our
    products and services or increase our costs; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">changes in the general interest rate environment
    and in the securitization markets for education loans, which
    could increase the costs or limit the availability of financings
    necessary to originate, purchase or carry education loans or
    expose us to losses on our interest rate hedges.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">We discuss many of these risks and uncertainties
in greater detail under the heading &#147;Risk Factors.&#148;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">You should read this prospectus and the documents
that we reference in this prospectus and have filed as exhibits
to the registration statement, of which this prospectus is part,
completely and with the understanding that our actual future
results may be materially different from what we expect. We may
not update the forward-looking statements, even though our
situation may change in the future, unless we have obligations
under the federal securities laws to update and disclose
material developments related to previously disclosed
information. We qualify all of the forward-looking statements by
these cautionary statements.
</FONT>

<P align="center"><FONT size="2">18
</FONT>
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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<!-- link1 "USE OF PROCEEDS" -->

<P align="center">
<B><FONT size="2">USE OF PROCEEDS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our net proceeds from this offering are estimated
to be
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million,
or
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
if the underwriters&#146; overallotment option is exercised in
full, after deducting the underwriting discounts and estimated
offering expenses that we will pay.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We intend to use the net proceeds from this
offering to originate and acquire student loans, to repay
$30.0&nbsp;million of indebtedness and for general corporate
purposes, including capital expenditures, working capital and
possible acquisitions complementary to our business. The
indebtedness to be repaid is revolving credit indebtedness that
currently bears interest at an annual rate of 3.36% and matures
on January&nbsp;23, 2005. The proceeds of the indebtedness to be
repaid were used to finance our 2001 acquisition of EFS, Inc.,
an Indiana student loan servicing and secondary market company.
We currently have no agreements or understandings with respect
to any material acquisition.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The foregoing uses of the net proceeds from this
offering represent our current intentions based upon our present
plans and business condition. We retain broad discretion in the
allocation and use of the net proceeds of this offering and a
change in our plans or business condition could result in the
application of the net proceeds from this offering in a manner
other than as described in this prospectus. Pending the uses
described above, we intend to invest the net proceeds from this
offering in our student loan portfolio and/or short-term,
investment grade securities.
</FONT>

<!-- link1 "DIVIDEND POLICY" -->

<P align="center">
<B><FONT size="2">DIVIDEND POLICY</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have not declared or paid dividends on our
capital stock during 2001, 2002 or 2003 and do not intend to pay
any cash dividends on our common stock. Any future determination
to pay dividends will be at the discretion of our board of
directors and will depend on our financial condition, results of
operations, capital requirements and other factors that our
board of directors may deem relevant.
</FONT>

<P align="center"><FONT size="2">19
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<!-- link1 "CAPITALIZATION" -->

<P align="center">
<B><FONT size="2">CAPITALIZATION</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table sets forth our cash and cash
equivalents and our capitalization as of June&nbsp;30, 2003:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">on an actual basis; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">on an as adjusted basis to give effect
    (i)&nbsp;the sale
    of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of our Class&nbsp;A common stock in this offering, (ii)&nbsp;the
    use of $30.0&nbsp;million of the net proceeds from this offering
    to repay revolving credit indebtedness and (iii)&nbsp;a non-cash
    compensation charge as described below.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">You should read this table in conjunction with
&#147;Management&#146;s Discussion and Analysis of Financial
Condition and Results of Operations&#148; and our financial
statements and the related notes included elsewhere in this
prospectus.
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="54%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">As of June&nbsp;30, 2003</FONT></B></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Actual</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">As adjusted</FONT></B></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(in thousands, except share data)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and cash equivalents
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47,776</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Bonds and notes payable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,179,726</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,149,726</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Shareholders&#146; equity:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Preferred stock, $0.01 par value:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <FONT size="2">50,000,000&nbsp;shares authorized; no shares
    issued or outstanding actual or as adjusted
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><B><FONT size="2">&#151;</FONT></B></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><B><FONT size="2">&#151;</FONT></B></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Class&nbsp;A common stock, $0.01 par value:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <FONT size="2">600,000,000&nbsp;shares authorized; 31,015,034
    shares issued and outstanding actual
    and &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;as
    adjusted
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">310</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Class&nbsp;B common stock, $0.01 par value:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <FONT size="2">150,000,000&nbsp;shares authorized;
    14,023,454&nbsp;shares issued and outstanding actual and as
    adjusted
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">140</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">140</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Additional paid-in capital
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">48,832</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Retained earnings
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">77,907</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total shareholders&#146; equity
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">127,189</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total capitalization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,306,915</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In March 2003, we issued 31,800 shares of our
Class&nbsp;A common stock to 35&nbsp;employees for an aggregate
consideration of $806,274. At the time of the consummation of
this offering, we will recognize a compensation charge of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million,
which is equal to the difference between the initial public
offering price of that number of shares and the price paid by
the employees. In the table above, retained earnings has been
debited by the amount of such compensation charge, and
additional paid-in capital has been credited by an equal amount;
consequently, this transaction will result in no net effect on
shareholders&#146; equity.
</FONT>

<P align="center"><FONT size="2">20
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<!-- link1 "DILUTION" -->

<P align="center">
<B><FONT size="2">DILUTION</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If you invest in our Class&nbsp;A common stock,
your interest will be diluted to the extent of the difference
between the initial public offering price per share of our
Class&nbsp;A common stock and the pro forma net tangible book
value per share of our common stock after this offering.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our net tangible book value as of June&nbsp;30,
2003 was approximately $112.9&nbsp;million, or $2.51 per share
of common stock. Net tangible book value per share represents
total tangible assets less total liabilities, divided by the
number of shares of common stock outstanding. After giving
effect to the issuance and sale
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our Class&nbsp;A common stock in this offering, and after
deducting the underwriting discounts and estimated offering
expenses that we will pay, our pro forma net tangible book value
as of June&nbsp;30, 2003 would have been approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million,
or
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share of common stock. This represents an immediate increase in
net tangible book value of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share to existing shareholders and an immediate dilution of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share to new investors purchasing shares of Class&nbsp;A common
stock in this offering.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table illustrates this dilution:
</FONT>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="84%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Assumed initial public offering price per share
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net tangible book value per share as of
    June&nbsp;30, 2003
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.51</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Increase per share attributable to this offering
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Pro forma net tangible book value per share after
    this offering
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Dilution per share to new investors
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table summarizes, as of
June&nbsp;30, 2003, on a pro forma basis, the total number of
shares of common stock acquired from us for cash (in one case
for cash and services) during the past five years by existing
shareholders and the total consideration received by us and the
average price per share paid by them and by new investors
purchasing shares of Class&nbsp;A common stock in this offering,
before deducting the underwriting discounts and estimated
offering expenses that we will pay:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="33%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Shares purchased</FONT></B></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Total consideration</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Percent of</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Average price</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">total shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amount</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Percent</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">per share</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Existing shareholders purchasing shares in the
    past five years
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">New investors
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Totals
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">21
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="center">
<B><FONT size="2">SELECTED CONSOLIDATED FINANCIAL DATA</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">You should read the selected consolidated
financial data set forth below in conjunction with
&#147;Management&#146;s Discussion and Analysis of Financial
Condition and Results of Operations&#148; and our financial
statements and the related notes included elsewhere in this
prospectus. We derived the financial data as of
December&nbsp;31, 2002 and 2001 and for the years ended
December&nbsp;31, 2002, 2001 and 2000 from our audited financial
statements included elsewhere in this prospectus. We derived the
financial data as of December&nbsp;31, 2000, 1999 and 1998 and
for the years ended December&nbsp;31, 1999 and 1998 from our
audited financial statements not included in this prospectus. We
derived the financial data as of June&nbsp;30, 2003 and for the
six months ended June&nbsp;30, 2003 and 2002 from our unaudited
financial statements included elsewhere in this prospectus; and
such unaudited interim financial statements reflect all material
adjustments, consisting only of normal recurring accruals,
which, in the opinion of management, are necessary for a fair
presentation. Results for interim periods are not necessarily
indicative of results to be expected during the remainder of the
fiscal year or for any future periods.
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="20%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Six months ended June&nbsp;30,</FONT></B></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">Year ended December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2000</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">1999</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">1998</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="27"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="27" align="center" nowrap><B><FONT size="1">(dollars in thousands, except per share data)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Income Statement Data:</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net interest income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">91,923</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">116,135</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">190,900</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">114,565</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">64,853</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">59,538</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19,855</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Less provision for loan losses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,860</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,116</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,587</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,925</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,370</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,800</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">899</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net interest income after provision for loan
    losses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">87,063</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">114,019</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">185,313</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">110,640</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">63,483</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">57,738</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,956</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Loan servicing and other fee income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">48,307</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">54,812</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">103,899</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">93,172</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">66,015</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Software services and other income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,454</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,392</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,909</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,713</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,431</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,387</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,506</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">114,510</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">115,863</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">229,873</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">191,478</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">126,485</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47,417</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22,086</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income before income taxes and minority interest
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,314</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">62,360</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">81,248</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,047</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,444</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,708</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,376</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,904</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37,788</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">48,538</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,147</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,520</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,671</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,879</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Earnings per share, basic and diluted
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.40</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.84</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.08</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.16</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.11</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.42</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.14</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Weighted average shares outstanding
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">45,010,490</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">44,971,290</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">44,971,290</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">44,331,490</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41,187,230</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22,863,444</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,000,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Other Data:</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Origination and acquisition volume(a)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,835,954</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,076,345</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,665,786</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,448,607</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,027,498</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,015,263</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">700,317</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Average student loans
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,176,244</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,887,699</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,171,898</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,135,227</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,388,156</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,750,097</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,147,842</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Student loans serviced (at end of period)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,866,278</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,169,306</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,863,210</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,585,295</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,971,095</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Ratios:</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net interest margin(b)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.86</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.68</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.15</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.09</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.76</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.60</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.24</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Return on average total assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.35</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.83</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.52</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.12</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.12</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.32</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.21</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Return on average equity
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29.2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">80.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">46.7</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11.7</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8.2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">99.6</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">109.2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loan charge-offs as a percentage of average
    student loans
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.033</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.014</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.047</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.042</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.055</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.033</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.022</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">22
</FONT>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="33%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">As of</FONT></B></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">As of December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;30,</FONT></B></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2000</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">1999</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">1998</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="23"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><B><FONT size="1">(in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Balance Sheet Data:</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and cash equivalents
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47,776</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,155</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">36,440</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,263</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,497</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,636</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Student loan receivables, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,466,523</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,559,420</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,423,872</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,585,943</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,989,985</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,814,625</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,413,114</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,766,583</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,134,560</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,021,948</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,302,098</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,739,605</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Bonds and notes payable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,179,726</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,447,682</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,926,362</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,934,130</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,265,532</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,718,705</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Shareholders&#146; equity
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">127,189</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">109,122</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">63,186</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">54,161</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,380</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,038</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(a)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Initial loans originated and acquired through
    various channels, including originations through our direct
    channel and acquisitions through our branding partner channel,
    our forward flow channel and the secondary market.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(b)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Net interest margin is computed by dividing net
    interest income by the sum of average student loans and the
    average balance of other interest earning assets.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">23
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<!-- link1 "MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" -->

<P align="center">
<B><FONT size="2">MANAGEMENT&#146;S DISCUSSION AND ANALYSIS
OF</FONT></B>

<DIV align="center">
<B><FONT size="2">FINANCIAL CONDITION AND RESULTS OF
OPERATIONS</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">You should read the following discussion and
analysis by our management of our financial condition and
results of operations in conjunction with our &#147;Selected
Consolidated Financial Data&#148; and our financial statements
and the related notes included elsewhere in this
prospectus.</FONT></I>

<P align="left">
<B><FONT size="2">Overview</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We are a leading, vertically integrated education
finance company, focused on providing quality products and
services to participants in the education finance process.
Headquartered in Lincoln, Nebraska, we originate, hold and
service student loans, principally loans originated under the
Federal Family Education Loan Program, which we refer to as the
FFEL Program or FFELP. For 2002, we were the fourth largest
holder and second largest servicer of FFELP loans. In addition,
we, together with our branding partners, are a leading
originator of FFELP loans.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As of June&nbsp;30, 2003, our student loan
portfolio was $9.5&nbsp;billion, consisting over 99% of FFELP
loans and less than 1% of non-federally guaranteed private
loans. We currently service $18&nbsp;billion in student loans,
and our software is used by third parties to service an
additional $30&nbsp;billion in student loans. In addition, we
currently provide servicing support to guaranty agencies that
guarantee $18&nbsp;billion in student loans. We have
relationships with hundreds of colleges and universities and
provide student loan servicing either directly or through our
proprietary software to approximately 1.75&nbsp;million
borrowers.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our student loan portfolio has grown
significantly through origination and acquisition. With the
development of our fully integrated platform, we are positioned
for sustained organic growth. We originated and acquired $2.7
billion in student loans during 2002 through various channels,
including originations through our direct channel and
acquisitions through our branding partner channel, our forward
flow channel and the secondary market. We have increased our
student loan portfolio by $5.7&nbsp;billion over the last two
and a half years, including $2.9&nbsp;billion of loans acquired
in subsidiary acquisitions.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have positioned ourself for growth by building
a strong foundation through mergers and acquisitions of related
and unrelated entities. Although our assets and loan portfolios
increased through these transactions, a key aspect of each
transaction was its impact on our prospective organic growth and
the development of our integrated platform of services. As a
result of our rapid growth, the development of our platform and
changes in operations, period-to-period comparability of our
results of operations may be difficult. The following are the
significant acquisitions that we have made since 2000:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">We acquired the operations of UNIPAC Service
    Corporation, a related entity, in March 2000, which added
    servicing operations and growth potential.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">We added the servicing and origination operations
    of InTuition Holdings, Inc. in June 2000, which expanded our
    presence in the southeastern United States.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">We acquired MELMAC, Inc., a Maine student loan
    company, in January 2001, which increased our FFELP portfolio by
    $424&nbsp;million, and increased our presence on the East Coast.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">We acquired GuaranTec, LLP in June 2001, which
    expanded our products and services through the addition of
    guarantee servicing.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">We acquired EFS, Inc. in December 2001, which
    increased our origination opportunities in the Midwest,
    increased our loan servicing operations and added
    $2.5&nbsp;billion to our FFELP portfolio.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">We acquired Idaho Financial Associates, Inc. in
    January 2002 and Charter Account Systems, Inc. in May 2002,
    which further secured and expanded our product suite through
    proven and tested loan servicing software products.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our earnings and earnings growth are directly
affected by the size of our portfolio of student loans, the
interest rate characteristics of our portfolio, the costs
associated with financing and managing our
</FONT>

<P align="center"><FONT size="2">24
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">portfolio and the costs associated with the
origination and acquisition of the student loans in the
portfolio. See &#147;Liquidity and Capital Resources&nbsp;&#151;
Student Loan Portfolio.&#148;
</FONT>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Net Interest Income</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We generate the majority of our earnings from the
spread between the yield we receive on our portfolio of student
loans and the cost of funding these loans. This spread income is
reported on our income statement as net interest income. The
amortization and write-offs of premiums or discounts, including
capitalized costs of origination, the consolidation loan rebate
fee and yield adjustments from borrower benefit programs are
netted against loan interest income on our income statement. The
amortization and write-offs of bond issuance costs are included
in interest expense on our income statement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our portfolio of FFELP loans generally earns
interest at the higher of a variable rate based on the special
allowance payment, or SAP, formula set by the DOE and the
borrower rate, which is fixed over a period of time. Depending
on the type of student loan and when it was originated, the
borrower rate is either fixed to term or is reset to a market
rate each July&nbsp;1. In some declining interest rate
environments, we earn additional spread income through the next
reset date on those FFELP loans earning at the annually reset
borrower rate. We refer to this additional income as variable
rate floor income, and it is included in loan interest income.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On those FFELP loans with fixed to term borrower
rates, primarily consolidation loans, we earn interest at the
greater of the borrower rate or a variable rate based on the SAP
formula. Since we finance the majority of our student loan
portfolio with variable-rate debt, we may earn excess spread on
these loans for an extended period of time.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On most consolidation loans, we must pay a 1.05%
per year rebate fee to the DOE. Those consolidation loans which
have variable interest rates based on the SAP formula earn a
yield less than that of a Stafford loan. Those consolidation
loans which have fixed interest rates less than the sum of 1.05%
and the variable rate based on the SAP formula also earn a yield
less than that of a Stafford loan. As a result, as consolidation
loans matching these criteria become a larger portion of our
loan portfolio, there will be a lower yield on our loan
portfolio in the short term. However, due to the extended terms
of consolidation loans, we expect to earn the yield on these
loans for a longer duration, making them beneficial to us in the
long term.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A portion of our FFELP loan portfolio, with an
outstanding balance of $925.2&nbsp;million as of June&nbsp;30,
2003, is comprised of loans which were previously financed with
tax-exempt obligations issued prior to October&nbsp;1, 1993.
Based upon provisions of the Higher Education Act and related
interpretations by the DOE, we believe that we may be entitled
to receive special allowance payments on these loans providing
us with a 9.5% minimum rate of return. To date, we have not
recognized interest income generated by these loans based on the
9.5% minimum rate of return. We have asked the DOE to confirm
that we are allowed to recognize the income based on the 9.5%
minimum rate of return. We have deferred recognition of this
excess interest income pending satisfactory resolution of this
issue. As of June&nbsp;30, 2003, the amount of excess interest
income deferred totaled approximately $5.9&nbsp;million. Since
we did not refinance loans with the aforementioned tax-exempt
obligations until 2003, all of this deferred income was recorded
this year.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Investment interest income includes income from
unrestricted interest-earning deposits and funds in our special
purpose entities for our asset-backed securitizations.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Provision for Loan Losses</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We maintain an allowance for loan losses
associated with our student loan portfolio at a level that is
based on the performance characteristics of the underlying
loans. We generally analyze the allowance separately for our
FFELP loans and our non-federally guaranteed private loans. The
provision for loan losses reflects the activity for the
applicable period and provides an allowance at a level which
management believes is adequate to cover probable losses
inherent in the loan portfolio.
</FONT>

<P align="center"><FONT size="2">25
</FONT>
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<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Other Income</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We also earn fees and generate income from other
sources, including principally loan servicing, guarantee
servicing and licensing fees on our software products. Loan
servicing fees are determined according to individual agreements
with customers and generally are calculated based on the dollar
value or number of loans or accounts serviced for each customer.
Guarantee servicing fees are calculated based on the number of
loans serviced or amounts collected. Software services income
includes software license and maintenance fees associated with
student loan software products as well as certain loan marketing
fees. We also charge borrowers fees on certain private loans,
both at origination and when the loan enters repayment, which
help to compensate for anticipated loan losses. In addition, we
earn fee income on some of our auction rate securitizations
through UFS Securities, our wholly owned broker-dealer, which
effectively decreases our costs associated with accessing this
market.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Operating Expenses</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Operating expenses include costs incurred to
manage and administer our student loan portfolio and our
financing transactions, costs incurred to generate and acquire
student loans and general and administrative expenses, which
include corporate overhead. Operating expenses also include
amortization of intangible assets related to acquisitions.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Other Significant Drivers</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition to the impact of growth of our
student loan portfolio, our results of operations and financial
condition may be materially affected by, among other things,
changes in:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">applicable laws and regulations that may affect
    the volume or terms of education loans;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">demand for education financing and competition
    within the student loan industry;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the interest rate environment, funding spreads on
    our financing programs and access to capital markets;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">prepayment rates on student loans, including
    prepayments relating to loan consolidation; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">acquisition costs of student loan assets.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">See &#147;Risk Factors&#148; for more information
on the impact of these factors on our results of operations and
financial condition.
</FONT>

<P align="left">
<B><FONT size="2">Results of Operations</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Six months ended June&nbsp;30, 2003
    compared to six months ended June&nbsp;30, 2002</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Net interest income.</FONT></I><FONT size="2">
Loan interest income decreased by $37.3&nbsp;million, or 16.9%,
during the six months ended June&nbsp;30, 2003 as compared to
the comparable period in 2002. This decrease was the result of
several factors including changes in the interest rate
environment, in the pricing characteristics of our student loan
assets and in the size of our student loan portfolio. Lower
interest rates in the six months ended June&nbsp;30, 2003 caused
a decrease in the average net yield on our student loan
portfolio to 4.01% from 5.61% for the comparable period in 2002.
Variable rate floor income decreased approximately
$34.4&nbsp;million to approximately $12.7&nbsp;million for the
six months ended June&nbsp;30, 2003 from approximately
$47.0&nbsp;million for the comparable period in 2002, primarily
due to the timing and relative change in interest rates during
the periods. The weighted average interest rate on our student
loan portfolio decreased during the six months ended
June&nbsp;30, 2003 due to the lower interest rates, together
with the addition of lower yielding consolidation loans. The
lower weighted average interest rate resulted in a reduction in
loan interest income of approximately $26.8&nbsp;million.
Consolidation loan activity also increased the amortization and
write-offs of acquisition costs, reducing loan interest income
an additional approximately $9.1&nbsp;million during the six
months ended June&nbsp;30, 2003. The reduction in loan interest
income resulting from the decline in interest rates and
reduction in variable rate floor income was partially offset by
an increase in
</FONT>

<P align="center"><FONT size="2">26
</FONT>

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<DIV align="left">
<FONT size="2">our portfolio of student loans. The average
student loan portfolio increased by approximately
$1.3&nbsp;billion, or 16.3%, for the six months ended
June&nbsp;30, 2003 as compared to the comparable period in 2002,
which increased loan interest income by approximately
$32.8&nbsp;million for the six months ended June&nbsp;30, 2003
as compared to the comparable period in 2002.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Interest expense on bonds and notes payable
decreased $12.7&nbsp;million, or 11.1%, for the six months ended
June&nbsp;30, 2003 as compared to the comparable period in 2002.
This decrease occurred despite an increase in average debt
outstanding of approximately $1.2&nbsp;billion, specifically an
increase in variable-rate debt outstanding, which increased
interest expense by approximately $9.9&nbsp;million. The
reduction in interest rates, specifically LIBOR and auction
rates, decreased our average cost of funds to 2.02% in the six
months ended June&nbsp;30, 2003 from 2.57% in the six months
ended June&nbsp;30, 2002. As a result, interest expense
decreased approximately $20.8&nbsp;million for the six months
ended June&nbsp;30, 2003 as compared to the comparable period in
2002. We reduced fixed-rate debt during the six months ended
June&nbsp;30, 2003, which decreased our overall interest expense
by approximately $4.5&nbsp;million as compared to the comparable
period in 2002. Interest expense on bonds and notes payable for
the six months ended June&nbsp;30, 2003 includes additional
amortization and write-offs of bond issuance costs of
$2.6&nbsp;million incurred as a result of refinancing certain
debt transactions.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Primarily as a result of the foregoing, net
interest income decreased by $24.2&nbsp;million, or 20.8%, for
the six months ended June&nbsp;30, 2003 as compared to the
comparable period in 2002. Our net interest margin decreased to
1.86% for the six months ended June&nbsp;30, 2003 from 2.68% for
the comparable period in 2002. Net interest income, excluding
the effects of variable rate floor income, increased
approximately $10.1&nbsp;million to approximately
$79.2&nbsp;million for the six months ended June&nbsp;30, 2003
from approximately $69.1&nbsp;million for the comparable period
in 2002.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Provision for loan
losses.</FONT></I><FONT size="2"> The provision for loan losses
for FFELP loans increased to $1.7&nbsp;million for the six
months ended June&nbsp;30, 2003 from $1.5&nbsp;million for the
comparable period in 2002. The provision for loan losses for
non-federally guaranteed private loans increased to
$3.2&nbsp;million for the six months ended June&nbsp;30, 2003
from $650,000 for the comparable period in 2002. This increase
was largely due to a specific provision of approximately
$2.2&nbsp;million for an identified pool of private loans based
on aging, delinquency and performance. This pool of private
loans is limited to loans made to borrowers attending a single
school, and, in early 2002, we ceased making private loans to
borrowers attending that school. The remaining combined increase
of approximately $500,000 was due to the increase in the size of
our FFELP and private loan portfolios. Approximately 8.1% of our
non-federally guaranteed private loans was delinquent as of
June&nbsp;30, 2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Other income.</FONT></I><FONT size="2"> Loan
servicing and other fee income decreased by $6.5&nbsp;million,
or 11.9%, during the six months ended June&nbsp;30, 2003 as
compared to the comparable period in 2002, primarily due to a
reduction in the number and amount of loans we serviced for
third parties. See &#147;Business&nbsp;&#151; Business
Units&nbsp;&#151; Student Loan Servicing.&#148; Total
third-party loan servicing volume decreased $906.3&nbsp;million,
or 8.6%, during the six months ended June&nbsp;30, 2003 as
compared to the comparable period in 2002.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Operating expenses.</FONT></I><FONT size="2">
Operating expenses, excluding amortization of intangible assets,
increased $1.8&nbsp;million, or 1.7%, during the six months
ended June&nbsp;30, 2003 as compared to the comparable period in
2002. Amortization of intangible assets decreased
$3.2&nbsp;million to $6.1&nbsp;million for the six months ended
June&nbsp;30, 2003 as compared to $9.3&nbsp;million for the
comparable period in 2002. This decrease was due to certain
intangible assets having been fully amortized prior to
January&nbsp;1, 2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Income tax expense.</FONT></I><FONT size="2">
Our effective tax rate was 41.3% for the six months ended
June&nbsp;30, 2003 as compared to 39.5% for the comparable
period in 2002. The increase in the effective rate was a result
of acquisitions that gave rise to amortization of intangible
assets for financial statement purposes that was not deductible
for tax purposes.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Net income.</FONT></I><FONT size="2"> Net
income decreased to $17.9 million for the six months ended
June&nbsp;30, 2003 from $37.8 million for the comparable period
in 2002, primarily for the reasons discussed above.
</FONT>

<P align="center"><FONT size="2">27
</FONT>

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<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Year ended December&nbsp;31, 2002 compared
    to year ended December&nbsp;31, 2001</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Net interest income.</FONT></I><FONT size="2">
Loan interest income increased by $86.7&nbsp;million, or 27.2%,
for 2002 as compared to 2001. This increase was the result of
several factors including changes in the interest rate
environment, in the pricing characteristics of our student loan
assets and in the size of our student loan portfolio. Lower
interest rates in 2002 caused a decrease in the average net
yield on our student loan portfolio to 4.96% in 2002 from 6.20%
in 2001. Variable rate floor income increased approximately
$19.9&nbsp;million to approximately $49.8&nbsp;million for 2002
from approximately $29.9&nbsp;million for 2001, primarily due to
the timing and relative change in interest rates during the
periods. The weighted average interest rate on our student loan
portfolio decreased in 2002 due to the lower interest rates,
together with the addition of lower yielding consolidation
loans. The lower weighted average interest rate resulted in a
reduction in loan interest income of approximately
$65.2&nbsp;million. Consolidation loan activity also increased
the amortization and write-offs of acquisition costs, reducing
interest income an additional approximately $40.4&nbsp;million
in 2002. The reduction in loan interest income resulting from
the decline in interest rates and the reduction in variable rate
floor income was partially offset by an increase in our
portfolio of student loans. The average student loan portfolio
increased by approximately $3.0&nbsp;billion, or 59.1%, for 2002
as compared to 2001, which increased loan interest income by
approximately $192.1&nbsp;million for 2002 as compared to 2001,
including the increase related to variable rate floor income.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Investment interest income increased
$4.0&nbsp;million, or 23.6%, for 2002 as compared to 2001,
largely due to an approximately $360.1&nbsp;million increase in
average investment and interest-earning deposits during 2002.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Interest expense on bonds and notes payable
increased $14.3&nbsp;million, or 6.5%, for 2002 as compared to
2001. Variable-rate bonds and notes payable increased
$4.1&nbsp;billion, which resulted in an increase in interest
expense of $85.9&nbsp;million. The reduction in short-term
interest rates, specifically LIBOR, decreased our average cost
of funds to 2.59% in 2002 from 3.95% in 2001. As a result,
interest expense decreased approximately $83.1&nbsp;million in
2002 as compared to 2001. We issued additional fixed-rate debt
during 2002, which increased our overall interest expense by
approximately $12.0&nbsp;million as compared to 2001. In 2002,
we first accessed the term securitization market. While the
interest expense associated with term securitizations is less
than that associated with our other debt instruments, the
incremental benefit in 2002 was negligible. While we expect that
we will continue to access the term securitization markets, we
cannot predict whether the benefits of our accessing those
markets will be material to our results of operations in future
periods.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Primarily as a result of the foregoing, net
interest income increased by $76.3&nbsp;million, or 66.6%, for
2002 as compared to 2001. Our net interest margin increased to
2.15% for 2002 from 2.09% for 2001. Net interest income,
excluding the effects of variable rate floor income, increased
$56.4&nbsp;million to $141.1&nbsp;million for 2002 from
$84.7&nbsp;million for 2001.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Provision for loan
losses.</FONT></I><FONT size="2"> The provision for loan losses
for FFELP loans decreased to $3.2&nbsp;million for 2002 from
$3.3&nbsp;million for 2001. The provision for loan losses for
non-federally guaranteed private loans increased to
$2.4&nbsp;million for 2002 from $700,000 for 2001. This increase
was largely due to a specific provision of approximately
$1.6&nbsp;million for an identified pool of private loans based
on aging, delinquency and performance. This pool of private
loans is limited to loans made to borrowers attending a single
school, and, in early 2002, we ceased making private loans to
borrowers attending that school. The remaining combined increase
of approximately $100,000 was due to the increase in the size of
our FFELP and private loan portfolios. Approximately 14.4% of
our non-federally guaranteed private loans was delinquent as of
December&nbsp;31, 2002.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Other income.</FONT></I><FONT size="2"> Loan
servicing and other fee revenue increased by $10.7&nbsp;million,
or 11.5%, for 2002 as compared to 2001, largely due to the
acquisition of EFS, Inc., which owned a third-party servicing
portfolio of $1.0&nbsp;billion, and to the addition of
$817.5&nbsp;million of loans to our servicing portfolio from
unrelated third parties.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Operating expenses.</FONT></I><FONT size="2">
Operating expenses, excluding amortization of intangible assets,
increased by $33.4&nbsp;million, or 18.6%, for 2002 as compared
to 2001, primarily due to an increase in personnel expense as a
result of the acquisition of EFS, Inc. in December 2001. This
acquisition increased the number of our
</FONT>

<P align="center"><FONT size="2">28
</FONT>

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<DIV align="left">
<FONT size="2">employees by approximately 23%. Amortization of
intangible assets increased $5.0&nbsp;million to
$16.8&nbsp;million for 2002 as compared to $11.8&nbsp;million in
2001, primarily due to certain acquisitions made during 2002.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Income tax expense.</FONT></I><FONT size="2">
Our effective tax rate was 40.7% for 2002 as compared to 61.4%
in 2001. The 2001 effective tax rate was high as a result of
acquisitions that gave rise to amortization of intangible assets
for financial statement purposes that was not deductible for tax
purposes of $10.8&nbsp;million for 2002 and $11.8&nbsp;million
for 2001. There was $6.0&nbsp;million of deductible amortization
of intangible assets in 2002 and $0 in 2001 which decreased the
effective tax rate for 2002.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Net income.</FONT></I><FONT size="2"> Net
income increased to $48.5 million for 2002 from $7.1 million for
2001, primarily for the reasons discussed above.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Year ended December&nbsp;31, 2001 compared
    to year ended December&nbsp;31, 2000</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Net interest income.</FONT></I><FONT size="2">
Loan interest income increased by $37.4&nbsp;million, or 13.3%,
for 2001 as compared to 2000. This increase was the result of
several factors including changes in the interest rate
environment, in the pricing characteristics of our student loan
assets and in the size of our student loan portfolio. Lower
interest rates in 2001 caused a decrease in the average net
yield on our student loan portfolio to 6.20% in 2001 from 8.29%
in 2000. Variable rate floor income increased approximately
$29.9&nbsp;million in 2001 primarily due to the timing and
relative change in interest rates during the periods. There was
no variable rate floor income in 2000. The weighted average
interest rate on our student loan portfolio decreased in 2001
due to the lower interest rates, together with the addition of
lower yielding consolidation loans. The lower weighted average
interest rate resulted in a reduction in loan interest income of
approximately $75.0&nbsp;million. Consolidation loan activity
also increased the amortization and write-offs of acquisition
costs, reducing interest income an additional approximately
$3.5&nbsp;million in 2001. The reduction in loan interest income
resulting from a decline in interest rates and reduction in
variable rate floor income was partially offset by an increase
in our portfolio of student loans. The average student loan
portfolio increased by approximately $1.7&nbsp;billion, or
51.6%, for 2001 as compared to 2000, which increased loan
interest income by approximately $117.2&nbsp;million for 2001 as
compared to 2000, which includes the increase related to
variable rate floor income.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Investment interest income decreased by
$1.1&nbsp;million, or 6.4%, for 2001 as compared to 2000,
largely due to the decrease in interest rates on invested funds.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Interest expense on bonds and notes payable
decreased $13.4&nbsp;million, or 5.7%, for 2001 as compared to
2000. The decline in short-term interest rates, specifically
LIBOR, decreased our average cost of funds to 3.95% in 2001 from
6.04% in 2000. As a result, interest expense decreased
approximately $72.8&nbsp;million for 2001 as compared to 2000.
Additional debt issued during 2001 increased our interest
expense by approximately $57.0 for 2001 as compared to 2000.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Primarily as a result of the foregoing, net
interest income increased by $49.7&nbsp;million, or 76.7%, for
2001 as compared to 2000. Our net interest margin increased to
2.09% for 2001 from 1.76% for 2000. Net interest income,
excluding the effects of variable rate floor income, increased
approximately $19.8&nbsp;million to approximately
$84.7&nbsp;million for 2001 from approximately
$64.9&nbsp;million for 2000.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Provision for loan
losses.</FONT></I><FONT size="2"> The provision for loan losses
for FFELP loans increased to $3.3&nbsp;million for 2001 from
$1.4&nbsp;million for 2000. The provision for loan losses for
non-federally guaranteed private loans increased to $700,000 for
2001 from $0 for 2000. This increase was largely due to a
specific provision of approximately $400,000 for an identified
pool of private loans based on aging, delinquency and
performance. This pool of private loans is limited to loans made
to borrowers attending a single school, and, in early 2002, we
ceased making private loans to borrowers attending that school.
The remaining combined increase of approximately
$2.2&nbsp;million was due to the increase in the size of our
FFELP and private loan portfolios. Approximately 3.1% of our
non-federally guaranteed private loans was delinquent as of
December&nbsp;31, 2001.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Other income.</FONT></I><FONT size="2"> Loan
servicing and other fee income increased by $27.2&nbsp;million,
or 41.1%, for 2001 as compared to 2000, primarily because the
2000 results include only ten months of the loan servicing
</FONT>

<P align="center"><FONT size="2">29
</FONT>

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<DIV align="left">
<FONT size="2">operations of UNIPAC Service Corporation, which
we acquired in March 2000, and seven months of the loan
servicing operations of InTuition Holdings, Inc., which we
acquired in June 2000.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Operating expenses.</FONT></I><FONT size="2">
Operating expenses, excluding amortization of intangible assets,
increased $61.2&nbsp;million, or 51.7%, in 2001 as compared to
2000, primarily due to the acquisitions of UNIPAC Service
Corporation and InTuition Holdings, Inc. in March and June 2000,
respectively. In addition, consolidation of our servicing
platform in December 2001 resulted in additional expense of
$9.6&nbsp;million. Amortization of intangible assets increased
$3.7&nbsp;million to $11.8&nbsp;million for 2001 as compared to
$8.1&nbsp;million in 2000. This increase was due to certain
acquisitions made in 2001 and 2000, the effects of which were
not fully recognized in 2000 due to the timing of those
acquisitions.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Income tax expense.</FONT></I><FONT size="2">
Our effective tax rate was 61.4% for 2001 as compared to 60.5%
for 2000. The effective tax rates were a result of acquisitions
that gave rise to amortization of intangible assets for
financial statement purposes that was not deductible for tax
purposes.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Net income.</FONT></I><FONT size="2"> Net
income increased to $7.1 million for 2001 from $4.5 million for
2000, primarily for the reasons discussed above.
</FONT>

<P align="left">
<B><FONT size="2">Liquidity and Capital Resources</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We finance our operations through operating cash
flow, borrowings under credit facilities and secured financing
transactions. Operating activities provided net cash of
$64.2&nbsp;million for the six months ended June&nbsp;30, 2003,
an increase of approximately $3.9&nbsp;million from the net cash
provided by operating activities of $60.3&nbsp;million during
the six months ended June&nbsp;30, 2002. Operating activities
provided net cash of $134.2&nbsp;million in 2002, an increase of
approximately $52.7&nbsp;million from the net cash provided by
operating activities of $81.5&nbsp;million during 2001.
Operating cash flows are driven by net income adjusted for
various non-cash items such as the provision for loan losses,
depreciation and amortization.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We also use secured and unsecured operating lines
of credit and financing agreements to fund operations and
student loan acquisitions. Historically, a significant portion
of our unsecured operating credit facilities was provided by
affiliated parties. See &#147;Certain Transactions.&#148; As of
June&nbsp;30, 2003, we had secured $30&nbsp;million, and are in
the process of securing an additional $100&nbsp;million, of
operating lines of credit and commercial paper transactions
under three separate facilities from a group of six large
regional and national financial institutions. The cost of funds
associated with our operating lines of credit is higher than
that of the secured financing transactions used to fund our
student loan portfolio. Our operating lines of credit are
generally priced at a spread over LIBOR ranging from 60 to 250
basis points.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our secured financing instruments include
commercial paper lines, commercial paper conduit warehouse
programs, variable-rate tax-exempt bonds, fixed-rate tax-exempt
bonds and various asset-backed securities. Of the
$10.2&nbsp;billion of debt outstanding as of June&nbsp;30, 2003,
approximately $8&nbsp;billion was issued under securitization
transactions. During 2002, we completed three asset-backed
securities transactions totaling $2.8&nbsp;billion. We
anticipate continuing to access the asset-backed securities
markets in 2003 and subsequent years, depending on market
conditions.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Securities issued in our securitization
transactions are generally priced off a spread to LIBOR or set
under an auction procedure related to the bonds and notes. The
student loans financed are generally priced on a spread to
commercial paper or Treasury bills.
</FONT>

<P align="center"><FONT size="2">30
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table summarizes our bonds and
notes outstanding as of June&nbsp;30, 2003:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="34%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">As of June 30, 2003</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Carrying</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Percent of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Interest rate</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">amount</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">total</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">range</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Final maturity</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">(dollars in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Variable-rate bonds and notes(a):
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Bond and notes based on indices
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,956,617</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.02%&nbsp;&#150;&nbsp;2.05%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">05/01/07&nbsp;&#150;&nbsp;01/25/37</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Bond and notes based on auction
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,042,135</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">39.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.00%&nbsp;&#150;&nbsp;1.45%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">07/01/05&nbsp;&#150;&nbsp;10/01/36</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total variable-rate bonds and notes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,998,752</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">68.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Commercial paper and other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,042,014</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.24%&nbsp;&#150;&nbsp;1.31%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">09/02/04&nbsp;&#150;&nbsp;12/15/06</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fixed-rate bonds and notes(a)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,049,458</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.50%&nbsp;&#150;&nbsp;6.68%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">05/01/05&nbsp;&#150;&nbsp;06/01/28</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other secured borrowings
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">89,502</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.34%&nbsp;&#150;&nbsp;6.00%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">01/10/05&nbsp;&#150;&nbsp;11/01/05</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,179,726</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(a)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Issued in securitization transactions.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Bonds and notes outstanding as of June&nbsp;30,
2003 are due in varying amounts as follows (dollars in
thousands):
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="82%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,282,196</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2005
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">218,916</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2006
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">152,822</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2007
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">234,760</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2008
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">92,380</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2009 and thereafter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,198,652</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,179,726</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have commitments with our branding partners
and forward flow lenders which obligate us to purchase loans
originated under specific criteria, although our branding
partners and forward flow lenders are not obligated to provide
us with a minimum amount of loans. These commitments generally
run for periods ranging from one to five years and are generally
renewable. As of June&nbsp;30, 2003 and December&nbsp;31, 2002
and 2001, we were obligated to purchase up to
$233.3&nbsp;million, $266.2&nbsp;million and
$334.7&nbsp;million, respectively, in student loans at current
market rates upon the respective seller&#146;s request under
various agreements through September&nbsp;30, 2004.
</FONT>

<P align="left">
<B><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Student Loan
Portfolio</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The tables below describe the components of our
loan portfolio:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="48%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">As of June 30,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Percent of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Percent of</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Dollars</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">total</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Dollars</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">total</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">FFELP:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Stafford
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,246,649</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">55.4</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,031,331</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">62.8</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">PLUS/ SLS (a)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">298,341</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">323,324</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Consolidation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,685,876</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">38.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,431,377</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-FFELP:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Private loans
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">86,981</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">59,255</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,317,847</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">98.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,845,287</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">97.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Unamortized premiums
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">162,426</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">172,877</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Allowance for loan losses:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Allowance &#151; FFELP
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(10,295</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,975</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Allowance &#151; Private
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,455</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,263</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,466,523</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,006,926</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(a)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Supplemental Loans for Students, or SLS, are the
    predecessor to unsubsidized Stafford loans.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">31
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="30%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="23"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><B><FONT size="1">As of December 31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">2000</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Percent of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Percent of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Percent of</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Dollars</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">total</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Dollars</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">total</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Dollars</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">total</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="23"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><B><FONT size="1">(dollars in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">FFELP:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Stafford
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,983,021</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">58.2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,947,316</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">66.6</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,390,203</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">66.7</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">PLUS/ SLS (a)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">313,100</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">335,083</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">115,237</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Consolidation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,033,607</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,923,896</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,004,548</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-FFELP:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Private loans
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">74,660</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">60,760</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31,843</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,404,388</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">98.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,267,055</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">97.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,541,831</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">98.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Unamortized premiums
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">167,032</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">167,059</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47,726</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Allowance for loan losses:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Allowance &#151; FFELP
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,970</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,378</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,004</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Allowance &#151; Private
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,030</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(864</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(610</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,559,420</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,423,872</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,585,943</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(a)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Supplemental Loans for Students, or SLS, are the
    predecessor to unsubsidized Stafford loans.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B><I><FONT size="2">Origination
and Acquisition</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our student loan portfolio increases through
various channels, including originations through our direct
channel and acquisitions through our branding partner channel,
our forward flow channel and the secondary market. Our portfolio
increases with the addition of portfolios acquired through whole
company or subsidiary acquisitions.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">One of our primary objectives is to focus on
originations through our direct channel and acquisitions through
our branding partner channel. We have extensive and growing
relationships with many large financial and educational
institutions which are active in the education finance industry.
Our branding relationships and forward flow relationships
include Union Bank and Trust Company, an affiliate of ours, as
well as many schools and national and regional financial
institutions. See &#147;Certain Transactions.&#148;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The table below sets forth the increase during
each period presented of loans originated or acquired through
each of our channels:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="34%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Six months ended June&nbsp;30,</FONT></B></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Year ended December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2000</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">(dollars in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Beginning balance
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,404,388</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,267,055</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,267,055</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,541,831</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,940,679</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Direct channel:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Stafford/ PLUS loan originations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">116,876</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">113,411</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">224,827</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">84,599</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Consolidation loan origination
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">736,670</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">182,585</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">859,120</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">55,715</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">43,951</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Branding partner channel
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">610,740</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">120,580</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">521,023</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">524,964</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">592,001</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Forward flow channel
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">308,002</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">251,701</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">577,603</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">484,058</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">391,503</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other channels
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">63,666</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">408,068</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">483,213</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">299,271</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">43</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total channel acquisitions
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,835,954</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,076,345</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,665,786</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,448,607</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,027,498</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Loans acquired in subsidiary acquisitions
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,919,845</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Repayments, claims, capitalized interest and
    other(a)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(922,495</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(498,113</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,528,453</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(643,228</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(426,346</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Ending balance
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,317,847</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,845,287</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,404,388</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,267,055</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,541,831</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(a)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes repayments on all consolidation loans.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">32
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Student Loan Spread Analysis</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table analyzes the student loan
spread on our portfolio of student loans for the period
indicated:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="36%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Six months ended June&nbsp;30,</FONT></B></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Year ended December 31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2000</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">(dollars in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Student loan yield
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.09</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.45</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.94</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.71</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8.86</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Consolidation rebate fees
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.40</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.28</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.31</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.23</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.25</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Premium amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.68</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.56</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.67</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.28</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.32</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Student loan net yield
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.01</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.61</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.96</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.20</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8.29</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Student loan cost of funds
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2.02</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2.57</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2.59</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3.95</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6.04</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Student loan spread, including variable rate
    floor income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.99</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.03</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.38</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.26</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.26</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Variable rate floor income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.14</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.60</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.61</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.58</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Student loan spread, excluding variable rate
    floor income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.85</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.44</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.77</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.67</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.26</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Average balance of student loans
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,176,244</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,887,699</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,171,898</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,135,227</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,388,156</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Interest Rate Risk</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Because we generate the majority of our earnings
from the spread between the yield we receive on our portfolio of
student loans and the cost of funding these loans, the interest
sensitivity of our balance sheet is a key profitability driver.
The majority of student loans have variable-rate characteristics
in certain interest rate environments. Certain of our student
loans include fixed-rate components depending upon the rate
reset provisions, or, in the case of consolidation loans, are
fixed at the weighted average interest rate of the underlying
loans at the time of consolidation. The table below sets forth
our loan assets and debt instruments by rate characteristics:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="39%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">As of June&nbsp;30,</FONT></B></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">As of December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2000</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">(dollars in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fixed-rate loan assets(a)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,036,201</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,965,944</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,320,121</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,486,649</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,277,098</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Variable-rate loan assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,281,646</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,879,343</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,084,267</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,780,406</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,264,733</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,317,847</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,845,287</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,404,388</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,267,055</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,541,831</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fixed-rate debt instruments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,049,458</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,207,643</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,122,881</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,232,662</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">583,191</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Variable-rate debt instruments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,130,268</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,452,492</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,324,801</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,693,700</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,350,939</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,179,726</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,660,135</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,447,682</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,926,362</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,934,130</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(a)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes approximately $450&nbsp;million,
    $540&nbsp;million, $430&nbsp;million, $570&nbsp;million and
    $530&nbsp;million of variable-rate loan assets which are
    classified as fixed-rate loan assets as a result of being
    financed by variable-rate, tax-exempt bonds subject to a 9.5%
    minimum yield as of June&nbsp;30, 2003 and 2002 and
    December&nbsp;31, 2002, 2001 and 2000, respectively.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Historically, we followed a policy of funding the
majority of our student loan portfolio with variable-rate debt.
In the current low interest rate environment, our FFELP loan
portfolio is yielding excess income primarily due to the
reduction in interest rates on the variable-rate liabilities
funding student loans at the fixed borrower rate and due to
consolidation loans earning interest at a fixed rate to the
borrower. See &#147;Risk Factors.&#148; Therefore, absent
hedging, in a low interest rate environment, a rise in interest
rates will have an adverse effect on earnings and fair values.
In higher interest rate environments, where the interest rate
rises above the borrower rate and the fixed-rate loans become
variable rate and are effectively matched with variable-rate
debt, the impact of rate fluctuations is substantially reduced.
</FONT>

<P align="center"><FONT size="2">33
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">One objective when financing our student loan
portfolio is to manage interest rate risk through:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">matching the funding of certain assets and
    liabilities;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">to some extent, hedging a portion of downside
    risk and interest rate fluctuations; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">positioning our portfolio to benefit from
    interest rate movements and fluctuations.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We attempt to match the interest rate
characteristics of pools of loan assets with debt instruments of
substantially similar characteristics, particularly in rising
interest rate markets. Due to the variability in duration of our
assets and varying market conditions, we do not attempt to
perfectly hedge or match the interest rate characteristics of
the entire loan portfolio with the underlying debt instruments.
We have adopted a policy of periodically reviewing the mismatch
related to the interest rate characteristics of our assets and
our liabilities and our opinion as to current and future market
conditions. Based on those factors, we will periodically use
interest rate swaps and other derivative instruments as part of
overall risk management strategy to manage risk arising from our
fixed-rate and variable-rate financial instruments. These
strategies entail risk and may not be effective.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During the third quarter of 2003, we locked in a
portion of the excess earnings on part of our loan portfolio
that was earning interest at a fixed borrower rate through the
use of interest rate swap contracts. The result of these hedging
transactions was to effectively convert a portion of
variable-rate debt into fixed-rate debt, fixing the relative
spread between the student loan assets rate and the converted
fixed-rate liability. In addition, we used derivative products
to institute a cap on the rates to which interest rates could
rise to on a portion of our variable-rate debt, limiting the
sensitivity to a dramatically rising interest rate market. We
also employed various hedging products, primarily basis swaps,
to limit the exposure to dramatic fluctuation in the underlying
indices used to price a portion of our variable-rate assets and
variable-rate debt.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As a result of our hedging activities, we expect
the change in pre-tax net income resulting from 100 basis point
and 200 basis point increases in interest rates will not result
in a proportional decrease in net income due to the effective
switch of some variable-rate loans to fixed-rate loans. The
change would also be less dramatic had the hedging strategies
and derivative products employed in the third quarter of 2003
been in place for the six months ended June&nbsp;30, 2003 or the
year ended December&nbsp;31, 2002.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Under Statement of Financial Accounting Standards
(&#147;SFAS&#148;) No.&nbsp;133, <I>Accounting for Derivative
Instruments and Hedging Activities</I>, some of our derivatives,
primarily basis swaps, are not considered effective hedges
because they do not extend to the full term of the hedged item
and are therefore required to be valued at fair value while the
hedged item is not. See &#147;&#151;&nbsp;Critical Accounting
Policies&nbsp;&#151; Accounting for Derivatives.&#148;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following tables summarize the effect on our
earnings for the six months ended June 30, 2003 and the years
ended December 31, 2002 and 2001, based upon a sensitivity
analysis performed by us assuming a hypothetical increase and
decrease in interest rates of 100 basis points and an increase
in interest rates of 200 basis points while funding costs remain
constant. The effect on earnings was performed on our
variable-rate assets and liabilities.
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="27%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="23"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><B><FONT size="1">Six months ended June 30, 2003</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Change from decrease</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Change from increase</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Change from increase</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">of 100 basis points</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">of 100 basis points</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">of 200 basis points</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Dollars</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Percent</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Dollars</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Percent</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Dollars</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Percent</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="23"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><B><FONT size="1">(dollars in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Effect on earnings:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Increase (decrease) in pre-tax income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,907</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">82.2%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(20,089</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(66.3</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(33,099</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(109.2)</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Increase (decrease) in basic and diluted earnings
    per share
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.35</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.29</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.47</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">34
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="27%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="23"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><B><FONT size="1">Year ended December 31, 2002</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Change from decrease</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Change from increase</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Change from increase</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">of 100 basis points</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">of 100 basis points</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">of 200 basis points</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Dollars</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Percent</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Dollars</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Percent</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Dollars</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Percent</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="23"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><B><FONT size="1">(dollars in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Effect on earnings:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Increase (decrease) in pre-tax income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,119</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18.6%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,553</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14.2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(20,236</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(24.9)</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Increase (decrease) in basic and diluted earnings
    per share
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.22</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.16</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.29</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="27%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="23"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><B><FONT size="1">Year ended December 31, 2001</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Change from decrease</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Change from increase</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Change from increase</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">of 100 basis points</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">of 100 basis points</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">of 200 basis points</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Dollars</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Percent</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Dollars</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Percent</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Dollars</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Percent</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="23"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><B><FONT size="1">(dollars in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Effect on earnings:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Increase (decrease) in pre-tax income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,054</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10.3%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(749</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3.7</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,975</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9.9)</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Increase (decrease) in basic and diluted earnings
    per share
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.03</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.01</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.03</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The table below sets forth our variable-rate
assets and liabilities categorized by the reset date of the
underlying index. Fixed-rate assets and liabilities are
categorized based on their maturity dates. An interest rate gap
is the difference between volumes of assets and volumes of
liabilities maturing or repricing during specific future time
intervals. The following gap analysis reflects our interest
rate-sensitive positions as of June&nbsp;30, 2003 and
December&nbsp;31, 2002 and is not necessarily reflective of the
positions that existed throughout the period.
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="24%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="23"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><B><FONT size="1">As of June&nbsp;30, 2003</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="23"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><B><FONT size="1">Interest rate sensitivity period</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">3 months</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">3 months</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">6 months</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">1 to 2</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2 to 5</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Over 5</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">or less</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">to 6 months</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">to 1 year</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">years</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">years</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">years</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="23"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><B><FONT size="1">(dollars in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest-sensitive assets:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Student loans
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,466,523</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and investments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">659,874</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total interest-sensitive assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,126,397</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest-sensitive liabilities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Short-term borrowings
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,130,268</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Long-term notes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">63,773</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">63,773</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">111,880</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">215,122</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">333,375</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">261,535</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total interest-sensitive liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,194,041</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">63,773</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">111,880</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">215,122</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">333,375</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">261,535</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Period gap
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">932,356</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(63,773</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(111,880</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(215,122</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(333,375</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(261,535</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cumulative gap
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">932,356</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">868,583</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">756,703</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">541,581</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">208,206</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(53,329</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Ratio of interest-sensitive assets to
    interest-sensitive liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">110.1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Ratio of cumulative gap to total
    interest-sensitive assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9.2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8.6</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7.5</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.3</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.5</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">35
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="24%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="23"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><B><FONT size="1">As of December&nbsp;31, 2002</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="23"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><B><FONT size="1">Interest rate sensitivity period</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">3 months</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">3 months</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">6 months</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">1 to 2</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2 to 5</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Over 5</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">or less</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">to 6 months</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">to 1 year</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">years</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">years</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">years</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="23"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><B><FONT size="1">(dollars in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest-sensitive assets:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Student loans
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,559,420</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and investments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">916,572</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total interest-sensitive assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,475,992</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest-sensitive liabilities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Short-term borrowings
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,324,801</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Long-term notes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">48,645</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">48,645</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">97,289</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">223,759</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">436,617</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">267,926</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total interest-sensitive liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,373,446</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">48,645</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">97,289</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">223,759</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">436,617</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">267,926</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Period gap
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,102,546</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(48,645</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(97,289</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(223,759</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(436,617</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(267,926</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cumulative gap
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,102,546</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,053,901</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">956,612</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">732,853</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">296,236</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28,310</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Ratio of interest-sensitive assets to
    interest-sensitive liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">113.2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Ratio of cumulative gap to total
    interest-sensitive assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11.6</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11.1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10.1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7.7</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.3</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<B><FONT size="2">Critical Accounting Policies</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">This Management&#146;s Discussion and Analysis of
Financial Condition and Results of Operations discusses our
consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the
United States of America, or GAAP. The preparation of these
financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and the reported amounts of income and expenses
during the reporting periods. We base our estimates and
judgments on historical experience and on various other factors
that we believe are reasonable under the circumstances. Actual
results may differ from these estimates under varying
assumptions or conditions. Note 3 of Notes to Consolidated
Financial Statements includes a summary of the significant
accounting policies and methods used in the preparation of our
consolidated financial statements.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On an on-going basis, management evaluates its
estimates and judgments, particularly as they relate to
accounting policies that management believes are most
&#147;critical&#148;&nbsp;&#151; that is, they are most
important to the portrayal of our financial condition and
results of operations and they require management&#146;s most
difficult, subjective or complex judgments, often as a result of
the need to make estimates about the effect of matters that are
inherently uncertain. These accounting policies include
securitization accounting, accounting for derivatives,
determining the level of the allowance for loan losses and the
program reimbursement reserve.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Securitization Accounting</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We use the issuance of asset-backed securities,
commonly called securitization transactions, as a key component
of our financing strategy. In conjunction with these
transactions, we sell student loans to a trust which issues
bonds backed by the student loans. Generally speaking, our
transactions do not qualify for treatment under SFAS
No.&nbsp;140, <I>Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities-a
Replacement of SFAS No.&nbsp;125</I>, as the trusts continue to
be under our effective control and as such we do not record or
recognize gain on sale in conjunction with the transaction. All
of the financial activities and related assets and liabilities
of the securitizations are
</FONT>

<P align="center"><FONT size="2">36
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">reflected and consolidated in our financial
statements. Servicing, administrative support services and other
intercompany activities have been eliminated in accordance with
generally accepted accounting principles.
</FONT>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Accounting for Derivatives</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We account for derivative and certain financial
instruments in accordance with SFAS No.&nbsp;133, <I>Accounting
for Derivative Instruments and Hedging Activities,</I> which
requires that every derivative instrument, including certain
derivative instruments embedded in other contracts, be recorded
at fair value on the balance sheet as either an asset or
liability. We determine fair value for our derivative contracts
from bid pricing and pricing models. Pricing models and their
underlying assumptions impact the amount and timing of
unrealized gains and losses recognized; the use of different
pricing models or assumptions could produce different financial
results.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For some of our derivatives, mainly certain
interest rate swaps, we document the relationship between the
hedging instrument and the hedged items, as well as the risk
management objective and strategy for undertaking various hedge
transactions at the inception of the hedging relationship. To
the extent possible, we link each derivative to either a
specific asset or liability on the balance sheet or expected
future cash flows, and designate them as either fair value or
cash flow hedges. Fair value hedges are designed to hedge our
exposure to changes in fair value of a fixed-rate asset or
liability, or a &#147;fair value&#148; hedge, while cash flow
hedges are designed to hedge our exposure to variability of
either a variable-rate asset&#146;s or liability&#146;s cash
flows or expected fixed-rate debt issuance, or a &#147;cash
flow&#148; hedge. For effective fair value hedges, we
mark-to-market both the hedge and the hedged item with any
difference recorded immediately in the income statement. For
effective cash flow hedges, changes in the fair value of the
cash flow hedge are deferred in other comprehensive income, net
of tax, and recognized in earnings in the same period as the
earnings effects of the hedged item. SFAS No.&nbsp;133 requires
that changes in the fair value of derivative instruments be
recognized currently in earnings unless specific hedge
accounting criteria as specified by SFAS No.&nbsp;133 are met.
We believe that our derivatives are effective economic hedges
and they are a critical element of our interest rate risk
management strategy. However, under SFAS No.&nbsp;133, some of
our derivatives, primarily basis swaps and certain interest rate
caps, are considered ineffective hedges because they hedge only
a portion of the term of the underlying risk.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Basis swaps are used to convert variable-rate
debt from one interest rate index to another to match the
interest rate characteristics of the assets. We will
periodically use basis swaps to change the index of our
LIBOR-based debt, to better match the cash flows of our student
loan assets. SFAS No.&nbsp;133 requires that the change in the
cash flows of the hedge effectively offset both the change in
the cash flows of the asset and the change in the cash flows of
the liability. As a result, these swaps are recorded at fair
value with subsequent changes in value reflected in the income
statement.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Allowance for Loan Losses</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The allowance for loan losses represents
management&#146;s estimate of probable losses on student loans.
This evaluation process is subject to numerous estimates and
judgments. In making such estimates and judgments, management
considers such things as the value and character of loans
outstanding, past loan loss experience and general economic
conditions. We evaluate the adequacy of the allowance for losses
on our FFELP loan portfolio separately from our private loan
portfolio. Historical delinquencies and credit loss experience
are also considered when reviewing the current aging of the
portfolio, together with analyses that reflect current trends
and conditions.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Program Reimbursement Reserve</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The program reimbursement reserve represents the
amount that management estimates we will be required to repay to
lenders due to our failure to follow prescribed due diligence
procedures and servicing activities prescribed by the Higher
Education Act. Failure to meet certain due diligence
requirements that must be followed to maintain the DOE guarantee
on the loans will cause a loss of the guarantee on the
</FONT>

<P align="center"><FONT size="2">37
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">loans and potential loss to us if we are unable
to cure the deficiency under procedures prescribed by the
federal government.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">This evaluation process is subject to numerous
estimates and judgments. In making such estimates and judgments,
management considers such things as the past loan loss
experience, past cure experience and general economic
conditions. The program reimbursement reserve is determined via
a process that begins with estimates of probable losses on
serviced student loans, based on a statistical analysis.
Historical losses and cure rates are applied to the servicing
portfolio, together with analyses that reflect current trends
and conditions.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The program reimbursement reserve reflects
assumptions and estimates we believe are reasonable in light of
historical servicing errors and known trends with respect to
student loans serviced. However, these estimates and assumptions
are inherently subjective and may be susceptible to significant
changes. Management continually measures expected losses against
actual losses and assumptions are revised accordingly.
Management believes that the program reimbursement reserve is
adequate to cover probable losses in the portfolio of student
loans serviced.
</FONT>

<P align="left">
<B><FONT size="2">Recent Accounting Pronouncements</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Early Extinguishment of Debt</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In April 2002, the Financial Accounting Standard
Board, or FASB, issued SFAS No.&nbsp;145, <I>Rescission of FASB
Statements Nos. 4, 44 and 64, Amendment of FASB Statement
No.&nbsp;13, and Technical Corrections</I>. This statement
rescinds FASB Statement No.&nbsp;4, <I>Reporting Gains and
Losses from Extinguishment of Debt </I>and an amendment of that
statement,<I> </I>FASB Statement No.&nbsp;64, <I>Extinguishments
of Debt Made to Satisfy Sinking-Fund Requirements</I>. The
statement also rescinds FASB Statement No.&nbsp;44,
<I>Accounting for Intangible Assets of Motor Carriers </I>and
amends FASB Statement No.&nbsp;13, <I>Accounting for Leases
</I>to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required
accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. This
statement also amends other existing authoritative
pronouncements to make various technical corrections, clarify
meanings or describe their applicability under changed
conditions. The provisions of SFAS No.&nbsp;145 related to the
rescission of FASB No.&nbsp;4 are effective for fiscal years
beginning after May&nbsp;15, 2002. The provisions of SFAS
No.&nbsp;145 related to FASB No.&nbsp;13 are effective for
transactions occurring after May&nbsp;15, 2002. All other
provisions of SFAS No.&nbsp;145 are effective for financial
statements issued on or after May&nbsp;15, 2002. We do not
expect to have any material changes to our financial statements
as a result of SFAS No.&nbsp;145.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Accounting for Costs Associated with Exit
    or Disposal Activities</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In June 2002, FASB issued SFAS No.&nbsp;146,
<I>Accounting for Costs Associated with Exit or Disposal
Activities</I>. SFAS No.&nbsp;146 requires that a liability for
costs associated with exit or disposal activities be recognized
when the liability is incurred. Existing generally accepted
accounting principles provide for the recognition of such costs
at the date of management&#146;s commitment to an exit plan. In
addition, SFAS No.&nbsp;146 requires that the liability be
measured at fair value and be adjusted for changes in estimated
cash flows. The provisions of the new standard are effective for
exit or disposal activities initiated after December&nbsp;31,
2002. It is not expected that SFAS No.&nbsp;146 will materially
affect our financial statements.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Accounting for Stock-Based
    Compensation</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In December 2002, the FASB issued SFAS
No.&nbsp;148, <I>Accounting for Stock-Based
Compensation&nbsp;&#151; Transition and Disclosure, an amendment
to FASB Statement No.&nbsp;123</I>. SFAS No.&nbsp;148 requires
annual disclosures about the method of accounting for
stock-based compensation and tabular information about the
effect of the method accounting for stock-based compensation on
net income and earnings per share, including pro forma amounts,
in the &#147;Summary of Significant Accounting Policies.&#148;
On a quarterly basis, SFAS No.&nbsp;148 requires prominent
disclosure in tabular form of the effect of the method of
stock-based compensation on net income and earnings per share
for all periods presented as accounted for under APB
</FONT>

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<DIV align="left">
<FONT size="2">Opinion No.&nbsp;25. The disclosures required by
SFAS&nbsp;148 will be included in the financial statements when
required for shares issued under our recently adopted Employee
Share Purchase Plan.
</FONT>
</DIV>

<DIV>&nbsp;</DIV>

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    <TD>
    <B><I><FONT size="2">Accounting for Guarantees</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In November 2002, the FASB issued FASB
Interpretation (FIN)&nbsp;No.&nbsp;45, <I>Guarantor&#146;s
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others</I>. FIN
No.&nbsp;45 identifies characteristics of certain guarantee
contracts and requires that a liability be recognized at fair
value at the inception of such guarantees for the obligations
undertaken by the guarantor. Additional disclosures also are
prescribed for certain guarantee contracts. The initial
recognition and initial measurement provisions of FIN
No.&nbsp;45 are effective for those guarantees issued or
modified after December&nbsp;31, 2002. The disclosure
requirements of FIN No.&nbsp;45 were effective for us as of
December&nbsp;31, 2002. Disclosure required by FIN No.&nbsp;45
relating to our guarantee arrangements is included in the
financial statements. We do not believe such guarantee requires
a liability to be recognized.
</FONT>

<DIV>&nbsp;</DIV>

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    <TD>
    <B><I><FONT size="2">Consolidation of Variable Interest
    Entities</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In January 2003, the FASB issued FIN No.&nbsp;46,
<I>Consolidation of Variable Interest Entities</I>. FIN
No.&nbsp;46 clarifies the application of Accounting Research
Bulletin No.&nbsp;51, <I>Consolidated Financial Statements,</I>
to certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not
have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support
from other parties, which are referred to as variable interest
entities. Variable interest entities are required to be
consolidated by their primary beneficiaries if they do not
effectively disperse risks among parties involved. The primary
beneficiary of a variable interest entity is the party that
absorbs a majority of the entity&#146;s expected losses,
receives a majority of its expected residual returns, or both,
as a result of holding variable interests. FIN No.&nbsp;46 also
requires new disclosures about variable interest entities. We do
not believe, at this time, that FIN No.&nbsp;46 will have a
material effect on our consolidated financial statements for
transactions completed before December&nbsp;31, 2002.
</FONT>

<DIV>&nbsp;</DIV>

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    <TD>
    <B><I><FONT size="2">Statement of Financial Accounting Standards
    No.&nbsp;149&nbsp;&#151; Amendment of Statement 133 on
    Derivative Instruments and Hedging Activities</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">This Statement amends and clarifies financial
accounting and reporting for derivative instruments, including
certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging
activities under SFAS No.&nbsp;133, <I>Accounting for Derivative
Instruments and Hedging Activities</I>. This Statement is
effective for contracts entered into or modified after
June&nbsp;30, 2003, except as stated below and for hedging
relationships designated after June&nbsp;30, 2003. In addition,
except as stated below, all provisions of this Statement should
be applied prospectively. The provisions of this Statement that
relate to Statement 133 Implementation Issues that have been
effective for fiscal quarters that began prior to June&nbsp;15,
2003, should continue to be applied in accordance with their
respective effective dates. In addition, paragraphs 7(a) and
23(a) of SFAS No.&nbsp;133, which relate to forward purchases or
sales of when-issued securities or other securities that do not
yet exist, should be applied to both existing contracts and new
contracts entered into after June&nbsp;30, 2003. We do not
believe SFAS No.&nbsp;149 will have a significant impact on our
financial statements.
</FONT>

<P align="left">
<FONT size="2">&nbsp;&nbsp;<B><I>Accounting for Certain
Financial Instruments with Characteristics of both Liabilities
and Equity</I></B>
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In May 2003, the FASB issued SFAS No&nbsp;150,
<I>Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. </I>SFAS
No.&nbsp;150 establishes standards for how an issuer classifies
and measures certain financial instruments with characteristics
of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a
liability, or an asset in some circumstances. SFAS No.&nbsp;150
is effective for financial instruments entered into or modified
after May&nbsp;31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after
June&nbsp;15, 2003. We have adopted the standard effective
July&nbsp;1, 2003. We do not believe SFAS No.&nbsp;150 will have
a significant impact, if any, on our financial statements.
</FONT>

<P align="center"><FONT size="2">39
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<P align="center">
<B><FONT size="2">INDUSTRY OVERVIEW</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Since the creation of federal student loan
programs, more than $485 billion in federal student loans have
financed the higher education of more than 67&nbsp;million
students at thousands of schools across the United States.
College costs have risen at both public and private
institutions. In the decade 1990-1991 to 2000-2001, prices at
public and private colleges rose by approximately 23% and 27%,
respectively, after adjustment for inflation. Students and
families depend more on federal student loans to cover the costs
of post-secondary education than any other single source of
financial aid. The demand for student loans is expected to grow.
According to a projection by the DOE, gross federal student loan
volume, comprised of FFELP loans and FDLP loans, is expected to
grow to $71.8&nbsp;billion in federal fiscal year 2009,
excluding consolidation loan volume. This projection is an
increase from the $45.4&nbsp;billion in loans that were
originated in federal fiscal year 2002, and this projection does
not include the potential for higher loan limits that are
currently being contemplated by Congress.
</FONT>

<P align="center">
<IMG src="y88696y8869601.gif" alt="(BAR GRAPH)">

<DIV align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Source: Department
of Education estimates proposed for the President&#146;s 2004
fiscal year budget.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The large majority of student loans are made to
finance post-secondary education under federally guaranteed
student loan programs, although many students and parents also
obtain education funding through private student loan programs.
Federally guaranteed student loan programs are highly regulated
by the DOE. Under programs guaranteed by the federal government,
banks and other lenders that satisfy statutory eligibility
requirements can make student loans at below-market rates due to
subsidies and guarantees. The largest student loan program,
formerly called the Guaranteed Student Loan Program, or GSLP,
and currently known as the Federal Family Education Loan
Program, was created in 1965 to ensure affordable access by
families to a full range of post-secondary educational
institutions. In 1972, to encourage further bank participation
in the GSLP, Congress established the Student Loan Marketing
Association, known as Sallie Mae, a government-sponsored
enterprise as a for-profit, public stockholder-owned, national
secondary market for student loans. Currently, Sallie Mae is a
wholly owned subsidiary of SLM Corporation. SLM Corporation was
formed in 1997 as a Delaware corporation, marking the beginning
of the privatization of Sallie Mae as a government-sponsored
enterprise, to be completed by September 2006.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The FFEL Program currently includes a network of
thousands of originators and educational institutions and 36
state-sponsored or non-profit guaranty agencies which guarantee
and administer loans
</FONT>

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<FONT size="2">under contract with the DOE. A number of
non-profit entities, banks and other financial intermediaries
operate as secondary markets for student loans. Lender
participation in the FFEL Program is relatively concentrated,
with more than 70% of outstanding loans held by the top ten
participants, including nearly one-half owned or managed by
Sallie Mae.
</FONT>
</DIV>

<P align="left">
<B><FONT size="2">Student Loan Business Model</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In general, a student applies for a loan from a
financial institution through a school&#146;s financial aid
office or directly from the financial institution. Typically,
financial institutions acting as lenders or entities that
service student loans are the source of student loan
originations. A financial institution may hold the student loan
it originates or sell its student loan portfolio to the
secondary market. The characteristics of student loans typically
result in those loans trading at a premium. This creates a
situation that allows for selling the portfolio to the secondary
market at a premium which frees up capital enabling the
institution to originate new student loans. The secondary market
is made up of a variety of non-profit entities, banks and
for-profit companies. Typically, a participant in the secondary
market funds loans purchased from the financial institution
through the use of a warehouse financing line. Once a loan
holder, such as Nelnet, has garnered enough loans, it may choose
to finance the loans through an asset securitization vehicle.
The student loans are generally transferred to a special purpose
entity that pays for the loans through the issuance of debt. As
a result of the federal guarantee of student loans, the senior
tranches of notes in these securitizations are generally rated
AAA, and the subordinated tranches are generally rated A or
better.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">To induce lenders to enter the student loan
market, the government assures that a lender receives a minimum
yield on FFELP loans, regardless of whether rates change over
the course of a year or whether rates exceed the cap on a
borrower&#146;s loans. Depending on the type of student loan and
when it was originated, the borrower rate is either fixed to
term or is reset to a market rate each July&nbsp;1. FFELP
student loans generally earn interest at the greater of the
borrower rate or a variable rate determined by reference to the
average of the applicable index (91-day Treasury bill rate or
90-day commercial paper rate) in a calendar quarter plus a fixed
spread that is dependent upon when the loan was originated and
the loan&#146;s repayment status. If the resulting variable rate
plus the applicable spread exceeds the borrower rate, the DOE
pays the difference. This payment is referred to as the special
allowance payment, or SAP. We refer to the fixed spread to the
underlying index as the special allowance margin. In some
declining interest rate environments, lenders earn additional
spread income through the next reset date on those FFELP loans
earning at the annually reset borrower rate. We refer to this
additional income as variable rate floor income. On those FFELP
loans with fixed to term borrower rates, primarily consolidation
loans, lenders earn interest at the greater of the borrower rate
or a variable rate based on the SAP formula.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Guaranty agencies expedite government
reimbursement for defaulted student loans to eligible lenders.
These guaranty agencies are non-profit institutions and state
agencies that have entered into federal reimbursement contracts
with the DOE pursuant to the Higher Education Act. Guaranty
agencies collect revenue in the form of fees based upon new
guarantees, the outstanding principal amount of loans guaranteed
and default prevention activities. Reimbursement from a guaranty
agency to the lender is contingent upon servicing in accordance
with certain regulatory requirements. The guaranty agencies
provide for 100% reimbursement of principal and accrued interest
for loans disbursed before October&nbsp;1, 1993 and 98%
reimbursement of principal and accrued interest for loans
disbursed on or after October 1, 1993, if the loans are serviced
according to DOE guidelines. In addition, the lender is entitled
to receive the full 100% of principal and accrued interest in
the event of a borrower&#146;s death, disability or bankruptcy.
Guaranty agencies reimburse eligible lenders from reserve
accounts established for this purpose. The guaranty agency, in
turn, receives reimbursement from the DOE. In the event a
guaranty agency fails to pay, the lender can claim reimbursement
directly from the DOE.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Servicing student loan assets is important
because losses on defaults are largely mitigated by the
servicer&#146;s ability to service the student loans according
to DOE guidelines. Proper servicing of a student
</FONT>

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<FONT size="2">loan is required in order to maintain eligibility
for interest subsidy payments and guarantee reimbursement for
principal and accrued interest losses. As a result of the strict
requirements and expense associated with properly servicing
accounts, servicing is often outsourced by financial
institutions and secondary market participants to specialized
student loan servicers. This allows servicers to obtain
economies of scale in their operations by aggregating student
loans from a variety of market participants.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Claims rejected by the DOE or a guaranty agency
may be &#147;cured,&#148; which involves reinstatement of the
guarantee. When the lender obtains a payment or a new signed
repayment agreement from the borrower in the case of certain
collection due diligence violations, the lender may receive
reinstated interest subsidies and special allowance payments.
Interest subsidies are interest payments made by the DOE on
eligible loans while the borrower is in school and during grace
and deferment periods.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following chart illustrates the student loan
process.
</FONT>

<P align="center">
<IMG src="y88696y8869602.gif" alt="(STUDENT LOAN FLOW CHART)">

<P align="left">
<B><FONT size="2">Federal Student Loan Programs</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Federal student loans are made up of two primary
programs:
</FONT>
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    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">The Federal Family Education Loan Program, which
    is known as the FFEL Program or the FFELP.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">The William D. Ford Federal Direct Loan Program,
    which is known as the FDL Program or the FDLP.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The federal government guarantees the repayment
of at least 98% of the principal balance and the accrued
interest of all FFELP loans. In addition, the federal government
subsidizes the interest cost of some of these loans. As
described below, the amount of the subsidy a borrower receives
and the repayment terms vary depending upon the type of loan and
borrower.
</FONT>

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    <TD>
    <B><I><FONT size="2">The Federal Family Education Loan
    Program</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The FFEL Program is a public-private partnership
in which lenders make federally guaranteed student loans to
students and their parents in coordination with school financial
aid offices. During the 2002 federal fiscal year, which ended
September&nbsp;30, 2002, almost eight million new FFELP loans,
which excludes consolidation loans, with a principal amount of
$32.8&nbsp;billion, were made to eligible borrowers.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Loans made under the FFEL Program include:
</FONT>
<P>

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    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><I><FONT size="2">Subsidized Federal Stafford Loans
    </FONT></I></B><FONT size="2">for students who pass a financial
    needs test. This loan type is the largest component of the FFEL
    Program, with aggregate borrowing limited to $23,000 for
    undergraduate students and $65,500 for graduate students. The
    federal government pays all interest costs for subsidized
    Stafford borrowers while borrowers are in school and during
    grace and
    </FONT></TD>
</TR>

</TABLE>

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    <TD></TD>
    <TD align="left">
    <FONT size="2">deferment periods. The interest rate on these
    loans currently changes annually, but is capped at a maximum
    annual rate of 8.25%. During the 2002 federal fiscal year,
    $15.3&nbsp;billion in subsidized Stafford loans were made.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><I><FONT size="2">Unsubsidized Federal Stafford Loans
    </FONT></I></B><FONT size="2">for students who do not meet a
    financial needs test or who need to supplement their subsidized
    loans. Although borrowers may defer payment of interest while
    they are in school, they are responsible for all interest that
    accrues. The interest rate on these loans also changes annually
    and is capped at a maximum annual rate of 8.25%. During the 2002
    federal fiscal year, $13.9&nbsp;billion in unsubsidized Stafford
    loans were made.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><I><FONT size="2">Federal PLUS Loans
    </FONT></I></B><FONT size="2">for parents of dependent
    undergraduate students. Although borrowers may defer payment of
    interest while their children are in school, they are
    responsible for all interest that accrues. Borrowers may borrow
    up to the cost of attendance per child, minus financial aid from
    other sources. The interest rate on PLUS loans is variable, but
    is capped at a maximum annual rate of 9.00%. During the 2002
    federal fiscal year, $3.6&nbsp;billion in PLUS loans were made.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><I><FONT size="2">Federal Consolidation Loans
    </FONT></I></B><FONT size="2">designed to help borrowers manage
    repayment of multiple loans by combining all eligible loans into
    a single, new guaranteed FFELP loan with a longer repayment
    term, a fixed interest rate and a smaller total monthly payment.
    As a result of extended repayment periods associated with
    consolidation loans, total payments made by consolidation
    borrowers over the life of their consolidation loan are
    generally greater than those made by borrowers with standard
    repayment periods. Due in part to record-low interest rates,
    during the 2002 federal fiscal year $23.0&nbsp;billion in
    federal consolidation loans were made in addition to the
    $32.8&nbsp;billion in new loans made under the FFEL Program
    during the same year.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Participants in the FFEL Program include:
</FONT>
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    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><I><FONT size="2">Eligible
    Lenders.</FONT></I></B><FONT size="2"> Eligible lenders, which
    are registered with the DOE, originate and hold FFELP loans and
    receive interest subsidy payments, special allowance payments
    and default reimbursement. Eligible lenders include banks,
    savings and loan associations, credit unions, pension funds,
    insurance companies and, under certain conditions, schools and
    guaranty agencies. Eligible lenders may also serve as a trustee
    on behalf of entities not otherwise eligible to hold FFELP
    loans, such as Nelnet, allowing such other entities to
    participate in the FFEL Program as a beneficial owner of the
    loan assets.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><I><FONT size="2">Servicers.</FONT></I></B><FONT size="2">
    Servicing of student loan assets is critical for FFELP lenders
    because losses on defaults are mainly dependent on the
    servicer&#146;s ability to service the loans according to DOE
    guidelines. Proper servicing of a student loan is required in
    order to maintain eligibility for special allowance payments,
    interest subsidy payments and guarantee reimbursement.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><I><FONT size="2">Guaranty
    Agencies.</FONT></I></B><FONT size="2"> Guaranty agencies
    expedite reimbursement for defaulted student loans to eligible
    lenders. These guaranty agencies are non-profit institutions or
    state agencies that have entered into federal reimbursement
    contracts with the DOE pursuant to the Higher Education Act.
    Reimbursement from the guaranty agency to the lender is
    contingent upon servicing in accordance with certain regulatory
    requirements. There will be 100% reimbursement of principal and
    accrued interest for defaulted loans disbursed before
    October&nbsp;1, 1993 and 98% reimbursement of principal and
    accrued interest for defaulted loans disbursed on or after
    October&nbsp;1, 1993, if such loans are serviced according to
    DOE guidelines. Guaranty agencies reimburse eligible lenders
    from reserve accounts established for this purpose. The guaranty
    agency, in turn, receives reimbursement from the DOE. The level
    of reimbursement to the guaranty agency depends on a number of
    factors. Typically, guaranty agencies guarantee loans to
    students attending eligible institutions in the state or region
    serviced by the guaranty agency. They may also guarantee loans
    to students who reside in their own state or region, but who
    attend eligible institutions in another state or region. After a
    claim has been paid, the guaranty agency assumes ownership of
    the loan and is obligated to pursue
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">43
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    <FONT size="2">post-disposition recoveries. The guaranty agency
    retains a percentage of post-disposition recoveries and
    reimburses the DOE with the remaining percentage.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><I><FONT size="2">Department of
    Education.</FONT></I></B><FONT size="2"> The DOE&#146;s
    regulations provide a number of incentives to student loan
    market participants. The DOE provides eligible private lenders
    with an incentive to lend to students by guaranteeing default
    reimbursement. When applicable, it also pays special allowance
    payments. The DOE provides eligible borrowers with an incentive
    to borrow by providing interest subsidies and capped interest
    rates. In the event of a guaranty agency bankruptcy or a
    determination by the DOE that the guaranty agency is unable to
    reimburse claims, an eligible lender has the right to submit
    claims directly to the DOE for payment. Under such
    circumstances, the DOE is obligated to pay the holder of the
    loan the full insurance obligation of the guaranty agency,
    subject to its servicing guidelines.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Federal
Direct Loan Program</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Under the FDL Program, loans are made directly by
the federal government to borrowers. Most terms of FDLP loans
are the same as FFELP loans. The $12.7&nbsp;billion of FDLP
loans in 2002 consisted of approximately $6.2&nbsp;billion in
subsidized Stafford loans, $4.9&nbsp;billion in unsubsidized
Stafford loans and $1.6&nbsp;billion in PLUS loans. During the
2002 federal fiscal year, newly originated FDLP loans
constituted 28% of total newly originated FFELP and FDLP loans,
down from 33% during the 1998 federal fiscal year.
</FONT>

<DIV>&nbsp;</DIV>

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    <TD></TD>
    <TD>
    <B><I><FONT size="2">Reauthorization of the Higher Education
    Act</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Higher Education Act, and thereby the federal
student loan program, needs to be reauthorized every five years.
The next reauthorization is set for September 2004. Some of the
key issues being debated are:
</FONT>
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    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><I><FONT size="2">Single holder rule on consolidation
    loans.</FONT></I></B><FONT size="2"> Currently, if only one
    lender holds all of a student&#146;s loans, then a competitor
    cannot consolidate the loans away from the current holder unless
    the current holder refuses to consolidate the loans for the
    borrower. There is a high probability that the single holder
    rule will be eliminated during reauthorization. In the industry
    as a whole, a large portion of all non-consolidated loans are
    currently held by only one lender. Elimination of the single
    holder rule would open up a portion of the market to increased
    competition.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><I><FONT size="2">The ability to refinance consolidation
    loans.</FONT></I></B><FONT size="2"> Currently, once a loan is
    consolidated, it cannot be refinanced by another government
    guaranteed student loan unless subsequent FFELP loans are made
    to the borrower. If this rule changes, the amount of
    consolidation loans that are refinanced could be significant.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><I><FONT size="2">Variable-rate consolidation loans and
    extended repayment of Stafford
    loans.</FONT></I></B><FONT size="2"> Reauthorization proposals
    have been made to Congress that would continue variable borrower
    rates for Stafford and PLUS loans beyond July&nbsp;1, 2006. In
    addition, language has been suggested that would permit new
    consolidation loans to have variable rates. Language has also
    been proposed that would allow Stafford/PLUS borrowers to have
    extended repayment terms, similar to those terms provided for
    under the loan consolidation program. Both of these initiatives
    would offset two of the most appealing aspects of consolidation
    loans, <I>i.e.</I>, long-term fixed rates and extended
    repayment. Adoption of these initiatives could decrease
    consolidation opportunities in the market.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><I><FONT size="2">9.5% floor
    income.</FONT></I></B><FONT size="2"> Student loans originated
    or acquired with the proceeds of tax-exempt obligations issued
    prior to October 1, 1993 are subject to a minimum, or floor,
    rate of return of 9.5% per year based upon provisions of the
    Higher Education Act and related interpretations by the DOE.
    Reauthorization proposals have been made to Congress that would
    limit the minimum return to those loans which are funded
    directly with tax-exempt obligations and potentially eliminate
    </FONT></TD>
</TR>

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    <TD></TD>
    <TD align="left">
    <FONT size="2">excess earnings on loans subsequently funded with
    taxable obligations. Adoption of this initiative could decrease
    loan interest income to lenders receiving 9.5% floor income.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><I><FONT size="2">Variable rate floor
    income.</FONT></I></B><FONT size="2"> Language has been proposed
    that would eliminate the potential of excess earnings on student
    loans that are reset annually in a declining interest rate
    environment. Adoption of this initiative could decrease loan
    interest income to lenders receiving variable rate floor income.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><I><FONT size="2">Borrower
    limits.</FONT></I></B><FONT size="2"> For the last
    20&nbsp;years, the maximum amount that a freshman or sophomore
    can borrow has remained around $2,500. Educational tuition has
    increased at approximately two times the rate of inflation over
    this same time frame. There is a possibility that these borrower
    limits could be increased, thereby potentially increasing the
    average size of future loan originations in the market.
    </FONT></TD>
</TR>

</TABLE>

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<P align="center">
<B><FONT size="2">BUSINESS</FONT></B>

<P align="left">
<B><FONT size="2">Overview</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We are a leading, vertically integrated education
finance company, focused on providing quality products and
services to participants in the education finance process.
Headquartered in Lincoln, Nebraska, we originate, hold and
service student loans, principally loans originated under the
FFEL Program. For 2002, we were the fourth largest holder and
second largest servicer of FFELP loans. In addition, we,
together with our branding partners, are a leading originator of
FFELP loans.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We offer a broad range of financial services and
technology-based products, including student loan origination
and lending, student loan and guarantee servicing and a suite of
software solutions. Our products are designed to simplify the
student loan process by automating financial aid delivery, loan
processing and funds disbursement. Our infrastructure,
technological expertise and breadth of product and service
offerings connect the key constituents of the student loan
process, including lenders, financial aid officers, guaranty
agencies, governmental agencies, student and parent borrowers,
servicers and the capital markets, thereby streamlining the
education finance process.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our business is divided into four primary
business units:
</FONT>
<P>

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    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><I><FONT size="2">Student loan originations, acquisitions and
    portfolio
    management</FONT></I></B><FONT size="2"><I>&nbsp;&#151;
    </I>provides student loan sales, marketing, origination,
    acquisition and portfolio management.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><I><FONT size="2">Student loan
    servicing</FONT></I></B><FONT size="2"><I>&nbsp;&#151;
    </I>provides student loan servicing for our portfolio and for
    third parties.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><I><FONT size="2">Guarantee
    servicing</FONT></I></B><FONT size="2"><I>&nbsp;&#151;
    </I>provides software systems and sub-servicing to guaranty
    agencies.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><I><FONT size="2">Servicing
    software</FONT></I></B><FONT size="2"><I>&nbsp;&#151;
    </I>provides student loan servicing software internally and to
    third-party student loan holders and servicers.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We generate the majority of our earnings from the
spread between the yield we receive on our student loan
portfolio and the cost of funding these loans. While the spread
may vary due to fluctuations in interest rates, government
special allowance payments ensure that we receive a minimum
yield on our student loans, so long as certain requirements are
met. We also earn fees from student loan and guarantee servicing
and licensing fees from our servicing software. Earnings growth
is primarily driven by the growth in the student loan portfolio
and growth in our fee-based business units, coupled with
cost-effective financing and expense management. For the year
ended December&nbsp;31, 2002, we generated net interest income
of $190.9&nbsp;million, total other income, including loan
servicing income, of $125.8&nbsp;million and net income of
$48.5&nbsp;million.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We originate and acquire loans through a variety
of different channels, including originations through our direct
channel and acquisitions through our branding partner channel,
our forward flow channel and the secondary market. In 2002, we
originated and acquired $2.7&nbsp;billion in student loans,
including $859&nbsp;million in consolidation loans. As of
June&nbsp;30, 2003, our student loan portfolio was
$9.5&nbsp;billion. We currently service $18&nbsp;billion in
student loans, and our software is used by third parties to
service an additional $30 billion in student loans. In addition,
we currently provide servicing support to guaranty agencies that
guarantee $18&nbsp;billion in student loans. We have
relationships with hundreds of colleges and universities and
provide student loan servicing either directly or through our
proprietary software to approximately 1.75&nbsp;million
borrowers.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Over 99% of the student loans in our portfolio as
of June&nbsp;30, 2003 were FFELP loans, as opposed to the less
than 1% of private loans in our portfolio that did not carry
federal guarantees. At least 98% of the principal and accrued
interest of FFELP loans is guaranteed by the federal government,
provided that we meet certain procedures and standards specified
in the Higher Education Act. FFELP loans originated prior to
October&nbsp;1, 1993 carry a 100% guarantee on the principal
amount and accrued interest, and FFELP loans originated after
that date are guaranteed for 98% of the principal amount and
accrued interest. As a result, holders of FFELP loan portfolios
historically have experienced minimal losses net of the
guarantee. Our net loan losses on FFELP loans in 2002 were
approximately $2.7&nbsp;million, or less than 0.04% of our
average FFELP loan portfolio.
</FONT>

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    <TD></TD>
    <TD>
    <B><I><FONT size="2">Our History</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have a 25-year history dating back to the
formation of UNIPAC Service Corporation in 1978. UNIPAC was
formed to service loans for Union Bank and Trust Company of
Lincoln, Nebraska and Packers Service Corporation of Omaha,
Nebraska. It grew its third-party student loan servicing
business to approximately $9.7&nbsp;billion in loans in 2000,
when it was merged with Nelnet. Our immediate predecessor was
formed in 1996 as a student loan acquisition company, and, prior
to the merger, it had built its student loan portfolio through a
series of spot portfolio acquisitions and later through student
loan company acquisitions.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In 2000, we decided to create a vertically
integrated platform that would be able to compete in each sector
of the student loan industry. Over the past three years we have
acquired several education finance services companies, including
a student loan secondary market company. In addition, in August
2003, we acquired the securities company that provides us with
broker-dealer services in connection with our asset-backed
securitizations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We executed these acquisitions to complete our
effort to vertically integrate and add geographic diversity and
operational expertise to our education finance platform. We have
successfully integrated these companies into the Nelnet
platform, and they have increased our profitability as a result.
We now believe that we have all of the key components of our
vertical integration strategy. Going forward, we intend to focus
principally on organic growth while opportunistically making
company and portfolio acquisitions.
</FONT>

<P align="left">
<B><FONT size="2">Competitive Strengths</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We believe that the following competitive
strengths are important to maintaining our growth, profitability
and standing in our industry:
</FONT>
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<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Focused leader with vertically integrated
    platform.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">High-quality loan portfolio established through
    our concentration on FFELP loans.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Strong relationships with student loan market
    constituents.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Access to cost-effective financings.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Leading, cost-competitive servicing platform with
    a focus on asset protection.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Comprehensive suite of software products.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Management team with significant operating and
    acquisition experience.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I><FONT size="2">Focused leader with vertically integrated
platform. </FONT></I></B><FONT size="2">We maintain a strong
position and deep expertise in each of our primary business
units and are well positioned to capitalize on industry growth.
We were among the largest holders of federally guaranteed
student loans with $9.5&nbsp;billion of loans outstanding as of
June&nbsp;30, 2003. In 2002, we originated and acquired
$2.7&nbsp;billion in student loans, including $859&nbsp;million
in consolidation loans. We currently service $18&nbsp;billion in
student loans, and our software is used by third parties to
service an additional $30&nbsp;billion in student loans. In
addition, we currently provide servicing support to guaranty
agencies that guarantee $18&nbsp;billion in student loans. We
have relationships with hundreds of colleges and universities
and provide loan servicing either directly or through our
proprietary software to approximately 1.75&nbsp;million
borrowers. We provide school financial aid offices and students
a comprehensive, full-service student lending package (Stafford,
PLUS, consolidation and private loans), loan and guarantee
servicing and loan servicing software. By offering the full
range of services required for student lending, we facilitate
and streamline the student lending process. Our established
servicing capability allows us to service our student loan
portfolio rather than outsourcing this task to a third party. In
addition, our technology product suite often enables us to gain
access to schools, creating new lending opportunities, as well
as deepening our existing relationships by increasing our share
of a school&#146;s loan volume. We use the technology to enhance
our relationships, offer more services to each customer, reduce
operating expenses and increase our revenues and profitability.
Our vertically integrated platform allows us to take advantage
of economies of scale and run a cost-efficient operation.
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I><FONT size="2">High-quality loan portfolio established
through our concentration on FFELP loans.
</FONT></I></B><FONT size="2">We have focused our lending
operations on FFELP loans, which carry at least a 98% federal
guarantee on principal and accrued interest. As of June&nbsp;30,
2003, more than 99%, or $9.4&nbsp;billion, of our student loan
portfolio consisted of FFELP loans and less than 1%, or
$87&nbsp;million, consisted of private loans, which do not carry
a federal guarantee. We maintain strict underwriting criteria
for our private loan portfolio.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I><FONT size="2">Strong relationships with student loan
market constituents.</FONT></I><FONT size="2">
</FONT></B><FONT size="2">We use a network of student loan
channels to offer services to students, schools, lenders and
secondary markets throughout the United States. As part of our
loan origination activities, we have established long-term
strategic relationships either directly with school financial
aid offices or with eligible banks and schools that function as
&#147;branding&#148; partners, who direct committed portions of
their originations to us through forward flow commitments.
Financial aid offices can have considerable influence on
students&#146; selections of lenders. The effort and expense to
create and maintain these relationships, as well as the low
turnover of selected providers, acts as a barrier to entry for
competitors. Our branding partners act as alternative channels
for origination and have strong brand recognition in the areas
on which they focus. By utilizing the appropriate and effective
brand, we can cost-effectively leverage our penetration at
different schools and throughout certain regions of the United
States.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I><FONT size="2">Access to cost-effective financings.
</FONT></I></B><FONT size="2">We currently have a loan
warehousing capacity of over $2&nbsp;billion through 364-day
commercial paper conduit programs maturing at different times
and participation funding arrangements committed on a short-term
basis by various financial institutions. Our large warehousing
capacity allows us to pool student loans in order to aggregate
sufficient volume for cost-effective, long-term financing and to
time securitization market conditions properly. Generally, loans
that best fit long-term financing vehicles are selected to be
transferred into one of our long-term securitizations. Because
transferring those loans to a long-term securitization includes
certain fixed administrative costs, we maximize the economies of
scale by executing large transactions that routinely price in
line with our largest competitor within the student loan
industry.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I><FONT size="2">Leading, cost-competitive servicing
platform with a focus on asset protection.
</FONT></I></B><FONT size="2">We have built a leading,
nationally recognized student loan servicing platform. We
believe that a servicing operation is critical to success as a
lender in the student loan marketplace. The servicing platform
is the mechanism that facilitates interaction with borrowers.
Our servicing portfolio includes both loans from our lending
portfolio as well as from third parties. Nelnet-originated and
third-party serviced loans utilize the same servicing platform,
technology and employee base and are all serviced in exactly the
same manner. The quality of our servicing operation is best
demonstrated by our low initial claim reject rate due to
servicer error. The quality of our servicing capability is also
a key factor in preserving the federal guarantee on our FFELP
loans. In 2002, our initial claim reject rate was only
approximately 0.25%. The technological focus of our servicing
platform, coupled with economies of scale, has enabled us to
create a competitive cost structure.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I><FONT size="2">Comprehensive suite of software
products.</FONT></I><FONT size="2">
</FONT></B><FONT size="2">Our products include an Internet-based
financial aid delivery and management system, an Internet-based
loan origination system and a centralized disbursement agent
service. Our &#147;open architecture&#148; origination products
afford schools the flexibility to work with multiple lenders of
their choice. These products are directly integrated into our
servicing platform, which provides various features such as loan
approval, disbursement of funds, customer service, account
maintenance, federal reporting and billing collections, payment
processing, default aversion, claim filing and uninsured loan
recovery. Our software products include:
</FONT>
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    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><I><FONT size="2">Nteract</FONT></I></B><FONT size="2">&nbsp;&#151;
    our Internet-based student loan origination system.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><I><FONT size="2">Nconcert</FONT></I></B><FONT size="2">&nbsp;&#151;
    our Internet-based financial aid delivery and management system.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><I><FONT size="2">Ntrust</FONT></I></B><FONT size="2">&nbsp;&#151;
    our centralized disbursement agent service.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><I><FONT size="2">Ngenius</FONT></I></B><FONT size="2">&nbsp;&#151;
    our origination and disbursement engine that supports Nconcert,
    Ntrust and Nteract.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><I><FONT size="2">Nservice</FONT></I></B><FONT size="2">&nbsp;&#151;
    our servicing system for FFELP and private loans.
    </FONT></TD>
</TR>

</TABLE>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">These programs are designed to reduce paperwork,
streamline the approval process and improve communication
between a school&#146;s financial aid office and its students.
The software unites financial aid offices, lenders, students,
secondary markets and servicing companies, reducing turnaround
time, simplifying the process for students and providing better
service with fewer errors.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I><FONT size="2">Management team with significant operating
and acquisition experience.</FONT></I></B><FONT size="2"> Our
management is led by Co-Chief Executive Officers Michael&nbsp;S.
Dunlap and Stephen&nbsp;F. Butterfield. Mr.&nbsp;Dunlap has
worked in the financial services industry for 20&nbsp;years,
having served previously as chief executive officer of Union
Bank of Nebraska. Mr.&nbsp;Butterfield has worked in the student
loan industry for 14&nbsp;years and the broader financial
services industry for 29&nbsp;years. Mr.&nbsp;Dunlap focuses on
our day-to-day operating activities, and Mr.&nbsp;Butterfield
focuses on capital markets and investor relations. Our senior
employees with management responsibilities have been with us or
one of our predecessor companies for an average of over ten
years. Furthermore, we have successfully integrated the
companies that we have acquired and have retained their key
employees. As a result, we have a management team with
significant experience and knowledge in both student loan
operations and portfolio and company acquisitions.
</FONT>

<P align="left">
<B><FONT size="2">Strategy</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our corporate objective is to further our
leadership position in the student loan industry. We intend to
achieve this objective by executing the following strategies:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Establish and maintain leadership in all business
    units by leveraging our technology.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Maximize organic growth and profitability by
    maintaining low cost infrastructure.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Strengthen existing relationships while
    establishing new ones.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Continue commitment to highly focused and
    disciplined loan origination and acquisition practices.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Opportunistically make company and portfolio
    acquisitions.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I><FONT size="2">Establish and maintain leadership in all
business units by leveraging our technology.
</FONT></I></B><FONT size="2">We believe that our technology
solutions position us as a leading provider for the student
lending market. Our user-friendly software not only allows us to
service loans both internally and for third parties, but also
continues to facilitate our growing position as a preferred
originator and holder of loans for schools and borrowers. We
will continue to invest, develop and upgrade our technology to
help solidify our leadership position and further penetrate our
potential market.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I><FONT size="2">Maximize organic growth and profitability
by maintaining low-cost
infrastructure.</FONT></I></B><FONT size="2"> We will continue
to grow our student loan portfolio and maintain and capitalize
on our low-cost infrastructure to realize increased
profitability as the industry expands. We believe there is
continued opportunity for significant growth in light of the
DOE&#146;s projected growth rates for the student loan industry.
We believe the infrastructure we have developed has positioned
us to continue to achieve economies of scale and be a low-cost
provider to our customers. In this regard, we decreased our
operating expenses as a percentage of average student loans from
0.78% in 1998 to 0.54% in 2002.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I><FONT size="2">Strengthen existing relationships while
establishing new ones. </FONT></I></B><FONT size="2">We have
extensive customer relationships with schools and lenders
throughout the United States. We will continue to leverage the
strength and depth of these relationships and will continue to
broaden these relationships while establishing new ones. We have
a sales force of over 300 people, of whom approximately 80 are
calling directly on colleges and universities, while the
remaining approximately 220 focus on marketing directly to
borrowers. We will continue to take advantage of the sales
force&#146;s experience as well as our management&#146;s
industry knowledge and relationships.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I><FONT size="2">Continue our commitment to highly focused
and disciplined loan origination and acquisition practices.
</FONT></I></B><FONT size="2">We will continue to pursue our
conservative approach to asset quality by concentrating on
originating, acquiring and holding federally guaranteed loans
through the FFEL Program, while maintaining a disciplined
underwriting approach to private loans. As of June&nbsp;30,
2003, our student loan portfolio was
</FONT>

<P align="center"><FONT size="2">49
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">comprised of over 99% FFELP loans and less than
1% private loans. Due to existing commitments, we expect the
percentage of private loans in our student portfolio to increase
to between 1% and 2% over the next three years. Future
circumstances may dictate or warrant incremental increases. In
any event, we will maintain our strict underwriting standards
for the limited amount of private loans in our portfolio.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I><FONT size="2">Opportunistically make company and
portfolio acquisitions. </FONT></I></B><FONT size="2">Although
we have reached a point in our development where we offer a
comprehensive set of products and services essential to our
vertically integrated business model and benefit from economies
of scale and organic growth, we will still consider acquisitions
in the future. These may include either individual companies or
loan portfolios that we believe have the potential to enhance
long-term shareholder value. Since our inception, we have a
successful track record of acquisitions. We have acquired and
successfully integrated more than ten education finance related
companies and have retained their key employees. As a result, we
have the experience and skill sets necessary to acquire and
integrate additional targets that add long-term value to our
franchise and are accretive to earnings.
</FONT>

<P align="left">
<B><FONT size="2">Business Units</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Student Loan Origination, Acquisition and
    Portfolio Management</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our student loan origination, acquisition and
portfolio management business is our largest business unit and
drives the majority of our earnings. We use an eligible lender
as a trustee to originate and purchase student loans through the
FFEL Program. We have originated and acquired approximately
$7.0&nbsp;billion in student loans since January&nbsp;1, 2000,
excluding subsidiary acquisitions. We often originate loans
using the Nelnet brand name but, in many cases, we use
well-known, geographically strategic brand names of our branding
partners, such as Education Solutions, Inc. and Union Bank and
Trust Company. This strategy gives us the flexibility to market
the brand with the best recognition in a given region or at a
given college or university. We originated 9.7%, 40.6% and 46.5%
of the loans added to our student loan portfolio in 2001, 2002
and the first six months of 2003, respectively.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The branding partner channel for FFELP loan
acquisitions is established by our various contracts with FFELP
lenders. In 2001, 2002 and the first six months of 2003, 36.2%,
19.5% and 33.3% of our loan acquisitions were attributable to
this channel. We frequently act as exclusive marketing agent for
some branding partners in specified geographic areas. We
ordinarily purchase loans originated by those branding partners
pursuant to a commitment to purchase loans at a premium above
par, shortly following full disbursement of the loans. We
ordinarily retain rights to acquire loans subsequently made to
the same borrowers, or serial loans. Some branding partners,
however, retain rights to portions of their loan originations.
Origination and servicing of loans made by branding partners is
performed by us during the lives of loan origination and
servicing agreements so that loans do not need to be changed to
a different servicer upon purchase by us. The marketing
agreements and commitments to purchase loans are ordinarily for
the same term, which is commonly three to five years in
duration. These agreements ordinarily contain provisions for
automatic renewal for successive terms, subject to termination
by notice at the end of a term or early termination for breach.
We are generally obligated to purchase all of the loans
originated by our branding partners under these commitments,
although our branding partners are not obligated to provide us
with a minimum amount of loans.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition to the branding partner channel, we
have established a forward flow channel for acquiring FFELP
loans from third parties. In 2001, 2002 and the first six months
of 2003, 33.4%, 21.7% and 16.8% of our loan acquisitions were
attributable to this channel. The forward flow channel is
established by entering into various agreements pursuant to
which FFELP lenders retain responsibilities for marketing, but
commit to sell all or a portion of their future originations to
us at a premium. These forward flow commitments frequently
obligate the lender to sell all loans made by the applicable
lender, but in other instances are limited to sales of loans
originated in certain specific geographic regions or exclude
loans that are otherwise committed for sale to third parties. We
are generally obligated to purchase loans subject to forward
flow commitments shortly following full disbursement, although
our forward flow lenders are not obligated to provide us with a
minimum amount of loans. We typically retain rights to purchase
serial
</FONT>

<P align="center"><FONT size="2">50
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">loans. The loans subject to purchase are
generally subject to a servicing agreement with us for the life
of each such loan. Such forward flow commitments ordinarily are
for terms of three to five years in duration.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As of June&nbsp;30, 2003, the characteristics of
our student loan portfolio, exclusive of the unamortized cost of
acquisition, were as described below.
</FONT>

<P align="center">
<B><FONT size="2">Composition of Student Loan
Portfolio</FONT></B>

<DIV align="center">
<B><FONT size="2">(As of June&nbsp;30, 2003)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(dollars in thousands, except average
outstanding balances)</FONT></B>
</DIV>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="78%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Loans outstanding
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">$9,317,847</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">FFELP loans:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Stafford loans
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">$5,246,649</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">PLUS/ SLS loans(a)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">$298,341</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Consolidation loans
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">$3,685,876</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Private loans
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">$86,981</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Number of borrowers
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">771,079</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Average outstanding principal balance per borrower
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">$12,084</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Number of loans
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,110,278</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Average outstanding principal balance per loan
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">$4,415</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Weighted average annual interest rate
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.03</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Weighted average remaining term (months)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">167.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <HR size="1" width="25%" align="left" noshade></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="4%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(a)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Supplemental Loans for Students, or SLS, are the
    predecessor to unsubsidized Stafford loans.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Once a student&#146;s loans have entered the
repayment or grace period, they are eligible to be consolidated
if they meet certain requirements. Loan consolidation allows
borrowers to make one payment per month and extend the loan
repayment period. In addition to these attributes, in recent
years, historically low interest rates have contributed to
demand for consolidation loans. To meet this demand, we have
developed an extensive loan consolidation department to serve
borrowers with loans in our portfolio as well as borrowers whose
loans are held by other lenders.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our capital markets and portfolio administration
departments provide financing options to fund our loan
portfolio. We have a warehousing capacity of over
$2&nbsp;billion through 364-day commercial paper conduit
programs and participation funding arrangements. These
transactions provide short-term asset financing for the purchase
of student loan portfolios. The financings are constructed to
offer short-term capital and are annually renewable.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Short-term warehousing allows us to buy and
manage student loans prior to transferring them into more
permanent financing arrangements. Our large warehousing capacity
allows us to pool student loans in order to maximize loan
portfolio characteristics for efficient financing and to
properly time market conditions. Generally, loans that best fit
long-term financing vehicles are selected to be transferred into
one of our long-term securitizations. Because transferring those
loans to a long-term securitization includes certain fixed
administrative costs, we maximize our economies of scale by
executing large transactions that routinely price in line with
our largest competitor. We are a frequent issuer and benefit
from a high level of name recognition by the asset-backed
investment community.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We currently have approximately $8&nbsp;billion
in asset-backed securities issued, including auction-rate notes
whose interest rates are reset periodically. These asset-backed
securities allow us to finance student loan assets over multiple
years, thereby eliminating the renewal risk associated with
warehouse vehicles.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We rely upon securitization vehicles as our most
significant source of funding for student loans on a long-term
basis. The net cash flow we receive from the securitized student
loans generally represents the excess amounts, if any, generated
by the underlying student loans over the amounts required to be
paid to the bondholders, after deducting servicing fees and any
other expenses relating to the securitizations. In
</FONT>

<P align="center"><FONT size="2">51
</FONT>

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<DIV align="left">
<FONT size="2">addition, some of the residual interests in these
securitizations may have been pledged to secure additional bond
obligations. Our rights to cash flow from securitized student
loans are subordinate to bondholder interests and may fail to
generate any cash flow beyond what is due to pay bondholders.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our original securitization transactions began in
1996, utilizing a master trust structure, and were privately
placed auction-rate note securitizations. As the size and volume
of our securitizations increased, we began publicly offering
asset-backed securities under shelf registration statements,
using special purpose entities. When we deemed long-term
interest rates attractive, we issued fixed-rate debt backed by
cash flows from FFELP loans with fixed-rate floors which
effectively match the funding of our assets and liabilities. In
2002, we began accessing the term asset-backed securities market
by issuing amortizing multi-tranche LIBOR-indexed variable-rate
debt securities. Almost all of the securitization debt that we
have issued since 1996 is still outstanding today, including the
taxable and tax-exempt securitization debt issued by companies
we have acquired. We have utilized financial guarantees from
monoline insurers and senior/ subordinate structures to assist
in obtaining &#147;AAA&#148; ratings on our senior securitized
debt in addition to cash reserves and excess spread to assist in
obtaining &#147;A&#148; and &#147;AA&#148; ratings on our
subordinated debt. We intend to continue to issue auction rate
notes, variable-rate and fixed-rate term asset-backed securities
and debt securities through other asset funding vehicles in
order to minimize our cost of funds and give us the most
flexibility to optimize the return on our student loan assets.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our student loan origination and lending
activities could be significantly impacted by the
reauthorization of the Higher Education Act. For example, if the
single holder rule, which generally restricts a competitor from
consolidating loans away from a holder that owns all of a
student&#146;s loans, is abolished, a substantial portion of our
non-consolidated portfolio would be at risk of being
consolidated away by a competitor. On the other hand, abolition
of the rule would also open up a portion of the rest of the
market and provide us with the potential to gain market share.
The portion of the rest of the market that would be opened up to
us, as measured in aggregate principal amount of student loans,
would be greater than the portion of our non-consolidated
portfolio that would be at risk of being consolidated by a
competitor. Other potential changes which could impact us
include:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">allowing refinancing of consolidation loans,
    which would open approximately 39% of our portfolio to such
    refinancing;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">allowing for variable-rate consolidation loans
    and extended repayment terms of Stafford loans, which would lead
    to less loans lost through consolidation of our portfolio, but
    would also decrease our consolidation opportunities; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">allowing for increased borrower limits, which may
    provide opportunities for increasing the average size of our
    future loan originations.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">A further description of the issues in connection
with the reauthorization of the Higher Education Act appears
under &#147;Industry Overview&nbsp;&#151; Federal Student Loan
Programs&nbsp;&#151; Reauthorization of the Higher Education
Act.&#148;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, our efforts to expand into the
consolidation market are expected to be affected by recently
amended Federal Trade Commission rules and similar state
regulations providing for so-called &#147;do not call&#148;
registries. Under these rules, consumers may have their phone
numbers added to a &#147;do not call&#148; registry, and we
would generally be prohibited from calling any such consumers to
market our products and services. This rule may restrict our
ability to market effectively our products and services to new
customers. Furthermore, compliance with this new rule may prove
difficult, and we may incur penalties for improperly conducting
our marketing activities.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Student Loan Servicing</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We specialize in the servicing of federally
guaranteed and private student loans. Our servicing division
offers lenders across the country a complete line of education
loan services, including recovery of non-guaranteed loans,
application processing, disbursement of funds, customer service,
account maintenance, federal reporting and billing collections,
payment processing, default aversion and claim filing.
</FONT>

<P align="center"><FONT size="2">52
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our quality and experience in student loan
servicing is evident in the historical performance of our entire
pool of loan assets, which enjoys a very low initial claim
rejection rate due to servicer error, which is the percent of
claims submitted by us or our servicing customers rejected by a
guaranty agency due to servicer error. In 2002, the initial
claim rejection rate due to servicer error was approximately
0.25% of all claims filed by us or servicing customers. The
substantial majority of these initial claim rejections are
cured, meaning a payment or the borrower&#146;s promise to pay
has been received. Historically, the aggregate of our losses and
those of our servicing customers from rejected loans and
interest denials has been less than $1&nbsp;million per year, or
less than 0.01% of our average servicing portfolio.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As we expand our student loan origination and
acquisition activities, we may face increased competition with
some of our servicing customers. In the past, including in one
case recently, servicing customers have terminated their
servicing relationships with us, and we could in the future lose
more servicing customers as a result. However, due to our
life-of-loan servicing agreements, we do not expect this loss
and potential loss of customers to have a material adverse
effect on our results of operations for the foreseeable future.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Guarantee Servicing</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our guarantee servicing unit currently provides
servicing support for $18&nbsp;billion in guaranteed student
loans. This servicing support is provided to guaranty agencies,
which are the organizations that serve as the intermediary
between the federal government and the lender and who are
responsible for paying the claims made on defaulted loans. One
of our guarantee servicing customers recently notified us of its
intention not to renew its servicing contract. The loss of this
customer is not expected to have a material effect on our
results of operations.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Servicing Software</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our servicing software unit is focused on
providing technology solutions to education finance issues. Our
subsidiaries, Idaho Financial Associates, Inc. and Charter
Account Systems, Inc. provide student loan software and support
for entities involved in the asset management aspects of the
student loan arena. In addition, 5280&nbsp;Solutions, Inc., of
which we own a 50% interest, provides customized software
solutions to help in the administration and management of the
student loan process. Staffed with more than
100&nbsp;programmers, support staff and administrative support
personnel, we provide software and maintenance to more than
25&nbsp;different clients servicing $30&nbsp;billion in student
loan assets.
</FONT>

<P align="left">
<B><FONT size="2">Software Products</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our software products are designed to provide us
loan origination access to colleges and universities, while
simplifying the financial aid process. We also license our
servicing software products to third-party student loan holders
and servicers. Our software products include the following:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <I><FONT size="2">Nteract</FONT></I><FONT size="2">&nbsp;&#150;&nbsp;an
    Internet-based, open-architecture student loan origination and
    disbursement management system. Nteract provides a complete
    solution for processing FFELP and private student loan
    certifications, initiating change transactions and comprehensive
    application through disbursement reporting. Nteract operates in
    a real-time environment and can be accessed for online inquiry
    at any time 24&nbsp;hours a day, seven days a week. Nteract is
    used by our student loan origination, acquisition and portfolio
    management unit and our student loan servicing unit.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <I><FONT size="2">Nconcert</FONT></I><FONT size="2">&nbsp;&#150;&nbsp;our
    Internet-based, open-architecture financial aid delivery and
    management system. Nconcert is used by our student loan
    origination, acquisition and portfolio management unit and our
    student loan servicing unit.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <I><FONT size="2">Ntrust</FONT></I><FONT size="2">&nbsp;&#150;&nbsp;a
    centralized disbursement service. It is a comprehensive,
    open-architecture solution for receiving FFELP and private
    student loan funds, reports and the student loan industry&#146;s
    standardized data files. Ntrust provides a single point of
    contact for the college or university&#146;s entire electronic
    loan processing needs and provides real-time loan disbursement
    adjustment processing.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">53
</FONT>
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<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD></TD>
    <TD align="left">
    <FONT size="2">Ntrust is used by our student loan origination,
    acquisition and portfolio management unit and our student loan
    servicing unit.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <I><FONT size="2">Ngenius</FONT></I><FONT size="2">&nbsp;&#150;&nbsp;the
    origination engine that supports the Nconcert, Ntrust and
    Nteract products. Used internally for our loan origination
    initiatives and those of our customers, it is a table-driven
    origination platform which provides flexibility and scalability.
    The system interacts with multiple guaranty agencies and can
    support an &#147;instant&#148; guarantee. Ngenius is used by our
    student loan origination, acquisition and portfolio management
    unit and our student loan servicing unit.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <I><FONT size="2">Nservice</FONT></I><FONT size="2">&nbsp;&#150;&nbsp;our
    servicing engine for FFELP and private loans. The Nservice
    system is a profile driven system, allowing for easy
    implementation of most regulatory changes and rapid development
    of custom loan programs. Software development is aided by the
    use of high-level application development tools to speed
    delivery of enhancements. The Nservice system provides for
    automated compliance with most Higher Education Act regulations.
    Nservice also facilitates the servicing of FFELP and private
    loans into a single, integrated servicing environment, improving
    service to schools, borrowers and lenders. Nservice is used by
    our student loan servicing unit, and the software is also
    licensed to third-party student loan holders and servicers by
    our servicing software unit.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition to the products described above, we
offer a variety of borrower services to assist students and
parents in navigating the financial aid process. These services
include our unique @theU higher education resource, which
provides free information on college planning and financial aid,
paired with a loyalty program to allow members to earn credit
toward reducing the balance of a student loan regardless of
lender or servicer. Another product, Nelnet Notes, provides
online assistance to help borrowers better understand the
financial aid process, as well as broader money management
issues.
</FONT>

<P align="left">
<B><FONT size="2">Intellectual Property</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We own numerous trademarks and service marks to
identify our various products and services, both by words and
logos, or by &#147;design&#148; marks. We currently have
approximately 15 pending and ten registered marks for such
products and services, and we actively assert our rights to
those marks when we believe potential infringement may be
occurring. We believe our marks and logos have developed and
continue to develop strong brand-name recognition in our
industry and the consumer marketplace. We own one patent
application that has been published with respect to a
customer-loyalty program and have also actively asserted our
rights thereunder in situations where we believe our claims may
be infringed upon. We own many copyright-protected works,
including our various computer system codes and displays,
websites, publications and marketing collateral. We also have
trade secret rights to many of our processes and strategies, and
our software product designs.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We seek federal and/or state protection of
intellectual property when deemed appropriate, including patent,
trademark/service mark and copyright. The decision whether to
seek such protection may depend on the perceived value of the
intellectual property, the likelihood of securing protection,
the cost of securing and maintaining that protection and the
potential for infringement. Our employees are trained in the
fundamentals of intellectual property, intellectual property
protection and infringement issues, and are also required to
sign agreements requiring, among other things, confidentiality
of trade secrets, assignment of inventions and non-solicitation
of other employees post-termination. Consultants, suppliers and
other business partners are also required to sign nondisclosure
agreements to protect our proprietary rights.
</FONT>

<P align="left">
<B><FONT size="2">Seasonality</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Origination of student loans is generally subject
to seasonal trends, which correspond to the beginning of each
semester of the school year. Student loans are disbursed as
directed by the school and are usually divided into two or three
equal disbursements released at specified times during the
school year. The two periods of August through October and
December through February account for approximately 73% of our
total annual disbursements. While applications and disbursements
are seasonal, our earnings are generally not tied to this cycle.
Due to our portfolio size, new disbursements or run-off for any
given month will not materially change the net interest earnings
of the portfolio. Consolidation loans are generally made prior
to or immediately after the July&nbsp;1 reset in a rising or
falling interest rate environment.
</FONT>

<P align="center"><FONT size="2">54
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="left">
<B><FONT size="2">Customers</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We provide student loan servicing either directly
or through our proprietary software to approximately
1.75&nbsp;million borrowers. We have direct and indirect
relationships with hundreds of colleges and universities across
the nation. We have servicing agreements with 239&nbsp;customers
and software license agreements with 34&nbsp;licensees.
Notwithstanding the depth of our customer base, our business is
subject to some vulnerability arising from concentrations of:
loan origination volume with borrowers attending certain
schools; loan origination volume generated by certain branding
partners; loan and guaranty servicing volume generated by
certain loan servicing customers and guarantee agencies; and
software licensing volume generated by certain licensees. Our
ability to maintain strong relationships with significant
schools, branding partners, servicing customers, guaranty
agencies and software licensees is subject to a variety of
risks. Termination of such a strong relationship could result in
a material adverse effect on our business. Losses of
relationships with a significant branding partner such as Union
Bank and Trust Company or a school such as University of Phoenix
or Nova Southeastern University could have a material adverse
effect on us.
</FONT>

<P align="left">
<B><FONT size="2">Competition</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We face competition from many lenders in the
highly competitive student loan industry. Using our size, we
have leveraged economies of scale to gain market share and
compete by offering a full array of FFELP and private loan
products and services. In addition, we differentiate ourselves
from other lenders through our vertical integration, technology
and strong relationships with colleges and universities.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We view SLM Corporation, the parent company of
Sallie Mae, as our largest competitor in loan origination,
holding and servicing. SLM Corporation services nearly half of
all outstanding FFELP loans and is the largest holder of student
loans, with a portfolio of nearly $70&nbsp;billion. Large
national and regional banks are also strong competition,
although many are involved only in origination. In different
geographic locations across the country, we run into strong
competition from the local tax-exempt student loan secondary
markets. The FDL Program has also reduced the origination volume
available for FFEL Program participants, which in 2002 accounted
for 28% of total volume, although this portion of total volume
has decreased from approximately 33% in 1998. In addition, in
the last few years, low interest rates have attracted many new
competitors to the student loan consolidation business.
</FONT>

<P align="left">
<B><FONT size="2">Employees</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As of June&nbsp;30, 2003, we had approximately
1,890&nbsp;employees. Approximately 670 of these employees hold
professional and management positions while 1,220 are in support
and operational positions. None of our employees is covered by
collective bargaining agreements. We are not involved in any
material disputes with any of our employees, and we believe that
relations with our employees are good.
</FONT>

<P align="center"><FONT size="2">55
</FONT>

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<P align="left">
<B><FONT size="2">Properties</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We maintain 14&nbsp;principal offices in cities
across the United States. We do not own any of our principal
facilities. The following table lists the principal facilities
leased by us.
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="29%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="39%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="14%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Lease</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Square</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">expiration</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Location</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Function</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">footage</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">date</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Albany, NY
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Charter Software Licensing
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,550</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">September 2004
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Boise, ID
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">IFA Software Licensing
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,993</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">August 2005
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Denver, CO
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Loan Servicing, Executive Management, Technology
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">106,185</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">February 2008
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fredericksburg, VA
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Loan Consolidation
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">May 2007
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Honolulu, HI
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Sales
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">611</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">October 2004
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Indianapolis, IN
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Loan Servicing, Loan Generation
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">58,770</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">February 2008
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Jacksonville, FL
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Loan Servicing, Loan Generation, Technology
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">116,828</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">January 2007
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Lincoln, NE
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Corporate Headquarters, Loan Servicing, Loan
    Generation
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">94,909</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">December 2010
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Phoenix, AZ
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Capital Markets
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">N/A
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Portland, ME
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Loan Generation, Sales
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,211</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">January 2010
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Tempe, AZ
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Loan Generation
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,431</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">March&nbsp;2004
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Tucson, AZ
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Loan Generation
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">426</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">June 2004
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Tulsa, OK
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Loan Generation, Sales
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">July 2005
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Washington, DC
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Government Relations, Sales
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,806</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">May 2005
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<B><FONT size="2">Litigation</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We are subject to various claims, lawsuits and
proceedings that arise in the normal course of business. These
matters principally consist of claims by borrowers disputing the
manner in which their loans have been processed. On the basis of
present information, anticipated insurance coverage and advice
received from counsel, it is the opinion of our management that
the disposition or ultimate determination of these claims,
lawsuits and proceedings will not have a material adverse effect
on our business, financial position or results of operations.
</FONT>

<P align="center"><FONT size="2">56
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<!-- link1 "MANAGEMENT" -->

<P align="center">
<B><FONT size="2">MANAGEMENT</FONT></B>

<P align="left">
<B><FONT size="2">Executive Officers and Directors</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table sets forth our executive
officers and directors, and their ages and positions, as of
August&nbsp;8, 2003. Except as otherwise indicated, each of the
Executive Directors specified below was appointed to that
position as one of our Executive Directors on August&nbsp;8,
2003.
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="42%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="48%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Name</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Age</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Position</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Michael S. Dunlap
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">39</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Chairman and Co-Chief Executive Officer
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Stephen F. Butterfield
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">51</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Vice Chairman and Co-Chief Executive Officer
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Don R. Bouc
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">56</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">President and Director
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Terry J. Heimes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">39</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Chief Financial Officer and Executive Director
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Hilario J. Arguinchona
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">59</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Executive Director
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">David A. Bottegal
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Executive Director and Chief Marketing Officer
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Raymond J. Ciarvella
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Executive Director and Chief Information Officer
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Todd M. Eicher
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Executive Director
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Matthew&nbsp;D. Hall
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">43</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Executive Director
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Charles Hosea
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">43</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Executive Director
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Dennis Leach
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">49</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Executive Director
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Edward P. Martinez
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">49</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Executive Director and Secretary
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Jeffrey R. Noordhoek
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Executive Director
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Richard H. Pierce
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">60</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Executive Director
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Dominic Rotondi
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">49</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Executive Director
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cheryl Watson
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">42</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Executive Director
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">James P. Abel
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">52</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Director
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Thomas E. Henning
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Director
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Lee E. Mikles
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Director
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Arturo Moreno
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">56</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Director
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Brian J. O&#146;Connor
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Director
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">James H. VanHorn
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">51</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Director
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Michael S. Dunlap</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Michael S. Dunlap has served as our Chairman and
Co-Chief Executive Officer since August 2003. Mr.&nbsp;Dunlap
previously served as our President and sole Chief Executive
Officer from December 2001 until August 2003. He has been a
member of our Board of Directors since 1989. As Chairman of our
Board of Directors, Mr.&nbsp;Dunlap is responsible for our
overall strategy and direction. From January 1996 to December
2001, Mr.&nbsp;Dunlap served as chairman of Nelnet&#146;s
predecessor. In addition, since August 2003, Mr.&nbsp;Dunlap has
been the non-executive chairman of Union Bank and Trust Company
and since January 1995, a director and president of
Farmers&nbsp;&#38; Merchants Investment Inc. (the parent of
Union Bank and Trust Company). Union Bank and Trust Company and
Farmers&nbsp;&#38; Merchants Investment Inc. are affiliates of
Nelnet (see &#147;Certain Transactions&#148;). From January 2001
to August 2003, Mr.&nbsp;Dunlap served as chief executive
officer of Union Bank and Trust Company. From January 1993 to
January 2001, Mr.&nbsp;Dunlap served as executive vice president
of Union Bank and Trust Company. Mr.&nbsp;Dunlap is also a
member of the Nebraska State Bar Association. Mr.&nbsp;Dunlap
received his B.S. degree in Finance and Accounting and his J.D.
degree from the University of Nebraska.
</FONT>

<P align="center"><FONT size="2">57
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Stephen F. Butterfield</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Stephen F. Butterfield has served as our Co-Chief
Executive Officer since August 2003, and as our Vice Chairman
since March&nbsp;2000. He served as vice chairman and a director
of Nelnet&#146;s predecessor since January 1996.
Mr.&nbsp;Butterfield is responsible for managing our capital
market relationships and investor relations.
Mr.&nbsp;Butterfield directs our overall management and
direction, including asset purchasing, marketing of corporate
services and coordination of our capital market activities.
Mr.&nbsp;Butterfield has been involved in the student loan
industry since January 1989, first as president of a for-profit
student loan secondary marketing facility located in Scottsdale,
Arizona, and second as president of the Student Loan Acquisition
Authority of Arizona, a non-profit secondary marketing facility
in Scottsdale, Arizona. Prior to his work in the student loan
industry, Mr.&nbsp;Butterfield spent 15&nbsp;years as an
investment banker, the last four years of which for Boettcher
and Company, specializing in municipal finance.
Mr.&nbsp;Butterfield received his B.S. degree in business
administration from Arizona State University.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Don R. Bouc</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Don R. Bouc has served as our President and a
member of our Board of Directors since March&nbsp;2000. In March
2001, Mr.&nbsp;Bouc became president of Nelnet Corporation, a
subsidiary of Nelnet. From May 1997 through March 2001,
Mr.&nbsp;Bouc served as president of National Education Loan
Network, Inc., a subsidiary of Nelnet. From 1990 to 1997,
Mr.&nbsp;Bouc served as president of Nebraska Higher Education
Loan Program, Inc., or NEBHELP. During his tenure, he assisted
in creating the Education Finance Council and later served as
its chairman. In 1985, Mr.&nbsp;Bouc founded Midwest Computing,
Inc., the developer of EASEL, a servicing and related software
package used by over 50&nbsp;financial institutions in the
student loan industry. From 1974 to 1985, Mr.&nbsp;Bouc worked
for the University of Nebraska Central Administration Computing
Services network leaving as director of administrative
computing. Mr.&nbsp;Bouc earned an undergraduate degree in math
education in 1969 and an M.S. in computer science in 1974 from
the University of Nebraska-Lincoln. He served on the Board of
Trustees of Lincoln General Hospital from 1996 to 1998, and
currently he serves on the Board of Trustees of Health Lincoln,
of Junior Achievement/Lincoln and for the Nebraska Independent
College Foundation. Mr.&nbsp;Bouc has been appointed by the
Secretary of Education to the Federal Advisory Committee on
Student Financial Assistance.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Terry J. Heimes</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Terry J. Heimes has served as our Chief Financial
Officer and as Executive Director in charge of Finance since
March 2001. He is responsible for the coordination of all
financial and accounting functions. Active in our strategic
planning and direction, Mr.&nbsp;Heimes oversees the preparation
and issuance of financial statements, corporate accounting/tax
matters and our asset-backed securitization and warehousing
activities. Mr.&nbsp;Heimes served as our Director from March
2001 until August 2003 and as executive vice president of our
subsidiary National Education Loan Network, Inc., or NELNI, from
March 2001 until October 2002. In October 1998, in connection
with the conversion and acquisition of NEBHELP, Mr.&nbsp;Heimes
became the vice president of finance of National Education Loan
Network, Inc., a subsidiary of Nelnet. Prior to joining NEBHELP,
Mr.&nbsp;Heimes worked for the public accounting firm of KPMG
LLP through 1992 as a manager in the audit department.
Mr.&nbsp;Heimes graduated magna cum laude from the University of
Nebraska-Kearney with a B.S. degree in business administration
with an emphasis in accounting.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Hilario J. Arguinchona</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Hilario J. Arguinchona is our Executive Director
in charge of Idaho Financial Associates, Inc., which does
business as IFA Systems. Mr.&nbsp;Arguinchona served as the
executive vice president of NELNI from January 2001 until
October 2002, when he became an executive director of NELNI, and
served as one of our Directors from January 2001 until August
2003. As president of IFA Systems, Mr.&nbsp;Arguinchona is
responsible for the development, maintenance and implementation
of student loan software systems used by us and our clients.
Mr.&nbsp;Arguinchona has been active in the student loan
business since 1978 and was a founding director for both a
guaranty agency and secondary market in Idaho. In 1986, Mr.
Arguinchona
</FONT>

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<DIV align="left">
<FONT size="2">started Idaho Financial Associates, Inc. (dba IFA
Systems), a private secondary market for student loans, which
eventually became a company that developed software for use in
the student loan industry. Mr.&nbsp;Arguinchona was a founding
director and serves as chairman of the board of directors of
Syringa Bank in Boise, Idaho. He received his B.S. degree in
business administration from the University of Idaho.
</FONT>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">David A. Bottegal</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">David A. Bottegal is one of our Executive
Directors and our Chief Marketing Officer. Mr. Bottegal served
as a senior vice president of NELNI from September 2001 until he
became an executive director in October 2002, and also served as
one of our Directors from September 2001 until August 2003.
Mr.&nbsp;Bottegal is responsible for Nelnet Marketing Solutions,
our sales division. In addition, Mr.&nbsp;Bottegal assists in
our overall strategic direction as well as fostering our
significant client relationships. Prior to joining us,
Mr.&nbsp;Bottegal spent 18&nbsp;years with Sallie Mae in various
areas of the company, including vice president of sales and
marketing from 1998 to 2001. Mr.&nbsp;Bottegal received his
M.B.A from Marymount University and his B.A. from Catholic
University in Washington, DC.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Raymond J. Ciarvella</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Raymond J. Ciarvella is one of our Executive
Directors and has been our Chief Information Officer since May
2003. Mr.&nbsp;Ciarvella has over 13 years experience with us in
various capacities, serving as one of our Directors from January
1995 until August 2003. As our Chief Information Officer, Mr.
Ciarvella oversees our internal Information Technology areas
along with a number of our subsidiary companies, including
Charter Systems, IFA Systems and Nelnet Canada Inc., and a
number of our affiliates, including 5280 Solutions, Inc. and
FirstMark Services, LLC. As Chief Information Officer, Mr.
Ciarvella is responsible for the information technology and
computer systems that support our enterprise goals. Mr.
Ciarvella is also engaged in other strategic partnerships and
key client initiatives. Mr. Ciarvella served as the chief
operating officer of UNIPAC Service Corporation from September
1993 until March 2000. Prior to joining us, Mr. Ciarvella had
over 11 years of experience with Electronic Data Systems in all
facets of information technology services. Mr. Ciarvella
received a B.S. degree in computer science from Colorado State
University.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Todd M. Eicher</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Todd M. Eicher has served as our Executive
Director in charge of Loan Generation since May 2003.
Mr.&nbsp;Eicher oversees and directs School Product Support,
Business Integration and all aspects of our Loan Origination
operations. Mr.&nbsp;Eicher also has responsibility for our
relationship with ELM as the ELM NDN service provider. Prior to
his current role, he served as a senior vice president from July
1997 until May 2003, when he became an Executive Director. Mr.
Eicher received his J.D. degree from the University of Nebraska
College of Law.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Matthew D. Hall</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Matthew D. Hall is our Executive Director
responsible for Loan Servicing. Mr.&nbsp;Hall served as one of
our Directors until August&nbsp;2003 and as a senior vice
president of NELNI until he became an executive director of
NELNI in October 2002. Mr.&nbsp;Hall oversees and directs lender
product support, customer service, customer accounting, process
engineering, conversions, claims and all aspects of school and
repayment loan servicing for our various loan servicing
operations. Prior to his current position, Mr.&nbsp;Hall managed
our loan origination and loan servicing operations. Before
entering operations in 1992, Mr.&nbsp;Hall was employed in our
information systems department and was responsible for the
maintenance and development of our student loan servicing
system. Mr.&nbsp;Hall has ten years of operations management
experience and eight years of experience in information systems,
programming and management within the banking and financial
industries. He earned a bachelor&#146;s degree in business
finance from Indiana University.
</FONT>

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<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Charles Hosea</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Charles Hosea is our Executive Director in charge
of GuaranTec, LLP, our subsidiary, which provides system and
operational support and services to guaranty agencies
participating in the FFEL Program. Mr.&nbsp;Hosea has more than
17&nbsp;years of education loan experience with various
organizations, including financial institutions, guaranty
agencies and third-party service providers. Mr.&nbsp;Hosea
served as senior vice president of NELNI until October 2002,
when he became an executive director of NELNI. Prior to becoming
president of GuaranTec in 1996, he served as regional vice
president for Electronic Data Systems in Tallahassee, Florida.
Mr.&nbsp;Hosea received his B.S. degree in business
administration from Southeast Missouri State University.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Dennis Leach</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Dennis Leach is our Executive Director
responsible for Corporate Planning. This function develops and
maintains strategies for the business units within the
organization. In addition, Corporate Planning assists with key
initiatives that have strategic impact for us. Mr.&nbsp;Leach
served as senior vice president of NELNI until January 2001,
when he became an executive director of NELNI. Prior to that, he
served as vice president of our subsidiary, InTuition Solutions,
Inc., from April 1998 until January 2001. Mr.&nbsp;Leach has
been involved in education financing since 1983. He held a
number of positions within Sallie Mae and had a consulting
practice serving a cross-section of clients in the student loan
industry. Prior to this position, he was responsible for
Nelnet&#146;s product development for business and technology
planning with InTuition, and was the president of InTuition
Solutions (prepaid college tuition plan administration).
Mr.&nbsp;Leach has a degree in philosophy and economics from the
University of Northern Iowa.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Edward P. Martinez</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Edward P. Martinez is our Executive Director
responsible for Legal, Policy Support, Facilities and
Purchasing. Mr.&nbsp;Martinez joined us in April 1989. Prior to
joining us, Mr.&nbsp;Martinez was general counsel to the Student
Loan Division of the Colorado Department of Higher Education,
was an assistant attorney general with the Colorado Attorney
General&#146;s Office and was an associate with the law firm of
Davis Graham &#38; Stubbs LLP in Denver, Colorado.
Mr.&nbsp;Martinez received a J.D. degree from the University of
Colorado School of Law.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Jeffrey R. Noordhoek</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Jeffrey R. Noordhoek is our Executive Director in
charge of Capital Markets. Mr.&nbsp;Noordhoek heads up our
Capital Markets area and is responsible for our securitization
and capital markets funding efforts. Mr.&nbsp;Noordhoek served
as senior vice president of NELNI from March 2001 until October
2002, when he became an executive director of NELNI, and served
as a vice president of Nelnet&#146;s predecessor prior to that.
Mr.&nbsp;Noordhoek has been in our capital markets area since
1996. Prior to joining us, Mr.&nbsp;Noordhoek served as a senior
associate for State Street Capital Corporation where he assisted
in the establishment of commercial paper conduit financing
vehicles. Mr.&nbsp;Noordhoek received his B.S. degree in
business administration from the University of Nebraska and his
M.B.A. from Boston University.
</FONT>

<P align="left">
<B><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Richard H.
Pierce</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Richard H. Pierce is our Executive Director in
charge of Portfolio Management. Mr.&nbsp;Pierce served as a
Director until August 2003 and as an executive vice president of
NELNI from January 2001 until he became an executive director of
NELNI in October 2002. Mr.&nbsp;Pierce developed the MES
Foundation and has headed that company since its origin in 1983.
He has served in both the Maine House of Representatives and the
Maine Senate, serving as a Senate Majority Leader from
1978-1982. Among his many experiences, Mr.&nbsp;Pierce has
served as the commissioner of the Education Commission of the
State of Maine, on the White House Commission on Presidential
Scholars, as Director of the National Council of Higher
Education Loan Programs and as a member of the review panel for
the Harry&nbsp;S. Truman Scholarship Foundation. Regionally, he
has served on the New England Financial Aid Policy Council, the
</FONT>

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<FONT size="2">New England Board of Higher Education and on
several legislative task forces. He was a founding member of the
Education Finance Council and served several terms on its board,
including two years as its chairman. Mr.&nbsp;Pierce served as
one of our Directors from January 2001 until August 2003.
Mr.&nbsp;Pierce received his A.B. degree from Boston University
and a M.S.Ed. from the University of Maine.
</FONT>
</DIV>

<P align="left">
<B><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dominic
Rotondi</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Dominic Rotondi is our Executive Director in
charge of Charter Account Systems, a subsidiary of Nelnet.
Mr.&nbsp;Rotondi was one of the founders of Charter Account
Systems and serves as president of that company. He has been
involved in eduction finance and data processing for
26&nbsp;years, including positions at the New England Student
Loan Marketing Association and the New York Higher Eduction
Services Corporation. Mr.&nbsp;Rotondi received a B.S. degree in
management from Rensselaer Polytechnic Institute.
</FONT>

<P align="left">
<B><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cheryl
Watson</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cheryl Watson is our Executive Director
responsible for Investor Relations. Ms.&nbsp;Watson served as
one of our Directors from April 2002 until August of 2003 and
served as an executive vice president of NELNI from April 2002
until she became an executive director of NELNI in October 2002.
She also serves as president of EFS, Inc., one of our wholly
owned subsidiaries. In addition, she participates in our
strategic planning and capital markets initiatives. Prior to
joining us, Ms.&nbsp;Watson was employed with Sallie Mae, Inc.
and USA Group Secondary Market Services, Inc. and was vice
president and treasurer of Sallie Mae Servicing, LLP and
president and chief financial officer of USA Group Secondary
Market Services, Inc. She has held financial service positions
in education lending and private industry for over
18&nbsp;years. She serves on the board of directors for the
Greater Indianapolis Area YMCA and serves as treasurer for the
Riverview Hospital Foundation. Ms.&nbsp;Watson received a B.S.
degree from Indiana University and is a certified public
accountant.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">James P. Abel</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">James P. Abel has served as a member of our Board
of Directors since August 2003. Mr.&nbsp;Abel has served as a
director of our subsidiary, NHELP-I, Inc., from 2000 until
becoming our Director in August 2003. Since 1983, Mr.&nbsp;Abel
has served as president and chief executive officer of NEBCO,
Inc., a company with interests in the manufacture of building
materials, construction, insurance, mining, railroading, farming
and real estate. Mr.&nbsp;Abel serves on the boards of directors
of Ameritas Life Insurance Corp. and Linweld, Inc. He is an
Advisory Board Member for the US&nbsp;Bank Lincoln.
Mr.&nbsp;Abel received a B.S. degree from Arizona State
University.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Thomas E. Henning</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Thomas E. Henning has served as a member of our
Board of Directors since August 2003. Mr.&nbsp;Henning has
served as a director of Security Financial Life Insurance
Company since 1987 and as president and chief operating officer
since 1990. Mr.&nbsp;Henning serves as chairman, president and
chief executive officer of Security Mutual Life Nebraska, as
well as its wholly owned subsidiary, Security Financial Life
Insurance Company. Previously, Mr.&nbsp;Henning served as
president and chief operating officer of National Bank of
Commerce of Lincoln, Nebraska and executive vice president of
First Commerce Bancshares between 1985 and 1990.
Mr.&nbsp;Henning is a graduate of the University of Nebraska as
well as Stonier Graduate School of Banking at Rutgers
University. He also has completed the Wharton School&#146;s
Effective Management Program. Mr.&nbsp;Henning holds the CLU and
CFA designations. Mr.&nbsp;Henning is a member of the Investment
and Executive Committee and board of the University of Nebraska
Foundation and serves on Lincoln Plating Company&#146;s Advisory
Board.
</FONT>

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<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Lee E. Mikles</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Lee E. Mikles has served as a member of our Board
of Directors since August 2003. Mr.&nbsp;Mikles has served as a
director of our subsidiary, Nelnet Education Loan Funding, Inc.,
since 1998. Mr.&nbsp;Mikles has served since 1992 as chairman of
Mikles/Miller Mgmt., Inc., a registered investment adviser, and
as chairman of Mikles/Miller Securities, L.L.C., a registered
broker-dealer, from 1998 to the present. Formed in 1992,
Mikles/Miller Mgmt., Inc. is the managing general partner of the
Kodiak family of investment funds. The firm manages
approximately $200&nbsp;million worldwide. Prior to the
formation of Mikles/Miller Mgmt., Inc., Mr.&nbsp;Mikles headed
Mikles/Miller Group, an affiliate of Shearson Lehman Brothers.
Mr.&nbsp;Mikles serves on the boards of directors of Coastcast
Corporation and Boss Holdings, Inc.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Arturo Moreno</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Arturo Moreno has served as a member of our Board
of Directors since August 2003. Mr.&nbsp;Moreno served as
president, chief operating officer and director of Outdoor
Systems, Inc. from 1984 until 1999. Under Mr.&nbsp;Moreno&#146;s
leadership, Outdoor Systems became the largest outdoor
advertising organization in North America and was the first such
company to go public. In 1999, the company was sold to
Infinity/CBS and in 2000 it merged with Viacom. In June of 2003,
Mr.&nbsp;Moreno purchased the Anaheim Angels Professional
Baseball Team and currently serves as its president. As founder
of The Moreno Family Foundation, he is deeply involved with
issues related to children and education. Mr.&nbsp;Moreno
received his B.S. degree in marketing from the University of
Arizona in 1973.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Brian J. O&#146;Connor</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Brian J. O&#146;Connor has served as a member of
our Board of Directors since August 2003. Mr.&nbsp;O&#146;Connor
has served as a director of our subsidiaries, Nelnet Education
Loan Funding, Inc., since 1998 and Nelnet Private Student Loan
Corporation-I, since 2001. Since 1997, Mr.&nbsp;O&#146;Connor
has held the position of senior vice president at Hutchinson,
Shockey, Erley &#38; Co., which underwrites and trades
securities for various local governments in Arizona and the
western United States. From 1990 to 1997, he was a senior vice
president with Alden Capital Markets, Inc.; from 1988 to 1990,
he served as senior vice president with Capital Markets
Corporation; from 1987 to 1988, he was a vice president for
Security Pacific Merchant Bank in Phoenix; and from 1983 to
1987, Mr.&nbsp;O&#146;Connor was with Boettcher &#38; Company,
Inc., a regional investment banking firm specializing in
municipal finance. In addition, Mr.&nbsp;O&#146;Connor served as
a member of the board of directors and audit committee of
Outdoor Systems, Inc. from 1992 to 1999.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">James H. VanHorn</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">James H. VanHorn has served as a member of our
Board of Directors since March 2001. Mr.&nbsp;VanHorn is the
former Executive Director of Loan Generation, which provides
fee-based lender servicing and educational support services to
government and private entities. Mr.&nbsp;VanHorn served as our
Senior Vice President from March 2000 until October 2002, when
he became our Executive Director. Mr.&nbsp;VanHorn left his
position as Executive Director in June 2003 and thereafter has
served as president and chief executive officer of InTuition
Development Holdings, LLC, which is not affiliated with Nelnet.
Mr.&nbsp;VanHorn has more than 28&nbsp;years of operational
experience with Bethlehem Steel, Astro Metallurgical, InTuition,
Inc. and Nelnet. Prior to our acquisition of InTuition, Inc., he
joined InTuition in 1994, became president in 1998 and continued
serving as president of InTuition, Inc. until June 2003. Before
serving as president of InTuition, Inc., Mr.&nbsp;VanHorn served
as vice president of operations at Astro Metallurgical in
Wooster, Ohio. He earned his M.B.A. at Jacksonville University
and his B.S.C.E. at Valparaiso University.
</FONT>

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<P align="left">
<B><FONT size="2">Board Composition</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our board of directors is composed of a majority
of independent directors as defined by the rules of the New York
Stock Exchange.
</FONT>

<P align="left">
<B><FONT size="2">Board Committees</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our board of directors has established an audit
committee, a compensation committee, an executive committee and
a nominating and corporate governance committee. Each committee,
other than the executive committee, is composed entirely of
independent directors.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our audit committee is composed of
Messrs.&nbsp;Henning, Mikles and O&#146;Connor. The audit
committee provides assistance to our board of directors in its
oversight of the integrity of our financial statements, the
qualifications and independence of our independent auditors, the
performance of our internal audit functions, the procedures
undertaken by the independent auditors and our compliance with
other regulatory and legal requirements. Our audit committee
operates pursuant to a formal written charter.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our compensation committee is composed of
Messrs.&nbsp;Abel, Mikles and Moreno. The compensation committee
oversees our compensation and benefit policies. Our compensation
policies are designed with the goal of maximizing shareholder
value over the long term. The compensation committee believes
that this goal is best realized by utilizing a compensation
program which serves to attract and retain superior executive
talent by providing management with performance-based incentives
and closely aligning the financial interests of management with
those of our shareholders. Our compensation program combines two
components: base salary and annual bonus. The level of
compensation is based on numerous factors, including achievement
of results and financial objectives established by our
compensation committee and our board of directors. Salary and
bonus compensation awards are reviewed regularly for
competitiveness and are determined in large part by reference to
compensation levels for comparable positions at comparable
companies.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our nominating and corporate governance committee
is composed
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.
The nominating and corporate governance committee is responsible
for identifying and recommending qualified nominees to serve on
our board of directors as well as developing and overseeing our
internal corporate governance processes.
</FONT>

<P align="left">
<B><FONT size="2">Compensation Committee Interlocks and Insider
Participation</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">No member of our compensation committee serves or
in the past has served as a member of another entity&#146;s
board of directors or compensation committee, which entity has
one or more executive officers serving as a member of our board
of directors or compensation committee.
</FONT>

<P align="left">
<B><FONT size="2">Compensation of Directors</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our independent directors receive an annual
retainer of $50,000. We also pay an additional annual retainer
of $10,000 to those independent directors who serve on the audit
committee, the compensation committee, the executive committee
or the nominating and corporate governance committee, as
applicable. Independent directors also earn a fee of $1,000 for
each board meeting attended and $1,000 for each committee
meeting attended. Our directors, other than our independent
directors, do not receive any consideration for participation in
board meetings or committee meetings.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have adopted a share-based compensation plan
for nonemployee directors pursuant to which our nonemployee
directors will have an election to receive their annual retainer
fees in the form of cash or our
</FONT>

<P align="center"><FONT size="2">63
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<DIV align="left">
<FONT size="2">Class&nbsp;A common stock. Up
to &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
may be issued under the plan. If a nonemployee director elects
to receive Class&nbsp;A common stock, the number of shares of
Class&nbsp;A common stock that will be awarded will be equal to
the amount of the annual retainer fee otherwise payable in cash
divided by 85% of the fair market value of a share of
Class&nbsp;A common stock on the date the fee is payable.
Nonemployee directors who choose to receive Class&nbsp;A common
stock may also elect to defer receipt of the Class&nbsp;A common
stock until termination of their service on our board of
directors. Any dividends paid in respect of deferred shares
during the deferral period will also be deferred in the form of
additional shares and paid out at termination from our board of
directors. The plan may be amended or terminated by our board of
directors at any time, but no amendment or termination will
adversely affect a nonemployee director&#146;s rights with
respect to previously deferred shares without the consent of the
nonemployee director.
</FONT>
</DIV>

<P align="left">
<B><FONT size="2">Agreements with Employees</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In May 2001, Richard H. Pierce, our Executive
Director in charge of Portfolio Management, entered into an
employment agreement with one of our subsidiaries, Nelnet
Corporation. The agreement extends until April 2006, after which
it shall renew for successive one-year terms unless terminated
earlier by Nelnet Corporation or Mr.&nbsp;Pierce upon the
occurrence of certain events or upon 90&nbsp;days&#146; notice
from either party prior to the end of the initial term or any
renewal term. Mr.&nbsp;Pierce received a base salary of $382,000
in 2001, which amount gradually decreases until it reaches
$300,000 in 2006. In addition, Mr.&nbsp;Pierce is entitled to
receive an annual bonus tied to our pretax earnings, which shall
not exceed $700,000. Nelnet Corporation shall continue to pay
Mr.&nbsp;Pierce&#146;s base salary and a pro-rated portion of
the bonus he would have received during the year his employment
terminates, if Nelnet Corporation terminates the agreement
without cause or if Mr.&nbsp;Pierce resigns from his position
with good reason, in each case as defined in the employment
agreement. The agreement also prohibits Mr.&nbsp;Pierce from
having any business-related contact with competitors, customers
or service providers of Nelnet Corporation or any of its
affiliates so long as Mr.&nbsp;Pierce continues to receive
compensation payments from Nelnet Corporation.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have not entered into employment agreements
with any of our other named executive officers.
</FONT>

<P align="left">
<B><FONT size="2">Executive Compensation</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table sets forth summary
information relating to compensation paid for services rendered
for our fiscal year ended December&nbsp;31, 2002, with respect
to the compensation paid and bonuses granted to our Co-Chief
Executive Officers as well as each of our other five most highly
compensated executive officers, each of whose aggregate
compensation during the last fiscal year was greater than
$100,000. Messrs.&nbsp;Dunlap&#146;s and Butterfield&#146;s
annual salaries, effective August&nbsp;1, 2003, are $1,000,000
each, and Mr.&nbsp;Bouc&#146;s annual salary, effective
August&nbsp;1, 2003, which will be payable by us, is $350,000.
In addition, they are each entitled to receive bonus
compensation as described below under
&#147;&#151;&nbsp;Executive Officers Bonus Plan.&#148; Further,
in the third quarter of 2003, Mr.&nbsp;Heimes will receive a
bonus of $408,000 in connection with the termination of our
consulting agreement with Great Plains Financial, LLC, which is
described under &#147;Certain Transactions&nbsp;&#151;
Transactions with Miscellaneous Related Parties,&#148; and
Mr.&nbsp;Ciarvella will receive a bonus of $897,000 in
connection with the termination of his employment
</FONT>

<P align="center"><FONT size="2">64
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">agreement. Salaries and bonuses are paid at the
discretion of our board of directors. For purposes of this
prospectus, we will refer to the executive officers named in the
table below as the named executive officers.
</FONT>
</DIV>

<P align="center">
<B><FONT size="2">Summary Compensation Table</FONT></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="48%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Annual compensation(a)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">All other</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">compensation</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2" align="center" nowrap><B><FONT size="1">Name and principal position</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Year</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Salary ($)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Bonus ($)(b)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">($)(c)</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Michael S. Dunlap
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2002</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">450,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">675,198</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,642</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Co-Chief Executive Officer
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Stephen F. Butterfield
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2002</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">450,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">675,198</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,642</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Co-Chief Executive Officer
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Don R. Bouc
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2002</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">700,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(d)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,830</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">President
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Terry J. Heimes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2002</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">179,167</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">150,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,232</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Chief Financial Officer
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">David A. Bottegal
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2002</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">179,167</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">150,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,307</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Executive Director and Chief Marketing Officer
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Raymond J. Ciarvella
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2002</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">240,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">510,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,076</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Executive Director and Chief Information Officer
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Richard H. Pierce
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2002</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">380,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">700,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,100</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Executive Director
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(a)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Executive officers may receive perquisites and
    personal benefits, the dollar amounts of which are below current
    Securities and Exchange Commission thresholds for reporting
    requirements.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(b)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Amounts represent bonuses paid in 2003 for
    services rendered during the 2002 calendar year.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(c)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Amounts represent matching contributions under
    our 401(k) plan in the following amounts: Mr.&nbsp;Dunlap
    $2,450, Mr.&nbsp;Butterfield $2,450, Mr.&nbsp;Bouc $1,710,
    Mr.&nbsp;Heimes $4,872, Mr.&nbsp;Bottegal $4,947,
    Mr.&nbsp;Ciarvella $5,500 and Mr.&nbsp;Pierce $5,500; and
    premiums on life insurance in the following amounts:
    Mr.&nbsp;Dunlap $192, Mr.&nbsp;Butterfield $192, Mr.&nbsp;Bouc
    $120, Mr.&nbsp;Heimes $360, Mr.&nbsp;Bottegal $360,
    Mr.&nbsp;Ciarvella $576 and Mr.&nbsp;Pierce $600.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(d)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">$650,000 of Mr.&nbsp;Bouc&#146;s salary was paid
    by Great Plains Financial, LLC, which had a consulting
    arrangement with Nelnet. See &#147;Certain Transactions &#151;
    Transactions with Miscellaneous Related Parties&#148; for a
    description of the consulting arrangement.
    </FONT></TD>
</TR>

</TABLE>

<P align="center">
<B><FONT size="2">Options/SARs/Restricted Stock/LTIPs</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We do not have any stock option, SAR, restricted
stock or other long-term incentive plans, and we have not issued
any stock options, SARs or restricted shares.
</FONT>

<P align="left">
<B><FONT size="2">Employee Share Purchase Plan</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our board of directors has adopted an employee
share purchase plan pursuant to which our employees and
employees of our designated subsidiaries will be entitled to
purchase our Class&nbsp;A common stock. The employee share
purchase plan is intended to enhance our ability to attract and
retain employees and to better enable such persons to
participate in our long-term success and growth.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The employee share purchase plan will be
administered by our compensation committee. Subject to the
express provisions of the employee share purchase plan, our
compensation committee has the power to determine the terms and
conditions of each offering of shares to employees under the
plan, and it has the authority to adopt and revise rules
governing the plan and to interpret the terms and provisions of
the plan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A total
of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our Class&nbsp;A common stock are reserved for issuance under
the employee share purchase plan, subject to equitable
adjustment by the compensation committee in the event of stock
dividends, recapitalizations and other similar corporate events.
All of our employees and those employees of our participating
subsidiaries, other than those whose customary employment is
20&nbsp;hours or less per week, who have been employed for at
least six months, or another period determined by our
compensation
</FONT>

<P align="center"><FONT size="2">65
</FONT>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">committee not in excess of two years, will be
eligible to purchase Class&nbsp;A common stock under the plan.
The participating subsidiaries will be those designated by the
compensation committee to participate in the employee share
purchase plan.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The plan is designed to qualify as an
&#147;employee stock purchase plan&#148; under Section&nbsp;423
of the Code. The plan will allow participating employees to
purchase our Class&nbsp;A common stock through payroll
withholding. The plan provides for consecutive six-month
offering periods (or other periods of not more than
27&nbsp;months, as determined by our compensation committee)
under which participating employees can elect to have amounts
withheld from their total compensation during the offering
period and applied to purchase our Class&nbsp;A common stock at
the end of the period. Unless otherwise determined by our
compensation committee before an offering period, the purchase
price will be the lesser of 85% of the fair market value of our
Class&nbsp;A common stock at the beginning or end of the
offering period. Applicable Code limitations specify, in
general, that a participant&#146;s right to purchase stock under
the plan cannot accrue at a rate in excess of $25,000 (based on
the value at the beginning of the applicable offering periods)
per calendar year.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The employee share purchase plan will terminate
when all shares authorized to be issued under it have been
exhausted. Our board of directors may discontinue the employee
share purchase plan at any time and may amend it from time to
time.
</FONT>

<P align="left">
<B><FONT size="2">Executive Officers Bonus Plan</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our board of directors has adopted, and we will
maintain, an executive officers bonus plan pursuant to which our
Co-Chief Executive Officers and President will be entitled to
receive annual bonus compensation based upon our consolidated
net income before taxes. The purpose of the executive officers
bonus plan is to provide our Co-Chief Executive Officers and
President with an opportunity to earn annual bonus compensation
as an incentive and reward for their leadership, ability and
exceptional services. The executive officers bonus plan will be
administered by our compensation committee.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our Co-Chief Executive Officers and President
will each be entitled to receive an annual bonus equal to 0.85%
of our consolidated net income before taxes, computed in
accordance with generally accepted accounting principles. Our
President&#146;s annual bonus may not exceed $500,000. Annual
bonuses payable under the plan will be paid in cash after the
end of each calendar year.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our board of directors may terminate the
executive officers bonus plan and may amend it from time to
time, but no termination or amendment will adversely affect the
rights of an executive to a previously earned but unpaid bonus.
</FONT>

<P align="center"><FONT size="2">66
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<!-- link1 "PRINCIPAL SHAREHOLDERS" -->

<P align="center">
<B><FONT size="2">PRINCIPAL SHAREHOLDERS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table sets forth information
regarding the beneficial ownership of each class of our common
stock immediately before and after the sale
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our Class&nbsp;A common stock in this offering by:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">each person, entity or group known by us to
    beneficially own more than five percent of the outstanding
    shares of any class our common stock;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">each of the named executive officers;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">each of our directors; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">all of our executive officers and directors as a
    group.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Beneficial ownership is determined in accordance
with the rules and regulations of the Securities and Exchange
Commission. Under these rules, a person is deemed to
beneficially own a share of our common stock if that person has
or shares voting power or investment power with respect to that
share, or has the right to acquire beneficial ownership of that
share within 60&nbsp;days, including through the exercise of any
option, warrant or other right or the conversion of any other
security.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The number of shares of Class&nbsp;B common stock
for each person in the tables below assumes such persons do not
convert any Class&nbsp;B common stock into Class&nbsp;A common
stock. Unless otherwise indicated in a footnote, the address of
each five percent beneficial owner is c/o&nbsp;Nelnet, Inc.,
121&nbsp;South 13th&nbsp;Street, Suite&nbsp;201, Lincoln,
Nebraska 68508. As of the date of this prospectus, Nelnet
had &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;holders
of record of its Class&nbsp;A common stock and four holders of
record of its Class&nbsp;B common stock. Unless otherwise
indicated in a footnote, the persons named in the tables below
have sole voting and investment power with respect to all shares
of common stock shown as being beneficially owned by them.
</FONT>

<P align="center">
<B><FONT size="2">Beneficial Ownership Before This
Offering</FONT></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="25%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Percentage of</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Percentage of shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">combined</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Number of shares beneficially owned</FONT></B></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">beneficially owned(1)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">voting power</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">of all classes</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Name</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Class A</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Class B</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Class A</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Class B</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">of stock(2)</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Michael S. Dunlap
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,911,021</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(3)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,230,204</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(4)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,141,225</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">38.4</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">65.8</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">46.9</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">60.9</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Stephen F. Butterfield
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,379,941</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(5)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,379,941</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">45.5</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14.2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37.3</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Angie Mulheisen
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,570,416</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(6)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,570,416</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50.2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34.6</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9.1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Packers Service Group, Inc.(7)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,068,604</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,068,604</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35.7</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24.6</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.5</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Don R. Bouc(8)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,271,990</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,271,990</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7.3</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.3</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Marphy Butterfield(9)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,680,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,680,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.4</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.7</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Terry J. Heimes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">218,190</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">218,190</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Hilario J. Arguinchona
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">522,900</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">522,900</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.7</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">David A. Bottegal
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">449,610</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">449,610</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.4</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Raymond J. Ciarvella
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">349,104</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">349,104</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Todd M. Eicher(10)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">402,301</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">402,301</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.3</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Matthew D. Hall
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">204,901</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">204,901</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Charles Hosea
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">115,080</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">115,080</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Dennis Leach
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Edward P. Martinez
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">92,131</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">92,131</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Jeffrey R. Noordhoek
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,050,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,050,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.4</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.3</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Richard H. Pierce
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">460,740</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">460,740</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.5</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Dominic Rotondi
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,600</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,600</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">67
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="25%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Percentage of</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Percentage of shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">combined</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Number of shares beneficially owned</FONT></B></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">beneficially owned(1)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">voting power</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">of all classes</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Name</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Class A</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Class B</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Class A</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Class B</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">of stock(2)</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cheryl Watson
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">69,999</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">69,999</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">James P. Abel
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Thomas E. Henning
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Lee E. Mikles
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Arturo Moreno
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Brian J. O&#146;Connor
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">James H. VanHorn
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">115,080</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">115,080</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Executive officers and directors as a group
    (22&nbsp;persons)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,266,647</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,023,454</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32,290,101</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">58.9%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">71.7%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">92.6%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center">
<B><FONT size="2">Beneficial Ownership After This
Offering</FONT></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="29%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Percentage of</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Percentage of shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">combined</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Number of shares beneficially owned</FONT></B></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">beneficially owned(1)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">voting power</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">of all classes</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Name</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Class A</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Class B</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Class A</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Class B</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">of stock(2)</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Michael S. Dunlap
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,911,021</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(3)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,230,204</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(4)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,141,225</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Stephen F. Butterfield
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,379,941</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(5)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,379,941</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Angie Mulheisen
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,570,416</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(6)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,570,416</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Packers Service Group(7)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,068,604</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,068,604</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Don R. Bouc(8)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,271,990</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,271,990</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Marphy Butterfield(9)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,680,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,680,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Terry J. Heimes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">218,190</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">218,190</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Hilario J. Arguinchona
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">522,900</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">522,900</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">David A. Bottegal
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">449,610</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">449,610</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Raymond J. Ciarvella
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">349,104</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">349,104</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Todd M. Eicher(10)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">402,301</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">402,301</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Matthew R. Hall
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">204,901</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">204,901</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Charles Hosea
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">115,080</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">115,080</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Dennis Leach
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Edward P. Martinez
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">92,131</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">92,131</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Jeffrey R. Noordhoek
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,050,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,050,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Richard H. Pierce
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">460,740</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">460,740</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Dominic Rotondi
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,600</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,600</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cheryl Watson
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">69,999</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">69,999</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">James P. Abel
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Thomas E. Henning
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Lee E. Mikles
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Arturo Moreno
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Brian J. O&#146;Connor
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">James H. VanHorn
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">115,080</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">115,080</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Executive officers and directors as a group
    (22&nbsp;persons)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,266,647</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,023,454</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32,290,101</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">*</FONT></TD>
    <TD align="left">
    <FONT size="2">Less than 1%.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="3%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Based on:
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="1%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">31,015,034 shares of Class&nbsp;A common stock
    and 14,023,454&nbsp;shares of Class&nbsp;B common stock
    outstanding after giving effect to our recapitalization but
    immediately before this offering; and
    </FONT></TD>
</TR>

</TABLE>

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<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="1%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of Class&nbsp;A common stock and 14,023,454 shares of
    Class&nbsp;B common stock outstanding immediately after the sale
    of shares of our Class&nbsp;A common stock in this offering.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="3%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">These percentages reflect the different voting
    rights of our Class&nbsp;A common stock and our Class&nbsp;B
    common stock. Each share of Class&nbsp;A common stock has one
    vote and each share of Class&nbsp;B common stock has ten votes
    on all matters to be voted upon by our shareholders.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(3)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Consists of shares owned by entities which
    Mr.&nbsp;Dunlap may be deemed to control, consisting of:
    11,068,604&nbsp;shares owned by Packers Service Group, of which
    Mr.&nbsp;Dunlap is a director and president and owns 28.3% of
    the outstanding capital stock, and 842,417 shares owned by Union
    Bank and Trust Company as Trustee for the University of Nebraska
    Foundation. Mr.&nbsp;Dunlap is non-executive chairman of and
    controls Union Bank and Trust Company through Farmers&nbsp;&#38;
    Merchants Investment Inc., of which Mr.&nbsp;Dunlap is president
    and owns or controls 38.4% of the outstanding voting stock.
    Mr.&nbsp;Dunlap disclaims beneficial ownership of the shares
    held by Union Bank and Trust Company as Trustee for the
    University of Nebraska Foundation. He also disclaims beneficial
    ownership of the shares held by Packers Service Group, except to
    the extent of his pecuniary interest therein.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(4)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes 1,701,000&nbsp;shares owned by
    Mr.&nbsp;Dunlap&#146;s spouse and 1,586,691&nbsp;shares owned by
    Union Financial Services, Inc., of which Mr.&nbsp;Dunlap is
    chairman and owns 50.0% of the outstanding capital stock.
    Mr.&nbsp;Dunlap disclaims beneficial ownership of the shares
    held by Union Financial Services, Inc., except to the extent of
    his pecuniary interest therein.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(5)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes 1,586,691 shares owned by Union
    Financial Services, Inc., of which Mr.&nbsp;Butterfield is a
    director and president and owns 50.0% of the outstanding capital
    stock. Mr.&nbsp;Butterfield disclaims beneficial ownership of
    the shares held by Union Financial Services, Inc., except to the
    extent of his pecuniary interest therein.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(6)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes 88,864 shares jointly owned by
    Ms.&nbsp;Mulheisen and her spouse, 1,701,000&nbsp;shares owned
    by her spouse and 11,911,021&nbsp;shares that are owned by
    entities that Ms.&nbsp;Mulheisen may be deemed to control,
    consisting of: 11,068,604 shares owned by Packers Service Group,
    of which Ms.&nbsp;Mulheisen is a director and owns or controls
    27.0% of the outstanding capital stock, and 842,417 shares owned
    by Union Bank and Trust Company as Trustee for the University of
    Nebraska Foundation. Ms.&nbsp;Mulheisen, the sister of Michael
    S. Dunlap, is a director and president of and controls Union
    Bank and Trust Company through Farmers&nbsp;&#38; Merchants
    Investment Inc., of which Ms.&nbsp;Mulheisen is a director and
    executive vice president and owns or controls 35.9% of the
    outstanding capital stock. Ms.&nbsp;Mulheisen disclaims
    beneficial ownership of the shares held by Union Bank and Trust
    Company as Trustee for the University of Nebraska Foundation.
    She also disclaims beneficial ownership of the shares held by
    Packers Service Group, except to the extent of her pecuniary
    interest therein.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(7)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">The address for Packers Service Group is
    c/o&nbsp;Farmers&nbsp;&#38; Merchants Investment Inc.,
    Attention: Michael S. Dunlap, 6801&nbsp;South 27th&nbsp;Street,
    Lincoln, NE 68512.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(8)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes 1,371,930&nbsp;shares owned by Great
    Plains Financial, LLC, a limited liability company of which
    Mr.&nbsp;Bouc is the sole member.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(9)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">The address for Ms.&nbsp;Butterfield is
    7001&nbsp;N. Tatum Boulevard, Paradise Valley, AZ 85253.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(10)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes 310,170&nbsp;shares owned by The Judy
    Eicher&nbsp;&#38; Todd Eicher Partnership, of which
    Mr.&nbsp;Eicher is a general partner.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">69
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<P align="center">
<B><FONT size="2">CERTAIN TRANSACTIONS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Some of our directors and members of our
management beneficially own shares of stock or other ownership
interests in other entities with which we do business and, in
some cases, they serve on the board of directors and/or as
executive officers of one or more of such entities. These
entities include Union Bank and Trust Company, or Union Bank,
Packers Service Group, Inc., or Packers Service Group, Farmers
&#38; Merchants Investment Inc., or Farmers &#38; Merchants,
Union Financial Services, Inc., or Union Financial, and Great
Plains Financial, LLC, or Great Plains. Prior to the date of
this prospectus, the directors and members of management
referenced above resigned from all executive officer positions
they held with these entities, except for Michael S. Dunlap, who
remains president of Packers Service Group and Farmers &#38;
Merchants, and Stephen F. Butterfield, who remains president of
Union Financial. Mr.&nbsp;Dunlap is the non-executive chairman
of and controls Union Bank, through Farmers&nbsp;&#38;
Merchants, of which Mr.&nbsp;Dunlap owns 38.4% of the
outstanding voting stock. Mr.&nbsp;Dunlap also owns 28.3% of the
outstanding capital stock of Packers Service Group.
Messrs.&nbsp;Dunlap and Butterfield each owns 50% of the
outstanding capital stock of Union Financial. For a detailed
description of the relationships between management and the
entities with which we transact business, see
&#147;Management&#148; and &#147;Principal Shareholders.&#148;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Going forward, our independent directors will be
responsible for reviewing and approving all new transactions,
and any material amendments or modifications to existing
transactions, between Nelnet and Union Bank or any other
affiliated party.
</FONT>

<P align="left">
<B><FONT size="2">Transactions with Union Bank</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have entered into a series of agreements with
Union Bank, including transactions to sell interests in student
loans to Union Bank in its capacity as trustee, to purchase
student loans from Union Bank, to provide student loan servicing
to Union Bank, to sublease real estate from Union Bank and to
provide consulting services to and receive consulting services
from Union Bank. Union Bank is a major source of student loan
origination and sales volume for us, and these purchases were
accomplished through a series of free standing loan purchase
agreements until 1997. In June 1997, Union Bank entered into a
commitment to sell to us rights with respect to future
originations of guaranteed student loans which exceed the annual
aggregate amount of $120&nbsp;million; however, Union Bank holds
an option to retain 25% of its originations in excess of
$240&nbsp;million in a given year and to retain the rights to
any of the remaining 75% of originations in excess of
$240&nbsp;million by paying to us an amount equal to the amount
by which the fair market value of such originations exceeds the
principal balance. We pay Union Bank a purchase price equal to
100% of the outstanding principal balance and accrued and unpaid
interest on the loans purchased pursuant to this agreement, and
we also reimburse Union Bank for origination fees required to be
paid to the DOE (50 basis points of the principal balance) and
for origination costs (initially $6.00 per purchased loan, which
amount subsequentially increased to $25.00&nbsp;per purchased
loan). We also paid to Union Bank a one-time amount of
$3.5&nbsp;million in 1997 to acquire these origination rights.
We granted to Union Bank an option to sell us up to
$120&nbsp;million of federally guaranteed student loans per year
at the same purchase price described above. During 2002, Nelnet
paid to Union Bank an aggregate sum of approximately
$6.4&nbsp;million plus the outstanding balances of loans
purchased from Union Bank pursuant to this agreement and related
purchases. We purchased an aggregate of approximately
$378&nbsp;million of student loans from Union Bank in 2002
pursuant to this agreement and related loan purchase agreements.
This agreement renews automatically for successive one-year
terms unless both parties mutually agree to terminate it.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Effective January 1999, we entered into an
agreement with Union Bank to reimburse certain of Union
Bank&#146;s student loan-related marketing expenses arising from
Union Bank engaging in its ordinary student loan marketing
activities. Union Bank agreed to bear the first $240,000 of
annual marketing costs incurred by it. In April&nbsp;2001, as a
part of an amendment to this agreement, we agreed to assume the
bulk of marketing responsibilities for Union Bank and to hire
Union Bank&#146;s marketing personnel if Union Bank decided to
reduce its marketing personnel commitment. The amendment
adjusted the marketing expense sharing arrangement to more
closely approximate a prorated portion of the costs associated
with the volume of loans we acquire from Union Bank. During
2002, we received from Union Bank marketing expenses in the net
amount of approximately $519,000. This marketing expense
reimbursement agreement
</FONT>

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<DIV align="left">
<FONT size="2">is coterminous with the student loan origination
transfer agreement described in the preceding paragraph. As
consideration for our assumption of the costs with respect to
Union Bank&#146;s marketing employees, Union Bank granted us
rights to hire its marketing personnel, transferred servicing
and origination software to us and increased the origination fee
paid to us from $6.00 per loan to $25.00 per loan. The $25.00
origination fee that Union Bank agreed to pay to us for
originating Union Bank&#146;s student loans is reimbursed to
Union Bank when we acquire those loans from Union Bank pursuant
to the agreement described in the preceding paragraph. Our
obligation to share Union Bank&#146;s marketing expenses is
indirectly related to the volume of originations resulting from
such marketing efforts.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In 1999, we entered into a 360-day commitment
with Union Bank to purchase its federally guaranteed student
loans, in which Union Bank retained rights pursuant to the
agreement above at par. This purchase commitment has been
renewed annually for successive terms after its inception. The
commitment has grown into an obligation to purchase an aggregate
amount of up to $1.25&nbsp;billion of student loans from Union
Bank. The consideration we received is Union Bank&#146;s
obligation to sell us $37.5&nbsp;million of student loans per
year at a premium of 1.5% above par. In accordance with the
terms of this agreement, in 2002, Union Bank sold us student
loans with an aggregate outstanding balance of approximately
$37.5&nbsp;million, which was included in the $378&nbsp;million
aggregate sale figure referenced above. Union Bank has also
granted us a right to purchase student loans it may wish to sell
to third parties and, if such right is exercised, the purchase
price will be 101.5% of outstanding principal and 100% of
accrued interest. Such rights to purchase are applicable to
loans in which Union Bank retains origination rights (the first
$120&nbsp;million per year originated and 25% of the
originations in excess of $240&nbsp;million per year). This
purchase commitment agreement is terminable by either party by
the giving of notice of termination at least 90&nbsp;days prior
to the end of the then current 360-day term.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Pursuant to a June&nbsp;2001 agreement, Union
Bank, in its capacity as trustee for various grantor trusts,
agreed to purchase from us up to $750&nbsp;million of
participation interests in student loans. We retain a portion of
the interest earned from the participated loans at a rate equal
to the difference between the borrower&#146;s interest rate on
the loans and the 90-day commercial paper rate plus 30 basis
points. However, we also must continue to pay the servicing
costs with respect to such participated loans. We sold to Union
Bank, as trustee, participation interests with balances of
approximately $149&nbsp;million as of December&nbsp;31, 2002. We
have the option to purchase the participation interests from
these grantor trusts at the end of a 364-day term upon
termination of the participation certificate. The agreement
automatically renews for additional 364-day terms unless either
party gives notice to terminate. The agreement is also
terminable by either party upon five business days&#146; notice.
This agreement provides beneficiaries of Union Bank&#146;s
grantor trusts with access to investments in interests in
student loans, while providing liquidity to us on a short-term
basis.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have serviced loans for Union Bank since 1978,
and, pursuant to a servicing agreement dated January&nbsp;1,
1998, as amended, we charge a standard origination and servicing
fee at a level substantially commensurate to those charged to
the majority (in terms of volume of loans serviced) of our
non-affiliated servicing clients. Those fees are as follows:
$1.67 per Stafford or PLUS loan per month in school; $2.92 per
Stafford or PLUS loan per month other than in school; $2.89 per
loan per month for consolidation loans; and $25.00 per loan
origination fee. Union Bank paid us fees pursuant to this
servicing agreement aggregating approximately $5.5&nbsp;million
in 2002. Our accounts receivable as of December&nbsp;31, 2002
included approximately $371,000 for loan servicing fees due from
Union Bank. The servicing agreement is for a month-to-month
term, subject to a removal fee of $13.32 per loan and a
deconversion fee of $10.66 per loan. The agreement may be
terminated in the event of a material uncured breach by us.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Beginning in May&nbsp;2001, we subleased 4,124
square feet of office space from Union Bank at a price of $8.50
per square foot and 320&nbsp;square feet of storage space for
$3.00 per square foot. These terms are the same rental terms as
are charged to Union Bank by the non-affiliated landlord. During
2002, we made rent payments to Union Bank of approximately
$36,000. This sublease agreement is coterminous with the master
lease between Union Bank and the non-affiliated landlord.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Starting in June 2001, we obtained the right to
acquire from Union Bank 100% of the participation interests in
an unspecified volume of private loans which comply with our
internal underwriting criteria (as
</FONT>

<P align="center"><FONT size="2">71
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<DIV align="left">
<FONT size="2">modified from time to time). On these
participations, we earn 100% of the borrower interest rate, less
servicing costs thereon in an amount equal to 1% per annum of
the aggregate average outstanding principal balances of such
participations. The parties mutually agree upon the volume of
such participations from time to time. In 2002, we did not
purchase any participation interests in private loans pursuant
to this agreement. The agreement is subject to termination upon
30&nbsp;days&#146; notice by either party.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In December 2000, we entered into an agreement to
assist Union Bank in marketing and providing program operations
related to the Nebraska College Savings Plan, or the College
Savings Plan, a plan under Section&nbsp;529 of the Code. Union
Bank has agreed to pay us fees in an amount equal to 50% of the
net profits, if any, associated with Union Bank&#146;s program
management agreement with the College Savings Plan. Union Bank
is entitled to a fee as program manager pursuant to its program
management agreement with the College Savings Plan and is not
entitled to other payments pursuant to that agreement. We have
agreed to share 50% of the expenses relating to the program, up
to a capped amount of $1.25 million over the life of the
agreement, as well as 50% of mutually agreeable costs related to
the program operations, if any, which exceed the aggregate of
$1.25&nbsp;million. In 2002, we incurred a net expense of
approximately $219,000 arising from this agreement. This
consulting and services agreement terminates when Union
Bank&#146;s program manager agreement with the College Savings
Plan terminates, in approximately eight years.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Since October 1998, we have invested in student
loans from time to time by establishing several grantor trusts
with Union Bank as trustee for Union Bank&#146;s Short Term
Federal Investment Trust. As a grantor, we place cash into the
trust account, and Union Bank uses such cash to acquire
interests in student loans on our behalf. We earn the yield on
the student loans purchased by the trust and pay to Union Bank a
trustee fee in an amount ranging from 75 basis points to 375
basis points per annum of amounts invested, depending upon the
type of investment asset being acquired in the trust account. We
invested approximately $12.9 million in these trusts as of
December&nbsp;31, 2002. Union Bank has created almost 1,000
similar Short Term Federal Investment Trusts with non-affiliated
trust beneficiaries, and the fees and terms applicable to the
trust agreements it has entered into with us are the same as the
fees charged by Union Bank to the majority (in terms of assets)
of non-affiliated persons. As trustee, Union Bank has agreed to
return our funds invested in these trusts or assets held on our
behalf in these trusts upon 30&nbsp;days&#146; notice from us at
any time and thus terminate the trusts. We utilize these trust
arrangements as a short-term investment facility.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In January 2001, we, Union Bank and UFS
Securities, L.L.C., or UFS Securities (which was then controlled
by Michael S. Dunlap and Stephen F. Butterfield, but which we
subsequently have acquired), entered into an employee sharing
arrangement with respect to a small group of employees. The
arrangement requires each counterparty receiving services from
any such employee to pay for the share of the employee&#146;s
salary and payroll equal to the approximate percentage of such
employee&#146;s time devoted to such recipient. This agreement
renews automatically for one-year terms unless the parties
mutually agree not to renew.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have retained Union Bank to administer our
401(k) profit sharing and related employee benefit plans
pursuant to a series of agreements, the most recent of which was
entered into in April 2003. The fees charged by Union Bank are
commensurate with those Union Bank charges to other employee
benefit customers. We paid Union Bank the sum of approximately
$92,000 in 2002 for these services, based upon fees ranging
between 0.25% and 0.125% of the plan assets, plus a
recordkeeping fee, depending upon the aggregate of plan assets.
This agreement may be terminated upon 60&nbsp;days&#146; notice
from either party, but we must pay liquidated damages if we
terminate prior to April 2004.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><FONT size="2">Transactions with Farmers &#38; Merchants and
    Its Related Parties</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In August 2001, we provided to The First
Marblehead Corporation, or First Marblehead, and each special
purpose entity, or SPE, named in the agreement a guarantee of
liabilities of First National Bank Northeast, or First National,
pursuant to indemnity covenants given by First National to First
Marblehead with respect to a sale of loans from First National
to First Marblehead. Our liability under such guarantee
</FONT>

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</FONT>

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<DIV align="left">
<FONT size="2">is limited to an aggregate amount of
$10&nbsp;million, plus costs incurred by First Marblehead with
respect to recovery efforts. In consideration for such
guarantee, First Marblehead agreed to pay or cause a SPE to pay
us the sum of 1% of the outstanding balance of private loans
sold by First National to First Marblehead. This guarantee
remains in effect until First Marblehead and the SPEs receive
written notice from us to discontinue the guarantee or until all
obligations of First National pursuant to its indemnity of First
Marblehead are paid in full. We earned nothing in 2002 from this
agreement and have not paid out any sums pursuant to the
indemnity covenants thereunder. Michael S. Dunlap is a director
of First National, and Farmers &#38; Merchants owns, indirectly,
approximately 25% of the outstanding capital stock of that
financial institution.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In September 2000, we engaged Farmers &#38;
Merchants, one of our shareholders at the time, as well as the
holding company of Union Bank, to provide consulting services
with respect to financial matters, merger and acquisition
activities, student loan marketing and legislative support and
other advisory matters. In 2002, we paid consulting fees in the
amount of approximately $1.4&nbsp;million to Farmers&nbsp;&#38;
Merchants and an additional $1&nbsp;million to Packers Service
Group, as assignee of Farmers&nbsp;&#38; Merchants. This
agreement was terminated in June 2002.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We obtained an unsecured operating line of credit
from Farmers &#38; Merchants in November 2001. The interest rate
we were charged was equal to 165 basis points above 30-day
LIBOR, which was the same cost to Farmers &#38; Merchants from a
third-party credit provider at the time to cover Farmers &#38;
Merchants&#146; lending commitment. The commitment amount under
this line of credit was $30&nbsp;million, which was drawn upon
and later repaid in full as of the end of 2002. No funds were
borrowed by Nelnet under this agreement in 2003. This line of
credit was recently terminated. In January 2002, we entered into
an intercreditor agreement with Farmers &#38; Merchants and Bank
of America, N.A., pursuant to which Farmers &#38; Merchants
agreed to subordinate certain of its rights as one of our
lenders to the rights of Bank of America. This intercreditor
agreement will terminate upon discharge of all of our
indebtedness to Bank of America pursuant to its commitment which
expires in January 2005.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In May 2002, we transferred our preferred stock
holdings in Packers Service Group to Infovisa, Inc., one of our
subsidiaries at that time. In May 2002, we then sold 91.43% of
the outstanding capital stock of Infovisa, Inc. to Farmers &#38;
Merchants for a purchase price equal to that company&#146;s book
value of approximately $6&nbsp;million.
</FONT>

<P align="left">
<B><FONT size="2">Transactions with Miscellaneous Related
Parties</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In November 2000, we entered into an agreement
with Union Financial pursuant to which Union Financial furnished
consulting services to us. We paid Union Financial consulting
fees in the amount of $1.65&nbsp;million in 2002. This agreement
was terminated in 2002.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In December 2000, we entered into an agreement to
obtain consulting services on a broad range of matters from
Great Plains, which until recently owned 6.8% of our common
stock. Don&nbsp;R. Bouc, our President and one of our Directors,
owned a 75% interest in Great Plains, and Terry J. Heimes, Chief
Financial Officer and an Executive Director of Nelnet, owned a
7% interest. We paid Great Plains consulting fees of
approximately $1.75&nbsp;million during 2002 pursuant to this
agreement, a portion of which constituted payment for
Mr.&nbsp;Bouc&#146;s consulting services provided to Nelnet
during 2002. This agreement was terminated in July 2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Since January 2001, we have owned 50% of a
technology firm, 5280&nbsp;Solutions, Inc., or
5280&nbsp;Solutions, which provided us with contract programming
and related technological support starting in January 2002. In
2002, we paid 5280&nbsp;Solutions approximately
$7.0&nbsp;million for its services. Since March 2002, we have
owned 50% of FirstMark Services LLC, or FirstMark Services. In
March 2002, FirstMark Services agreed to provide subcontracting
servicing functions on our behalf with respect to private loan
services. We incurred expenses with respect to private loan
servicing provided by FirstMark Services of approximately
$4.6&nbsp;million in 2002. During 2002, Raymond J. Ciarvella and
Matthew D. Hall owned interests in both companies, and Todd M.
Eicher and Edward P. Martinez owned interests in
5280&nbsp;Solutions. They currently own no interest in these
companies.
</FONT>

<P align="center"><FONT size="2">73
</FONT>

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<P align="left">
<B><FONT size="2">Transactions with UFS Securities</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Prior to August 2003, UFS Securities, LLC, or UFS
Securities, was owned by Packers Service Group and Union
Financial. In August 2003, we acquired a 100% ownership interest
in UFS Securities for the purchase price of $2.6&nbsp;million.
Thus, although transactions with UFS Securities prior to August
2003 would have been treated previously as affiliate
transactions, such transactions are now with our wholly owned
subsidiary. We have retained UFS Securities in a series of
advisory arrangements pursuant to which UFS Securities provides
advisory services in connection with our offerings of debt
securities. We paid approximately $1.4&nbsp;million in fees to
UFS Securities in 2002 for such services.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In December 2002, UFS Securities retained Union
Bank to administer the UFS Securities 401(k) profit sharing plan
for fees which are commensurate with those charged to other
401(k) profit sharing plans. No fees were paid to Union Bank in
2002 pursuant to this agreement. This agreement may be
terminated by either party upon 60 days&#146; notice. If UFS
Securities terminates this agreement before a one year term, it
must pay liquidated damages to Union Bank.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In August 2001, UFS Securities entered into an
agreement with Farmers &#38; Merchants pursuant to which UFS
Securities, for a fee equal to the amount received by Farmers
&#38; Merchants, assists with the performance of mortgage loan
consulting services that Farmers &#38; Merchants provides for a
bank. UFS Securities received fees of approximately $237,000 in
2002 from this agreement. This agreement terminates when the
agreement between Farmers &#38; Merchants and the third-party
bank terminates.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In March 2001, UFS Securities began serving as
distributor on behalf of Union Bank for all advisor-sold
accounts with the College Savings Plan. UFS Securities is
entitled to approximately 10&nbsp;basis points of plan assets
pursuant to this agreement. This agreement may be terminated by
either party upon 30&nbsp;days&#146; notice. In November 2001,
UFS Securities began acting as distributor on behalf of Union
Bank for the TD Waterhouse accounts within the College Savings
Plan. This agreement terminates upon termination of the TD
Waterhouse distribution agreement for the College Savings Plan.
UFS Securities received payments aggregating approximately
$77,000 from these agreements in 2002.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In October 2002, UFS Securities agreed to act as
the principal underwriter for the Stratus Funds, Inc., or
Stratus Funds, a group of mutual funds associated with Union
Bank and of which Michael&nbsp;S. Dunlap serves as president.
UFS Securities received fees in an amount equal to $6.00 in 2002
pursuant to this agreement. This agreement has a one-year term
that renews automatically, with the Stratus Funds&#146; prior
approval, for successive one-year terms unless terminated by a
vote of the majority of the board of directors, including a
majority of disinterested directors, of the Stratus Funds or a
majority of its shareholders. UFS Securities may also terminate
this agreement on 60 days&#146; notice. In April 2000, UFS
Securities leased office space and office amenities from Union
Bank at the rate of $15.00 per square foot, or $1,000 per month.
This agreement terminates in April 2004, but will automatically
renew for successive one-year terms unless either party
terminates upon written notice. In March 2001, UFS Securities,
together with Union Bank, hired Adminisystems, Inc., one of our
affiliates, which we refer to as Adminisystems, and Union Bank,
to perform certain administrative services in connection with
the investment portfolios maintained by the College Savings
Plan. The fees to be paid under this agreement equal 40% of the
distribution fees that UFS Securities receives with respect to
certain accounts placed with the College Savings Plan. UFS
Securities paid Adminisystems the sum of approximately $51,000
in 2002. This agreement may be terminated by any party upon
60&nbsp;days&#146; notice.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In March 2000, Farmers &#38; Merchants furnished
a $1&nbsp;million unsecured line of credit to UFS Securities
with interest accruing at the prime rate. No monies have ever
been drawn or advanced on this line. The initial term of this
line of credit expires in March 2005.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In January 2002, we retained UFS Securities for a
one time fee of $25,000 to provide advisory services in
connection with a swap agreement to which we were a party.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In April 2002, UFS Securities retained Union
Financial to provide consulting services in connection with an
advisory agreement between UFS Securities and J.P. Morgan
Securities Inc. This agreement is coterminous
</FONT>

<P align="center"><FONT size="2">74
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<DIV align="left">
<FONT size="2">with the advisory agreement between UFS
Securities and J.P. Morgan Securities Inc. UFS Securities paid
to Union Financial the sum of approximately $1.87&nbsp;million
in 2002 pursuant to this agreement.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In June 2000, Union Bank agreed to permit UFS
Securities to gain certain access to Union Bank customers by
permitting marketing efforts in Union Bank facilities, in
consideration for 90% of UFS Securities&#146; gross commissions,
after deducting trading and closing expenses. UFS Securities
paid Union Bank approximately $245,000 in 2002 pursuant to this
agreement.
</FONT>

<P align="center"><FONT size="2">75
</FONT>

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<!-- link1 "DESCRIPTION OF CAPITAL STOCK" -->

<P align="center">
<B><FONT size="2">DESCRIPTION OF CAPITAL STOCK</FONT></B>

<P align="left">
<B><FONT size="2">General</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our amended and restated articles of
incorporation, which we refer to as our articles of
incorporation, provide that we have the authority to issue
750,000,000 shares of common stock, par value $0.01 per share.
The common stock is divided into two classes, consisting of
600,000,000 shares of Class&nbsp;A common stock and 150,000,000
shares of Class&nbsp;B common stock. Upon consummation of the
offering, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of Class&nbsp;A common stock and 14,023,454 shares of
Class&nbsp;B common stock will be issued and outstanding.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our articles of incorporation also provide that
we have authority to issue 50,000,000 shares of preferred stock,
par value $0.01 per share. Our board of directors may fix the
relative rights and preferences of each series of preferred
stock in a resolution of the board of directors.
</FONT>

<P align="left">
<B><FONT size="2">Common Stock</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Voting Rights</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Holders of Class&nbsp;A common stock are entitled
to one vote per share and holders of Class&nbsp;B common stock
are entitled to ten votes per share on all matters submitted to
a vote of shareholders. Except as otherwise required by law,
Class&nbsp;A common stock and Class&nbsp;B common stock shall
vote as a single class on all matters to be voted on by our
shareholders, including, without limitation, any consolidation
or merger of us into or with any other corporation or the sale
or transfer by us of all or substantially all of our assets.
With the approval of a majority of the shares of Class&nbsp;B
common stock, voting separately as a class, we may lower the
number of votes per share each share of Class&nbsp;B common
stock shall be entitled to have.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Dividends</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Holders of common stock are entitled to receive
ratably dividends payable in cash, in stock or otherwise if, as
and when declared by the board of directors out of assets
legally available therefor, subject to any preferential rights
of any outstanding preferred stock.
</FONT>

<DIV>&nbsp;</DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Conversion</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Each share of Class&nbsp;B common stock shall
automatically be converted into one share of Class&nbsp;A common
stock, without any action by us or further action by the holder
thereof, upon the transfer of such share, other than the
following transfers:
</FONT>
<P>

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    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

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    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">to any other holder of Class&nbsp;B common stock
    or an affiliate of a holder of Class&nbsp;B common stock which
    holder is a &#147;business organization,&#148; as defined in our
    articles of incorporation;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">to a trust for the sole benefit of a holder of
    Class&nbsp;B common stock who is a natural person;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">to a spouse, sibling, parent, grandparent or
    descendant, whether natural or adopted, of a holder of
    Class&nbsp;B common stock;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">to a trust for the sole benefit of a spouse,
    sibling, parent, grandparent or descendant, whether natural or
    adopted, of a holder of Class&nbsp;B common stock;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">by will to a spouse, sibling, parent, grandparent
    or descendant, whether natural or adopted, of a holder of
    Class&nbsp;B common stock;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">pursuant to the laws of descent and distribution
    to a spouse, sibling, parent, grandparent or descendant, whether
    natural or adopted, of a holder of Class&nbsp;B common stock;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">to any charitable foundation or other
    organization qualified under Section&nbsp;501(c)(3) of the
    Internal Revenue Code of 1986, as amended; or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">to us.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Notwithstanding the foregoing, Class&nbsp;B
common stock shall automatically convert into Class&nbsp;A
common stock upon any transfer pursuant to a divorce or
separation agreement or order.
</FONT>

<P align="center"><FONT size="2">76
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For purposes of this paragraph,
&#147;affiliate&#148; means, with respect to any business
organization, any natural person or business organization that,
directly or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with,
such business organization.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Each share of Class&nbsp;B common stock shall, at
the option of the holder thereof, be convertible into one share
of Class&nbsp;A common stock at any time.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In the event at any time the shares of
Class&nbsp;B common stock outstanding constitute less than 50%
of the Class&nbsp;B common stock outstanding on the date hereof,
each remaining share of Class&nbsp;B common stock outstanding
shall automatically be converted into one share of Class&nbsp;A
common stock.
</FONT>

<DIV>&nbsp;</DIV>

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    <TD></TD>
    <TD>
    <B><I><FONT size="2">Other Rights</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On liquidation, dissolution or winding up of
Nelnet, after payment in full of the amounts required to be paid
to the holders of any outstanding preferred stock, all holders
of common stock are entitled to receive ratably any assets
available for distribution to holders of common stock after the
payment of all of our debts and other liabilities. No shares of
common stock have preemptive rights to purchase additional
shares of common stock. All the outstanding shares of common
stock are, and the shares sold hereunder will be, fully paid and
nonassessable. The rights, preferences and privileges of holders
of common stock will be subject to and may be adversely affected
by the rights of holders of any preferred stock that may be
issued in the future. All shares of Class&nbsp;A common stock
and Class&nbsp;B common stock which are acquired by us shall be
available for reissuance by us at any time.
</FONT>

<P align="left">
<B><FONT size="2">Preferred Stock</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our board of directors is authorized, subject to
limitations prescribed by law, without further shareholder
approval, to issue from time to time up to an aggregate of
50,000,000 shares of preferred stock, in one or more series, and
to determine or alter the designations, preferences, rights and
any qualifications, limitations or restrictions of the shares of
each such series thereof, including dividend rights, dividend
rates, conversion rights, voting rights, terms of redemption
(including sinking fund provisions), redemption price or prices,
liquidation preferences and the number of shares constituting
any series or designations of such series. The exercise of this
authority eliminates delays associated with a shareholder vote
in specific instances. The ability of the board of directors to
issue preferred stock, while providing flexibility in connection
with possible acquisitions and other corporate purposes, could
have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from acquiring, a
majority of our outstanding voting stock.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The voting and other rights of the holders of
common stock will be subject to, and may be adversely affected
by, the rights of holders of any preferred stock that may be
issued in the future.
</FONT>

<P align="left">
<B><FONT size="2">Nebraska Anti-takeover Law and Certain Charter
and By-law Provisions</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Provisions of our articles of incorporation and
our amended and restated by-laws, which we refer to as our
by-laws, could discourage potential acquisition proposals and
could delay or prevent a change in control of Nelnet. These
provisions are intended to enhance the likelihood of continuity
and stability in the composition of the board of directors and
in the policies formulated by the board of directors and to
discourage types of transactions that may involve an actual or
threatened change in control of Nelnet.
</FONT>

<DIV>&nbsp;</DIV>

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</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Board of Directors</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our by-laws provide that a vacancy in the board
of directors occurring from an increase in the number of
directors or otherwise may be filled by the vote of a majority
of directors then in office, though less than a quorum. This
precludes a third party or a majority of shareholders from
removing incumbent directors and simultaneously gaining control
of the board of directors by filling, with its own nominees, the
vacancies created by removal.
</FONT>

<P align="center"><FONT size="2">77
</FONT>
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<DIV>&nbsp;</DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Special Meetings of
    Shareholders</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our articles of incorporation do not permit our
shareholders to call special meetings of shareholders, except to
the extent provided by applicable law. Nebraska law provides
that the holders of shares of common stock representing 10% or
more of the voting power of a Nebraska corporation may call a
special meeting of shareholders at any time.
</FONT>

<DIV>&nbsp;</DIV>

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<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Advance Notice Requirements for Shareholder
    Proposals and Director Nominations</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our by-laws establish an advance notice procedure
for the nomination, other than by or at the direction of the
board of directors or a committee thereof, of candidates for
election as directors as well as for other shareholder proposals
to be considered at shareholders&#146; meetings. A notice
regarding any nomination must contain, as to each nominee, all
information relating to such person that is required to be
disclosed in solicitations of proxies for the election of
directors, or that is otherwise required, in each case pursuant
to Regulation&nbsp;14A of the Securities Exchange Act of 1934,
including each such person&#146;s written consent to serving as
a director if elected. A notice regarding any business,
including nomination of directors, to be brought before an
annual meeting must contain the following:
</FONT>
<P>

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    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
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<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">a brief description of the business desired to be
    brought before the annual meeting and the reasons for conducting
    such business at the annual meeting;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the name and address of the shareholder proposing
    such business;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the class and number of shares of our stock
    beneficially owned by the shareholder; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">any material interest of the shareholder in such
    business.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Although the notice provisions do not give the
board of directors any power to approve or disapprove
shareholders&#146; nominations or proposals for action by us,
they may have the effect of precluding a contest for the
election of directors or the consideration of shareholder
proposals if the procedures established by our by-laws are not
followed and of discouraging or deterring a third party from
conducting a solicitation of proxies to elect its own slate of
directors or to approve its proposal, without regard to whether
consideration of such nominees or proposals might be harmful or
beneficial to us and our shareholders. The purpose of requiring
advance notice is to afford the board of directors an
opportunity to consider the qualifications of the proposed
nominees or the merits of other shareholder proposals and, to
the extent deemed necessary or desirable by the board of
directors, to inform shareholders about those matters.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Shareholder Rights</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our articles of incorporation authorize our board
of directors to create and issue, whether or not in connection
with the issuance and sale of any of our securities or property,
rights entitling the holders thereof to purchase our securities
or any other corporation. The times at which and the terms upon
which such rights are to be issued are to be determined by the
board of directors and set forth in the contracts or other
instruments that evidence such rights. The authority of the
board of directors with respect to such rights shall include,
without limitation, the determination of the initial purchase
price, the times and circumstances under which such rights may
be exercised, provisions denying holders of a specified
percentage of our outstanding capital stock the right to
exercise such rights and provisions to permit us to redeem or
exchange such rights. This provision in our articles of
incorporation could have the effect of discouraging third
parties from seeking, or impairing their ability to seek, to
acquire a significant portion of our outstanding securities, to
engage in any transaction which might result in a change in
control of us or to enter into any agreement, arrangement or
understanding with another party to accomplish the foregoing or
for the purpose of acquiring, holding, voting or disposing of
any of our securities.
</FONT>

<DIV>&nbsp;</DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Nebraska Shareholders Protection
    Act</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We are a Nebraska corporation and are therefore
subject to the provisions of the Nebraska Shareholders
Protection Act. The Nebraska Shareholders Protection Act,
subject to certain exemptions, prohibits a Nebraska corporation
from engaging in any of a broad range of &#147;business
combinations&#148; involving an &#147;interested&#148;
</FONT>

<P align="center"><FONT size="2">78
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<DIV align="left">
<FONT size="2">shareholder, or any affiliate or associate of
such interested shareholder, for a period of five years
following the date that such shareholder became an interested
shareholder, unless prior to such date the board of directors of
the corporation approved either the business combination or the
transaction that resulted in the shareholder becoming an
interested shareholder. A &#147;business combination&#148;
includes a merger, asset sale or other transaction resulting in
a financial benefit to the shareholder. The Nebraska
Shareholders Protection Act also provides that shares acquired
in a control-share acquisition have no voting rights with
respect to matters other than the election of directors unless
approved by a vote of shareholders of the corporation, and that
any such control share acquisition is effective only if approved
by a majority of the corporation&#146;s voting shares that are
&#147;not interested&#148; shares. A control-share
&#147;acquisition&#148; is an acquisition of voting stock in a
corporation that, when added to the shares the shareholder had
prior to the acquisition, would elevate the shareholder&#146;s
voting power into one the three following ranges:
(i)&nbsp;between 20% and 33&nbsp;1/3%, (ii)&nbsp;between
33&nbsp;1/3% and 50% and (iii)&nbsp;over 50%. For purposes of
the Nebraska Shareholders Protection Act, an &#147;interested
shareholder&#148; is a person who owns 10% or more of a
corporation&#146;s outstanding voting stock, or an affiliate or
associate of the corporation that owns, or within five years
prior did own, 10% or more of the corporation&#146;s outstanding
voting stock. These provisions may have the effect of
discouraging, delaying, deferring or preventing a change in
control of Nelnet.
</FONT>
</DIV>

<P align="left">
<B><FONT size="2">Registration Rights</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Michael S. Dunlap, Stephen F. Butterfield and
persons related to them have the right to make two written
demands of Nelnet for registration with the Securities and
Exchange Commission of all or part of their common stock.
However, we need not effect a demand registration unless it
includes securities with an aggregate offering price, net of
underwriting discounts and commissions, of at least
$5&nbsp;million. The first such demand may not be made prior to
the first anniversary of this offering, and the second such
demand may not be made within 12&nbsp;months after the first
demand. We are obligated to comply with any such demand unless
our independent directors determine that such sale would be
contrary to the best interests of Nelnet. Our independent
directors may consider several factors in making any such
determination, including share price performance after the date
of this offering, equity market conditions and our operating
results. These shareholders also have piggyback registration
rights for their common stock. The number of securities to be
included in an offering by these shareholders will be subject to
reduction by the applicable underwriter in some cases. We will
bear all expenses incident to our performance of our
registration obligations, other than some of the costs or
expenses of selling shareholders. The foregoing registration
rights are not transferable and may be amended or waived only
with the written consent of Nelnet and the applicable
shareholders.
</FONT>

<P align="left">
<B><FONT size="2">Limitation of Directors&#146;
Liability</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our articles of incorporation contain a provision
which limits the personal liability of each of our directors for
monetary damages for breaches of fiduciary duty as one of our
directors, except for liability of a director for the following:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">breach of the duty of loyalty to us or our
    shareholders;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">acts or omissions not in good faith or involving
    intentional misconduct or a knowing violation of law;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">any transaction from which the director derived
    an improper personal benefit; or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">violations under provisions of the Nebraska
    Business Corporation Act relating to unlawful payments of
    dividends or unlawful stock purchases or redemptions.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The inclusion of this provision in our articles
of incorporation may have the effect of reducing the likelihood
of derivative litigation against directors, and may discourage
or deter shareholders or management from bringing a lawsuit
against directors for breach of their duty of care, even though
such an action, if successful, might otherwise have benefited us
and our shareholders. Our by-laws also contain provisions
indemnifying our directors and officers to the fullest extent
permitted by the Nebraska Business Corporation Act. Management
believes that these provisions will assist us in attracting and
retaining qualified individuals to serve as directors.
</FONT>

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</FONT>

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<P align="left">
<B><FONT size="2">Indemnification and Insurance</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our articles of incorporation provide that we
will indemnify each person who was or is made a party or
threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he
or she or a person of whom he or she is the legal representative
is or was one of our directors or officers, to the fullest
extent allowed by the Nebraska Business Corporation Act. This
right of indemnification shall include the right to be paid by
us the expenses, including attorneys&#146; fees, incurred in
defending any such proceeding in advance of its final
disposition. However, if Nebraska law so requires, the
advancement of such expenses will only be made upon the delivery
to us of an undertaking by or on behalf of such person to repay
all amounts so advanced if it shall ultimately be determined by
final judicial decision, from which there is no further right to
appeal, that such person is not entitled to be indemnified for
such expenses by us.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, our articles of incorporation
provide that we may maintain insurance to protect ourselves and
any of our directors, officers, employees or agents against any
expense, liability or loss, whether or not we would have the
power to indemnify a person against any expense, liability or
loss under Nebraska law. Our articles of incorporation further
provide that we may, to the extent permitted by the board of
directors, grant rights to indemnification, and rights to
advancement of expenses, to any of our employees or agents. We
have obtained insurance for the benefit of our officers and
directors insuring such persons against liabilities, including
liabilities under the securities laws.
</FONT>

<P align="left">
<B><FONT size="2">Share Retention Policy</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Under our Share Retention Policy, none of our
officers or the officers of any of our direct or indirect
subsidiaries at or above the level of Executive Director,
defined for purposes of the policy as Executives, may sell or
otherwise dispose of a number of shares of common stock in any
calendar year in excess of one-third of the number of shares of
common stock beneficially owned by the Executive on the first
day of the calendar year. The policy applies to Executives
during and following their employment by us, provided that
following five years from the closing date of this offering, an
Executive will be free to sell or otherwise dispose of all of
his or her shares.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Exceptions that apply to the Share Retention
Policy are as follows:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Transfers to family members and family-owned
    partnerships or other family-owned entities will not be
    prohibited, so long as such transfers are effected only for
    estate planning purposes and the transferee agrees to comply
    with the Share Retention Policy (treating the transferee(s) as
    the transferring Executive).
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">It shall not be prohibited for any Executive to
    sell or otherwise dispose of up to $500,000 in value of shares
    of common stock during any calendar year.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">All restrictions under the Share Retention Policy
    shall cease in the event of the death or retirement at normal
    retirement age of an Executive.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">Transfer Agent and Registrar</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The transfer agent and registrar for our common
stock will
be &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.
</FONT>

<P align="left">
<B><FONT size="2">Listing</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We intend to apply to have our Class&nbsp;A
common stock listed on the New York Stock Exchange under the
symbol &#147;NNI.&#148;
</FONT>

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</FONT>

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<P align="left">
<B><FONT size="2">Recapitalization</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Effective August&nbsp;14, 2003, we recapitalized
our outstanding capital stock. In connection therewith, our
outstanding 2,859.99&nbsp;shares of Class&nbsp;A voting common
stock, par value $0.10 per share, and our outstanding
211,609&nbsp;shares of Class&nbsp;B non-voting common stock, par
value $0.10 per share, were converted into an aggregate of
31,015,034&nbsp;shares of Class&nbsp;A common stock, par value
$0.01 per share, and 14,023,454&nbsp;shares of Class&nbsp;B
common stock, par value $0.01 per share. We also changed our
name from Nelnet Loan Services, Inc. to Nelnet, Inc. effective
August&nbsp;14, 2003.
</FONT>

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<P align="center">
<B><FONT size="2">SHARES ELIGIBLE FOR FUTURE SALE</FONT></B>

<P align="left">
<B><FONT size="2">Sales of Restricted Shares</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Upon the completion of this offering, we will
have &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our Class&nbsp;A common stock outstanding. Of these shares,
the &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our Class&nbsp;A common stock sold in this offering will be
freely tradeable by persons other than our affiliates, as that
term is defined in Rule&nbsp;144 under the Securities Act of
1933, without restriction or further registration under the
Securities Act of 1933.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">All of the
remaining &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our Class&nbsp;A common stock outstanding upon completion of
this offering, and the 14,023,454 shares of Class&nbsp;A common
stock issuable upon the conversion of our Class&nbsp;B common
stock outstanding upon completion of this offering, are deemed
&#147;restricted&#148; securities under Rule&nbsp;144 under the
Securities Act of 1933. None of these restricted securities will
be eligible for sale in the public market on the date of this
prospectus. Upon expiration of the lock-up agreements described
below, 180&nbsp;days after the date of this prospectus, up to an
additional &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our Class&nbsp;A common stock,
including &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of Class&nbsp;A common stock issuable upon the conversion of our
outstanding Class&nbsp;B common stock, will be eligible for sale
in the public market pursuant to Rule&nbsp;144.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In general, under Rule&nbsp;144, a shareholder
who has beneficially owned his or her restricted shares for at
least one year is entitled to sell, within any three-month
period, a number of shares of our Class&nbsp;A common stock that
does not exceed the greater of:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">one percent of the then-outstanding shares of our
    Class&nbsp;A common stock, which is
    approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of our Class A common stock immediately after the completion of
    this offering; or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the average weekly trading volume in our
    Class&nbsp;A common stock on the New York Stock Exchange during
    the four calendar weeks preceding the date on which notice of
    such sale is filed, provided certain requirements concerning
    availability of public information, manner of sale and notice of
    sale are satisfied.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, our affiliates must comply with the
restrictions and requirements of Rule&nbsp;144, other than the
one-year holding period requirement, in order to publicly sell
shares of our Class&nbsp;A common stock which are not restricted
securities. A shareholder who is not one of our affiliates and
has not been our affiliate for at least three months prior to
the sale and who has beneficially owned restricted shares of our
Class&nbsp;A common stock for at least two years may resell the
shares without limitation. In meeting the one- and two-year
holding periods described above, a holder of restricted shares
of our Class&nbsp;A common stock can include the holding period
of a prior owner who was not our affiliate. The one- and
two-year holding periods described above do not begin to run
until the full purchase price or other consideration is paid by
the person acquiring the restricted shares of our Class&nbsp;A
common stock from us or one of our affiliates.
</FONT>

<P align="left">
<B><FONT size="2">Registration Rights</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Michael S. Dunlap, Stephen F. Butterfield and
persons related to them have the right, subject to limitations,
to make two written demands of Nelnet for registration with the
Securities and Exchange Commission of all or part of their
common stock. These shareholders also have piggyback
registration rights for their common stock. See
&#147;Description of Capital Stock&nbsp;&#151; Registration
Rights.&#148;
</FONT>

<P align="left">
<B><FONT size="2">Lock-up Agreements</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We and our executive officers and directors and
all of our shareholders have agreed that, with some exceptions,
during the period beginning from the date of this prospectus and
continuing to and including the date 180&nbsp;days after the
date of this prospectus, none of us will, directly or
indirectly, sell, offer to sell, contract to sell or grant any
option to sell (including without limitation any short sale),
pledge, transfer, establish an open &#147;put equivalent
position&#148; within the meaning of Rule&nbsp;16a-1(h) under
the Securities Exchange Act of 1934, as amended, or otherwise
dispose of any shares of our common stock, options or warrants
to acquire shares of our common stock currently or hereafter
owned either of record or
</FONT>

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</FONT>

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<FONT size="2">beneficially by us, or publicly announce an
intention to do any of the foregoing, without the prior written
consent of J.P.&nbsp;Morgan Securities Inc. and Banc of America
Securities LLC. In addition, we and our executive officers and
directors and these shareholders have agreed that, without the
prior written consent of J.P.&nbsp;Morgan Securities Inc. and
Banc of America Securities LLC, none of us will, from the date
of this prospectus and through the period ending 180&nbsp;days
after the date of this prospectus, make any demand for, or
exercise any right with respect to, the registration of any
shares of our common stock.
</FONT>
</DIV>

<P align="left">
<B><FONT size="2">Share Retention Policy</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our Share Retention Policy prohibits our
Executives from selling or otherwise disposing of a number of
shares of Class&nbsp;A common stock in any calendar year in
excess of one-third of the number of shares of common stock
beneficially owned by the Executive officers on the first day of
the calendar year, subject to limited exceptions. This policy
applies to Executive officers during and, unless their
employment is terminated due to death or retirement at normal
retirement age, following termination of their employment by
Nelnet and expires five years from the closing date of this
offering. We retain the ability in our discretion to waive
compliance with the Share Retention Policy. See
&#147;Description of Capital Stock&nbsp;&#151; Share Retention
Policy.&#148;
</FONT>

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<P align="center">
<B><FONT size="2">UNITED STATES TAX CONSEQUENCES TO</FONT></B>

<DIV align="center">
<B><FONT size="2">NON-U.S. HOLDERS OF CLASS A COMMON
STOCK</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following is a general discussion of certain
material U.S.&nbsp;federal income and estate tax consequences of
the ownership and disposition of our Class&nbsp;A common stock
by a beneficial owner thereof that is a
&#147;Non-U.S.&nbsp;Holder.&#148; A
&#147;Non-U.S.&nbsp;Holder&#148; is a person or entity that, for
U.S.&nbsp;federal income tax purposes, is a non-resident alien
individual, a foreign corporation or a foreign estate or trust.
The test for whether an individual is a resident of the U.S. for
federal estate tax purposes differs from the test used for
federal income tax purposes. Some individuals, therefore, may be
&#147;Non-U.S.&nbsp;Holders&#148; for purposes of the federal
income tax discussion below, but not for purposes of the federal
estate tax discussion, and vice versa.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">This discussion is based on the U.S. Internal
Revenue Code of 1986, as amended, judicial decisions and
administrative regulations and interpretations in effect as of
the date of this prospectus, all of which are subject to change,
including changes with retroactive effect. This discussion does
not address all aspects of U.S.&nbsp;federal income and estate
taxation that may be relevant to Non-U.S. Holders in light of
their particular circumstances (including, without limitation,
Non-U.S.&nbsp;Holders who are pass-through entities or who hold
their Class&nbsp;A common stock through pass-through entities)
and does not address any tax consequences arising under the laws
of any state, local or non-U.S.&nbsp;jurisdiction. Prospective
holders should consult their tax advisors with respect to the
federal income and estate tax consequences of holding and
disposing of our Class&nbsp;A common stock in light of their
particular situations and any consequences to them arising under
the laws of any state, local or non-U.S.&nbsp;jurisdiction.
</FONT>

<P align="left">
<B><FONT size="2">Dividends</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Subject to the discussion below, dividends, if
any, paid to a Non-U.S.&nbsp;Holder of our Class&nbsp;A common
stock out of our current or accumulated earnings and profits
generally will be subject to withholding tax at a 30% rate or
such lower rate as may be specified by an applicable income tax
treaty. To obtain a reduced rate of withholding under a treaty,
a Non-U.S.&nbsp;Holder generally will be required to provide us
with a properly executed IRS Form&nbsp;W-8BEN certifying the
Non-U.S.&nbsp;Holder&#146;s entitlement to benefits under that
treaty. U.S.&nbsp;Treasury Regulations provide special rules to
determine whether, for purposes of determining the applicability
of a tax treaty, dividends paid to a Non-U.S.&nbsp;Holder that
is an entity should be treated as paid to the entity or to those
holding an interest in that entity.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">There will be no withholding tax on dividends
paid to a Non-U.S. Holder that are effectively connected with
the Non-U.S. Holder&#146;s conduct of a trade or business within
the United States if a properly-executed IRS Form&nbsp;W-8ECI,
stating that the dividends are so connected, is filed with us.
Instead, the effectively connected dividends will be subject to
regular U.S.&nbsp;income tax, generally in the same manner as if
the Non-U.S.&nbsp;Holder were a U.S.&nbsp;citizen or resident
alien or a domestic corporation, as the case may be, unless a
specific treaty exemption applies. A corporate
Non-U.S.&nbsp;Holder receiving effectively connected dividends
may also be subject to an additional &#147;branch profits
tax,&#148; which is imposed, under certain circumstances, at a
rate of 30% (or such lower rate as may be specified by an
applicable treaty) of the corporate Non-U.S.&nbsp;Holder&#146;s
effectively connected earnings and profits, subject to certain
adjustments.
</FONT>

<P align="left">
<B><FONT size="2">Gain on Disposition of Class&nbsp;A Common
Stock</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A Non-U.S. Holder generally will not be subject
to U.S.&nbsp;federal income tax with respect to gain realized on
a sale or other disposition of our Class&nbsp;A common stock
unless (i)&nbsp;the gain is effectively connected with a trade
or business of such holder in the United States and a specific
treaty exemption does not apply to eliminate the tax,
(ii)&nbsp;if a tax treaty would otherwise apply to eliminate the
tax, the gain is attributable to a permanent establishment of
the Non-U.S.&nbsp;Holder in the United States, (iii)&nbsp;in the
case of Non-U.S. Holders who are nonresident alien individuals
and hold our Class&nbsp;A common stock as a capital asset, such
individuals are present in the United States for 183 or more
days in the taxable year of the disposition and certain other
conditions are met, (iv)&nbsp;the Non-U.S. Holder is subject to
tax pursuant
</FONT>

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<DIV align="left">
<FONT size="2">to the provisions of the Code regarding the
taxation of U.S.&nbsp;expatriates, or (v)&nbsp;we are or have
been a &#147;United States real property holding
corporation&#148; within the meaning of Code
Section&nbsp;897(c)(2) at any time within the shorter of the
five-year period preceding such disposition or such
holder&#146;s holding period. We believe that we are not, and do
not anticipate becoming, a United States real property holding
corporation. Even if we are treated as a United States real
property holding corporation, gain realized by a
Non-U.S.&nbsp;Holder on a disposition of our Class&nbsp;A common
stock will not be subject to U.S.&nbsp;federal income tax so
long as (i)&nbsp;the Non-U.S.&nbsp;Holder is considered to have
beneficially owned no more than five percent of our Class&nbsp;A
common stock at all times within the shorter of (a)&nbsp;the
five year period preceding the disposition or (b)&nbsp;the
holder&#146;s holding period and (ii)&nbsp;our Class A common
stock is regularly traded on an established securities market.
There can be no assurance that our Class&nbsp;A common stock
will continue to qualify as regularly traded on an established
securities market.
</FONT>
</DIV>

<P align="left">
<B><FONT size="2">Information Reporting Requirements and Backup
Withholding</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Generally, we must report to the U.S. Internal
Revenue Service, or the IRS, the amount of dividends paid, the
name and address of the recipient and the amount, if any, of tax
withheld. A similar report is sent to the holder. Pursuant to
tax treaties or certain other agreements, the IRS may make its
reports available to tax authorities in the recipient&#146;s
country of residence.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Backup withholding will generally not apply to
payments of dividends made by us or our paying agents to a
Non-U.S. Holder if the holder has provided its federal taxpayer
identification number, if any, or the required certification
that it is not a U.S.&nbsp;person (which is generally provided
by furnishing a properly executed IRS Form&nbsp;W-8BEN), unless
the payer otherwise has knowledge that the payee is a
U.S.&nbsp;person.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Under current U.S.&nbsp;federal income tax law,
information reporting and backup withholding imposed at a rate
of 28.0% will apply to the proceeds of a disposition of our
Class&nbsp;A common stock effected by or through a
U.S.&nbsp;office of a broker unless the disposing holder
certifies as to its non-U.S.&nbsp;status or otherwise
establishes an exemption. Generally, U.S.&nbsp;information
reporting and backup withholding will not apply to a payment of
disposition proceeds where the transaction is effected outside
the United States through a non-U.S.&nbsp;office of a
non-U.S.&nbsp;broker. However, U.S. information reporting
requirements (but not backup withholding) will apply to a
payment of disposition proceeds where the transaction is
effected outside the United States by or through an office
outside the United States of a broker that fails to maintain
documentary evidence that the holder is a Non-U.S.&nbsp;Holder
and that certain conditions are met, or that the holder
otherwise is entitled to an exemption, and the broker is
(i)&nbsp;a U.S. person, (ii)&nbsp;a foreign person which derived
50% or more of its gross income for certain periods from the
conduct of a trade or business in the United States,
(iii)&nbsp;a &#147;controlled foreign corporation&#148; for
U.S.&nbsp;federal income tax purposes, or (iv)&nbsp;a foreign
partnership (a)&nbsp;at least 50% of the capital or profits
interest in which is owned by U.S. persons or (b)&nbsp;that is
engaged in a U.S.&nbsp;trade or business. Backup withholding
will apply to a payment of disposition proceeds if the broker
has actual knowledge that the holder is a U.S.&nbsp;person.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Backup withholding is not an additional tax.
Rather, the tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If
withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to
the IRS.
</FONT>

<P align="left">
<B><FONT size="2">Federal Estate Tax</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">An individual Non-U.S.&nbsp;Holder who is treated
as the owner of, or has made certain lifetime transfers of, an
interest in our Class&nbsp;A common stock will be required to
include the value thereof in his gross estate for
U.S.&nbsp;federal estate tax purposes, and may be subject to
U.S.&nbsp;federal estate tax unless an applicable estate tax
treaty provides otherwise.
</FONT>

<P align="center"><FONT size="2">85
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<!-- link1 "UNDERWRITING" -->

<P align="center">
<B><FONT size="2">UNDERWRITING</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">J.P. Morgan Securities Inc. and Banc of America
Securities LLC are acting as joint book-running managers for
this offering.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We and the underwriters named below have entered
into an underwriting agreement covering the Class&nbsp;A common
stock to be sold in this offering. J.P.&nbsp;Morgan Securities
Inc., Banc of America Securities LLC, Credit Suisse First Boston
LLC and Morgan Stanley &#38; Co. Incorporated are acting as
representatives of the underwriters. Each underwriter has agreed
to purchase the number of shares of Class&nbsp;A common stock
set forth opposite its name in the following table.
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="73%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="center" nowrap><B><FONT size="1">Name</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number of shares</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">J.P. Morgan Securities Inc.&nbsp;</FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Banc of America Securities LLC
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Credit Suisse First Boston LLC
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Morgan Stanley &#38; Co. Incorporated
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The underwriting agreement provides that if the
underwriters take any of the shares presented in the table
above, then they must take all of these shares. No underwriter
is obligated to take any shares allocated to a defaulting
underwriter except under limited circumstances. The underwriting
agreement provides that the obligations of the underwriters are
subject to certain conditions precedent, including the absence
of any material adverse change in our business and the receipt
of certain certificates, opinions and letters from us, our
counsel and our independent auditors.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The underwriters are offering the shares of
Class&nbsp;A common stock, subject to the prior sale of shares,
and when, as and if such shares are delivered to and accepted by
them. The underwriters will initially offer to sell shares to
the public at the initial public offering price shown on the
front cover page of this prospectus. The underwriters may sell
shares to securities dealers at a discount of up to
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share from the initial public offering price. Any such
securities dealers may resell shares to certain other brokers or
dealers at a discount of up to
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share from the initial public offering price. After the initial
public offering, the underwriters may vary the public offering
price and other selling terms.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If the underwriters sell more shares than the
total number shown in the table above, the underwriters have the
option to buy up to an
additional &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of Class&nbsp;A common stock from us to cover such sales. They
may exercise this option during the 30-day period from the date
of this prospectus. If any shares are purchased with this
option, the underwriters will purchase shares in approximately
the same proportion as shown in the table above. If any
additional shares of Class&nbsp;A common stock are purchased,
the underwriters will offer the additional shares on the same
terms as those on which the shares are being offered.
</FONT>

<P align="center"><FONT size="2">86
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table shows the per share and total
underwriting discounts that we will pay to the underwriters.
These amounts are shown assuming both no exercise and full
exercise of the underwriters&#146; option to purchase additional
shares.
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="65%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Without</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">With</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">overallotment</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">overallotment</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">exercise</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">exercise</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Per share
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The representatives have advised us that, on
behalf of the underwriters, they may make short sales of our
Class&nbsp;A common stock in connection with this offering,
resulting in the sale by the underwriters of a greater number of
shares than they are required to purchase pursuant to the
underwriting agreement. The short position resulting from those
short sales will be deemed a &#147;covered&#148; short position
to the extent that it does not exceed
the &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
subject to the underwriters&#146; overallotment option and will
be deemed a &#147;naked&#148; short position to the extent that
it exceeds that number. A naked short position is more likely to
be created if the underwriters are concerned that there may be
downward pressure on the trading price of the Class&nbsp;A
common stock in the open market that could adversely affect
investors who purchase shares in this offering. The underwriters
may reduce or close out their covered short position either by
exercising the overallotment option or by purchasing shares in
the open market. In determining which of these alternatives to
pursue, the underwriters will consider the price at which shares
are available for purchase in the open market as compared to the
price at which they may purchase shares through the
overallotment option. Any &#147;naked&#148; short position will
be closed out by purchasing shares in the open market. Similar
to the other stabilizing transactions described below, open
market purchases made by the underwriters to cover all or a
portion of their short position may have the effect of
preventing or retarding a decline in the market price of our
Class&nbsp;A common stock following this offering. As a result,
our Class&nbsp;A common stock may trade at a price that is
higher than the price that otherwise might prevail in the open
market.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The representatives have advised us that,
pursuant to Regulation&nbsp;M under the Securities Act of 1933,
they may engage in transactions, including stabilizing bids or
the imposition of penalty bids, that may have the effect of
stabilizing or maintaining the market price of the shares of
Class&nbsp;A common stock at a level above that which might
otherwise prevail in the open market. A &#147;stabilizing
bid&#148; is a bid for or the purchase of shares of Class&nbsp;A
common stock on behalf of the underwriters for the purpose of
fixing or maintaining the price of the Class&nbsp;A common
stock. A &#147;penalty bid&#148; is an arrangement permitting
the representatives to claim the selling concession otherwise
accruing to an underwriter or syndicate member in connection
with the offering if the Class&nbsp;A common stock originally
sold by that underwriter or syndicate member is purchased by the
representatives in the open market pursuant to a stabilizing bid
or to cover all or part of a syndicate short position. The
representatives have advised us that stabilizing bids and open
market purchases may be effected on the New York Stock Exchange,
in the over-the-counter market or otherwise and, if commenced,
may be discontinued at any time.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">One or more of the underwriters may facilitate
the marketing of this offering online directly or through one of
its affiliates. In those cases, prospective investors may view
offering terms and a prospectus online and, depending upon the
particular underwriter, place orders online or through their
financial advisor.
</FONT>

<P align="center"><FONT size="2">87
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table details the estimated
offering expenses payable by us:
</FONT>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="83%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Securities and Exchange Commission registration
    fee
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">National Association of Securities Dealers, Inc.
    filing fee
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">New York Stock Exchange listing fee
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Printing and engraving expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Legal fees and expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounting fees and expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Transfer agent fees and expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Miscellaneous
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have agreed to indemnify the underwriters
against certain liabilities, including liabilities under the
Securities Act of 1933.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We and our executive officers and directors and
all of our shareholders have agreed that, during the period
beginning from the date of this prospectus and continuing to and
including the date 180&nbsp;days after the date of this
prospectus, none of us will, directly or indirectly, offer,
sell, offer to sell, contract to sell or otherwise dispose of
any shares of our common stock except in limited circumstances,
without the prior written consent of J.P.&nbsp;Morgan Securities
Inc. and Banc of America Securities LLC.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The underwriters have informed us that they do
not intend sales to discretionary accounts to exceed five
percent of the total number of shares of our Class&nbsp;A common
stock offered by them and that no sales to discretionary
accounts may be made without prior written approval of the
customer.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At our request, the underwriters have reserved
shares of Class&nbsp;A common stock for sale to our directors,
officers and employees, and other persons with whom we have a
business relationship, who have expressed an interest in
participating in this offering. We expect these persons to
purchase no more than five percent of the Class&nbsp;A common
stock offered in this offering. The number of shares available
for sale to the general public will be reduced to the extent
such persons purchase such reserved shares.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We intend to apply to list the Class&nbsp;A
common stock on the New York Stock Exchange under the symbol
&#147;NNI.&#148; The underwriters intend to sell shares of our
Class&nbsp;A common stock to a minimum of 2,000 beneficial
owners in lots of 100 or more so as to meet the distribution
requirements of this listing.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">There has been no public market for the
Class&nbsp;A common stock prior to this offering. We and the
underwriters will negotiate the initial public offering price.
In determining the initial public offering price, we and the
underwriters expect to consider a number of factors in addition
to prevailing market conditions, including:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the history of and prospects for our industry and
    for student loan companies generally;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">an assessment of our management;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">our present operations;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">our historical results of operations;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the trend of our revenues and earnings; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">our earnings prospects.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We and the underwriters will consider these and
other relevant factors in relation to the price of similar
securities of generally comparable companies. Neither we nor the
underwriters can assure investors that an active trading market
will develop for the Class&nbsp;A common stock, or that the
Class&nbsp;A common stock will trade in the public market at or
above the initial public offering price.
</FONT>

<P align="center"><FONT size="2">88
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">From time to time in the ordinary course of their
respective businesses, certain of the underwriters and their
affiliates have engaged in and may in the future engage in
commercial banking and/or investment banking transactions with
us and our affiliates. For example, J.P. Morgan Securities Inc.,
Banc of America Securities LLC, Morgan Stanley &#38; Co.
Incorporated and Credit Suisse First Boston LLC have
underwritten various of our asset-backed securities. J.P. Morgan
Securities Inc. is acting as co-broker-dealer for various of our
auction rate notes. Bank of America, N.A., an affiliate of Banc
of America Securities LLC, provides financing to one of our
subsidiaries under a letter of credit and is the lender under
the revolving credit facility described in the following
paragraph. In addition, affiliates of J.P. Morgan Securities
Inc. and Morgan Stanley &#38; Co. Incorporated are acting as
agents in connection with some of our existing financing
arrangements. We have also entered into arrangements in the
ordinary course of business with affiliates of Banc of America
Securities LLC to purchase student loans from them and to
service certain of their loans.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Because Bank of America N.A, an affiliate of Banc
of America Securities LLC, is the lender of revolving credit
indebtedness to be repaid by us using net proceeds from this
offering and will receive more than 10% of the net proceeds from
this offering, Banc of America Securities LLC may be deemed to
have a &#147;conflict of interest&#148; under
Rule&nbsp;2710(c)(8) of the Conduct Rules of the National
Association of Securities Dealers. Accordingly, this offering
will be made in compliance with the applicable provisions of
Rule&nbsp;2720 of the Conduct Rules. In accordance with this
rule, the initial public offering price is no higher than that
recommended by a &#147;qualified independent underwriter&#148;
meeting certain standards. In accordance with this requirement,
J.P. Morgan Securities Inc. has assumed the responsibilities of
acting as a qualified independent underwriter and has
recommended a price in compliance with the requirements of
Rule&nbsp;2720. J.P. Morgan Securities Inc., in its role as
qualified independent underwriter, has performed due diligence
investigations and reviewed and participated in the preparation
of this prospectus and the registration statement of which this
prospectus is a part. We have also agreed to indemnify J.P.
Morgan Securities Inc. for acting as a qualified independent
underwriter against specified liabilities under the Securities
Act.
</FONT>

<!-- link1 "LEGAL MATTERS" -->

<P align="center">
<B><FONT size="2">LEGAL MATTERS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The validity of the Class&nbsp;A common stock
offered hereby will be passed upon for Nelnet by Perry, Guthery,
Haase &#38; Gessford, P.C., L.L.O., Lincoln, Nebraska. Legal
matters in connection with this offering will be passed upon for
Nelnet by Cahill Gordon &#38; Reindel LLP, New York, New York,
and for the underwriters by Davis Polk &#38; Wardwell, New York,
New York. Shareholders of, and an Of Counsel to, Perry, Guthery,
Haase &#38; Gessford, P.C., L.L.O. own an aggregate of
258,802&nbsp;shares of Class&nbsp;A common stock of Nelnet.
</FONT>

<!-- link1 "EXPERTS" -->

<P align="center">
<B><FONT size="2">EXPERTS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The consolidated financial statements of Nelnet,
Inc. as of December&nbsp;31, 2002 and 2001, and for each of the
years in the three-year period ended December&nbsp;31, 2002,
have been included herein in reliance upon the report of KPMG
LLP, independent accountants, appearing elsewhere herein, and
upon the authority of said firm as experts in accounting and
auditing.
</FONT>

<!-- link1 "WHERE YOU CAN FIND MORE INFORMATION" -->

<P align="center">
<B><FONT size="2">WHERE YOU CAN FIND MORE INFORMATION</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have filed with the Securities and Exchange
Commission a registration statement on Form&nbsp;S-1, including
exhibits, under the Securities Act of 1933 with respect to the
shares of our Class&nbsp;A common stock to be sold in the
offering. This prospectus does not contain all of the
information set forth in the registration statement. For further
information with respect to us and the shares to be sold in the
offering, reference is made to the registration statement and
the exhibits attached to the registration statement. Statements
contained in this prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily
complete. As a result of this offering, we will become subject
to the information and reporting requirements of the Securities
Exchange Act of 1934 and will file annual,
</FONT>

<P align="center"><FONT size="2">89
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">quarterly and current reports, proxy statements
and other information with the Securities and Exchange
Commission.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">You may read and copy all or any portion of the
registration statement or any reports, statements or other
information that we file at the Securities and Exchange
Commission&#146;s Public Reference Room at 450&nbsp;Fifth
Street, N.W., Washington, D.C. 20549. You can request copies of
these documents, upon payment of a duplicating fee, by writing
to the Securities and Exchange Commission. Please call the
Securities and Exchange Commission at 1-800-SEC-0330 for further
information on the operation of the Public Reference Room. Our
Securities and Exchange Commission filings, including the
registration statement, are also available to you on the
Securities and Exchange Commission&#146;s web site
http://<I>www.sec.gov</I>.
</FONT>

<P align="center"><FONT size="2">90
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<!-- link1 "INDEX TO FINANCIAL STATEMENTS" -->

<P align="center">
<B><FONT size="2">INDEX TO FINANCIAL STATEMENTS</FONT></B>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="90%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Page</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Nelnet, Inc. and Subsidiaries</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Independent Auditors&#146; Report
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Consolidated Balance Sheets as of June&nbsp;30,
    2003 (unaudited)&nbsp;and December&nbsp;31, 2002 and 2001
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Consolidated Statements of Income for the six
    months ended June&nbsp;30, 2003 and 2002 (unaudited) and the
    years ended December&nbsp;31, 2002, 2001 and 2000
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Consolidated Statements of Shareholders&#146;
    Equity for the six months ended June&nbsp;30, 2003
    (unaudited)&nbsp;and the years ended December&nbsp;31, 2002,
    2001 and 2000
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Consolidated Statements of Cash Flows for the six
    months ended June&nbsp;30, 2003 and 2002 (unaudited) and the
    years ended December&nbsp;31, 2002, 2001 and 2000
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Notes to Consolidated Financial Statements
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">F-1
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="center">
<B><FONT size="2">Independent Auditors&#146; Report</FONT></B>

<P align="left">
<FONT size="2">The Board of Directors
</FONT>

<DIV align="left">
<FONT size="2">Nelnet, Inc.:
</FONT>
</DIV>

<P align="left">
<FONT size="2">We have audited the accompanying consolidated
balance sheets of Nelnet, Inc. (formerly Nelnet Loan Services,
Inc.) and subsidiaries as of December&nbsp;31, 2002 and 2001,
and the related consolidated statements of income,
shareholders&#146; equity, and cash flows for each of the years
in the three-year period ended December&nbsp;31, 2002. These
consolidated financial statements are the responsibility of
Nelnet, Inc. and subsidiaries&#146; management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
</FONT>

<P align="left">
<FONT size="2">We conducted our audits in accordance with
auditing standards generally accepted in the United States of
America. These standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
</FONT>

<P align="left">
<FONT size="2">In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of Nelnet, Inc. and
subsidiaries as of December&nbsp;31, 2002 and 2001, and the
results of their operations and their cash flows for each of the
years in the three-year period ended December&nbsp;31, 2002, in
conformity with accounting principles generally accepted in the
United States of America.
</FONT>

<P align="left">
<FONT size="2">KPMG LLP
</FONT>

<P align="left">
<FONT size="2">Lincoln, Nebraska
</FONT>

<DIV align="left">
<FONT size="2">March&nbsp;21, 2003, except as to note&nbsp;19
</FONT>
</DIV>

<DIV align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;which is as of
August&nbsp;14, 2003
</FONT>
</DIV>

<P align="center"><FONT size="2">F-2
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">Nelnet, Inc. and Subsidiaries</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">Consolidated Balance Sheets</FONT></B>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="49%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">December 31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;30,</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(unaudited)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">(in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Assets</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Student loans receivable (net of allowance for
    losses of $13,750, $12,000 and $10,242, respectively)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,466,523</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,559,420</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,423,872</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and cash equivalents
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47,776</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,155</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">36,440</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restricted cash&nbsp;&#151; held by trustee
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">448,386</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">570,703</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">213,658</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restricted investments&nbsp;&#151; held by trustee
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">131,159</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">173,339</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">121,606</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restricted cash&nbsp;&#151; due to loan program
    customers
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32,553</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">132,375</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">65,792</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accrued interest receivable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">191,481</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">177,015</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">180,634</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts receivable, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,765</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,838</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,365</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Intangible assets, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,252</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19,905</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,652</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Furniture, equipment and leasehold improvements,
    net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,564</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,910</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,323</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">51,655</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">65,923</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">53,218</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,413,114</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,766,583</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,134,560</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Liabilities and Shareholders&#146;
    Equity</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Liabilities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Bonds and notes payable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,179,726</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,447,682</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,926,362</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accrued interest payable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,927</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,251</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,145</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">52,719</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">57,529</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">56,569</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Due to loan program customers
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32,553</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">132,375</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">65,792</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,285,925</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,657,837</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,069,868</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Minority interest
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(376</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,506</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Commitments and contingencies
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Shareholders&#146; equity:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Preferred stock, $0.01 per value. Authorized
    50,000,000&nbsp;shares; no shares issued or outstanding
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Common stock:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Class&nbsp;A, $0.01 par value. Authorized
    600,000,000&nbsp;shares; issued and outstanding
    31,015,034&nbsp;shares in 2003 and 30,947,834&nbsp;shares in
    2002 and 2001
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">310</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">309</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">309</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Class&nbsp;B, $0.01 par value. Authorized
    150,000,000&nbsp;shares; issued and outstanding
    14,023,454&nbsp;shares
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">140</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">140</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">140</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Additional paid-in capital
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">48,832</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">39,417</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32,625</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Retained earnings
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">77,907</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">69,256</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,112</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total shareholders&#146; equity
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">127,189</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">109,122</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">63,186</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total liabilities and shareholders&#146; equity
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,413,114</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,766,583</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,134,560</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<FONT size="2">See accompanying notes to consolidated financial
statements.
</FONT>

<P align="center"><FONT size="2">F-3
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="center">
<B><FONT size="2">Nelnet, Inc. and Subsidiaries</FONT></B>

<P align="center">
<B><FONT size="2">Consolidated Statements of Income</FONT></B>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="40%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">June 30,</FONT></B></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">December 31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2000</FONT></B></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(unaudited)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">(in thousands, except per share data)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest income:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Loan interest
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">183,942</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">221,220</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">405,149</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">318,453</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">281,028</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Investment interest
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,268</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,884</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,759</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,794</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,933</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total interest income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">193,210</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">230,104</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">425,908</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">335,247</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">298,961</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest expense:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest on bonds and notes payable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">101,287</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">113,969</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">235,008</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">220,682</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">234,108</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net interest income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">91,923</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">116,135</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">190,900</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">114,565</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">64,853</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Less provision for loan losses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,860</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,116</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,587</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,925</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,370</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net interest income after provision for loan
    losses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">87,063</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">114,019</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">185,313</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">110,640</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">63,483</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other income:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Loan servicing and other fee income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">48,307</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">54,812</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">103,899</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">93,172</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">66,015</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Software services and other income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,454</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,392</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,909</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,713</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,431</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total other income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">57,761</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">64,204</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">125,808</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100,885</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">74,446</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating expenses:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Salaries and benefits
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">56,986</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">59,327</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">106,874</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">77,370</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">51,765</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">57,524</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">56,536</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">122,999</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">114,108</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">74,720</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total operating expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">114,510</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">115,863</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">229,873</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">191,478</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">126,485</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income before income taxes and minority interest
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,314</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">62,360</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">81,248</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,047</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,444</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income tax expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,519</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,621</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33,086</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,302</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,924</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income before minority interest
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,795</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37,739</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">48,162</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,745</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,520</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Minority interest in subsidiary (income)&nbsp;loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">109</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">49</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">376</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(598</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,904</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37,788</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">48,538</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,147</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,520</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Earnings per share, basic and diluted
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.40</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.84</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.08</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.16</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.11</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<FONT size="2">See accompanying notes to consolidated financial
statements.
</FONT>

<P align="center"><FONT size="2">F-4
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<FONT size="2"> <B>Nelnet, Inc. and Subsidiaries</B>
</FONT>
</DIV>

<P align="center">
<B><FONT size="2">Consolidated Statements of Shareholders&#146;
Equity</FONT></B>

<DIV align="center">
<B><FONT size="2">Six months ended June&nbsp;30, 2003
(unaudited)&nbsp;and years ended December&nbsp;31, 2002, 2001
and 2000</FONT></B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="34%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Class&nbsp;A</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Class&nbsp;B</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Additional</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Preferred</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">common</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">common</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">paid-in</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Retained</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">shareholders&#146;</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">stock</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">stock</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">stock</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">capital</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">earnings</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">equity</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="23"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><B><FONT size="1">(in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance at December&nbsp;31, 1999
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">295</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">132</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,373</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,571</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,380</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,520</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,520</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Purchase accounting adjustments as a result of
    reverse acquisition
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33,372</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">977</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,348</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Minority interest loss in excess of minority
    interest capital
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(87</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(87</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance at December&nbsp;31, 2000
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">295</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">140</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,658</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19,068</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">54,161</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,897</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,044</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,147</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Issuance of 1,535,520&nbsp;shares of Class&nbsp;A
    common stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,996</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,010</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Minority interest loss in excess of minority
    interest capital
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(132</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(132</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance at December&nbsp;31, 2001
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">309</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">140</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32,625</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,112</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">63,186</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,400</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">42,138</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">48,538</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Dividend distribution
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,994</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,994</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Recapture of minority interest loss in excess of
    minority interest capital
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">392</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">392</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance at December&nbsp;31, 2002
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">309</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">140</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">39,417</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">69,256</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">109,122</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income (unaudited)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,253</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,651</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,904</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Issuance of 331,800&nbsp;shares of Class&nbsp;A
    common stock (unaudited)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">803</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">806</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Redemption of 264,600&nbsp;shares of Class&nbsp;A
    common stock (unaudited)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(641</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(643</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance at June&nbsp;30, 2003 (unaudited)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">310</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">140</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">48,832</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">77,907</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">127,189</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<FONT size="2">See accompanying notes to consolidated financial
statements.
</FONT>

<P align="center"><FONT size="2">F-5
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<FONT size="2"> <B>Nelnet, Inc. and Subsidiaries</B>
</FONT>
</DIV>

<P align="center">
<B><FONT size="2">Consolidated Statements of Cash
Flows</FONT></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="38%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">June 30,</FONT></B></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">December 31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2000</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(unaudited)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">(in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,904</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37,788</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">48,538</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,147</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,520</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Adjustments to reconcile net income to net cash
    provided by operating activities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciation and amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">46,814</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">36,597</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">88,457</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">38,379</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,487</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Unrealized (gain)&nbsp;loss on interest rate swap
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(579</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(579</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,962</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred income tax benefit
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,751</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,876</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,068</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,441</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Minority interest in subsidiary loss (income)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(109</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(49</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(376</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">598</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Provision for loan losses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,860</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,116</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,587</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,925</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,370</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Decrease (increase)&nbsp;in accrued interest
    receivable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14,466</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(20,323</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,619</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14,661</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(31,352</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Decrease (increase)&nbsp;in accounts receivable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">73</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,174</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">918</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,286</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(18,483</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Decrease (increase)&nbsp;in other assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,841</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(835</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,608</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,107</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,629</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Increase (decrease)&nbsp;in accrued interest
    payable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">676</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">530</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(894</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,554</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,708</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Increase (decrease)&nbsp;in other liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">393</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,127</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(384</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19,744</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,763</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net cash provided by (used in) operating
    activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">64,235</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">60,322</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">134,210</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">81,492</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13,617</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash flows from investing activities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Originations, purchases and consolidations of
    student loans, including premiums
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,410,361</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(851,825</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,918,859</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,441,309</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(997,827</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proceeds from sales of student loans
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,906</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net proceeds from student loan principal payments
    and loan consolidations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">468,096</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">244,637</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,724,077</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">529,190</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">381,861</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net purchases of furniture and equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,245</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,407</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13,408</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,264</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,003</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Decrease (increase)&nbsp;in restricted
    cash&nbsp;&#151; held by trustee
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">122,317</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(178,770</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(357,045</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(50,186</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(42,052</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Purchases of restricted investments&nbsp;&#151;
    held by trustee
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(165,723</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(133,285</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(318,822</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(302,050</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(53,068</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proceeds from maturities of restricted
    investments&nbsp;&#151; held by trustee
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">207,903</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">154,830</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">267,089</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">296,405</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">51,778</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net cash paid in acquisition of subsidiaries, net
    of cash acquired
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(20,809</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(20,809</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(102,184</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,594</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net cash used in investing activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(784,013</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(788,629</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,637,777</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,076,398</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(651,811</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash flows from financing activities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Payments on bonds and notes payable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,488,914</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,073,857</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,259,769</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(324,561</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(331,402</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proceeds from issuance of bonds and notes payable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,221,077</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,817,104</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,781,474</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,338,959</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,000,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Payment of debt issuance costs
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,927</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,875</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,429</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8,325</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,376</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash distributions to shareholders
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,994</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,994</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Payments for redemption of common stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(643</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proceeds from issuance of common stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">806</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,010</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net cash provided by financing activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">727,399</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">733,378</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,507,282</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,008,083</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">664,222</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net increase (decrease)&nbsp;in cash and cash
    equivalents
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,621</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,071</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,715</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,177</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,206</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and cash equivalents, beginning of period
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,155</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">36,440</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">36,440</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,263</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,469</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and cash equivalents, end of period
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47,776</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41,511</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,155</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">36,440</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,263</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Supplemental disclosures of cash flow information:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest paid
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">94,731</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">111,426</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">222,528</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">227,198</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">229,673</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income taxes paid
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,223</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,376</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,098</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,777</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,466</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<FONT size="2">Supplemental disclosure of noncash operating
activities regarding acquisitions is contained in note&nbsp;1.
</FONT>

<P align="center">
<FONT size="2">See accompanying notes to consolidated financial
statements.
</FONT>

<P align="center"><FONT size="2">F-6
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<FONT size="2"> <B>Nelnet, Inc. and Subsidiaries</B>
</FONT>
</DIV>

<P align="center">
<B><FONT size="2">Notes to Consolidated Financial
Statements</FONT></B>

<DIV align="center">
<B><FONT size="2">June&nbsp;30, 2003 and 2002 and
December&nbsp;31, 2002, 2001 and 2000</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(Data as of and for the six months ended
June&nbsp;30, 2003 and 2002 is unaudited)</FONT></B>
</DIV>

<P align="left">
<B><FONT size="2">(1)&nbsp;Corporate Structure</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">(a)&nbsp;Corporate
    Organization</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Nelnet, Inc. (which changed its name from Nelnet
Loan Services, Inc. effective August&nbsp;14, 2003) is a
privately owned, vertically integrated education finance
company, which, together with its subsidiaries, is focused on
providing quality products and services to participants in the
education finance process. Nelnet is a originator; holder and
servicer of education loans and offers a broad range of
financial services and technology-based products, including
student loan origination and lending, student loan and guarantee
services and a suite of internet-based software solutions.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The consolidated financial statements include the
accounts of Nelnet, Inc. and subsidiaries (Nelnet or the
Company) as described in the following paragraphs. All
significant intercompany balances and transactions have been
eliminated in consolidation.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company owns the stock of various
corporations which are engaged in the securitization of
education finance assets. The Company&#146;s student lending
subsidiaries described below are separate entities holding
beneficial interests in eligible loans, subject to creditors
with specific interests. The liabilities of the Company&#146;s
student lending subsidiaries are not the liabilities of the
Company or any of its other subsidiaries and cannot be
consolidated in the event of bankruptcy. The transfers of
student loans to the eligible lender trusts do not quality as
sales under the provisions of Statement of Financial Accounting
Standards (SFAS) No.&nbsp;140, <I>Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities</I>, as the trusts continue to be under the
effective control of the Company. All the financial activities
and related assets and liabilities of the securitizations are
reflected in the Company&#146;s consolidated financial
statements. The following subsidiaries of the Company hold the
financial assets (collectively known as the Student Lending
Subsidiaries):
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">NELNET Student Loan Corporation&#150;1
    (NELNET&#150;1)
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">NELNET Student Loan Corporation&#150;2
    (NELNET&#150;2)
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Nelnet Student Loan Funding LLC (NELNET SLF)
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Nelnet Education Loan Funding, Inc. (formerly
    known as NEBHELP, Inc.) (NELF)
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">MELMAC, Inc. and subsidiaries (MELMAC)
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">NHELP&#150;I, Inc. (NHELP&#150;I)
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">NHELP&#150;II, Inc. and subsidiary (NHELP&#150;II)
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">NHELP&#150;III, Inc. (NHELP&#150;III)
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Nelnet Student Loan Warehouse Corporation-1
    (NELNET SLWC-1)
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">NELnet Private Student Loan Corporation-1 (NELnet
    Private-1)
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">EFS Finance Co. (EFS Fin Co.) and its subsidiary,
    EMT Corporation (EMT Corp.)
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">NELNET&#150;1, NELNET&#150;2, NELNET SLF, NELF,
NHELP&#150;II, NELnet Private-1, MELMAC, and EMT Corp. finance
eligible student loan assets on a more permanent basis, as the
assets are funded with bonds and notes payable, which have
longer maturities. NHELP&#150;I, NHELP&#150;III, NELNET SLWC-1,
select operating lines within NELF, and EFS Fin Co. are
warehouse facilities designed to fund student loan assets on a
temporary basis until the assets are moved to another Student
Lending Subsidiary to provide permanent financing.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company also provides managerial,
administrative support, loan servicing, origination processing,
computer software development, and marketing to the Student
Lending Subsidiaries through the following wholly owned
subsidiary management companies, Nelnet Marketing Solutions,
Inc. (NMS) and subsidiaries, including its 100% owned subsidiary
(80% owned through February&nbsp;28, 2003), Student Partner
Services, Inc (SPS); Nelnet Guarantee Services, Inc. and
GuaranTec LLP (collectively, NGS);
</FONT>

<P align="center"><FONT size="2">F-7
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">Nelnet, Inc. and Subsidiaries</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">Notes to Consolidated Financial
Statements&nbsp;&#151; (Continued)</FONT></B>

<P align="left">
<FONT size="2">EFS Services, Inc. (EFS Services); Charter
Account Systems, Inc. (Charter); Idaho Financial Associates,
Inc. (IFA); and Nelnet Corporation.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Nelnet is the legal parent of National Education
Loan Network, Inc. (NELN). Through May&nbsp;15, 2002, Nelnet
also owned 91.43% of Infovisa, Inc. and its subsidiary
(Infovisa). Infovisa primarily developed and provided software
systems for financial institutions. Effective May&nbsp;15, 2002,
Nelnet sold its ownership of Infovisa to Farmers &#38; Merchants
Investment Inc. (F&#38;M) at carrying value, which approximates
fair value.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Effective March&nbsp;2, 2000, Nelnet&#146;s
common stock, which was owned by Union Bank and Trust Company
(UB&#38;T), was spun out to its holding company, F&#38;M, and
the minority stockholders of UB&#38;T. F&#38;M is an entity
under common control with the Company. Following this
distribution, Nelnet entered into a triangular reorganization,
pursuant to which Nelnet established a new subsidiary, NELN.
NELN acquired through merger a former entity also named National
Education Loan Network, Inc. Subsequent to the reorganization,
Nelnet became the legal parent of NELN and its subsidiaries.
Majority voting and ownership control was retained by the former
shareholders of NELN, and accordingly, the transaction was
treated as a reverse acquisition for financial statement
reporting purposes. In accordance with generally accepted
accounting principles, NELN was treated as the acquiring entity
and Nelnet as the acquired entity.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As Nelnet was the acquired entity, Nelnet&#146;s
assets were recorded at fair value at the date of the reverse
acquisition. Intangible assets, consisting of loan servicing
contracts, were recorded through a credit to additional paid-in
capital. Retained earnings of Nelnet at the date of acquisition
were also transferred to additional paid-in capital. In
addition, the preferred and common stock of NELN was converted
to new shares of stock of Nelnet. Therefore, on the accompanying
consolidated statements of shareholders&#146; equity, the common
stock consists of legal shares of Nelnet and the retained
earnings are those of NELN.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">NELNET SLWC-1, NELNET SLF, and SPS commenced
their business operations on January&nbsp;24, 2002, May&nbsp;1,
2002, and May&nbsp;15, 2002, respectively. NELnet Private-1
commenced its business operations on November&nbsp;1, 2001. The
consolidated financial statements reflect the operations of
these entities since the commencement dates.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">(b)&nbsp;Description of
    Business</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Student Lending Subsidiaries are organized as
special-purpose bankruptcy remote entities which primarily
invest in eligible student loans, through an eligible lender
trustee, issued under Title IV of the Higher Education Act of
1965, as amended (the Act). NHELP&#150;II and NELnet Private-1
also invest in self-insured or privately-insured student loan
programs, known as consumer education loans, through an eligible
lender trustee.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Student loans beneficially owned by the Student
Lending Subsidiaries include those originated under the Stafford
Loan Program (SLP), the Parent Loan Program for Undergraduate
Students (PLUS) program, the Supplemental Loans for Students
(SLS) program, and loans which consolidate certain borrower
obligations (Consolidation). Title to the student loans is held
by eligible lender trustees under the Act for the benefit of the
Student Lending Subsidiaries. The financed eligible loan
borrowers are geographically located throughout the United
States. The bonds and notes payable outstanding are payable
primarily from interest and principal payments on the student
loans, as specified in the resolutions authorizing the sale of
the bonds and notes.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Nelnet and EFS Services are engaged in the
processing of student loan originations and servicing of student
loans for loan program lending entities. Loan servicing
contracts are generally for three years or more and provide for
Nelnet and EFS Services to receive as compensation a rate per
loan account or a percentage of loan balances serviced. NGS
provides servicing for certain student loan guaranty agencies.
</FONT>

<P align="center"><FONT size="2">F-8
</FONT>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">Nelnet, Inc. and Subsidiaries</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">Notes to Consolidated Financial
Statements&nbsp;&#151; (Continued)</FONT></B>

<P align="left">
<FONT size="2">Charter and IFA develop computer software for
student loan services as well as provide computer consulting,
write custom software applications, and provide customer service
support.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">(c)&nbsp;Acquisitions</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Nelnet Guaranties Services, Inc. commenced its
business operations in June 2001. On June&nbsp;30, 2001, it
acquired 51% of the voting control of GuaranTec, LLP (GuaranTec)
for $2.6&nbsp;million. On January&nbsp;1, 2002, Nelnet
Guaranties Services, Inc. acquired the remaining 49% of
GuaranTec for $4.5&nbsp;million from F&#38;M. The excess
purchase price over F&#38;M&#146;s carrying value was
$3.0&nbsp;million. As the 49% interest was acquired from an
entity under common control with the Company, the excess
purchase price was recorded as a dividend distribution in the
consolidated statement of shareholders&#146; equity in 2002.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On January&nbsp;1, 2001, NELN acquired MELMAC and
its wholly owned subsidiaries, MELMAC LLC and MELMAC Enterprise,
Inc., for approximately $30&nbsp;million. The acquisition was
accounted for under purchase accounting. The assets and
liabilities of MELMAC and its subsidiaries were recorded at fair
value. An intangible asset, representing loan origination
rights, of approximately $4&nbsp;million was recorded and is
being amortized over its estimated useful life of three years.
The results of operations of MELMAC have been included in the
consolidated financial statements since the date of acquisition.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On December&nbsp;21, 2001, NELN acquired all of
the outstanding stock of EFS, Inc. (EFS) and its wholly owned
subsidiaries, EMT Corp., EFS Services, EFS Fin Co., and
Advantage Network, Inc., for approximately $141&nbsp;million.
The acquisition was accounted for under purchase accounting. The
assets and liabilities of EFS and its subsidiaries were recorded
at fair value. An intangible asset, representing lender
relationships, of approximately $4&nbsp;million was recorded and
is being amortized over its estimated useful life of three
years. The results of operations of EFS have been included in
the consolidated financial statements since the date of
acquisition.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">NELN acquired MELMAC and EFS to increase its
market share in the student lending industry. The allocation of
the purchase price for the MELMAC and EFS acquisitions is shown
below (dollars in thousands):
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="79%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Loans
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,021,791</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">221,447</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Intangible assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,006</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Bonds and notes payable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,055,403</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(24,455</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total purchase price
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">171,386</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On January&nbsp;2, 2002, NELN acquired IFA for
approximately $17&nbsp;million. The acquisition was accounted
for under purchase accounting. The assets and liabilities of IFA
were recorded at fair value. An intangible asset, representing
servicing system software and other intellectual property, of
$14.2&nbsp;million was recorded and is being amortized over its
estimated useful life of three years. The results of operations
of IFA have been included in the consolidated financial
statements since the date of acquisition.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On May&nbsp;9, 2002, NELN acquired Charter for
approximately $7&nbsp;million. The acquisition was accounted for
under purchase accounting. The assets and liabilities of Charter
were recorded at fair value. An intangible asset, representing
servicing system software and other intellectual property, of
$6.8&nbsp;million was recorded and is being amortized over its
estimated useful life of three years. The results of operations
of Charter have been included in the consolidated financial
statements since the date of acquisition.
</FONT>

<P align="center"><FONT size="2">F-9
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">Nelnet, Inc. and Subsidiaries</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">Notes to Consolidated Financial
Statements&nbsp;&#151; (Continued)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">NELN acquired IFA and Charter to provide student
loan servicing software solutions to the student lending
industry. The allocation of the purchase price for the IFA and
Charter acquisitions is shown below (dollars in thousands):
</FONT>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="84%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and investments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,972</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts receivable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,390</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">281</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Intangible assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,061</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred revenue and other liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,923</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total purchase price
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,781</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following unaudited pro forma information
presents the combined results of the Company as though the 2002,
2001 and 2000 acquisitions occurred on January&nbsp;1, 2000. The
pro forma financial information does not necessarily reflect the
results of operations if the acquisitions had been in effect at
the beginning of the period or which may be attained in the
future.
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="58%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Pro forma</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Pro forma</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">year ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">year ended</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;31, 2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;31, 2000</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(dollars in thousands)</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(unaudited)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net interest income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">153,674</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">89,613</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">125,985</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">130,682</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income (loss)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,905</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8,273</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Weighted average shares outstanding, basic and
    diluted
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">44,331,490</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41,187,130</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Earnings (loss) per share, basic and diluted
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.27</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.20</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The pro forma information presenting the combined
operations of the Company as though the 2002 acquisitions
occurred on January&nbsp;1, 2002 is not significantly different
than actual 2002 results.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In June 2001, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards
(SFAS)&nbsp;No.&nbsp;141, <I>Business Combinations</I> (SFAS
No.&nbsp;141), and SFAS No.&nbsp;142, <I>Goodwill and Other
Intangible Assets</I> (SFAS No.&nbsp;142). SFAS No.&nbsp;141
requires that the purchase method of accounting be used for all
business combinations. SFAS No.&nbsp;141 specified criteria that
intangible assets acquired in a business combination must meet
to be recognized and reported separately from goodwill. SFAS
No.&nbsp;142 requires that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead
tested for impairment at least annually in accordance with the
provisions of SFAS No.&nbsp;142. SFAS No.&nbsp;142 also requires
that intangible assets with estimable useful lives be amortized
over their respective estimated useful lives to their estimated
residual values.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company adopted the provisions of SFAS
No.&nbsp;141 as of July&nbsp;1, 2001 and SFAS No.&nbsp;142 as of
January&nbsp;1, 2002. Upon adoption of SFAS No.&nbsp;142, the
Company was required to evaluate its existing intangible assets
and goodwill that were acquired in purchase business
combinations and to make any necessary reclassifications in
order to conform with the new classification criteria in SFAS
No.&nbsp;141 for recognition separate from goodwill. The Company
was also required to reassess the useful lives and residual
values of all intangible assets acquired and make any necessary
amortization period adjustments by the end of the first interim
period after adoption. Based on this evaluation, no
reclassifications or changes to useful lives or residual values
were made. The Company has no intangible assets with indefinite
useful lives.
</FONT>

<P align="center"><FONT size="2">F-10
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">Nelnet, Inc. and Subsidiaries</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">Notes to Consolidated Financial
Statements&nbsp;&#151; (Continued)</FONT></B>

<P align="left">
<B><FONT size="2">(2)&nbsp;Interim Financial
Information</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The accompanying interim financial information as
of June&nbsp;30, 2003 and for the six months ended June&nbsp;30,
2003 and 2002 have not been audited by independent accountants.
In the opinion of management, the accompanying unaudited interim
financial information contains all adjustments (consisting only
of normal recurring accruals) considered necessary for a fair
presentation in accordance with generally accepted accounting
principals. The interim financial information should be read in
conjunction with the audited financial statements and notes for
the years ended December&nbsp;31, 2002, 2001, and 2000. The
results of operations for the six months ended June&nbsp;30,
2003 are not necessarily indicative of the results which may be
expected for the entire calendar year 2003.
</FONT>

<P align="left">
<B><FONT size="2">(3)&nbsp;Summary of Significant Accounting
Policies and Practices</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">(a)&nbsp;Student Loans Receivable and
    Allowance for Loan Losses</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Investments in student loans, including premiums,
are recorded at cost, net of premium amortization and the
allowance for loan losses. Premiums are amortized over the
estimated lives of the related loans.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The allowance for loan losses is estimated and
established through a provision charged to expense. Losses are
charged against the allowance when management believes that the
collectibility of the loan principal is unlikely. Recovery of
amounts previously charged off is credited to the allowance for
loan losses. The charge to operations is estimated and based on
management&#146;s evaluation of the loan portfolio, including
such factors as the volume and character of loans outstanding,
past loan loss experience, and general economic conditions.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Management believes that the allowance for loan
losses is adequate. While management uses available information
to recognize probable losses on loans, future additions to the
allowance for loan losses may be necessary based on changes in
economic conditions.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">(b)&nbsp;Cash and Cash
    Equivalents</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For purposes of the consolidated statements of
cash flows, the Company considers all investments with original
maturities of three months or less to be cash equivalents.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">(c)&nbsp;Restricted Cash and Restricted
    Investments&nbsp;&#151; Held by Trustee</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company&#146;s restricted cash and restricted
investments are held by trustees in various accounts, subject to
use restrictions, imposed by the trust indentures.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">(d)&nbsp;Restricted Cash&nbsp;&#151; Due to
    Loan Program Customers/ Due to Loan Program
    Customers</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As a servicer of student loans, Nelnet collects
student loan remittances and subsequently disburses these
remittances to the appropriate lending entities. Cash collected
for customers and the related liability are included in the
accompanying consolidated balance sheets. Net interest income
earned by the Company on this cash in the six months ended
June&nbsp;30, 2003 and 2002 and for the years ended
December&nbsp;31, 2002, 2001, and 2000 was $360,000, $784,000,
$1.2&nbsp;million, $2.1&nbsp;million, and $3.3&nbsp;million,
respectively.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">(e)&nbsp;Intangible Assets</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Intangible assets, consisting of loan servicing
contracts, lender relationships, loan origination rights, and
servicing system software, are being amortized on a
straight-line basis over the expected periods to be benefited,
ranging from 30 to 36&nbsp;months. Accumulated amortization
related to intangible assets was $42.8&nbsp;million,
$36.7&nbsp;million, and $19.9&nbsp;million at June&nbsp;30, 2003
and December&nbsp;31, 2002 and 2001,
</FONT>

<P align="center"><FONT size="2">F-11
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">Nelnet, Inc. and Subsidiaries</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">Notes to Consolidated Financial
Statements&nbsp;&#151; (Continued)</FONT></B>

<P align="left">
<FONT size="2">respectively. The Company recorded amortization
of $6.1&nbsp;million, $9.3&nbsp;million, $16.8&nbsp;million,
$11.8&nbsp;million, and $8.1&nbsp;million for the six months
ended June&nbsp;30, 2003 and 2002 and for the years ended
December&nbsp;31, 2002, 2001, and 2000, respectively. The
Company will continue to amortize intangible assets over their
remaining useful lives and will record amortization of
$10.8&nbsp;million, $8.3&nbsp;million, and $0.8&nbsp;million in
2003, 2004, and 2005, respectively.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">(f)&nbsp;Furniture, Equipment and Leasehold
    Improvements</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Furniture and equipment are carried at cost, net
of accumulated depreciation and amortization. Maintenance and
repairs are charged to expense as incurred, and major
improvements, including leasehold improvements, are capitalized.
Gains and losses from retirement of equipment and improvements
are included in determining net income. The Company uses
accelerated and straight-line methods for recording depreciation
and amortization.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">(g)&nbsp;Other Assets</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Other assets are recorded at cost or amortized
cost and consist primarily of prepaid bond insurance, debt
issuance costs, deferred tax assets, and income taxes
receivable. Prepaid bond insurance and debt issuance costs are
amortized using the straight-line method and effective interest
methods over the estimated lives of the bonds and notes payable.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">(h)&nbsp;Program Reimbursement
    Reserve</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The program reimbursement reserve, which is
included in other liabilities, represents the amount of student
loans that management estimates the Company will be required to
repay to lenders, for which the Company performs servicing, due
to the Company&#146;s failure to follow prescribed due diligence
procedures. The program reimbursement reserve is established
through a provision for losses charged to expense. The amount of
provision is based on management&#146;s evaluation of the
servicing portfolio as it relates to the complex due diligence
requirements that must be followed to maintain the Department of
Education guarantee on the loans. Failure to meet certain due
diligence requirements will cause a loss of guarantee on the
loans and potential loss to the Company if it is unable to cure
the condition under procedures prescribed by the federal
government.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Serviced student loans are charged against the
allowance when they lose their Department of Education guarantee
and management is required to reimburse the lender. Loans that
are subsequently returned to a repayment status can reacquire
their guaranteed status, and such amounts are then credited to
the program reimbursement reserve as recoveries.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Management believes that the program
reimbursement reserve is adequate. While management uses
available information to determine the adequacy of the reserve
and to recognize losses, future additions to the reserve may be
necessary based on changes in federal policy, economic
conditions, or management&#146;s performance relating to
compliance with the Department of Education&#146;s due diligence
requirements.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">(i)&nbsp;Software Sales, Development and
    Maintenance, and Deferred Income</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Charter and IFA account for software revenues in
accordance with the AICPA&#146;s Statement of
Position&nbsp;97-2, <I>Software Revenue Recognition
</I>(SOP&nbsp;97-2). SOP&nbsp;97-2 provides guidance on when and
in what amounts income should be recognized for licensing,
selling, leasing, or otherwise marketing computer software.
Income for contracts with customers that does not require
significant production, modification, or customization of
software is recognized when all the following criteria are met:
persuasive evidence of an arrangement exists, delivery has
occurred, vendors fee is fixed and determinable, and
collectibility is probable. Income paid on maintenance and
enhancement agreements for services to be performed in
</FONT>

<P align="center"><FONT size="2">F-12
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">Nelnet, Inc. and Subsidiaries</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">Notes to Consolidated Financial
Statements&nbsp;&#151; (Continued)</FONT></B>

<P align="left">
<FONT size="2">subsequent periods is deferred and recognized in
income over the life of the agreements. Deferred revenue of
approximately $440,000 and $900,000 is included in other
liabilities on the accompanying consolidated balance sheets at
June&nbsp;30, 2003 and December&nbsp;31, 2002, respectively.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">(j)&nbsp;Minority Interest</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In 2001, minority interest reflects the
proportionate share of shareholders&#146; equity and income of
GuaranTec&#146;s minority stockholder. In 2003 and 2002,
minority interest reflects the proportionate share of
shareholders&#146; equity and loss of SPS&#146;s minority
stockholders.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Nelnet allocated Infovisa&#146;s income or loss
proportionately between Nelnet&#146;s percentage interest and
the remaining percentage minority interest. When losses
applicable to the minority interest exceeded the minority
interest in equity capital, such excess was charged against
Nelnet&#146;s interest as a charge to retained earnings in
Nelnet&#146;s shareholders&#146; equity. When earnings were
generated applicable to the minority interest, Nelnet&#146;s
interest was credited through retained earnings to the extent of
losses previously charged to retained earnings. For purposes of
reporting on the Company, these changes are reflected in
additional paid-in capital, as retained earnings are those of
NELN. During 2002, Infovisa was sold to F&#38;M and the minority
interest loss was recaptured through additional paid-in capital
at the date of sale.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">(k)&nbsp;Accounting for Derivatives and
    Hedging Activities</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Effective January&nbsp;1, 2001, the Company
adopted SFAS No.&nbsp;133, <I>Accounting for Derivative
Instruments and Hedging Activities</I>, as amended by SFAS
No.&nbsp;138, <I>Accounting for Certain Derivative Instruments
and Certain Hedging Activities, an Amendment of FASB Statement
No.&nbsp;133</I>. These Statements establish accounting and
reporting standards for derivative instruments and hedging
activities, including certain derivative instruments embedded in
other contracts, and requires that an entity recognize all
derivatives as assets or liabilities in the balance sheet and
measure them at fair value. The Company has entered into
interest rate swap agreements, as discussed further in
note&nbsp;12. As the swap agreements were not designated as
hedging instruments, changes in fair value are recognized in net
income in the period of change.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">(l)&nbsp;Impairment of Long-lived
    Assets</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Long-lived assets, such as furniture and
equipment and purchased intangibles subject to amortization, are
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset
to estimated undiscounted future cash flows expected to be
generated by the asset. If the carrying amount of an asset
exceeds its estimated future cash flows, an impairment charge is
recognized by the amount by which the carrying amount of the
asset exceeds the fair value of the asset. There were no
impairments of long-lived assets in 2003, 2002, 2001, or 2000.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">(m)&nbsp;Loan Interest</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Interest on student loans is accrued when earned,
and reduced for the amortization of premiums. The interest is
paid by the Department of Education or the borrower, depending
on the status of the loan at the time of accrual. In addition,
the Department of Education makes quarterly interest subsidy
payments on certain qualified Title IV loans until the student
is required under the provisions of the Act to begin repayment.
Repayment on guaranteed student loans normally begins within six
months after completion of their course of study, leaving
school, or ceasing to carry at least one-half the normal
full-time academic load as determined by the educational
institution. Repayment of PLUS loans normally begins within
60&nbsp;days from the date of loan disbursement and repayment of
SLS loans begins within one month after
</FONT>

<P align="center"><FONT size="2">F-13
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">Nelnet, Inc. and Subsidiaries</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">Notes to Consolidated Financial
Statements&nbsp;&#151; (Continued)</FONT></B>

<P align="left">
<FONT size="2">completion of course study, leaving school, or
ceasing to carry at least the normal full-time academic load as
determined by the educational institution.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Interest on consumer education loans is accrued
to the borrower and is either paid by the borrower or
capitalized annually or at repayment. Repayment on consumer
education loans typically begins six months following graduation
from a qualified institution.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Department of Education provides a special
allowance to lenders participating in the SLP. The special
allowance is accrued when earned and is determined quarterly
based upon the average rate established in the auction of
13-week Treasury bills in the previous quarter relative to the
yield of the student loan. The special allowance is reduced by
approximately one-half for loans which were originated or
purchased from funds obtained from issuance of tax-exempt
obligations, depending upon the issue date of the obligations.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">(n)&nbsp;Loan Servicing
    Income</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Loan servicing fees are determined according to
agreements with customers and are generally calculated based on
the dollar value or number of loans serviced for each customer.
Fees are normally received and recorded as income on a monthly
basis. As of June&nbsp;30, 2003 and December&nbsp;31, 2002 and
2001, the Company serviced $17.9&nbsp;billion,
$17.9&nbsp;billion, and $17.0&nbsp;billion, respectively, of
loans, including approximately $8.3&nbsp;billion,
$7.5&nbsp;billion, and $6.7&nbsp;billion of Company-owned loans,
and $550&nbsp;million, $720&nbsp;million, and $834&nbsp;million
of loans serviced for UB&#38;T.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">(o)&nbsp;Income Tax Expense</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Income taxes are accounted for under the asset
and liability method. Deferred income tax assets and liabilities
are recognized for the future tax consequences attributable to
temporary differences between the consolidated financial
statement carrying amounts of existing assets and liabilities
and their respective income tax basis. Deferred income tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">(p)&nbsp;Earnings Per Share</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The basic earnings per common share (EPS) is
computed by dividing net income by the weighted-average number
of common shares outstanding for the periods presented. The
weighted average number of shares used in the six months ended
June&nbsp;30, 2003 and 2002 and for the years ended
December&nbsp;31, 2002, 2001 and 2000, adjusted to reflect the
recapitalization referred to in note&nbsp;19, were 45,010,490,
44,971,290, 44,971,290, 44,331,490, and 41,187,230,
respectively. Nelnet had no common stock equivalents and no
potentially dilutive common shares during the periods presented.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">(q)&nbsp;Comprehensive Income</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company has no sources of other comprehensive
income. Therefore, comprehensive income consists solely of net
income.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">(r)&nbsp;Use of Estimates</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The preparation of the consolidated financial
statements in conformity with accounting principles generally
accepted in the United States of America requires management to
make a number of estimates and assumptions that affect the
reported amounts of assets and liabilities, reported amounts of
revenues and expenses, and other disclosures. Actual results
could differ from those estimates. The most significant
</FONT>

<P align="center"><FONT size="2">F-14
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">Nelnet, Inc. and Subsidiaries</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">Notes to Consolidated Financial
Statements&nbsp;&#151; (Continued)</FONT></B>

<P align="left">
<FONT size="2">estimates made by management relate to the
adequacy of the program reimbursement reserve and allowance for
loan losses.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">(s)&nbsp;Reclassification</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Certain amounts have been reclassified to conform
to the 2003 consolidated financial statement presentation.
</FONT>

<P align="left">
<B><FONT size="2">(4)&nbsp;Industry Segment
Information</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company&#146;s activities are considered to
be a single industry segment for financial reporting purposes.
The Company is engaged in the business of student education
finance and related activities. Substantially all income is
derived from these activities.
</FONT>

<P align="left">
<B><FONT size="2">(5)&nbsp;Restricted Investments&nbsp;&#151;
Held by Trustee</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">NELF and MELMAC&#146;s restricted investments are
held by a trustee in various accounts subject to use
restrictions and consist of guaranteed investment contracts,
commercial banking deposits, and repurchase agreements, which
are classified as held-to-maturity. The carrying value of these
investments approximates fair value at June&nbsp;30, 2003 and
December&nbsp;31, 2002 and 2001. The carrying value of these
investments by contractual maturity is shown below (dollars in
thousands):
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="64%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;30,</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(unaudited)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Over 1&nbsp;year through 5&nbsp;years
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,097</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,709</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,335</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">After 5&nbsp;years through 10&nbsp;years
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,627</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,729</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,799</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">After 10&nbsp;years
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">112,435</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">149,901</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100,472</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">131,159</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">173,339</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">121,606</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<B><FONT size="2">(6)&nbsp;Student Loans Receivable and
Concentration of Credit Risk</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Student loans receivable at June&nbsp;30, 2003
and December&nbsp;31, 2002 and 2001 consisted of the following
(dollars in thousands):
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="60%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;30,</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(unaudited)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Title&nbsp;IV guaranteed loans
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,393,292</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,496,760</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,372,968</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Privately-insured consumer education loans
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,458</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,108</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,232</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Self-insured consumer education loans
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">56,523</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">51,552</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">36,914</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,480,273</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,571,420</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,434,114</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Less allowance for loan losses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,750</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,242</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,466,523</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,559,420</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,423,872</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Guaranteed loans may be made under the guaranteed
student loan program by certain lenders as defined by the Act.
These loans, including related accrued interest, are guaranteed
at their maximum level permitted under the Act by an authorized
guaranty agency which has a contract of reinsurance with the
Department of Education. The terms of the loans, which vary on
an individual basis, generally provide for repayment in monthly
installments of principal and interest over a period of up to
20&nbsp;years. Interest rates
</FONT>

<P align="center"><FONT size="2">F-15
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">Nelnet, Inc. and Subsidiaries</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">Notes to Consolidated Financial
Statements&nbsp;&#151; (Continued)</FONT></B>

<P align="left">
<FONT size="2">on loans may be fixed or variable, will vary
based on the average of the 91-day U.S.&nbsp;Treasury bill rate,
and currently range from 3.0% to 13.0% (the weighted-average
rate was 5.0%, 5.3%, and 6.7% at June&nbsp;30, 2003 and
December&nbsp;31, 2002 and 2001) dependent upon type, terms of
loan agreements, and date of origination. For Title&nbsp;IV
loans, the Student Lending Subsidiaries have entered into trust
agreements in which unrelated financial institutions serve as
the eligible lender trustees. As eligible lender trustees, the
financial institutions act as the eligible lender in acquiring
certain eligible student loans as an accommodation to the
subsidiaries, which hold beneficial interests in the student
loan assets as the beneficiaries of such trusts.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Substantially all Title&nbsp;IV student loan
principal and related accrued interest is guaranteed as defined
by the Act. These guarantees are made subject to the performance
of certain loan servicing procedures stipulated by applicable
regulations. If these due diligence procedures are not met,
affected student loans may not be covered by the guarantees
should the borrower default. The Company and its Student Lending
Subsidiaries retain and enforce recourse provisions against
servicers and lenders under certain circumstances. Such student
loans are subject to &#147;cure&#148; procedures and
reinstatement of the guarantee under certain circumstances.
Also, in accordance with the Student Loan Reform Act of 1993,
student loans disbursed prior to October&nbsp;1, 1993 are fully
insured, and loans disbursed subsequent to October&nbsp;1, 1993
are insured up to 98% of their principal amount and up to 100%
as to accrued interest.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Student loans receivable also include a
beneficial interest in consumer education loans. The consumer
education loan programs consist of privately-insured and
self-insured loans. The terms of the consumer education loans,
which vary on an individual basis, generally provide for
repayment in monthly installments of principal and interest over
a period of up to 20&nbsp;years. Interest rates on the loans
will vary based on the average of the 91-day Treasury bill or
the prime rate. The consumer education loans primarily represent
student borrowers in the medical, dental, or physical sciences
fields of study. The self-insured consumer education loans are
not covered by guarantees or collateral should the borrower
default. The privately-insured consumer education loans are
insured by various third parties for between 90% and 100% of
principal and interest.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company has provided for an allowance for
loan losses related to the self-insured consumer education loans
as well as the privately-insured consumer education and
Title&nbsp;IV guaranteed loans. The provision is based upon
historical default rates for such loans. Activity in the
allowance for loan losses for the six months ended June&nbsp;30,
2003 and 2002 and the years ended December&nbsp;31, 2002, 2001,
and 2000 is shown below (dollars in thousands):
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="53%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">June&nbsp;30,</FONT></B></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2000</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(unaudited)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Beginning balance
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,242</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,242</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,614</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,122</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Transfer from acquisitions
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,866</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Provision for loan losses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,860</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,116</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,587</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,925</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,370</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Loans charged off, net of recoveries
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,110</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,120</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,829</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,163</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,878</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Ending balance
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,750</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,238</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,242</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,614</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<B><FONT size="2">(7)&nbsp;Guaranty and Insurance
Agencies</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At June&nbsp;30, 2003 and December&nbsp;31, 2002
and 2001, Nebraska Student Loan Program, Inc., United Student
Aid Funds, Inc., Pennsylvania Higher Education Assistance
Authority, California Student Aid Commission, New York State
Higher Education Services Corporation, Iowa College Student Aid
Commission, Florida Department of Education Office of Student
Financial Assistance, and the Finance
</FONT>

<P align="center"><FONT size="2">F-16
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">Nelnet, Inc. and Subsidiaries</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">Notes to Consolidated Financial
Statements&nbsp;&#151; (Continued)</FONT></B>

<P align="left">
<FONT size="2">Authority of Maine were the primary guarantors of
the student loans beneficially owned by the Student Lending
Subsidiaries. Management periodically reviews the financial
condition of its guarantors and does not believe the level of
concentration creates an unusual or unanticipated credit risk.
In addition, management believes that based on the Higher
Education Amendments of 1992, the security for and payment of
any of the Student Lending Subsidiaries&#146; obligations would
not be materially adversely affected as a result of legislative
action or other failure to perform on its obligations on the
part of any guaranty agency. The Student Lending Subsidiaries,
however, offer no absolute assurances to that effect.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">NHELP-II and NELnet Private-1 also have a student
loan indemnification agreement with a private insurer, under
which a portion of the consumer education loans are insured. The
agreement indemnifies NHELP-II and NELnet Private-1 for 90% of
losses incurred resulting from borrower default. Upon default,
all rights of recovery are subrogated to a private insurer. As
of June&nbsp;30, 2003 and December&nbsp;31, 2002 and 2001, a
private insurer insured 35%, 31%, and 18%, respectively, of the
consumer education loans owned by NHELP-II and NELnet Private-1.
</FONT>

<P align="left">
<B><FONT size="2">(8)&nbsp;Furniture, Equipment and Leasehold
Improvements</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Furniture, equipment and leasehold improvements
at June&nbsp;30, 2003 and December&nbsp;31, 2002 and 2001
consist of the following (dollars in thousands):
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="54%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Useful</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;30,</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Life</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(unaudited)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Computer equipment and software
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3-7 years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32,633</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33,155</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,911</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Office furniture and equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3-10 years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,853</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,739</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,121</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Leasehold improvements
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1-7 years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,859</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,507</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,215</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">49,345</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47,401</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37,247</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accumulated depreciation and amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,781</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,491</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,924</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,564</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,910</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,323</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Depreciation and amortization expense for the six
months ended June&nbsp;30, 2003 and 2002 and for the years ended
December&nbsp;31, 2002, 2001, and 2000 related to furniture,
equipment and leasehold improvements was $4.6&nbsp;million,
$4.0&nbsp;million, $10.1&nbsp;million, $8.0&nbsp;million, and
$4.3&nbsp;million, respectively.
</FONT>

<P align="left">
<B><FONT size="2">(9)&nbsp;Bonds and Notes Payable</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Student Lending Subsidiaries periodically
issue bonds, commercial paper, short-term variable auction rate
notes, taxable student loan asset-backed notes, and other credit
facilities to finance the acquisition of student loans or to
refinance existing debt. Most of the bonds and notes payable are
primarily secured by the student loans receivable, related
accrued interest, and by the amounts on deposit in the accounts
established under the respective bond resolutions or financing
agreements. The student loan interest margin (SLIMS) notes are
secured by the rights to residual cash flows from certain
variable-rate bonds and notes and fixed rate notes. Certain
variable-rate bonds and notes and fixed rate bonds of
$1.0&nbsp;billion, $1.0&nbsp;billion, and $883&nbsp;million at
June&nbsp;30, 2003 and December&nbsp;31, 2002 and 2001,
respectively, are secured by financial guaranty insurance
policies issued by Municipal Bond Investors Assurance
Corporation (MBIA)&nbsp;and Ambac Assurance Corporation. Certain
variable-rate bonds and notes of $144&nbsp;million in 2001 were
also secured by irrevocable letters of credit provided by
Student Loan Marketing Association (SLMA). Effective
January&nbsp;2, 2002, the SLMA irrevocable letters of credit
were replaced with financial guaranty insurance policies issued
by MBIA. Effective November&nbsp;20, 2002, SLMA was replaced as
the liquidity provider with Lloyd&#146;s Bank on
$143&nbsp;million of variable-rate bonds.
</FONT>

<P align="center"><FONT size="2">F-17
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">Nelnet, Inc. and Subsidiaries</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">Notes to Consolidated Financial
Statements&nbsp;&#151; (Continued)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table summarizes outstanding bonds
and notes payable at June&nbsp;30, 2003 and December&nbsp;31,
2002 and 2001 by type of instrument (dollars in thousands):
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="44%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">June&nbsp;30, 2003 (unaudited)</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Carrying</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Interest rate</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">amount</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">range</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Final maturity</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Commercial paper and other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,042,014</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.24% - 1.31%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">09/02/04 - 12/15/06</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Variable-rate bonds and notes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,998,752</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.00% - 2.05%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">07/01/05 - 01/25/37</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fixed-rate notes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">730,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.50% - 5.76%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">09/01/05 - 07/01/12</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fixed-rate bonds
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">192,950</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.88% - 6.60%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">05/01/05 - 06/01/28</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">SLIMS, fixed rates
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">126,508</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.69% - 6.68%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">09/14/12 - 07/02/20</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other secured borrowings
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">89,502</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.34% - 6.00%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">01/10/05 - 11/01/05</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,179,726</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="45%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">December&nbsp;31, 2002</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Carrying</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Interest rate</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">amount</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">range</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Final maturity</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Commercial paper and other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,388,579</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.36% - 1.64%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">05/01/03 - 12/15/06</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Variable-rate bonds and notes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,870,148</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.40% - 2.77%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">07/01/05 - 10/01/36</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fixed-rate notes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">786,700</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.48% - 5.76%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">08/01/05 - 07/01/12</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fixed-rate bonds
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">201,950</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.65% - 6.90%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11/01/03 - 06/01/28</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">SLIMS, fixed rates
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">134,231</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.69% - 6.68%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">09/14/12 - 07/02/20</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other secured borrowings
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">66,074</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.60% - 6.00%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">01/10/03 - 11/01/05</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,447,682</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="45%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">December&nbsp;31, 2001</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Carrying</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Interest rate</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">amount</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">range</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Final maturity</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Commercial paper and other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,200,805</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.80% - 2.76%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">05/01/03 - 05/01/07</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Variable-rate bonds and notes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,428,735</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.44% - 4.22%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">07/01/05 - 10/01/36</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fixed-rate notes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">855,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.48% - 5.76%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">08/01/05 - 07/01/12</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fixed-rate bonds
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">227,874</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.25% - 6.90%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11/01/03 - 06/01/28</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">SLIMS, fixed rates
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">149,788</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.69% - 6.68%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">09/04/12 - 07/02/20</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other secured borrowings
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">64,160</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.52% - 6.00%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">06/30/02 - 11/01/09</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,926,362</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Variable-rate bonds are long-term bonds with
interest rate reset dates ranging from weekly to semi-annually
and from time to time based upon auction rates and national
indices.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company has a $30&nbsp;million line of credit
from an unrelated bank. As of June&nbsp;30, 2003 and
December&nbsp;31, 2002, $30&nbsp;million was outstanding under
this line of credit. The line of credit bears interest at the
prime rate (4.25% at December&nbsp;31, 2002) and now matures
January 2005. Effective January&nbsp;10, 2003, the line of
credit bears interest at LIBOR plus 225 basis points (3.51% at
June&nbsp;30, 2003). Interest is payable quarterly or monthly
depending on the term of the borrowing.
</FONT>

<P align="center"><FONT size="2">F-18
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">Nelnet, Inc. and Subsidiaries</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">Notes to Consolidated Financial
Statements&nbsp;&#151; (Continued)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In May 2002 and October 2002, NELNET SLF
consummated debt offerings of student loan asset-backed notes of
$1.0&nbsp;billion and $1.2&nbsp;billion, respectively. In
connection with these debt offerings, the Company entered into
agreements with certain investment banks pursuant to which the
Company will pay the investment banks a fee equal in the
aggregate to 0.01% and 0.0075% per annum of the principal
balance of the May 2002 and October 2002 notes, respectively.
These fees are for credit enhancements to the notes whereby the
investment banks will provide liquidity advances to the Company
in the instance of disintermediation in the spread between
student loan interest rates and the notes&#146; interest rates
as defined in the agreement. The total amount paid by the
Company under these agreements was approximately $84,000 and $0
during the six months ended June&nbsp;30, 2003 and 2002 and
$72,000 during the year ended December&nbsp;31, 2002.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Bonds and notes outstanding at June&nbsp;30, 2003
are due in varying amounts as follows (dollars in thousands):
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="81%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(unaudited)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,282,196</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2005
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">218,916</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2006
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">152,822</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2007
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">234,760</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2008
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">92,380</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2009 and thereafter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,198,652</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,179,726</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Generally, bonds bearing interest at variable
rates can be redeemed on any interest payment date at par plus
accrued interest. Subject to conversion provisions, all bonds
and notes are subject to redemption prior to maturity at the
option of certain Student Lending Subsidiaries without a
prepayment penalty. These provisions include price, conditions
precedent, and limitations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A Student Lending Subsidiary has irrevocably
escrowed funds to make the remaining principal and interest
payments on previously issued bonds and notes. Accordingly,
neither these obligations nor the escrowed funds are included on
the accompanying consolidated balance sheets. At June&nbsp;30,
2003 and December&nbsp;31, 2002 and 2001, $21.4&nbsp;million,
$20.6&nbsp;million, and $19.2&nbsp;million, respectively, of
defeased debt remained outstanding.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Student Lending Subsidiaries have unused
commitments under the various commercial paper and warehouse
agreements of $713&nbsp;million, $416&nbsp;million, and
$869&nbsp;million at June&nbsp;30, 2003 and December&nbsp;31,
2002 and 2001, respectively. At June&nbsp;30, 2003 and
December&nbsp;31, 2002 and 2001, certain Student Lending
Subsidiaries had various short-term borrowing agreements with a
maximum aggregate stated amount of $2.9&nbsp;billion,
$1.9&nbsp;billion and $2.1&nbsp;billion, respectively.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Certain bond resolutions contain, among other
requirements, covenants relating to restrictions on additional
indebtedness, limits as to direct and indirect administrative
expenses, and maintaining certain financial ratios. Management
believes the Company is in compliance with all covenants of the
bond indentures and related credit agreements.
</FONT>

<P align="left">
<B><FONT size="2">(10)&nbsp;Program Reimbursement
Reserve</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For the six months ended June&nbsp;30, 2003 and
2002 and the years ended December&nbsp;31, 2002, 2001, and 2000,
a provision for losses on program reimbursements of $900,000,
$800,000, $1.6&nbsp;million, $1.2&nbsp;million, and $800,000,
respectively, was recognized, which is included in other
expenses in the accompanying consolidated statements of income.
Other liabilities in the accompanying consolidated balance sheets
</FONT>

<P align="center"><FONT size="2">F-19
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">Nelnet, Inc. and Subsidiaries</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">Notes to Consolidated Financial
Statements&nbsp;&#151; (Continued)</FONT></B>

<P align="left">
<FONT size="2">include $6.7&nbsp;million, $6.1&nbsp;million, and
$5.8&nbsp;million as an allowance for program reimbursements at
June&nbsp;30, 2003 and December&nbsp;31, 2002 and 2001,
respectively.
</FONT>

<P align="left">
<B><FONT size="2">(11)&nbsp;Income Taxes</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Income tax expense for the six months ended
June&nbsp;30, 2003 and 2002 and years ended December&nbsp;31,
2002, 2001, and 2000 consists of the following
components(dollars in thousands):
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="51%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Six months ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Year ended</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">June 30,</FONT></B></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">December 31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2000</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(unaudited)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Federal
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,908</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,318</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33,204</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,440</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,439</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">State
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,362</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,179</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,950</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,303</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">486</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,270</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,497</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">36,154</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,743</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,925</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Federal
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,372</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,726</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,823</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,086</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">State
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(379</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(150</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(245</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(355</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,751</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,876</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,068</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,441</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,519</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,621</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33,086</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,302</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,924</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The actual income tax expense differs from the
&#147;expected&#148; income tax expense, computed by applying
the 35% federal statutory corporate tax rate to income before
income tax expense for the six months ended June&nbsp;30, 2003
and 2002 and the years ended December&nbsp;31, 2002, 2001, and
2000 as shown below (dollars in thousands):
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="51%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Six months ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">June 30,</FONT></B></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Year ended December 31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2000</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(unaudited)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&#147;Expected&#148; income tax expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,610</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,826</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28,437</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,016</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,005</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Increase (decrease) resulting from:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">State tax, net of federal income benefit
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">639</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,326</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,758</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">616</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">317</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of intangible assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,090</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,201</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,766</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,090</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,814</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">180</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(732</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(875</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(420</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(212</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,519</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,621</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33,086</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,302</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,924</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Effective Tax Rate
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41.3</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">39.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">61.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">60.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">F-20
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">Nelnet, Inc. and Subsidiaries</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">Notes to Consolidated Financial
Statements&nbsp;&#151; (Continued)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company&#146;s deferred income tax assets and
liabilities as of June&nbsp;30, 2003 and December&nbsp;31, 2002
and 2001 consisted of the following(dollars in thousands):
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="60%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">December 31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;30,</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(unaudited)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred tax liabilities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Loan origination services
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,441</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,866</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,359</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">511</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">696</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,065</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred tax liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,952</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,562</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,424</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred tax assets:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Student loan reserves
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,412</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,332</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,452</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accrued expenses not currently deductible
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,007</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">701</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Partnership income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,294</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,235</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,264</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Intangible assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,691</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,798</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Securitization transaction
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,543</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,057</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">456</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Unearned revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,103</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">941</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,113</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fixed assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">514</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">400</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">935</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">306</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">452</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">84</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred tax assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,363</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,222</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,016</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net deferred income tax asset
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,411</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,660</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,592</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">No valuation allowance was considered necessary
for the deferred tax assets at June&nbsp;30, 2003 and
December&nbsp;31, 2002 and 2001.
</FONT>

<P align="center"><FONT size="2">F-21
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">Nelnet, Inc. and Subsidiaries</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">Notes to Consolidated Financial
Statements&nbsp;&#151; (Continued)</FONT></B>

<P align="left">
<B><FONT size="2">(12)&nbsp;Fair Value of Financial
Instruments</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table summarizes the fair values of
the Company&#146;s financial instruments at June&nbsp;30, 2003,
December&nbsp;31, 2002 and 2001:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="23%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">June&nbsp;30, 2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">December&nbsp;31, 2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">December&nbsp;31, 2001</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Fair</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Carrying</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Fair</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Carrying</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Fair</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Carrying</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">value</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">value</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">value</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">value</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">value</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">value</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(unaudited)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Financial assets:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and cash equivalents
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47,776</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47,776</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,155</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,155</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">36,440</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">36,440</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restricted cash&nbsp;&#151; due to loan program
    customers
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32,553</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32,553</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">132,375</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">132,375</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">65,792</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">65,792</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restricted cash&nbsp;&#151; held by trustee
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">448,386</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">448,386</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">570,703</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">570,703</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">213,658</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">213,658</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accrued interest Receivable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">191,481</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">191,481</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">177,015</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">177,015</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">180,634</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">180,634</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Student loans receivable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,603,378</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,466,523</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,659,613</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,559,420</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,527,007</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,423,872</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restricted investments&nbsp;&#151; held by trustee
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">131,159</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">131,159</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">173,339</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">173,339</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">121,606</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">121,606</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Financial liabilities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Bonds and notes payable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,223,067</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,179,726</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,471,710</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,447,682</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,044,119</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,926,362</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accrued interest payable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,927</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,927</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,251</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,251</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,145</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,145</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Due to loan program customers
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32,553</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32,553</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">132,375</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">132,375</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">65,792</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">65,792</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest rate swap
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,962</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,962</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="7%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>(a)&nbsp;</I></FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Cash and Cash Equivalents, Restricted
    Cash&nbsp;&#151; Due to Loan Program Customers, Restricted
    Cash&nbsp;&#151; Held by Trustee, Accrued Interest Receivable/
    Payable, and Due to Loan Program Customers</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The carrying amount approximates fair value due
to the variable-rate of interest and/or the short maturities of
these instruments.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="7%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>(b)&nbsp;</I></FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Student Loans Receivable</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The fair value of student loans receivable is
estimated at amounts recently paid by the Company to acquire the
loans in the market.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="7%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>(c)&nbsp;</I></FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Restricted Investments&nbsp;&#151; Held by
    Trustee</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Due to the characteristics of the investments,
there is no available or active market for these types of
financial instruments. These investments are guaranteed and are
purchased and redeemed at par value, which equals their cost.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="7%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>(d)&nbsp;</I></FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Bonds and Notes Payable</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The fair value of the bonds and notes payable is
based on market prices for securities that possess similar
credit risk and interest rate risk.
</FONT>

<P align="center"><FONT size="2">F-22
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">Nelnet, Inc. and Subsidiaries</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">Notes to Consolidated Financial
Statements&nbsp;&#151; (Continued)</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="7%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>(e)&nbsp;</I></FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Derivative Financial
    Instruments</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The fair value of the interest rate swap
agreement, obtained from a market quote from an independent
security broker, was the estimated amount that would have been
paid to terminate the swap agreement.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="7%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>(f)&nbsp;</I></FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Limitations</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The fair value of a financial instrument is the
current amount that would be exchanged between willing parties,
other than in a forced liquidation. Fair value is best
determined based upon quoted market prices. However, in many
instances, there are no quoted market prices for the
Company&#146;s various financial instruments. In cases where
quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash
flows. Accordingly, the fair value estimates may not be realized
in an immediate settlement of the instrument.
SFAS&nbsp;No.&nbsp;107, <I>Disclosures About Fair Value of
Financial Instruments </I>excludes certain financial instruments
and all non-financial instruments from its disclosure
requirements. The fair value estimates, methods, and assumptions
are set forth below.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">(13)&nbsp;</FONT></B></TD>
    <TD>
    <B><FONT size="2">Interest Rate Swap</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Interest rate swap agreements involve the
exchange of fixed and floating rate risk payments without the
exchange of the underlying notional amounts on which the
interest rate payments are calculated. During 2001, the Company
entered into an interest rate swap arrangement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The notional amount under the terms of the
agreement was $500&nbsp;million. In marking the notional amount
to market, based on the current interest rate environment, a
liability of approximately $3&nbsp;million was recorded on the
Company&#146;s financial statements and was included in other
liabilities in the accompanying consolidated balance sheet at
December&nbsp;31, 2001. Under the terms of the agreement, the
Company received payments based on a variable rate tied to the
30-day LIBOR and made payments based on a fixed interest rate of
3.06%. For the six months ended June&nbsp;30, 2002 and years
ended December&nbsp;31, 2002 and 2001, the Company recognized an
unrealized gain (loss)&nbsp;of approximately $579,000, $579,000,
and $(3.0)&nbsp;million, respectively, included in other
expenses in the accompanying consolidated statements of income.
The swap agreement expired in June 2002.
</FONT>

<P align="left">
<B><FONT size="2">(14)&nbsp;Employee Benefit Plans</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">NELN has a 401(k) savings plan which covers
substantially all of their employees. Employees may contribute
up to 15% of their pre-tax salary, subject to IRS limitations.
The Company made contributions to the plan of approximately
$780,000, $584,000, $1.4&nbsp;million, $518,000, and $537,000 in
the six months ended June&nbsp;30, 2003 and 2002 and the years
ended December&nbsp;31, 2002, 2001, and 2000, respectively.
UB&#38;T serves as the trustee for the plan. NMS had a separate
401(k) savings plan in 2001. NMS made contributions to the plan
of approximately $154,000 and $100,000 for 2001 and 2000,
respectively. GuaranTec also had a separate 401(k) savings plan
in 2001. GuaranTec made contributions to the plan of
approximately $65,000 for the period July&nbsp;1, 2001 to
December&nbsp;31, 2001. Effective January&nbsp;1, 2002,
employees participating in the NMS and GuaranTec plans became
eligible to participate in the NELN&nbsp;401(k) plan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">EFS maintained two retirement plans which covered
substantially all employees. The first was a 401(k) savings plan
and the second was a defined contribution pension plan, which is
an employee stock ownership plan (ESOP). Upon acquisition by
NELN, the ESOP sold its shares to NELN and distribution of the
cash occurred in 2003. EFS made contributions to the plan of
approximately $82,000 and $208,000
</FONT>

<P align="center"><FONT size="2">F-23
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">Nelnet, Inc. and Subsidiaries</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">Notes to Consolidated Financial
Statements&nbsp;&#151; (Continued)</FONT></B>

<P align="left">
<FONT size="2">for the six months ended June&nbsp;30, 2002 and
the year ended December&nbsp;31, 2002, respectively. Effective
April&nbsp;1, 2002, employees participating in the
EFS&nbsp;401(k) savings plan became eligible to participate in
the NELN&nbsp;401(k) plan.
</FONT>

<P align="left">
<B><FONT size="2">(15)&nbsp;Commitments</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Student Lending Subsidiaries acquire eligible
loans on a regular basis from lending institutions as part of
their normal business operations. At June&nbsp;30, 2003 and
December&nbsp;31, 2002 and 2001, NELN committed to purchase up
to $193&nbsp;million, $227&nbsp;million, and $277&nbsp;million,
respectively, in student loans at current market rates upon the
sellers&#146; request under various agreements through
September&nbsp;30, 2004. At June&nbsp;30, 2003 and
December&nbsp;31, 2002 and 2001, EFS committed to purchase up to
$40.3&nbsp;million, $39.2&nbsp;million, and $57.7&nbsp;million,
respectively, in student loans at current market rates under
various agreements that renew automatically.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At June&nbsp;30, 2003 and December&nbsp;31, 2002
and 2001, MELMAC had commitments to extend credit for
educational loans of $680,000, $26.5&nbsp;million, and
$29.8&nbsp;million, respectively. Commitments to extend credit
are agreements to lend to a borrower as long as there is no
violation of any condition established in the commitment
agreement. Commitments generally have fixed expiration dates or
other termination clauses. MELMAC uses the same credit policies
in making commitments as it does for making student loans. If
these commitments are exercised, the resulting loans will be
subject to the guarantee of the Finance Authority of Maine and
reinsured by the Department of Education.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company is committed under noncancelable
operating leases for office and warehouse space and equipment.
Total rental expense incurred by the Company in the six months
ended June&nbsp;30, 2003 and 2002 and the years ended
December&nbsp;31, 2002, 2001, and 2000 was $3.1&nbsp;million,
$3.6&nbsp;million, $6.9&nbsp;million, $3.2&nbsp;million, and
$3.0&nbsp;million, respectively. Minimum future rentals under
noncancelable operating leases are shown below (dollars in
thousands):
</FONT>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="87%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2003
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,141</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,812</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2005
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,727</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2006
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,103</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2007
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,255</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2008 and thereafter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">578</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,616</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company has shareholder agreements with the
holders of the vast majority of its common stock. These
shareholder agreements restrict the transfer of common stock
through sale, pledge, encumbrance or other transfer by the
shareholder, without the written consent of the holders of a
majority of the pre-recapitalization common stock. The Company
has an option to redeem all or a portion of a shareholder&#146;s
interest in the event that, among other things, the shareholder
ceases to be an officer, director or employee of the Company.
The purchase price, if the Company elects to exercise its
redemption option, is the book value of the shares being
redeemed. The shareholder agreements will terminate upon the
consummation of the Company&#146;s initial public offering.
</FONT>

<P align="left">
<B><FONT size="2">(16)&nbsp;Related Parties</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Income earned by Nelnet from loan servicing
provided to a related bank in the six months ended June&nbsp;30,
2003 and 2002 and the years ended December&nbsp;31, 2002, 2001,
and 2000 was $2.2&nbsp;million, $3.6&nbsp;million,
$5.5&nbsp;million, $4.7&nbsp;million and $3.2&nbsp;million,
respectively. As of June&nbsp;30, 2003 and as of
</FONT>

<P align="center"><FONT size="2">F-24
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">Nelnet, Inc. and Subsidiaries</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">Notes to Consolidated Financial
Statements&nbsp;&#151; (Continued)</FONT></B>

<P align="left">
<FONT size="2">December&nbsp;31, 2002 and 2001, accounts
receivable includes approximately $320,000, $371,000, and
$382,000, respectively, from this bank for loan servicing.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company incurs a consulting management fee
for services provided by an entity that is a minority
stockholder of the Company. The Company incurred management fee
expenses of $900,000 and $900,000 for the six months ended
June&nbsp;30, 2003 and 2002 and $1.75&nbsp;million,
$1.8&nbsp;million and $2.5&nbsp;million for the years ended
December&nbsp;31, 2002, 2001, and 2000, respectively.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company participates in the Short-Term
Federal Investment Trust (STFIT) of the Student Loan Trust
Division of a related bank. The balance as of June&nbsp;30, 2003
was $25.0&nbsp;million and as of December&nbsp;31, 2002 and 2001
was $12.9&nbsp;million and $13.3&nbsp;million, respectively, and
is included in cash and cash equivalents on the accompanying
consolidated balance sheets. The Company&#146;s participation in
the STFIT had similar terms and investment yields as those
prevailing for other nonaffiliated customers.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In 2001, the Company entered into an agreement
with 5280 Solutions, Inc. (5280), an entity 50% owned by NELN,
to provide certain software development and technology support
services. During the six months ended June&nbsp;30, 2003 and
2002 and the years ended December&nbsp;31, 2002 and 2001, the
Company incurred contract programming expenses of
$2.4&nbsp;million, $4.1&nbsp;million, $7.0&nbsp;million, and
$11.8&nbsp;million, respectively, for these services. At
June&nbsp;30, 2003 and December&nbsp;31, 2002 and 2001,
$354,000, $1.1&nbsp;million, and $1.6&nbsp;million,
respectively, was payable to 5280 and is included in other
liabilities in the accompanying consolidated balance sheets.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In March 2002, the Company acquired a 50%
interest in FirstMark Services LLC (FirstMark). FirstMark agreed
to provide subcontracting servicing functions on the
Company&#146;s behalf with respect to private loan servicing.
The Company paid FirstMark fees of approximately
$4.6&nbsp;million in 2002. FirstMark owed the Company $850,000
and $700,000 at June&nbsp;30, 2003 and December&nbsp;31, 2002,
respectively.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During the six months ended June&nbsp;30, 2003
and 2002 and the years ended December&nbsp;31, 2002, 2001, and
2000, the Student Lending Subsidiaries purchased student loans
of $380&nbsp;million, $132&nbsp;million, $378&nbsp;million,
$666&nbsp;million, and $536&nbsp;million, respectively, from a
related bank. The purchases from this bank were made on terms
similar to those made with unrelated entities. During the six
months ended June&nbsp;30, 2003 and 2002 and the years ended
December&nbsp;31, 2002 and 2001, this bank reimbursed the
Company for approximately $536,000, $367,000, $519,000 and
$1.1&nbsp;million, respectively, for student loan marketing
services, and during the year ended December&nbsp;31, 2000, the
Company reimbursed the bank $2.6&nbsp;million for such services.
During 2001 and 2000, the Company also incurred $750,000 and
$2.7&nbsp;million for software advisory, consulting services and
management fees provided by this bank.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company had a $30&nbsp;million unsecured line
of credit to provide operating funds from an affiliated company.
The line of credit renews automatically for one-year terms. The
Company owed $29&nbsp;million of principal and $56,000 of
accrued interest under the line of credit at December&nbsp;31,
2001. There was no amount outstanding at December&nbsp;31, 2002.
The line of credit was terminated in 2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In August 2001, the Company provided a guarantee
of liabilities of a bank affiliated with the Company through
certain common shareholders and a director in the amount of
$10&nbsp;million. The Company is paid a fee for this
indemnification. The Company does not believe it is probable
that the Company will be required to make payments on the
guarantee. Thus, no liability has been accrued for a loss
related to the Company&#146;s obligation under this guarantee
arrangement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During the six months ended June&nbsp;30, 2003
and 2002 and the year ended December&nbsp;31, 2002, the Company
paid a related party through common ownership $503,000,
$782,000, and $1.4&nbsp;million for services related to
financings. These payments have been recorded as debt issuance
costs and are included in other assets in the accompanying
consolidated balance sheets.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During the six months ended June&nbsp;30, 2003
and 2002 and the years ended December&nbsp;31, 2002, 2001, and
2000, the Company incurred consulting fees of $0, $1.1 million,
$1.65&nbsp;million, $3&nbsp;million, and
</FONT>

<P align="center"><FONT size="2">F-25
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">Nelnet, Inc. and Subsidiaries</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">Notes to Consolidated Financial
Statements&nbsp;&#151; (Continued)</FONT></B>

<P align="left">
<FONT size="2">$2.6&nbsp;million, respectively, for services
provided by a related party through common ownership in
connection with eligible loan purchases. During the six months
ended June&nbsp;30, 2003 and 2002 and the years ended
December&nbsp;31, 2002, 2001, and 2000, the Company incurred
consulting fees of $1.8&nbsp;million, $1.2&nbsp;million,
$2.4&nbsp;million, $2.3&nbsp;million, and $2.8&nbsp;million,
respectively, for services provided by a significant
shareholder. During 2001, NMS and GuaranTec had a service
agreement with InTuition Services, Inc. (Services), an entity
related through common shareholders prior to acquisition,
whereby Services provided certain management and other
operational support services for NMS and GuaranTec. Amounts paid
by NMS and GuaranTec for such services, including certain
occupancy related expenses allocated to NMS and GuaranTec, were
$9.7&nbsp;million in 2001. At December&nbsp;31, 2001, NMS and
GuaranTec owed Services $1.6&nbsp;million, which is included in
other liabilities in the accompanying consolidated balance
sheet. During 2002, Nelnet Corp. provided these operational
support services.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During 2001, NELN owned $10&nbsp;million in
preferred stock of a majority owned subsidiary of a significant
shareholder. The preferred stock paid a 2% annual cumulative
dividend and was included in other assets on the accompanying
consolidated balance sheet at December&nbsp;31, 2001. During
2002, NELN sold the preferred stock to Nelnet at carrying value.
Nelnet transferred its ownership in the preferred stock to
Infovisa and subsequently sold Infovisa to a significant
shareholder at carrying value, which approximated fair value.
The operating results of Infovisa were not significant to the
consolidated financial statements.
</FONT>

<P align="left">
<B><FONT size="2">(17)&nbsp;Recently Issued Accounting
Pronouncements</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">(a)&nbsp;Early Extinguishment of
    Debt</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In April 2002, the FASB issued SFAS No.&nbsp;145,
<I>Rescission of FASB Statements Nos.&nbsp;4, 44 and 64,
Amendment of FASB Statement No.&nbsp;13, and Technical
Corrections</I>. This statement rescinds FASB Statement
No.&nbsp;4, <I>Reporting Gains and Losses from Extinguishment of
Debt </I>and an amendment of that statement,<I> </I>FASB
Statement No.&nbsp;64, <I>Extinguishments of Debt Made to
Satisfy Sinking-Fund Requirements</I>. The statement also
rescinds FASB Statement No.&nbsp;44, <I>Accounting for
Intangible Assets of Motor Carriers</I> and amends FASB
Statement No.&nbsp;13, <I>Accounting for Leases </I>to eliminate
an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for
certain lease modifications which have economic effects which
are similar to sale-leaseback transactions. This statement also
amends other existing authoritative pronouncements to make
various technical corrections, clarify meanings, or describe
their applicability under changed conditions. The provisions of
SFAS No.&nbsp;145 related to the rescission of FASB No.&nbsp;4
are effective for fiscal years beginning after May&nbsp;15,
2002. The provisions of SFAS No.&nbsp;145 related to FASB
No.&nbsp;13 are effective for transactions occurring after
May&nbsp;15, 2002. All other provisions of SFAS No.&nbsp;145 are
effective for financial statements issued on or after
May&nbsp;15, 2002. The Company does not expect to have any
material changes to its financial statements as a result of SFAS
No.&nbsp;145.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">(b)&nbsp;Accounting for Costs Associated
    with Exit or Disposal Activities</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In June 2002, the FASB issued SFAS No.&nbsp;146,
<I>Accounting for Costs Associated with Exit or Disposal
Activities</I>. SFAS No.&nbsp;146 requires that a liability for
costs associated with exit or disposal activities be recognized
when the liability is incurred. Existing generally accepted
accounting principles provide for the recognition of such costs
at the date of management&#146;s commitment to an exit plan. In
addition, SFAS No.&nbsp;146 requires that the liability be
measured at fair value and be adjusted for changes in estimated
cash flows. The provisions of the new standard are effective for
exit or disposal activities initiated after December&nbsp;31,
2002. It is not expected that SFAS No.&nbsp;146 will materially
affect the Company&#146;s financial statements.
</FONT>

<P align="center"><FONT size="2">F-26
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">Nelnet, Inc. and Subsidiaries</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">Notes to Consolidated Financial
Statements&nbsp;&#151; (Continued)</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">(c)&nbsp;Accounting for Acquisitions of
    Certain Financial Institutions</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In October 2002, the FASB issued Statement
No.&nbsp;147, <I>Acquisitions of Certain Financial
Institutions</I>, which amends Statement No.&nbsp;72,
<I>Accounting for Certain Acquisitions of Banking and Thrift
Institutions</I>, Statement No.&nbsp;144, <I>Accounting for
Impairment or Disposal of Long-Lived Assets</I>, and FASB
Interpretation No.&nbsp;9. Except for transactions between two
or more mutual enterprises, this Statement removes acquisitions
of financial institutions from the scope of both Statement
No.&nbsp;72 and Interpretation&nbsp;9 and requires that those
transactions be accounted for in accordance with FASB Statements
No.&nbsp;141, <I>Business Combinations</I>, and No.&nbsp;142,
<I>Goodwill and Other Intangible Assets</I>. Thus, the
requirement in paragraph&nbsp;5 of Statement No.&nbsp;72 to
recognize any excess of the fair value of liabilities assumed
over the fair value of tangible and identifiable intangible
assets acquired as an unidentifiable intangible asset of a
business no longer applies to acquisitions within the scope of
this Statement. In addition, this Statement amends Statement
No.&nbsp;144 to include in its scope long-term
customer-relationship intangible assets of financial
institutions such as depositor- and borrower-relationship
intangible assets and credit cardholder intangible assets.
Consequently, those intangible assets are subject to the same
undiscounted cash flow recoverability test and impairment loss
recognition and measurement provisions that Statement
No.&nbsp;144 requires for other long-lived assets that are held
and used. With some exceptions, the requirements of Statement
No.&nbsp;147 were effective October&nbsp;1, 2002. The adoption
of this Statement did not have a material impact on the
Company&#146;s financial statements.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">(d)&nbsp;Accounting for Stock-Based
    Compensation</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In December 2002, the FASB issued SFAS
No.&nbsp;148, <I>Accounting for Stock-Based
Compensation&nbsp;&#151; Transition and Disclosure, an amendment
to FASB Statement No.&nbsp;123</I>. SFAS No.&nbsp;148 requires
annual disclosures about the method of accounting for
stock-based compensation and tabular information about the
effect of the method accounting for stock-based compensation on
net income and earnings per share, including pro forma amounts,
in the &#147;Summary of Significant Accounting Policies.&#148;
On a quarterly basis, SFAS No.&nbsp;148 requires prominent
disclosure in tabular form of the effect of the method of
stock-based compensation on net income and earnings per share
for all periods presented as accounted for under APB Opinion
No.&nbsp;25. This statement is effective for financial
statements for fiscal years ending after December&nbsp;15, 2002.
The disclosures required by SFAS No.&nbsp;148 will be made when
required for shares issued under our employee share purchase
plan.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">(e)&nbsp;Accounting for
    Guarantees</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In November 2002, the FASB issued FASB
Interpretation (FIN) No.&nbsp;45, <I>Guarantor&#146;s Accounting
and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others</I>. FIN No.&nbsp;45
identifies characteristics of certain guarantee contracts and
requires that a liability be recognized at fair value at the
inception of such guarantees for the obligations undertaken by
the guarantor. Additional disclosures also are prescribed for
certain guarantee contracts. The initial recognition and initial
measurement provisions of FIN No.&nbsp;45 are effective for
these guarantees issued or modified after December&nbsp;31,
2002. The disclosure requirements of FIN No.&nbsp;45 were
effective for the Company at December&nbsp;31, 2002. Disclosure
required by FIN No.&nbsp;45 relating to the Company&#146;s
guarantee contracts is included in the Company&#146;s financial
statements. We do not believe such guarantees require a
liability to be recognized.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">(f)&nbsp;Consolidation of Variable Interest
    Entities</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In January 2003, the FASB issued FIN No.&nbsp;46,
<I>Consolidation of Variable Interest Entities</I>. FIN
No.&nbsp;46 clarifies the application of Accounting Research
Bulletin No.&nbsp;51, <I>Consolidated Financial Statements</I>,
to certain entities in which equity investors do not have the
characteristics of a controlling
</FONT>

<P align="center"><FONT size="2">F-27
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">Nelnet, Inc. and Subsidiaries</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">Notes to Consolidated Financial
Statements&nbsp;&#151; (Continued)</FONT></B>

<P align="left">
<FONT size="2">financial interest or do not have sufficient
equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties
(&#147;variable interest entities&#148;). Variable interest
entities (VIEs) are required to be consolidated by their primary
beneficiaries if they do not effectively disperse risks among
parties involved. The primary beneficiary of a VIE is the party
that absorbs a majority of the entity&#146;s expected losses,
receives a majority of its expected residual returns, or both,
as a result of holding variable interests. FIN No.&nbsp;46 also
requires new disclosures about VIEs. The Company does not
believe, at this time, that FIN No.&nbsp;46 will have a material
effect on its financial statements.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">(g)&nbsp;Statement of Financial Accounting
    Standards No.&nbsp;149&nbsp;&#151; Amendment of Statement 133 on
    Derivative Instruments and Hedging Activities</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">This Statement amends and clarifies financial
accounting and reporting for derivative instruments, including
certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging
activities under FASB Statement No.&nbsp;133, <I>Accounting for
Derivative Instruments and Hedging Activities</I>. This
Statement is effective for contracts entered into or modified
after June&nbsp;30, 2003, except as stated below and for hedging
relationships designated after June&nbsp;30, 2003. In addition,
except as stated below, all provisions of this Statement should
be applied prospectively. The provisions of this Statement that
relate to Statement 133 Implementation Issues that have been
effective for fiscal quarters that began prior to June&nbsp;15,
2003 should continue to be applied in accordance with their
respective effective dates. In addition, paragraphs&nbsp;7(a)
and 23(a) of Statement&nbsp;133 Implementation Issues, which
relate to forward purchases or sales of when-issued securities
or other securities that do not yet exist, should be applied to
both existing contracts and new contracts entered into after
June&nbsp;30, 2003. The Company does not believe FAS
No.&nbsp;149 will have a significant impact on its financial
statements.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">(h)&nbsp;Accounting for Certain Financial
    Instruments with Characteristics of both Liabilities and
    Equity</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In May 2003, the FASB issued SFAS No.&nbsp;150,
<I>Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. </I>SFAS
No.&nbsp;150 establishes standards for how an issuer classifies
and measures certain financial instruments with characteristics
of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a
liability (or an asset in some circumstances). SFAS No.&nbsp;150
is effective for financial instruments entered into or modified
after May&nbsp;31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after
June&nbsp;15, 2003. The Company will adopt the standard on
July&nbsp;1, 2003. The Company does not believe, that SFAS
No.&nbsp;150 will have a significant impact, if any, on its
financial statements.
</FONT>

<P align="center"><FONT size="2">F-28
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">Nelnet, Inc. and Subsidiaries</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">Notes to Consolidated Financial
Statements&nbsp;&#151; (Continued)</FONT></B>

<P align="left">
<B><FONT size="2">(18)&nbsp;Condensed Parent Company Financial
Statements</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">The following represents the condensed balance
sheets as of December&nbsp;31, 2002 and 2001 and condensed
statements of income and cash flows for each of the years in the
three-year period ended December&nbsp;31, 2002 for Nelnet, Inc.
(formerly Nelnet Loan Services, Inc.).</FONT></B>

<P align="center">
<B><FONT size="2">Balance Sheets</FONT></B>

<DIV align="center">
<B><FONT size="2">(Parent Company Only)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">December&nbsp;31, 2002 and 2001</FONT></B>
</DIV>

<DIV align="center">
<I><FONT size="2">(Dollars in Thousands)</FONT></I>
</DIV>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="69%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Assets</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current assets:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,137</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">865</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restricted cash&nbsp;&#151; due to loan program
    customers
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">132,375</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">65,792</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Investment in subsidiary
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">71,064</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28,111</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts receivable and other (net of allowance
    for doubtful accounts of $115 in 2002 and $121 in 2001)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,151</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,413</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Due from subsidiary and its affiliates
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,110</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,464</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income taxes receivable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,788</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,538</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Capitalized software, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,127</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">556</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,949</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,863</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Intangible asset, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">508</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,169</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fixed assets, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,261</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,060</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">254,209</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">142,092</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="11"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Liabilities and Shareholders&#146;
    Equity</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Liabilities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts payable and accrued expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,558</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,779</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Program reimbursement reserve
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,154</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,150</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Due to loan program customers
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">132,375</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">65,792</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,185</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">145,087</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">78,906</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Shareholders&#146; equity:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Preferred stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Common stock:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Class A
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">309</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">309</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Class B
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">140</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">140</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Additional paid-in capital
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">52,714</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">52,714</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Retained earnings
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">55,959</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,023</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total shareholders&#146; equity
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">109,122</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">63,186</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total liabilities and shareholders&#146; equity
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">254,209</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">142,092</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">F-29
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">Nelnet, Inc. and Subsidiaries</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">Notes to Consolidated Financial
Statements&nbsp;&#151; (Continued)</FONT></B>

<P align="center">
<B><FONT size="2">Statements of Income</FONT></B>

<DIV align="center">
<B><FONT size="2">(Parent Company Only)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">Years Ended December&nbsp;31, 2002, 2001 and
2000</FONT></B>
</DIV>

<DIV align="center">
<I><FONT size="2">(Dollars in Thousands)</FONT></I>
</DIV>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="61%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2000</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Revenues:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Loan servicing
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">113,477</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">83,352</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">81,207</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other operating
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,712</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,170</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,124</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">118,189</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">87,522</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">85,331</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Expenses:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Salaries and benefits
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">38,692</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">43,382</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">49,931</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">67,417</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47,688</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33,907</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">106,109</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">91,070</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">83,838</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net operating income (loss)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,080</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,548</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,493</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Nonoperating income, interest income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,515</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,121</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,807</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income before income tax expense, preacquisition
    earnings and equity in earnings in subsidiaries
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,595</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,427</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,300</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income tax expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,194</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,482</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,050</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income before deducting preacquisition earnings
    and equity in earnings in subsidiaries
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,401</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,909</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,250</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Preacquisition earnings, net of taxes of $1,104
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,775</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income (loss) before equity in earnings in
    subsidiaries
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,401</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,909</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(525</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Equity in earnings of subsidiaries
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">42,137</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,056</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,620</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">48,538</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,147</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,095</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">F-30
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">Nelnet, Inc. and Subsidiaries</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">Notes to Consolidated Financial
Statements&nbsp;&#151; (Continued)</FONT></B>

<P align="center">
<B><FONT size="2">Statements of Cash Flows</FONT></B>

<DIV align="center">
<B><FONT size="2">(Parent Company Only)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">Years Ended December&nbsp;31, 2002, 2001 and
2000</FONT></B>
</DIV>

<DIV align="center">
<I><FONT size="2">(Dollars in Thousands)</FONT></I>
</DIV>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="57%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2000</FONT></B></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash flows from operating activities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">48,538</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,147</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,095</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Adjustments to reconcile net income to net cash
    flows from operating activities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciation and amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,890</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,714</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,478</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred income tax benefit
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">471</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(458</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Provision for losses on program reimbursements
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,502</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">600</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">440</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net (gain) loss on disposal of fixed assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(234</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Equity in earnings of subsidiaries and equity
    method investment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(39,152</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,055</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,722</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Decrease (increase) in accounts receivable and
    other, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,564</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(228</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,927</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Decrease (increase) in due from subsidiaries
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8,713</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,363</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,957</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Decrease in other assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,695</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">421</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">382</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Increase in income taxes receivable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,302</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(10,770</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,585</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Increase in accounts payable and accrued expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,369</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,731</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,033</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Increase (decrease) in deferred revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(295</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">118</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Decrease in other liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,427</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(654</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(374</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net cash flows provided by operating activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,173</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,282</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,828</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash flows from investing activities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">For acquisition of InTuition, Inc. assets and
    liabilities, less cash acquired
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,776</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash received from sale of fixed assets to Nelnet
    Corporation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,818</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash received on sale of Infovisa
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,051</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Purchase of preferred stock of affiliate
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(10,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Purchases of fixed assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,004</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,003</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proceeds from disposition of fixed assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">250</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Investment in equity method investee
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net cash flows provided by (used in) investing
    activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">93</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,759</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,003</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash flows from financing activities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proceeds from issuance of common stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,010</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Dividend distribution
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,994</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net cash flows provided by (used in) financing
    activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,994</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,010</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net increase (decrease) in cash and cash
    equivalents
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">272</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">533</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,175</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and cash equivalents, beginning of year
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">865</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">332</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,507</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and cash equivalents, end of year
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,137</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">865</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">332</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Supplemental cash flow information, cash paid for
    income tax
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,677</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,709</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,753</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">F-31
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">Nelnet, Inc. and Subsidiaries</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">Notes to Consolidated Financial
Statements&nbsp;&#151; (Continued)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company is limited in the amount of funds
that can be transferred to it by its subsidiaries through
intercompany loans, advances, or cash dividends. These
limitations relate to the restrictions by trust indentures under
the Student Lending Subsidiaries debt financing arrangements.
The amounts of cash and investments restricted in the respective
reserve accounts of the Student Lending Subsidiaries are shown
on the consolidated balance sheets as restricted cash and
investments.
</FONT>

<P align="left">
<B><FONT size="2">(19)&nbsp;Subsequent Event&nbsp;&#151;
Recapitalization</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Effective August&nbsp;14, 2003, the shareholders
of the Company approved amended and restated articles of
incorporation. The amended and restated articles of
incorporation effected a recapitalization of the Company whereby
each share of Class&nbsp;A voting common stock, and shares of
Class&nbsp;B non-voting common stock held by two principal
shareholders and a related entity (the Principal Shareholders),
was converted into 210&nbsp;shares of new Class&nbsp;B common
stock, and each share of Class&nbsp;B nonvoting common stock
(other than these owners by the Principal Shareholders) was
converted into 210&nbsp;shares of new Class&nbsp;A common stock.
Also, effective with the conversion of the Class&nbsp;B shares
to Class A, certain former Class&nbsp;B shareholders elected to
convert their new Class&nbsp;B shares into new Class&nbsp;A
shares. The new Class&nbsp;B common stock has ten votes per
share, and the new Class&nbsp;A common stock has one vote per
share. Each Class&nbsp;B share is convertible at any time at the
holder&#146;s option into one Class&nbsp;A share. With the
exception of the voting rights and the conversion feature, the
Class&nbsp;A and Class&nbsp;B shares are identical in terms of
other rights, including dividend and liquidation rights. The
Company&#146;s shareholders&#146; equity has been restated to
reflect the new capital stock structure for all periods
presented.
</FONT>

<P align="center"><FONT size="2">F-32
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<!-- link1 "ANNEX A" -->

<P align="right">
<B><FONT size="2">ANNEX A</FONT></B>

<!-- link1 "THE FEDERAL FAMILY EDUCATION LOAN PROGRAM" -->

<P align="center">
<B><FONT size="2">THE FEDERAL FAMILY EDUCATION LOAN
PROGRAM</FONT></B>

<P align="left">
<B><FONT size="2">The Federal Family Education Loan
Program</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Higher Education Act provides for a program
of direct federal insurance for student loans as well as
reinsurance of student loans guaranteed or insured by state
agencies or private non-profit corporations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Higher Education Act currently authorizes
certain student loans to be covered under the Federal Family
Education Loan Program. The 1998 Amendments to the Higher
Education Act extended the authorization for the FFEL Program
through September&nbsp;30, 2004. Congress has extended similar
authorization dates in prior versions of the Higher Education
Act. However, the current authorization dates may not again be
extended and the other provisions of the Higher Education Act
may not be continued in their present form.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Generally, a student is eligible for loans made
under the FFEL Program only if he or she:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">has been accepted for enrollment or is enrolled
    in good standing at an eligible institution of higher education;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">is carrying or planning to carry at least
    one-half the normal full-time workload for the course of study
    the student is pursuing as determined by the institution;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">has agreed to promptly notify the holder of the
    loan of any address change; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">meets the applicable &#147;needs&#148;
    requirements.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Eligible institutions include higher educational
institutions and vocational schools that comply with specific
federal regulations. Each loan is to be evidenced by an
unsecured note.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Higher Education Act also establishes maximum
interest rates for each of the various types of loans. These
rates vary not only among loan types, but also within loan types
depending upon when the loan was made or when the borrower first
obtained a loan under the FFEL Program. The Higher Education Act
allows lesser rates of interest to be charged.
</FONT>

<P align="left">
<B><FONT size="2">Types of Loans</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Four types of loans are currently available under
the FFEL Program:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Stafford loans,
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Unsubsidized Stafford loans,
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">PLUS loans, and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Consolidation loans.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">These loan types vary as to eligibility
requirements, interest rates, repayment periods, loan limits and
eligibility for interest subsidies and special allowance
payments. Some of these loan types have had other names in the
past. References to these various loan types include, where
appropriate, their predecessors.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The primary loan under the FFEL Program is the
subsidized Stafford loan. Students who are not eligible for
subsidized Stafford loans based on their economic circumstances
may be able to obtain unsubsidized Stafford loans. Parents of
students may be able to obtain PLUS loans. Consolidation loans
are available to borrowers with existing loans made under the
FFEL Program and other federal programs to consolidate repayment
of the borrower&#146;s existing loans. Prior to July&nbsp;1,
1994, the FFEL Program also offered SLS loans to graduate and
professional students and independent undergraduate students
and, under certain circumstances, dependent undergraduate
students, to supplement their Stafford loans.
</FONT>

<P align="center"><FONT size="2">A-1
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="left">
<B><FONT size="2">Subsidized Stafford Loans</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">General. </FONT></I><FONT size="2">Subsidized
Stafford loans are eligible for reinsurance under the Higher
Education Act if the eligible student to whom the loan is made
has been accepted or is enrolled in good standing at an eligible
institution of higher education or vocational school and is
carrying at least one-half the normal full-time workload at that
institution. Subsidized Stafford loans have limits as to the
maximum amount which may be borrowed for an academic year and in
the aggregate for both undergraduate and graduate/ professional
study. Both aggregate limitations exclude loans made under the
SLS and PLUS programs. The Secretary of Education has discretion
to raise these limits to accommodate students undertaking
specialized training requiring exceptionally high costs of
education.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Subsidized Stafford loans are generally made only
to student borrowers who meet the needs tests provided in the
Higher Education Act. Provisions addressing the implementation
of needs analysis and the relationship between unmet need for
financing and the availability of subsidized Stafford loan
funding have been the subject of frequent and extensive
amendment in recent years. Further amendment to such provisions
may materially affect the availability of Subsidized Stafford
loan funding to borrowers or the availability of subsidized
Stafford loans for secondary market acquisition.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Interest rates for subsidized Stafford loans.
</FONT></I><FONT size="2">For a Stafford loan made prior to
July&nbsp;1, 1994, the applicable interest rate for a borrower
who, on the date the promissory note was signed, did not have an
outstanding balance on a previous FFELP loan:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(1)&nbsp;is 7% per annum for a loan covering a
    period of instruction beginning before January&nbsp;1,1981;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(2)&nbsp;is 9% per annum for a loan covering a
    period of instruction beginning on or before January&nbsp;1,
    1981, but before September&nbsp;13, 1983;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(3)&nbsp;is 8% per annum for a loan covering a
    period of instruction beginning on or after September&nbsp;13,
    1983, but before July&nbsp;1, 1988;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(4)&nbsp;is 8% per annum for the period from the
    disbursement of the loan to the date which is four years after
    the loan enters repayment, for a loan made prior to
    October&nbsp;1, 1992, covering a period of instruction beginning
    on or after July&nbsp;1, 1988, and thereafter shall be adjusted
    annually, and for any 12-month period commencing on a
    July&nbsp;1 shall be equal to the bond equivalent rate of 91-day
    U.S.&nbsp;Treasury bills auctioned at the final auction prior to
    the preceding June&nbsp;1, plus 3.25% per annum (but not to
    exceed 10% per annum); or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(5)&nbsp;for a loan made on or after
    October&nbsp;1, 1992 shall be adjusted annually, and for any
    12-month period commencing on a July&nbsp;1 shall be equal to
    the bond equivalent rate of 91-day U.S.&nbsp;Treasury bills
    auctioned at the final auction prior to the preceding
    June&nbsp;1, plus 3.1% per annum (but not to exceed 9% per
    annum).
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For a Stafford loan made prior to July&nbsp;1,
1994, the applicable interest rate for a borrower who, on the
date the promissory note evidencing the loan was signed, had an
outstanding balance on a previous loan made insured or
guaranteed under the FFEL Program:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(1)&nbsp;for a loan made prior to July&nbsp;23,
    1992 is the applicable interest rate on the previous loan or, if
    the previous loan is not a Stafford loan, 8% per annum or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(2)&nbsp;for a loan made on or before
    July&nbsp;23, 1992 shall be adjusted annually, and for any
    twelve month period commencing on a July&nbsp;1 shall be equal
    to the bond equivalent rate of 91-day
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">A-2
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<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">U.S.&nbsp;Treasury bills auctioned at the final
    auction prior to the preceding June&nbsp;1, plus 3.1% per annum
    but not to exceed:
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">7% per annum in the case of a Stafford loan made
    to a borrower who has a loan described in clause&nbsp;(1)above;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">8% per annum in the case of:
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="3%"></TD>
    <TD width="92%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#151;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">a Stafford loan made to a borrower who has a loan
    described in clause&nbsp;(3) above,
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#151;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">a Stafford loan which has not been in repayment
    for four years and which was made to a borrower who has a loan
    described in clause&nbsp;(4) above,
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#151;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">a Stafford loan for which the first disbursement
    was made prior to December&nbsp;20, 1993 to a borrower whose
    previous loans do not include a Stafford loan or an unsubsidized
    Stafford loan;
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">9% per annum in the case of a Stafford loan made
    to a borrower who has a loan described in clauses&nbsp;(2) or
    (5) above or a Stafford loan for which the first disbursement
    was made on or after December&nbsp;20, 1993 to a borrower whose
    previous loans do not include a Stafford loan or an unsubsidized
    Stafford loan; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">10% per annum in the case of a Stafford loan
    which has been in repayment for four years or more and which was
    made to a borrower who has a loan described in clause&nbsp;(4)
    above.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The interest rate on all Stafford loans made on
or after July&nbsp;1, 1994 but prior to July&nbsp;1, 1998,
regardless of whether the borrower is a new borrower or a repeat
borrower, is the rate described in clause&nbsp;(7) above, except
that the interest rate shall not exceed 8.25% per annum. For any
Stafford loan made on or after July&nbsp;1, 1995, the interest
rate is further reduced prior to the time the loan enters
repayment and during any deferment periods. During deferment
periods, the formula described in clause&nbsp;(7) above is
applied, except that 2.5% is substituted for 3.1%, and the rate
shall not exceed 8.25% per annum.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For Stafford loans made on or after July&nbsp;1,
1998 but before July&nbsp;1, 2006, the applicable interest rate
shall be adjusted annually, and for any twelve month period
commencing on a July 1 shall be equal to the bond equivalent
rate of 91-day U.S. Treasury bills auctioned at the final
auction prior to the proceeding June&nbsp;1, plus 1.7% per annum
prior to the time the loan enters repayment and during any
deferment periods, and 2.3% per annum during repayment, but not
to exceed 8.25% per annum.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For loans the first disbursement of which is made
on or after July&nbsp;1, 2006, the applicable interest rate will
be 6.8%. There can be no assurance that the interest rate
provisions for these loans will not be further amended.
</FONT>

<P align="left">
<B><FONT size="2">Unsubsidized Stafford Loans</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">General.
</FONT></I><FONT size="2">Unsubsidized Stafford loans were
created by Congress in 1992 for students who do not qualify for
subsidized Stafford loans due to parental and/or student income
and assets in excess of permitted amounts. These students are
entitled to borrow the difference between the Stafford loan
maximum and their subsidized Stafford eligibility. The general
requirements for unsubsidized Stafford loans are essentially the
same as those for subsidized Stafford loans. The interest rate,
the annual loan limits and the special allowance payment
provisions of the unsubsidized Stafford loans are the same as
the subsidized Stafford loans. However, the terms of the
unsubsidized Stafford loans differ materially from subsidized
Stafford loans in that the federal government will not make
interest subsidy payments and the loan limitations are
determined without respect to the expected family contribution.
The borrower will be required to either pay interest from the
time the loan is disbursed or capitalize the interest until
repayment begins. Unsubsidized Stafford loans were not available
before October&nbsp;1, 1992. A student meeting the general
eligibility requirements for a loan under the FFEL Program is
eligible for an unsubsidized Stafford loan without regard to
need.
</FONT>

<P align="center"><FONT size="2">A-3
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Interest rates for unsubsidized Stafford
loans.</FONT></I><FONT size="2"> Unsubsidized Stafford loans are
subject to the same interest rate provisions as subsidized
Stafford loans.
</FONT>

<P align="left">
<B><FONT size="2">PLUS Loans</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">General. </FONT></I><FONT size="2">PLUS loans
are made only to borrowers who are parents and, under certain
circumstances, spouses of remarried parents, of dependent
undergraduate students. For PLUS loans made on or after
July&nbsp;1, 1993, the parent borrower must not have an adverse
credit history as determined pursuant to criteria established by
the Department of Education. The basic provisions applicable to
PLUS loans are similar to those of subsidized Stafford loans
with respect to the involvement of guaranty agencies and the
Secretary of Education in providing federal reinsurance on the
loans. However, PLUS loans differ significantly from subsidized
Stafford loans, particularly because federal interest subsidy
payments are not available under the PLUS loan program and
special allowance payments are more restricted.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Interest rates for PLUS loans.
</FONT></I><FONT size="2">The applicable interest rate depends
upon the date of issuance of the loan and the period of
enrollment for which the loan is to apply. The applicable
interest rate on a PLUS loan:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">made on or after January&nbsp;1, 1981, but before
    October&nbsp;1, 1981, is 9% per annum;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">made on or after October&nbsp;1, 1981, but before
    November&nbsp;1, 1982, is 14% per annum;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">made on or after November&nbsp;1, 1982, but
    before July&nbsp;1, 1987, is 12% per annum;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">made on or after July&nbsp;1, 1987, but before
    October&nbsp;1, 1992 shall be adjusted annually, and for any
    12-month period beginning on July&nbsp;1 shall be equal to the
    bond equivalent rate of 52-week U.S.&nbsp;Treasury bills
    auctioned at the final auction prior to the preceding
    June&nbsp;1, plus 3.25% per annum (but not to exceed 12% per
    annum);
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">made on or after October&nbsp;1, 1992, but before
    July&nbsp;1, 1994, shall be adjusted annually, and for any
    12-month period beginning on July&nbsp;1 shall be equal to the
    bond equivalent rate of 52-week U.S.&nbsp;Treasury bills
    auctioned at the final auction prior to the preceding
    June&nbsp;1, plus 3.1% per annum (but not to exceed 10% per
    annum);
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">made on or after July&nbsp;1, 1994, but before
    July&nbsp;1, 1998, is the same as that for a loan made on or
    after October&nbsp;1, 1992, but before July&nbsp;1, 1994, except
    that such rate shall not exceed 9% per annum;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">made on or after July&nbsp;1, 1998, but before
    July&nbsp;1, 2006, shall be adjusted annually, and for any
    12-month period beginning on July&nbsp;1 shall be equal to the
    bond equivalent rate of 91-day U.S.&nbsp;Treasury bills
    auctioned at the final auction prior to the preceding
    June&nbsp;1, plus 3.1% per annum (but not to exceed 9% per
    annum); or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the first disbursement of which is made on or
    after July&nbsp;1, 2006 will be 7.9%.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For any 12-month period beginning on July&nbsp;1,
2001 or any succeeding year, the weekly average 1-year constant
maturity Treasury yield, as published by the Board of Governors
of the Federal Reserve System, for the last calendar week before
such June&nbsp;26, will be substituted for the 52-week Treasury
bill as the index for interest rate calculations.
</FONT>

<P align="left">
<B><FONT size="2">SLS loans</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">General. </FONT></I><FONT size="2">SLS loans
were limited to graduate or professional students, independent
undergraduate students, and dependent undergraduate students, if
the students&#146; parents were unable to obtain a PLUS loan and
were also unable to provide the students&#146; expected family
contribution. Except for dependent undergraduate students,
eligibility for SLS loans was determined without regard to need.
SLS loans are similar to subsidized Stafford loans with respect
to the involvement of guaranty agencies and the Secretary of
Education in providing federal reinsurance on the loans.
However, SLS loans differ significantly from
</FONT>

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</FONT>

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<DIV align="left">
<FONT size="2">subsidized Stafford loans, particularly because
federal interest subsidy payments are not available under the
SLS loan program and special allowance payments are more
restricted.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Interest rates for SLS loans.
</FONT></I><FONT size="2">The applicable interest rates on SLS
loans made prior to October&nbsp;1, 1992 are identical to the
applicable interest rates on PLUS loans made at the same time.
For SLS loans made on or after October&nbsp;1, 1992, the
applicable interest rate is the same as the applicable interest
rate on PLUS loans, except that the ceiling is 11% per annum
instead of 10% per annum.
</FONT>

<P align="left">
<B><FONT size="2">Consolidation Loans</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">General. </FONT></I><FONT size="2">The Higher
Education Act authorizes a program under which certain borrowers
may consolidate their various student loans into a single loan
insured and reinsured on a basis similar to subsidized Stafford
loans. Consolidation loans may be obtained in an amount
sufficient to pay outstanding principal, unpaid interest and
late charges on federally insured or reinsured student loans
incurred under the FFEL Program, excluding PLUS loans made to
&#147;parent borrowers,&#148; selected by the borrower, as well
as loans made pursuant to the Perkins (formally National Direct
Student Loan) and Health Professional Student Loan Programs. To
be eligible for a consolidation loan, a borrower must:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">have outstanding indebtedness on student loans
    made under the FFEL Program and/or certain other federal student
    loan programs, and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">be in repayment status or in a grace period, or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">be a defaulted borrower who has made arrangements
    to repay any defaulted loan satisfactory to the holder of the
    defaulted loan.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If requested by the borrower, an eligible lender
may consolidate SLS or PLUS loans of the same borrower held by
the lender under a single repayment schedule. The repayment
period for each included loan shall be based on the commencement
of repayment of the most recent loan. The consolidated loan
shall bear interest at a rate equal to the weighted average of
the rates of the included loans. Such a consolidation shall not
be treated as the making of a new loan. In addition, at the
request of the borrower, a lender may refinance an existing
fixed rate SLS or PLUS loan, including an SLS or PLUS loan held
by a different lender who has refused to refinance the loan, at
a variable interest rate. In this case, proceeds of the new loan
are used to discharge the original loan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A married couple who agree to be jointly liable
on a consolidation loan, for which the application is received
on or after January&nbsp;1, 1993, may be treated as an
individual for purposes of obtaining a consolidation loan. For
consolidation loans disbursed prior to July&nbsp;1, 1994 the
borrower was required to have outstanding student loan
indebtedness of at least $7,500. Prior to the adoption of the
Higher Education Technical Amendments Act of 1993, PLUS loans
could not be included in the consolidation loan. For
consolidation loans for which the applications were received
prior to January&nbsp;1, 1993, the minimum student loan
indebtedness was $5,000 and the borrower could not be delinquent
more than 90&nbsp;days in the payment of such indebtedness. For
applications received on or after January&nbsp;1, 1993,
borrowers may add additional loans to a consolidation loan
during the 180-day period following the origination of the
consolidation loan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Interest rates for consolidation loans.
</FONT></I><FONT size="2">A consolidation loan made prior to
July&nbsp;1, 1994 bears interest at a rate equal to the weighted
average of the interest rates on the loans retired, rounded to
the nearest whole percent, but not less than 9% per annum.
Except as described in the next sentence, a consolidation loan
made on or after July&nbsp;1, 1994 bears interest at a rate
equal to the weighted average of the interest rates on the loans
retired, rounded upward to the nearest whole percent, but with
no minimum rate. For a consolidation loan for which the
application is received by an eligible lender on or after
November&nbsp;13, 1997 and before October&nbsp;1, 1998, the
interest rate shall be adjusted annually, and for any
twelve-month period commencing on a July 1 shall be equal to the
bond equivalent rate of 91-day U.S. Treasury bills auctioned at
the final auction prior to the preceding June&nbsp;1, plus 3.1%
per annum, but not to exceed 8.25% per annum. Notwithstanding
these general interest rates, the portion, if any, of a
consolidation loan that repaid a loan made under title&nbsp;VII,
Sections&nbsp;700-721 of the Public Health Services Act, as
amended, has
</FONT>

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<DIV align="left">
<FONT size="2">a different variable interest rate. Such portion
is adjusted on July&nbsp;1 of each year, but is the sum of the
average of the T-Bill Rates auctioned for the quarter ending on
the preceding June&nbsp;30, plus 3.0%, without any cap on the
interest rate. Consolidation loans made on or after
October&nbsp;1, 1998 and before July&nbsp;1, 2006 will bear
interest at a per annum rate equal to the lesser of 8.25% or the
weighted average of the interest rates on the loans being
consolidated, rounded to the nearest higher &nbsp;1/8 of 1%.
Consolidation loans for which the application is received on or
after July&nbsp;1, 2006, will bear interest also at a rate per
annum equal to the lesser of 8.25% or the weighted average of
the interest rates on the loans being consolidated, rounded to
the nearest higher &nbsp;1/8 of 1%. For a discussion of required
payments that reduce the return on consolidation loans, see
&#147;Fees&nbsp;&#151; Rebate Fees on Consolidation Loans&#148;
in this Appendix.
</FONT>
</DIV>

<P align="left">
<B><FONT size="2">Maximum Loan Amounts</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Each type of loan is subject to limits on the
maximum principal amount, both with respect to a given year and
in the aggregate. Consolidation loans are limited only by the
amount of eligible loans to be consolidated. All of the loans
are limited to the difference between the cost of attendance and
the other aid available to the student. Stafford loans are also
subject to limits based upon needs analysis. Additional limits
are described below.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Loan limits for Stafford and unsubsidized
Stafford loans. </FONT></I><FONT size="2">Stafford and
unsubsidized Stafford loans are generally treated as one loan
type for loan limit purposes. A student who has not successfully
completed the first year of a program of undergraduate education
may borrow up to $2,625 in an academic year. A student who has
successfully completed the first year, but who has not
successfully completed the second year may borrow up to $3,500
per academic year. An undergraduate student who has successfully
completed the first and second year, but who has not
successfully completed the remainder of a program of
undergraduate education, may borrow up to $5,500 per academic
year. For students enrolled in programs of less than an academic
year in length, the limits are generally reduced in proportion
to the amount by which the programs are less than one year in
length. A graduate or professional student may borrow up to
$8,500 in an academic year. The maximum aggregate amount of
Stafford and unsubsidized Stafford loans, including that portion
of a consolidation loan used to repay such loans, which an
undergraduate student may have outstanding is $23,000. The
maximum aggregate amount for a graduate and professional
student, including loans for undergraduate education, is
$65,500. The Secretary of Education is authorized to increase
the limits applicable to graduate and professional students who
are pursuing programs which the Secretary of Education
determines to be exceptionally expensive.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Prior to the enactment of the Higher Education
Amendments of 1992, an undergraduate student who had not
successfully completed the first and second year of a program of
undergraduate education could borrow Stafford loans in amounts
up to $2,625 in an academic year. An undergraduate student who
had successfully completed the first and second year, but who
had not successfully completed the remainder of a program of
undergraduate education could borrow up to $4,000 per academic
year. The maximum for graduate and professional students was
$7,500 per academic year. The maximum aggregate amount of
Stafford loans which a borrower could have outstanding,
including that portion of a consolidation loan used to repay
such loans, was $17,250. The maximum aggregate amount for a
graduate or professional student, including loans for
undergraduate education, was $54,750. Prior to the 1986 changes,
the annual limits were generally lower.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Loan limits for PLUS loans.
</FONT></I><FONT size="2">For PLUS loans made on or after
July&nbsp;1, 1993, the amounts of PLUS loans are limited only by
the student&#146;s unmet need. Prior to that time PLUS loans
were subject to limits similar to those of SLS loans applied
with respect to each student on behalf of whom the parent
borrowed.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Loan limits for SLS loans.
</FONT></I><FONT size="2">A student who had not successfully
completed the first and second year of a program of
undergraduate education could borrow an SLS loan in an amount of
up to $4,000. A student who had successfully completed the first
and second year, but who had not successfully completed the
remainder of a program of undergraduate education could borrow
up to $5,000 per year. Graduate and professional students could
borrow up to $10,000 per year. SLS loans were subject to an
aggregate maximum of $23,000 ($73,000 for graduate and
professional students). Prior to the 1992 changes, SLS
</FONT>

<P align="center"><FONT size="2">A-6
</FONT>

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<DIV align="left">
<FONT size="2">loans were available in amounts of $4,000 per
academic year, up to a $20,000 aggregate maximum. Prior to the
1986 changes, a graduate or professional student could borrow
$3,000 of SLS loans per academic year, up to a $15,000 maximum,
and an independent undergraduate student could borrow $2,500 of
SLS loans per academic year minus the amount of all other
Federal Family Education Loan Program loans to such student for
such academic year, up to the maximum amount of all FFELP loans
to that student of $12,500. In 1989, the amount of SLS loans for
students enrolled in programs of less than an academic year in
length were limited in a manner similar to the limits described
above under &#147;Subsidized Federal Stafford Loans.&#148;
</FONT>
</DIV>

<P align="left">
<B><FONT size="2">Disbursement Requirements</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Higher Education Act now requires that
virtually all Stafford loans and PLUS loans be disbursed by
eligible lenders in at least two separate installments. The
proceeds of a loan made to any undergraduate first-year student
borrowing for the first time under the program must be delivered
to the student no earlier than thirty days after the enrollment
period begins.
</FONT>

<P align="left">
<B><FONT size="2">Repayment</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Repayment periods.
</FONT></I><FONT size="2">Loans made under FFEL Program, other
than consolidation loans, must provide for repayment of
principal in periodic installments over a period of not less
than five nor more than ten years. After the 1998 Amendments,
lenders are required to offer extended repayment schedules to
new borrowers who accumulate outstanding loans of more than
$30,000, in which case the repayment period may extend up to 25
years subject to certain minimum repayment amounts. A
consolidation loan must be repaid during a period agreed to by
the borrower and lender, subject to maximum repayment periods
which vary depending upon the principal amount of the
borrower&#146;s outstanding student loans, but may not be longer
than 30&nbsp;years. For consolidation loans for which the
application was received prior to January&nbsp;1, 1993, the
repayment period could not exceed 25&nbsp;years. Repayment of
principal on a Stafford loan does not commence while a student
remains a qualified student, but generally begins upon
expiration of the applicable grace period. Grace periods may be
waived by borrowers. For Stafford loans for which the applicable
rate of interest is 7% per annum, the repayment period commences
not more than twelve months after the borrower ceases to pursue
at least a half-time course of study. For other Stafford loans
and unsubsidized Stafford loans, the repayment period commences
not more than six months after the borrower ceases to pursue at
least a half-time course of study. The six month or
12&nbsp;month periods are the &#147;grace periods.&#148;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In the case of SLS, PLUS and consolidation loans,
the repayment period commences on the date of final disbursement
of the loan, except that the borrower of an SLS loan who also
has a Stafford loan may defer repayment of the SLS loan to
coincide with the commencement of repayment of the Stafford or
unsubsidized Stafford loan. During periods in which repayment of
principal is required, payments of principal and interest must
in general be made at a rate of not less than the greater of
$600 per year or the interest that accrues during the year,
except that a borrower and lender may agree to a lesser rate at
any time before or during the repayment period. A borrower may
agree, with concurrence of the lender, to repay the loan in less
than five years with the right subsequently to extend his
minimum repayment period to five years. Borrowers may
accelerate, without penalty, the repayment of all or any part of
the loan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Income-sensitive repayment schedules.
</FONT></I><FONT size="2">Since 1992, lenders of consolidation
loans have been required to establish graduated or
income-sensitive repayment schedules and lenders of Stafford and
SLS loans have been required to offer borrowers the option of
repaying in accordance with graduated or income-sensitive
repayment schedules. A trust may implement graduated repayment
schedules and income-sensitive repayment schedules. Use of
income-sensitive repayment schedules may extend the ten-year
maximum term for up to five years. In addition, if the repayment
schedule on a loan that has been converted to a variable
interest rate does not provide for adjustments to the amount of
the monthly installment payments, the ten-year maximum term may
be extended for up to three years.
</FONT>

<P align="center"><FONT size="2">A-7
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Deferment periods.
</FONT></I><FONT size="2">No principal repayments need be made
during certain periods of deferment prescribed by the Higher
Education Act. For loans to a borrower who first obtained a loan
which was disbursed before July&nbsp;1, 1993, deferments are
available:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">during a period not exceeding three years while
    the borrower is a member of the Armed Forces, an officer in the
    Commissioned Corps of the Public Health Service or, with respect
    to a borrower who first obtained a student loan disbursed on or
    after July&nbsp;1, 1987, or a student loan to cover the cost of
    instruction for a period of enrollment beginning on or after
    July&nbsp;1, 1987, an active duty member of the National Oceanic
    and Atmospheric Administration Corps;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">during a period not in excess of three years
    while the borrower is a volunteer under the Peace Corps Act;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">during a period not in excess of three years
    while the borrower is a full-time volunteer under the Domestic
    Volunteer Act of 1973;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">during a period not exceeding three years while
    the borrower is in service, comparable to the service described
    above as a full-time volunteer for an organization which is
    exempt from taxation under Section&nbsp;501(c)(3) of the Code;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">during a period not exceeding two years while the
    borrower is serving an internship necessary to receive
    professional recognition required to begin professional practice
    or service, or a qualified internship or residency program;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">during a period not exceeding three years while
    the borrower is temporarily totally disabled, as established by
    sworn affidavit of a qualified physician, or while the borrower
    is unable to secure employment by reason of the care required by
    a dependent who is so disabled;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">during a period not to exceed twenty-four months
    while the borrower is seeking and unable to find full-time
    employment;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">during any period that the borrower is pursuing a
    full-time course of study at an eligible institution (or, with
    respect to a borrower who first obtained a student loan
    disbursed on or after July&nbsp;1, 1987, or a student loan to
    cover the cost of instruction for a period of enrollment
    beginning on or after July&nbsp;1, 1987, is pursuing at least a
    half-time course of study for which the borrower has obtained a
    loan under the FFEL Program), or is pursuing a course of study
    pursuant to a graduate fellowship program or a rehabilitation
    training program for disabled individuals approved by the
    Secretary of Education;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">during a period, not in excess of 6&nbsp;months,
    while the borrower is on parental leave; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">only with respect to a borrower who first
    obtained a student loan disbursed on or after July&nbsp;1, 1987,
    or a student loan to cover the cost of instruction for a period
    of enrollment beginning on or after July&nbsp;1, 1987, during a
    period not in excess of three years while the borrower is a
    full-time teacher in a public or nonprofit private elementary or
    secondary school in a &#147;teacher shortage area&#148; (as
    prescribed by the Secretary of Education), and during a period
    not in excess of 12&nbsp;months for mothers, with preschool age
    children, who are entering or re-entering the work force and who
    are compensated at a rate not exceeding $1 per hour in excess of
    the federal minimum wage.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For loans to a borrower who first obtains a loan
on or after July&nbsp;1, 1993, deferments are available:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">during any period that the borrower is pursuing
    at least a half-time course of study at an eligible institution
    or a course of study pursuant to a graduate fellowship program
    or rehabilitation training program approved by the Secretary of
    Education;
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">A-8
</FONT>

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<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">during a period not exceeding three years while
    the borrower is seeking and unable to find full-time employment;
    and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">during a period not in excess of three years for
    any reason which the lender determines, in accordance with
    regulations under the Higher Education Act, has caused or will
    cause the borrower economic hardship. Economic hardship includes
    working full time and earning an amount not in excess of the
    greater of the minimum wage or the poverty line for a family of
    two. Additional categories of economic hardship are based on the
    relationship between a borrower&#146;s educational debt burden
    and his or her income.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Prior to the 1992 changes, only certain of the
deferment periods described above were available to PLUS loan
borrowers, and only certain deferment periods were available to
consolidation loan borrowers. Prior to the 1986 changes, PLUS
loan borrowers were not entitled to certain deferment periods.
Deferment periods extend the ten-year maximum term.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Forbearance period.
</FONT></I><FONT size="2">The Higher Education Act also provides
for periods of forbearance during which the borrower, in case of
temporary financial hardship, may defer any payments. A borrower
is entitled to forbearance for a period not to exceed three
years while the borrower&#146;s debt burden under Title&nbsp;IV
of the Higher Education Act (which includes the FFEL Program)
equals or exceeds 20% of the borrower&#146;s gross income, and
also is entitled to forbearance while he or she is serving in a
qualifying medical or dental internship program or in a
&#147;national service position&#148; under the National and
Community Service Trust Act of 1993. In addition, mandatory
administrative forbearances are provided in exceptional
circumstances such as a local or national emergency or military
mobilization, or when the geographical area in which the
borrower or endorser resides has been designated a disaster area
by the President of the United States or Mexico, the Prime
Minister of Canada, or by the governor of a state. In other
circumstances, forbearance is at the lender&#146;s option.
Forbearance also extends the ten year maximum term.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Interest payments during grace, deferment and
forbearance periods. </FONT></I><FONT size="2">The Secretary of
Education makes interest payments on behalf of the borrower of
certain eligible loans while the borrower is in school and
during grace and deferment periods. Interest that accrues during
forbearance periods and, if the loan is not eligible for
interest subsidy payments, while the borrower is in school and
during the grace and deferment periods, may be paid monthly or
quarterly or capitalized not more frequently than quarterly.
</FONT>

<P align="left">
<B><FONT size="2">Fees</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Guarantee fee. </FONT></I><FONT size="2">A
guaranty agency is authorized to charge a premium, or guarantee
fee, of up to 1% of the principal amount of the loan, which must
be deducted proportionately from each installment payment of the
proceeds of the loan to the borrower. Guarantee fees may not
currently be charged to borrowers of consolidation loans.
However, borrowers may be charged an insurance fee to cover the
costs of increased or extended liability with respect to
consolidation loans. For loans made prior to July&nbsp;1, 1994,
the maximum guarantee fee was 3% of the principal amount of the
loan, but no such guarantee fee was authorized to be charged
with respect to unsubsidized Stafford loans.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Origination fee. </FONT></I><FONT size="2">An
eligible lender is authorized to charge the borrower of a
Stafford loan, an unsubsidized Stafford loan or PLUS loan an
origination fee in an amount not to exceed 5% of the principal
amount of the loan, and is required to charge the borrower of an
unsubsidized Stafford loan or a PLUS loan an origination fee in
the amount of 3% of the principal amount of the loan. These fees
must be deducted proportionately from each installment payment
of the loan proceeds prior to payment to the borrower. These
fees are not retained by the lender, but must be passed on to
the Secretary of Education.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Lender origination fee.
</FONT></I><FONT size="2">The lender of any loan under the FFEL
Program made on or after October&nbsp;1, 1993 is required to pay
to the Secretary of Education a fee equal to 0.5% of the
principal amount of such loan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Rebate fee on Consolidation Loans.
</FONT></I><FONT size="2">The holder of any consolidation loan
made on or after October&nbsp;1, 1993 is required to pay to the
Secretary of Education a monthly fee equal to .0875% (1.05%
</FONT>

<P align="center"><FONT size="2">A-9
</FONT>

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<DIV align="left">
<FONT size="2">per annum) of the principal amount of, and
accrued interest on the consolidation loan. For loans made
pursuant to applications received on or after October&nbsp;1,
1998, and on or before January&nbsp;31, 1999 the fee on
consolidation loans of 1.05% is reduced to .62%.
</FONT>
</DIV>

<P align="left">
<B><FONT size="2">Interest Subsidy Payments</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Interest subsidy payments are interest payments
paid with respect to an eligible loan before the time that the
loan enters repayment and during grace and deferment periods.
The Secretary of Education and the guaranty agencies enter into
interest subsidy agreements whereby the Secretary of Education
agrees to pay interest subsidy payments to the holders of
eligible guaranteed loans for the benefit of students meeting
certain requirements, subject to the holders&#146; compliance
with all requirements of the Higher Education Act. Only Stafford
loans and consolidation loans for which the application was
received on or after January&nbsp;1, 1993, are eligible for
interest subsidy payments. Consolidation loans made after
August&nbsp;10, 1993 are eligible for interest subsidy payments
only if all loans consolidated thereby are Stafford loans,
except that consolidation loans for which the application is
received by an eligible lender on or after November&nbsp;13,
1997 and before October&nbsp;1, 1998, are eligible for interest
subsidy payments on that portion of the Consolidation loan that
repays Stafford loans or similar subsidized loans made under the
direct loan program. In addition, to be eligible for interest
subsidy payments, guaranteed loans must be made by an eligible
lender under the applicable guaranty agency&#146;s guarantee
program, and must meet requirements prescribed by the rules and
regulations promulgated under the Higher Education Act.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Secretary of Education makes interest subsidy
payments quarterly on behalf of the borrower to the holder of a
guaranteed loan in a total amount equal to the interest which
accrues on the unpaid principal amount prior to the commencement
of the repayment period of the loan or during any deferment
period. A borrower may elect to forego interest subsidy
payments, in which case the borrower is required to make
interest payments.
</FONT>

<P align="left">
<B><FONT size="2">Special Allowance Payments</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Higher Education Act provides for special
allowance payments to be made by the Secretary of Education to
eligible lenders. The rates for special allowance payments are
based on formulas that differ according to the type of loan, the
date the loan was originally made or insured and the type of
funds used to finance the loan (taxable or tax-exempt).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Subsidized and unsubsidized Stafford loans.
</FONT></I><FONT size="2">The effective formulas for special
allowance payment rates for Stafford and unsubsidized Stafford
loans are summarized in the following chart. The T-Bill Rate
mentioned in the chart refers to the average of the bond
equivalent yield of the 91-day Treasury bills auctioned during
the preceding quarter.
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="41%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="56%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Date of Loans</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Annualized SAP Rate</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">On or after October&nbsp;1, 1981
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">T-Bill Rate less Applicable Interest Rate + 3.5%
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">On or after November&nbsp;16, 1986
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">T-Bill Rate less Applicable Interest Rate + 3.25%
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">On or after October&nbsp;1, 1992
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">T-Bill Rate less Applicable Interest Rate + 3.1%
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">On or after July&nbsp;1, 1995
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">T-Bill Rate less Applicable Interest Rate +
    3.1%(1)
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">On or after July&nbsp;1, 1998
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">T-Bill Rate less Applicable Interest Rate +
    2.8%(2)
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">On or after January&nbsp;1, 2000 and before
    July&nbsp;1, 2003
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">3 Month Commercial Paper Rate less Applicable(3)
    Interest Rate + 2.34%
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Substitute 2.5% in this formula while loans are
    in-school, grace or deferment status.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Substitute 2.2% in this formula while such loans
    are in-school, grace or deferment status.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(3)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Substitute 1.74% in this formula while such loans
    are in-school, grace or deferment status.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">A-10
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Federal PLUS, SLS and consolidation loans.
</FONT></I><FONT size="2">The formula for special allowance
payments on PLUS, SLS and Consolidation Loans are as follows:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="41%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="56%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Date of Loans</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Annualized SAP Rate</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">On or after October&nbsp;1, 1992
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">T-Bill Rate less applicable Interest Rate + 3.1%
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">On or after January&nbsp;1, 2000
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">3 Month Commercial Paper Rate less applicable
    Interest Rate + 2.64%
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For PLUS and SLS loans which bear interest at
rates adjusted annually, special allowance payments are made
only in years during which the interest rate ceiling on such
loans operates to reduce the rate that would otherwise apply
based upon the applicable formula. See &#147;Interest rates for
PLUS loans&#148; and &#147;Interest rates for SLS loans&#148; in
this Appendix. Special allowance payments are paid with respect
to PLUS Loans made on or after October&nbsp;1, 1992 only if the
rate that would otherwise apply exceeds 10% per annum. For PLUS
loans made after July&nbsp;1, 1998 and before July&nbsp;1, 2006,
special allowance is paid only if the sum of the 91-day Treasury
bill rate determined at an auction held on June 1 of each year
plus 3.1% exceeds 9.0%. For PLUS loans first disbursed on or
after July&nbsp;1, 2006, special allowance is paid for such
loans in any 12-month period beginning on July 1 and ending on
June&nbsp;30 only if the sum of the average of the bond
equivalent rates of the quotes of the 3-month commercial paper
rate for the last calendar week ending on or before such
July&nbsp;1 plus 2.64% exceeds 9.0%. The portion, if any, of a
consolidation loan that repaid a loan made under Title&nbsp;VII,
Sections&nbsp;700-721 of the Public Health Services Act, as
amended, is ineligible for special allowance payments.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Special allowance payments for loans financed
by tax-exempt bonds. </FONT></I><FONT size="2">The effective
formulas for special allowance payment rates for Stafford Loans
and Unsubsidized Stafford Loans differ depending on whether
loans to borrowers were acquired or originated with the proceeds
of tax-exempt obligations. The formula for special allowance
payments for loans financed with the proceeds of tax-exempt
obligations originally prior to October&nbsp;1, 1993 is:
</FONT>

<P align="center">
<FONT size="2">T Bill Rate less Applicable Interest Rate + 3.5%
</FONT>

<P align="center">
<HR size="1" width="65%" align="center" noshade>

<P align="center">
<FONT size="2">2
</FONT>

<P align="left">
<I><FONT size="2">provided </FONT></I><FONT size="2">that the
special allowance applicable to the loans may not be less than
9&nbsp;1/2% less the Applicable Interest Rate. Loans acquired
with the proceeds of tax-exempt obligations originally issued
after October&nbsp;1, 1993 receive special allowance payments
made on other loans.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Adjustments to special allowance payments.
</FONT></I><FONT size="2">Special allowance payments and
interest subsidy payments are reduced by the amount which the
lender is authorized or required to charge as an origination
fee. In addition, the amount of the lender origination fee is
collected by offset to special allowance payments and interest
subsidy payments. The Higher Education Act provides that if
special allowance payments or interest subsidy payments have not
been made within 30&nbsp;days after the Secretary of Education
receives an accurate, timely and complete request therefor, the
special allowance payable to such holder shall be increased by
an amount equal to the daily interest accruing on the special
allowance and interest subsidy payments due the holder.
</FONT>

<P align="left">
<B><FONT size="2">Description of the Guaranty Agencies</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following discussion relates to guaranty
agencies under the FFELP.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A guaranty agency guarantees loans made to
students or parents of students by lending institutions such as
banks, credit unions, savings and loan associations, certain
schools, pension funds and insurance companies. A guaranty
agency generally purchases defaulted student loans which it has
guaranteed with its reserve fund. A lender may submit a default
claim to the guaranty agency after the student loan has been
delinquent for at least 270&nbsp;days. The default claim package
must include all information and documentation required under
the FFELP regulations and the guaranty agency&#146;s policies
and procedures.
</FONT>

<P align="center"><FONT size="2">A-11
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In general, a guaranty agency&#146;s reserve fund
has been funded principally by administrative cost allowances
paid by the Secretary of Education, guarantee fees paid by
lenders, investment income on moneys in the reserve fund, and a
portion of the moneys collected from borrowers on guaranteed
loans that have been reimbursed by the Secretary of Education to
cover the guaranty agency&#146;s administrative expenses.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Various changes to the Higher Education Act have
adversely affected the receipt of revenues by the guaranty
agencies and their ability to maintain their reserve funds at
previous levels, and may adversely affect their ability to meet
their guarantee obligations. These changes include:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the reduction in reinsurance payments from the
    Secretary of Education because of reduced reimbursement
    percentages;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the reduction in maximum permitted guarantee fees
    from 3% to 1% for loans made on or after July&nbsp;1, 1994;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the replacement of the administrative cost
    allowance with a student loan processing and issuance fee equal
    to 65&nbsp;basis points (40&nbsp;basis points for loans made on
    or after October&nbsp;1, 1993) paid at the time a loan is
    guaranteed, and an account maintenance fee of 12&nbsp;basis
    points (10&nbsp;basis points for fiscal years 2001-2003) paid
    annually on outstanding guaranteed student loans;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the reduction in supplemental preclaims
    assistance payments from the Secretary of Education; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the reduction in retention by a guaranty agency
    of collections on defaulted loans from 27% to 24% (23% beginning
    on October&nbsp;1, 2003).
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Additionally, the adequacy of a guaranty
agency&#146;s reserve fund to meet its guaranty obligations with
respect to existing student loans depends, in significant part,
on its ability to collect revenues generated by new loan
guarantees. The Federal Direct Student Loan Program discussed
below may adversely affect the volume of new loan guarantees.
Future legislation may make additional changes to the Higher
Education Act that would significantly affect the revenues
received by guaranty agencies and the structure of the guaranty
agency program.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Higher Education Act gives the Secretary of
Education various oversight powers over guaranty agencies. These
include requiring a guaranty agency to maintain its reserve fund
at a certain required level and taking various actions relating
to a guaranty agency if its administrative and financial
condition jeopardizes its ability to meet its obligations. These
actions include, among others, providing advances to the
guaranty agency, terminating the guaranty agency&#146;s federal
reimbursement contracts, assuming responsibility for all
functions of the guaranty agency, and transferring the guaranty
agency&#146;s guarantees to another guaranty agency or assuming
such guarantees. The Higher Education Act provides that a
guaranty agency&#146;s reserve fund shall be considered to be
the property of the United States to be used in the operation of
the FFEL Program or the FDL Program, and, under certain
circumstances, the Secretary of Education may demand payment of
amounts in the reserve fund.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The 1998 Amendments mandate the recall of
guaranty agency reserve funds by the Secretary of Education
amounting to $85&nbsp;million in fiscal year 2002,
$82.5&nbsp;million in fiscal year 2006, and $82.5&nbsp;million
in fiscal year 2007. However, certain minimum reserve levels are
protected from recall, and under the 1998 Amendments, guaranty
agency reserve funds were restructured to provide guaranty
agencies with additional flexibility in choosing how to spend
certain funds they receive. The new recall of reserves for
guaranty agencies increases the risk that resources available to
guaranty agencies to meet their guarantee obligation will be
significantly reduced. Relevant federal laws, including the
Higher Education Act, may be further changed in a manner that
may adversely affect the ability of a guaranty agency to meet
its guarantee obligations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Student loans originated prior to October&nbsp;1,
1993 are fully guaranteed as to principal and accrued interest.
Student loans originated after October&nbsp;1, 1993 are
guaranteed as to 98% of principal and accrued interest.
</FONT>

<P align="center"><FONT size="2">A-12
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Under the Higher Education Act, if the Department
of Education has determined that a guaranty agency is unable to
meet its insurance obligations, the holders of loans guaranteed
by such guaranty agency must submit claims directly to the
Department of Education, and the Department of Education is
required to pay the full guarantee payment due with respect
thereto in accordance with guarantee claims processing standards
no more stringent than those applied by the guaranty agency.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">There are no assurances as to the Secretary of
Education&#146;s actions if a guaranty agency encounters
administrative or financial difficulties or that the Secretary
of Education will not demand that a guaranty agency transfer
additional portions or all of its reserve fund to the Secretary
of Education.
</FONT>

<P align="left">
<B><FONT size="2">Federal Agreements</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">General. </FONT></I><FONT size="2">A guaranty
agency&#146;s right to receive federal reimbursements for
various guarantee claims paid by such guaranty agency is
governed by the Higher Education Act and various contracts
entered into between guaranty agencies and the Secretary of
Education. Each guaranty agency and the Secretary of Education
have entered into federal reimbursement contracts pursuant to
the Higher Education Act, which provide for the guaranty agency
to receive reimbursement of a percentage of insurance payments
that the guaranty agency makes to eligible lenders with respect
to loans guaranteed by the guaranty agency prior to the
termination of the federal reimbursement contracts or the
expiration of the authority of the Higher Education Act. The
federal reimbursement contracts provide for termination under
certain circumstances and also provide for certain actions short
of termination by the Secretary of Education to protect the
federal interest.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition to guarantee benefits, qualified
student loans acquired under the FFEL Program benefit from
certain federal subsidies. Each guaranty agency and the
Secretary of Education have entered into an Interest Subsidy
Agreement under the Higher Education Act which entitles the
holders of eligible loans guaranteed by the guaranty agency to
receive interest subsidy payments from the Secretary of
Education on behalf of certain students while the student is in
school, during a six to twelve month grace period after the
student leaves school, and during certain deferment periods,
subject to the holders&#146; compliance with all requirements of
the Higher Education Act.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">United States Courts of Appeals have held that
the federal government, through subsequent legislation, has the
right unilaterally to amend the contracts between the Secretary
of Education and the guaranty agencies described herein.
Amendments to the Higher Education Act in 1986, 1987, 1992,
1993, and 1998, respectively:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">abrogated certain rights of guaranty agencies
    under contracts with the Secretary of Education relating to the
    repayment of certain advances from the Secretary of Education,
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">authorized the Secretary of Education to withhold
    reimbursement payments otherwise due to certain guaranty
    agencies until specified amounts of such guaranty agencies&#146;
    reserves had been eliminated,
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">added new reserve level requirements for guaranty
    agencies and authorized the Secretary of Education to terminate
    the Federal Reimbursement Contracts under circumstances that did
    not previously warrant such termination,
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">expanded the Secretary of Education&#146;s
    authority to terminate such contracts and to seize guaranty
    agencies&#146; reserves, and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">mandated the additional recall of guaranty agency
    reserve funds.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">Federal Insurance and Reimbursement of
Guaranty Agencies</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Effect of annual claims rate.
</FONT></I><FONT size="2">With respect to loans made prior to
October&nbsp;1, 1993, the Secretary of Education currently
agrees to reimburse the guaranty agency for up to 100% of the
amounts paid on claims made by lenders, as discussed in the
formula described below, so long as the eligible lender has
properly serviced such loan. The amount of reimbursement is
lower for loans originated after October&nbsp;1,
</FONT>

<P align="center"><FONT size="2">A-13
</FONT>

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<DIV align="left">
<FONT size="2">1993, as described below. Depending on the claims
rate experience of a guaranty agency, such reimbursement may be
reduced as discussed in the formula described below. The
Secretary of Education also agrees to repay 100% of the unpaid
principal plus applicable accrued interest expended by a
guaranty agency in discharging its guarantee obligation as a
result of the bankruptcy, death, or total and permanent
disability of a borrower, or in the case of a PLUS loan, the
death of the student on behalf of whom the loan was borrowed, or
in certain circumstances, as a result of school closures, which
reimbursements are not to be included in the calculations of the
guaranty agency&#146;s claims rate experience for the purpose of
federal reimbursement under the Federal Reimbursement Contracts.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The formula used for loans initially disbursed
prior to October&nbsp;1, 1993 is summarized below:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="49%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="48%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Claims Rate</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Federal Payment</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">0% up to 5%
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">100%
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">5% up to 9%
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">100% of claims up to 5%; 90% of claims 5% and over
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">9% and over
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">100% of claims up to 5%; 90% of claims 5% and
    over, up to 9%; 80% of claims 9% and over
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The claims experience is not accumulated from
year to year, but is determined solely on the basis of claims in
any one federal fiscal year compared with the original principal
amount of loans in repayment at the beginning of that year.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The 1993 Amendments reduce the reimbursement
amounts described above, effective for loans initially disbursed
on or after October&nbsp;1, 1993 as follows: 100% reimbursement
is reduced to 98%, 90% reimbursement is reduced to 88%, and 80%
reimbursement is reduced to 78%, subject to certain limited
exceptions. The 1998 Amendments further reduce the federal
reimbursement amounts from 98% to 95%, 88% to 85%, and 78% to
75% respectively, for student loans first disbursed on or after
October&nbsp;1, 1998.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The reduced reinsurance for federal guaranty
agencies increases the risk that resources available to guaranty
agencies to meet their guarantee obligation will be
significantly reduced.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Reimbursement. </FONT></I><FONT size="2">The
original principal amount of loans guaranteed by a guaranty
agency which are in repayment for purposes of computing
reimbursement payments to a guaranty agency means the original
principal amount of all loans guaranteed by a guaranty agency
less:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the original principal amount of such loans that
    have been fully repaid, and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the original amount of such loans for which the
    first principal installment payment has not become due.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">Guaranty agencies with default rates below 5% are
required to pay the Secretary of Education annual fees
equivalent to 0.51% of new loans guaranteed, while all other
such agencies must pay a 0.5% fee. The Secretary of Education
may withhold reimbursement payments if a guaranty agency makes a
material misrepresentation or fails to comply with the terms of
its agreements with the Secretary of Education or applicable
federal law.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Under the guarantee agreements, if a payment on a
FFELP loan guaranteed by a guaranty agency is received after
reimbursement by the Secretary of Education, the guaranty agency
is entitled to receive an equitable share of the payment.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Any originator of any student loan guaranteed by
a guaranty agency is required to discount from the proceeds of
the loan at the time of disbursement, and pay to the guaranty
agency, an insurance premium which may not exceed that permitted
under the Higher Education Act.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Under present practice, after the Secretary of
Education reimburses a guaranty agency for a default claim paid
on a guaranteed loan, the guaranty agency continues to seek
repayment from the borrower. The guaranty agency returns to the
Secretary of Education payments that it receives from a borrower
after
</FONT>

<P align="center"><FONT size="2">A-14
</FONT>

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<DIV align="left">
<FONT size="2">deducting and retaining: a percentage amount
equal to the complement of the reimbursement percentage in
effect at the time the loan was reimbursed, and an amount equal
to 24% of such payments for certain administrative costs. The
Secretary of Education may, however, require the assignment to
the Secretary of defaulted guaranteed loans, in which event no
further collections activity need be undertaken by the guaranty
agency, and no amount of any recoveries shall be paid to the
guaranty agency.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A guaranty agency may enter into an addendum to
its Interest Subsidy Agreement that allows the guaranty agency
to refer to the Secretary of Education certain defaulted
guaranteed loans. Such loans are then reported to the IRS to
&#147;offset&#148; any tax refunds which may be due any
defaulted borrower. To the extent that the guaranty agency has
originally received less than 100% reimbursement from the
Secretary of Education with respect to such a referred loan, the
guaranty agency will not recover any amounts subsequently
collected by the federal government which are attributable to
that portion of the defaulted loan for which the guaranty agency
has not been reimbursed.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Rehabilitation of defaulted loans.
</FONT></I><FONT size="2">Under the Higher Education Act, the
Secretary of Education is authorized to enter into an agreement
with a guaranty agency pursuant to which the guaranty agency
shall sell defaulted loans that are eligible for rehabilitation
to an eligible lender. The guaranty agency shall repay the
Secretary of Education an amount equal to 81.5% of the then
current principal balance of such loan, multiplied by the
reimbursement percentage in effect at the time the loan was
reimbursed. The amount of such repayment shall be deducted from
the amount of federal reimbursement payments for the fiscal year
in which such repayment occurs, for purposes of determining the
reimbursement rate for that fiscal year.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For a loan to be eligible for rehabilitation, the
guaranty agency must have received consecutive payments for
12&nbsp;months of amounts owed on such loan. Upon
rehabilitation, a loan is eligible for all the benefits under
the Higher Education Act for which it would have been eligible
had no default occurred (except that a borrower&#146;s loan may
only be rehabilitated once).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Eligibility for federal reimbursement.
</FONT></I><FONT size="2">To be eligible for federal
reimbursement payments, guaranteed loans must be made by an
eligible lender under the applicable guaranty agency&#146;s
guarantee program, which must meet requirements prescribed by
the rules and regulations promulgated under the Higher Education
Act, including the borrower eligibility, loan amount,
disbursement, interest rate, repayment period and guarantee fee
provisions described herein and the other requirements set forth
in the Higher Education Act.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Prior to the 1998 Amendments, a FFELP loan was
considered to be in default for purposes of the Higher Education
Act when the borrower failed to make an installment payment when
due, or to comply with the other terms of the loan, and if the
failure persists for 180&nbsp;days in the case of a loan
repayable in monthly installments or for 240&nbsp;days in the
case of a loan repayable in less frequent installments. Under
the 1998 Amendments, the delinquency period required for a
student loan to be declared in default is increased from
180&nbsp;days to 270&nbsp;days for loans payable in monthly
installments on which the first day of delinquency occurs on or
after the date of enactment of the 1998 Amendments and from
240&nbsp;days to 330&nbsp;days for a loan payable less
frequently than monthly on which the delinquency occurs after
the date of enactment of the 1998 Amendments.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The guaranty agency must pay the lender for the
defaulted loan prior to submitting a claim to the Secretary of
Education for reimbursement. The guaranty agency must submit a
reimbursement claim to the Secretary of Education within
45&nbsp;days after it has paid the lender&#146;s default claim.
As a prerequisite to entitlement to payment on the guarantee by
the guaranty agency, and in turn payment of reimbursement by the
Secretary of Education, the lender must have exercised
reasonable care and diligence in making, servicing and
collecting the guaranteed loan. Generally, these procedures
require:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">that completed loan applications be processed;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">a determination of whether an applicant is an
    eligible borrower attending an eligible institution under the
    Higher Education Act be made;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the borrower&#146;s responsibilities under the
    loan be explained to him or her;
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">A-15
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the promissory note evidencing the loan be
    executed by the borrower; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">that the loan proceeds be disbursed by the lender
    in a specified manner.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">After the loan is made, the lender must establish
repayment terms with the borrower, properly administer
deferments and forbearances and credit the borrower for payments
made. If a borrower becomes delinquent in repaying a loan, a
lender must perform certain collection procedures, primarily
telephone calls, demand letters, skiptracing procedures and
requesting assistance from the applicable guaranty agency, that
vary depending upon the length of time a loan is delinquent.
</FONT>

<P align="left">
<B><FONT size="2">Direct Loans</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The 1993 Amendments authorized a program of
&#147;direct loans,&#148; to be originated by schools with funds
provided by the Secretary of Education. Under the FDL Program,
the Secretary of Education is directed to enter into agreements
with schools, or origination agents in lieu of schools, to
disburse loans with funds provided by the Secretary of
Education. Participation in the program by schools is voluntary.
The goals set forth in the 1993 Amendments call for the direct
loan program to constitute 5% of the total volume of loans made
under the FFELP Program and the FDL Program for academic year
1994-1995, 40% for academic year 1995-1996, 50% for academic
years 1996-1997 and 1997-1998 and 60% for academic year
1998-1999. No provision is made for the size of the FDL Program
thereafter. Based upon information released by the General
Accounting Office, participation by schools in the FDL Program
has not been sufficient to meet the goals for the 1995-1996 or
1996-1997 academic years. The 1998 Amendments removed references
to the &#147;phase-in&#148; of the FDL Program, including
restrictions on annual limits for FDL Program volume and the
Secretary&#146;s authority to select additional institutions to
achieve balanced school representation.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The loan terms are generally the same under the
FDL Program as under the FFEL Program, though more flexible
repayment provisions are available under the FDL Program. At the
discretion of the Secretary of Education, students attending
schools that participate in the FDL Program (and their parents)
may still be eligible for participation in the FFEL Program,
though no borrower could obtain loans under both programs for
the same period of enrollment.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">It is difficult to predict the impact of the FDL
Program. There is no way to accurately predict the number of
schools that will participate in future years, or, if the
Secretary authorizes students attending participating schools to
continue to be eligible for FFEL Program loans, how many
students will seek loans under the direct loan program instead
of the FFEL Program. In addition, it is impossible to predict
whether future legislation will eliminate, limit or expand the
FDL Program or the FFEL Program.
</FONT>

<P align="center"><FONT size="2">A-16
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2"> <HR size="1" width="100%" align="left" noshade>
</FONT>
</DIV>

<DIV align="left">
<HR size="1" width="100%" align="left" noshade>
</DIV>

<P align="center">
<B><FONT size="5">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shares</FONT></B>

<P align="center">
<IMG src="y88696y8869600.gif" alt="(NELNET LOGO)">

<P align="center">
<B><FONT size="5">Class&nbsp;A Common Stock</FONT></B>

<P align="center">
<B>Prospectus</B>

<P align="center">
<HR size="1" width="33%" align="center" noshade>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="50%"></TD>
    <TD width="50%"></TD>
</TR>

<TR valign="top">
    <TD align="left"><B><FONT size="5">JPMorgan</FONT></B></TD>
    <TD align="right"><B><FONT size="5">Banc of America Securities LLC</FONT></B></TD>
</TR>

</TABLE>

<P align="center">
<HR size="1" width="33%" align="center" noshade>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="50%"></TD>
    <TD width="50%"></TD>
</TR>

<TR valign="top">
    <TD align="left"><B><FONT size="4">Credit Suisse First Boston</FONT></B></TD>
    <TD align="right"><B><FONT size="4">Morgan Stanley</FONT></B></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2003
</FONT>

<DIV align="left">
<HR size="1" width="100%" align="left" noshade>
</DIV>

<DIV align="left">
<HR size="1" width="100%" align="left" noshade>
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="center">
<B><FONT size="2">PART II</FONT></B>

<P align="center">
<B><FONT size="2">INFORMATION NOTE REQUIRED IN
PROSPECTUS</FONT></B>

<P align="left">
<B><FONT size="2">Item&nbsp;13.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Other
Expenses of Issuance and Distribution</I></FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table shows the costs and expenses,
other than underwriting discounts, payable in connection with
the sale and distribution of the securities being registered.
Except as otherwise noted, the registrant will pay all of these
amounts. All amounts except the Securities and Exchange
Commission Registration Fee and the National Association of
Securities Dealers, Inc. Filing Fee are estimated.
</FONT>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="84%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Securities and Exchange Commission Registration
    Fee
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,180</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">National Association of Securities Dealers, Inc.
    Filing Fee
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">New York Stock Exchange Listing Fees
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Printing Expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Legal Fees and Expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounting Fees and Expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Transfer Agent and Registrar Agent Fees
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Miscellaneous
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">*&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">To be provided by amendment.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">Item&nbsp;14.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Indemnification
of Directors and Officers</I></FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Under the Nebraska Business Corporation Act, a
Nebraska corporation may provide indemnification to directors
and officers for judgments, fines, settlements and expenses,
including attorney&#146;s fees, incurred in connection with any
threatened, pending or completed action, suit or proceeding
other than an action by or in the right of the corporation. This
applies to any civil, criminal, investigative or administrative
action provided that the director or officer involved acted in
good faith, in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and, with
respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful. The corporation may
also provide indemnification to directors and officers for
judgments, fines, settlements and expenses, including
attorney&#146;s fees, incurred in connection with any
threatened, pending or completed action or suit by or in the
right of the corporation if such director or officer acted in
good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation. However,
no indemnification shall be made in respect of any claim, issue
or matter in which such person is adjudged to be liable for
negligence or misconduct in the performance of his duties to the
corporation unless the court in which the action is brought
deems indemnity proper. The grant of indemnification to a
director or officer shall be determined by a majority of a
quorum of disinterested directors, by a written opinion from
independent legal counsel or by the shareholders.
Indemnification shall be provided to any directors and officers
for expenses, including attorney&#146;s fees, actually and
reasonably incurred in the defense of any action, suit or
proceeding to the extent that he or she has been successful on
the merits.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The registrant&#146;s amended and restated
articles of incorporation provide that the registrant shall, to
the maximum extent and in the manner permitted by the Nebraska
Business Corporation Act, indemnify each of its directors,
officers, employees and agents against expenses, including
attorney&#146;s fees, judgments, fines, settlements and other
amounts actually and reasonably incurred in connection with any
proceeding arising by reason of the fact that such person is or
was an agent of the registrant. The registrant shall pay
expenses incurred in defending any civil or criminal action or
proceeding for which indemnification is available in advance of
the final disposition of such action or proceeding, following
authorization thereof by the board of directors in the case of
an employee or agent, upon receipt of an undertaking by or on
behalf of the indemnified party to repay such amount if it shall
be ultimately determined by final judicial decision, from which
there is no further right of appeal, that the indemnified party
is not entitled to be indemnified.
</FONT>

<P align="center"><FONT size="2">II-1
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, the registrant&#146;s amended and
restated articles of incorporation provide that the registrant
may purchase and maintain insurance on behalf of any person who
is or was an agent of the registrant against any liability
asserted against or incurred by such person in such capacity
arising out of such person&#146;s status as such, whether or not
the registrant would have the power to indemnify him or her
against such liability under the registrant&#146;s amended and
restated articles of incorporation and the Nebraska Business
Corporation Act. The registrant has obtained insurance for the
benefit of its officers and directors insuring such persons
against liabilities, including liabilities under the securities
laws.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The registrant&#146;s amended and restated
articles of incorporation also limit the personal liability of
the directors and officers of the registrant for breaches of
fiduciary duty to the registrant or its shareholders, except in
certain circumstances including (1)&nbsp;breach of the duty of
loyalty to the registrant or its shareholders, (2)&nbsp;acts or
omissions not in good faith or involving intentional misconduct
or a knowing violation of law, (3)&nbsp;acts or omissions for
which the Nebraska Business Corporation Act does not permit
indemnity for directors under Section&nbsp;21-2018(2)(e) of the
Nebraska Business Corporation Act, which include intentional
infliction of harm on the registrant or its shareholders, voting
for or assenting to an unlawful distribution and intentional
violation of criminal law, or (4)&nbsp;any transaction from
which the director derived an improper personal benefit.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Item&nbsp;15.</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Recent Sales of Unregistered
    Securities.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During the past three years, the Company has
issued unregistered securities in the transactions described
below. Securities issued in such transactions were offered and
sold in reliance upon the exemption from registration under
Section&nbsp;4(2) of the Securities Act of 1933, relating to
sales by an issuer not involving any public offering. The sales
of securities were made without the use of an underwriter and
the certificates evidencing the shares bear a restricted legend
permitting the transfer thereof only upon registration of the
shares or an exemption under said Act.
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="4%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">1.</FONT></TD>
    <TD align="left">
    <FONT size="2">On May 25, 2001, the registrant issued
    1,535,520&nbsp;shares of Class&nbsp;A common stock to Farmers
    &#38; Merchants Investment Inc. for approximately $1.31 per
    share, or an aggregate of $2,009,703.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">2.</FONT></TD>
    <TD align="left">
    <FONT size="2">On March&nbsp;12, 2003, the registrant issued an
    aggregate of 331,800&nbsp;shares of Class&nbsp;A common stock to
    35 employees for $2.43 per share, or an aggregate of $806,274.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">3.</FONT></TD>
    <TD align="left">
    <FONT size="2">On August&nbsp;14, 2003, in connection with the
    recapitalization effected pursuant to the registrant&#146;s
    amended and restated articles of incorporation, the registrant
    issued an aggregate of 45,038,488&nbsp;shares of its
    Class&nbsp;A and Class&nbsp;B common stock to the holders of its
    pre-recapitalization Class&nbsp;A voting common stock and
    Class&nbsp;B non-voting common stock.
    </FONT></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Item&nbsp;16.</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Exhibits and Financial Statement
    Schedules.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">(a)&nbsp;Exhibits</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">See Exhibit&nbsp;Index beginning on
page&nbsp;II-6 of this registration statement.
</FONT>

<P align="left">
<B><FONT size="2">(b)&nbsp;Financial Statement
Schedules</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">None.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Item&nbsp;17.</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Undertakings.</FONT></I></B></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(a)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">The undersigned registrant hereby undertakes to
    provide to the underwriters at the closing specified in the
    underwriting agreement certificates in such denominations and
    registered in such names as required by the underwriters to
    permit prompt delivery to each purchaser.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(b)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Insofar as indemnification for liabilities
    arising under the Securities Act of 1933 may be permitted to
    directors, officers and controlling persons of the registrant
    pursuant to the foregoing provisions, or otherwise, the
    registrant has been advised that in the opinion of the
    Securities and Exchange Commission such indemnification is
    against public policy as expressed in the Act and is, therefore,
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">II-2
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD align="left">
    <FONT size="2">unenforceable. In the event that a claim for
    indemnification against such liabilities (other than the payment
    by the registrant of expenses incurred or paid by a director,
    officer or controlling person of the registrant in the
    successful defense of any action, suit or proceeding) is
    asserted against the registrant by such director, officer or
    controlling person in connection with the securities being
    registered, the registrant will, unless in the opinion of its
    counsel the matter has been settled by controlling precedent,
    submit to a court of appropriate jurisdiction the question
    whether such indemnification by it is against public policy as
    expressed in the Act and will be governed by the final
    adjudication of such issue.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(c)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">The undersigned registrant hereby undertakes that:
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="4%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">For purposes of determining any liability under
    the Securities Act of 1933, the information omitted from the
    form of prospectus filed as part of this registration statement
    in reliance upon Rule&nbsp;430A and contained in a form of
    prospectus filed by the registrant pursuant to
    Rule&nbsp;424(b)(1) or (4) or 497(h) under the Securities Act
    shall be deemed to be part of this registration statement as of
    the time it was declared effective.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">For the purpose of determining any liability
    under the Securities Act of 1933, each post-effective amendment
    that contains a form of prospectus shall be deemed to be a new
    registration statement relating to the securities offered
    therein, and the offering of such securities at that time shall
    be deemed to be the initial bona fide offering thereof.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">II-3
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="center">
<B><FONT size="2">SIGNATURES</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Pursuant to the requirements of the Securities
Act of 1933, the registrant has duly caused this registration
statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the city of Lincoln, State of
Nebraska, on August&nbsp;18, 2003.
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">NELNET, INC.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="2%"></TD>
    <TD width="58%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">By:&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">/s/ MICHAEL S. DUNLAP
    </FONT></TD>
</TR>

</TABLE>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <HR size="1" align="left" noshade></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Name:&nbsp;Michael S. Dunlap
    </FONT></TD>
</TR>

</TABLE>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="8%"></TD>
    <TD width="52%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">Title:&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Chairman and Co-Chief Executive Officer
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We, the undersigned directors and officers of
Nelnet, Inc., do hereby constitute and appoint Michael S.
Dunlap, Stephen F. Butterfield and Terry J. Heimes, and each and
any of them, our true and lawful attorneys-in-fact and agents to
do any and all acts and things in our names and our behalf in
our capacities as directors and officers and to execute any and
all instruments for us and in our name in the capacities
indicated below, which said attorneys and agents, or any of
them, may deem necessary or advisable to enable Nelnet, Inc. to
comply with the Securities Act of 1933 and any rules,
regulations and requirements of the Securities and Exchange
Commission in connection with this registration statement or any
registration statement for this offering of securities that is
to be effective upon filing pursuant to Rule&nbsp;462(b) under
the Securities Act of 1933, including specifically, but without
limitation, any and all amendments (including post-effective
amendments) hereto, and we hereby ratify and confirm all that
said attorneys and agents, or any of them, shall do or cause to
be done by virtue thereof.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Pursuant to the requirements of the Securities
Act of 1933, this registration statement has been signed by the
following persons in the capacities and on the dates indicated.
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="39%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="34%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="12%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Signature</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Title</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Date</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <FONT size="2">/s/ MICHAEL S. DUNLAP<BR>
    <HR size="1" noshade>Michael S. Dunlap
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">Chairman and<BR>
    Co-Chief Executive Officer
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">August&nbsp;18, 2003
    </FONT></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <FONT size="2">/s/ STEPHEN F. BUTTERFIELD<BR>
    <HR size="1" noshade>Stephen F. Butterfield
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">Vice Chairman and<BR>
    Co-Chief Executive Officer
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">August&nbsp;18, 2003
    </FONT></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <FONT size="2">/s/ TERRY J. HEIMES<BR>
    <HR size="1" noshade>Terry J. Heimes
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">Chief Financial Officer (Principal and<BR>
    Accounting Officer)
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">August&nbsp;18, 2003
    </FONT></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <FONT size="2">/s/ DON R. BOUC<BR>
    <HR size="1" noshade>Don R. Bouc
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">President and Director
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">August&nbsp;18, 2003
    </FONT></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <FONT size="2">/s/ JAMES P. ABEL<BR>
    <HR size="1" noshade>James P. Abel
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">Director
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">August&nbsp;18, 2003
    </FONT></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <FONT size="2">/s/ THOMAS E. HENNING<BR>
    <HR size="1" noshade>Thomas E. Henning
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">Director
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">August&nbsp;18, 2003
    </FONT></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <FONT size="2">/s/ LEE E. MIKLES<BR>
    <HR size="1" noshade>Lee E. Mikles
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">Director
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">August&nbsp;18, 2003
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">II-4
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="39%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="34%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="12%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Signature</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Title</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Date</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <FONT size="2">/s/ ARTURO MORENO<BR>
    <HR size="1" noshade>Arturo Moreno
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">Director
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">August&nbsp;18, 2003
    </FONT></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <FONT size="2">/s/ BRIAN J. O&#146;CONNOR<BR>
    <HR size="1" noshade>Brian J. O&#146;Connor
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">Director
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">August&nbsp;18, 2003
    </FONT></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <FONT size="2">/s/ JAMES H. VANHORN<BR>
    <HR size="1" noshade>James H. VanHorn
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">Director
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">August&nbsp;18, 2003
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">II-5
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="center">
<B><FONT size="2">EXHIBIT INDEX</FONT></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="85%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exhibit</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">No.</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Description</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">1</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form of Underwriting Agreement.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">3</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Amended and Restated Articles of Incorporation of
    Nelnet, Inc.
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">3</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.2*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Amended and Restated By-laws of Nelnet, Inc.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">4</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form of Class&nbsp;A Common Stock Certificate of
    Nelnet, Inc.
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">5</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Opinion of Perry, Guthery, Haase &#38; Gessford,
    P.C., L.L.O. regarding the legality of the securities being
    registered.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">21</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Subsidiaries of Nelnet, Inc.
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">23</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Consent of KMPG LLP, Independent Auditors.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">23</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.2*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Consent of Perry, Guthery, Haase &#38; Gessford,
    P.C., L.L.O. (included in Exhibit&nbsp;5.1).
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">24</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Powers of Attorney authorizing execution of
    registration statement on Form&nbsp;S-1 on behalf of certain
    directors and officers of Nelnet, Inc. (included on the
    signature page to this registration statement).
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">*&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">To be filed by amendment.
    </FONT></TD>
</TR>

</TABLE>
</BODY>
</HTML>
[{"type": "S-1", "sequence": "1", "filename": "y88696sv1.htm", "description": "FORM S-1", "secsgml_size_bytes": 1561000}]
{"company-data": {"conformed-name": "NELNET INC", "cik": "0001258602", "irs-number": "840848903", "state-of-incorporation": "NE", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "S-1", "act": "33", "file-number": "333-108070", "film-number": "03854734"}, "business-address": {"street1": "121 SOUTH 13TH ST", "street2": "STE 201", "city": "LINCONLN", "state": "NE", "zip": "68508"}, "mail-address": {"street1": "121 SOUTH 13TH ST", "street2": "STE 201", "city": "LINCOLN", "state": "NE", "zip": "68508"}}
FORM S-1
As filed with the Securities and Exchange
Commission on August 19, 2003
Registration
No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Nelnet, Inc.
(Exact name of registrant as specified in its
charter)
Nebraska
6141
84-0748903
(State or other jurisdiction of
incorporation or organization)
(Primary Standard Industrial
Classification Code Number)
(I.R.S. Employer
Identification No.)
121 South 13th Street,
Suite 201
Lincoln, Nebraska 68508
Telephone: (402) 458-2370
(Address, including zip code, and telephone
number, including area code, of registrant's principal
executive offices)
Terry J. Heimes
Chief Financial Officer
Nelnet, Inc.
121 South 13th Street,
Suite 201
Lincoln, Nebraska 68508
Telephone: (402) 458-2303
Facsimile: (402) 458-2294
(Name, address, including zip code, and
telephone number, including area code, of agent for
service)
Copies to:
Gerald S. Tanenbaum, Esq.
Cahill Gordon & Reindel LLP
80 Pine Street
New York, New York 10005
Telephone: (212) 701-3000
Facsimile: (212) 269-5420
Daniel F. Kaplan, Esq.
Perry, Guthery, Haase &
    Gessford, P.C., L.L.O.
233 South 13th Street, Suite 1400
Lincoln, Nebraska 68508
Telephone: (402) 476-9200
Facsimile: (402) 476-0094
Joseph A. Hall, Esq.
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Telephone: (212) 450-4000
Facsimile: (212) 450-3800
Approximate date of commencement of proposed
sale to the public:
As soon as
practicable after the effective date of this registration
statement.
If any of the securities being registered on this
Form are to be offered on a delayed or continuous basis pursuant
to Rule 415 under the Securities Act, check the following
box.
o
If this Form is filed to register additional
securities for an offering pursuant to Rule 462(b) under
the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier
effective registration statement for the same
offering.
o
If this Form is a post-effective amendment filed
pursuant to Rule 462(c) under the Securities Act, check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the
same
offering.
o
If this Form is a post-effective amendment filed
pursuant to Rule 462(d) under the Securities Act, check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the
same
offering.
o
If delivery of the prospectus is expected to be
made pursuant to Rule 434, please check the following
box.
o
CALCULATION OF REGISTRATION FEE
Proposed Maximum
Title of Each Class of Securities to be Registered
Aggregate Offering Price(1)
Amount of Registration Fee
Class A common stock, par value $0.01 per
    share
$200,000,000
$16,180
(1)
Estimated solely for the purpose of calculating
    the registration fee pursuant to Rule 457(o) under the
    Securities Act.
The registrant hereby amends this registration
statement on such date or dates as may be necessary to delay its
effective date until the registrant shall file a further
amendment which specifically states that this registration
statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act or until the
registration statement shall become effective on such date as
the Commission, acting pursuant to said Section 8(a), may
determine.
Information contained herein is
subject to completion or amendment. A registration statement
relating to these securities has been filed with the Securities
and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration
statement becomes effective. This prospectus shall not
constitute an offer to sell or the solicitation of an offer to
buy nor shall there be any sale of these securities in any state
in which such offer, solicitation or sale would be unlawful
prior to registration or qualification under the securities laws
of any such state.
Subject to completion,
dated August 19, 2003
Prospectus
Shares
Class A Common Stock
Nelnet, Inc. is selling all of the shares of
Class A common stock in this offering. This is the initial
public offering of our Class A common stock. The estimated
initial public offering price is between
$          and
$          per
share.
Prior to this offering, there has been no public
market for our Class A common stock. We intend to apply for
the listing of shares of our Class A common stock on the
New York Stock Exchange under the symbol "NNI."
Each share of Class A common stock has one
vote and each share of Class B common stock has ten votes.
Following this offering, Michael S. Dunlap and Stephen F.
Butterfield, our Co-Chief Executive Officers, and persons
related to them will beneficially own Class A and
Class B common stock
representing           %
of the combined voting power of our common stock, and will
control substantially all matters requiring approval by our
shareholders.
Investing in our Class A common stock involves risks.
See "Risk Factors" beginning on page 7.
Per share
Total
Initial public offering price
$
$
Underwriting discounts
$
$
Proceeds to Nelnet, before expenses
$
$
We have granted the underwriters an option for a
period of 30 days to purchase up
to           additional
shares of our Class A common stock on the same terms and
conditions set forth above to cover overallotments, if any.
Neither the Securities and Exchange Commission
nor any state securities commission has approved or disapproved
of these securities or passed upon the adequacy or accuracy of
this prospectus. Any representation to the contrary is a
criminal offense.
The underwriters expect to deliver the shares of
Class A common stock to investors
on                     ,
2003.
Joint Book-Running Managers
JPMorgan
Banc of America Securities LLC
Credit Suisse First Boston
Morgan Stanley
,
2003
TABLE OF CONTENTS
Page
Prospectus Summary
1
Risk Factors
7
Forward-Looking Statements
18
Use of Proceeds
19
Dividend Policy
19
Capitalization
20
Dilution
21
Selected Consolidated Financial Data
22
Management's Discussion and Analysis of
    Financial Condition and Results of Operations
24
Industry Overview
40
Business
46
Management
57
Principal Shareholders
67
Certain Transactions
70
Description of Capital Stock
76
Shares Eligible for Future Sale
82
United States Tax Consequences to Non-U.S.
    Holders of Class A Common Stock
84
Underwriting
86
Legal Matters
89
Experts
89
Where You Can Find More Information
89
Index to Financial Statements
F-1
Annex A — The Federal Family Education
    Loan Program
A-1
You should rely only on the information contained
in this prospectus. We have not authorized anyone to provide you
with information different from that contained in this
prospectus. We are offering to sell, and seeking offers to buy,
shares of our Class A common stock only in jurisdictions
where offers and sales are permitted. The information contained
in this prospectus is accurate only as of the date of this
prospectus, regardless of the time of delivery of this
prospectus or of any sale of our Class A common stock.
No action is being taken in any jurisdiction
outside the United States to permit a public offering of the
Class A common stock or possession or distribution of this
prospectus in that jurisdiction. Persons who come into
possession of this prospectus in jurisdictions outside the
United States are required to inform themselves about and to
observe any restrictions as to this offering and the
distribution of this prospectus applicable to those
jurisdictions.
Until                     ,
2003, all dealers that buy, sell or trade in our Class A
common stock, whether or not participating in this offering, may
be required to deliver a prospectus. This is in addition to the
dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or
subscriptions.
The product and service names and logos used in
this prospectus are service marks/trademarks or registered
service marks/trademarks of Nelnet or its affiliates. Nelnet,
Nconcert, Ntrust, Ngenius, Nteract, Nservice, Nelnet Notes and
@theU are service marks of Nelnet, Inc. Other products, services
and company names mentioned in this prospectus are the service
marks/trademarks of their respective owners.
PROSPECTUS SUMMARY
In this prospectus, unless the context
requires otherwise, "Nelnet," "we,"
"us" and "our" refer to Nelnet, Inc., a
Nebraska corporation, and its subsidiaries, and not to the
underwriters. A detailed description of the Federal Family
Education Loan Program appears in Annex A to this
prospectus.
This summary highlights selected information
contained elsewhere in this prospectus. This summary does not
contain all the information you should consider before investing
in shares of our Class A common stock. You should read this
entire prospectus carefully, including "Risk Factors"
and our financial statements and the related notes, before
making an investment decision.
Nelnet, Inc.
We are a leading, vertically integrated education
finance company, focused on providing quality products and
services to participants in the education finance process.
Headquartered in Lincoln, Nebraska, we originate, hold and
service student loans, principally loans originated under the
Federal Family Education Loan Program, which we refer to as the
FFEL Program or FFELP. For 2002, we were the fourth largest
holder and second largest servicer of FFELP loans. In addition,
we, together with our branding partners, are a leading
originator of FFELP loans.
We offer a broad range of financial services and
technology-based products, including student loan origination
and lending, student loan and guarantee servicing and a suite of
software solutions. Our products are designed to simplify the
student loan process by automating financial aid delivery, loan
processing and funds disbursement. Our infrastructure,
technological expertise and breadth of product and service
offerings connect the key constituents of the student loan
process, including lenders, financial aid officers, guaranty
agencies, governmental agencies, student and parent borrowers,
servicers and the capital markets, thereby streamlining the
education finance process.
Our business is divided into four primary
business units:
•
Student loan originations, acquisitions and
    portfolio management
—
    provides student loan sales, marketing, origination, acquisition
    and portfolio management.
•
Student loan
    servicing
— provides
    student loan servicing for our portfolio and for third parties.
•
Guarantee
    servicing
— provides
    software systems and sub-servicing to guaranty agencies.
•
Servicing
    software
— provides
    student loan servicing software internally and to third-party
    student loan holders and servicers.
We originate and acquire loans through a variety
of different channels, including originations through our direct
channel and acquisitions through our branding partner channel,
our forward flow channel and the secondary market. In 2002, we
originated and acquired $2.7 billion in student loans,
including $859 million in consolidation loans. As of
June 30, 2003, our student loan portfolio was
$9.5 billion. We currently service $18 billion in
student loans, and our software is used by third parties to
service an additional $30 billion in student loans. In
addition, we currently provide servicing support to guaranty
agencies that guarantee $18 billion in student loans. We
have relationships with hundreds of colleges and universities
and provide student loan servicing either directly or through
our proprietary software to approximately 1.75 million
borrowers.
We generate the majority of our earnings from the
spread between the yield we receive on our student loan
portfolio and the cost of funding these loans. While the spread
may vary due to fluctuations in interest rates, government
special allowance payments ensure that we receive a minimum
yield on our student loans, as long as certain requirements are
met. For the year ended December 31, 2002, we generated net
interest income of $190.9 million, total other income,
including loan servicing income, of $125.8 million and net
income of $48.5 million.
1
Student Loan Industry
Since the creation of federal student loan
programs, over $485 billion in federal student loans have
financed the higher education of more than 67 million
students at thousands of schools across the United States. More
students and families depend on federal student loans to cover
the costs of post-secondary education than any other single
source of financial aid, and the demand for student loans is
expected to grow along with the cost of a college education.
According to projections by the U.S. Department of
Education, or DOE, annual gross federal student loan volume is
expected to increase from $45.4 billion in federal fiscal
year 2002 to $71.8 billion in federal fiscal year 2009,
excluding consolidation loan volume.
Competitive Strengths
The following competitive strengths distinguish
us in the education finance industry:
•
We are a focused leader with a vertically
    integrated platform.
We provide
    school financial aid offices and students with a comprehensive,
    full-service student lending package (Stafford, PLUS,
    consolidation and private loans), loan and guarantee servicing
    and loan servicing software. In doing so, we maintain a strong
    position and expertise in each of our primary business units and
    are well positioned to capitalize on industry growth.
•
We have established a high-quality loan
    portfolio through our concentration on FFELP
    loans.
As of June 30, 2003,
    more than 99% of our student loan portfolio consisted of FFELP
    loans, which carry at least a 98% federal guarantee on principal
    and accrued interest.
•
We enjoy strong relationships with student
    loan market constituents.
We have
    established long-term strategic relationships with school
    financial aid offices and with eligible lenders that direct
    committed portions of their originations to us. The effort and
    cost to establish and maintain these relationships, as well as
    the low turnover of selected providers, act as a barrier to
    entry for competitors.
•
We have benefited from access to
    cost-effective financings.
Our
    $2 billion loan warehousing capacity allows us to pool
    student loans in order to aggregate sufficient volume for
    cost-effective long-term financing and to time securitization
    market conditions effectively. As a result, our securitizations
    routinely price in line with our largest competitor within the
    student loan industry.
•
We have built a leading, cost-competitive
    servicing platform with a focus on asset
    protection.
Our student loan
    servicing platform, which facilitates interaction with
    borrowers, is critical to our success as a lender in the student
    loan marketplace. The quality of our servicing capability is
    also a key factor in preserving the federal guarantee on our
    FFELP loans. The quality of our servicing operation is best
    demonstrated by our low initial claim reject rate due to
    servicer error, which was 0.25% in 2002.
•
Our comprehensive suite of software
    products enables us to carry our brand forward to the key
    constituents of the student loan
    market.
Our products include an
    Internet-based financial aid delivery and management system, an
    Internet-based loan origination system and a centralized
    disbursement agent service. Our "open architecture"
    origination products afford schools the flexibility to work with
    multiple lenders.
•
We are run by a management team with
    significant operating and acquisition
    experience.
Our senior management
    employees have, on average, been with us or one of our
    predecessor companies for over ten years. We have a track record
    of successfully integrating the companies that we have acquired
    and retaining key employees. As a result, we have a management
    team with significant experience and knowledge in both student
    loan operations and portfolio and company acquisitions.
Strategy
We intend to achieve our corporate objective of
furthering our leadership position in the student loan industry
by executing the following strategies:
2
•
Establish and maintain leadership in all
    business units by leveraging our
    technology.
We believe that our
    technology solutions position us as a leading provider for the
    student lending market. We will continue to invest, develop and
    upgrade our technology to help solidify our leadership position
    and further penetrate our potential market.
•
Maximize organic growth and profitability
    by maintaining low cost
    infrastructure.
We believe there
    is continued opportunity for significant growth in light of the
    DOE's projected growth rates for the student loan industry.
    We believe the infrastructure we have developed has positioned
    us to continue to achieve economies of scale and be a low-cost
    provider to our customers. In this regard, we decreased our
    operating expenses as a percentage of average student loans from
    0.78% in 1998 to 0.54% in 2002.
•
Strengthen existing relationships while
    establishing new ones.
We have
    extensive customer relationships with schools and lenders
    throughout the United States. We will continue to leverage the
    strength and depth of these relationships and will continue to
    broaden them while establishing new ones through our sales force.
•
Continue our commitment to highly focused
    and disciplined loan origination and acquisition
    practices.
We will continue to
    pursue our conservative approach to asset quality by
    concentrating on originating, acquiring and holding federally
    guaranteed loans through the FFEL Program, while maintaining a
    disciplined underwriting approach to private loans.
•
Opportunistically make company and
    portfolio acquisitions.
Although
    we have reached a point in our development where we offer a
    comprehensive set of products and services essential to our
    vertically integrated business model, we will still consider
    acquisitions of both individual companies and loan portfolios
    that we believe have the potential to enhance long-term
    shareholder value.
Items Which Will Effect Future Operating
Results
Our third quarter operating results will reflect
compensation expense of $3.9 million related to special
bonuses paid to two executive officers, as described under
"Management — Executive Compensation," and
to four other employees. In addition, in March 2003, we issued
331,800 shares of our Class A common stock to
35 employees for an aggregate consideration of $806,274. In
the quarter in which this offering is consummated, we will
recognize a compensation charge of
$           million,
which is equal to the difference between the initial public
offering price of that number of shares and the price paid by
the employees. There will be no net effect on shareholders'
equity as a result of this transaction since additional paid-in
capital will be credited by an amount equal to the compensation
charge.
Risk Factors
You should consider the risks that we face in
evaluating an investment in our Class A common stock. Among
these risks are the uncertainties surrounding the
reauthorization of the Higher Education Act of 1965, as amended,
and all regulations thereunder, which we refer to collectively
as the Higher Education Act, which is scheduled to expire in
September 2004, and the fact that we operate in a highly
competitive industry and compete directly against large and
well-financed competitors. See "Risk Factors."
Our principal executive offices are located at
121 South 13th Street, Suite 201, Lincoln,
Nebraska 68508, and our telephone number is (402) 458-2370.
Our web site is
www.nelnet.net
. Information contained on
our web site is not a part of this prospectus.
3
The Offering
Class A common stock offered by Nelnet
shares
Common stock to be outstanding after this
    offering:
Class A common
    stock
shares
Class B common
    stock
14,023,454 shares
Total
shares
Use of proceeds
To originate and acquire student loans, repay
    $30.0 million of revolving credit indebtedness and for
    general corporate purposes, including capital expenditures,
    working capital and possible acquisitions of complementary
    businesses or assets. See "Use of Proceeds."
Voting rights
Each share of Class A common stock has one
    vote and each share of Class B common stock has ten votes
    on all matters to be voted upon by our shareholders. In the
    event at any time the shares of Class B common stock
    outstanding constitute less than 50% of the Class B common
    stock outstanding on the date hereof, each remaining share of
    Class B common stock outstanding shall automatically be
    converted into one share of Class A common stock. See
    "Description of Capital Stock — Common
    Stock."
Dividend policy
Nelnet does not anticipate paying any cash
    dividends on its common stock.
Proposed New York Stock Exchange symbol
"NNI."
Unless specifically stated otherwise, the
information in this prospectus:
•
assumes no exercise of the underwriters'
    overallotment option
    of            shares;
•
assumes an initial public offering price of
    $          per
    share, the midpoint of the estimated initial public offering
    price range indicated on the front cover of this prospectus; and
•
reflects our recapitalization described below
    under the heading "Description of Capital Stock —
    Recapitalization."
4
Summary Consolidated Financial Data
You should read the summary consolidated
financial data set forth below in conjunction with
"Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our financial
statements and the related notes included elsewhere in this
prospectus. We derived the financial data as of
December 31, 2002 and 2001 and for the years ended
December 31, 2002, 2001 and 2000 from our audited financial
statements included elsewhere in this prospectus. We derived the
financial data as of December 31, 2000 from our audited
financial statements not included in this prospectus. We derived
the financial data as of June 30, 2003 and for the six
months ended June 30, 2003 and 2002 from our unaudited
financial statements included elsewhere in this prospectus.
Results for interim periods are not necessarily indicative of
results to be expected during the remainder of the fiscal year
or for any future periods. The as adjusted balance sheet data
set forth below have been adjusted to give effect to the sale
of                      shares
of our Class A common stock in this offering and the use of
$30.0 million of the net proceeds from this offering to
repay revolving credit indebtedness. See
"Capitalization."
Six months ended June 30,
Year ended December 31,
2003
2002
2002
2001
2000
(dollars in thousands, except per share data)
Income Statement Data:
Net interest income
$
91,923
$
116,135
$
190,900
$
114,565
$
64,853
Less provision for loan losses
4,860
2,116
5,587
3,925
1,370
Net interest income after provision for loan
    losses
87,063
114,019
185,313
110,640
63,483
Loan servicing and other fee income
48,307
54,812
103,899
93,172
66,015
Software services and other income
9,454
9,392
21,909
7,713
8,431
Operating expenses
114,510
115,863
229,873
191,478
126,485
Income before income taxes and minority interest
30,314
62,360
81,248
20,047
11,444
Net income
17,904
37,788
48,538
7,147
4,520
Earnings per share, basic and diluted
$
0.40
$
0.84
$
1.08
$
0.16
$
0.11
Weighted average shares outstanding
45,010,490
44,971,290
44,971,290
44,331,490
41,187,230
Other Data:
Origination and acquisition volume(a)
$
1,835,954
$
1,076,345
$
2,665,786
$
1,448,607
$
1,027,498
Average student loans
$
9,176,244
$
7,887,699
$
8,171,898
$
5,135,227
$
3,388,156
Student loans serviced (at end of period)
$
17,866,278
$
17,169,306
$
17,863,210
$
16,585,295
$
11,971,095
Ratios:
Net interest margin(b)
1.86
%
2.68
%
2.15
%
2.09
%
1.76
%
Return on average total assets
0.35
%
0.83
%
0.52
%
0.12
%
0.12
%
Return on average equity
29.2
%
80.0
%
46.7
%
11.7
%
8.2
%
Net loan charge-offs as a percentage of average
    student loans
0.033
%
0.014
%
0.047
%
0.042
%
0.055
%
5
As of June 30, 2003
As of December 31,
Actual
As adjusted
2002
2001
2000
(in thousands)
Balance Sheet Data:
Cash and cash equivalents
$
47,776
$
$
40,155
$
36,440
$
23,263
Student loan receivables, net
9,466,523
8,559,420
7,423,872
3,585,943
Total assets
10,413,114
9,766,583
8,134,560
4,021,948
Bonds and notes payable
10,179,726
9,447,682
7,926,362
3,934,130
Shareholders' equity
127,189
109,122
63,186
54,161
(a)
Initial loans originated and acquired through
    various channels, including originations through our direct
    channel and acquisitions through our branding partner channel,
    our forward flow channel and the secondary market.
(b)
Net interest margin is computed by dividing net
    interest income by the sum of average student loans and the
    average balance of other interest earning assets.
6
RISK FACTORS
You should carefully consider the following
risk factors and all other information contained in this
prospectus before investing in shares of our Class A common
stock. Investing in our Class A common stock involves a
high degree of risk. If any of the following risks, or any other
risks and uncertainties that we have not yet identified or that
we currently think are immaterial, actually occur, our business,
financial condition and results of operations could be
materially and adversely affected. In that event, the trading
price of our Class A common stock could decline and you may
lose part or all of your investment.
Risks Related to Our Business and
Industry
Failure to comply with governmental
    regulations or guaranty agency rules could harm our
    business.
Our principal business is comprised of
originating, acquiring, holding and servicing student loans made
and guaranteed pursuant to the FFEL Program, which was created
by the Higher Education Act. Most significant aspects of our
lines of business are governed by the Higher Education Act. We
are also subject to rules and regulations of the agencies that
act as guarantors of the student loans, known as guaranty
agencies. In addition, we are subject to certain federal and
state banking laws, regulations and examinations, as well as
federal and state consumer protection laws and regulations in
connection with private loans, which do not carry a federal
guarantee.
The federal guarantee on our FFELP loans is
conditioned on compliance with origination, servicing and
collection standards set by the DOE and guaranty agencies. FFELP
loans that are not originated, disbursed or serviced in
accordance with DOE regulations risk loss of their guarantee, in
full or in part. If we experience a high rate of servicing
deficiencies or costs associated with remedial servicing, and if
we are unsuccessful in curing such deficiencies, the eventual
losses on the loans that are not cured could be material.
Regulations authorize the DOE to limit, suspend
or terminate lenders' participation in the FFEL Program, as
well as to impose civil penalties, if lenders violate certain
program regulations. The regulations also authorize the DOE to
impose penalties on the servicer and/or limit, suspend or
terminate the servicer's eligibility to contract to service
FFELP loans if the servicer fails to meet standards of financial
responsibility or administrative capability included in the
regulations or violates certain other FFELP requirements. The
DOE conducts frequent on-site audits of our loan servicing
activities. Guaranty agencies conduct similar audits on a
regular basis. In addition, we engage independent third parties
to conduct compliance reviews, as required by the DOE, with
respect to our own student loan portfolio and the portfolios of
our third-party servicing clients.
Our servicing customers that are financial
institutions are subject to examinations under certain banking
laws and regulations. We are in turn subject to examination and
audit under these laws and regulations. These examinations are
routinely performed by regulatory bodies such as the Federal
Deposit Insurance Corporation, the Office of the Comptroller of
the Currency or the Office of Thrift Supervision, depending upon
the type of financial institution being examined.
Our private loan portfolio is also subject to
federal and state consumer protection laws and regulations,
including state usury laws and related regulations and the
Federal Truth in Lending Act. These laws and regulations impose
substantial requirements upon lenders and servicers involved in
consumer finance. Failure to comply with these laws and
regulations could result in our liability to borrowers, the
imposition of civil penalties and potential class action suits.
Our failure to comply with any of the above
regulatory regimes due to, among other things, compliance
errors, breaches of our internal control system, technological
defects or fraud by our employees or other persons could subject
us to potential legal actions. Legal actions could also arise as
a result of an operational deficiency, failure to comply with
contractual commitments, imprudent business decisions and
customer attrition due to potential negative publicity.
7
We must satisfy certain requirements
    necessary to maintain the federal guarantees of our FFELP loans
    and we may incur penalties or lose our guarantees if we fail to
    meet these requirements.
We must meet various requirements in order to
maintain the federal guarantee on our FFELP loans. These
requirements establish servicing requirements and procedural
guidelines and specify school and borrower eligibility criteria.
A guaranty agency may reject a loan for claim
payment due to a violation of FFEL Program due diligence
collection and servicing requirements. In addition, a guaranty
agency may reject claims under other circumstances, including,
for example, if a claim is not timely filed or adequate
documentation is not maintained. Once a loan ceases to be
guaranteed, it is ineligible for federal interest subsidies and
special allowance payments. If a loan is rejected for claim
payment by a guaranty agency, we continue to pursue the borrower
for payment and/or institute a process to reinstate the
guarantee.
Rejections of claims as to portions of interest
may be made by guaranty agencies for certain violations of the
due diligence collection and servicing requirements, even though
the remainder of a claim may be paid. Examples of errors that
cause claim rejections include isolated missed collection calls
or failures to send collection letters as required.
School eligibility requirements, which include
default rate limits, have been implemented by the DOE. In order
to maintain eligibility in the FFEL Program, schools must
maintain default rates below specified levels, and both guaranty
agencies and lenders are required to ensure that loans are made
to students attending schools that meet default criteria.
If we fail to comply with any of the above
requirements, we could incur penalties or lose the federal
guarantee on some or all of our FFELP loans.
Failure to comply with restrictions on
    inducements under the Higher Education Act could harm our
    business.
The Higher Education Act generally prohibits a
lender from providing inducements to educational institutions or
individuals in order to secure applicants for FFELP loans. We
have entered into various agreements to acquire marketing lists
of prospective FFELP loan borrowers from sources such as college
alumni associations. We pay to acquire these lists and for the
completed applications for loans resulting therefrom. We believe
that such arrangements are permissible and do not violate
restrictions on inducements, as they fit within a regulatory
exception recognized by the DOE for generalized marketing and
advertising activities. The DOE has provided informal guidance
to us that such arrangements do not raise any improper
inducement issues, since such arrangements fall within the
generalized marketing exception. If the DOE were to change its
position, this could hurt our reputation and could potentially
result in the DOE imposing sanctions on us. These sanctions
could negatively impact our business.
Possible changes in legislation and
    regulations could have a negative impact upon our
    business.
Pursuant to the terms of the Higher Education
Act, the FFEL Program is periodically amended, and the Higher
Education Act must be reauthorized by Congress every five years
in order to prevent sunset of that Act. Changes in the Higher
Education Act made in the two most recent reauthorizations have
included reductions in student loan yields paid to lenders,
increased fees paid by lenders and a decreased level of federal
guarantee. Future changes could result in further negative
impacts on our business. Moreover, there can be no assurance
that the provisions of the Higher Education Act, which is
scheduled to expire on September 30, 2004, will be
reauthorized. While Congress has consistently extended the
effective date of the Higher Education Act, it may elect not to
reauthorize the DOE's ability to provide interest
subsidies, special allowance payments and federal guarantees for
student loans. Such a failure to reauthorize would reduce the
number of federally guaranteed student loans available for us to
originate and/or acquire in the future and would materially
adversely affect us.
In addition, funds for payment of interest
subsidies and other payments under the FFEL Program are subject
to annual budgetary appropriation by Congress. In recent years,
federal budget legislation has
8
contained provisions that have restricted
payments made under the FFEL Program to achieve reductions in
federal spending. Future legislation may adversely affect
expenditures by the DOE and the financial condition of guaranty
agencies.
Efforts are underway to pass legislation which
would permit borrowers holding consolidation loans made under
the Higher Education Act to refinance their loans under the FFEL
Program multiple times, rather than only once, which would open
approximately 39% of our student loan portfolio to further
refinancing. Similar legislation may also abolish the so-called
single holder rule, which restricts the ability of other lenders
to consolidate student loans away from a lender that owns all of
a particular borrower's loans. This would put approximately
one-third of our non-consolidated portfolio at risk of being
consolidated away by our competitors. In addition, if
legislation is enacted to allow variable-rate consolidation
loans or to extend the term of Stafford loans, we may experience
a decrease in our consolidation loan opportunities. Accordingly,
any of these legislative changes could have a material adverse
impact upon us. In addition, the DOE oversees and implements the
Higher Education Act and periodically issues regulations and
interpretations of that Act. Changes in such regulations and
interpretations could negatively impact our business.
Market
risks to which we are subject may have an adverse impact upon
our business and operations.
Our primary market risk exposure arises from
fluctuations in our borrowing and lending rates, the spread
between which could be impacted by shifts in market interest
rates. The borrower rates on our FFELP loans are generally reset
by the DOE each July 1st based on a formula determined by the
date of the origination of the loan, with the exception of rates
on consolidation loans which are fixed to term. The interest
rate we actually receive on our FFELP loans is the greater of
the borrower rate and a rate determined by a formula based on a
spread to either the 91-day Treasury Bill index or the 90-day
commercial paper index, depending on when the loans were
originated and the current repayment status of the loans.
We issue asset-backed securities, both fixed- and
variable-rate, to fund our student loan assets. The
variable-rate debt is generally indexed to 90-day LIBOR or set
by auction. The income generated by our student loan assets is
generally driven by different short-term indices than our
liabilities, which creates interest rate risk for us. We have
historically borne this risk internally through the net spread
on our portfolio while continuing to monitor our interest rate
risk.
Our hedging arrangements may not be
    successful in hedging our interest rate risks.
When we utilize derivative instruments, we
utilize them to hedge our interest rate exposure. Although we do
not use derivative instruments to hedge assets or for
speculative purposes, our hedges may not qualify as effective
hedges for financial accounting purposes. The derivative
instruments we use are typically in the form of interest rate
swaps and interest rate caps. Interest rate swaps effectively
change variable-rate debt obligations either to fixed-rate debt
obligations or to variable-rate debt obligations based on a
different index. Interest rate caps effectively limit the
maximum interest on variable-rate debt obligations. Developing
an effective strategy for dealing with movements in interest
rates is complex, and no strategy can completely insulate us
from risks associated with such fluctuations. In addition, a
counterparty to a hedging arrangement could default on its
obligation thereby making the hedge ineffective, and we may have
to repay certain costs, such as transaction fees or brokerage
costs, if a hedging arrangement is terminated by us.
Furthermore, our hedging activities could expose us to
substantial losses if interest rates move materially differently
from our expectations. As a result, we cannot assure you that
our hedging activities will effectively hedge against our
interest rate exposure or have the desired beneficial impact on
our results of operations or financial condition.
Liquidity risks inherent in our funding
    needs pose risks to us.
We are subject to the risk that we may be unable
to meet financial commitments to creditors, branding partners,
forward flow lenders or borrowers when due. Our primary funding
needs are those
9
required to finance our student loan portfolio
and satisfy our cash requirements for new student loan
originations and acquisitions, operating expenses and
technological development.
We rely upon conduit warehouse loan financing
vehicles to support our funding needs on a short-term basis.
There can be no assurance that we will be able to maintain such
warehouse financing in the future. We currently have four such
conduit facilities in place, with various maturity dates.
Currently, the aggregate short-term commitment amount from our
conduit lenders is over $2 billion. There can be no
assurance that we will be able to maintain such conduit
facilities, find alternative funding or increase the commitment
level of such facilities, if necessary. The term of each conduit
facility is less than one year, and each facility is renewable
at the option of the lender and may be terminated at any time
for cause. While our conduit facilities have historically been
renewed for successive terms, there can be no assurance that
this will continue in the future.
In addition, we rely upon securitization vehicles
as our most significant source of funding for student loans on a
long-term basis. The net cash flow we receive from the
securitized student loans generally represents the excess
amounts, if any, generated by the underlying student loans over
the amounts required to be paid to the bondholders, after
deducting servicing fees and any other expenses relating to the
securitizations. In addition, some of the residual interests in
these securitizations have been pledged to secure additional
bond obligations. Our rights to cash flow from securitized
student loans are subordinate to bondholder interests and these
loans may fail to generate any cash flow beyond what is due to
pay bondholders.
The interest rates on certain of our asset-backed
securities are set and periodically reset via a "dutch
auction" utilizing remarketing agents. Investors and
potential investors submit orders through a broker-dealer as to
the principal amount of notes they wish to buy, hold or sell at
various interest rates. The broker-dealers submit their
clients' orders to the auction agent or remarketing agent,
who determines the interest rate for the upcoming period. If
there are insufficient potential bid orders to purchase all of
the notes offered for sale or being repriced, we could be
subject to interest costs substantially above the anticipated
and historical rates paid on these types of securities. A failed
auction or remarketing could also reduce the investor base of
our other financing and debt instruments.
Future
losses due to defaults on loans held by us present credit risk
which could adversely affect our earnings.
More than 99% of our student loan portfolio as of
June 30, 2003 was comprised of FFELP loans. These loans
benefit from a federal guarantee of between 98% and 100% of
their principal balance and accrued interest. We bear full risk
of losses experienced with respect to the unguaranteed portion
of the student loans.
Losses on our private loans will be borne by us,
with the exception of certain privately insured loans. Privately
insured loans constitute a minority of our private loan
portfolio. The loan loss pattern on our private loan portfolio
is not as developed as that on our FFELP loan portfolio. As of
June 30, 2003, the aggregate principal balance of private
loans comprised less than 1% of our entire student loan
portfolio; however, it is expected to increase to between 1% and
2% over the next three years. There can be no assurance that
this percentage will not further increase over the long term.
The performance of student loans in our portfolio
is affected by the economy, and a prolonged economic downturn
may have an adverse effect on the credit performance of these
loans. While we have provided allowances estimated to cover
losses that may be experienced in both our student loans that
are federally guaranteed under the FFEL Program as well as our
private loan portfolio, there can be no assurance that such
allowances will be sufficient to cover actual losses in the
future.
We could experience cash flow problems if a
    guaranty agency defaults on its guarantee
    obligation.
A deterioration in the financial status of a
guaranty agency and its ability to honor guarantee claims on
defaulted student loans could result in a failure of that
guaranty agency to make its guarantee payments
10
in a timely manner, if at all. The financial
condition of a guaranty agency can be adversely affected if it
submits a large number of reimbursement claims to the DOE, which
results in a reduction of the amount of reimbursement that the
DOE is obligated to pay the guaranty agency. The DOE may also
require a guaranty agency to return its reserve funds to the DOE
upon a finding that the reserves are unnecessary for the
guaranty agency to pay its FFELP expenses or to serve the best
interests of the FFEL Program.
If the DOE has determined that a guaranty agency
is unable to meet its guarantee obligations, the loan holder may
submit claims directly to the DOE, and the DOE is required to
pay the full guarantee claim. However, the DOE's obligation
to pay guarantee claims directly in this fashion is contingent
upon the DOE making the determination that a guaranty agency is
unable to meet its guarantee obligations. The DOE may not ever
make this determination with respect to a guaranty agency and,
even if the DOE does make this determination, payment of the
guarantee claims may not be made in a timely manner, which could
result in our experiencing cash shortfalls.
Competition created by the Federal Direct
    Loan Program and from other lenders and servicers may adversely
    impact our business.
In 1992, Congress created the William D. Ford
Federal Direct Loan Program, which we refer to as the FDL
Program or the FDLP. Under the FDL Program, the DOE makes loans
directly to student borrowers through the educational
institutions they attend. The volume of student loans made under
the FFEL Program and available for us to originate or acquire
may be reduced to the extent loans are made to students under
the FDL Program. In addition, if the FDL Program expands, to the
extent the volume of loans serviced by us is reduced, we may
experience reduced economies of scale, which could adversely
affect our earnings. Loan volume reductions could further reduce
amounts received by the guaranty agencies available to pay
claims on defaulted student loans.
In the FFELP market, we face significant
competition from SLM Corporation, the parent company of Sallie
Mae. SLM Corporation services nearly half of all outstanding
FFELP loans and is the largest holder of student loans, with a
portfolio of approximately $70 billion. We also face
intense competition from other existing lenders and servicers.
As we expand our student loan origination and acquisition
activities, that expansion may result in increased competition
with some of our servicing customers. This has in the past
resulted in servicing customers terminating their contractual
relationships with us, and we could in the future lose more
servicing customers as a result. As we seek to further expand
our business, we will face numerous other competitors, many of
which will be well established in the markets we seek to
penetrate. Some of our competitors are much larger than we are,
have better name recognition than we do and have greater
financial and other resources than we do. In addition, several
of our competitors have large market capitalizations or cash
reserves and are better positioned to acquire companies or
portfolios in order to gain market share than we are.
Furthermore, many of the institutions with which we compete have
significantly more equity relative to their asset bases than we
do. Consequently, such competitors may have more flexibility to
address the risks inherent in the student loan business.
Finally, some of our competitors are tax-exempt organizations
which do not pay federal or state income taxes and which
generally receive floor income on certain tax-exempt obligations
on a greater percentage of their student loan portfolio than we
do because they have financed a greater percentage of their
student loans with tax-exempt obligations issued prior to
October 1, 1993 than we have. These factors could give our
competitors a strategic advantage.
Higher rates of prepayments of student
    loans could reduce our profits.
Pursuant to the Higher Education Act, borrowers
may prepay loans made under the FFEL Program at any time.
Prepayments may result from consolidating student loans, which
tends to occur more frequently in low interest rate
environments, from borrower defaults, which will result in the
receipt of a guarantee payment, and from voluntary full or
partial prepayments, among other things. The rate of prepayments
of student loans may be influenced by a variety of economic,
social and other factors affecting borrowers, including interest
rates and the availability of alternative financing. Our profits
could be adversely affected by higher prepayments, which would
reduce the amount of interest we receive and expose us to
reinvestment risk.
11
Increases in consolidation loan activity by
    us and our competitors present a risk to our loan portfolio and
    profitability.
Our portfolio of FFELP loans is subject to
refinancing through the use of consolidation loans, which are
expressly permitted by the Higher Education Act. Consolidation
loan activity may result in three detrimental effects on us.
First, when we consolidate loans already held by us, the new
consolidation loans have a lower yield than the loans being
refinanced due to the statutorily mandated consolidation loan
rebate fee of 1.05% per year. Although consolidation loans
generally feature higher average balances, longer average lives
and slightly higher special allowance payments, such attributes
may not be sufficient to counterbalance the cost of the rebate
fees. Second, and more significantly, we may lose student loans
in our portfolio that are consolidated away by competing
lenders. In prior years, our competitors consolidated away more
student loans from us than we consolidated away from our
competitors. Increased consolidations of student loans away from
us by our competitors may result in a negative return on loans,
when considering the origination costs or acquisition premiums
paid with respect to these loans. Additionally, consolidation of
loans away from us can result in a decrease of our servicing
portfolio, thereby decreasing fee-based servicing income. Third,
increased consolidations by us of our own student loans create
cash flow risk because we incur upfront consolidation costs,
which are in addition to the origination or acquisition costs we
incurred in connection with the underlying student loans, while
extending the repayment schedule of the consolidated loans.
The volume of available student loans may
    decrease in the future and may adversely affect our
    income.
Our student loan originations generally are
limited to students attending eligible educational institutions
in the United States. Volumes of originations are greater at
some schools than others, and our ability to remain an active
lender at a particular school with concentrated volumes is
subject to a variety of risks, including the fact that each
school has the option to remove us from its "preferred
lender" list or to add other lenders to its "preferred
lender" list, the risk that a school may enter the FDL
Program or the risk that a school may begin making student loans
itself. We acquire student loans through forward flow
commitments with other student loan lenders, but each of these
commitments has a finite term. There can be no assurance that
these lenders will renew or extend their existing forward flow
commitments on terms that are favorable to us, if at all,
following their expiration.
In addition, as of June 30, 2003,
approximately 54% of the loans we serviced were owned by third
parties. To the extent that our third-party servicing clients
reduce the volume of student loans that we process on their
behalf, our income would be reduced, and, to the extent the
related costs could not be reduced correspondingly, our net
income could be materially adversely affected. Such volume
reductions occur for a variety of reasons, including if our
third-party servicing clients commence or increase internal
servicing activities, shift volume to another service provider,
perhaps because such other service provider does not compete
with the client in student loan originations and acquisitions or
exit the FFEL Program completely.
Special allowance payments on student loans
    originated or acquired with the proceeds of certain tax-exempt
    obligations may limit the interest rate on certain student loans
    to our detriment.
Student loans originated or acquired with the
proceeds of tax-exempt obligations issued prior to
October 1, 1993, as well as student loans acquired with the
sale proceeds of those student loans, receive only a portion of
the special allowance payment which they would otherwise be
entitled to receive, but are guaranteed a minimum rate of return
of 9.5% per year, less the applicable interest rate for the
student loan.
A portion of our student loan portfolio is
comprised of loans which have been previously financed with the
proceeds of tax-exempt obligations issued prior to
October 1, 1993. Based upon provisions of the Higher
Education Act and related interpretations by the DOE, we believe
that, for each of these student loans, we will receive partial
special allowance payments, subject to the 9.5% minimum rate of
return. However, the DOE may change its regulations or its
interpretations of existing regulations, or the Higher
12
Education Act may be amended, to eliminate this
special allowance payment treatment. In this event, we would
receive regular special allowance payments, but with no minimum
rate of return.
In the current low interest rate environment, we
generally receive partial special allowance payments and the
minimum 9.5% rate of return with respect to our eligible student
loans originated or acquired with qualifying tax-exempt
proceeds. In a higher interest rate environment, however, the
regular special allowance payments on loans not originated or
acquired with qualifying tax-exempt proceeds may exceed the
total subsidy to holders of eligible loans originated or
acquired with qualifying tax-exempt proceeds. Thus, in a higher
interest rate environment, these loans could have an adverse
effect upon our earnings. For further information regarding
special allowance payments, see "Industry
Overview — Student Loan Business Model."
Failures in our information technology
    system could materially disrupt our business.
Our servicing and operating processes are highly
dependent upon our information technology system infrastructure,
and we face the risk of business disruption if failures in our
information systems occur, which could have a material impact
upon our business and operations. We depend heavily on our own
computer-based data processing systems in servicing both our own
student loans and those of third-party servicing customers. On
January 1, 2002, we converted the great majority of the
student loans we service to a computer hardware and software
platform developed and maintained by an affiliated company. In
November 2002, we converted our remaining approximately
$3 billion of student loans to this same computer hardware
and software platform. Problems or errors of which we are not
currently aware may have occurred in connection with this
conversion, and problems or errors may occur in the future in
connection with the conversion of newly originated and acquired
loans to our platform. If servicing errors do occur, they may
result in a loss of the federal guarantee on the FFELP loans
that we service or in a failure to collect amounts due on the
student loans that we service. In addition, although we
regularly back up our data and believe that we have taken
sufficient precautions to protect our information systems, a
major physical disaster or other calamity that causes
significant damage to our offices or our systems would adversely
affect our business.
Transactions with affiliates and potential
    conflicts of interest pose risks to our
    shareholders.
We have entered into certain contractual
arrangements with entities controlled by Michael S. Dunlap, our
Chairman and Co-Chief Executive Officer and one of our principal
shareholders, and members of his family and, to a lesser extent,
with entities in which other directors and members of management
hold equity interests or board or management positions. Such
arrangements constitute a significant portion of our business
and include, among other things, performance of servicing
duties, sales of student loans by such affiliates to us and
sales of student loan origination rights by such affiliates to
us. These arrangements may present potential conflicts of
interest.
Many of these arrangements are with Union Bank
and Trust Company, or Union Bank, in which Michael S. Dunlap
owns an indirect interest and of which he serves as
non-executive chairman. Union Bank is a significant source of
student loans to us and a significant servicing customer of ours.
In 2002 and the first six months of 2003,
approximately 14% and 24%, respectively, of the principal amount
of the student loans added to our portfolio were wholly
attributable to our relationship with Union Bank, which
originated such loans. Loans made by other lenders and sold to
Union Bank as a result of our relationship with such other
lenders were also then sold by Union Bank to us. We cannot
provide assurance that we acquired these student loans on terms
no less favorable than we could have obtained from an unrelated
third party. We intend to maintain our relationship with Union
Bank, which we believe provides substantial benefits to us,
although there can be no assurance that all transactions in
which we engage with Union Bank in the future will be on terms
that are no less favorable than we could obtain from an
unrelated third party.
The ability of Union Bank to continue to do
business with us will depend on the development of Union
Bank's own business, financial condition and results of
operations, which will be affected by competitive and other
factors beyond our control or knowledge. Because Union Bank is a
privately held company, an investor in our Class A common stock
might have little advance warning of problems
13
affecting Union Bank, even though these problems
could have a material adverse effect on us. For further
information regarding affiliated transactions, see "Certain
Transactions."
Imposition of personal holding company tax
    would decrease our net income.
A corporation is considered to be a
"personal holding company" under the U.S. Internal
Revenue Code of 1986, as amended, which we refer to as the Code,
if at least 60% of its adjusted ordinary gross income is
"personal holding company income" (generally, passive
income) and at any time during the last half of the taxable year
more than half, by value, of its stock is owned by five or fewer
individuals, as determined under attribution rules of the Code.
A personal holding company is subject to an additional tax on
its undistributed personal holding company income, currently at
a 15% rate. Before this offering, more than half the value of
our stock was held by five or fewer individuals, and immediately
after this offering, we expect that this will continue to be the
case. We believe that we can avoid current personal holding
company tax through intercompany distributions, and we expect to
be able to manage our exposure to this tax for the next two
years in this manner. However, it is possible that thereafter
more than 60% of our adjusted ordinary gross income could be
classified as personal holding company income. If that were to
occur, and if more than half of our value continued to be held
by five or fewer individuals, we could become subject to the
personal holding company tax. We have submitted a request for a
private letter ruling from the Internal Revenue Service seeking
a determination that our interest and fee income arising from
federally guaranteed student loans does not constitute personal
holding company income. If the Internal Revenue Service grants
our request, we expect that we will not be subject to the
personal holding company tax. If the Internal Revenue Service
does not grant our request, and if there is a likelihood that we
would incur personal holding company tax, then we and our
controlling shareholder, Michael S. Dunlap, have agreed to take
such steps as are necessary to avoid imposition of the tax by
ensuring that more than half the value of our stock is not owned
by five or fewer individuals. These steps could include the
conversion by Mr. Dunlap of shares of Class B common
stock that he owns into Class A common stock, divestitures
of common stock by Mr. Dunlap and public offerings of newly
issued shares of common stock. If Mr. Dunlap or we were to
fail to take these steps, or fail to take them in a timely
manner, then we could become subject to personal holding company
tax in the future.
Any future acquisitions or joint ventures
    will involve risks.
We may opportunistically seek to acquire
companies or enter into joint ventures that complement our
business, and our inability to complete acquisitions, integrate
acquired companies successfully or enter into joint ventures may
render us less competitive. We may be evaluating acquisitions or
engaging in acquisition negotiations at any given time. We
cannot assure you that we will be able to identify acquisition
candidates or joint venture partners on commercially reasonable
terms or at all. If we make acquisitions, we also cannot be sure
that any benefits anticipated from the acquisitions will
actually be realized. Likewise, we cannot be sure that we will
be able to obtain financing for acquisitions. Such financing
could be restricted by the terms of our debt agreements, or the
cost of financing an acquisition could be more expensive than
our current debt. In addition, our ability to control the
planning and operations of our joint ventures may be subject to
numerous restrictions imposed by the joint venture agreements.
Our joint venture partners may also have interests which diverge
from ours.
The process of integrating acquired operations
into our existing operations may result in unforeseen operating
difficulties and may require significant financial, operational
and managerial resources that would otherwise be available for
the ongoing development or expansion of our existing operations.
To the extent that we have miscalculated our ability to
integrate and operate the business to be acquired, we may have
difficulty in achieving our operating and strategic objectives.
The diversion of management attention, particularly in a
difficult operating environment, may affect our results of
operations. Future acquisitions could result in the incurrence
of additional debt and related interest expense, contingent
liabilities and amortization expenses related to intangible
assets, all of which could have a materially adverse effect on
our financial condition, operating results and/or cash flow.
"Do not call" registries may
    limit our ability to market our products and
    services.
Our direct marketing operations are or may become
subject to various federal and state "do not call"
list requirements. The Federal Trade Commission has recently
amended its rules to provide for a national
14
"do not call" registry. Under these new
federal regulations, consumers may have their phone numbers
added to the national "do not call" registry.
Generally, we will be prohibited from calling anyone on that
registry. In September 2003, telemarketers will have access to
the registry and will be required to compare their call lists
against the national "do not call" registry at least
once every 90 days. We also will be required to pay a fee
to access the registry on a quarterly basis. Enforcement of the
"do not call" provisions will begin in the fall of
2003, and the rule provides for fines of up to $11,000 per
violation and other possible penalties. This rule may restrict
our ability to market effectively our products and services to
new customers. Furthermore, compliance with this new rule may
prove difficult, and we may incur penalties for improperly
conducting our marketing activities.
Risks Related to This Offering
Our stock price may be volatile and your
    investment could decline in value.
The market price of our Class A common stock
may be volatile and subject to wide fluctuations in response to
various factors, including:
•
regulatory or other changes in, and public
    concern or opinion as to, federal student loan programs;
•
actual or anticipated variations in our quarterly
    operating results;
•
changes in our financial estimates by securities
    analysts;
•
conditions or trends in our industry;
•
additions or departures of key personnel;
•
the loss of a significant student loan seller or
    servicing customer;
•
announcements by us or our competitors of
    significant acquisitions, strategic partnerships, joint ventures
    or capital commitments; and
•
economic and political factors.
In addition, the stock markets have experienced
significant price and volume fluctuations that have often been
unrelated or disproportionate to operating performance. These
broad market fluctuations may seriously harm the market price of
our Class A common stock, regardless of our operating
performance. In the past, following periods of volatility in the
market price of a company's securities, securities class
action litigation has often been instituted. A securities class
action suit brought against us could result in potential
liabilities, substantial costs and diversion of our
management's attention and resources, regardless of whether
we win or lose.
There may not be an active, liquid trading
    market for our Class A common stock.
Prior to this offering, there has been no public
market for our Class A common stock. An active, liquid
trading market for our Class A common stock may not develop
or be maintained following this offering. As a result, you may
not be able to sell your shares of our Class A common stock
quickly or at the market price. The initial public offering
price of our Class A common stock is determined by
negotiation between us and the representatives of the
underwriters based upon a number of factors and may not be
indicative of market prices that will prevail following the
completion of this offering. The market price of our
Class A common stock may decline below the initial public
offering price, and you may not be able to resell your shares of
our Class A common stock at or above the initial public
offering price.
Future sales of our Class A common
    stock may depress our stock price.
The market price of our Class A common stock
could decline as a result of sales of substantial amounts of our
Class A common stock in the public market after this
offering, or the perception that these sales could occur. In
addition, these factors could make it more difficult for us to
raise funds through
15
future equity offerings. There will
be                    shares
of our Class A common stock and 14,023,454 shares of our
Class B common stock, which are convertible on a
one-for-one basis into shares of Class A common stock,
outstanding immediately after this offering.
All of the shares of our Class A common
stock sold in this offering will be freely transferable by
persons other than our affiliates without restriction or further
registration under the Securities Act of 1933. All or
substantially all of the remaining shares of our Class A
common stock, including shares of Class A common stock
issued upon conversion of shares of Class B common stock,
will be eligible for sale in the public market pursuant to
Rule 144 under the Securities Act of 1933, subject to
180-day lock-up agreements with the underwriters and to our
Share Retention Policy. See "Description of Capital
Stock — Share Retention Policy" and "Shares
Eligible for Future Sale — Sales of Restricted
Shares" and "— Lock-up Agreements."
We and our executive officers and directors and
all of our shareholders have entered into 180-day lock-up
agreements with the underwriters. The lock-up agreements
prohibit each of us from selling or otherwise disposing of
shares of common stock except in limited circumstances. The
lock-up agreements are only contractual agreements, and J.P.
Morgan Securities Inc. and Banc of America Securities LLC, at
their discretion, can waive the restrictions of any lock-up
agreement at an earlier time without prior notice or
announcement and allow any of us to sell shares of common stock.
If the restrictions in the lock-up agreement are waived, shares
of our Class A common stock will be available for sale into
the public market, subject to applicable securities laws and our
Share Retention Policy, which could reduce the market price for
shares of our Class A common stock. See "Description
of Capital Stock — Share Retention Policy" and
"Shares Eligible for Future Sale — Sales of
Restricted Shares."
Michael S. Dunlap, Stephen F. Butterfield and
persons related to them have the right, subject to limitations,
to make two written demands of Nelnet for registration with the
Securities and Exchange Commission of all or part of their
common stock. These shareholders also have piggyback
registration rights for their common stock following the
consummation of this offering. See "Description of Capital
Stock — Registration Rights."
You will experience immediate and
    substantial dilution as a result of this offering.
You will pay a price per share that substantially
exceeds the per share value of our tangible assets after
subtracting our total liabilities. As a result, if we were to
distribute our net tangible assets to our shareholders
immediately following this offering, you would receive less than
the amount you paid for your shares of our Class A common
stock. See "Dilution."
Our executive officers, directors and
    principal shareholders own a large percentage of our common
    stock and will be able to control substantially all corporate
    decisions.
Immediately after this offering, our executive
officers, directors and principal shareholders will beneficially
own, in the
aggregate,           %
of our outstanding Class A common stock, and Michael S.
Dunlap and Stephen F. Butterfield, our Co-Chief Executive
Officers, and persons related to them will beneficially own
Class A and Class B common stock
representing           %
of the combined voting power of our common stock. Each share of
Class A common stock has one vote and each share of
Class B common stock has ten votes on all matters to be
voted upon by our shareholders. As a result, our executive
officers, directors and principal shareholders, as a group, and
Messrs. Dunlap and Butterfield, by themselves, will be able
to control substantially all matters requiring approval by our
shareholders, including the election of all directors, and they
may do so in a manner with which you may not agree or which may
not be in the best interest of other shareholders. See
"Description of Capital Stock — Common
Stock."
Our management will have broad discretion
    in the use of net proceeds from this offering and may not use
    them effectively.
As of the date of this prospectus, we cannot
specify with certainty the amounts we will spend on particular
uses from the net proceeds that we will receive from this
offering. Our management will have
16
broad discretion in the application of these net
proceeds, but currently intends to use them as described in
"Use of Proceeds." The failure by our management to
apply these net proceeds effectively could adversely affect our
ability to continue to develop our business.
Provisions of our charter and by-laws and
    Nebraska law may inhibit a takeover, which could negatively
    affect our stock price.
Provisions of our charter and by-laws could
discourage potential acquisition proposals or make it more
difficult for a third party to acquire control of us. These
provisions include, among others, the authority of our board of
directors to create and issue rights entitling the holders
thereof to purchase our securities or the securities of any
other corporation. In addition, we are subject to the provisions
of the Nebraska Shareholders Protection Act, an anti-takeover
law, which may also dissuade a potential acquiror of our common
stock. These provisions may make it more difficult or expensive
for a third party to acquire a majority of our outstanding
voting stock or may delay, prevent or deter a merger,
acquisition, tender offer or proxy contest, which may negatively
affect our stock price. See "Description of Capital
Stock — Nebraska Anti-takeover Law and Certain Charter
and By-law Provisions."
17
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking
statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The forward-looking statements are
contained principally in the sections entitled "Prospectus
Summary," "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" and "Business." In some cases, you
can identify forward-looking statements by terminology such as
"may," "will," "should,"
"could," "would," "expect,"
"plan," "anticipate," "believe,"
"estimate," "project," "predict,"
"intend," "potential" or the negative of
such terms or other similar expressions.
The forward-looking statements reflect our
current expectations and views about future events. The
forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause our actual
results, performance or achievements to be materially different
from any future results, performance or achievements expressed
or implied by the forward-looking statements. Given these risks
and uncertainties, you should not place undue reliance on the
forward-looking statements.
You should understand that the following factors,
among other things, could cause our results to differ materially
from those expressed in forward-looking statements:
•
changes in terms of student loans and the
    educational credit marketplace arising from the implementation
    of applicable laws and regulations and from changes in these
    laws and regulations that may reduce the volume, average term,
    costs and yields on education loans under the FFEL Program or
    for non-FFELP loans or result in loans being originated or
    refinanced under non-FFEL programs or affect the terms upon
    which banks and others agree to sell FFELP loans to us;
•
changes in the demand for educational financing
    or in financing preferences of educational institutions,
    students and their families, which could reduce demand for our
    products and services or increase our costs; and
•
changes in the general interest rate environment
    and in the securitization markets for education loans, which
    could increase the costs or limit the availability of financings
    necessary to originate, purchase or carry education loans or
    expose us to losses on our interest rate hedges.
We discuss many of these risks and uncertainties
in greater detail under the heading "Risk Factors."
You should read this prospectus and the documents
that we reference in this prospectus and have filed as exhibits
to the registration statement, of which this prospectus is part,
completely and with the understanding that our actual future
results may be materially different from what we expect. We may
not update the forward-looking statements, even though our
situation may change in the future, unless we have obligations
under the federal securities laws to update and disclose
material developments related to previously disclosed
information. We qualify all of the forward-looking statements by
these cautionary statements.
18
USE OF PROCEEDS
Our net proceeds from this offering are estimated
to be
$           million,
or
$           million
if the underwriters' overallotment option is exercised in
full, after deducting the underwriting discounts and estimated
offering expenses that we will pay.
We intend to use the net proceeds from this
offering to originate and acquire student loans, to repay
$30.0 million of indebtedness and for general corporate
purposes, including capital expenditures, working capital and
possible acquisitions complementary to our business. The
indebtedness to be repaid is revolving credit indebtedness that
currently bears interest at an annual rate of 3.36% and matures
on January 23, 2005. The proceeds of the indebtedness to be
repaid were used to finance our 2001 acquisition of EFS, Inc.,
an Indiana student loan servicing and secondary market company.
We currently have no agreements or understandings with respect
to any material acquisition.
The foregoing uses of the net proceeds from this
offering represent our current intentions based upon our present
plans and business condition. We retain broad discretion in the
allocation and use of the net proceeds of this offering and a
change in our plans or business condition could result in the
application of the net proceeds from this offering in a manner
other than as described in this prospectus. Pending the uses
described above, we intend to invest the net proceeds from this
offering in our student loan portfolio and/or short-term,
investment grade securities.
DIVIDEND POLICY
We have not declared or paid dividends on our
capital stock during 2001, 2002 or 2003 and do not intend to pay
any cash dividends on our common stock. Any future determination
to pay dividends will be at the discretion of our board of
directors and will depend on our financial condition, results of
operations, capital requirements and other factors that our
board of directors may deem relevant.
19
CAPITALIZATION
The following table sets forth our cash and cash
equivalents and our capitalization as of June 30, 2003:
•
on an actual basis; and
•
on an as adjusted basis to give effect
    (i) the sale
    of                      shares
    of our Class A common stock in this offering, (ii) the
    use of $30.0 million of the net proceeds from this offering
    to repay revolving credit indebtedness and (iii) a non-cash
    compensation charge as described below.
You should read this table in conjunction with
"Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our financial
statements and the related notes included elsewhere in this
prospectus.
As of June 30, 2003
Actual
As adjusted
(in thousands, except share data)
Cash and cash equivalents
$
47,776
$
Bonds and notes payable
$
10,179,726
$
10,149,726
Shareholders' equity:
Preferred stock, $0.01 par value:
50,000,000 shares authorized; no shares
    issued or outstanding actual or as adjusted
—
—
Class A common stock, $0.01 par value:
600,000,000 shares authorized; 31,015,034
    shares issued and outstanding actual
    and           as
    adjusted
310
Class B common stock, $0.01 par value:
150,000,000 shares authorized;
    14,023,454 shares issued and outstanding actual and as
    adjusted
140
140
Additional paid-in capital
48,832
Retained earnings
77,907
Total shareholders' equity
127,189
Total capitalization
$
10,306,915
$
In March 2003, we issued 31,800 shares of our
Class A common stock to 35 employees for an aggregate
consideration of $806,274. At the time of the consummation of
this offering, we will recognize a compensation charge of
$                    million,
which is equal to the difference between the initial public
offering price of that number of shares and the price paid by
the employees. In the table above, retained earnings has been
debited by the amount of such compensation charge, and
additional paid-in capital has been credited by an equal amount;
consequently, this transaction will result in no net effect on
shareholders' equity.
20
DILUTION
If you invest in our Class A common stock,
your interest will be diluted to the extent of the difference
between the initial public offering price per share of our
Class A common stock and the pro forma net tangible book
value per share of our common stock after this offering.
Our net tangible book value as of June 30,
2003 was approximately $112.9 million, or $2.51 per share
of common stock. Net tangible book value per share represents
total tangible assets less total liabilities, divided by the
number of shares of common stock outstanding. After giving
effect to the issuance and sale
of                      shares
of our Class A common stock in this offering, and after
deducting the underwriting discounts and estimated offering
expenses that we will pay, our pro forma net tangible book value
as of June 30, 2003 would have been approximately
$                    million,
or
$          per
share of common stock. This represents an immediate increase in
net tangible book value of
$          per
share to existing shareholders and an immediate dilution of
$          per
share to new investors purchasing shares of Class A common
stock in this offering.
The following table illustrates this dilution:
Assumed initial public offering price per share
$
Net tangible book value per share as of
    June 30, 2003
$
2.51
Increase per share attributable to this offering
$
Pro forma net tangible book value per share after
    this offering
$
Dilution per share to new investors
$
The following table summarizes, as of
June 30, 2003, on a pro forma basis, the total number of
shares of common stock acquired from us for cash (in one case
for cash and services) during the past five years by existing
shareholders and the total consideration received by us and the
average price per share paid by them and by new investors
purchasing shares of Class A common stock in this offering,
before deducting the underwriting discounts and estimated
offering expenses that we will pay:
Shares purchased
Total consideration
Percent of
Average price
Number
total shares
Amount
Percent
per share
Existing shareholders purchasing shares in the
    past five years
%
$
%
$
New investors
%
%
$
Totals
%
$
100.0
%
$
21
SELECTED CONSOLIDATED FINANCIAL DATA
You should read the selected consolidated
financial data set forth below in conjunction with
"Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our financial
statements and the related notes included elsewhere in this
prospectus. We derived the financial data as of
December 31, 2002 and 2001 and for the years ended
December 31, 2002, 2001 and 2000 from our audited financial
statements included elsewhere in this prospectus. We derived the
financial data as of December 31, 2000, 1999 and 1998 and
for the years ended December 31, 1999 and 1998 from our
audited financial statements not included in this prospectus. We
derived the financial data as of June 30, 2003 and for the
six months ended June 30, 2003 and 2002 from our unaudited
financial statements included elsewhere in this prospectus; and
such unaudited interim financial statements reflect all material
adjustments, consisting only of normal recurring accruals,
which, in the opinion of management, are necessary for a fair
presentation. Results for interim periods are not necessarily
indicative of results to be expected during the remainder of the
fiscal year or for any future periods.
Six months ended June 30,
Year ended December 31,
2003
2002
2002
2001
2000
1999
1998
(dollars in thousands, except per share data)
Income Statement Data:
Net interest income
$
91,923
$
116,135
$
190,900
$
114,565
$
64,853
$
59,538
$
19,855
Less provision for loan losses
4,860
2,116
5,587
3,925
1,370
1,800
899
Net interest income after provision for loan
    losses
87,063
114,019
185,313
110,640
63,483
57,738
18,956
Loan servicing and other fee income
48,307
54,812
103,899
93,172
66,015
—
—
Software services and other income
9,454
9,392
21,909
7,713
8,431
5,387
7,506
Operating expenses
114,510
115,863
229,873
191,478
126,485
47,417
22,086
Income before income taxes and minority interest
30,314
62,360
81,248
20,047
11,444
15,708
4,376
Net income
17,904
37,788
48,538
7,147
4,520
9,671
2,879
Earnings per share, basic and diluted
$
0.40
$
0.84
$
1.08
$
0.16
$
0.11
$
0.42
$
0.14
Weighted average shares outstanding
45,010,490
44,971,290
44,971,290
44,331,490
41,187,230
22,863,444
21,000,000
Other Data:
Origination and acquisition volume(a)
$
1,835,954
$
1,076,345
$
2,665,786
$
1,448,607
$
1,027,498
$
2,015,263
$
700,317
Average student loans
$
9,176,244
$
7,887,699
$
8,171,898
$
5,135,227
$
3,388,156
$
1,750,097
$
1,147,842
Student loans serviced (at end of period)
$
17,866,278
$
17,169,306
$
17,863,210
$
16,585,295
$
11,971,095
$
—
$
—
Ratios:
Net interest margin(b)
1.86
%
2.68
%
2.15
%
2.09
%
1.76
%
2.60
%
1.24
%
Return on average total assets
0.35
%
0.83
%
0.52
%
0.12
%
0.12
%
0.32
%
0.21
%
Return on average equity
29.2
%
80.0
%
46.7
%
11.7
%
8.2
%
99.6
%
109.2
%
Net loan charge-offs as a percentage of average
    student loans
0.033
%
0.014
%
0.047
%
0.042
%
0.055
%
0.033
%
0.022
%
22
As of
As of December 31,
June 30,
2003
2002
2001
2000
1999
1998
(in thousands)
Balance Sheet Data:
Cash and cash equivalents
$
47,776
$
40,155
$
36,440
$
23,263
$
26,497
$
11,636
Student loan receivables, net
9,466,523
8,559,420
7,423,872
3,585,943
2,989,985
1,814,625
Total assets
10,413,114
9,766,583
8,134,560
4,021,948
3,302,098
2,739,605
Bonds and notes payable
10,179,726
9,447,682
7,926,362
3,934,130
3,265,532
2,718,705
Shareholders' equity
127,189
109,122
63,186
54,161
15,380
4,038
(a)
Initial loans originated and acquired through
    various channels, including originations through our direct
    channel and acquisitions through our branding partner channel,
    our forward flow channel and the secondary market.
(b)
Net interest margin is computed by dividing net
    interest income by the sum of average student loans and the
    average balance of other interest earning assets.
23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
You should read the following discussion and
analysis by our management of our financial condition and
results of operations in conjunction with our "Selected
Consolidated Financial Data" and our financial statements
and the related notes included elsewhere in this
prospectus.
Overview
We are a leading, vertically integrated education
finance company, focused on providing quality products and
services to participants in the education finance process.
Headquartered in Lincoln, Nebraska, we originate, hold and
service student loans, principally loans originated under the
Federal Family Education Loan Program, which we refer to as the
FFEL Program or FFELP. For 2002, we were the fourth largest
holder and second largest servicer of FFELP loans. In addition,
we, together with our branding partners, are a leading
originator of FFELP loans.
As of June 30, 2003, our student loan
portfolio was $9.5 billion, consisting over 99% of FFELP
loans and less than 1% of non-federally guaranteed private
loans. We currently service $18 billion in student loans,
and our software is used by third parties to service an
additional $30 billion in student loans. In addition, we
currently provide servicing support to guaranty agencies that
guarantee $18 billion in student loans. We have
relationships with hundreds of colleges and universities and
provide student loan servicing either directly or through our
proprietary software to approximately 1.75 million
borrowers.
Our student loan portfolio has grown
significantly through origination and acquisition. With the
development of our fully integrated platform, we are positioned
for sustained organic growth. We originated and acquired $2.7
billion in student loans during 2002 through various channels,
including originations through our direct channel and
acquisitions through our branding partner channel, our forward
flow channel and the secondary market. We have increased our
student loan portfolio by $5.7 billion over the last two
and a half years, including $2.9 billion of loans acquired
in subsidiary acquisitions.
We have positioned ourself for growth by building
a strong foundation through mergers and acquisitions of related
and unrelated entities. Although our assets and loan portfolios
increased through these transactions, a key aspect of each
transaction was its impact on our prospective organic growth and
the development of our integrated platform of services. As a
result of our rapid growth, the development of our platform and
changes in operations, period-to-period comparability of our
results of operations may be difficult. The following are the
significant acquisitions that we have made since 2000:
•
We acquired the operations of UNIPAC Service
    Corporation, a related entity, in March 2000, which added
    servicing operations and growth potential.
•
We added the servicing and origination operations
    of InTuition Holdings, Inc. in June 2000, which expanded our
    presence in the southeastern United States.
•
We acquired MELMAC, Inc., a Maine student loan
    company, in January 2001, which increased our FFELP portfolio by
    $424 million, and increased our presence on the East Coast.
•
We acquired GuaranTec, LLP in June 2001, which
    expanded our products and services through the addition of
    guarantee servicing.
•
We acquired EFS, Inc. in December 2001, which
    increased our origination opportunities in the Midwest,
    increased our loan servicing operations and added
    $2.5 billion to our FFELP portfolio.
•
We acquired Idaho Financial Associates, Inc. in
    January 2002 and Charter Account Systems, Inc. in May 2002,
    which further secured and expanded our product suite through
    proven and tested loan servicing software products.
Our earnings and earnings growth are directly
affected by the size of our portfolio of student loans, the
interest rate characteristics of our portfolio, the costs
associated with financing and managing our
24
portfolio and the costs associated with the
origination and acquisition of the student loans in the
portfolio. See "Liquidity and Capital Resources —
Student Loan Portfolio."
Net Interest Income
We generate the majority of our earnings from the
spread between the yield we receive on our portfolio of student
loans and the cost of funding these loans. This spread income is
reported on our income statement as net interest income. The
amortization and write-offs of premiums or discounts, including
capitalized costs of origination, the consolidation loan rebate
fee and yield adjustments from borrower benefit programs are
netted against loan interest income on our income statement. The
amortization and write-offs of bond issuance costs are included
in interest expense on our income statement.
Our portfolio of FFELP loans generally earns
interest at the higher of a variable rate based on the special
allowance payment, or SAP, formula set by the DOE and the
borrower rate, which is fixed over a period of time. Depending
on the type of student loan and when it was originated, the
borrower rate is either fixed to term or is reset to a market
rate each July 1. In some declining interest rate
environments, we earn additional spread income through the next
reset date on those FFELP loans earning at the annually reset
borrower rate. We refer to this additional income as variable
rate floor income, and it is included in loan interest income.
On those FFELP loans with fixed to term borrower
rates, primarily consolidation loans, we earn interest at the
greater of the borrower rate or a variable rate based on the SAP
formula. Since we finance the majority of our student loan
portfolio with variable-rate debt, we may earn excess spread on
these loans for an extended period of time.
On most consolidation loans, we must pay a 1.05%
per year rebate fee to the DOE. Those consolidation loans which
have variable interest rates based on the SAP formula earn a
yield less than that of a Stafford loan. Those consolidation
loans which have fixed interest rates less than the sum of 1.05%
and the variable rate based on the SAP formula also earn a yield
less than that of a Stafford loan. As a result, as consolidation
loans matching these criteria become a larger portion of our
loan portfolio, there will be a lower yield on our loan
portfolio in the short term. However, due to the extended terms
of consolidation loans, we expect to earn the yield on these
loans for a longer duration, making them beneficial to us in the
long term.
A portion of our FFELP loan portfolio, with an
outstanding balance of $925.2 million as of June 30,
2003, is comprised of loans which were previously financed with
tax-exempt obligations issued prior to October 1, 1993.
Based upon provisions of the Higher Education Act and related
interpretations by the DOE, we believe that we may be entitled
to receive special allowance payments on these loans providing
us with a 9.5% minimum rate of return. To date, we have not
recognized interest income generated by these loans based on the
9.5% minimum rate of return. We have asked the DOE to confirm
that we are allowed to recognize the income based on the 9.5%
minimum rate of return. We have deferred recognition of this
excess interest income pending satisfactory resolution of this
issue. As of June 30, 2003, the amount of excess interest
income deferred totaled approximately $5.9 million. Since
we did not refinance loans with the aforementioned tax-exempt
obligations until 2003, all of this deferred income was recorded
this year.
Investment interest income includes income from
unrestricted interest-earning deposits and funds in our special
purpose entities for our asset-backed securitizations.
Provision for Loan Losses
We maintain an allowance for loan losses
associated with our student loan portfolio at a level that is
based on the performance characteristics of the underlying
loans. We generally analyze the allowance separately for our
FFELP loans and our non-federally guaranteed private loans. The
provision for loan losses reflects the activity for the
applicable period and provides an allowance at a level which
management believes is adequate to cover probable losses
inherent in the loan portfolio.
25
Other Income
We also earn fees and generate income from other
sources, including principally loan servicing, guarantee
servicing and licensing fees on our software products. Loan
servicing fees are determined according to individual agreements
with customers and generally are calculated based on the dollar
value or number of loans or accounts serviced for each customer.
Guarantee servicing fees are calculated based on the number of
loans serviced or amounts collected. Software services income
includes software license and maintenance fees associated with
student loan software products as well as certain loan marketing
fees. We also charge borrowers fees on certain private loans,
both at origination and when the loan enters repayment, which
help to compensate for anticipated loan losses. In addition, we
earn fee income on some of our auction rate securitizations
through UFS Securities, our wholly owned broker-dealer, which
effectively decreases our costs associated with accessing this
market.
Operating Expenses
Operating expenses include costs incurred to
manage and administer our student loan portfolio and our
financing transactions, costs incurred to generate and acquire
student loans and general and administrative expenses, which
include corporate overhead. Operating expenses also include
amortization of intangible assets related to acquisitions.
Other Significant Drivers
In addition to the impact of growth of our
student loan portfolio, our results of operations and financial
condition may be materially affected by, among other things,
changes in:
•
applicable laws and regulations that may affect
    the volume or terms of education loans;
•
demand for education financing and competition
    within the student loan industry;
•
the interest rate environment, funding spreads on
    our financing programs and access to capital markets;
•
prepayment rates on student loans, including
    prepayments relating to loan consolidation; and
•
acquisition costs of student loan assets.
See "Risk Factors" for more information
on the impact of these factors on our results of operations and
financial condition.
Results of Operations
Six months ended June 30, 2003
    compared to six months ended June 30, 2002
Net interest income.
Loan interest income decreased by $37.3 million, or 16.9%,
during the six months ended June 30, 2003 as compared to
the comparable period in 2002. This decrease was the result of
several factors including changes in the interest rate
environment, in the pricing characteristics of our student loan
assets and in the size of our student loan portfolio. Lower
interest rates in the six months ended June 30, 2003 caused
a decrease in the average net yield on our student loan
portfolio to 4.01% from 5.61% for the comparable period in 2002.
Variable rate floor income decreased approximately
$34.4 million to approximately $12.7 million for the
six months ended June 30, 2003 from approximately
$47.0 million for the comparable period in 2002, primarily
due to the timing and relative change in interest rates during
the periods. The weighted average interest rate on our student
loan portfolio decreased during the six months ended
June 30, 2003 due to the lower interest rates, together
with the addition of lower yielding consolidation loans. The
lower weighted average interest rate resulted in a reduction in
loan interest income of approximately $26.8 million.
Consolidation loan activity also increased the amortization and
write-offs of acquisition costs, reducing loan interest income
an additional approximately $9.1 million during the six
months ended June 30, 2003. The reduction in loan interest
income resulting from the decline in interest rates and
reduction in variable rate floor income was partially offset by
an increase in
26
our portfolio of student loans. The average
student loan portfolio increased by approximately
$1.3 billion, or 16.3%, for the six months ended
June 30, 2003 as compared to the comparable period in 2002,
which increased loan interest income by approximately
$32.8 million for the six months ended June 30, 2003
as compared to the comparable period in 2002.
Interest expense on bonds and notes payable
decreased $12.7 million, or 11.1%, for the six months ended
June 30, 2003 as compared to the comparable period in 2002.
This decrease occurred despite an increase in average debt
outstanding of approximately $1.2 billion, specifically an
increase in variable-rate debt outstanding, which increased
interest expense by approximately $9.9 million. The
reduction in interest rates, specifically LIBOR and auction
rates, decreased our average cost of funds to 2.02% in the six
months ended June 30, 2003 from 2.57% in the six months
ended June 30, 2002. As a result, interest expense
decreased approximately $20.8 million for the six months
ended June 30, 2003 as compared to the comparable period in
2002. We reduced fixed-rate debt during the six months ended
June 30, 2003, which decreased our overall interest expense
by approximately $4.5 million as compared to the comparable
period in 2002. Interest expense on bonds and notes payable for
the six months ended June 30, 2003 includes additional
amortization and write-offs of bond issuance costs of
$2.6 million incurred as a result of refinancing certain
debt transactions.
Primarily as a result of the foregoing, net
interest income decreased by $24.2 million, or 20.8%, for
the six months ended June 30, 2003 as compared to the
comparable period in 2002. Our net interest margin decreased to
1.86% for the six months ended June 30, 2003 from 2.68% for
the comparable period in 2002. Net interest income, excluding
the effects of variable rate floor income, increased
approximately $10.1 million to approximately
$79.2 million for the six months ended June 30, 2003
from approximately $69.1 million for the comparable period
in 2002.
Provision for loan
losses.
The provision for loan losses
for FFELP loans increased to $1.7 million for the six
months ended June 30, 2003 from $1.5 million for the
comparable period in 2002. The provision for loan losses for
non-federally guaranteed private loans increased to
$3.2 million for the six months ended June 30, 2003
from $650,000 for the comparable period in 2002. This increase
was largely due to a specific provision of approximately
$2.2 million for an identified pool of private loans based
on aging, delinquency and performance. This pool of private
loans is limited to loans made to borrowers attending a single
school, and, in early 2002, we ceased making private loans to
borrowers attending that school. The remaining combined increase
of approximately $500,000 was due to the increase in the size of
our FFELP and private loan portfolios. Approximately 8.1% of our
non-federally guaranteed private loans was delinquent as of
June 30, 2003.
Other income.
Loan
servicing and other fee income decreased by $6.5 million,
or 11.9%, during the six months ended June 30, 2003 as
compared to the comparable period in 2002, primarily due to a
reduction in the number and amount of loans we serviced for
third parties. See "Business — Business
Units — Student Loan Servicing." Total
third-party loan servicing volume decreased $906.3 million,
or 8.6%, during the six months ended June 30, 2003 as
compared to the comparable period in 2002.
Operating expenses.
Operating expenses, excluding amortization of intangible assets,
increased $1.8 million, or 1.7%, during the six months
ended June 30, 2003 as compared to the comparable period in
2002. Amortization of intangible assets decreased
$3.2 million to $6.1 million for the six months ended
June 30, 2003 as compared to $9.3 million for the
comparable period in 2002. This decrease was due to certain
intangible assets having been fully amortized prior to
January 1, 2003.
Income tax expense.
Our effective tax rate was 41.3% for the six months ended
June 30, 2003 as compared to 39.5% for the comparable
period in 2002. The increase in the effective rate was a result
of acquisitions that gave rise to amortization of intangible
assets for financial statement purposes that was not deductible
for tax purposes.
Net income.
Net
income decreased to $17.9 million for the six months ended
June 30, 2003 from $37.8 million for the comparable period
in 2002, primarily for the reasons discussed above.
27
Year ended December 31, 2002 compared
    to year ended December 31, 2001
Net interest income.
Loan interest income increased by $86.7 million, or 27.2%,
for 2002 as compared to 2001. This increase was the result of
several factors including changes in the interest rate
environment, in the pricing characteristics of our student loan
assets and in the size of our student loan portfolio. Lower
interest rates in 2002 caused a decrease in the average net
yield on our student loan portfolio to 4.96% in 2002 from 6.20%
in 2001. Variable rate floor income increased approximately
$19.9 million to approximately $49.8 million for 2002
from approximately $29.9 million for 2001, primarily due to
the timing and relative change in interest rates during the
periods. The weighted average interest rate on our student loan
portfolio decreased in 2002 due to the lower interest rates,
together with the addition of lower yielding consolidation
loans. The lower weighted average interest rate resulted in a
reduction in loan interest income of approximately
$65.2 million. Consolidation loan activity also increased
the amortization and write-offs of acquisition costs, reducing
interest income an additional approximately $40.4 million
in 2002. The reduction in loan interest income resulting from
the decline in interest rates and the reduction in variable rate
floor income was partially offset by an increase in our
portfolio of student loans. The average student loan portfolio
increased by approximately $3.0 billion, or 59.1%, for 2002
as compared to 2001, which increased loan interest income by
approximately $192.1 million for 2002 as compared to 2001,
including the increase related to variable rate floor income.
Investment interest income increased
$4.0 million, or 23.6%, for 2002 as compared to 2001,
largely due to an approximately $360.1 million increase in
average investment and interest-earning deposits during 2002.
Interest expense on bonds and notes payable
increased $14.3 million, or 6.5%, for 2002 as compared to
2001. Variable-rate bonds and notes payable increased
$4.1 billion, which resulted in an increase in interest
expense of $85.9 million. The reduction in short-term
interest rates, specifically LIBOR, decreased our average cost
of funds to 2.59% in 2002 from 3.95% in 2001. As a result,
interest expense decreased approximately $83.1 million in
2002 as compared to 2001. We issued additional fixed-rate debt
during 2002, which increased our overall interest expense by
approximately $12.0 million as compared to 2001. In 2002,
we first accessed the term securitization market. While the
interest expense associated with term securitizations is less
than that associated with our other debt instruments, the
incremental benefit in 2002 was negligible. While we expect that
we will continue to access the term securitization markets, we
cannot predict whether the benefits of our accessing those
markets will be material to our results of operations in future
periods.
Primarily as a result of the foregoing, net
interest income increased by $76.3 million, or 66.6%, for
2002 as compared to 2001. Our net interest margin increased to
2.15% for 2002 from 2.09% for 2001. Net interest income,
excluding the effects of variable rate floor income, increased
$56.4 million to $141.1 million for 2002 from
$84.7 million for 2001.
Provision for loan
losses.
The provision for loan losses
for FFELP loans decreased to $3.2 million for 2002 from
$3.3 million for 2001. The provision for loan losses for
non-federally guaranteed private loans increased to
$2.4 million for 2002 from $700,000 for 2001. This increase
was largely due to a specific provision of approximately
$1.6 million for an identified pool of private loans based
on aging, delinquency and performance. This pool of private
loans is limited to loans made to borrowers attending a single
school, and, in early 2002, we ceased making private loans to
borrowers attending that school. The remaining combined increase
of approximately $100,000 was due to the increase in the size of
our FFELP and private loan portfolios. Approximately 14.4% of
our non-federally guaranteed private loans was delinquent as of
December 31, 2002.
Other income.
Loan
servicing and other fee revenue increased by $10.7 million,
or 11.5%, for 2002 as compared to 2001, largely due to the
acquisition of EFS, Inc., which owned a third-party servicing
portfolio of $1.0 billion, and to the addition of
$817.5 million of loans to our servicing portfolio from
unrelated third parties.
Operating expenses.
Operating expenses, excluding amortization of intangible assets,
increased by $33.4 million, or 18.6%, for 2002 as compared
to 2001, primarily due to an increase in personnel expense as a
result of the acquisition of EFS, Inc. in December 2001. This
acquisition increased the number of our
28
employees by approximately 23%. Amortization of
intangible assets increased $5.0 million to
$16.8 million for 2002 as compared to $11.8 million in
2001, primarily due to certain acquisitions made during 2002.
Income tax expense.
Our effective tax rate was 40.7% for 2002 as compared to 61.4%
in 2001. The 2001 effective tax rate was high as a result of
acquisitions that gave rise to amortization of intangible assets
for financial statement purposes that was not deductible for tax
purposes of $10.8 million for 2002 and $11.8 million
for 2001. There was $6.0 million of deductible amortization
of intangible assets in 2002 and $0 in 2001 which decreased the
effective tax rate for 2002.
Net income.
Net
income increased to $48.5 million for 2002 from $7.1 million for
2001, primarily for the reasons discussed above.
Year ended December 31, 2001 compared
    to year ended December 31, 2000
Net interest income.
Loan interest income increased by $37.4 million, or 13.3%,
for 2001 as compared to 2000. This increase was the result of
several factors including changes in the interest rate
environment, in the pricing characteristics of our student loan
assets and in the size of our student loan portfolio. Lower
interest rates in 2001 caused a decrease in the average net
yield on our student loan portfolio to 6.20% in 2001 from 8.29%
in 2000. Variable rate floor income increased approximately
$29.9 million in 2001 primarily due to the timing and
relative change in interest rates during the periods. There was
no variable rate floor income in 2000. The weighted average
interest rate on our student loan portfolio decreased in 2001
due to the lower interest rates, together with the addition of
lower yielding consolidation loans. The lower weighted average
interest rate resulted in a reduction in loan interest income of
approximately $75.0 million. Consolidation loan activity
also increased the amortization and write-offs of acquisition
costs, reducing interest income an additional approximately
$3.5 million in 2001. The reduction in loan interest income
resulting from a decline in interest rates and reduction in
variable rate floor income was partially offset by an increase
in our portfolio of student loans. The average student loan
portfolio increased by approximately $1.7 billion, or
51.6%, for 2001 as compared to 2000, which increased loan
interest income by approximately $117.2 million for 2001 as
compared to 2000, which includes the increase related to
variable rate floor income.
Investment interest income decreased by
$1.1 million, or 6.4%, for 2001 as compared to 2000,
largely due to the decrease in interest rates on invested funds.
Interest expense on bonds and notes payable
decreased $13.4 million, or 5.7%, for 2001 as compared to
2000. The decline in short-term interest rates, specifically
LIBOR, decreased our average cost of funds to 3.95% in 2001 from
6.04% in 2000. As a result, interest expense decreased
approximately $72.8 million for 2001 as compared to 2000.
Additional debt issued during 2001 increased our interest
expense by approximately $57.0 for 2001 as compared to 2000.
Primarily as a result of the foregoing, net
interest income increased by $49.7 million, or 76.7%, for
2001 as compared to 2000. Our net interest margin increased to
2.09% for 2001 from 1.76% for 2000. Net interest income,
excluding the effects of variable rate floor income, increased
approximately $19.8 million to approximately
$84.7 million for 2001 from approximately
$64.9 million for 2000.
Provision for loan
losses.
The provision for loan losses
for FFELP loans increased to $3.3 million for 2001 from
$1.4 million for 2000. The provision for loan losses for
non-federally guaranteed private loans increased to $700,000 for
2001 from $0 for 2000. This increase was largely due to a
specific provision of approximately $400,000 for an identified
pool of private loans based on aging, delinquency and
performance. This pool of private loans is limited to loans made
to borrowers attending a single school, and, in early 2002, we
ceased making private loans to borrowers attending that school.
The remaining combined increase of approximately
$2.2 million was due to the increase in the size of our
FFELP and private loan portfolios. Approximately 3.1% of our
non-federally guaranteed private loans was delinquent as of
December 31, 2001.
Other income.
Loan
servicing and other fee income increased by $27.2 million,
or 41.1%, for 2001 as compared to 2000, primarily because the
2000 results include only ten months of the loan servicing
29
operations of UNIPAC Service Corporation, which
we acquired in March 2000, and seven months of the loan
servicing operations of InTuition Holdings, Inc., which we
acquired in June 2000.
Operating expenses.
Operating expenses, excluding amortization of intangible assets,
increased $61.2 million, or 51.7%, in 2001 as compared to
2000, primarily due to the acquisitions of UNIPAC Service
Corporation and InTuition Holdings, Inc. in March and June 2000,
respectively. In addition, consolidation of our servicing
platform in December 2001 resulted in additional expense of
$9.6 million. Amortization of intangible assets increased
$3.7 million to $11.8 million for 2001 as compared to
$8.1 million in 2000. This increase was due to certain
acquisitions made in 2001 and 2000, the effects of which were
not fully recognized in 2000 due to the timing of those
acquisitions.
Income tax expense.
Our effective tax rate was 61.4% for 2001 as compared to 60.5%
for 2000. The effective tax rates were a result of acquisitions
that gave rise to amortization of intangible assets for
financial statement purposes that was not deductible for tax
purposes.
Net income.
Net
income increased to $7.1 million for 2001 from $4.5 million for
2000, primarily for the reasons discussed above.
Liquidity and Capital Resources
We finance our operations through operating cash
flow, borrowings under credit facilities and secured financing
transactions. Operating activities provided net cash of
$64.2 million for the six months ended June 30, 2003,
an increase of approximately $3.9 million from the net cash
provided by operating activities of $60.3 million during
the six months ended June 30, 2002. Operating activities
provided net cash of $134.2 million in 2002, an increase of
approximately $52.7 million from the net cash provided by
operating activities of $81.5 million during 2001.
Operating cash flows are driven by net income adjusted for
various non-cash items such as the provision for loan losses,
depreciation and amortization.
We also use secured and unsecured operating lines
of credit and financing agreements to fund operations and
student loan acquisitions. Historically, a significant portion
of our unsecured operating credit facilities was provided by
affiliated parties. See "Certain Transactions." As of
June 30, 2003, we had secured $30 million, and are in
the process of securing an additional $100 million, of
operating lines of credit and commercial paper transactions
under three separate facilities from a group of six large
regional and national financial institutions. The cost of funds
associated with our operating lines of credit is higher than
that of the secured financing transactions used to fund our
student loan portfolio. Our operating lines of credit are
generally priced at a spread over LIBOR ranging from 60 to 250
basis points.
Our secured financing instruments include
commercial paper lines, commercial paper conduit warehouse
programs, variable-rate tax-exempt bonds, fixed-rate tax-exempt
bonds and various asset-backed securities. Of the
$10.2 billion of debt outstanding as of June 30, 2003,
approximately $8 billion was issued under securitization
transactions. During 2002, we completed three asset-backed
securities transactions totaling $2.8 billion. We
anticipate continuing to access the asset-backed securities
markets in 2003 and subsequent years, depending on market
conditions.
Securities issued in our securitization
transactions are generally priced off a spread to LIBOR or set
under an auction procedure related to the bonds and notes. The
student loans financed are generally priced on a spread to
commercial paper or Treasury bills.
30
The following table summarizes our bonds and
notes outstanding as of June 30, 2003:
As of June 30, 2003
Carrying
Percent of
Interest rate
amount
total
range
Final maturity
(dollars in thousands)
Variable-rate bonds and notes(a):
Bond and notes based on indices
$
2,956,617
29.0
%
1.02% – 2.05%
05/01/07 – 01/25/37
Bond and notes based on auction
4,042,135
39.7
1.00% – 1.45%
07/01/05 – 10/01/36
Total variable-rate bonds and notes
6,998,752
68.7
Commercial paper and other
2,042,014
20.1
1.24% – 1.31%
09/02/04 – 12/15/06
Fixed-rate bonds and notes(a)
1,049,458
10.3
5.50% – 6.68%
05/01/05 – 06/01/28
Other secured borrowings
89,502
0.9
1.34% – 6.00%
01/10/05 – 11/01/05
Total
$
10,179,726
(a)
Issued in securitization transactions.
Bonds and notes outstanding as of June 30,
2003 are due in varying amounts as follows (dollars in
thousands):
2004
$
2,282,196
2005
218,916
2006
152,822
2007
234,760
2008
92,380
2009 and thereafter
7,198,652
$
10,179,726
We have commitments with our branding partners
and forward flow lenders which obligate us to purchase loans
originated under specific criteria, although our branding
partners and forward flow lenders are not obligated to provide
us with a minimum amount of loans. These commitments generally
run for periods ranging from one to five years and are generally
renewable. As of June 30, 2003 and December 31, 2002
and 2001, we were obligated to purchase up to
$233.3 million, $266.2 million and
$334.7 million, respectively, in student loans at current
market rates upon the respective seller's request under
various agreements through September 30, 2004.
Student Loan
Portfolio
The tables below describe the components of our
loan portfolio:
As of June 30,
2003
2002
Percent of
Percent of
Dollars
total
Dollars
total
FFELP:
Stafford
$
5,246,649
55.4
%
$
5,031,331
62.8
%
PLUS/ SLS (a)
298,341
3.2
323,324
4.0
Consolidation
3,685,876
38.9
2,431,377
30.4
Non-FFELP:
Private loans
86,981
0.9
59,255
0.7
Total
9,317,847
98.4
7,845,287
97.9
Unamortized premiums
162,426
1.7
172,877
2.2
Allowance for loan losses:
Allowance — FFELP
(10,295
)
(0.1
)
(9,975
)
(0.1
)
Allowance — Private
(3,455
)
—
(1,263
)
—
Net
$
9,466,523
100.0
%
$
8,006,926
100.0
%
(a)
Supplemental Loans for Students, or SLS, are the
    predecessor to unsubsidized Stafford loans.
31
As of December 31,
2002
2001
2000
Percent of
Percent of
Percent of
Dollars
total
Dollars
total
Dollars
total
(dollars in thousands)
FFELP:
Stafford
$
4,983,021
58.2
%
$
4,947,316
66.6
%
$
2,390,203
66.7
%
PLUS/ SLS (a)
313,100
3.7
335,083
4.5
115,237
3.2
Consolidation
3,033,607
35.4
1,923,896
25.9
1,004,548
28.0
Non-FFELP:
Private loans
74,660
0.9
60,760
0.8
31,843
0.9
Total
8,404,388
98.2
7,267,055
97.8
3,541,831
98.8
Unamortized premiums
167,032
1.9
167,059
2.3
47,726
1.3
Allowance for loan losses:
Allowance — FFELP
(9,970
)
(0.1
)
(9,378
)
(0.1
)
(3,004
)
(0.1
)
Allowance — Private
(2,030
)
—
(864
)
—
(610
)
—
Net
$
8,559,420
100.0
%
$
7,423,872
100.0
%
$
3,585,943
100.0
%
(a)
Supplemental Loans for Students, or SLS, are the
    predecessor to unsubsidized Stafford loans.
Origination
and Acquisition
Our student loan portfolio increases through
various channels, including originations through our direct
channel and acquisitions through our branding partner channel,
our forward flow channel and the secondary market. Our portfolio
increases with the addition of portfolios acquired through whole
company or subsidiary acquisitions.
One of our primary objectives is to focus on
originations through our direct channel and acquisitions through
our branding partner channel. We have extensive and growing
relationships with many large financial and educational
institutions which are active in the education finance industry.
Our branding relationships and forward flow relationships
include Union Bank and Trust Company, an affiliate of ours, as
well as many schools and national and regional financial
institutions. See "Certain Transactions."
The table below sets forth the increase during
each period presented of loans originated or acquired through
each of our channels:
Six months ended June 30,
Year ended December 31,
2003
2002
2002
2001
2000
(dollars in thousands)
Beginning balance
$
8,404,388
$
7,267,055
$
7,267,055
$
3,541,831
$
2,940,679
Direct channel:
Stafford/ PLUS loan originations
116,876
113,411
224,827
84,599
—
Consolidation loan origination
736,670
182,585
859,120
55,715
43,951
Branding partner channel
610,740
120,580
521,023
524,964
592,001
Forward flow channel
308,002
251,701
577,603
484,058
391,503
Other channels
63,666
408,068
483,213
299,271
43
Total channel acquisitions
1,835,954
1,076,345
2,665,786
1,448,607
1,027,498
Loans acquired in subsidiary acquisitions
—
—
—
2,919,845
—
Repayments, claims, capitalized interest and
    other(a)
(922,495
)
(498,113
)
(1,528,453
)
(643,228
)
(426,346
)
Ending balance
$
9,317,847
$
7,845,287
$
8,404,388
$
7,267,055
$
3,541,831
(a)
Includes repayments on all consolidation loans.
32
Student Loan Spread Analysis
The following table analyzes the student loan
spread on our portfolio of student loans for the period
indicated:
Six months ended June 30,
Year ended December 31,
2003
2002
2002
2001
2000
(dollars in thousands)
Student loan yield
5.09
%
6.45
%
5.94
%
6.71
%
8.86
%
Consolidation rebate fees
(0.40
)
(0.28
)
(0.31
)
(0.23
)
(0.25
)
Premium amortization
(0.68
)
(0.56
)
(0.67
)
(0.28
)
(0.32
)
Student loan net yield
4.01
5.61
4.96
6.20
8.29
Student loan cost of funds
(2.02
)
(2.57
)
(2.59
)
(3.95
)
(6.04
)
Student loan spread, including variable rate
    floor income
1.99
3.03
2.38
2.26
2.26
Variable rate floor income
(0.14
)
(0.60
)
(0.61
)
(0.58
)
—
Student loan spread, excluding variable rate
    floor income
1.85
%
2.44
%
1.77
%
1.67
%
2.26
%
Average balance of student loans
$
9,176,244
$
7,887,699
$
8,171,898
$
5,135,227
$
3,388,156
Interest Rate Risk
Because we generate the majority of our earnings
from the spread between the yield we receive on our portfolio of
student loans and the cost of funding these loans, the interest
sensitivity of our balance sheet is a key profitability driver.
The majority of student loans have variable-rate characteristics
in certain interest rate environments. Certain of our student
loans include fixed-rate components depending upon the rate
reset provisions, or, in the case of consolidation loans, are
fixed at the weighted average interest rate of the underlying
loans at the time of consolidation. The table below sets forth
our loan assets and debt instruments by rate characteristics:
As of June 30,
As of December 31,
2003
2002
2002
2001
2000
(dollars in thousands)
Fixed-rate loan assets(a)
$
4,036,201
$
2,965,944
$
3,320,121
$
2,486,649
$
1,277,098
Variable-rate loan assets
5,281,646
4,879,343
5,084,267
4,780,406
2,264,733
$
9,317,847
$
7,845,287
$
8,404,388
$
7,267,055
$
3,541,831
Fixed-rate debt instruments
$
1,049,458
$
1,207,643
$
1,122,881
$
1,232,662
$
583,191
Variable-rate debt instruments
9,130,268
7,452,492
8,324,801
6,693,700
3,350,939
$
10,179,726
$
8,660,135
$
9,447,682
$
7,926,362
$
3,934,130
(a)
Includes approximately $450 million,
    $540 million, $430 million, $570 million and
    $530 million of variable-rate loan assets which are
    classified as fixed-rate loan assets as a result of being
    financed by variable-rate, tax-exempt bonds subject to a 9.5%
    minimum yield as of June 30, 2003 and 2002 and
    December 31, 2002, 2001 and 2000, respectively.
Historically, we followed a policy of funding the
majority of our student loan portfolio with variable-rate debt.
In the current low interest rate environment, our FFELP loan
portfolio is yielding excess income primarily due to the
reduction in interest rates on the variable-rate liabilities
funding student loans at the fixed borrower rate and due to
consolidation loans earning interest at a fixed rate to the
borrower. See "Risk Factors." Therefore, absent
hedging, in a low interest rate environment, a rise in interest
rates will have an adverse effect on earnings and fair values.
In higher interest rate environments, where the interest rate
rises above the borrower rate and the fixed-rate loans become
variable rate and are effectively matched with variable-rate
debt, the impact of rate fluctuations is substantially reduced.
33
One objective when financing our student loan
portfolio is to manage interest rate risk through:
•
matching the funding of certain assets and
    liabilities;
•
to some extent, hedging a portion of downside
    risk and interest rate fluctuations; and
•
positioning our portfolio to benefit from
    interest rate movements and fluctuations.
We attempt to match the interest rate
characteristics of pools of loan assets with debt instruments of
substantially similar characteristics, particularly in rising
interest rate markets. Due to the variability in duration of our
assets and varying market conditions, we do not attempt to
perfectly hedge or match the interest rate characteristics of
the entire loan portfolio with the underlying debt instruments.
We have adopted a policy of periodically reviewing the mismatch
related to the interest rate characteristics of our assets and
our liabilities and our opinion as to current and future market
conditions. Based on those factors, we will periodically use
interest rate swaps and other derivative instruments as part of
overall risk management strategy to manage risk arising from our
fixed-rate and variable-rate financial instruments. These
strategies entail risk and may not be effective.
During the third quarter of 2003, we locked in a
portion of the excess earnings on part of our loan portfolio
that was earning interest at a fixed borrower rate through the
use of interest rate swap contracts. The result of these hedging
transactions was to effectively convert a portion of
variable-rate debt into fixed-rate debt, fixing the relative
spread between the student loan assets rate and the converted
fixed-rate liability. In addition, we used derivative products
to institute a cap on the rates to which interest rates could
rise to on a portion of our variable-rate debt, limiting the
sensitivity to a dramatically rising interest rate market. We
also employed various hedging products, primarily basis swaps,
to limit the exposure to dramatic fluctuation in the underlying
indices used to price a portion of our variable-rate assets and
variable-rate debt.
As a result of our hedging activities, we expect
the change in pre-tax net income resulting from 100 basis point
and 200 basis point increases in interest rates will not result
in a proportional decrease in net income due to the effective
switch of some variable-rate loans to fixed-rate loans. The
change would also be less dramatic had the hedging strategies
and derivative products employed in the third quarter of 2003
been in place for the six months ended June 30, 2003 or the
year ended December 31, 2002.
Under Statement of Financial Accounting Standards
("SFAS") No. 133,
Accounting for Derivative
Instruments and Hedging Activities
, some of our derivatives,
primarily basis swaps, are not considered effective hedges
because they do not extend to the full term of the hedged item
and are therefore required to be valued at fair value while the
hedged item is not. See "— Critical Accounting
Policies — Accounting for Derivatives."
The following tables summarize the effect on our
earnings for the six months ended June 30, 2003 and the years
ended December 31, 2002 and 2001, based upon a sensitivity
analysis performed by us assuming a hypothetical increase and
decrease in interest rates of 100 basis points and an increase
in interest rates of 200 basis points while funding costs remain
constant. The effect on earnings was performed on our
variable-rate assets and liabilities.
Six months ended June 30, 2003
Change from decrease
Change from increase
Change from increase
of 100 basis points
of 100 basis points
of 200 basis points
Dollars
Percent
Dollars
Percent
Dollars
Percent
(dollars in thousands)
Effect on earnings:
Increase (decrease) in pre-tax income
$
24,907
82.2%
$
(20,089
)
(66.3
)%
$
(33,099
)
(109.2)
%
Increase (decrease) in basic and diluted earnings
    per share
$
0.35
$
(0.29
)
$
(0.47
)
34
Year ended December 31, 2002
Change from decrease
Change from increase
Change from increase
of 100 basis points
of 100 basis points
of 200 basis points
Dollars
Percent
Dollars
Percent
Dollars
Percent
(dollars in thousands)
Effect on earnings:
Increase (decrease) in pre-tax income
$
15,119
18.6%
$
(11,553
)
(14.2
)%
$
(20,236
)
(24.9)
%
Increase (decrease) in basic and diluted earnings
    per share
$
0.22
$
(0.16
)
$
(0.29
)
Year ended December 31, 2001
Change from decrease
Change from increase
Change from increase
of 100 basis points
of 100 basis points
of 200 basis points
Dollars
Percent
Dollars
Percent
Dollars
Percent
(dollars in thousands)
Effect on earnings:
Increase (decrease) in pre-tax income
$
2,054
10.3%
$
(749
)
(3.7
)%
$
(1,975
)
(9.9)
%
Increase (decrease) in basic and diluted earnings
    per share
$
0.03
$
(0.01
)
$
(0.03
)
The table below sets forth our variable-rate
assets and liabilities categorized by the reset date of the
underlying index. Fixed-rate assets and liabilities are
categorized based on their maturity dates. An interest rate gap
is the difference between volumes of assets and volumes of
liabilities maturing or repricing during specific future time
intervals. The following gap analysis reflects our interest
rate-sensitive positions as of June 30, 2003 and
December 31, 2002 and is not necessarily reflective of the
positions that existed throughout the period.
As of June 30, 2003
Interest rate sensitivity period
3 months
3 months
6 months
1 to 2
2 to 5
Over 5
or less
to 6 months
to 1 year
years
years
years
(dollars in thousands)
Interest-sensitive assets:
Student loans
$
9,466,523
$
—
$
—
$
—
$
—
$
—
Cash and investments
659,874
—
—
—
—
—
Total interest-sensitive assets
10,126,397
—
—
—
—
—
Interest-sensitive liabilities:
Short-term borrowings
9,130,268
—
—
—
—
—
Long-term notes
63,773
63,773
111,880
215,122
333,375
261,535
Total interest-sensitive liabilities
9,194,041
63,773
111,880
215,122
333,375
261,535
Period gap
932,356
(63,773
)
(111,880
)
(215,122
)
(333,375
)
(261,535
)
Cumulative gap
932,356
868,583
756,703
541,581
208,206
(53,329
)
Ratio of interest-sensitive assets to
    interest-sensitive liabilities
110.1
%
—
%
—
%
—
%
—
%
—
%
Ratio of cumulative gap to total
    interest-sensitive assets
9.2
%
8.6
%
7.5
%
5.3
%
2.1
%
(0.5
)%
35
As of December 31, 2002
Interest rate sensitivity period
3 months
3 months
6 months
1 to 2
2 to 5
Over 5
or less
to 6 months
to 1 year
years
years
years
(dollars in thousands)
Interest-sensitive assets:
Student loans
$
8,559,420
$
—
$
—
$
—
$
—
$
—
Cash and investments
916,572
—
—
—
—
—
Total interest-sensitive assets
9,475,992
—
—
—
—
—
Interest-sensitive liabilities:
Short-term borrowings
8,324,801
—
—
—
—
—
Long-term notes
48,645
48,645
97,289
223,759
436,617
267,926
Total interest-sensitive liabilities
8,373,446
48,645
97,289
223,759
436,617
267,926
Period gap
1,102,546
(48,645
)
(97,289
)
(223,759
)
(436,617
)
(267,926
)
Cumulative gap
1,102,546
1,053,901
956,612
732,853
296,236
28,310
Ratio of interest-sensitive assets to
    interest-sensitive liabilities
113.2
%
—
%
—
%
—
%
—
%
—
%
Ratio of cumulative gap to total
    interest-sensitive assets
11.6
%
11.1
%
10.1
%
7.7
%
3.1
%
0.3
%
Critical Accounting Policies
This Management's Discussion and Analysis of
Financial Condition and Results of Operations discusses our
consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the
United States of America, or GAAP. The preparation of these
financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and the reported amounts of income and expenses
during the reporting periods. We base our estimates and
judgments on historical experience and on various other factors
that we believe are reasonable under the circumstances. Actual
results may differ from these estimates under varying
assumptions or conditions. Note 3 of Notes to Consolidated
Financial Statements includes a summary of the significant
accounting policies and methods used in the preparation of our
consolidated financial statements.
On an on-going basis, management evaluates its
estimates and judgments, particularly as they relate to
accounting policies that management believes are most
"critical" — that is, they are most
important to the portrayal of our financial condition and
results of operations and they require management's most
difficult, subjective or complex judgments, often as a result of
the need to make estimates about the effect of matters that are
inherently uncertain. These accounting policies include
securitization accounting, accounting for derivatives,
determining the level of the allowance for loan losses and the
program reimbursement reserve.
Securitization Accounting
We use the issuance of asset-backed securities,
commonly called securitization transactions, as a key component
of our financing strategy. In conjunction with these
transactions, we sell student loans to a trust which issues
bonds backed by the student loans. Generally speaking, our
transactions do not qualify for treatment under SFAS
No. 140,
Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities-a
Replacement of SFAS No. 125
, as the trusts continue to
be under our effective control and as such we do not record or
recognize gain on sale in conjunction with the transaction. All
of the financial activities and related assets and liabilities
of the securitizations are
36
reflected and consolidated in our financial
statements. Servicing, administrative support services and other
intercompany activities have been eliminated in accordance with
generally accepted accounting principles.
Accounting for Derivatives
We account for derivative and certain financial
instruments in accordance with SFAS No. 133,
Accounting
for Derivative Instruments and Hedging Activities,
which
requires that every derivative instrument, including certain
derivative instruments embedded in other contracts, be recorded
at fair value on the balance sheet as either an asset or
liability. We determine fair value for our derivative contracts
from bid pricing and pricing models. Pricing models and their
underlying assumptions impact the amount and timing of
unrealized gains and losses recognized; the use of different
pricing models or assumptions could produce different financial
results.
For some of our derivatives, mainly certain
interest rate swaps, we document the relationship between the
hedging instrument and the hedged items, as well as the risk
management objective and strategy for undertaking various hedge
transactions at the inception of the hedging relationship. To
the extent possible, we link each derivative to either a
specific asset or liability on the balance sheet or expected
future cash flows, and designate them as either fair value or
cash flow hedges. Fair value hedges are designed to hedge our
exposure to changes in fair value of a fixed-rate asset or
liability, or a "fair value" hedge, while cash flow
hedges are designed to hedge our exposure to variability of
either a variable-rate asset's or liability's cash
flows or expected fixed-rate debt issuance, or a "cash
flow" hedge. For effective fair value hedges, we
mark-to-market both the hedge and the hedged item with any
difference recorded immediately in the income statement. For
effective cash flow hedges, changes in the fair value of the
cash flow hedge are deferred in other comprehensive income, net
of tax, and recognized in earnings in the same period as the
earnings effects of the hedged item. SFAS No. 133 requires
that changes in the fair value of derivative instruments be
recognized currently in earnings unless specific hedge
accounting criteria as specified by SFAS No. 133 are met.
We believe that our derivatives are effective economic hedges
and they are a critical element of our interest rate risk
management strategy. However, under SFAS No. 133, some of
our derivatives, primarily basis swaps and certain interest rate
caps, are considered ineffective hedges because they hedge only
a portion of the term of the underlying risk.
Basis swaps are used to convert variable-rate
debt from one interest rate index to another to match the
interest rate characteristics of the assets. We will
periodically use basis swaps to change the index of our
LIBOR-based debt, to better match the cash flows of our student
loan assets. SFAS No. 133 requires that the change in the
cash flows of the hedge effectively offset both the change in
the cash flows of the asset and the change in the cash flows of
the liability. As a result, these swaps are recorded at fair
value with subsequent changes in value reflected in the income
statement.
Allowance for Loan Losses
The allowance for loan losses represents
management's estimate of probable losses on student loans.
This evaluation process is subject to numerous estimates and
judgments. In making such estimates and judgments, management
considers such things as the value and character of loans
outstanding, past loan loss experience and general economic
conditions. We evaluate the adequacy of the allowance for losses
on our FFELP loan portfolio separately from our private loan
portfolio. Historical delinquencies and credit loss experience
are also considered when reviewing the current aging of the
portfolio, together with analyses that reflect current trends
and conditions.
Program Reimbursement Reserve
The program reimbursement reserve represents the
amount that management estimates we will be required to repay to
lenders due to our failure to follow prescribed due diligence
procedures and servicing activities prescribed by the Higher
Education Act. Failure to meet certain due diligence
requirements that must be followed to maintain the DOE guarantee
on the loans will cause a loss of the guarantee on the
37
loans and potential loss to us if we are unable
to cure the deficiency under procedures prescribed by the
federal government.
This evaluation process is subject to numerous
estimates and judgments. In making such estimates and judgments,
management considers such things as the past loan loss
experience, past cure experience and general economic
conditions. The program reimbursement reserve is determined via
a process that begins with estimates of probable losses on
serviced student loans, based on a statistical analysis.
Historical losses and cure rates are applied to the servicing
portfolio, together with analyses that reflect current trends
and conditions.
The program reimbursement reserve reflects
assumptions and estimates we believe are reasonable in light of
historical servicing errors and known trends with respect to
student loans serviced. However, these estimates and assumptions
are inherently subjective and may be susceptible to significant
changes. Management continually measures expected losses against
actual losses and assumptions are revised accordingly.
Management believes that the program reimbursement reserve is
adequate to cover probable losses in the portfolio of student
loans serviced.
Recent Accounting Pronouncements
Early Extinguishment of Debt
In April 2002, the Financial Accounting Standard
Board, or FASB, issued SFAS No. 145,
Rescission of FASB
Statements Nos. 4, 44 and 64, Amendment of FASB Statement
No. 13, and Technical Corrections
. This statement
rescinds FASB Statement No. 4,
Reporting Gains and
Losses from Extinguishment of Debt
and an amendment of that
statement,
FASB Statement No. 64,
Extinguishments
of Debt Made to Satisfy Sinking-Fund Requirements
. The
statement also rescinds FASB Statement No. 44,
Accounting for Intangible Assets of Motor Carriers
and
amends FASB Statement No. 13,
Accounting for Leases
to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required
accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. This
statement also amends other existing authoritative
pronouncements to make various technical corrections, clarify
meanings or describe their applicability under changed
conditions. The provisions of SFAS No. 145 related to the
rescission of FASB No. 4 are effective for fiscal years
beginning after May 15, 2002. The provisions of SFAS
No. 145 related to FASB No. 13 are effective for
transactions occurring after May 15, 2002. All other
provisions of SFAS No. 145 are effective for financial
statements issued on or after May 15, 2002. We do not
expect to have any material changes to our financial statements
as a result of SFAS No. 145.
Accounting for Costs Associated with Exit
    or Disposal Activities
In June 2002, FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities
. SFAS No. 146 requires that a liability for
costs associated with exit or disposal activities be recognized
when the liability is incurred. Existing generally accepted
accounting principles provide for the recognition of such costs
at the date of management's commitment to an exit plan. In
addition, SFAS No. 146 requires that the liability be
measured at fair value and be adjusted for changes in estimated
cash flows. The provisions of the new standard are effective for
exit or disposal activities initiated after December 31,
2002. It is not expected that SFAS No. 146 will materially
affect our financial statements.
Accounting for Stock-Based
    Compensation
In December 2002, the FASB issued SFAS
No. 148,
Accounting for Stock-Based
Compensation — Transition and Disclosure, an amendment
to FASB Statement No. 123
. SFAS No. 148 requires
annual disclosures about the method of accounting for
stock-based compensation and tabular information about the
effect of the method accounting for stock-based compensation on
net income and earnings per share, including pro forma amounts,
in the "Summary of Significant Accounting Policies."
On a quarterly basis, SFAS No. 148 requires prominent
disclosure in tabular form of the effect of the method of
stock-based compensation on net income and earnings per share
for all periods presented as accounted for under APB
38
Opinion No. 25. The disclosures required by
SFAS 148 will be included in the financial statements when
required for shares issued under our recently adopted Employee
Share Purchase Plan.
Accounting for Guarantees
In November 2002, the FASB issued FASB
Interpretation (FIN) No. 45,
Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others
. FIN
No. 45 identifies characteristics of certain guarantee
contracts and requires that a liability be recognized at fair
value at the inception of such guarantees for the obligations
undertaken by the guarantor. Additional disclosures also are
prescribed for certain guarantee contracts. The initial
recognition and initial measurement provisions of FIN
No. 45 are effective for those guarantees issued or
modified after December 31, 2002. The disclosure
requirements of FIN No. 45 were effective for us as of
December 31, 2002. Disclosure required by FIN No. 45
relating to our guarantee arrangements is included in the
financial statements. We do not believe such guarantee requires
a liability to be recognized.
Consolidation of Variable Interest
    Entities
In January 2003, the FASB issued FIN No. 46,
Consolidation of Variable Interest Entities
. FIN
No. 46 clarifies the application of Accounting Research
Bulletin No. 51,
Consolidated Financial Statements,
to certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not
have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support
from other parties, which are referred to as variable interest
entities. Variable interest entities are required to be
consolidated by their primary beneficiaries if they do not
effectively disperse risks among parties involved. The primary
beneficiary of a variable interest entity is the party that
absorbs a majority of the entity's expected losses,
receives a majority of its expected residual returns, or both,
as a result of holding variable interests. FIN No. 46 also
requires new disclosures about variable interest entities. We do
not believe, at this time, that FIN No. 46 will have a
material effect on our consolidated financial statements for
transactions completed before December 31, 2002.
Statement of Financial Accounting Standards
    No. 149 — Amendment of Statement 133 on
    Derivative Instruments and Hedging Activities
This Statement amends and clarifies financial
accounting and reporting for derivative instruments, including
certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging
activities under SFAS No. 133,
Accounting for Derivative
Instruments and Hedging Activities
. This Statement is
effective for contracts entered into or modified after
June 30, 2003, except as stated below and for hedging
relationships designated after June 30, 2003. In addition,
except as stated below, all provisions of this Statement should
be applied prospectively. The provisions of this Statement that
relate to Statement 133 Implementation Issues that have been
effective for fiscal quarters that began prior to June 15,
2003, should continue to be applied in accordance with their
respective effective dates. In addition, paragraphs 7(a) and
23(a) of SFAS No. 133, which relate to forward purchases or
sales of when-issued securities or other securities that do not
yet exist, should be applied to both existing contracts and new
contracts entered into after June 30, 2003. We do not
believe SFAS No. 149 will have a significant impact on our
financial statements.
Accounting for Certain
Financial Instruments with Characteristics of both Liabilities
and Equity
In May 2003, the FASB issued SFAS No 150,
Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity.
SFAS
No. 150 establishes standards for how an issuer classifies
and measures certain financial instruments with characteristics
of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a
liability, or an asset in some circumstances. SFAS No. 150
is effective for financial instruments entered into or modified
after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after
June 15, 2003. We have adopted the standard effective
July 1, 2003. We do not believe SFAS No. 150 will have
a significant impact, if any, on our financial statements.
39
INDUSTRY OVERVIEW
Since the creation of federal student loan
programs, more than $485 billion in federal student loans have
financed the higher education of more than 67 million
students at thousands of schools across the United States.
College costs have risen at both public and private
institutions. In the decade 1990-1991 to 2000-2001, prices at
public and private colleges rose by approximately 23% and 27%,
respectively, after adjustment for inflation. Students and
families depend more on federal student loans to cover the costs
of post-secondary education than any other single source of
financial aid. The demand for student loans is expected to grow.
According to a projection by the DOE, gross federal student loan
volume, comprised of FFELP loans and FDLP loans, is expected to
grow to $71.8 billion in federal fiscal year 2009,
excluding consolidation loan volume. This projection is an
increase from the $45.4 billion in loans that were
originated in federal fiscal year 2002, and this projection does
not include the potential for higher loan limits that are
currently being contemplated by Congress.
Source: Department
of Education estimates proposed for the President's 2004
fiscal year budget.
The large majority of student loans are made to
finance post-secondary education under federally guaranteed
student loan programs, although many students and parents also
obtain education funding through private student loan programs.
Federally guaranteed student loan programs are highly regulated
by the DOE. Under programs guaranteed by the federal government,
banks and other lenders that satisfy statutory eligibility
requirements can make student loans at below-market rates due to
subsidies and guarantees. The largest student loan program,
formerly called the Guaranteed Student Loan Program, or GSLP,
and currently known as the Federal Family Education Loan
Program, was created in 1965 to ensure affordable access by
families to a full range of post-secondary educational
institutions. In 1972, to encourage further bank participation
in the GSLP, Congress established the Student Loan Marketing
Association, known as Sallie Mae, a government-sponsored
enterprise as a for-profit, public stockholder-owned, national
secondary market for student loans. Currently, Sallie Mae is a
wholly owned subsidiary of SLM Corporation. SLM Corporation was
formed in 1997 as a Delaware corporation, marking the beginning
of the privatization of Sallie Mae as a government-sponsored
enterprise, to be completed by September 2006.
The FFEL Program currently includes a network of
thousands of originators and educational institutions and 36
state-sponsored or non-profit guaranty agencies which guarantee
and administer loans
40
under contract with the DOE. A number of
non-profit entities, banks and other financial intermediaries
operate as secondary markets for student loans. Lender
participation in the FFEL Program is relatively concentrated,
with more than 70% of outstanding loans held by the top ten
participants, including nearly one-half owned or managed by
Sallie Mae.
Student Loan Business Model
In general, a student applies for a loan from a
financial institution through a school's financial aid
office or directly from the financial institution. Typically,
financial institutions acting as lenders or entities that
service student loans are the source of student loan
originations. A financial institution may hold the student loan
it originates or sell its student loan portfolio to the
secondary market. The characteristics of student loans typically
result in those loans trading at a premium. This creates a
situation that allows for selling the portfolio to the secondary
market at a premium which frees up capital enabling the
institution to originate new student loans. The secondary market
is made up of a variety of non-profit entities, banks and
for-profit companies. Typically, a participant in the secondary
market funds loans purchased from the financial institution
through the use of a warehouse financing line. Once a loan
holder, such as Nelnet, has garnered enough loans, it may choose
to finance the loans through an asset securitization vehicle.
The student loans are generally transferred to a special purpose
entity that pays for the loans through the issuance of debt. As
a result of the federal guarantee of student loans, the senior
tranches of notes in these securitizations are generally rated
AAA, and the subordinated tranches are generally rated A or
better.
To induce lenders to enter the student loan
market, the government assures that a lender receives a minimum
yield on FFELP loans, regardless of whether rates change over
the course of a year or whether rates exceed the cap on a
borrower's loans. Depending on the type of student loan and
when it was originated, the borrower rate is either fixed to
term or is reset to a market rate each July 1. FFELP
student loans generally earn interest at the greater of the
borrower rate or a variable rate determined by reference to the
average of the applicable index (91-day Treasury bill rate or
90-day commercial paper rate) in a calendar quarter plus a fixed
spread that is dependent upon when the loan was originated and
the loan's repayment status. If the resulting variable rate
plus the applicable spread exceeds the borrower rate, the DOE
pays the difference. This payment is referred to as the special
allowance payment, or SAP. We refer to the fixed spread to the
underlying index as the special allowance margin. In some
declining interest rate environments, lenders earn additional
spread income through the next reset date on those FFELP loans
earning at the annually reset borrower rate. We refer to this
additional income as variable rate floor income. On those FFELP
loans with fixed to term borrower rates, primarily consolidation
loans, lenders earn interest at the greater of the borrower rate
or a variable rate based on the SAP formula.
Guaranty agencies expedite government
reimbursement for defaulted student loans to eligible lenders.
These guaranty agencies are non-profit institutions and state
agencies that have entered into federal reimbursement contracts
with the DOE pursuant to the Higher Education Act. Guaranty
agencies collect revenue in the form of fees based upon new
guarantees, the outstanding principal amount of loans guaranteed
and default prevention activities. Reimbursement from a guaranty
agency to the lender is contingent upon servicing in accordance
with certain regulatory requirements. The guaranty agencies
provide for 100% reimbursement of principal and accrued interest
for loans disbursed before October 1, 1993 and 98%
reimbursement of principal and accrued interest for loans
disbursed on or after October 1, 1993, if the loans are serviced
according to DOE guidelines. In addition, the lender is entitled
to receive the full 100% of principal and accrued interest in
the event of a borrower's death, disability or bankruptcy.
Guaranty agencies reimburse eligible lenders from reserve
accounts established for this purpose. The guaranty agency, in
turn, receives reimbursement from the DOE. In the event a
guaranty agency fails to pay, the lender can claim reimbursement
directly from the DOE.
Servicing student loan assets is important
because losses on defaults are largely mitigated by the
servicer's ability to service the student loans according
to DOE guidelines. Proper servicing of a student
41
loan is required in order to maintain eligibility
for interest subsidy payments and guarantee reimbursement for
principal and accrued interest losses. As a result of the strict
requirements and expense associated with properly servicing
accounts, servicing is often outsourced by financial
institutions and secondary market participants to specialized
student loan servicers. This allows servicers to obtain
economies of scale in their operations by aggregating student
loans from a variety of market participants.
Claims rejected by the DOE or a guaranty agency
may be "cured," which involves reinstatement of the
guarantee. When the lender obtains a payment or a new signed
repayment agreement from the borrower in the case of certain
collection due diligence violations, the lender may receive
reinstated interest subsidies and special allowance payments.
Interest subsidies are interest payments made by the DOE on
eligible loans while the borrower is in school and during grace
and deferment periods.
The following chart illustrates the student loan
process.
Federal Student Loan Programs
Federal student loans are made up of two primary
programs:
•
The Federal Family Education Loan Program, which
    is known as the FFEL Program or the FFELP.
•
The William D. Ford Federal Direct Loan Program,
    which is known as the FDL Program or the FDLP.
The federal government guarantees the repayment
of at least 98% of the principal balance and the accrued
interest of all FFELP loans. In addition, the federal government
subsidizes the interest cost of some of these loans. As
described below, the amount of the subsidy a borrower receives
and the repayment terms vary depending upon the type of loan and
borrower.
The Federal Family Education Loan
    Program
The FFEL Program is a public-private partnership
in which lenders make federally guaranteed student loans to
students and their parents in coordination with school financial
aid offices. During the 2002 federal fiscal year, which ended
September 30, 2002, almost eight million new FFELP loans,
which excludes consolidation loans, with a principal amount of
$32.8 billion, were made to eligible borrowers.
Loans made under the FFEL Program include:
•
Subsidized Federal Stafford Loans
for students who pass a financial
    needs test. This loan type is the largest component of the FFEL
    Program, with aggregate borrowing limited to $23,000 for
    undergraduate students and $65,500 for graduate students. The
    federal government pays all interest costs for subsidized
    Stafford borrowers while borrowers are in school and during
    grace and
42
deferment periods. The interest rate on these
    loans currently changes annually, but is capped at a maximum
    annual rate of 8.25%. During the 2002 federal fiscal year,
    $15.3 billion in subsidized Stafford loans were made.
•
Unsubsidized Federal Stafford Loans
for students who do not meet a
    financial needs test or who need to supplement their subsidized
    loans. Although borrowers may defer payment of interest while
    they are in school, they are responsible for all interest that
    accrues. The interest rate on these loans also changes annually
    and is capped at a maximum annual rate of 8.25%. During the 2002
    federal fiscal year, $13.9 billion in unsubsidized Stafford
    loans were made.
•
Federal PLUS Loans
for parents of dependent
    undergraduate students. Although borrowers may defer payment of
    interest while their children are in school, they are
    responsible for all interest that accrues. Borrowers may borrow
    up to the cost of attendance per child, minus financial aid from
    other sources. The interest rate on PLUS loans is variable, but
    is capped at a maximum annual rate of 9.00%. During the 2002
    federal fiscal year, $3.6 billion in PLUS loans were made.
•
Federal Consolidation Loans
designed to help borrowers manage
    repayment of multiple loans by combining all eligible loans into
    a single, new guaranteed FFELP loan with a longer repayment
    term, a fixed interest rate and a smaller total monthly payment.
    As a result of extended repayment periods associated with
    consolidation loans, total payments made by consolidation
    borrowers over the life of their consolidation loan are
    generally greater than those made by borrowers with standard
    repayment periods. Due in part to record-low interest rates,
    during the 2002 federal fiscal year $23.0 billion in
    federal consolidation loans were made in addition to the
    $32.8 billion in new loans made under the FFEL Program
    during the same year.
Participants in the FFEL Program include:
•
Eligible
    Lenders.
Eligible lenders, which
    are registered with the DOE, originate and hold FFELP loans and
    receive interest subsidy payments, special allowance payments
    and default reimbursement. Eligible lenders include banks,
    savings and loan associations, credit unions, pension funds,
    insurance companies and, under certain conditions, schools and
    guaranty agencies. Eligible lenders may also serve as a trustee
    on behalf of entities not otherwise eligible to hold FFELP
    loans, such as Nelnet, allowing such other entities to
    participate in the FFEL Program as a beneficial owner of the
    loan assets.
•
Servicers.
Servicing of student loan assets is critical for FFELP lenders
    because losses on defaults are mainly dependent on the
    servicer's ability to service the loans according to DOE
    guidelines. Proper servicing of a student loan is required in
    order to maintain eligibility for special allowance payments,
    interest subsidy payments and guarantee reimbursement.
•
Guaranty
    Agencies.
Guaranty agencies
    expedite reimbursement for defaulted student loans to eligible
    lenders. These guaranty agencies are non-profit institutions or
    state agencies that have entered into federal reimbursement
    contracts with the DOE pursuant to the Higher Education Act.
    Reimbursement from the guaranty agency to the lender is
    contingent upon servicing in accordance with certain regulatory
    requirements. There will be 100% reimbursement of principal and
    accrued interest for defaulted loans disbursed before
    October 1, 1993 and 98% reimbursement of principal and
    accrued interest for defaulted loans disbursed on or after
    October 1, 1993, if such loans are serviced according to
    DOE guidelines. Guaranty agencies reimburse eligible lenders
    from reserve accounts established for this purpose. The guaranty
    agency, in turn, receives reimbursement from the DOE. The level
    of reimbursement to the guaranty agency depends on a number of
    factors. Typically, guaranty agencies guarantee loans to
    students attending eligible institutions in the state or region
    serviced by the guaranty agency. They may also guarantee loans
    to students who reside in their own state or region, but who
    attend eligible institutions in another state or region. After a
    claim has been paid, the guaranty agency assumes ownership of
    the loan and is obligated to pursue
43
post-disposition recoveries. The guaranty agency
    retains a percentage of post-disposition recoveries and
    reimburses the DOE with the remaining percentage.
•
Department of
    Education.
The DOE's
    regulations provide a number of incentives to student loan
    market participants. The DOE provides eligible private lenders
    with an incentive to lend to students by guaranteeing default
    reimbursement. When applicable, it also pays special allowance
    payments. The DOE provides eligible borrowers with an incentive
    to borrow by providing interest subsidies and capped interest
    rates. In the event of a guaranty agency bankruptcy or a
    determination by the DOE that the guaranty agency is unable to
    reimburse claims, an eligible lender has the right to submit
    claims directly to the DOE for payment. Under such
    circumstances, the DOE is obligated to pay the holder of the
    loan the full insurance obligation of the guaranty agency,
    subject to its servicing guidelines.
The Federal
Direct Loan Program
Under the FDL Program, loans are made directly by
the federal government to borrowers. Most terms of FDLP loans
are the same as FFELP loans. The $12.7 billion of FDLP
loans in 2002 consisted of approximately $6.2 billion in
subsidized Stafford loans, $4.9 billion in unsubsidized
Stafford loans and $1.6 billion in PLUS loans. During the
2002 federal fiscal year, newly originated FDLP loans
constituted 28% of total newly originated FFELP and FDLP loans,
down from 33% during the 1998 federal fiscal year.
Reauthorization of the Higher Education
    Act
The Higher Education Act, and thereby the federal
student loan program, needs to be reauthorized every five years.
The next reauthorization is set for September 2004. Some of the
key issues being debated are:
•
Single holder rule on consolidation
    loans.
Currently, if only one
    lender holds all of a student's loans, then a competitor
    cannot consolidate the loans away from the current holder unless
    the current holder refuses to consolidate the loans for the
    borrower. There is a high probability that the single holder
    rule will be eliminated during reauthorization. In the industry
    as a whole, a large portion of all non-consolidated loans are
    currently held by only one lender. Elimination of the single
    holder rule would open up a portion of the market to increased
    competition.
•
The ability to refinance consolidation
    loans.
Currently, once a loan is
    consolidated, it cannot be refinanced by another government
    guaranteed student loan unless subsequent FFELP loans are made
    to the borrower. If this rule changes, the amount of
    consolidation loans that are refinanced could be significant.
•
Variable-rate consolidation loans and
    extended repayment of Stafford
    loans.
Reauthorization proposals
    have been made to Congress that would continue variable borrower
    rates for Stafford and PLUS loans beyond July 1, 2006. In
    addition, language has been suggested that would permit new
    consolidation loans to have variable rates. Language has also
    been proposed that would allow Stafford/PLUS borrowers to have
    extended repayment terms, similar to those terms provided for
    under the loan consolidation program. Both of these initiatives
    would offset two of the most appealing aspects of consolidation
    loans,
i.e.
, long-term fixed rates and extended
    repayment. Adoption of these initiatives could decrease
    consolidation opportunities in the market.
•
9.5% floor
    income.
Student loans originated
    or acquired with the proceeds of tax-exempt obligations issued
    prior to October 1, 1993 are subject to a minimum, or floor,
    rate of return of 9.5% per year based upon provisions of the
    Higher Education Act and related interpretations by the DOE.
    Reauthorization proposals have been made to Congress that would
    limit the minimum return to those loans which are funded
    directly with tax-exempt obligations and potentially eliminate
44
excess earnings on loans subsequently funded with
    taxable obligations. Adoption of this initiative could decrease
    loan interest income to lenders receiving 9.5% floor income.
•
Variable rate floor
    income.
Language has been proposed
    that would eliminate the potential of excess earnings on student
    loans that are reset annually in a declining interest rate
    environment. Adoption of this initiative could decrease loan
    interest income to lenders receiving variable rate floor income.
•
Borrower
    limits.
For the last
    20 years, the maximum amount that a freshman or sophomore
    can borrow has remained around $2,500. Educational tuition has
    increased at approximately two times the rate of inflation over
    this same time frame. There is a possibility that these borrower
    limits could be increased, thereby potentially increasing the
    average size of future loan originations in the market.
45
BUSINESS
Overview
We are a leading, vertically integrated education
finance company, focused on providing quality products and
services to participants in the education finance process.
Headquartered in Lincoln, Nebraska, we originate, hold and
service student loans, principally loans originated under the
FFEL Program. For 2002, we were the fourth largest holder and
second largest servicer of FFELP loans. In addition, we,
together with our branding partners, are a leading originator of
FFELP loans.
We offer a broad range of financial services and
technology-based products, including student loan origination
and lending, student loan and guarantee servicing and a suite of
software solutions. Our products are designed to simplify the
student loan process by automating financial aid delivery, loan
processing and funds disbursement. Our infrastructure,
technological expertise and breadth of product and service
offerings connect the key constituents of the student loan
process, including lenders, financial aid officers, guaranty
agencies, governmental agencies, student and parent borrowers,
servicers and the capital markets, thereby streamlining the
education finance process.
Our business is divided into four primary
business units:
•
Student loan originations, acquisitions and
    portfolio
    management
—
provides student loan sales, marketing, origination,
    acquisition and portfolio management.
•
Student loan
    servicing
—
provides student loan servicing for our portfolio and for
    third parties.
•
Guarantee
    servicing
—
provides software systems and sub-servicing to guaranty
    agencies.
•
Servicing
    software
—
provides student loan servicing software internally and to
    third-party student loan holders and servicers.
We generate the majority of our earnings from the
spread between the yield we receive on our student loan
portfolio and the cost of funding these loans. While the spread
may vary due to fluctuations in interest rates, government
special allowance payments ensure that we receive a minimum
yield on our student loans, so long as certain requirements are
met. We also earn fees from student loan and guarantee servicing
and licensing fees from our servicing software. Earnings growth
is primarily driven by the growth in the student loan portfolio
and growth in our fee-based business units, coupled with
cost-effective financing and expense management. For the year
ended December 31, 2002, we generated net interest income
of $190.9 million, total other income, including loan
servicing income, of $125.8 million and net income of
$48.5 million.
We originate and acquire loans through a variety
of different channels, including originations through our direct
channel and acquisitions through our branding partner channel,
our forward flow channel and the secondary market. In 2002, we
originated and acquired $2.7 billion in student loans,
including $859 million in consolidation loans. As of
June 30, 2003, our student loan portfolio was
$9.5 billion. We currently service $18 billion in
student loans, and our software is used by third parties to
service an additional $30 billion in student loans. In addition,
we currently provide servicing support to guaranty agencies that
guarantee $18 billion in student loans. We have
relationships with hundreds of colleges and universities and
provide student loan servicing either directly or through our
proprietary software to approximately 1.75 million
borrowers.
Over 99% of the student loans in our portfolio as
of June 30, 2003 were FFELP loans, as opposed to the less
than 1% of private loans in our portfolio that did not carry
federal guarantees. At least 98% of the principal and accrued
interest of FFELP loans is guaranteed by the federal government,
provided that we meet certain procedures and standards specified
in the Higher Education Act. FFELP loans originated prior to
October 1, 1993 carry a 100% guarantee on the principal
amount and accrued interest, and FFELP loans originated after
that date are guaranteed for 98% of the principal amount and
accrued interest. As a result, holders of FFELP loan portfolios
historically have experienced minimal losses net of the
guarantee. Our net loan losses on FFELP loans in 2002 were
approximately $2.7 million, or less than 0.04% of our
average FFELP loan portfolio.
46
Our History
We have a 25-year history dating back to the
formation of UNIPAC Service Corporation in 1978. UNIPAC was
formed to service loans for Union Bank and Trust Company of
Lincoln, Nebraska and Packers Service Corporation of Omaha,
Nebraska. It grew its third-party student loan servicing
business to approximately $9.7 billion in loans in 2000,
when it was merged with Nelnet. Our immediate predecessor was
formed in 1996 as a student loan acquisition company, and, prior
to the merger, it had built its student loan portfolio through a
series of spot portfolio acquisitions and later through student
loan company acquisitions.
In 2000, we decided to create a vertically
integrated platform that would be able to compete in each sector
of the student loan industry. Over the past three years we have
acquired several education finance services companies, including
a student loan secondary market company. In addition, in August
2003, we acquired the securities company that provides us with
broker-dealer services in connection with our asset-backed
securitizations.
We executed these acquisitions to complete our
effort to vertically integrate and add geographic diversity and
operational expertise to our education finance platform. We have
successfully integrated these companies into the Nelnet
platform, and they have increased our profitability as a result.
We now believe that we have all of the key components of our
vertical integration strategy. Going forward, we intend to focus
principally on organic growth while opportunistically making
company and portfolio acquisitions.
Competitive Strengths
We believe that the following competitive
strengths are important to maintaining our growth, profitability
and standing in our industry:
•
Focused leader with vertically integrated
    platform.
•
High-quality loan portfolio established through
    our concentration on FFELP loans.
•
Strong relationships with student loan market
    constituents.
•
Access to cost-effective financings.
•
Leading, cost-competitive servicing platform with
    a focus on asset protection.
•
Comprehensive suite of software products.
•
Management team with significant operating and
    acquisition experience.
Focused leader with vertically integrated
platform.
We maintain a strong
position and deep expertise in each of our primary business
units and are well positioned to capitalize on industry growth.
We were among the largest holders of federally guaranteed
student loans with $9.5 billion of loans outstanding as of
June 30, 2003. In 2002, we originated and acquired
$2.7 billion in student loans, including $859 million
in consolidation loans. We currently service $18 billion in
student loans, and our software is used by third parties to
service an additional $30 billion in student loans. In
addition, we currently provide servicing support to guaranty
agencies that guarantee $18 billion in student loans. We
have relationships with hundreds of colleges and universities
and provide loan servicing either directly or through our
proprietary software to approximately 1.75 million
borrowers. We provide school financial aid offices and students
a comprehensive, full-service student lending package (Stafford,
PLUS, consolidation and private loans), loan and guarantee
servicing and loan servicing software. By offering the full
range of services required for student lending, we facilitate
and streamline the student lending process. Our established
servicing capability allows us to service our student loan
portfolio rather than outsourcing this task to a third party. In
addition, our technology product suite often enables us to gain
access to schools, creating new lending opportunities, as well
as deepening our existing relationships by increasing our share
of a school's loan volume. We use the technology to enhance
our relationships, offer more services to each customer, reduce
operating expenses and increase our revenues and profitability.
Our vertically integrated platform allows us to take advantage
of economies of scale and run a cost-efficient operation.
47
High-quality loan portfolio established
through our concentration on FFELP loans.
We have focused our lending
operations on FFELP loans, which carry at least a 98% federal
guarantee on principal and accrued interest. As of June 30,
2003, more than 99%, or $9.4 billion, of our student loan
portfolio consisted of FFELP loans and less than 1%, or
$87 million, consisted of private loans, which do not carry
a federal guarantee. We maintain strict underwriting criteria
for our private loan portfolio.
Strong relationships with student loan
market constituents.
We use a network of student loan
channels to offer services to students, schools, lenders and
secondary markets throughout the United States. As part of our
loan origination activities, we have established long-term
strategic relationships either directly with school financial
aid offices or with eligible banks and schools that function as
"branding" partners, who direct committed portions of
their originations to us through forward flow commitments.
Financial aid offices can have considerable influence on
students' selections of lenders. The effort and expense to
create and maintain these relationships, as well as the low
turnover of selected providers, acts as a barrier to entry for
competitors. Our branding partners act as alternative channels
for origination and have strong brand recognition in the areas
on which they focus. By utilizing the appropriate and effective
brand, we can cost-effectively leverage our penetration at
different schools and throughout certain regions of the United
States.
Access to cost-effective financings.
We currently have a loan
warehousing capacity of over $2 billion through 364-day
commercial paper conduit programs maturing at different times
and participation funding arrangements committed on a short-term
basis by various financial institutions. Our large warehousing
capacity allows us to pool student loans in order to aggregate
sufficient volume for cost-effective, long-term financing and to
time securitization market conditions properly. Generally, loans
that best fit long-term financing vehicles are selected to be
transferred into one of our long-term securitizations. Because
transferring those loans to a long-term securitization includes
certain fixed administrative costs, we maximize the economies of
scale by executing large transactions that routinely price in
line with our largest competitor within the student loan
industry.
Leading, cost-competitive servicing
platform with a focus on asset protection.
We have built a leading,
nationally recognized student loan servicing platform. We
believe that a servicing operation is critical to success as a
lender in the student loan marketplace. The servicing platform
is the mechanism that facilitates interaction with borrowers.
Our servicing portfolio includes both loans from our lending
portfolio as well as from third parties. Nelnet-originated and
third-party serviced loans utilize the same servicing platform,
technology and employee base and are all serviced in exactly the
same manner. The quality of our servicing operation is best
demonstrated by our low initial claim reject rate due to
servicer error. The quality of our servicing capability is also
a key factor in preserving the federal guarantee on our FFELP
loans. In 2002, our initial claim reject rate was only
approximately 0.25%. The technological focus of our servicing
platform, coupled with economies of scale, has enabled us to
create a competitive cost structure.
Comprehensive suite of software
products.
Our products include an Internet-based
financial aid delivery and management system, an Internet-based
loan origination system and a centralized disbursement agent
service. Our "open architecture" origination products
afford schools the flexibility to work with multiple lenders of
their choice. These products are directly integrated into our
servicing platform, which provides various features such as loan
approval, disbursement of funds, customer service, account
maintenance, federal reporting and billing collections, payment
processing, default aversion, claim filing and uninsured loan
recovery. Our software products include:
•
Nteract
—
    our Internet-based student loan origination system.
•
Nconcert
—
    our Internet-based financial aid delivery and management system.
•
Ntrust
—
    our centralized disbursement agent service.
•
Ngenius
—
    our origination and disbursement engine that supports Nconcert,
    Ntrust and Nteract.
•
Nservice
—
    our servicing system for FFELP and private loans.
48
These programs are designed to reduce paperwork,
streamline the approval process and improve communication
between a school's financial aid office and its students.
The software unites financial aid offices, lenders, students,
secondary markets and servicing companies, reducing turnaround
time, simplifying the process for students and providing better
service with fewer errors.
Management team with significant operating
and acquisition experience.
Our
management is led by Co-Chief Executive Officers Michael S.
Dunlap and Stephen F. Butterfield. Mr. Dunlap has
worked in the financial services industry for 20 years,
having served previously as chief executive officer of Union
Bank of Nebraska. Mr. Butterfield has worked in the student
loan industry for 14 years and the broader financial
services industry for 29 years. Mr. Dunlap focuses on
our day-to-day operating activities, and Mr. Butterfield
focuses on capital markets and investor relations. Our senior
employees with management responsibilities have been with us or
one of our predecessor companies for an average of over ten
years. Furthermore, we have successfully integrated the
companies that we have acquired and have retained their key
employees. As a result, we have a management team with
significant experience and knowledge in both student loan
operations and portfolio and company acquisitions.
Strategy
Our corporate objective is to further our
leadership position in the student loan industry. We intend to
achieve this objective by executing the following strategies:
•
Establish and maintain leadership in all business
    units by leveraging our technology.
•
Maximize organic growth and profitability by
    maintaining low cost infrastructure.
•
Strengthen existing relationships while
    establishing new ones.
•
Continue commitment to highly focused and
    disciplined loan origination and acquisition practices.
•
Opportunistically make company and portfolio
    acquisitions.
Establish and maintain leadership in all
business units by leveraging our technology.
We believe that our technology
solutions position us as a leading provider for the student
lending market. Our user-friendly software not only allows us to
service loans both internally and for third parties, but also
continues to facilitate our growing position as a preferred
originator and holder of loans for schools and borrowers. We
will continue to invest, develop and upgrade our technology to
help solidify our leadership position and further penetrate our
potential market.
Maximize organic growth and profitability
by maintaining low-cost
infrastructure.
We will continue
to grow our student loan portfolio and maintain and capitalize
on our low-cost infrastructure to realize increased
profitability as the industry expands. We believe there is
continued opportunity for significant growth in light of the
DOE's projected growth rates for the student loan industry.
We believe the infrastructure we have developed has positioned
us to continue to achieve economies of scale and be a low-cost
provider to our customers. In this regard, we decreased our
operating expenses as a percentage of average student loans from
0.78% in 1998 to 0.54% in 2002.
Strengthen existing relationships while
establishing new ones.
We have
extensive customer relationships with schools and lenders
throughout the United States. We will continue to leverage the
strength and depth of these relationships and will continue to
broaden these relationships while establishing new ones. We have
a sales force of over 300 people, of whom approximately 80 are
calling directly on colleges and universities, while the
remaining approximately 220 focus on marketing directly to
borrowers. We will continue to take advantage of the sales
force's experience as well as our management's
industry knowledge and relationships.
Continue our commitment to highly focused
and disciplined loan origination and acquisition practices.
We will continue to pursue our
conservative approach to asset quality by concentrating on
originating, acquiring and holding federally guaranteed loans
through the FFEL Program, while maintaining a disciplined
underwriting approach to private loans. As of June 30,
2003, our student loan portfolio was
49
comprised of over 99% FFELP loans and less than
1% private loans. Due to existing commitments, we expect the
percentage of private loans in our student portfolio to increase
to between 1% and 2% over the next three years. Future
circumstances may dictate or warrant incremental increases. In
any event, we will maintain our strict underwriting standards
for the limited amount of private loans in our portfolio.
Opportunistically make company and
portfolio acquisitions.
Although
we have reached a point in our development where we offer a
comprehensive set of products and services essential to our
vertically integrated business model and benefit from economies
of scale and organic growth, we will still consider acquisitions
in the future. These may include either individual companies or
loan portfolios that we believe have the potential to enhance
long-term shareholder value. Since our inception, we have a
successful track record of acquisitions. We have acquired and
successfully integrated more than ten education finance related
companies and have retained their key employees. As a result, we
have the experience and skill sets necessary to acquire and
integrate additional targets that add long-term value to our
franchise and are accretive to earnings.
Business Units
Student Loan Origination, Acquisition and
    Portfolio Management
Our student loan origination, acquisition and
portfolio management business is our largest business unit and
drives the majority of our earnings. We use an eligible lender
as a trustee to originate and purchase student loans through the
FFEL Program. We have originated and acquired approximately
$7.0 billion in student loans since January 1, 2000,
excluding subsidiary acquisitions. We often originate loans
using the Nelnet brand name but, in many cases, we use
well-known, geographically strategic brand names of our branding
partners, such as Education Solutions, Inc. and Union Bank and
Trust Company. This strategy gives us the flexibility to market
the brand with the best recognition in a given region or at a
given college or university. We originated 9.7%, 40.6% and 46.5%
of the loans added to our student loan portfolio in 2001, 2002
and the first six months of 2003, respectively.
The branding partner channel for FFELP loan
acquisitions is established by our various contracts with FFELP
lenders. In 2001, 2002 and the first six months of 2003, 36.2%,
19.5% and 33.3% of our loan acquisitions were attributable to
this channel. We frequently act as exclusive marketing agent for
some branding partners in specified geographic areas. We
ordinarily purchase loans originated by those branding partners
pursuant to a commitment to purchase loans at a premium above
par, shortly following full disbursement of the loans. We
ordinarily retain rights to acquire loans subsequently made to
the same borrowers, or serial loans. Some branding partners,
however, retain rights to portions of their loan originations.
Origination and servicing of loans made by branding partners is
performed by us during the lives of loan origination and
servicing agreements so that loans do not need to be changed to
a different servicer upon purchase by us. The marketing
agreements and commitments to purchase loans are ordinarily for
the same term, which is commonly three to five years in
duration. These agreements ordinarily contain provisions for
automatic renewal for successive terms, subject to termination
by notice at the end of a term or early termination for breach.
We are generally obligated to purchase all of the loans
originated by our branding partners under these commitments,
although our branding partners are not obligated to provide us
with a minimum amount of loans.
In addition to the branding partner channel, we
have established a forward flow channel for acquiring FFELP
loans from third parties. In 2001, 2002 and the first six months
of 2003, 33.4%, 21.7% and 16.8% of our loan acquisitions were
attributable to this channel. The forward flow channel is
established by entering into various agreements pursuant to
which FFELP lenders retain responsibilities for marketing, but
commit to sell all or a portion of their future originations to
us at a premium. These forward flow commitments frequently
obligate the lender to sell all loans made by the applicable
lender, but in other instances are limited to sales of loans
originated in certain specific geographic regions or exclude
loans that are otherwise committed for sale to third parties. We
are generally obligated to purchase loans subject to forward
flow commitments shortly following full disbursement, although
our forward flow lenders are not obligated to provide us with a
minimum amount of loans. We typically retain rights to purchase
serial
50
loans. The loans subject to purchase are
generally subject to a servicing agreement with us for the life
of each such loan. Such forward flow commitments ordinarily are
for terms of three to five years in duration.
As of June 30, 2003, the characteristics of
our student loan portfolio, exclusive of the unamortized cost of
acquisition, were as described below.
Composition of Student Loan
Portfolio
(As of June 30, 2003)
(dollars in thousands, except average
outstanding balances)
Loans outstanding
$9,317,847
FFELP loans:
Stafford loans
$5,246,649
PLUS/ SLS loans(a)
$298,341
Consolidation loans
$3,685,876
Private loans
$86,981
Number of borrowers
771,079
Average outstanding principal balance per borrower
$12,084
Number of loans
2,110,278
Average outstanding principal balance per loan
$4,415
Weighted average annual interest rate
5.03
%
Weighted average remaining term (months)
167.2
(a)
Supplemental Loans for Students, or SLS, are the
    predecessor to unsubsidized Stafford loans.
Once a student's loans have entered the
repayment or grace period, they are eligible to be consolidated
if they meet certain requirements. Loan consolidation allows
borrowers to make one payment per month and extend the loan
repayment period. In addition to these attributes, in recent
years, historically low interest rates have contributed to
demand for consolidation loans. To meet this demand, we have
developed an extensive loan consolidation department to serve
borrowers with loans in our portfolio as well as borrowers whose
loans are held by other lenders.
Our capital markets and portfolio administration
departments provide financing options to fund our loan
portfolio. We have a warehousing capacity of over
$2 billion through 364-day commercial paper conduit
programs and participation funding arrangements. These
transactions provide short-term asset financing for the purchase
of student loan portfolios. The financings are constructed to
offer short-term capital and are annually renewable.
Short-term warehousing allows us to buy and
manage student loans prior to transferring them into more
permanent financing arrangements. Our large warehousing capacity
allows us to pool student loans in order to maximize loan
portfolio characteristics for efficient financing and to
properly time market conditions. Generally, loans that best fit
long-term financing vehicles are selected to be transferred into
one of our long-term securitizations. Because transferring those
loans to a long-term securitization includes certain fixed
administrative costs, we maximize our economies of scale by
executing large transactions that routinely price in line with
our largest competitor. We are a frequent issuer and benefit
from a high level of name recognition by the asset-backed
investment community.
We currently have approximately $8 billion
in asset-backed securities issued, including auction-rate notes
whose interest rates are reset periodically. These asset-backed
securities allow us to finance student loan assets over multiple
years, thereby eliminating the renewal risk associated with
warehouse vehicles.
We rely upon securitization vehicles as our most
significant source of funding for student loans on a long-term
basis. The net cash flow we receive from the securitized student
loans generally represents the excess amounts, if any, generated
by the underlying student loans over the amounts required to be
paid to the bondholders, after deducting servicing fees and any
other expenses relating to the securitizations. In
51
addition, some of the residual interests in these
securitizations may have been pledged to secure additional bond
obligations. Our rights to cash flow from securitized student
loans are subordinate to bondholder interests and may fail to
generate any cash flow beyond what is due to pay bondholders.
Our original securitization transactions began in
1996, utilizing a master trust structure, and were privately
placed auction-rate note securitizations. As the size and volume
of our securitizations increased, we began publicly offering
asset-backed securities under shelf registration statements,
using special purpose entities. When we deemed long-term
interest rates attractive, we issued fixed-rate debt backed by
cash flows from FFELP loans with fixed-rate floors which
effectively match the funding of our assets and liabilities. In
2002, we began accessing the term asset-backed securities market
by issuing amortizing multi-tranche LIBOR-indexed variable-rate
debt securities. Almost all of the securitization debt that we
have issued since 1996 is still outstanding today, including the
taxable and tax-exempt securitization debt issued by companies
we have acquired. We have utilized financial guarantees from
monoline insurers and senior/ subordinate structures to assist
in obtaining "AAA" ratings on our senior securitized
debt in addition to cash reserves and excess spread to assist in
obtaining "A" and "AA" ratings on our
subordinated debt. We intend to continue to issue auction rate
notes, variable-rate and fixed-rate term asset-backed securities
and debt securities through other asset funding vehicles in
order to minimize our cost of funds and give us the most
flexibility to optimize the return on our student loan assets.
Our student loan origination and lending
activities could be significantly impacted by the
reauthorization of the Higher Education Act. For example, if the
single holder rule, which generally restricts a competitor from
consolidating loans away from a holder that owns all of a
student's loans, is abolished, a substantial portion of our
non-consolidated portfolio would be at risk of being
consolidated away by a competitor. On the other hand, abolition
of the rule would also open up a portion of the rest of the
market and provide us with the potential to gain market share.
The portion of the rest of the market that would be opened up to
us, as measured in aggregate principal amount of student loans,
would be greater than the portion of our non-consolidated
portfolio that would be at risk of being consolidated by a
competitor. Other potential changes which could impact us
include:
•
allowing refinancing of consolidation loans,
    which would open approximately 39% of our portfolio to such
    refinancing;
•
allowing for variable-rate consolidation loans
    and extended repayment terms of Stafford loans, which would lead
    to less loans lost through consolidation of our portfolio, but
    would also decrease our consolidation opportunities; and
•
allowing for increased borrower limits, which may
    provide opportunities for increasing the average size of our
    future loan originations.
A further description of the issues in connection
with the reauthorization of the Higher Education Act appears
under "Industry Overview — Federal Student Loan
Programs — Reauthorization of the Higher Education
Act."
In addition, our efforts to expand into the
consolidation market are expected to be affected by recently
amended Federal Trade Commission rules and similar state
regulations providing for so-called "do not call"
registries. Under these rules, consumers may have their phone
numbers added to a "do not call" registry, and we
would generally be prohibited from calling any such consumers to
market our products and services. This rule may restrict our
ability to market effectively our products and services to new
customers. Furthermore, compliance with this new rule may prove
difficult, and we may incur penalties for improperly conducting
our marketing activities.
Student Loan Servicing
We specialize in the servicing of federally
guaranteed and private student loans. Our servicing division
offers lenders across the country a complete line of education
loan services, including recovery of non-guaranteed loans,
application processing, disbursement of funds, customer service,
account maintenance, federal reporting and billing collections,
payment processing, default aversion and claim filing.
52
Our quality and experience in student loan
servicing is evident in the historical performance of our entire
pool of loan assets, which enjoys a very low initial claim
rejection rate due to servicer error, which is the percent of
claims submitted by us or our servicing customers rejected by a
guaranty agency due to servicer error. In 2002, the initial
claim rejection rate due to servicer error was approximately
0.25% of all claims filed by us or servicing customers. The
substantial majority of these initial claim rejections are
cured, meaning a payment or the borrower's promise to pay
has been received. Historically, the aggregate of our losses and
those of our servicing customers from rejected loans and
interest denials has been less than $1 million per year, or
less than 0.01% of our average servicing portfolio.
As we expand our student loan origination and
acquisition activities, we may face increased competition with
some of our servicing customers. In the past, including in one
case recently, servicing customers have terminated their
servicing relationships with us, and we could in the future lose
more servicing customers as a result. However, due to our
life-of-loan servicing agreements, we do not expect this loss
and potential loss of customers to have a material adverse
effect on our results of operations for the foreseeable future.
Guarantee Servicing
Our guarantee servicing unit currently provides
servicing support for $18 billion in guaranteed student
loans. This servicing support is provided to guaranty agencies,
which are the organizations that serve as the intermediary
between the federal government and the lender and who are
responsible for paying the claims made on defaulted loans. One
of our guarantee servicing customers recently notified us of its
intention not to renew its servicing contract. The loss of this
customer is not expected to have a material effect on our
results of operations.
Servicing Software
Our servicing software unit is focused on
providing technology solutions to education finance issues. Our
subsidiaries, Idaho Financial Associates, Inc. and Charter
Account Systems, Inc. provide student loan software and support
for entities involved in the asset management aspects of the
student loan arena. In addition, 5280 Solutions, Inc., of
which we own a 50% interest, provides customized software
solutions to help in the administration and management of the
student loan process. Staffed with more than
100 programmers, support staff and administrative support
personnel, we provide software and maintenance to more than
25 different clients servicing $30 billion in student
loan assets.
Software Products
Our software products are designed to provide us
loan origination access to colleges and universities, while
simplifying the financial aid process. We also license our
servicing software products to third-party student loan holders
and servicers. Our software products include the following:
•
Nteract
– an
    Internet-based, open-architecture student loan origination and
    disbursement management system. Nteract provides a complete
    solution for processing FFELP and private student loan
    certifications, initiating change transactions and comprehensive
    application through disbursement reporting. Nteract operates in
    a real-time environment and can be accessed for online inquiry
    at any time 24 hours a day, seven days a week. Nteract is
    used by our student loan origination, acquisition and portfolio
    management unit and our student loan servicing unit.
•
Nconcert
– our
    Internet-based, open-architecture financial aid delivery and
    management system. Nconcert is used by our student loan
    origination, acquisition and portfolio management unit and our
    student loan servicing unit.
•
Ntrust
– a
    centralized disbursement service. It is a comprehensive,
    open-architecture solution for receiving FFELP and private
    student loan funds, reports and the student loan industry's
    standardized data files. Ntrust provides a single point of
    contact for the college or university's entire electronic
    loan processing needs and provides real-time loan disbursement
    adjustment processing.
53
Ntrust is used by our student loan origination,
    acquisition and portfolio management unit and our student loan
    servicing unit.
•
Ngenius
– the
    origination engine that supports the Nconcert, Ntrust and
    Nteract products. Used internally for our loan origination
    initiatives and those of our customers, it is a table-driven
    origination platform which provides flexibility and scalability.
    The system interacts with multiple guaranty agencies and can
    support an "instant" guarantee. Ngenius is used by our
    student loan origination, acquisition and portfolio management
    unit and our student loan servicing unit.
•
Nservice
– our
    servicing engine for FFELP and private loans. The Nservice
    system is a profile driven system, allowing for easy
    implementation of most regulatory changes and rapid development
    of custom loan programs. Software development is aided by the
    use of high-level application development tools to speed
    delivery of enhancements. The Nservice system provides for
    automated compliance with most Higher Education Act regulations.
    Nservice also facilitates the servicing of FFELP and private
    loans into a single, integrated servicing environment, improving
    service to schools, borrowers and lenders. Nservice is used by
    our student loan servicing unit, and the software is also
    licensed to third-party student loan holders and servicers by
    our servicing software unit.
In addition to the products described above, we
offer a variety of borrower services to assist students and
parents in navigating the financial aid process. These services
include our unique @theU higher education resource, which
provides free information on college planning and financial aid,
paired with a loyalty program to allow members to earn credit
toward reducing the balance of a student loan regardless of
lender or servicer. Another product, Nelnet Notes, provides
online assistance to help borrowers better understand the
financial aid process, as well as broader money management
issues.
Intellectual Property
We own numerous trademarks and service marks to
identify our various products and services, both by words and
logos, or by "design" marks. We currently have
approximately 15 pending and ten registered marks for such
products and services, and we actively assert our rights to
those marks when we believe potential infringement may be
occurring. We believe our marks and logos have developed and
continue to develop strong brand-name recognition in our
industry and the consumer marketplace. We own one patent
application that has been published with respect to a
customer-loyalty program and have also actively asserted our
rights thereunder in situations where we believe our claims may
be infringed upon. We own many copyright-protected works,
including our various computer system codes and displays,
websites, publications and marketing collateral. We also have
trade secret rights to many of our processes and strategies, and
our software product designs.
We seek federal and/or state protection of
intellectual property when deemed appropriate, including patent,
trademark/service mark and copyright. The decision whether to
seek such protection may depend on the perceived value of the
intellectual property, the likelihood of securing protection,
the cost of securing and maintaining that protection and the
potential for infringement. Our employees are trained in the
fundamentals of intellectual property, intellectual property
protection and infringement issues, and are also required to
sign agreements requiring, among other things, confidentiality
of trade secrets, assignment of inventions and non-solicitation
of other employees post-termination. Consultants, suppliers and
other business partners are also required to sign nondisclosure
agreements to protect our proprietary rights.
Seasonality
Origination of student loans is generally subject
to seasonal trends, which correspond to the beginning of each
semester of the school year. Student loans are disbursed as
directed by the school and are usually divided into two or three
equal disbursements released at specified times during the
school year. The two periods of August through October and
December through February account for approximately 73% of our
total annual disbursements. While applications and disbursements
are seasonal, our earnings are generally not tied to this cycle.
Due to our portfolio size, new disbursements or run-off for any
given month will not materially change the net interest earnings
of the portfolio. Consolidation loans are generally made prior
to or immediately after the July 1 reset in a rising or
falling interest rate environment.
54
Customers
We provide student loan servicing either directly
or through our proprietary software to approximately
1.75 million borrowers. We have direct and indirect
relationships with hundreds of colleges and universities across
the nation. We have servicing agreements with 239 customers
and software license agreements with 34 licensees.
Notwithstanding the depth of our customer base, our business is
subject to some vulnerability arising from concentrations of:
loan origination volume with borrowers attending certain
schools; loan origination volume generated by certain branding
partners; loan and guaranty servicing volume generated by
certain loan servicing customers and guarantee agencies; and
software licensing volume generated by certain licensees. Our
ability to maintain strong relationships with significant
schools, branding partners, servicing customers, guaranty
agencies and software licensees is subject to a variety of
risks. Termination of such a strong relationship could result in
a material adverse effect on our business. Losses of
relationships with a significant branding partner such as Union
Bank and Trust Company or a school such as University of Phoenix
or Nova Southeastern University could have a material adverse
effect on us.
Competition
We face competition from many lenders in the
highly competitive student loan industry. Using our size, we
have leveraged economies of scale to gain market share and
compete by offering a full array of FFELP and private loan
products and services. In addition, we differentiate ourselves
from other lenders through our vertical integration, technology
and strong relationships with colleges and universities.
We view SLM Corporation, the parent company of
Sallie Mae, as our largest competitor in loan origination,
holding and servicing. SLM Corporation services nearly half of
all outstanding FFELP loans and is the largest holder of student
loans, with a portfolio of nearly $70 billion. Large
national and regional banks are also strong competition,
although many are involved only in origination. In different
geographic locations across the country, we run into strong
competition from the local tax-exempt student loan secondary
markets. The FDL Program has also reduced the origination volume
available for FFEL Program participants, which in 2002 accounted
for 28% of total volume, although this portion of total volume
has decreased from approximately 33% in 1998. In addition, in
the last few years, low interest rates have attracted many new
competitors to the student loan consolidation business.
Employees
As of June 30, 2003, we had approximately
1,890 employees. Approximately 670 of these employees hold
professional and management positions while 1,220 are in support
and operational positions. None of our employees is covered by
collective bargaining agreements. We are not involved in any
material disputes with any of our employees, and we believe that
relations with our employees are good.
55
Properties
We maintain 14 principal offices in cities
across the United States. We do not own any of our principal
facilities. The following table lists the principal facilities
leased by us.
Lease
Square
expiration
Location
Function
footage
date
Albany, NY
Charter Software Licensing
3,550
September 2004
Boise, ID
IFA Software Licensing
9,993
August 2005
Denver, CO
Loan Servicing, Executive Management, Technology
106,185
February 2008
Fredericksburg, VA
Loan Consolidation
18,000
May 2007
Honolulu, HI
Sales
611
October 2004
Indianapolis, IN
Loan Servicing, Loan Generation
58,770
February 2008
Jacksonville, FL
Loan Servicing, Loan Generation, Technology
116,828
January 2007
Lincoln, NE
Corporate Headquarters, Loan Servicing, Loan
    Generation
94,909
December 2010
Phoenix, AZ
Capital Markets
3,500
N/A
Portland, ME
Loan Generation, Sales
5,211
January 2010
Tempe, AZ
Loan Generation
3,431
March 2004
Tucson, AZ
Loan Generation
426
June 2004
Tulsa, OK
Loan Generation, Sales
2,500
July 2005
Washington, DC
Government Relations, Sales
1,806
May 2005
Litigation
We are subject to various claims, lawsuits and
proceedings that arise in the normal course of business. These
matters principally consist of claims by borrowers disputing the
manner in which their loans have been processed. On the basis of
present information, anticipated insurance coverage and advice
received from counsel, it is the opinion of our management that
the disposition or ultimate determination of these claims,
lawsuits and proceedings will not have a material adverse effect
on our business, financial position or results of operations.
56
MANAGEMENT
Executive Officers and Directors
The following table sets forth our executive
officers and directors, and their ages and positions, as of
August 8, 2003. Except as otherwise indicated, each of the
Executive Directors specified below was appointed to that
position as one of our Executive Directors on August 8,
2003.
Name
Age
Position
Michael S. Dunlap
39
Chairman and Co-Chief Executive Officer
Stephen F. Butterfield
51
Vice Chairman and Co-Chief Executive Officer
Don R. Bouc
56
President and Director
Terry J. Heimes
39
Chief Financial Officer and Executive Director
Hilario J. Arguinchona
59
Executive Director
David A. Bottegal
46
Executive Director and Chief Marketing Officer
Raymond J. Ciarvella
46
Executive Director and Chief Information Officer
Todd M. Eicher
33
Executive Director
Matthew D. Hall
43
Executive Director
Charles Hosea
43
Executive Director
Dennis Leach
49
Executive Director
Edward P. Martinez
49
Executive Director and Secretary
Jeffrey R. Noordhoek
37
Executive Director
Richard H. Pierce
60
Executive Director
Dominic Rotondi
49
Executive Director
Cheryl Watson
42
Executive Director
James P. Abel
52
Director
Thomas E. Henning
50
Director
Lee E. Mikles
47
Director
Arturo Moreno
56
Director
Brian J. O'Connor
47
Director
James H. VanHorn
51
Director
Michael S. Dunlap
Michael S. Dunlap has served as our Chairman and
Co-Chief Executive Officer since August 2003. Mr. Dunlap
previously served as our President and sole Chief Executive
Officer from December 2001 until August 2003. He has been a
member of our Board of Directors since 1989. As Chairman of our
Board of Directors, Mr. Dunlap is responsible for our
overall strategy and direction. From January 1996 to December
2001, Mr. Dunlap served as chairman of Nelnet's
predecessor. In addition, since August 2003, Mr. Dunlap has
been the non-executive chairman of Union Bank and Trust Company
and since January 1995, a director and president of
Farmers & Merchants Investment Inc. (the parent of
Union Bank and Trust Company). Union Bank and Trust Company and
Farmers & Merchants Investment Inc. are affiliates of
Nelnet (see "Certain Transactions"). From January 2001
to August 2003, Mr. Dunlap served as chief executive
officer of Union Bank and Trust Company. From January 1993 to
January 2001, Mr. Dunlap served as executive vice president
of Union Bank and Trust Company. Mr. Dunlap is also a
member of the Nebraska State Bar Association. Mr. Dunlap
received his B.S. degree in Finance and Accounting and his J.D.
degree from the University of Nebraska.
57
Stephen F. Butterfield
Stephen F. Butterfield has served as our Co-Chief
Executive Officer since August 2003, and as our Vice Chairman
since March 2000. He served as vice chairman and a director
of Nelnet's predecessor since January 1996.
Mr. Butterfield is responsible for managing our capital
market relationships and investor relations.
Mr. Butterfield directs our overall management and
direction, including asset purchasing, marketing of corporate
services and coordination of our capital market activities.
Mr. Butterfield has been involved in the student loan
industry since January 1989, first as president of a for-profit
student loan secondary marketing facility located in Scottsdale,
Arizona, and second as president of the Student Loan Acquisition
Authority of Arizona, a non-profit secondary marketing facility
in Scottsdale, Arizona. Prior to his work in the student loan
industry, Mr. Butterfield spent 15 years as an
investment banker, the last four years of which for Boettcher
and Company, specializing in municipal finance.
Mr. Butterfield received his B.S. degree in business
administration from Arizona State University.
Don R. Bouc
Don R. Bouc has served as our President and a
member of our Board of Directors since March 2000. In March
2001, Mr. Bouc became president of Nelnet Corporation, a
subsidiary of Nelnet. From May 1997 through March 2001,
Mr. Bouc served as president of National Education Loan
Network, Inc., a subsidiary of Nelnet. From 1990 to 1997,
Mr. Bouc served as president of Nebraska Higher Education
Loan Program, Inc., or NEBHELP. During his tenure, he assisted
in creating the Education Finance Council and later served as
its chairman. In 1985, Mr. Bouc founded Midwest Computing,
Inc., the developer of EASEL, a servicing and related software
package used by over 50 financial institutions in the
student loan industry. From 1974 to 1985, Mr. Bouc worked
for the University of Nebraska Central Administration Computing
Services network leaving as director of administrative
computing. Mr. Bouc earned an undergraduate degree in math
education in 1969 and an M.S. in computer science in 1974 from
the University of Nebraska-Lincoln. He served on the Board of
Trustees of Lincoln General Hospital from 1996 to 1998, and
currently he serves on the Board of Trustees of Health Lincoln,
of Junior Achievement/Lincoln and for the Nebraska Independent
College Foundation. Mr. Bouc has been appointed by the
Secretary of Education to the Federal Advisory Committee on
Student Financial Assistance.
Terry J. Heimes
Terry J. Heimes has served as our Chief Financial
Officer and as Executive Director in charge of Finance since
March 2001. He is responsible for the coordination of all
financial and accounting functions. Active in our strategic
planning and direction, Mr. Heimes oversees the preparation
and issuance of financial statements, corporate accounting/tax
matters and our asset-backed securitization and warehousing
activities. Mr. Heimes served as our Director from March
2001 until August 2003 and as executive vice president of our
subsidiary National Education Loan Network, Inc., or NELNI, from
March 2001 until October 2002. In October 1998, in connection
with the conversion and acquisition of NEBHELP, Mr. Heimes
became the vice president of finance of National Education Loan
Network, Inc., a subsidiary of Nelnet. Prior to joining NEBHELP,
Mr. Heimes worked for the public accounting firm of KPMG
LLP through 1992 as a manager in the audit department.
Mr. Heimes graduated magna cum laude from the University of
Nebraska-Kearney with a B.S. degree in business administration
with an emphasis in accounting.
Hilario J. Arguinchona
Hilario J. Arguinchona is our Executive Director
in charge of Idaho Financial Associates, Inc., which does
business as IFA Systems. Mr. Arguinchona served as the
executive vice president of NELNI from January 2001 until
October 2002, when he became an executive director of NELNI, and
served as one of our Directors from January 2001 until August
2003. As president of IFA Systems, Mr. Arguinchona is
responsible for the development, maintenance and implementation
of student loan software systems used by us and our clients.
Mr. Arguinchona has been active in the student loan
business since 1978 and was a founding director for both a
guaranty agency and secondary market in Idaho. In 1986, Mr.
Arguinchona
58
started Idaho Financial Associates, Inc. (dba IFA
Systems), a private secondary market for student loans, which
eventually became a company that developed software for use in
the student loan industry. Mr. Arguinchona was a founding
director and serves as chairman of the board of directors of
Syringa Bank in Boise, Idaho. He received his B.S. degree in
business administration from the University of Idaho.
David A. Bottegal
David A. Bottegal is one of our Executive
Directors and our Chief Marketing Officer. Mr. Bottegal served
as a senior vice president of NELNI from September 2001 until he
became an executive director in October 2002, and also served as
one of our Directors from September 2001 until August 2003.
Mr. Bottegal is responsible for Nelnet Marketing Solutions,
our sales division. In addition, Mr. Bottegal assists in
our overall strategic direction as well as fostering our
significant client relationships. Prior to joining us,
Mr. Bottegal spent 18 years with Sallie Mae in various
areas of the company, including vice president of sales and
marketing from 1998 to 2001. Mr. Bottegal received his
M.B.A from Marymount University and his B.A. from Catholic
University in Washington, DC.
Raymond J. Ciarvella
Raymond J. Ciarvella is one of our Executive
Directors and has been our Chief Information Officer since May
2003. Mr. Ciarvella has over 13 years experience with us in
various capacities, serving as one of our Directors from January
1995 until August 2003. As our Chief Information Officer, Mr.
Ciarvella oversees our internal Information Technology areas
along with a number of our subsidiary companies, including
Charter Systems, IFA Systems and Nelnet Canada Inc., and a
number of our affiliates, including 5280 Solutions, Inc. and
FirstMark Services, LLC. As Chief Information Officer, Mr.
Ciarvella is responsible for the information technology and
computer systems that support our enterprise goals. Mr.
Ciarvella is also engaged in other strategic partnerships and
key client initiatives. Mr. Ciarvella served as the chief
operating officer of UNIPAC Service Corporation from September
1993 until March 2000. Prior to joining us, Mr. Ciarvella had
over 11 years of experience with Electronic Data Systems in all
facets of information technology services. Mr. Ciarvella
received a B.S. degree in computer science from Colorado State
University.
Todd M. Eicher
Todd M. Eicher has served as our Executive
Director in charge of Loan Generation since May 2003.
Mr. Eicher oversees and directs School Product Support,
Business Integration and all aspects of our Loan Origination
operations. Mr. Eicher also has responsibility for our
relationship with ELM as the ELM NDN service provider. Prior to
his current role, he served as a senior vice president from July
1997 until May 2003, when he became an Executive Director. Mr.
Eicher received his J.D. degree from the University of Nebraska
College of Law.
Matthew D. Hall
Matthew D. Hall is our Executive Director
responsible for Loan Servicing. Mr. Hall served as one of
our Directors until August 2003 and as a senior vice
president of NELNI until he became an executive director of
NELNI in October 2002. Mr. Hall oversees and directs lender
product support, customer service, customer accounting, process
engineering, conversions, claims and all aspects of school and
repayment loan servicing for our various loan servicing
operations. Prior to his current position, Mr. Hall managed
our loan origination and loan servicing operations. Before
entering operations in 1992, Mr. Hall was employed in our
information systems department and was responsible for the
maintenance and development of our student loan servicing
system. Mr. Hall has ten years of operations management
experience and eight years of experience in information systems,
programming and management within the banking and financial
industries. He earned a bachelor's degree in business
finance from Indiana University.
59
Charles Hosea
Charles Hosea is our Executive Director in charge
of GuaranTec, LLP, our subsidiary, which provides system and
operational support and services to guaranty agencies
participating in the FFEL Program. Mr. Hosea has more than
17 years of education loan experience with various
organizations, including financial institutions, guaranty
agencies and third-party service providers. Mr. Hosea
served as senior vice president of NELNI until October 2002,
when he became an executive director of NELNI. Prior to becoming
president of GuaranTec in 1996, he served as regional vice
president for Electronic Data Systems in Tallahassee, Florida.
Mr. Hosea received his B.S. degree in business
administration from Southeast Missouri State University.
Dennis Leach
Dennis Leach is our Executive Director
responsible for Corporate Planning. This function develops and
maintains strategies for the business units within the
organization. In addition, Corporate Planning assists with key
initiatives that have strategic impact for us. Mr. Leach
served as senior vice president of NELNI until January 2001,
when he became an executive director of NELNI. Prior to that, he
served as vice president of our subsidiary, InTuition Solutions,
Inc., from April 1998 until January 2001. Mr. Leach has
been involved in education financing since 1983. He held a
number of positions within Sallie Mae and had a consulting
practice serving a cross-section of clients in the student loan
industry. Prior to this position, he was responsible for
Nelnet's product development for business and technology
planning with InTuition, and was the president of InTuition
Solutions (prepaid college tuition plan administration).
Mr. Leach has a degree in philosophy and economics from the
University of Northern Iowa.
Edward P. Martinez
Edward P. Martinez is our Executive Director
responsible for Legal, Policy Support, Facilities and
Purchasing. Mr. Martinez joined us in April 1989. Prior to
joining us, Mr. Martinez was general counsel to the Student
Loan Division of the Colorado Department of Higher Education,
was an assistant attorney general with the Colorado Attorney
General's Office and was an associate with the law firm of
Davis Graham & Stubbs LLP in Denver, Colorado.
Mr. Martinez received a J.D. degree from the University of
Colorado School of Law.
Jeffrey R. Noordhoek
Jeffrey R. Noordhoek is our Executive Director in
charge of Capital Markets. Mr. Noordhoek heads up our
Capital Markets area and is responsible for our securitization
and capital markets funding efforts. Mr. Noordhoek served
as senior vice president of NELNI from March 2001 until October
2002, when he became an executive director of NELNI, and served
as a vice president of Nelnet's predecessor prior to that.
Mr. Noordhoek has been in our capital markets area since
1996. Prior to joining us, Mr. Noordhoek served as a senior
associate for State Street Capital Corporation where he assisted
in the establishment of commercial paper conduit financing
vehicles. Mr. Noordhoek received his B.S. degree in
business administration from the University of Nebraska and his
M.B.A. from Boston University.
Richard H.
Pierce
Richard H. Pierce is our Executive Director in
charge of Portfolio Management. Mr. Pierce served as a
Director until August 2003 and as an executive vice president of
NELNI from January 2001 until he became an executive director of
NELNI in October 2002. Mr. Pierce developed the MES
Foundation and has headed that company since its origin in 1983.
He has served in both the Maine House of Representatives and the
Maine Senate, serving as a Senate Majority Leader from
1978-1982. Among his many experiences, Mr. Pierce has
served as the commissioner of the Education Commission of the
State of Maine, on the White House Commission on Presidential
Scholars, as Director of the National Council of Higher
Education Loan Programs and as a member of the review panel for
the Harry S. Truman Scholarship Foundation. Regionally, he
has served on the New England Financial Aid Policy Council, the
60
New England Board of Higher Education and on
several legislative task forces. He was a founding member of the
Education Finance Council and served several terms on its board,
including two years as its chairman. Mr. Pierce served as
one of our Directors from January 2001 until August 2003.
Mr. Pierce received his A.B. degree from Boston University
and a M.S.Ed. from the University of Maine.
Dominic
Rotondi
Dominic Rotondi is our Executive Director in
charge of Charter Account Systems, a subsidiary of Nelnet.
Mr. Rotondi was one of the founders of Charter Account
Systems and serves as president of that company. He has been
involved in eduction finance and data processing for
26 years, including positions at the New England Student
Loan Marketing Association and the New York Higher Eduction
Services Corporation. Mr. Rotondi received a B.S. degree in
management from Rensselaer Polytechnic Institute.
Cheryl
Watson
Cheryl Watson is our Executive Director
responsible for Investor Relations. Ms. Watson served as
one of our Directors from April 2002 until August of 2003 and
served as an executive vice president of NELNI from April 2002
until she became an executive director of NELNI in October 2002.
She also serves as president of EFS, Inc., one of our wholly
owned subsidiaries. In addition, she participates in our
strategic planning and capital markets initiatives. Prior to
joining us, Ms. Watson was employed with Sallie Mae, Inc.
and USA Group Secondary Market Services, Inc. and was vice
president and treasurer of Sallie Mae Servicing, LLP and
president and chief financial officer of USA Group Secondary
Market Services, Inc. She has held financial service positions
in education lending and private industry for over
18 years. She serves on the board of directors for the
Greater Indianapolis Area YMCA and serves as treasurer for the
Riverview Hospital Foundation. Ms. Watson received a B.S.
degree from Indiana University and is a certified public
accountant.
James P. Abel
James P. Abel has served as a member of our Board
of Directors since August 2003. Mr. Abel has served as a
director of our subsidiary, NHELP-I, Inc., from 2000 until
becoming our Director in August 2003. Since 1983, Mr. Abel
has served as president and chief executive officer of NEBCO,
Inc., a company with interests in the manufacture of building
materials, construction, insurance, mining, railroading, farming
and real estate. Mr. Abel serves on the boards of directors
of Ameritas Life Insurance Corp. and Linweld, Inc. He is an
Advisory Board Member for the US Bank Lincoln.
Mr. Abel received a B.S. degree from Arizona State
University.
Thomas E. Henning
Thomas E. Henning has served as a member of our
Board of Directors since August 2003. Mr. Henning has
served as a director of Security Financial Life Insurance
Company since 1987 and as president and chief operating officer
since 1990. Mr. Henning serves as chairman, president and
chief executive officer of Security Mutual Life Nebraska, as
well as its wholly owned subsidiary, Security Financial Life
Insurance Company. Previously, Mr. Henning served as
president and chief operating officer of National Bank of
Commerce of Lincoln, Nebraska and executive vice president of
First Commerce Bancshares between 1985 and 1990.
Mr. Henning is a graduate of the University of Nebraska as
well as Stonier Graduate School of Banking at Rutgers
University. He also has completed the Wharton School's
Effective Management Program. Mr. Henning holds the CLU and
CFA designations. Mr. Henning is a member of the Investment
and Executive Committee and board of the University of Nebraska
Foundation and serves on Lincoln Plating Company's Advisory
Board.
61
Lee E. Mikles
Lee E. Mikles has served as a member of our Board
of Directors since August 2003. Mr. Mikles has served as a
director of our subsidiary, Nelnet Education Loan Funding, Inc.,
since 1998. Mr. Mikles has served since 1992 as chairman of
Mikles/Miller Mgmt., Inc., a registered investment adviser, and
as chairman of Mikles/Miller Securities, L.L.C., a registered
broker-dealer, from 1998 to the present. Formed in 1992,
Mikles/Miller Mgmt., Inc. is the managing general partner of the
Kodiak family of investment funds. The firm manages
approximately $200 million worldwide. Prior to the
formation of Mikles/Miller Mgmt., Inc., Mr. Mikles headed
Mikles/Miller Group, an affiliate of Shearson Lehman Brothers.
Mr. Mikles serves on the boards of directors of Coastcast
Corporation and Boss Holdings, Inc.
Arturo Moreno
Arturo Moreno has served as a member of our Board
of Directors since August 2003. Mr. Moreno served as
president, chief operating officer and director of Outdoor
Systems, Inc. from 1984 until 1999. Under Mr. Moreno's
leadership, Outdoor Systems became the largest outdoor
advertising organization in North America and was the first such
company to go public. In 1999, the company was sold to
Infinity/CBS and in 2000 it merged with Viacom. In June of 2003,
Mr. Moreno purchased the Anaheim Angels Professional
Baseball Team and currently serves as its president. As founder
of The Moreno Family Foundation, he is deeply involved with
issues related to children and education. Mr. Moreno
received his B.S. degree in marketing from the University of
Arizona in 1973.
Brian J. O'Connor
Brian J. O'Connor has served as a member of
our Board of Directors since August 2003. Mr. O'Connor
has served as a director of our subsidiaries, Nelnet Education
Loan Funding, Inc., since 1998 and Nelnet Private Student Loan
Corporation-I, since 2001. Since 1997, Mr. O'Connor
has held the position of senior vice president at Hutchinson,
Shockey, Erley & Co., which underwrites and trades
securities for various local governments in Arizona and the
western United States. From 1990 to 1997, he was a senior vice
president with Alden Capital Markets, Inc.; from 1988 to 1990,
he served as senior vice president with Capital Markets
Corporation; from 1987 to 1988, he was a vice president for
Security Pacific Merchant Bank in Phoenix; and from 1983 to
1987, Mr. O'Connor was with Boettcher & Company,
Inc., a regional investment banking firm specializing in
municipal finance. In addition, Mr. O'Connor served as
a member of the board of directors and audit committee of
Outdoor Systems, Inc. from 1992 to 1999.
James H. VanHorn
James H. VanHorn has served as a member of our
Board of Directors since March 2001. Mr. VanHorn is the
former Executive Director of Loan Generation, which provides
fee-based lender servicing and educational support services to
government and private entities. Mr. VanHorn served as our
Senior Vice President from March 2000 until October 2002, when
he became our Executive Director. Mr. VanHorn left his
position as Executive Director in June 2003 and thereafter has
served as president and chief executive officer of InTuition
Development Holdings, LLC, which is not affiliated with Nelnet.
Mr. VanHorn has more than 28 years of operational
experience with Bethlehem Steel, Astro Metallurgical, InTuition,
Inc. and Nelnet. Prior to our acquisition of InTuition, Inc., he
joined InTuition in 1994, became president in 1998 and continued
serving as president of InTuition, Inc. until June 2003. Before
serving as president of InTuition, Inc., Mr. VanHorn served
as vice president of operations at Astro Metallurgical in
Wooster, Ohio. He earned his M.B.A. at Jacksonville University
and his B.S.C.E. at Valparaiso University.
62
Board Composition
Our board of directors is composed of a majority
of independent directors as defined by the rules of the New York
Stock Exchange.
Board Committees
Our board of directors has established an audit
committee, a compensation committee, an executive committee and
a nominating and corporate governance committee. Each committee,
other than the executive committee, is composed entirely of
independent directors.
Our audit committee is composed of
Messrs. Henning, Mikles and O'Connor. The audit
committee provides assistance to our board of directors in its
oversight of the integrity of our financial statements, the
qualifications and independence of our independent auditors, the
performance of our internal audit functions, the procedures
undertaken by the independent auditors and our compliance with
other regulatory and legal requirements. Our audit committee
operates pursuant to a formal written charter.
Our compensation committee is composed of
Messrs. Abel, Mikles and Moreno. The compensation committee
oversees our compensation and benefit policies. Our compensation
policies are designed with the goal of maximizing shareholder
value over the long term. The compensation committee believes
that this goal is best realized by utilizing a compensation
program which serves to attract and retain superior executive
talent by providing management with performance-based incentives
and closely aligning the financial interests of management with
those of our shareholders. Our compensation program combines two
components: base salary and annual bonus. The level of
compensation is based on numerous factors, including achievement
of results and financial objectives established by our
compensation committee and our board of directors. Salary and
bonus compensation awards are reviewed regularly for
competitiveness and are determined in large part by reference to
compensation levels for comparable positions at comparable
companies.
Our nominating and corporate governance committee
is composed
of                               .
The nominating and corporate governance committee is responsible
for identifying and recommending qualified nominees to serve on
our board of directors as well as developing and overseeing our
internal corporate governance processes.
Compensation Committee Interlocks and Insider
Participation
No member of our compensation committee serves or
in the past has served as a member of another entity's
board of directors or compensation committee, which entity has
one or more executive officers serving as a member of our board
of directors or compensation committee.
Compensation of Directors
Our independent directors receive an annual
retainer of $50,000. We also pay an additional annual retainer
of $10,000 to those independent directors who serve on the audit
committee, the compensation committee, the executive committee
or the nominating and corporate governance committee, as
applicable. Independent directors also earn a fee of $1,000 for
each board meeting attended and $1,000 for each committee
meeting attended. Our directors, other than our independent
directors, do not receive any consideration for participation in
board meetings or committee meetings.
We have adopted a share-based compensation plan
for nonemployee directors pursuant to which our nonemployee
directors will have an election to receive their annual retainer
fees in the form of cash or our
63
Class A common stock. Up
to                     shares
may be issued under the plan. If a nonemployee director elects
to receive Class A common stock, the number of shares of
Class A common stock that will be awarded will be equal to
the amount of the annual retainer fee otherwise payable in cash
divided by 85% of the fair market value of a share of
Class A common stock on the date the fee is payable.
Nonemployee directors who choose to receive Class A common
stock may also elect to defer receipt of the Class A common
stock until termination of their service on our board of
directors. Any dividends paid in respect of deferred shares
during the deferral period will also be deferred in the form of
additional shares and paid out at termination from our board of
directors. The plan may be amended or terminated by our board of
directors at any time, but no amendment or termination will
adversely affect a nonemployee director's rights with
respect to previously deferred shares without the consent of the
nonemployee director.
Agreements with Employees
In May 2001, Richard H. Pierce, our Executive
Director in charge of Portfolio Management, entered into an
employment agreement with one of our subsidiaries, Nelnet
Corporation. The agreement extends until April 2006, after which
it shall renew for successive one-year terms unless terminated
earlier by Nelnet Corporation or Mr. Pierce upon the
occurrence of certain events or upon 90 days' notice
from either party prior to the end of the initial term or any
renewal term. Mr. Pierce received a base salary of $382,000
in 2001, which amount gradually decreases until it reaches
$300,000 in 2006. In addition, Mr. Pierce is entitled to
receive an annual bonus tied to our pretax earnings, which shall
not exceed $700,000. Nelnet Corporation shall continue to pay
Mr. Pierce's base salary and a pro-rated portion of
the bonus he would have received during the year his employment
terminates, if Nelnet Corporation terminates the agreement
without cause or if Mr. Pierce resigns from his position
with good reason, in each case as defined in the employment
agreement. The agreement also prohibits Mr. Pierce from
having any business-related contact with competitors, customers
or service providers of Nelnet Corporation or any of its
affiliates so long as Mr. Pierce continues to receive
compensation payments from Nelnet Corporation.
We have not entered into employment agreements
with any of our other named executive officers.
Executive Compensation
The following table sets forth summary
information relating to compensation paid for services rendered
for our fiscal year ended December 31, 2002, with respect
to the compensation paid and bonuses granted to our Co-Chief
Executive Officers as well as each of our other five most highly
compensated executive officers, each of whose aggregate
compensation during the last fiscal year was greater than
$100,000. Messrs. Dunlap's and Butterfield's
annual salaries, effective August 1, 2003, are $1,000,000
each, and Mr. Bouc's annual salary, effective
August 1, 2003, which will be payable by us, is $350,000.
In addition, they are each entitled to receive bonus
compensation as described below under
"— Executive Officers Bonus Plan." Further,
in the third quarter of 2003, Mr. Heimes will receive a
bonus of $408,000 in connection with the termination of our
consulting agreement with Great Plains Financial, LLC, which is
described under "Certain Transactions —
Transactions with Miscellaneous Related Parties," and
Mr. Ciarvella will receive a bonus of $897,000 in
connection with the termination of his employment
64
agreement. Salaries and bonuses are paid at the
discretion of our board of directors. For purposes of this
prospectus, we will refer to the executive officers named in the
table below as the named executive officers.
Summary Compensation Table
Annual compensation(a)
All other
compensation
Name and principal position
Year
Salary ($)
Bonus ($)(b)
($)(c)
Michael S. Dunlap
2002
450,000
675,198
2,642
Co-Chief Executive Officer
Stephen F. Butterfield
2002
450,000
675,198
2,642
Co-Chief Executive Officer
Don R. Bouc
2002
700,000
(d)
—
1,830
President
Terry J. Heimes
2002
179,167
150,000
5,232
Chief Financial Officer
David A. Bottegal
2002
179,167
150,000
5,307
Executive Director and Chief Marketing Officer
Raymond J. Ciarvella
2002
240,000
510,000
6,076
Executive Director and Chief Information Officer
Richard H. Pierce
2002
380,000
700,000
6,100
Executive Director
(a)
Executive officers may receive perquisites and
    personal benefits, the dollar amounts of which are below current
    Securities and Exchange Commission thresholds for reporting
    requirements.
(b)
Amounts represent bonuses paid in 2003 for
    services rendered during the 2002 calendar year.
(c)
Amounts represent matching contributions under
    our 401(k) plan in the following amounts: Mr. Dunlap
    $2,450, Mr. Butterfield $2,450, Mr. Bouc $1,710,
    Mr. Heimes $4,872, Mr. Bottegal $4,947,
    Mr. Ciarvella $5,500 and Mr. Pierce $5,500; and
    premiums on life insurance in the following amounts:
    Mr. Dunlap $192, Mr. Butterfield $192, Mr. Bouc
    $120, Mr. Heimes $360, Mr. Bottegal $360,
    Mr. Ciarvella $576 and Mr. Pierce $600.
(d)
$650,000 of Mr. Bouc's salary was paid
    by Great Plains Financial, LLC, which had a consulting
    arrangement with Nelnet. See "Certain Transactions —
    Transactions with Miscellaneous Related Parties" for a
    description of the consulting arrangement.
Options/SARs/Restricted Stock/LTIPs
We do not have any stock option, SAR, restricted
stock or other long-term incentive plans, and we have not issued
any stock options, SARs or restricted shares.
Employee Share Purchase Plan
Our board of directors has adopted an employee
share purchase plan pursuant to which our employees and
employees of our designated subsidiaries will be entitled to
purchase our Class A common stock. The employee share
purchase plan is intended to enhance our ability to attract and
retain employees and to better enable such persons to
participate in our long-term success and growth.
The employee share purchase plan will be
administered by our compensation committee. Subject to the
express provisions of the employee share purchase plan, our
compensation committee has the power to determine the terms and
conditions of each offering of shares to employees under the
plan, and it has the authority to adopt and revise rules
governing the plan and to interpret the terms and provisions of
the plan.
A total
of                    shares
of our Class A common stock are reserved for issuance under
the employee share purchase plan, subject to equitable
adjustment by the compensation committee in the event of stock
dividends, recapitalizations and other similar corporate events.
All of our employees and those employees of our participating
subsidiaries, other than those whose customary employment is
20 hours or less per week, who have been employed for at
least six months, or another period determined by our
compensation
65
committee not in excess of two years, will be
eligible to purchase Class A common stock under the plan.
The participating subsidiaries will be those designated by the
compensation committee to participate in the employee share
purchase plan.
The plan is designed to qualify as an
"employee stock purchase plan" under Section 423
of the Code. The plan will allow participating employees to
purchase our Class A common stock through payroll
withholding. The plan provides for consecutive six-month
offering periods (or other periods of not more than
27 months, as determined by our compensation committee)
under which participating employees can elect to have amounts
withheld from their total compensation during the offering
period and applied to purchase our Class A common stock at
the end of the period. Unless otherwise determined by our
compensation committee before an offering period, the purchase
price will be the lesser of 85% of the fair market value of our
Class A common stock at the beginning or end of the
offering period. Applicable Code limitations specify, in
general, that a participant's right to purchase stock under
the plan cannot accrue at a rate in excess of $25,000 (based on
the value at the beginning of the applicable offering periods)
per calendar year.
The employee share purchase plan will terminate
when all shares authorized to be issued under it have been
exhausted. Our board of directors may discontinue the employee
share purchase plan at any time and may amend it from time to
time.
Executive Officers Bonus Plan
Our board of directors has adopted, and we will
maintain, an executive officers bonus plan pursuant to which our
Co-Chief Executive Officers and President will be entitled to
receive annual bonus compensation based upon our consolidated
net income before taxes. The purpose of the executive officers
bonus plan is to provide our Co-Chief Executive Officers and
President with an opportunity to earn annual bonus compensation
as an incentive and reward for their leadership, ability and
exceptional services. The executive officers bonus plan will be
administered by our compensation committee.
Our Co-Chief Executive Officers and President
will each be entitled to receive an annual bonus equal to 0.85%
of our consolidated net income before taxes, computed in
accordance with generally accepted accounting principles. Our
President's annual bonus may not exceed $500,000. Annual
bonuses payable under the plan will be paid in cash after the
end of each calendar year.
Our board of directors may terminate the
executive officers bonus plan and may amend it from time to
time, but no termination or amendment will adversely affect the
rights of an executive to a previously earned but unpaid bonus.
66
PRINCIPAL SHAREHOLDERS
The following table sets forth information
regarding the beneficial ownership of each class of our common
stock immediately before and after the sale
of                     shares
of our Class A common stock in this offering by:
•
each person, entity or group known by us to
    beneficially own more than five percent of the outstanding
    shares of any class our common stock;
•
each of the named executive officers;
•
each of our directors; and
•
all of our executive officers and directors as a
    group.
Beneficial ownership is determined in accordance
with the rules and regulations of the Securities and Exchange
Commission. Under these rules, a person is deemed to
beneficially own a share of our common stock if that person has
or shares voting power or investment power with respect to that
share, or has the right to acquire beneficial ownership of that
share within 60 days, including through the exercise of any
option, warrant or other right or the conversion of any other
security.
The number of shares of Class B common stock
for each person in the tables below assumes such persons do not
convert any Class B common stock into Class A common
stock. Unless otherwise indicated in a footnote, the address of
each five percent beneficial owner is c/o Nelnet, Inc.,
121 South 13th Street, Suite 201, Lincoln,
Nebraska 68508. As of the date of this prospectus, Nelnet
had                     holders
of record of its Class A common stock and four holders of
record of its Class B common stock. Unless otherwise
indicated in a footnote, the persons named in the tables below
have sole voting and investment power with respect to all shares
of common stock shown as being beneficially owned by them.
Beneficial Ownership Before This
Offering
Percentage of
Percentage of shares
combined
Number of shares beneficially owned
beneficially owned(1)
voting power
of all classes
Name
Class A
Class B
Total
Class A
Class B
Total
of stock(2)
Michael S. Dunlap
11,911,021
(3)
9,230,204
(4)
21,141,225
38.4
%
65.8
%
46.9
%
60.9
%
Stephen F. Butterfield
—
6,379,941
(5)
6,379,941
—
45.5
%
14.2
%
37.3
%
Angie Mulheisen
15,570,416
(6)
—
15,570,416
50.2
%
—
34.6
%
9.1
%
Packers Service Group, Inc.(7)
11,068,604
—
11,068,604
35.7
%
—
24.6
%
6.5
%
Don R. Bouc(8)
2,271,990
—
2,271,990
7.3
%
—
5.0
%
1.3
%
Marphy Butterfield(9)
1,680,000
—
1,680,000
5.4
%
—
3.7
%
*
Terry J. Heimes
218,190
—
218,190
*
—
*
*
Hilario J. Arguinchona
522,900
—
522,900
1.7
%
—
1.2
%
*
David A. Bottegal
449,610
—
449,610
1.4
%
—
1.0
%
*
Raymond J. Ciarvella
349,104
—
349,104
1.1
%
—
*
*
Todd M. Eicher(10)
402,301
—
402,301
1.3
%
—
*
*
Matthew D. Hall
204,901
—
204,901
*
—
*
*
Charles Hosea
115,080
—
115,080
*
—
*
*
Dennis Leach
21,000
—
21,000
*
—
*
*
Edward P. Martinez
92,131
—
92,131
*
—
*
*
Jeffrey R. Noordhoek
1,050,000
—
1,050,000
3.4
%
—
2.3
%
*
Richard H. Pierce
460,740
—
460,740
1.5
%
—
1.0
%
*
Dominic Rotondi
12,600
—
12,600
*
—
*
*
67
Percentage of
Percentage of shares
combined
Number of shares beneficially owned
beneficially owned(1)
voting power
of all classes
Name
Class A
Class B
Total
Class A
Class B
Total
of stock(2)
Cheryl Watson
69,999
—
69,999
*
—
*
*
James P. Abel
—
—
—
—
—
—
—
Thomas E. Henning
—
—
—
—
—
—
—
Lee E. Mikles
—
—
—
—
—
—
—
Arturo Moreno
—
—
—
—
—
—
—
Brian J. O'Connor
—
—
—
—
—
—
—
James H. VanHorn
115,080
—
115,080
*
—
*
*
Executive officers and directors as a group
    (22 persons)
18,266,647
14,023,454
32,290,101
58.9%
100.0
%
71.7%
92.6%
Beneficial Ownership After This
Offering
Percentage of
Percentage of shares
combined
Number of shares beneficially owned
beneficially owned(1)
voting power
of all classes
Name
Class A
Class B
Total
Class A
Class B
Total
of stock(2)
Michael S. Dunlap
11,911,021
(3)
9,230,204
(4)
21,141,225
Stephen F. Butterfield
—
6,379,941
(5)
6,379,941
Angie Mulheisen
15,570,416
(6)
—
15,570,416
Packers Service Group(7)
11,068,604
—
11,068,604
Don R. Bouc(8)
2,271,990
—
2,271,990
Marphy Butterfield(9)
1,680,000
—
1,680,000
Terry J. Heimes
218,190
—
218,190
Hilario J. Arguinchona
522,900
—
522,900
David A. Bottegal
449,610
—
449,610
Raymond J. Ciarvella
349,104
—
349,104
Todd M. Eicher(10)
402,301
—
402,301
Matthew R. Hall
204,901
—
204,901
Charles Hosea
115,080
—
115,080
Dennis Leach
21,000
—
21,000
Edward P. Martinez
92,131
—
92,131
Jeffrey R. Noordhoek
1,050,000
—
1,050,000
Richard H. Pierce
460,740
—
460,740
Dominic Rotondi
12,600
—
12,600
Cheryl Watson
69,999
—
69,999
James P. Abel
—
—
—
Thomas E. Henning
—
—
—
Lee E. Mikles
—
—
—
Arturo Moreno
—
—
—
Brian J. O'Connor
—
—
—
James H. VanHorn
115,080
—
115,080
Executive officers and directors as a group
    (22 persons)
18,266,647
14,023,454
32,290,101
*
Less than 1%.
(1)
Based on:
•
31,015,034 shares of Class A common stock
    and 14,023,454 shares of Class B common stock
    outstanding after giving effect to our recapitalization but
    immediately before this offering; and
68
•
shares
    of Class A common stock and 14,023,454 shares of
    Class B common stock outstanding immediately after the sale
    of shares of our Class A common stock in this offering.
(2)
These percentages reflect the different voting
    rights of our Class A common stock and our Class B
    common stock. Each share of Class A common stock has one
    vote and each share of Class B common stock has ten votes
    on all matters to be voted upon by our shareholders.
(3)
Consists of shares owned by entities which
    Mr. Dunlap may be deemed to control, consisting of:
    11,068,604 shares owned by Packers Service Group, of which
    Mr. Dunlap is a director and president and owns 28.3% of
    the outstanding capital stock, and 842,417 shares owned by Union
    Bank and Trust Company as Trustee for the University of Nebraska
    Foundation. Mr. Dunlap is non-executive chairman of and
    controls Union Bank and Trust Company through Farmers &
    Merchants Investment Inc., of which Mr. Dunlap is president
    and owns or controls 38.4% of the outstanding voting stock.
    Mr. Dunlap disclaims beneficial ownership of the shares
    held by Union Bank and Trust Company as Trustee for the
    University of Nebraska Foundation. He also disclaims beneficial
    ownership of the shares held by Packers Service Group, except to
    the extent of his pecuniary interest therein.
(4)
Includes 1,701,000 shares owned by
    Mr. Dunlap's spouse and 1,586,691 shares owned by
    Union Financial Services, Inc., of which Mr. Dunlap is
    chairman and owns 50.0% of the outstanding capital stock.
    Mr. Dunlap disclaims beneficial ownership of the shares
    held by Union Financial Services, Inc., except to the extent of
    his pecuniary interest therein.
(5)
Includes 1,586,691 shares owned by Union
    Financial Services, Inc., of which Mr. Butterfield is a
    director and president and owns 50.0% of the outstanding capital
    stock. Mr. Butterfield disclaims beneficial ownership of
    the shares held by Union Financial Services, Inc., except to the
    extent of his pecuniary interest therein.
(6)
Includes 88,864 shares jointly owned by
    Ms. Mulheisen and her spouse, 1,701,000 shares owned
    by her spouse and 11,911,021 shares that are owned by
    entities that Ms. Mulheisen may be deemed to control,
    consisting of: 11,068,604 shares owned by Packers Service Group,
    of which Ms. Mulheisen is a director and owns or controls
    27.0% of the outstanding capital stock, and 842,417 shares owned
    by Union Bank and Trust Company as Trustee for the University of
    Nebraska Foundation. Ms. Mulheisen, the sister of Michael
    S. Dunlap, is a director and president of and controls Union
    Bank and Trust Company through Farmers & Merchants
    Investment Inc., of which Ms. Mulheisen is a director and
    executive vice president and owns or controls 35.9% of the
    outstanding capital stock. Ms. Mulheisen disclaims
    beneficial ownership of the shares held by Union Bank and Trust
    Company as Trustee for the University of Nebraska Foundation.
    She also disclaims beneficial ownership of the shares held by
    Packers Service Group, except to the extent of her pecuniary
    interest therein.
(7)
The address for Packers Service Group is
    c/o Farmers & Merchants Investment Inc.,
    Attention: Michael S. Dunlap, 6801 South 27th Street,
    Lincoln, NE 68512.
(8)
Includes 1,371,930 shares owned by Great
    Plains Financial, LLC, a limited liability company of which
    Mr. Bouc is the sole member.
(9)
The address for Ms. Butterfield is
    7001 N. Tatum Boulevard, Paradise Valley, AZ 85253.
(10)
Includes 310,170 shares owned by The Judy
    Eicher & Todd Eicher Partnership, of which
    Mr. Eicher is a general partner.
69
CERTAIN TRANSACTIONS
Some of our directors and members of our
management beneficially own shares of stock or other ownership
interests in other entities with which we do business and, in
some cases, they serve on the board of directors and/or as
executive officers of one or more of such entities. These
entities include Union Bank and Trust Company, or Union Bank,
Packers Service Group, Inc., or Packers Service Group, Farmers
& Merchants Investment Inc., or Farmers & Merchants,
Union Financial Services, Inc., or Union Financial, and Great
Plains Financial, LLC, or Great Plains. Prior to the date of
this prospectus, the directors and members of management
referenced above resigned from all executive officer positions
they held with these entities, except for Michael S. Dunlap, who
remains president of Packers Service Group and Farmers &
Merchants, and Stephen F. Butterfield, who remains president of
Union Financial. Mr. Dunlap is the non-executive chairman
of and controls Union Bank, through Farmers &
Merchants, of which Mr. Dunlap owns 38.4% of the
outstanding voting stock. Mr. Dunlap also owns 28.3% of the
outstanding capital stock of Packers Service Group.
Messrs. Dunlap and Butterfield each owns 50% of the
outstanding capital stock of Union Financial. For a detailed
description of the relationships between management and the
entities with which we transact business, see
"Management" and "Principal Shareholders."
Going forward, our independent directors will be
responsible for reviewing and approving all new transactions,
and any material amendments or modifications to existing
transactions, between Nelnet and Union Bank or any other
affiliated party.
Transactions with Union Bank
We have entered into a series of agreements with
Union Bank, including transactions to sell interests in student
loans to Union Bank in its capacity as trustee, to purchase
student loans from Union Bank, to provide student loan servicing
to Union Bank, to sublease real estate from Union Bank and to
provide consulting services to and receive consulting services
from Union Bank. Union Bank is a major source of student loan
origination and sales volume for us, and these purchases were
accomplished through a series of free standing loan purchase
agreements until 1997. In June 1997, Union Bank entered into a
commitment to sell to us rights with respect to future
originations of guaranteed student loans which exceed the annual
aggregate amount of $120 million; however, Union Bank holds
an option to retain 25% of its originations in excess of
$240 million in a given year and to retain the rights to
any of the remaining 75% of originations in excess of
$240 million by paying to us an amount equal to the amount
by which the fair market value of such originations exceeds the
principal balance. We pay Union Bank a purchase price equal to
100% of the outstanding principal balance and accrued and unpaid
interest on the loans purchased pursuant to this agreement, and
we also reimburse Union Bank for origination fees required to be
paid to the DOE (50 basis points of the principal balance) and
for origination costs (initially $6.00 per purchased loan, which
amount subsequentially increased to $25.00 per purchased
loan). We also paid to Union Bank a one-time amount of
$3.5 million in 1997 to acquire these origination rights.
We granted to Union Bank an option to sell us up to
$120 million of federally guaranteed student loans per year
at the same purchase price described above. During 2002, Nelnet
paid to Union Bank an aggregate sum of approximately
$6.4 million plus the outstanding balances of loans
purchased from Union Bank pursuant to this agreement and related
purchases. We purchased an aggregate of approximately
$378 million of student loans from Union Bank in 2002
pursuant to this agreement and related loan purchase agreements.
This agreement renews automatically for successive one-year
terms unless both parties mutually agree to terminate it.
Effective January 1999, we entered into an
agreement with Union Bank to reimburse certain of Union
Bank's student loan-related marketing expenses arising from
Union Bank engaging in its ordinary student loan marketing
activities. Union Bank agreed to bear the first $240,000 of
annual marketing costs incurred by it. In April 2001, as a
part of an amendment to this agreement, we agreed to assume the
bulk of marketing responsibilities for Union Bank and to hire
Union Bank's marketing personnel if Union Bank decided to
reduce its marketing personnel commitment. The amendment
adjusted the marketing expense sharing arrangement to more
closely approximate a prorated portion of the costs associated
with the volume of loans we acquire from Union Bank. During
2002, we received from Union Bank marketing expenses in the net
amount of approximately $519,000. This marketing expense
reimbursement agreement
70
is coterminous with the student loan origination
transfer agreement described in the preceding paragraph. As
consideration for our assumption of the costs with respect to
Union Bank's marketing employees, Union Bank granted us
rights to hire its marketing personnel, transferred servicing
and origination software to us and increased the origination fee
paid to us from $6.00 per loan to $25.00 per loan. The $25.00
origination fee that Union Bank agreed to pay to us for
originating Union Bank's student loans is reimbursed to
Union Bank when we acquire those loans from Union Bank pursuant
to the agreement described in the preceding paragraph. Our
obligation to share Union Bank's marketing expenses is
indirectly related to the volume of originations resulting from
such marketing efforts.
In 1999, we entered into a 360-day commitment
with Union Bank to purchase its federally guaranteed student
loans, in which Union Bank retained rights pursuant to the
agreement above at par. This purchase commitment has been
renewed annually for successive terms after its inception. The
commitment has grown into an obligation to purchase an aggregate
amount of up to $1.25 billion of student loans from Union
Bank. The consideration we received is Union Bank's
obligation to sell us $37.5 million of student loans per
year at a premium of 1.5% above par. In accordance with the
terms of this agreement, in 2002, Union Bank sold us student
loans with an aggregate outstanding balance of approximately
$37.5 million, which was included in the $378 million
aggregate sale figure referenced above. Union Bank has also
granted us a right to purchase student loans it may wish to sell
to third parties and, if such right is exercised, the purchase
price will be 101.5% of outstanding principal and 100% of
accrued interest. Such rights to purchase are applicable to
loans in which Union Bank retains origination rights (the first
$120 million per year originated and 25% of the
originations in excess of $240 million per year). This
purchase commitment agreement is terminable by either party by
the giving of notice of termination at least 90 days prior
to the end of the then current 360-day term.
Pursuant to a June 2001 agreement, Union
Bank, in its capacity as trustee for various grantor trusts,
agreed to purchase from us up to $750 million of
participation interests in student loans. We retain a portion of
the interest earned from the participated loans at a rate equal
to the difference between the borrower's interest rate on
the loans and the 90-day commercial paper rate plus 30 basis
points. However, we also must continue to pay the servicing
costs with respect to such participated loans. We sold to Union
Bank, as trustee, participation interests with balances of
approximately $149 million as of December 31, 2002. We
have the option to purchase the participation interests from
these grantor trusts at the end of a 364-day term upon
termination of the participation certificate. The agreement
automatically renews for additional 364-day terms unless either
party gives notice to terminate. The agreement is also
terminable by either party upon five business days' notice.
This agreement provides beneficiaries of Union Bank's
grantor trusts with access to investments in interests in
student loans, while providing liquidity to us on a short-term
basis.
We have serviced loans for Union Bank since 1978,
and, pursuant to a servicing agreement dated January 1,
1998, as amended, we charge a standard origination and servicing
fee at a level substantially commensurate to those charged to
the majority (in terms of volume of loans serviced) of our
non-affiliated servicing clients. Those fees are as follows:
$1.67 per Stafford or PLUS loan per month in school; $2.92 per
Stafford or PLUS loan per month other than in school; $2.89 per
loan per month for consolidation loans; and $25.00 per loan
origination fee. Union Bank paid us fees pursuant to this
servicing agreement aggregating approximately $5.5 million
in 2002. Our accounts receivable as of December 31, 2002
included approximately $371,000 for loan servicing fees due from
Union Bank. The servicing agreement is for a month-to-month
term, subject to a removal fee of $13.32 per loan and a
deconversion fee of $10.66 per loan. The agreement may be
terminated in the event of a material uncured breach by us.
Beginning in May 2001, we subleased 4,124
square feet of office space from Union Bank at a price of $8.50
per square foot and 320 square feet of storage space for
$3.00 per square foot. These terms are the same rental terms as
are charged to Union Bank by the non-affiliated landlord. During
2002, we made rent payments to Union Bank of approximately
$36,000. This sublease agreement is coterminous with the master
lease between Union Bank and the non-affiliated landlord.
Starting in June 2001, we obtained the right to
acquire from Union Bank 100% of the participation interests in
an unspecified volume of private loans which comply with our
internal underwriting criteria (as
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modified from time to time). On these
participations, we earn 100% of the borrower interest rate, less
servicing costs thereon in an amount equal to 1% per annum of
the aggregate average outstanding principal balances of such
participations. The parties mutually agree upon the volume of
such participations from time to time. In 2002, we did not
purchase any participation interests in private loans pursuant
to this agreement. The agreement is subject to termination upon
30 days' notice by either party.
In December 2000, we entered into an agreement to
assist Union Bank in marketing and providing program operations
related to the Nebraska College Savings Plan, or the College
Savings Plan, a plan under Section 529 of the Code. Union
Bank has agreed to pay us fees in an amount equal to 50% of the
net profits, if any, associated with Union Bank's program
management agreement with the College Savings Plan. Union Bank
is entitled to a fee as program manager pursuant to its program
management agreement with the College Savings Plan and is not
entitled to other payments pursuant to that agreement. We have
agreed to share 50% of the expenses relating to the program, up
to a capped amount of $1.25 million over the life of the
agreement, as well as 50% of mutually agreeable costs related to
the program operations, if any, which exceed the aggregate of
$1.25 million. In 2002, we incurred a net expense of
approximately $219,000 arising from this agreement. This
consulting and services agreement terminates when Union
Bank's program manager agreement with the College Savings
Plan terminates, in approximately eight years.
Since October 1998, we have invested in student
loans from time to time by establishing several grantor trusts
with Union Bank as trustee for Union Bank's Short Term
Federal Investment Trust. As a grantor, we place cash into the
trust account, and Union Bank uses such cash to acquire
interests in student loans on our behalf. We earn the yield on
the student loans purchased by the trust and pay to Union Bank a
trustee fee in an amount ranging from 75 basis points to 375
basis points per annum of amounts invested, depending upon the
type of investment asset being acquired in the trust account. We
invested approximately $12.9 million in these trusts as of
December 31, 2002. Union Bank has created almost 1,000
similar Short Term Federal Investment Trusts with non-affiliated
trust beneficiaries, and the fees and terms applicable to the
trust agreements it has entered into with us are the same as the
fees charged by Union Bank to the majority (in terms of assets)
of non-affiliated persons. As trustee, Union Bank has agreed to
return our funds invested in these trusts or assets held on our
behalf in these trusts upon 30 days' notice from us at
any time and thus terminate the trusts. We utilize these trust
arrangements as a short-term investment facility.
In January 2001, we, Union Bank and UFS
Securities, L.L.C., or UFS Securities (which was then controlled
by Michael S. Dunlap and Stephen F. Butterfield, but which we
subsequently have acquired), entered into an employee sharing
arrangement with respect to a small group of employees. The
arrangement requires each counterparty receiving services from
any such employee to pay for the share of the employee's
salary and payroll equal to the approximate percentage of such
employee's time devoted to such recipient. This agreement
renews automatically for one-year terms unless the parties
mutually agree not to renew.
We have retained Union Bank to administer our
401(k) profit sharing and related employee benefit plans
pursuant to a series of agreements, the most recent of which was
entered into in April 2003. The fees charged by Union Bank are
commensurate with those Union Bank charges to other employee
benefit customers. We paid Union Bank the sum of approximately
$92,000 in 2002 for these services, based upon fees ranging
between 0.25% and 0.125% of the plan assets, plus a
recordkeeping fee, depending upon the aggregate of plan assets.
This agreement may be terminated upon 60 days' notice
from either party, but we must pay liquidated damages if we
terminate prior to April 2004.
Transactions with Farmers & Merchants and
    Its Related Parties
In August 2001, we provided to The First
Marblehead Corporation, or First Marblehead, and each special
purpose entity, or SPE, named in the agreement a guarantee of
liabilities of First National Bank Northeast, or First National,
pursuant to indemnity covenants given by First National to First
Marblehead with respect to a sale of loans from First National
to First Marblehead. Our liability under such guarantee
72
is limited to an aggregate amount of
$10 million, plus costs incurred by First Marblehead with
respect to recovery efforts. In consideration for such
guarantee, First Marblehead agreed to pay or cause a SPE to pay
us the sum of 1% of the outstanding balance of private loans
sold by First National to First Marblehead. This guarantee
remains in effect until First Marblehead and the SPEs receive
written notice from us to discontinue the guarantee or until all
obligations of First National pursuant to its indemnity of First
Marblehead are paid in full. We earned nothing in 2002 from this
agreement and have not paid out any sums pursuant to the
indemnity covenants thereunder. Michael S. Dunlap is a director
of First National, and Farmers & Merchants owns, indirectly,
approximately 25% of the outstanding capital stock of that
financial institution.
In September 2000, we engaged Farmers &
Merchants, one of our shareholders at the time, as well as the
holding company of Union Bank, to provide consulting services
with respect to financial matters, merger and acquisition
activities, student loan marketing and legislative support and
other advisory matters. In 2002, we paid consulting fees in the
amount of approximately $1.4 million to Farmers &
Merchants and an additional $1 million to Packers Service
Group, as assignee of Farmers & Merchants. This
agreement was terminated in June 2002.
We obtained an unsecured operating line of credit
from Farmers & Merchants in November 2001. The interest rate
we were charged was equal to 165 basis points above 30-day
LIBOR, which was the same cost to Farmers & Merchants from a
third-party credit provider at the time to cover Farmers &
Merchants' lending commitment. The commitment amount under
this line of credit was $30 million, which was drawn upon
and later repaid in full as of the end of 2002. No funds were
borrowed by Nelnet under this agreement in 2003. This line of
credit was recently terminated. In January 2002, we entered into
an intercreditor agreement with Farmers & Merchants and Bank
of America, N.A., pursuant to which Farmers & Merchants
agreed to subordinate certain of its rights as one of our
lenders to the rights of Bank of America. This intercreditor
agreement will terminate upon discharge of all of our
indebtedness to Bank of America pursuant to its commitment which
expires in January 2005.
In May 2002, we transferred our preferred stock
holdings in Packers Service Group to Infovisa, Inc., one of our
subsidiaries at that time. In May 2002, we then sold 91.43% of
the outstanding capital stock of Infovisa, Inc. to Farmers &
Merchants for a purchase price equal to that company's book
value of approximately $6 million.
Transactions with Miscellaneous Related
Parties
In November 2000, we entered into an agreement
with Union Financial pursuant to which Union Financial furnished
consulting services to us. We paid Union Financial consulting
fees in the amount of $1.65 million in 2002. This agreement
was terminated in 2002.
In December 2000, we entered into an agreement to
obtain consulting services on a broad range of matters from
Great Plains, which until recently owned 6.8% of our common
stock. Don R. Bouc, our President and one of our Directors,
owned a 75% interest in Great Plains, and Terry J. Heimes, Chief
Financial Officer and an Executive Director of Nelnet, owned a
7% interest. We paid Great Plains consulting fees of
approximately $1.75 million during 2002 pursuant to this
agreement, a portion of which constituted payment for
Mr. Bouc's consulting services provided to Nelnet
during 2002. This agreement was terminated in July 2003.
Since January 2001, we have owned 50% of a
technology firm, 5280 Solutions, Inc., or
5280 Solutions, which provided us with contract programming
and related technological support starting in January 2002. In
2002, we paid 5280 Solutions approximately
$7.0 million for its services. Since March 2002, we have
owned 50% of FirstMark Services LLC, or FirstMark Services. In
March 2002, FirstMark Services agreed to provide subcontracting
servicing functions on our behalf with respect to private loan
services. We incurred expenses with respect to private loan
servicing provided by FirstMark Services of approximately
$4.6 million in 2002. During 2002, Raymond J. Ciarvella and
Matthew D. Hall owned interests in both companies, and Todd M.
Eicher and Edward P. Martinez owned interests in
5280 Solutions. They currently own no interest in these
companies.
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Transactions with UFS Securities
Prior to August 2003, UFS Securities, LLC, or UFS
Securities, was owned by Packers Service Group and Union
Financial. In August 2003, we acquired a 100% ownership interest
in UFS Securities for the purchase price of $2.6 million.
Thus, although transactions with UFS Securities prior to August
2003 would have been treated previously as affiliate
transactions, such transactions are now with our wholly owned
subsidiary. We have retained UFS Securities in a series of
advisory arrangements pursuant to which UFS Securities provides
advisory services in connection with our offerings of debt
securities. We paid approximately $1.4 million in fees to
UFS Securities in 2002 for such services.
In December 2002, UFS Securities retained Union
Bank to administer the UFS Securities 401(k) profit sharing plan
for fees which are commensurate with those charged to other
401(k) profit sharing plans. No fees were paid to Union Bank in
2002 pursuant to this agreement. This agreement may be
terminated by either party upon 60 days' notice. If UFS
Securities terminates this agreement before a one year term, it
must pay liquidated damages to Union Bank.
In August 2001, UFS Securities entered into an
agreement with Farmers & Merchants pursuant to which UFS
Securities, for a fee equal to the amount received by Farmers
& Merchants, assists with the performance of mortgage loan
consulting services that Farmers & Merchants provides for a
bank. UFS Securities received fees of approximately $237,000 in
2002 from this agreement. This agreement terminates when the
agreement between Farmers & Merchants and the third-party
bank terminates.
In March 2001, UFS Securities began serving as
distributor on behalf of Union Bank for all advisor-sold
accounts with the College Savings Plan. UFS Securities is
entitled to approximately 10 basis points of plan assets
pursuant to this agreement. This agreement may be terminated by
either party upon 30 days' notice. In November 2001,
UFS Securities began acting as distributor on behalf of Union
Bank for the TD Waterhouse accounts within the College Savings
Plan. This agreement terminates upon termination of the TD
Waterhouse distribution agreement for the College Savings Plan.
UFS Securities received payments aggregating approximately
$77,000 from these agreements in 2002.
In October 2002, UFS Securities agreed to act as
the principal underwriter for the Stratus Funds, Inc., or
Stratus Funds, a group of mutual funds associated with Union
Bank and of which Michael S. Dunlap serves as president.
UFS Securities received fees in an amount equal to $6.00 in 2002
pursuant to this agreement. This agreement has a one-year term
that renews automatically, with the Stratus Funds' prior
approval, for successive one-year terms unless terminated by a
vote of the majority of the board of directors, including a
majority of disinterested directors, of the Stratus Funds or a
majority of its shareholders. UFS Securities may also terminate
this agreement on 60 days' notice. In April 2000, UFS
Securities leased office space and office amenities from Union
Bank at the rate of $15.00 per square foot, or $1,000 per month.
This agreement terminates in April 2004, but will automatically
renew for successive one-year terms unless either party
terminates upon written notice. In March 2001, UFS Securities,
together with Union Bank, hired Adminisystems, Inc., one of our
affiliates, which we refer to as Adminisystems, and Union Bank,
to perform certain administrative services in connection with
the investment portfolios maintained by the College Savings
Plan. The fees to be paid under this agreement equal 40% of the
distribution fees that UFS Securities receives with respect to
certain accounts placed with the College Savings Plan. UFS
Securities paid Adminisystems the sum of approximately $51,000
in 2002. This agreement may be terminated by any party upon
60 days' notice.
In March 2000, Farmers & Merchants furnished
a $1 million unsecured line of credit to UFS Securities
with interest accruing at the prime rate. No monies have ever
been drawn or advanced on this line. The initial term of this
line of credit expires in March 2005.
In January 2002, we retained UFS Securities for a
one time fee of $25,000 to provide advisory services in
connection with a swap agreement to which we were a party.
In April 2002, UFS Securities retained Union
Financial to provide consulting services in connection with an
advisory agreement between UFS Securities and J.P. Morgan
Securities Inc. This agreement is coterminous
74
with the advisory agreement between UFS
Securities and J.P. Morgan Securities Inc. UFS Securities paid
to Union Financial the sum of approximately $1.87 million
in 2002 pursuant to this agreement.
In June 2000, Union Bank agreed to permit UFS
Securities to gain certain access to Union Bank customers by
permitting marketing efforts in Union Bank facilities, in
consideration for 90% of UFS Securities' gross commissions,
after deducting trading and closing expenses. UFS Securities
paid Union Bank approximately $245,000 in 2002 pursuant to this
agreement.
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DESCRIPTION OF CAPITAL STOCK
General
Our amended and restated articles of
incorporation, which we refer to as our articles of
incorporation, provide that we have the authority to issue
750,000,000 shares of common stock, par value $0.01 per share.
The common stock is divided into two classes, consisting of
600,000,000 shares of Class A common stock and 150,000,000
shares of Class B common stock. Upon consummation of the
offering,                     shares
of Class A common stock and 14,023,454 shares of
Class B common stock will be issued and outstanding.
Our articles of incorporation also provide that
we have authority to issue 50,000,000 shares of preferred stock,
par value $0.01 per share. Our board of directors may fix the
relative rights and preferences of each series of preferred
stock in a resolution of the board of directors.
Common Stock
Voting Rights
Holders of Class A common stock are entitled
to one vote per share and holders of Class B common stock
are entitled to ten votes per share on all matters submitted to
a vote of shareholders. Except as otherwise required by law,
Class A common stock and Class B common stock shall
vote as a single class on all matters to be voted on by our
shareholders, including, without limitation, any consolidation
or merger of us into or with any other corporation or the sale
or transfer by us of all or substantially all of our assets.
With the approval of a majority of the shares of Class B
common stock, voting separately as a class, we may lower the
number of votes per share each share of Class B common
stock shall be entitled to have.
Dividends
Holders of common stock are entitled to receive
ratably dividends payable in cash, in stock or otherwise if, as
and when declared by the board of directors out of assets
legally available therefor, subject to any preferential rights
of any outstanding preferred stock.
Conversion
Each share of Class B common stock shall
automatically be converted into one share of Class A common
stock, without any action by us or further action by the holder
thereof, upon the transfer of such share, other than the
following transfers:
•
to any other holder of Class B common stock
    or an affiliate of a holder of Class B common stock which
    holder is a "business organization," as defined in our
    articles of incorporation;
•
to a trust for the sole benefit of a holder of
    Class B common stock who is a natural person;
•
to a spouse, sibling, parent, grandparent or
    descendant, whether natural or adopted, of a holder of
    Class B common stock;
•
to a trust for the sole benefit of a spouse,
    sibling, parent, grandparent or descendant, whether natural or
    adopted, of a holder of Class B common stock;
•
by will to a spouse, sibling, parent, grandparent
    or descendant, whether natural or adopted, of a holder of
    Class B common stock;
•
pursuant to the laws of descent and distribution
    to a spouse, sibling, parent, grandparent or descendant, whether
    natural or adopted, of a holder of Class B common stock;
•
to any charitable foundation or other
    organization qualified under Section 501(c)(3) of the
    Internal Revenue Code of 1986, as amended; or
•
to us.
Notwithstanding the foregoing, Class B
common stock shall automatically convert into Class A
common stock upon any transfer pursuant to a divorce or
separation agreement or order.
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For purposes of this paragraph,
"affiliate" means, with respect to any business
organization, any natural person or business organization that,
directly or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with,
such business organization.
Each share of Class B common stock shall, at
the option of the holder thereof, be convertible into one share
of Class A common stock at any time.
In the event at any time the shares of
Class B common stock outstanding constitute less than 50%
of the Class B common stock outstanding on the date hereof,
each remaining share of Class B common stock outstanding
shall automatically be converted into one share of Class A
common stock.
Other Rights
On liquidation, dissolution or winding up of
Nelnet, after payment in full of the amounts required to be paid
to the holders of any outstanding preferred stock, all holders
of common stock are entitled to receive ratably any assets
available for distribution to holders of common stock after the
payment of all of our debts and other liabilities. No shares of
common stock have preemptive rights to purchase additional
shares of common stock. All the outstanding shares of common
stock are, and the shares sold hereunder will be, fully paid and
nonassessable. The rights, preferences and privileges of holders
of common stock will be subject to and may be adversely affected
by the rights of holders of any preferred stock that may be
issued in the future. All shares of Class A common stock
and Class B common stock which are acquired by us shall be
available for reissuance by us at any time.
Preferred Stock
Our board of directors is authorized, subject to
limitations prescribed by law, without further shareholder
approval, to issue from time to time up to an aggregate of
50,000,000 shares of preferred stock, in one or more series, and
to determine or alter the designations, preferences, rights and
any qualifications, limitations or restrictions of the shares of
each such series thereof, including dividend rights, dividend
rates, conversion rights, voting rights, terms of redemption
(including sinking fund provisions), redemption price or prices,
liquidation preferences and the number of shares constituting
any series or designations of such series. The exercise of this
authority eliminates delays associated with a shareholder vote
in specific instances. The ability of the board of directors to
issue preferred stock, while providing flexibility in connection
with possible acquisitions and other corporate purposes, could
have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from acquiring, a
majority of our outstanding voting stock.
The voting and other rights of the holders of
common stock will be subject to, and may be adversely affected
by, the rights of holders of any preferred stock that may be
issued in the future.
Nebraska Anti-takeover Law and Certain Charter
and By-law Provisions
Provisions of our articles of incorporation and
our amended and restated by-laws, which we refer to as our
by-laws, could discourage potential acquisition proposals and
could delay or prevent a change in control of Nelnet. These
provisions are intended to enhance the likelihood of continuity
and stability in the composition of the board of directors and
in the policies formulated by the board of directors and to
discourage types of transactions that may involve an actual or
threatened change in control of Nelnet.
Board of Directors
Our by-laws provide that a vacancy in the board
of directors occurring from an increase in the number of
directors or otherwise may be filled by the vote of a majority
of directors then in office, though less than a quorum. This
precludes a third party or a majority of shareholders from
removing incumbent directors and simultaneously gaining control
of the board of directors by filling, with its own nominees, the
vacancies created by removal.
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Special Meetings of
    Shareholders
Our articles of incorporation do not permit our
shareholders to call special meetings of shareholders, except to
the extent provided by applicable law. Nebraska law provides
that the holders of shares of common stock representing 10% or
more of the voting power of a Nebraska corporation may call a
special meeting of shareholders at any time.
Advance Notice Requirements for Shareholder
    Proposals and Director Nominations
Our by-laws establish an advance notice procedure
for the nomination, other than by or at the direction of the
board of directors or a committee thereof, of candidates for
election as directors as well as for other shareholder proposals
to be considered at shareholders' meetings. A notice
regarding any nomination must contain, as to each nominee, all
information relating to such person that is required to be
disclosed in solicitations of proxies for the election of
directors, or that is otherwise required, in each case pursuant
to Regulation 14A of the Securities Exchange Act of 1934,
including each such person's written consent to serving as
a director if elected. A notice regarding any business,
including nomination of directors, to be brought before an
annual meeting must contain the following:
•
a brief description of the business desired to be
    brought before the annual meeting and the reasons for conducting
    such business at the annual meeting;
•
the name and address of the shareholder proposing
    such business;
•
the class and number of shares of our stock
    beneficially owned by the shareholder; and
•
any material interest of the shareholder in such
    business.
Although the notice provisions do not give the
board of directors any power to approve or disapprove
shareholders' nominations or proposals for action by us,
they may have the effect of precluding a contest for the
election of directors or the consideration of shareholder
proposals if the procedures established by our by-laws are not
followed and of discouraging or deterring a third party from
conducting a solicitation of proxies to elect its own slate of
directors or to approve its proposal, without regard to whether
consideration of such nominees or proposals might be harmful or
beneficial to us and our shareholders. The purpose of requiring
advance notice is to afford the board of directors an
opportunity to consider the qualifications of the proposed
nominees or the merits of other shareholder proposals and, to
the extent deemed necessary or desirable by the board of
directors, to inform shareholders about those matters.
Shareholder Rights
Our articles of incorporation authorize our board
of directors to create and issue, whether or not in connection
with the issuance and sale of any of our securities or property,
rights entitling the holders thereof to purchase our securities
or any other corporation. The times at which and the terms upon
which such rights are to be issued are to be determined by the
board of directors and set forth in the contracts or other
instruments that evidence such rights. The authority of the
board of directors with respect to such rights shall include,
without limitation, the determination of the initial purchase
price, the times and circumstances under which such rights may
be exercised, provisions denying holders of a specified
percentage of our outstanding capital stock the right to
exercise such rights and provisions to permit us to redeem or
exchange such rights. This provision in our articles of
incorporation could have the effect of discouraging third
parties from seeking, or impairing their ability to seek, to
acquire a significant portion of our outstanding securities, to
engage in any transaction which might result in a change in
control of us or to enter into any agreement, arrangement or
understanding with another party to accomplish the foregoing or
for the purpose of acquiring, holding, voting or disposing of
any of our securities.
Nebraska Shareholders Protection
    Act
We are a Nebraska corporation and are therefore
subject to the provisions of the Nebraska Shareholders
Protection Act. The Nebraska Shareholders Protection Act,
subject to certain exemptions, prohibits a Nebraska corporation
from engaging in any of a broad range of "business
combinations" involving an "interested"
78
shareholder, or any affiliate or associate of
such interested shareholder, for a period of five years
following the date that such shareholder became an interested
shareholder, unless prior to such date the board of directors of
the corporation approved either the business combination or the
transaction that resulted in the shareholder becoming an
interested shareholder. A "business combination"
includes a merger, asset sale or other transaction resulting in
a financial benefit to the shareholder. The Nebraska
Shareholders Protection Act also provides that shares acquired
in a control-share acquisition have no voting rights with
respect to matters other than the election of directors unless
approved by a vote of shareholders of the corporation, and that
any such control share acquisition is effective only if approved
by a majority of the corporation's voting shares that are
"not interested" shares. A control-share
"acquisition" is an acquisition of voting stock in a
corporation that, when added to the shares the shareholder had
prior to the acquisition, would elevate the shareholder's
voting power into one the three following ranges:
(i) between 20% and 33 1/3%, (ii) between
33 1/3% and 50% and (iii) over 50%. For purposes of
the Nebraska Shareholders Protection Act, an "interested
shareholder" is a person who owns 10% or more of a
corporation's outstanding voting stock, or an affiliate or
associate of the corporation that owns, or within five years
prior did own, 10% or more of the corporation's outstanding
voting stock. These provisions may have the effect of
discouraging, delaying, deferring or preventing a change in
control of Nelnet.
Registration Rights
Michael S. Dunlap, Stephen F. Butterfield and
persons related to them have the right to make two written
demands of Nelnet for registration with the Securities and
Exchange Commission of all or part of their common stock.
However, we need not effect a demand registration unless it
includes securities with an aggregate offering price, net of
underwriting discounts and commissions, of at least
$5 million. The first such demand may not be made prior to
the first anniversary of this offering, and the second such
demand may not be made within 12 months after the first
demand. We are obligated to comply with any such demand unless
our independent directors determine that such sale would be
contrary to the best interests of Nelnet. Our independent
directors may consider several factors in making any such
determination, including share price performance after the date
of this offering, equity market conditions and our operating
results. These shareholders also have piggyback registration
rights for their common stock. The number of securities to be
included in an offering by these shareholders will be subject to
reduction by the applicable underwriter in some cases. We will
bear all expenses incident to our performance of our
registration obligations, other than some of the costs or
expenses of selling shareholders. The foregoing registration
rights are not transferable and may be amended or waived only
with the written consent of Nelnet and the applicable
shareholders.
Limitation of Directors'
Liability
Our articles of incorporation contain a provision
which limits the personal liability of each of our directors for
monetary damages for breaches of fiduciary duty as one of our
directors, except for liability of a director for the following:
•
breach of the duty of loyalty to us or our
    shareholders;
•
acts or omissions not in good faith or involving
    intentional misconduct or a knowing violation of law;
•
any transaction from which the director derived
    an improper personal benefit; or
•
violations under provisions of the Nebraska
    Business Corporation Act relating to unlawful payments of
    dividends or unlawful stock purchases or redemptions.
The inclusion of this provision in our articles
of incorporation may have the effect of reducing the likelihood
of derivative litigation against directors, and may discourage
or deter shareholders or management from bringing a lawsuit
against directors for breach of their duty of care, even though
such an action, if successful, might otherwise have benefited us
and our shareholders. Our by-laws also contain provisions
indemnifying our directors and officers to the fullest extent
permitted by the Nebraska Business Corporation Act. Management
believes that these provisions will assist us in attracting and
retaining qualified individuals to serve as directors.
79
Indemnification and Insurance
Our articles of incorporation provide that we
will indemnify each person who was or is made a party or
threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he
or she or a person of whom he or she is the legal representative
is or was one of our directors or officers, to the fullest
extent allowed by the Nebraska Business Corporation Act. This
right of indemnification shall include the right to be paid by
us the expenses, including attorneys' fees, incurred in
defending any such proceeding in advance of its final
disposition. However, if Nebraska law so requires, the
advancement of such expenses will only be made upon the delivery
to us of an undertaking by or on behalf of such person to repay
all amounts so advanced if it shall ultimately be determined by
final judicial decision, from which there is no further right to
appeal, that such person is not entitled to be indemnified for
such expenses by us.
In addition, our articles of incorporation
provide that we may maintain insurance to protect ourselves and
any of our directors, officers, employees or agents against any
expense, liability or loss, whether or not we would have the
power to indemnify a person against any expense, liability or
loss under Nebraska law. Our articles of incorporation further
provide that we may, to the extent permitted by the board of
directors, grant rights to indemnification, and rights to
advancement of expenses, to any of our employees or agents. We
have obtained insurance for the benefit of our officers and
directors insuring such persons against liabilities, including
liabilities under the securities laws.
Share Retention Policy
Under our Share Retention Policy, none of our
officers or the officers of any of our direct or indirect
subsidiaries at or above the level of Executive Director,
defined for purposes of the policy as Executives, may sell or
otherwise dispose of a number of shares of common stock in any
calendar year in excess of one-third of the number of shares of
common stock beneficially owned by the Executive on the first
day of the calendar year. The policy applies to Executives
during and following their employment by us, provided that
following five years from the closing date of this offering, an
Executive will be free to sell or otherwise dispose of all of
his or her shares.
Exceptions that apply to the Share Retention
Policy are as follows:
•
Transfers to family members and family-owned
    partnerships or other family-owned entities will not be
    prohibited, so long as such transfers are effected only for
    estate planning purposes and the transferee agrees to comply
    with the Share Retention Policy (treating the transferee(s) as
    the transferring Executive).
•
It shall not be prohibited for any Executive to
    sell or otherwise dispose of up to $500,000 in value of shares
    of common stock during any calendar year.
•
All restrictions under the Share Retention Policy
    shall cease in the event of the death or retirement at normal
    retirement age of an Executive.
Transfer Agent and Registrar
The transfer agent and registrar for our common
stock will
be                                                             .
Listing
We intend to apply to have our Class A
common stock listed on the New York Stock Exchange under the
symbol "NNI."
80
Recapitalization
Effective August 14, 2003, we recapitalized
our outstanding capital stock. In connection therewith, our
outstanding 2,859.99 shares of Class A voting common
stock, par value $0.10 per share, and our outstanding
211,609 shares of Class B non-voting common stock, par
value $0.10 per share, were converted into an aggregate of
31,015,034 shares of Class A common stock, par value
$0.01 per share, and 14,023,454 shares of Class B
common stock, par value $0.01 per share. We also changed our
name from Nelnet Loan Services, Inc. to Nelnet, Inc. effective
August 14, 2003.
81
SHARES ELIGIBLE FOR FUTURE SALE
Sales of Restricted Shares
Upon the completion of this offering, we will
have                      shares
of our Class A common stock outstanding. Of these shares,
the                      shares
of our Class A common stock sold in this offering will be
freely tradeable by persons other than our affiliates, as that
term is defined in Rule 144 under the Securities Act of
1933, without restriction or further registration under the
Securities Act of 1933.
All of the
remaining                      shares
of our Class A common stock outstanding upon completion of
this offering, and the 14,023,454 shares of Class A common
stock issuable upon the conversion of our Class B common
stock outstanding upon completion of this offering, are deemed
"restricted" securities under Rule 144 under the
Securities Act of 1933. None of these restricted securities will
be eligible for sale in the public market on the date of this
prospectus. Upon expiration of the lock-up agreements described
below, 180 days after the date of this prospectus, up to an
additional                      shares
of our Class A common stock,
including                      shares
of Class A common stock issuable upon the conversion of our
outstanding Class B common stock, will be eligible for sale
in the public market pursuant to Rule 144.
In general, under Rule 144, a shareholder
who has beneficially owned his or her restricted shares for at
least one year is entitled to sell, within any three-month
period, a number of shares of our Class A common stock that
does not exceed the greater of:
•
one percent of the then-outstanding shares of our
    Class A common stock, which is
    approximately                      shares
    of our Class A common stock immediately after the completion of
    this offering; or
•
the average weekly trading volume in our
    Class A common stock on the New York Stock Exchange during
    the four calendar weeks preceding the date on which notice of
    such sale is filed, provided certain requirements concerning
    availability of public information, manner of sale and notice of
    sale are satisfied.
In addition, our affiliates must comply with the
restrictions and requirements of Rule 144, other than the
one-year holding period requirement, in order to publicly sell
shares of our Class A common stock which are not restricted
securities. A shareholder who is not one of our affiliates and
has not been our affiliate for at least three months prior to
the sale and who has beneficially owned restricted shares of our
Class A common stock for at least two years may resell the
shares without limitation. In meeting the one- and two-year
holding periods described above, a holder of restricted shares
of our Class A common stock can include the holding period
of a prior owner who was not our affiliate. The one- and
two-year holding periods described above do not begin to run
until the full purchase price or other consideration is paid by
the person acquiring the restricted shares of our Class A
common stock from us or one of our affiliates.
Registration Rights
Michael S. Dunlap, Stephen F. Butterfield and
persons related to them have the right, subject to limitations,
to make two written demands of Nelnet for registration with the
Securities and Exchange Commission of all or part of their
common stock. These shareholders also have piggyback
registration rights for their common stock. See
"Description of Capital Stock — Registration
Rights."
Lock-up Agreements
We and our executive officers and directors and
all of our shareholders have agreed that, with some exceptions,
during the period beginning from the date of this prospectus and
continuing to and including the date 180 days after the
date of this prospectus, none of us will, directly or
indirectly, sell, offer to sell, contract to sell or grant any
option to sell (including without limitation any short sale),
pledge, transfer, establish an open "put equivalent
position" within the meaning of Rule 16a-1(h) under
the Securities Exchange Act of 1934, as amended, or otherwise
dispose of any shares of our common stock, options or warrants
to acquire shares of our common stock currently or hereafter
owned either of record or
82
beneficially by us, or publicly announce an
intention to do any of the foregoing, without the prior written
consent of J.P. Morgan Securities Inc. and Banc of America
Securities LLC. In addition, we and our executive officers and
directors and these shareholders have agreed that, without the
prior written consent of J.P. Morgan Securities Inc. and
Banc of America Securities LLC, none of us will, from the date
of this prospectus and through the period ending 180 days
after the date of this prospectus, make any demand for, or
exercise any right with respect to, the registration of any
shares of our common stock.
Share Retention Policy
Our Share Retention Policy prohibits our
Executives from selling or otherwise disposing of a number of
shares of Class A common stock in any calendar year in
excess of one-third of the number of shares of common stock
beneficially owned by the Executive officers on the first day of
the calendar year, subject to limited exceptions. This policy
applies to Executive officers during and, unless their
employment is terminated due to death or retirement at normal
retirement age, following termination of their employment by
Nelnet and expires five years from the closing date of this
offering. We retain the ability in our discretion to waive
compliance with the Share Retention Policy. See
"Description of Capital Stock — Share Retention
Policy."
83
UNITED STATES TAX CONSEQUENCES TO
NON-U.S. HOLDERS OF CLASS A COMMON
STOCK
The following is a general discussion of certain
material U.S. federal income and estate tax consequences of
the ownership and disposition of our Class A common stock
by a beneficial owner thereof that is a
"Non-U.S. Holder." A
"Non-U.S. Holder" is a person or entity that, for
U.S. federal income tax purposes, is a non-resident alien
individual, a foreign corporation or a foreign estate or trust.
The test for whether an individual is a resident of the U.S. for
federal estate tax purposes differs from the test used for
federal income tax purposes. Some individuals, therefore, may be
"Non-U.S. Holders" for purposes of the federal
income tax discussion below, but not for purposes of the federal
estate tax discussion, and vice versa.
This discussion is based on the U.S. Internal
Revenue Code of 1986, as amended, judicial decisions and
administrative regulations and interpretations in effect as of
the date of this prospectus, all of which are subject to change,
including changes with retroactive effect. This discussion does
not address all aspects of U.S. federal income and estate
taxation that may be relevant to Non-U.S. Holders in light of
their particular circumstances (including, without limitation,
Non-U.S. Holders who are pass-through entities or who hold
their Class A common stock through pass-through entities)
and does not address any tax consequences arising under the laws
of any state, local or non-U.S. jurisdiction. Prospective
holders should consult their tax advisors with respect to the
federal income and estate tax consequences of holding and
disposing of our Class A common stock in light of their
particular situations and any consequences to them arising under
the laws of any state, local or non-U.S. jurisdiction.
Dividends
Subject to the discussion below, dividends, if
any, paid to a Non-U.S. Holder of our Class A common
stock out of our current or accumulated earnings and profits
generally will be subject to withholding tax at a 30% rate or
such lower rate as may be specified by an applicable income tax
treaty. To obtain a reduced rate of withholding under a treaty,
a Non-U.S. Holder generally will be required to provide us
with a properly executed IRS Form W-8BEN certifying the
Non-U.S. Holder's entitlement to benefits under that
treaty. U.S. Treasury Regulations provide special rules to
determine whether, for purposes of determining the applicability
of a tax treaty, dividends paid to a Non-U.S. Holder that
is an entity should be treated as paid to the entity or to those
holding an interest in that entity.
There will be no withholding tax on dividends
paid to a Non-U.S. Holder that are effectively connected with
the Non-U.S. Holder's conduct of a trade or business within
the United States if a properly-executed IRS Form W-8ECI,
stating that the dividends are so connected, is filed with us.
Instead, the effectively connected dividends will be subject to
regular U.S. income tax, generally in the same manner as if
the Non-U.S. Holder were a U.S. citizen or resident
alien or a domestic corporation, as the case may be, unless a
specific treaty exemption applies. A corporate
Non-U.S. Holder receiving effectively connected dividends
may also be subject to an additional "branch profits
tax," which is imposed, under certain circumstances, at a
rate of 30% (or such lower rate as may be specified by an
applicable treaty) of the corporate Non-U.S. Holder's
effectively connected earnings and profits, subject to certain
adjustments.
Gain on Disposition of Class A Common
Stock
A Non-U.S. Holder generally will not be subject
to U.S. federal income tax with respect to gain realized on
a sale or other disposition of our Class A common stock
unless (i) the gain is effectively connected with a trade
or business of such holder in the United States and a specific
treaty exemption does not apply to eliminate the tax,
(ii) if a tax treaty would otherwise apply to eliminate the
tax, the gain is attributable to a permanent establishment of
the Non-U.S. Holder in the United States, (iii) in the
case of Non-U.S. Holders who are nonresident alien individuals
and hold our Class A common stock as a capital asset, such
individuals are present in the United States for 183 or more
days in the taxable year of the disposition and certain other
conditions are met, (iv) the Non-U.S. Holder is subject to
tax pursuant
84
to the provisions of the Code regarding the
taxation of U.S. expatriates, or (v) we are or have
been a "United States real property holding
corporation" within the meaning of Code
Section 897(c)(2) at any time within the shorter of the
five-year period preceding such disposition or such
holder's holding period. We believe that we are not, and do
not anticipate becoming, a United States real property holding
corporation. Even if we are treated as a United States real
property holding corporation, gain realized by a
Non-U.S. Holder on a disposition of our Class A common
stock will not be subject to U.S. federal income tax so
long as (i) the Non-U.S. Holder is considered to have
beneficially owned no more than five percent of our Class A
common stock at all times within the shorter of (a) the
five year period preceding the disposition or (b) the
holder's holding period and (ii) our Class A common
stock is regularly traded on an established securities market.
There can be no assurance that our Class A common stock
will continue to qualify as regularly traded on an established
securities market.
Information Reporting Requirements and Backup
Withholding
Generally, we must report to the U.S. Internal
Revenue Service, or the IRS, the amount of dividends paid, the
name and address of the recipient and the amount, if any, of tax
withheld. A similar report is sent to the holder. Pursuant to
tax treaties or certain other agreements, the IRS may make its
reports available to tax authorities in the recipient's
country of residence.
Backup withholding will generally not apply to
payments of dividends made by us or our paying agents to a
Non-U.S. Holder if the holder has provided its federal taxpayer
identification number, if any, or the required certification
that it is not a U.S. person (which is generally provided
by furnishing a properly executed IRS Form W-8BEN), unless
the payer otherwise has knowledge that the payee is a
U.S. person.
Under current U.S. federal income tax law,
information reporting and backup withholding imposed at a rate
of 28.0% will apply to the proceeds of a disposition of our
Class A common stock effected by or through a
U.S. office of a broker unless the disposing holder
certifies as to its non-U.S. status or otherwise
establishes an exemption. Generally, U.S. information
reporting and backup withholding will not apply to a payment of
disposition proceeds where the transaction is effected outside
the United States through a non-U.S. office of a
non-U.S. broker. However, U.S. information reporting
requirements (but not backup withholding) will apply to a
payment of disposition proceeds where the transaction is
effected outside the United States by or through an office
outside the United States of a broker that fails to maintain
documentary evidence that the holder is a Non-U.S. Holder
and that certain conditions are met, or that the holder
otherwise is entitled to an exemption, and the broker is
(i) a U.S. person, (ii) a foreign person which derived
50% or more of its gross income for certain periods from the
conduct of a trade or business in the United States,
(iii) a "controlled foreign corporation" for
U.S. federal income tax purposes, or (iv) a foreign
partnership (a) at least 50% of the capital or profits
interest in which is owned by U.S. persons or (b) that is
engaged in a U.S. trade or business. Backup withholding
will apply to a payment of disposition proceeds if the broker
has actual knowledge that the holder is a U.S. person.
Backup withholding is not an additional tax.
Rather, the tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If
withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to
the IRS.
Federal Estate Tax
An individual Non-U.S. Holder who is treated
as the owner of, or has made certain lifetime transfers of, an
interest in our Class A common stock will be required to
include the value thereof in his gross estate for
U.S. federal estate tax purposes, and may be subject to
U.S. federal estate tax unless an applicable estate tax
treaty provides otherwise.
85
UNDERWRITING
J.P. Morgan Securities Inc. and Banc of America
Securities LLC are acting as joint book-running managers for
this offering.
We and the underwriters named below have entered
into an underwriting agreement covering the Class A common
stock to be sold in this offering. J.P. Morgan Securities
Inc., Banc of America Securities LLC, Credit Suisse First Boston
LLC and Morgan Stanley & Co. Incorporated are acting as
representatives of the underwriters. Each underwriter has agreed
to purchase the number of shares of Class A common stock
set forth opposite its name in the following table.
Name
Number of shares
J.P. Morgan Securities Inc.
Banc of America Securities LLC
Credit Suisse First Boston LLC
Morgan Stanley & Co. Incorporated
Total
The underwriting agreement provides that if the
underwriters take any of the shares presented in the table
above, then they must take all of these shares. No underwriter
is obligated to take any shares allocated to a defaulting
underwriter except under limited circumstances. The underwriting
agreement provides that the obligations of the underwriters are
subject to certain conditions precedent, including the absence
of any material adverse change in our business and the receipt
of certain certificates, opinions and letters from us, our
counsel and our independent auditors.
The underwriters are offering the shares of
Class A common stock, subject to the prior sale of shares,
and when, as and if such shares are delivered to and accepted by
them. The underwriters will initially offer to sell shares to
the public at the initial public offering price shown on the
front cover page of this prospectus. The underwriters may sell
shares to securities dealers at a discount of up to
$          per
share from the initial public offering price. Any such
securities dealers may resell shares to certain other brokers or
dealers at a discount of up to
$          per
share from the initial public offering price. After the initial
public offering, the underwriters may vary the public offering
price and other selling terms.
If the underwriters sell more shares than the
total number shown in the table above, the underwriters have the
option to buy up to an
additional                     shares
of Class A common stock from us to cover such sales. They
may exercise this option during the 30-day period from the date
of this prospectus. If any shares are purchased with this
option, the underwriters will purchase shares in approximately
the same proportion as shown in the table above. If any
additional shares of Class A common stock are purchased,
the underwriters will offer the additional shares on the same
terms as those on which the shares are being offered.
86
The following table shows the per share and total
underwriting discounts that we will pay to the underwriters.
These amounts are shown assuming both no exercise and full
exercise of the underwriters' option to purchase additional
shares.
Without
With
overallotment
overallotment
exercise
exercise
Per share
$
$
Total
$
$
The representatives have advised us that, on
behalf of the underwriters, they may make short sales of our
Class A common stock in connection with this offering,
resulting in the sale by the underwriters of a greater number of
shares than they are required to purchase pursuant to the
underwriting agreement. The short position resulting from those
short sales will be deemed a "covered" short position
to the extent that it does not exceed
the                 shares
subject to the underwriters' overallotment option and will
be deemed a "naked" short position to the extent that
it exceeds that number. A naked short position is more likely to
be created if the underwriters are concerned that there may be
downward pressure on the trading price of the Class A
common stock in the open market that could adversely affect
investors who purchase shares in this offering. The underwriters
may reduce or close out their covered short position either by
exercising the overallotment option or by purchasing shares in
the open market. In determining which of these alternatives to
pursue, the underwriters will consider the price at which shares
are available for purchase in the open market as compared to the
price at which they may purchase shares through the
overallotment option. Any "naked" short position will
be closed out by purchasing shares in the open market. Similar
to the other stabilizing transactions described below, open
market purchases made by the underwriters to cover all or a
portion of their short position may have the effect of
preventing or retarding a decline in the market price of our
Class A common stock following this offering. As a result,
our Class A common stock may trade at a price that is
higher than the price that otherwise might prevail in the open
market.
The representatives have advised us that,
pursuant to Regulation M under the Securities Act of 1933,
they may engage in transactions, including stabilizing bids or
the imposition of penalty bids, that may have the effect of
stabilizing or maintaining the market price of the shares of
Class A common stock at a level above that which might
otherwise prevail in the open market. A "stabilizing
bid" is a bid for or the purchase of shares of Class A
common stock on behalf of the underwriters for the purpose of
fixing or maintaining the price of the Class A common
stock. A "penalty bid" is an arrangement permitting
the representatives to claim the selling concession otherwise
accruing to an underwriter or syndicate member in connection
with the offering if the Class A common stock originally
sold by that underwriter or syndicate member is purchased by the
representatives in the open market pursuant to a stabilizing bid
or to cover all or part of a syndicate short position. The
representatives have advised us that stabilizing bids and open
market purchases may be effected on the New York Stock Exchange,
in the over-the-counter market or otherwise and, if commenced,
may be discontinued at any time.
One or more of the underwriters may facilitate
the marketing of this offering online directly or through one of
its affiliates. In those cases, prospective investors may view
offering terms and a prospectus online and, depending upon the
particular underwriter, place orders online or through their
financial advisor.
87
The following table details the estimated
offering expenses payable by us:
Securities and Exchange Commission registration
    fee
$
National Association of Securities Dealers, Inc.
    filing fee
New York Stock Exchange listing fee
Printing and engraving expenses
Legal fees and expenses
Accounting fees and expenses
Transfer agent fees and expenses
Miscellaneous
Total
$
We have agreed to indemnify the underwriters
against certain liabilities, including liabilities under the
Securities Act of 1933.
We and our executive officers and directors and
all of our shareholders have agreed that, during the period
beginning from the date of this prospectus and continuing to and
including the date 180 days after the date of this
prospectus, none of us will, directly or indirectly, offer,
sell, offer to sell, contract to sell or otherwise dispose of
any shares of our common stock except in limited circumstances,
without the prior written consent of J.P. Morgan Securities
Inc. and Banc of America Securities LLC.
The underwriters have informed us that they do
not intend sales to discretionary accounts to exceed five
percent of the total number of shares of our Class A common
stock offered by them and that no sales to discretionary
accounts may be made without prior written approval of the
customer.
At our request, the underwriters have reserved
shares of Class A common stock for sale to our directors,
officers and employees, and other persons with whom we have a
business relationship, who have expressed an interest in
participating in this offering. We expect these persons to
purchase no more than five percent of the Class A common
stock offered in this offering. The number of shares available
for sale to the general public will be reduced to the extent
such persons purchase such reserved shares.
We intend to apply to list the Class A
common stock on the New York Stock Exchange under the symbol
"NNI." The underwriters intend to sell shares of our
Class A common stock to a minimum of 2,000 beneficial
owners in lots of 100 or more so as to meet the distribution
requirements of this listing.
There has been no public market for the
Class A common stock prior to this offering. We and the
underwriters will negotiate the initial public offering price.
In determining the initial public offering price, we and the
underwriters expect to consider a number of factors in addition
to prevailing market conditions, including:
•
the history of and prospects for our industry and
    for student loan companies generally;
•
an assessment of our management;
•
our present operations;
•
our historical results of operations;
•
the trend of our revenues and earnings; and
•
our earnings prospects.
We and the underwriters will consider these and
other relevant factors in relation to the price of similar
securities of generally comparable companies. Neither we nor the
underwriters can assure investors that an active trading market
will develop for the Class A common stock, or that the
Class A common stock will trade in the public market at or
above the initial public offering price.
88
From time to time in the ordinary course of their
respective businesses, certain of the underwriters and their
affiliates have engaged in and may in the future engage in
commercial banking and/or investment banking transactions with
us and our affiliates. For example, J.P. Morgan Securities Inc.,
Banc of America Securities LLC, Morgan Stanley & Co.
Incorporated and Credit Suisse First Boston LLC have
underwritten various of our asset-backed securities. J.P. Morgan
Securities Inc. is acting as co-broker-dealer for various of our
auction rate notes. Bank of America, N.A., an affiliate of Banc
of America Securities LLC, provides financing to one of our
subsidiaries under a letter of credit and is the lender under
the revolving credit facility described in the following
paragraph. In addition, affiliates of J.P. Morgan Securities
Inc. and Morgan Stanley & Co. Incorporated are acting as
agents in connection with some of our existing financing
arrangements. We have also entered into arrangements in the
ordinary course of business with affiliates of Banc of America
Securities LLC to purchase student loans from them and to
service certain of their loans.
Because Bank of America N.A, an affiliate of Banc
of America Securities LLC, is the lender of revolving credit
indebtedness to be repaid by us using net proceeds from this
offering and will receive more than 10% of the net proceeds from
this offering, Banc of America Securities LLC may be deemed to
have a "conflict of interest" under
Rule 2710(c)(8) of the Conduct Rules of the National
Association of Securities Dealers. Accordingly, this offering
will be made in compliance with the applicable provisions of
Rule 2720 of the Conduct Rules. In accordance with this
rule, the initial public offering price is no higher than that
recommended by a "qualified independent underwriter"
meeting certain standards. In accordance with this requirement,
J.P. Morgan Securities Inc. has assumed the responsibilities of
acting as a qualified independent underwriter and has
recommended a price in compliance with the requirements of
Rule 2720. J.P. Morgan Securities Inc., in its role as
qualified independent underwriter, has performed due diligence
investigations and reviewed and participated in the preparation
of this prospectus and the registration statement of which this
prospectus is a part. We have also agreed to indemnify J.P.
Morgan Securities Inc. for acting as a qualified independent
underwriter against specified liabilities under the Securities
Act.
LEGAL MATTERS
The validity of the Class A common stock
offered hereby will be passed upon for Nelnet by Perry, Guthery,
Haase & Gessford, P.C., L.L.O., Lincoln, Nebraska. Legal
matters in connection with this offering will be passed upon for
Nelnet by Cahill Gordon & Reindel LLP, New York, New York,
and for the underwriters by Davis Polk & Wardwell, New York,
New York. Shareholders of, and an Of Counsel to, Perry, Guthery,
Haase & Gessford, P.C., L.L.O. own an aggregate of
258,802 shares of Class A common stock of Nelnet.
EXPERTS
The consolidated financial statements of Nelnet,
Inc. as of December 31, 2002 and 2001, and for each of the
years in the three-year period ended December 31, 2002,
have been included herein in reliance upon the report of KPMG
LLP, independent accountants, appearing elsewhere herein, and
upon the authority of said firm as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange
Commission a registration statement on Form S-1, including
exhibits, under the Securities Act of 1933 with respect to the
shares of our Class A common stock to be sold in the
offering. This prospectus does not contain all of the
information set forth in the registration statement. For further
information with respect to us and the shares to be sold in the
offering, reference is made to the registration statement and
the exhibits attached to the registration statement. Statements
contained in this prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily
complete. As a result of this offering, we will become subject
to the information and reporting requirements of the Securities
Exchange Act of 1934 and will file annual,
89
quarterly and current reports, proxy statements
and other information with the Securities and Exchange
Commission.
You may read and copy all or any portion of the
registration statement or any reports, statements or other
information that we file at the Securities and Exchange
Commission's Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549. You can request copies of
these documents, upon payment of a duplicating fee, by writing
to the Securities and Exchange Commission. Please call the
Securities and Exchange Commission at 1-800-SEC-0330 for further
information on the operation of the Public Reference Room. Our
Securities and Exchange Commission filings, including the
registration statement, are also available to you on the
Securities and Exchange Commission's web site
http://
www.sec.gov
.
90
INDEX TO FINANCIAL STATEMENTS
Page
Nelnet, Inc. and Subsidiaries
Independent Auditors' Report
F-2
Consolidated Balance Sheets as of June 30,
    2003 (unaudited) and December 31, 2002 and 2001
F-3
Consolidated Statements of Income for the six
    months ended June 30, 2003 and 2002 (unaudited) and the
    years ended December 31, 2002, 2001 and 2000
F-4
Consolidated Statements of Shareholders'
    Equity for the six months ended June 30, 2003
    (unaudited) and the years ended December 31, 2002,
    2001 and 2000
F-5
Consolidated Statements of Cash Flows for the six
    months ended June 30, 2003 and 2002 (unaudited) and the
    years ended December 31, 2002, 2001 and 2000
F-6
Notes to Consolidated Financial Statements
F-7
F-1
Independent Auditors' Report
The Board of Directors
Nelnet, Inc.:
We have audited the accompanying consolidated
balance sheets of Nelnet, Inc. (formerly Nelnet Loan Services,
Inc.) and subsidiaries as of December 31, 2002 and 2001,
and the related consolidated statements of income,
shareholders' equity, and cash flows for each of the years
in the three-year period ended December 31, 2002. These
consolidated financial statements are the responsibility of
Nelnet, Inc. and subsidiaries' management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with
auditing standards generally accepted in the United States of
America. These standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of Nelnet, Inc. and
subsidiaries as of December 31, 2002 and 2001, and the
results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 2002, in
conformity with accounting principles generally accepted in the
United States of America.
KPMG LLP
Lincoln, Nebraska
March 21, 2003, except as to note 19
which is as of
August 14, 2003
F-2
Nelnet, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31,
June 30,
2003
2002
2001
(unaudited)
(in thousands)
Assets
Student loans receivable (net of allowance for
    losses of $13,750, $12,000 and $10,242, respectively)
$
9,466,523
8,559,420
7,423,872
Cash and cash equivalents
47,776
40,155
36,440
Restricted cash — held by trustee
448,386
570,703
213,658
Restricted investments — held by trustee
131,159
173,339
121,606
Restricted cash — due to loan program
    customers
32,553
132,375
65,792
Accrued interest receivable
191,481
177,015
180,634
Accounts receivable, net
14,765
14,838
14,365
Intangible assets, net
14,252
19,905
15,652
Furniture, equipment and leasehold improvements,
    net
14,564
12,910
9,323
Other assets
51,655
65,923
53,218
Total assets
$
10,413,114
9,766,583
8,134,560
Liabilities and Shareholders'
    Equity
Liabilities:
Bonds and notes payable
$
10,179,726
9,447,682
7,926,362
Accrued interest payable
20,927
20,251
21,145
Other liabilities
52,719
57,529
56,569
Due to loan program customers
32,553
132,375
65,792
Total liabilities
10,285,925
9,657,837
8,069,868
Minority interest
—
(376
)
1,506
Commitments and contingencies
Shareholders' equity:
Preferred stock, $0.01 per value. Authorized
    50,000,000 shares; no shares issued or outstanding
—
—
—
Common stock:
Class A, $0.01 par value. Authorized
    600,000,000 shares; issued and outstanding
    31,015,034 shares in 2003 and 30,947,834 shares in
    2002 and 2001
310
309
309
Class B, $0.01 par value. Authorized
    150,000,000 shares; issued and outstanding
    14,023,454 shares
140
140
140
Additional paid-in capital
48,832
39,417
32,625
Retained earnings
77,907
69,256
30,112
Total shareholders' equity
127,189
109,122
63,186
Total liabilities and shareholders' equity
$
10,413,114
9,766,583
8,134,560
See accompanying notes to consolidated financial
statements.
F-3
Nelnet, Inc. and Subsidiaries
Consolidated Statements of Income
June 30,
December 31,
2003
2002
2002
2001
2000
(unaudited)
(in thousands, except per share data)
Interest income:
Loan interest
$
183,942
221,220
405,149
318,453
281,028
Investment interest
9,268
8,884
20,759
16,794
17,933
Total interest income
193,210
230,104
425,908
335,247
298,961
Interest expense:
Interest on bonds and notes payable
101,287
113,969
235,008
220,682
234,108
Net interest income
91,923
116,135
190,900
114,565
64,853
Less provision for loan losses
4,860
2,116
5,587
3,925
1,370
Net interest income after provision for loan
    losses
87,063
114,019
185,313
110,640
63,483
Other income:
Loan servicing and other fee income
48,307
54,812
103,899
93,172
66,015
Software services and other income
9,454
9,392
21,909
7,713
8,431
Total other income
57,761
64,204
125,808
100,885
74,446
Operating expenses:
Salaries and benefits
56,986
59,327
106,874
77,370
51,765
Other expenses
57,524
56,536
122,999
114,108
74,720
Total operating expenses
114,510
115,863
229,873
191,478
126,485
Income before income taxes and minority interest
30,314
62,360
81,248
20,047
11,444
Income tax expense
12,519
24,621
33,086
12,302
6,924
Income before minority interest
17,795
37,739
48,162
7,745
4,520
Minority interest in subsidiary (income) loss
109
49
376
(598
)
—
Net income
$
17,904
37,788
48,538
7,147
4,520
Earnings per share, basic and diluted
$
0.40
0.84
1.08
0.16
0.11
See accompanying notes to consolidated financial
statements.
F-4
Nelnet, Inc. and Subsidiaries
Consolidated Statements of Shareholders'
Equity
Six months ended June 30, 2003
(unaudited) and years ended December 31, 2002, 2001
and 2000
Class A
Class B
Additional
Total
Preferred
common
common
paid-in
Retained
shareholders'
stock
stock
stock
capital
earnings
equity
(in thousands)
Balance at December 31, 1999
$
9
295
132
1,373
13,571
15,380
Net income
—
—
—
4,520
4,520
Purchase accounting adjustments as a result of
    reverse acquisition
(9
)
—
8
33,372
977
34,348
Minority interest loss in excess of minority
    interest capital
—
—
—
(87
)
—
(87
)
Balance at December 31, 2000
—
295
140
34,658
19,068
54,161
Net income
—
—
—
(3,897
)
11,044
7,147
Issuance of 1,535,520 shares of Class A
    common stock
—
14
—
1,996
—
2,010
Minority interest loss in excess of minority
    interest capital
—
—
—
(132
)
—
(132
)
Balance at December 31, 2001
—
309
140
32,625
30,112
63,186
Net income
—
—
—
6,400
42,138
48,538
Dividend distribution
—
—
—
—
(2,994
)
(2,994
)
Recapture of minority interest loss in excess of
    minority interest capital
—
—
—
392
—
392
Balance at December 31, 2002
—
309
140
39,417
69,256
109,122
Net income (unaudited)
—
—
—
9,253
8,651
17,904
Issuance of 331,800 shares of Class A
    common stock (unaudited)
—
3
—
803
—
806
Redemption of 264,600 shares of Class A
    common stock (unaudited)
—
(2
)
—
(641
)
—
(643
)
Balance at June 30, 2003 (unaudited)
$
—
310
140
48,832
77,907
127,189
See accompanying notes to consolidated financial
statements.
F-5
Nelnet, Inc. and Subsidiaries
Consolidated Statements of Cash
Flows
June 30,
December 31,
2003
2002
2002
2001
2000
(unaudited)
(in thousands)
Net income
$
17,904
37,788
48,538
7,147
4,520
Adjustments to reconcile net income to net cash
    provided by operating activities:
Depreciation and amortization
46,814
36,597
88,457
38,379
23,487
Unrealized (gain) loss on interest rate swap
—
(579
)
(579
)
2,962
—
Deferred income tax benefit
(4,751
)
(1,876
)
(3,068
)
(4,441
)
(1
)
Minority interest in subsidiary loss (income)
(109
)
(49
)
(376
)
598
—
Provision for loan losses
4,860
2,116
5,587
3,925
1,370
Decrease (increase) in accrued interest
    receivable
(14,466
)
(20,323
)
3,619
(14,661
)
(31,352
)
Decrease (increase) in accounts receivable
73
(4,174
)
918
13,286
(18,483
)
Decrease (increase) in other assets
12,841
(835
)
(7,608
)
18,107
(5,629
)
Increase (decrease) in accrued interest
    payable
676
530
(894
)
(3,554
)
2,708
Increase (decrease) in other liabilities
393
11,127
(384
)
19,744
9,763
Net cash provided by (used in) operating
    activities
64,235
60,322
134,210
81,492
(13,617
)
Cash flows from investing activities:
Originations, purchases and consolidations of
    student loans, including premiums
(1,410,361
)
(851,825
)
(2,918,859
)
(1,441,309
)
(997,827
)
Proceeds from sales of student loans
—
—
—
—
9,906
Net proceeds from student loan principal payments
    and loan consolidations
468,096
244,637
1,724,077
529,190
381,861
Net purchases of furniture and equipment
(6,245
)
(3,407
)
(13,408
)
(6,264
)
(4,003
)
Decrease (increase) in restricted
    cash — held by trustee
122,317
(178,770
)
(357,045
)
(50,186
)
(42,052
)
Purchases of restricted investments —
    held by trustee
(165,723
)
(133,285
)
(318,822
)
(302,050
)
(53,068
)
Proceeds from maturities of restricted
    investments — held by trustee
207,903
154,830
267,089
296,405
51,778
Net cash paid in acquisition of subsidiaries, net
    of cash acquired
—
(20,809
)
(20,809
)
(102,184
)
1,594
Net cash used in investing activities
(784,013
)
(788,629
)
(1,637,777
)
(1,076,398
)
(651,811
)
Cash flows from financing activities:
Payments on bonds and notes payable
(1,488,914
)
(1,073,857
)
(2,259,769
)
(324,561
)
(331,402
)
Proceeds from issuance of bonds and notes payable
2,221,077
1,817,104
3,781,474
1,338,959
1,000,000
Payment of debt issuance costs
(4,927
)
(6,875
)
(11,429
)
(8,325
)
(4,376
)
Cash distributions to shareholders
—
(2,994
)
(2,994
)
—
—
Payments for redemption of common stock
(643
)
—
—
—
—
Proceeds from issuance of common stock
806
—
—
2,010
—
Net cash provided by financing activities
727,399
733,378
1,507,282
1,008,083
664,222
Net increase (decrease) in cash and cash
    equivalents
7,621
5,071
3,715
13,177
(1,206
)
Cash and cash equivalents, beginning of period
40,155
36,440
36,440
23,263
24,469
Cash and cash equivalents, end of period
$
47,776
41,511
40,155
36,440
23,263
Supplemental disclosures of cash flow information:
Interest paid
$
94,731
111,426
222,528
227,198
229,673
Income taxes paid
$
8,223
24,376
40,098
14,777
8,466
Supplemental disclosure of noncash operating
activities regarding acquisitions is contained in note 1.
See accompanying notes to consolidated financial
statements.
F-6
Nelnet, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements
June 30, 2003 and 2002 and
December 31, 2002, 2001 and 2000
(Data as of and for the six months ended
June 30, 2003 and 2002 is unaudited)
(1) Corporate Structure
(a) Corporate
    Organization
Nelnet, Inc. (which changed its name from Nelnet
Loan Services, Inc. effective August 14, 2003) is a
privately owned, vertically integrated education finance
company, which, together with its subsidiaries, is focused on
providing quality products and services to participants in the
education finance process. Nelnet is a originator; holder and
servicer of education loans and offers a broad range of
financial services and technology-based products, including
student loan origination and lending, student loan and guarantee
services and a suite of internet-based software solutions.
The consolidated financial statements include the
accounts of Nelnet, Inc. and subsidiaries (Nelnet or the
Company) as described in the following paragraphs. All
significant intercompany balances and transactions have been
eliminated in consolidation.
The Company owns the stock of various
corporations which are engaged in the securitization of
education finance assets. The Company's student lending
subsidiaries described below are separate entities holding
beneficial interests in eligible loans, subject to creditors
with specific interests. The liabilities of the Company's
student lending subsidiaries are not the liabilities of the
Company or any of its other subsidiaries and cannot be
consolidated in the event of bankruptcy. The transfers of
student loans to the eligible lender trusts do not quality as
sales under the provisions of Statement of Financial Accounting
Standards (SFAS) No. 140,
Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities
, as the trusts continue to be under the
effective control of the Company. All the financial activities
and related assets and liabilities of the securitizations are
reflected in the Company's consolidated financial
statements. The following subsidiaries of the Company hold the
financial assets (collectively known as the Student Lending
Subsidiaries):
NELNET Student Loan Corporation–1
    (NELNET–1)
NELNET Student Loan Corporation–2
    (NELNET–2)
Nelnet Student Loan Funding LLC (NELNET SLF)
Nelnet Education Loan Funding, Inc. (formerly
    known as NEBHELP, Inc.) (NELF)
MELMAC, Inc. and subsidiaries (MELMAC)
NHELP–I, Inc. (NHELP–I)
NHELP–II, Inc. and subsidiary (NHELP–II)
NHELP–III, Inc. (NHELP–III)
Nelnet Student Loan Warehouse Corporation-1
    (NELNET SLWC-1)
NELnet Private Student Loan Corporation-1 (NELnet
    Private-1)
EFS Finance Co. (EFS Fin Co.) and its subsidiary,
    EMT Corporation (EMT Corp.)
NELNET–1, NELNET–2, NELNET SLF, NELF,
NHELP–II, NELnet Private-1, MELMAC, and EMT Corp. finance
eligible student loan assets on a more permanent basis, as the
assets are funded with bonds and notes payable, which have
longer maturities. NHELP–I, NHELP–III, NELNET SLWC-1,
select operating lines within NELF, and EFS Fin Co. are
warehouse facilities designed to fund student loan assets on a
temporary basis until the assets are moved to another Student
Lending Subsidiary to provide permanent financing.
The Company also provides managerial,
administrative support, loan servicing, origination processing,
computer software development, and marketing to the Student
Lending Subsidiaries through the following wholly owned
subsidiary management companies, Nelnet Marketing Solutions,
Inc. (NMS) and subsidiaries, including its 100% owned subsidiary
(80% owned through February 28, 2003), Student Partner
Services, Inc (SPS); Nelnet Guarantee Services, Inc. and
GuaranTec LLP (collectively, NGS);
F-7
Nelnet, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
EFS Services, Inc. (EFS Services); Charter
Account Systems, Inc. (Charter); Idaho Financial Associates,
Inc. (IFA); and Nelnet Corporation.
Nelnet is the legal parent of National Education
Loan Network, Inc. (NELN). Through May 15, 2002, Nelnet
also owned 91.43% of Infovisa, Inc. and its subsidiary
(Infovisa). Infovisa primarily developed and provided software
systems for financial institutions. Effective May 15, 2002,
Nelnet sold its ownership of Infovisa to Farmers & Merchants
Investment Inc. (F&M) at carrying value, which approximates
fair value.
Effective March 2, 2000, Nelnet's
common stock, which was owned by Union Bank and Trust Company
(UB&T), was spun out to its holding company, F&M, and
the minority stockholders of UB&T. F&M is an entity
under common control with the Company. Following this
distribution, Nelnet entered into a triangular reorganization,
pursuant to which Nelnet established a new subsidiary, NELN.
NELN acquired through merger a former entity also named National
Education Loan Network, Inc. Subsequent to the reorganization,
Nelnet became the legal parent of NELN and its subsidiaries.
Majority voting and ownership control was retained by the former
shareholders of NELN, and accordingly, the transaction was
treated as a reverse acquisition for financial statement
reporting purposes. In accordance with generally accepted
accounting principles, NELN was treated as the acquiring entity
and Nelnet as the acquired entity.
As Nelnet was the acquired entity, Nelnet's
assets were recorded at fair value at the date of the reverse
acquisition. Intangible assets, consisting of loan servicing
contracts, were recorded through a credit to additional paid-in
capital. Retained earnings of Nelnet at the date of acquisition
were also transferred to additional paid-in capital. In
addition, the preferred and common stock of NELN was converted
to new shares of stock of Nelnet. Therefore, on the accompanying
consolidated statements of shareholders' equity, the common
stock consists of legal shares of Nelnet and the retained
earnings are those of NELN.
NELNET SLWC-1, NELNET SLF, and SPS commenced
their business operations on January 24, 2002, May 1,
2002, and May 15, 2002, respectively. NELnet Private-1
commenced its business operations on November 1, 2001. The
consolidated financial statements reflect the operations of
these entities since the commencement dates.
(b) Description of
    Business
The Student Lending Subsidiaries are organized as
special-purpose bankruptcy remote entities which primarily
invest in eligible student loans, through an eligible lender
trustee, issued under Title IV of the Higher Education Act of
1965, as amended (the Act). NHELP–II and NELnet Private-1
also invest in self-insured or privately-insured student loan
programs, known as consumer education loans, through an eligible
lender trustee.
Student loans beneficially owned by the Student
Lending Subsidiaries include those originated under the Stafford
Loan Program (SLP), the Parent Loan Program for Undergraduate
Students (PLUS) program, the Supplemental Loans for Students
(SLS) program, and loans which consolidate certain borrower
obligations (Consolidation). Title to the student loans is held
by eligible lender trustees under the Act for the benefit of the
Student Lending Subsidiaries. The financed eligible loan
borrowers are geographically located throughout the United
States. The bonds and notes payable outstanding are payable
primarily from interest and principal payments on the student
loans, as specified in the resolutions authorizing the sale of
the bonds and notes.
Nelnet and EFS Services are engaged in the
processing of student loan originations and servicing of student
loans for loan program lending entities. Loan servicing
contracts are generally for three years or more and provide for
Nelnet and EFS Services to receive as compensation a rate per
loan account or a percentage of loan balances serviced. NGS
provides servicing for certain student loan guaranty agencies.
F-8
Nelnet, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
Charter and IFA develop computer software for
student loan services as well as provide computer consulting,
write custom software applications, and provide customer service
support.
(c) Acquisitions
Nelnet Guaranties Services, Inc. commenced its
business operations in June 2001. On June 30, 2001, it
acquired 51% of the voting control of GuaranTec, LLP (GuaranTec)
for $2.6 million. On January 1, 2002, Nelnet
Guaranties Services, Inc. acquired the remaining 49% of
GuaranTec for $4.5 million from F&M. The excess
purchase price over F&M's carrying value was
$3.0 million. As the 49% interest was acquired from an
entity under common control with the Company, the excess
purchase price was recorded as a dividend distribution in the
consolidated statement of shareholders' equity in 2002.
On January 1, 2001, NELN acquired MELMAC and
its wholly owned subsidiaries, MELMAC LLC and MELMAC Enterprise,
Inc., for approximately $30 million. The acquisition was
accounted for under purchase accounting. The assets and
liabilities of MELMAC and its subsidiaries were recorded at fair
value. An intangible asset, representing loan origination
rights, of approximately $4 million was recorded and is
being amortized over its estimated useful life of three years.
The results of operations of MELMAC have been included in the
consolidated financial statements since the date of acquisition.
On December 21, 2001, NELN acquired all of
the outstanding stock of EFS, Inc. (EFS) and its wholly owned
subsidiaries, EMT Corp., EFS Services, EFS Fin Co., and
Advantage Network, Inc., for approximately $141 million.
The acquisition was accounted for under purchase accounting. The
assets and liabilities of EFS and its subsidiaries were recorded
at fair value. An intangible asset, representing lender
relationships, of approximately $4 million was recorded and
is being amortized over its estimated useful life of three
years. The results of operations of EFS have been included in
the consolidated financial statements since the date of
acquisition.
NELN acquired MELMAC and EFS to increase its
market share in the student lending industry. The allocation of
the purchase price for the MELMAC and EFS acquisitions is shown
below (dollars in thousands):
Loans
$
3,021,791
Other assets
221,447
Intangible assets
8,006
Bonds and notes payable
(3,055,403
)
Other liabilities
(24,455
)
Total purchase price
$
171,386
On January 2, 2002, NELN acquired IFA for
approximately $17 million. The acquisition was accounted
for under purchase accounting. The assets and liabilities of IFA
were recorded at fair value. An intangible asset, representing
servicing system software and other intellectual property, of
$14.2 million was recorded and is being amortized over its
estimated useful life of three years. The results of operations
of IFA have been included in the consolidated financial
statements since the date of acquisition.
On May 9, 2002, NELN acquired Charter for
approximately $7 million. The acquisition was accounted for
under purchase accounting. The assets and liabilities of Charter
were recorded at fair value. An intangible asset, representing
servicing system software and other intellectual property, of
$6.8 million was recorded and is being amortized over its
estimated useful life of three years. The results of operations
of Charter have been included in the consolidated financial
statements since the date of acquisition.
F-9
Nelnet, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
NELN acquired IFA and Charter to provide student
loan servicing software solutions to the student lending
industry. The allocation of the purchase price for the IFA and
Charter acquisitions is shown below (dollars in thousands):
Cash and investments
$
2,972
Accounts receivable
1,390
Other assets
281
Intangible assets
21,061
Deferred revenue and other liabilities
(1,923
)
Total purchase price
$
23,781
The following unaudited pro forma information
presents the combined results of the Company as though the 2002,
2001 and 2000 acquisitions occurred on January 1, 2000. The
pro forma financial information does not necessarily reflect the
results of operations if the acquisitions had been in effect at
the beginning of the period or which may be attained in the
future.
Pro forma
Pro forma
year ended
year ended
December 31, 2001
December 31, 2000
(dollars in thousands)
(unaudited)
Net interest income
$
153,674
89,613
Other income
$
125,985
130,682
Net income (loss)
$
11,905
(8,273
)
Weighted average shares outstanding, basic and
    diluted
44,331,490
41,187,130
Earnings (loss) per share, basic and diluted
$
0.27
$
(0.20
)
The pro forma information presenting the combined
operations of the Company as though the 2002 acquisitions
occurred on January 1, 2002 is not significantly different
than actual 2002 results.
In June 2001, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards
(SFAS) No. 141,
Business Combinations
(SFAS
No. 141), and SFAS No. 142,
Goodwill and Other
Intangible Assets
(SFAS No. 142). SFAS No. 141
requires that the purchase method of accounting be used for all
business combinations. SFAS No. 141 specified criteria that
intangible assets acquired in a business combination must meet
to be recognized and reported separately from goodwill. SFAS
No. 142 requires that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead
tested for impairment at least annually in accordance with the
provisions of SFAS No. 142. SFAS No. 142 also requires
that intangible assets with estimable useful lives be amortized
over their respective estimated useful lives to their estimated
residual values.
The Company adopted the provisions of SFAS
No. 141 as of July 1, 2001 and SFAS No. 142 as of
January 1, 2002. Upon adoption of SFAS No. 142, the
Company was required to evaluate its existing intangible assets
and goodwill that were acquired in purchase business
combinations and to make any necessary reclassifications in
order to conform with the new classification criteria in SFAS
No. 141 for recognition separate from goodwill. The Company
was also required to reassess the useful lives and residual
values of all intangible assets acquired and make any necessary
amortization period adjustments by the end of the first interim
period after adoption. Based on this evaluation, no
reclassifications or changes to useful lives or residual values
were made. The Company has no intangible assets with indefinite
useful lives.
F-10
Nelnet, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
(2) Interim Financial
Information
The accompanying interim financial information as
of June 30, 2003 and for the six months ended June 30,
2003 and 2002 have not been audited by independent accountants.
In the opinion of management, the accompanying unaudited interim
financial information contains all adjustments (consisting only
of normal recurring accruals) considered necessary for a fair
presentation in accordance with generally accepted accounting
principals. The interim financial information should be read in
conjunction with the audited financial statements and notes for
the years ended December 31, 2002, 2001, and 2000. The
results of operations for the six months ended June 30,
2003 are not necessarily indicative of the results which may be
expected for the entire calendar year 2003.
(3) Summary of Significant Accounting
Policies and Practices
(a) Student Loans Receivable and
    Allowance for Loan Losses
Investments in student loans, including premiums,
are recorded at cost, net of premium amortization and the
allowance for loan losses. Premiums are amortized over the
estimated lives of the related loans.
The allowance for loan losses is estimated and
established through a provision charged to expense. Losses are
charged against the allowance when management believes that the
collectibility of the loan principal is unlikely. Recovery of
amounts previously charged off is credited to the allowance for
loan losses. The charge to operations is estimated and based on
management's evaluation of the loan portfolio, including
such factors as the volume and character of loans outstanding,
past loan loss experience, and general economic conditions.
Management believes that the allowance for loan
losses is adequate. While management uses available information
to recognize probable losses on loans, future additions to the
allowance for loan losses may be necessary based on changes in
economic conditions.
(b) Cash and Cash
    Equivalents
For purposes of the consolidated statements of
cash flows, the Company considers all investments with original
maturities of three months or less to be cash equivalents.
(c) Restricted Cash and Restricted
    Investments — Held by Trustee
The Company's restricted cash and restricted
investments are held by trustees in various accounts, subject to
use restrictions, imposed by the trust indentures.
(d) Restricted Cash — Due to
    Loan Program Customers/ Due to Loan Program
    Customers
As a servicer of student loans, Nelnet collects
student loan remittances and subsequently disburses these
remittances to the appropriate lending entities. Cash collected
for customers and the related liability are included in the
accompanying consolidated balance sheets. Net interest income
earned by the Company on this cash in the six months ended
June 30, 2003 and 2002 and for the years ended
December 31, 2002, 2001, and 2000 was $360,000, $784,000,
$1.2 million, $2.1 million, and $3.3 million,
respectively.
(e) Intangible Assets
Intangible assets, consisting of loan servicing
contracts, lender relationships, loan origination rights, and
servicing system software, are being amortized on a
straight-line basis over the expected periods to be benefited,
ranging from 30 to 36 months. Accumulated amortization
related to intangible assets was $42.8 million,
$36.7 million, and $19.9 million at June 30, 2003
and December 31, 2002 and 2001,
F-11
Nelnet, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
respectively. The Company recorded amortization
of $6.1 million, $9.3 million, $16.8 million,
$11.8 million, and $8.1 million for the six months
ended June 30, 2003 and 2002 and for the years ended
December 31, 2002, 2001, and 2000, respectively. The
Company will continue to amortize intangible assets over their
remaining useful lives and will record amortization of
$10.8 million, $8.3 million, and $0.8 million in
2003, 2004, and 2005, respectively.
(f) Furniture, Equipment and Leasehold
    Improvements
Furniture and equipment are carried at cost, net
of accumulated depreciation and amortization. Maintenance and
repairs are charged to expense as incurred, and major
improvements, including leasehold improvements, are capitalized.
Gains and losses from retirement of equipment and improvements
are included in determining net income. The Company uses
accelerated and straight-line methods for recording depreciation
and amortization.
(g) Other Assets
Other assets are recorded at cost or amortized
cost and consist primarily of prepaid bond insurance, debt
issuance costs, deferred tax assets, and income taxes
receivable. Prepaid bond insurance and debt issuance costs are
amortized using the straight-line method and effective interest
methods over the estimated lives of the bonds and notes payable.
(h) Program Reimbursement
    Reserve
The program reimbursement reserve, which is
included in other liabilities, represents the amount of student
loans that management estimates the Company will be required to
repay to lenders, for which the Company performs servicing, due
to the Company's failure to follow prescribed due diligence
procedures. The program reimbursement reserve is established
through a provision for losses charged to expense. The amount of
provision is based on management's evaluation of the
servicing portfolio as it relates to the complex due diligence
requirements that must be followed to maintain the Department of
Education guarantee on the loans. Failure to meet certain due
diligence requirements will cause a loss of guarantee on the
loans and potential loss to the Company if it is unable to cure
the condition under procedures prescribed by the federal
government.
Serviced student loans are charged against the
allowance when they lose their Department of Education guarantee
and management is required to reimburse the lender. Loans that
are subsequently returned to a repayment status can reacquire
their guaranteed status, and such amounts are then credited to
the program reimbursement reserve as recoveries.
Management believes that the program
reimbursement reserve is adequate. While management uses
available information to determine the adequacy of the reserve
and to recognize losses, future additions to the reserve may be
necessary based on changes in federal policy, economic
conditions, or management's performance relating to
compliance with the Department of Education's due diligence
requirements.
(i) Software Sales, Development and
    Maintenance, and Deferred Income
Charter and IFA account for software revenues in
accordance with the AICPA's Statement of
Position 97-2,
Software Revenue Recognition
(SOP 97-2). SOP 97-2 provides guidance on when and
in what amounts income should be recognized for licensing,
selling, leasing, or otherwise marketing computer software.
Income for contracts with customers that does not require
significant production, modification, or customization of
software is recognized when all the following criteria are met:
persuasive evidence of an arrangement exists, delivery has
occurred, vendors fee is fixed and determinable, and
collectibility is probable. Income paid on maintenance and
enhancement agreements for services to be performed in
F-12
Nelnet, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
subsequent periods is deferred and recognized in
income over the life of the agreements. Deferred revenue of
approximately $440,000 and $900,000 is included in other
liabilities on the accompanying consolidated balance sheets at
June 30, 2003 and December 31, 2002, respectively.
(j) Minority Interest
In 2001, minority interest reflects the
proportionate share of shareholders' equity and income of
GuaranTec's minority stockholder. In 2003 and 2002,
minority interest reflects the proportionate share of
shareholders' equity and loss of SPS's minority
stockholders.
Nelnet allocated Infovisa's income or loss
proportionately between Nelnet's percentage interest and
the remaining percentage minority interest. When losses
applicable to the minority interest exceeded the minority
interest in equity capital, such excess was charged against
Nelnet's interest as a charge to retained earnings in
Nelnet's shareholders' equity. When earnings were
generated applicable to the minority interest, Nelnet's
interest was credited through retained earnings to the extent of
losses previously charged to retained earnings. For purposes of
reporting on the Company, these changes are reflected in
additional paid-in capital, as retained earnings are those of
NELN. During 2002, Infovisa was sold to F&M and the minority
interest loss was recaptured through additional paid-in capital
at the date of sale.
(k) Accounting for Derivatives and
    Hedging Activities
Effective January 1, 2001, the Company
adopted SFAS No. 133,
Accounting for Derivative
Instruments and Hedging Activities
, as amended by SFAS
No. 138,
Accounting for Certain Derivative Instruments
and Certain Hedging Activities, an Amendment of FASB Statement
No. 133
. These Statements establish accounting and
reporting standards for derivative instruments and hedging
activities, including certain derivative instruments embedded in
other contracts, and requires that an entity recognize all
derivatives as assets or liabilities in the balance sheet and
measure them at fair value. The Company has entered into
interest rate swap agreements, as discussed further in
note 12. As the swap agreements were not designated as
hedging instruments, changes in fair value are recognized in net
income in the period of change.
(l) Impairment of Long-lived
    Assets
Long-lived assets, such as furniture and
equipment and purchased intangibles subject to amortization, are
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset
to estimated undiscounted future cash flows expected to be
generated by the asset. If the carrying amount of an asset
exceeds its estimated future cash flows, an impairment charge is
recognized by the amount by which the carrying amount of the
asset exceeds the fair value of the asset. There were no
impairments of long-lived assets in 2003, 2002, 2001, or 2000.
(m) Loan Interest
Interest on student loans is accrued when earned,
and reduced for the amortization of premiums. The interest is
paid by the Department of Education or the borrower, depending
on the status of the loan at the time of accrual. In addition,
the Department of Education makes quarterly interest subsidy
payments on certain qualified Title IV loans until the student
is required under the provisions of the Act to begin repayment.
Repayment on guaranteed student loans normally begins within six
months after completion of their course of study, leaving
school, or ceasing to carry at least one-half the normal
full-time academic load as determined by the educational
institution. Repayment of PLUS loans normally begins within
60 days from the date of loan disbursement and repayment of
SLS loans begins within one month after
F-13
Nelnet, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
completion of course study, leaving school, or
ceasing to carry at least the normal full-time academic load as
determined by the educational institution.
Interest on consumer education loans is accrued
to the borrower and is either paid by the borrower or
capitalized annually or at repayment. Repayment on consumer
education loans typically begins six months following graduation
from a qualified institution.
The Department of Education provides a special
allowance to lenders participating in the SLP. The special
allowance is accrued when earned and is determined quarterly
based upon the average rate established in the auction of
13-week Treasury bills in the previous quarter relative to the
yield of the student loan. The special allowance is reduced by
approximately one-half for loans which were originated or
purchased from funds obtained from issuance of tax-exempt
obligations, depending upon the issue date of the obligations.
(n) Loan Servicing
    Income
Loan servicing fees are determined according to
agreements with customers and are generally calculated based on
the dollar value or number of loans serviced for each customer.
Fees are normally received and recorded as income on a monthly
basis. As of June 30, 2003 and December 31, 2002 and
2001, the Company serviced $17.9 billion,
$17.9 billion, and $17.0 billion, respectively, of
loans, including approximately $8.3 billion,
$7.5 billion, and $6.7 billion of Company-owned loans,
and $550 million, $720 million, and $834 million
of loans serviced for UB&T.
(o) Income Tax Expense
Income taxes are accounted for under the asset
and liability method. Deferred income tax assets and liabilities
are recognized for the future tax consequences attributable to
temporary differences between the consolidated financial
statement carrying amounts of existing assets and liabilities
and their respective income tax basis. Deferred income tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
(p) Earnings Per Share
The basic earnings per common share (EPS) is
computed by dividing net income by the weighted-average number
of common shares outstanding for the periods presented. The
weighted average number of shares used in the six months ended
June 30, 2003 and 2002 and for the years ended
December 31, 2002, 2001 and 2000, adjusted to reflect the
recapitalization referred to in note 19, were 45,010,490,
44,971,290, 44,971,290, 44,331,490, and 41,187,230,
respectively. Nelnet had no common stock equivalents and no
potentially dilutive common shares during the periods presented.
(q) Comprehensive Income
The Company has no sources of other comprehensive
income. Therefore, comprehensive income consists solely of net
income.
(r) Use of Estimates
The preparation of the consolidated financial
statements in conformity with accounting principles generally
accepted in the United States of America requires management to
make a number of estimates and assumptions that affect the
reported amounts of assets and liabilities, reported amounts of
revenues and expenses, and other disclosures. Actual results
could differ from those estimates. The most significant
F-14
Nelnet, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
estimates made by management relate to the
adequacy of the program reimbursement reserve and allowance for
loan losses.
(s) Reclassification
Certain amounts have been reclassified to conform
to the 2003 consolidated financial statement presentation.
(4) Industry Segment
Information
The Company's activities are considered to
be a single industry segment for financial reporting purposes.
The Company is engaged in the business of student education
finance and related activities. Substantially all income is
derived from these activities.
(5) Restricted Investments —
Held by Trustee
NELF and MELMAC's restricted investments are
held by a trustee in various accounts subject to use
restrictions and consist of guaranteed investment contracts,
commercial banking deposits, and repurchase agreements, which
are classified as held-to-maturity. The carrying value of these
investments approximates fair value at June 30, 2003 and
December 31, 2002 and 2001. The carrying value of these
investments by contractual maturity is shown below (dollars in
thousands):
December 31,
June 30,
2003
2002
2001
(unaudited)
Over 1 year through 5 years
$
2,097
2,709
5,335
After 5 years through 10 years
16,627
20,729
15,799
After 10 years
112,435
149,901
100,472
$
131,159
173,339
121,606
(6) Student Loans Receivable and
Concentration of Credit Risk
Student loans receivable at June 30, 2003
and December 31, 2002 and 2001 consisted of the following
(dollars in thousands):
December 31,
June 30,
2003
2002
2001
(unaudited)
Title IV guaranteed loans
$
9,393,292
8,496,760
7,372,968
Privately-insured consumer education loans
30,458
23,108
24,232
Self-insured consumer education loans
56,523
51,552
36,914
9,480,273
8,571,420
7,434,114
Less allowance for loan losses
13,750
12,000
10,242
$
9,466,523
8,559,420
7,423,872
Guaranteed loans may be made under the guaranteed
student loan program by certain lenders as defined by the Act.
These loans, including related accrued interest, are guaranteed
at their maximum level permitted under the Act by an authorized
guaranty agency which has a contract of reinsurance with the
Department of Education. The terms of the loans, which vary on
an individual basis, generally provide for repayment in monthly
installments of principal and interest over a period of up to
20 years. Interest rates
F-15
Nelnet, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
on loans may be fixed or variable, will vary
based on the average of the 91-day U.S. Treasury bill rate,
and currently range from 3.0% to 13.0% (the weighted-average
rate was 5.0%, 5.3%, and 6.7% at June 30, 2003 and
December 31, 2002 and 2001) dependent upon type, terms of
loan agreements, and date of origination. For Title IV
loans, the Student Lending Subsidiaries have entered into trust
agreements in which unrelated financial institutions serve as
the eligible lender trustees. As eligible lender trustees, the
financial institutions act as the eligible lender in acquiring
certain eligible student loans as an accommodation to the
subsidiaries, which hold beneficial interests in the student
loan assets as the beneficiaries of such trusts.
Substantially all Title IV student loan
principal and related accrued interest is guaranteed as defined
by the Act. These guarantees are made subject to the performance
of certain loan servicing procedures stipulated by applicable
regulations. If these due diligence procedures are not met,
affected student loans may not be covered by the guarantees
should the borrower default. The Company and its Student Lending
Subsidiaries retain and enforce recourse provisions against
servicers and lenders under certain circumstances. Such student
loans are subject to "cure" procedures and
reinstatement of the guarantee under certain circumstances.
Also, in accordance with the Student Loan Reform Act of 1993,
student loans disbursed prior to October 1, 1993 are fully
insured, and loans disbursed subsequent to October 1, 1993
are insured up to 98% of their principal amount and up to 100%
as to accrued interest.
Student loans receivable also include a
beneficial interest in consumer education loans. The consumer
education loan programs consist of privately-insured and
self-insured loans. The terms of the consumer education loans,
which vary on an individual basis, generally provide for
repayment in monthly installments of principal and interest over
a period of up to 20 years. Interest rates on the loans
will vary based on the average of the 91-day Treasury bill or
the prime rate. The consumer education loans primarily represent
student borrowers in the medical, dental, or physical sciences
fields of study. The self-insured consumer education loans are
not covered by guarantees or collateral should the borrower
default. The privately-insured consumer education loans are
insured by various third parties for between 90% and 100% of
principal and interest.
The Company has provided for an allowance for
loan losses related to the self-insured consumer education loans
as well as the privately-insured consumer education and
Title IV guaranteed loans. The provision is based upon
historical default rates for such loans. Activity in the
allowance for loan losses for the six months ended June 30,
2003 and 2002 and the years ended December 31, 2002, 2001,
and 2000 is shown below (dollars in thousands):
June 30,
December 31,
2003
2002
2002
2001
2000
(unaudited)
Beginning balance
$
12,000
10,242
10,242
3,614
4,122
Transfer from acquisitions
—
—
—
4,866
—
Provision for loan losses
4,860
2,116
5,587
3,925
1,370
Loans charged off, net of recoveries
(3,110
)
(1,120
)
(3,829
)
(2,163
)
(1,878
)
Ending balance
$
13,750
11,238
12,000
10,242
3,614
(7) Guaranty and Insurance
Agencies
At June 30, 2003 and December 31, 2002
and 2001, Nebraska Student Loan Program, Inc., United Student
Aid Funds, Inc., Pennsylvania Higher Education Assistance
Authority, California Student Aid Commission, New York State
Higher Education Services Corporation, Iowa College Student Aid
Commission, Florida Department of Education Office of Student
Financial Assistance, and the Finance
F-16
Nelnet, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
Authority of Maine were the primary guarantors of
the student loans beneficially owned by the Student Lending
Subsidiaries. Management periodically reviews the financial
condition of its guarantors and does not believe the level of
concentration creates an unusual or unanticipated credit risk.
In addition, management believes that based on the Higher
Education Amendments of 1992, the security for and payment of
any of the Student Lending Subsidiaries' obligations would
not be materially adversely affected as a result of legislative
action or other failure to perform on its obligations on the
part of any guaranty agency. The Student Lending Subsidiaries,
however, offer no absolute assurances to that effect.
NHELP-II and NELnet Private-1 also have a student
loan indemnification agreement with a private insurer, under
which a portion of the consumer education loans are insured. The
agreement indemnifies NHELP-II and NELnet Private-1 for 90% of
losses incurred resulting from borrower default. Upon default,
all rights of recovery are subrogated to a private insurer. As
of June 30, 2003 and December 31, 2002 and 2001, a
private insurer insured 35%, 31%, and 18%, respectively, of the
consumer education loans owned by NHELP-II and NELnet Private-1.
(8) Furniture, Equipment and Leasehold
Improvements
Furniture, equipment and leasehold improvements
at June 30, 2003 and December 31, 2002 and 2001
consist of the following (dollars in thousands):
December 31,
Useful
June 30,
Life
2003
2002
2001
(unaudited)
Computer equipment and software
3-7 years
$
32,633
33,155
26,911
Office furniture and equipment
3-10 years
11,853
9,739
7,121
Leasehold improvements
1-7 years
4,859
4,507
3,215
49,345
47,401
37,247
Accumulated depreciation and amortization
34,781
34,491
27,924
$
14,564
12,910
9,323
Depreciation and amortization expense for the six
months ended June 30, 2003 and 2002 and for the years ended
December 31, 2002, 2001, and 2000 related to furniture,
equipment and leasehold improvements was $4.6 million,
$4.0 million, $10.1 million, $8.0 million, and
$4.3 million, respectively.
(9) Bonds and Notes Payable
The Student Lending Subsidiaries periodically
issue bonds, commercial paper, short-term variable auction rate
notes, taxable student loan asset-backed notes, and other credit
facilities to finance the acquisition of student loans or to
refinance existing debt. Most of the bonds and notes payable are
primarily secured by the student loans receivable, related
accrued interest, and by the amounts on deposit in the accounts
established under the respective bond resolutions or financing
agreements. The student loan interest margin (SLIMS) notes are
secured by the rights to residual cash flows from certain
variable-rate bonds and notes and fixed rate notes. Certain
variable-rate bonds and notes and fixed rate bonds of
$1.0 billion, $1.0 billion, and $883 million at
June 30, 2003 and December 31, 2002 and 2001,
respectively, are secured by financial guaranty insurance
policies issued by Municipal Bond Investors Assurance
Corporation (MBIA) and Ambac Assurance Corporation. Certain
variable-rate bonds and notes of $144 million in 2001 were
also secured by irrevocable letters of credit provided by
Student Loan Marketing Association (SLMA). Effective
January 2, 2002, the SLMA irrevocable letters of credit
were replaced with financial guaranty insurance policies issued
by MBIA. Effective November 20, 2002, SLMA was replaced as
the liquidity provider with Lloyd's Bank on
$143 million of variable-rate bonds.
F-17
Nelnet, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
The following table summarizes outstanding bonds
and notes payable at June 30, 2003 and December 31,
2002 and 2001 by type of instrument (dollars in thousands):
June 30, 2003 (unaudited)
Carrying
Interest rate
amount
range
Final maturity
Commercial paper and other
$
2,042,014
1.24% - 1.31%
09/02/04 - 12/15/06
Variable-rate bonds and notes
6,998,752
1.00% - 2.05%
07/01/05 - 01/25/37
Fixed-rate notes
730,000
5.50% - 5.76%
09/01/05 - 07/01/12
Fixed-rate bonds
192,950
5.88% - 6.60%
05/01/05 - 06/01/28
SLIMS, fixed rates
126,508
5.69% - 6.68%
09/14/12 - 07/02/20
Other secured borrowings
89,502
1.34% - 6.00%
01/10/05 - 11/01/05
$
10,179,726
December 31, 2002
Carrying
Interest rate
amount
range
Final maturity
Commercial paper and other
$
1,388,579
1.36% - 1.64%
05/01/03 - 12/15/06
Variable-rate bonds and notes
6,870,148
1.40% - 2.77%
07/01/05 - 10/01/36
Fixed-rate notes
786,700
5.48% - 5.76%
08/01/05 - 07/01/12
Fixed-rate bonds
201,950
5.65% - 6.90%
11/01/03 - 06/01/28
SLIMS, fixed rates
134,231
5.69% - 6.68%
09/14/12 - 07/02/20
Other secured borrowings
66,074
1.60% - 6.00%
01/10/03 - 11/01/05
$
9,447,682
December 31, 2001
Carrying
Interest rate
amount
range
Final maturity
Commercial paper and other
$
1,200,805
1.80% - 2.76%
05/01/03 - 05/01/07
Variable-rate bonds and notes
5,428,735
1.44% - 4.22%
07/01/05 - 10/01/36
Fixed-rate notes
855,000
5.48% - 5.76%
08/01/05 - 07/01/12
Fixed-rate bonds
227,874
5.25% - 6.90%
11/01/03 - 06/01/28
SLIMS, fixed rates
149,788
5.69% - 6.68%
09/04/12 - 07/02/20
Other secured borrowings
64,160
3.52% - 6.00%
06/30/02 - 11/01/09
$
7,926,362
Variable-rate bonds are long-term bonds with
interest rate reset dates ranging from weekly to semi-annually
and from time to time based upon auction rates and national
indices.
The Company has a $30 million line of credit
from an unrelated bank. As of June 30, 2003 and
December 31, 2002, $30 million was outstanding under
this line of credit. The line of credit bears interest at the
prime rate (4.25% at December 31, 2002) and now matures
January 2005. Effective January 10, 2003, the line of
credit bears interest at LIBOR plus 225 basis points (3.51% at
June 30, 2003). Interest is payable quarterly or monthly
depending on the term of the borrowing.
F-18
Nelnet, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
In May 2002 and October 2002, NELNET SLF
consummated debt offerings of student loan asset-backed notes of
$1.0 billion and $1.2 billion, respectively. In
connection with these debt offerings, the Company entered into
agreements with certain investment banks pursuant to which the
Company will pay the investment banks a fee equal in the
aggregate to 0.01% and 0.0075% per annum of the principal
balance of the May 2002 and October 2002 notes, respectively.
These fees are for credit enhancements to the notes whereby the
investment banks will provide liquidity advances to the Company
in the instance of disintermediation in the spread between
student loan interest rates and the notes' interest rates
as defined in the agreement. The total amount paid by the
Company under these agreements was approximately $84,000 and $0
during the six months ended June 30, 2003 and 2002 and
$72,000 during the year ended December 31, 2002.
Bonds and notes outstanding at June 30, 2003
are due in varying amounts as follows (dollars in thousands):
(unaudited)
2004
$
2,282,196
2005
218,916
2006
152,822
2007
234,760
2008
92,380
2009 and thereafter
7,198,652
$
10,179,726
Generally, bonds bearing interest at variable
rates can be redeemed on any interest payment date at par plus
accrued interest. Subject to conversion provisions, all bonds
and notes are subject to redemption prior to maturity at the
option of certain Student Lending Subsidiaries without a
prepayment penalty. These provisions include price, conditions
precedent, and limitations.
A Student Lending Subsidiary has irrevocably
escrowed funds to make the remaining principal and interest
payments on previously issued bonds and notes. Accordingly,
neither these obligations nor the escrowed funds are included on
the accompanying consolidated balance sheets. At June 30,
2003 and December 31, 2002 and 2001, $21.4 million,
$20.6 million, and $19.2 million, respectively, of
defeased debt remained outstanding.
The Student Lending Subsidiaries have unused
commitments under the various commercial paper and warehouse
agreements of $713 million, $416 million, and
$869 million at June 30, 2003 and December 31,
2002 and 2001, respectively. At June 30, 2003 and
December 31, 2002 and 2001, certain Student Lending
Subsidiaries had various short-term borrowing agreements with a
maximum aggregate stated amount of $2.9 billion,
$1.9 billion and $2.1 billion, respectively.
Certain bond resolutions contain, among other
requirements, covenants relating to restrictions on additional
indebtedness, limits as to direct and indirect administrative
expenses, and maintaining certain financial ratios. Management
believes the Company is in compliance with all covenants of the
bond indentures and related credit agreements.
(10) Program Reimbursement
Reserve
For the six months ended June 30, 2003 and
2002 and the years ended December 31, 2002, 2001, and 2000,
a provision for losses on program reimbursements of $900,000,
$800,000, $1.6 million, $1.2 million, and $800,000,
respectively, was recognized, which is included in other
expenses in the accompanying consolidated statements of income.
Other liabilities in the accompanying consolidated balance sheets
F-19
Nelnet, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
include $6.7 million, $6.1 million, and
$5.8 million as an allowance for program reimbursements at
June 30, 2003 and December 31, 2002 and 2001,
respectively.
(11) Income Taxes
Income tax expense for the six months ended
June 30, 2003 and 2002 and years ended December 31,
2002, 2001, and 2000 consists of the following
components(dollars in thousands):
Six months ended
Year ended
June 30,
December 31,
2003
2002
2002
2001
2000
(unaudited)
Current:
Federal
$
15,908
24,318
33,204
15,440
6,439
State
1,362
2,179
2,950
1,303
486
17,270
26,497
36,154
16,743
6,925
Deferred:
Federal
(4,372
)
(1,726
)
(2,823
)
(4,086
)
(3
)
State
(379
)
(150
)
(245
)
(355
)
2
(4,751
)
(1,876
)
(3,068
)
(4,441
)
(1
)
$
12,519
24,621
33,086
12,302
6,924
The actual income tax expense differs from the
"expected" income tax expense, computed by applying
the 35% federal statutory corporate tax rate to income before
income tax expense for the six months ended June 30, 2003
and 2002 and the years ended December 31, 2002, 2001, and
2000 as shown below (dollars in thousands):
Six months ended
June 30,
Year ended December 31,
2003
2002
2002
2001
2000
(unaudited)
"Expected" income tax expense
$
10,610
21,826
28,437
7,016
4,005
Increase (decrease) resulting from:
State tax, net of federal income benefit
639
1,326
1,758
616
317
Amortization of intangible assets
1,090
2,201
3,766
5,090
2,814
Other, net
180
(732
)
(875
)
(420
)
(212
)
$
12,519
24,621
33,086
12,302
6,924
Effective Tax Rate
41.3
%
39.5
40.7
61.4
60.5
F-20
Nelnet, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
The Company's deferred income tax assets and
liabilities as of June 30, 2003 and December 31, 2002
and 2001 consisted of the following(dollars in thousands):
December 31,
June 30,
2003
2002
2001
(unaudited)
Deferred tax liabilities:
Loan origination services
$
2,441
1,866
1,359
Other
511
696
1,065
Deferred tax liabilities
2,952
2,562
2,424
Deferred tax assets:
Student loan reserves
9,412
6,332
5,452
Accrued expenses not currently deductible
1,500
1,007
701
Partnership income
1,294
1,235
1,264
Intangible assets
2,691
1,798
11
Securitization transaction
1,543
1,057
456
Unearned revenue
1,103
941
1,113
Fixed assets
514
400
935
Other
306
452
84
Deferred tax assets
18,363
13,222
10,016
Net deferred income tax asset
$
15,411
10,660
7,592
No valuation allowance was considered necessary
for the deferred tax assets at June 30, 2003 and
December 31, 2002 and 2001.
F-21
Nelnet, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
(12) Fair Value of Financial
Instruments
The following table summarizes the fair values of
the Company's financial instruments at June 30, 2003,
December 31, 2002 and 2001:
June 30, 2003
December 31, 2002
December 31, 2001
Fair
Carrying
Fair
Carrying
Fair
Carrying
value
value
value
value
value
value
(unaudited)
Financial assets:
Cash and cash equivalents
$
47,776
$
47,776
$
40,155
$
40,155
$
36,440
$
36,440
Restricted cash — due to loan program
    customers
32,553
32,553
132,375
132,375
65,792
65,792
Restricted cash — held by trustee
448,386
448,386
570,703
570,703
213,658
213,658
Accrued interest Receivable
191,481
191,481
177,015
177,015
180,634
180,634
Student loans receivable
9,603,378
9,466,523
8,659,613
8,559,420
7,527,007
7,423,872
Restricted investments — held by trustee
131,159
131,159
173,339
173,339
121,606
121,606
Financial liabilities:
Bonds and notes payable
10,223,067
10,179,726
9,471,710
9,447,682
8,044,119
7,926,362
Accrued interest payable
20,927
20,927
20,251
20,251
21,145
21,145
Due to loan program customers
32,553
32,553
132,375
132,375
65,792
65,792
Interest rate swap
—
—
—
—
2,962
2,962
(a)
Cash and Cash Equivalents, Restricted
    Cash — Due to Loan Program Customers, Restricted
    Cash — Held by Trustee, Accrued Interest Receivable/
    Payable, and Due to Loan Program Customers
The carrying amount approximates fair value due
to the variable-rate of interest and/or the short maturities of
these instruments.
(b)
Student Loans Receivable
The fair value of student loans receivable is
estimated at amounts recently paid by the Company to acquire the
loans in the market.
(c)
Restricted Investments — Held by
    Trustee
Due to the characteristics of the investments,
there is no available or active market for these types of
financial instruments. These investments are guaranteed and are
purchased and redeemed at par value, which equals their cost.
(d)
Bonds and Notes Payable
The fair value of the bonds and notes payable is
based on market prices for securities that possess similar
credit risk and interest rate risk.
F-22
Nelnet, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
(e)
Derivative Financial
    Instruments
The fair value of the interest rate swap
agreement, obtained from a market quote from an independent
security broker, was the estimated amount that would have been
paid to terminate the swap agreement.
(f)
Limitations
The fair value of a financial instrument is the
current amount that would be exchanged between willing parties,
other than in a forced liquidation. Fair value is best
determined based upon quoted market prices. However, in many
instances, there are no quoted market prices for the
Company's various financial instruments. In cases where
quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash
flows. Accordingly, the fair value estimates may not be realized
in an immediate settlement of the instrument.
SFAS No. 107,
Disclosures About Fair Value of
Financial Instruments
excludes certain financial instruments
and all non-financial instruments from its disclosure
requirements. The fair value estimates, methods, and assumptions
are set forth below.
(13)
Interest Rate Swap
Interest rate swap agreements involve the
exchange of fixed and floating rate risk payments without the
exchange of the underlying notional amounts on which the
interest rate payments are calculated. During 2001, the Company
entered into an interest rate swap arrangement.
The notional amount under the terms of the
agreement was $500 million. In marking the notional amount
to market, based on the current interest rate environment, a
liability of approximately $3 million was recorded on the
Company's financial statements and was included in other
liabilities in the accompanying consolidated balance sheet at
December 31, 2001. Under the terms of the agreement, the
Company received payments based on a variable rate tied to the
30-day LIBOR and made payments based on a fixed interest rate of
3.06%. For the six months ended June 30, 2002 and years
ended December 31, 2002 and 2001, the Company recognized an
unrealized gain (loss) of approximately $579,000, $579,000,
and $(3.0) million, respectively, included in other
expenses in the accompanying consolidated statements of income.
The swap agreement expired in June 2002.
(14) Employee Benefit Plans
NELN has a 401(k) savings plan which covers
substantially all of their employees. Employees may contribute
up to 15% of their pre-tax salary, subject to IRS limitations.
The Company made contributions to the plan of approximately
$780,000, $584,000, $1.4 million, $518,000, and $537,000 in
the six months ended June 30, 2003 and 2002 and the years
ended December 31, 2002, 2001, and 2000, respectively.
UB&T serves as the trustee for the plan. NMS had a separate
401(k) savings plan in 2001. NMS made contributions to the plan
of approximately $154,000 and $100,000 for 2001 and 2000,
respectively. GuaranTec also had a separate 401(k) savings plan
in 2001. GuaranTec made contributions to the plan of
approximately $65,000 for the period July 1, 2001 to
December 31, 2001. Effective January 1, 2002,
employees participating in the NMS and GuaranTec plans became
eligible to participate in the NELN 401(k) plan.
EFS maintained two retirement plans which covered
substantially all employees. The first was a 401(k) savings plan
and the second was a defined contribution pension plan, which is
an employee stock ownership plan (ESOP). Upon acquisition by
NELN, the ESOP sold its shares to NELN and distribution of the
cash occurred in 2003. EFS made contributions to the plan of
approximately $82,000 and $208,000
F-23
Nelnet, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
for the six months ended June 30, 2002 and
the year ended December 31, 2002, respectively. Effective
April 1, 2002, employees participating in the
EFS 401(k) savings plan became eligible to participate in
the NELN 401(k) plan.
(15) Commitments
The Student Lending Subsidiaries acquire eligible
loans on a regular basis from lending institutions as part of
their normal business operations. At June 30, 2003 and
December 31, 2002 and 2001, NELN committed to purchase up
to $193 million, $227 million, and $277 million,
respectively, in student loans at current market rates upon the
sellers' request under various agreements through
September 30, 2004. At June 30, 2003 and
December 31, 2002 and 2001, EFS committed to purchase up to
$40.3 million, $39.2 million, and $57.7 million,
respectively, in student loans at current market rates under
various agreements that renew automatically.
At June 30, 2003 and December 31, 2002
and 2001, MELMAC had commitments to extend credit for
educational loans of $680,000, $26.5 million, and
$29.8 million, respectively. Commitments to extend credit
are agreements to lend to a borrower as long as there is no
violation of any condition established in the commitment
agreement. Commitments generally have fixed expiration dates or
other termination clauses. MELMAC uses the same credit policies
in making commitments as it does for making student loans. If
these commitments are exercised, the resulting loans will be
subject to the guarantee of the Finance Authority of Maine and
reinsured by the Department of Education.
The Company is committed under noncancelable
operating leases for office and warehouse space and equipment.
Total rental expense incurred by the Company in the six months
ended June 30, 2003 and 2002 and the years ended
December 31, 2002, 2001, and 2000 was $3.1 million,
$3.6 million, $6.9 million, $3.2 million, and
$3.0 million, respectively. Minimum future rentals under
noncancelable operating leases are shown below (dollars in
thousands):
2003
$
4,141
2004
3,812
2005
2,727
2006
2,103
2007
1,255
2008 and thereafter
578
$
14,616
The Company has shareholder agreements with the
holders of the vast majority of its common stock. These
shareholder agreements restrict the transfer of common stock
through sale, pledge, encumbrance or other transfer by the
shareholder, without the written consent of the holders of a
majority of the pre-recapitalization common stock. The Company
has an option to redeem all or a portion of a shareholder's
interest in the event that, among other things, the shareholder
ceases to be an officer, director or employee of the Company.
The purchase price, if the Company elects to exercise its
redemption option, is the book value of the shares being
redeemed. The shareholder agreements will terminate upon the
consummation of the Company's initial public offering.
(16) Related Parties
Income earned by Nelnet from loan servicing
provided to a related bank in the six months ended June 30,
2003 and 2002 and the years ended December 31, 2002, 2001,
and 2000 was $2.2 million, $3.6 million,
$5.5 million, $4.7 million and $3.2 million,
respectively. As of June 30, 2003 and as of
F-24
Nelnet, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
December 31, 2002 and 2001, accounts
receivable includes approximately $320,000, $371,000, and
$382,000, respectively, from this bank for loan servicing.
The Company incurs a consulting management fee
for services provided by an entity that is a minority
stockholder of the Company. The Company incurred management fee
expenses of $900,000 and $900,000 for the six months ended
June 30, 2003 and 2002 and $1.75 million,
$1.8 million and $2.5 million for the years ended
December 31, 2002, 2001, and 2000, respectively.
The Company participates in the Short-Term
Federal Investment Trust (STFIT) of the Student Loan Trust
Division of a related bank. The balance as of June 30, 2003
was $25.0 million and as of December 31, 2002 and 2001
was $12.9 million and $13.3 million, respectively, and
is included in cash and cash equivalents on the accompanying
consolidated balance sheets. The Company's participation in
the STFIT had similar terms and investment yields as those
prevailing for other nonaffiliated customers.
In 2001, the Company entered into an agreement
with 5280 Solutions, Inc. (5280), an entity 50% owned by NELN,
to provide certain software development and technology support
services. During the six months ended June 30, 2003 and
2002 and the years ended December 31, 2002 and 2001, the
Company incurred contract programming expenses of
$2.4 million, $4.1 million, $7.0 million, and
$11.8 million, respectively, for these services. At
June 30, 2003 and December 31, 2002 and 2001,
$354,000, $1.1 million, and $1.6 million,
respectively, was payable to 5280 and is included in other
liabilities in the accompanying consolidated balance sheets.
In March 2002, the Company acquired a 50%
interest in FirstMark Services LLC (FirstMark). FirstMark agreed
to provide subcontracting servicing functions on the
Company's behalf with respect to private loan servicing.
The Company paid FirstMark fees of approximately
$4.6 million in 2002. FirstMark owed the Company $850,000
and $700,000 at June 30, 2003 and December 31, 2002,
respectively.
During the six months ended June 30, 2003
and 2002 and the years ended December 31, 2002, 2001, and
2000, the Student Lending Subsidiaries purchased student loans
of $380 million, $132 million, $378 million,
$666 million, and $536 million, respectively, from a
related bank. The purchases from this bank were made on terms
similar to those made with unrelated entities. During the six
months ended June 30, 2003 and 2002 and the years ended
December 31, 2002 and 2001, this bank reimbursed the
Company for approximately $536,000, $367,000, $519,000 and
$1.1 million, respectively, for student loan marketing
services, and during the year ended December 31, 2000, the
Company reimbursed the bank $2.6 million for such services.
During 2001 and 2000, the Company also incurred $750,000 and
$2.7 million for software advisory, consulting services and
management fees provided by this bank.
The Company had a $30 million unsecured line
of credit to provide operating funds from an affiliated company.
The line of credit renews automatically for one-year terms. The
Company owed $29 million of principal and $56,000 of
accrued interest under the line of credit at December 31,
2001. There was no amount outstanding at December 31, 2002.
The line of credit was terminated in 2003.
In August 2001, the Company provided a guarantee
of liabilities of a bank affiliated with the Company through
certain common shareholders and a director in the amount of
$10 million. The Company is paid a fee for this
indemnification. The Company does not believe it is probable
that the Company will be required to make payments on the
guarantee. Thus, no liability has been accrued for a loss
related to the Company's obligation under this guarantee
arrangement.
During the six months ended June 30, 2003
and 2002 and the year ended December 31, 2002, the Company
paid a related party through common ownership $503,000,
$782,000, and $1.4 million for services related to
financings. These payments have been recorded as debt issuance
costs and are included in other assets in the accompanying
consolidated balance sheets.
During the six months ended June 30, 2003
and 2002 and the years ended December 31, 2002, 2001, and
2000, the Company incurred consulting fees of $0, $1.1 million,
$1.65 million, $3 million, and
F-25
Nelnet, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
$2.6 million, respectively, for services
provided by a related party through common ownership in
connection with eligible loan purchases. During the six months
ended June 30, 2003 and 2002 and the years ended
December 31, 2002, 2001, and 2000, the Company incurred
consulting fees of $1.8 million, $1.2 million,
$2.4 million, $2.3 million, and $2.8 million,
respectively, for services provided by a significant
shareholder. During 2001, NMS and GuaranTec had a service
agreement with InTuition Services, Inc. (Services), an entity
related through common shareholders prior to acquisition,
whereby Services provided certain management and other
operational support services for NMS and GuaranTec. Amounts paid
by NMS and GuaranTec for such services, including certain
occupancy related expenses allocated to NMS and GuaranTec, were
$9.7 million in 2001. At December 31, 2001, NMS and
GuaranTec owed Services $1.6 million, which is included in
other liabilities in the accompanying consolidated balance
sheet. During 2002, Nelnet Corp. provided these operational
support services.
During 2001, NELN owned $10 million in
preferred stock of a majority owned subsidiary of a significant
shareholder. The preferred stock paid a 2% annual cumulative
dividend and was included in other assets on the accompanying
consolidated balance sheet at December 31, 2001. During
2002, NELN sold the preferred stock to Nelnet at carrying value.
Nelnet transferred its ownership in the preferred stock to
Infovisa and subsequently sold Infovisa to a significant
shareholder at carrying value, which approximated fair value.
The operating results of Infovisa were not significant to the
consolidated financial statements.
(17) Recently Issued Accounting
Pronouncements
(a) Early Extinguishment of
    Debt
In April 2002, the FASB issued SFAS No. 145,
Rescission of FASB Statements Nos. 4, 44 and 64,
Amendment of FASB Statement No. 13, and Technical
Corrections
. This statement rescinds FASB Statement
No. 4,
Reporting Gains and Losses from Extinguishment of
Debt
and an amendment of that statement,
FASB
Statement No. 64,
Extinguishments of Debt Made to
Satisfy Sinking-Fund Requirements
. The statement also
rescinds FASB Statement No. 44,
Accounting for
Intangible Assets of Motor Carriers
and amends FASB
Statement No. 13,
Accounting for Leases
to eliminate
an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for
certain lease modifications which have economic effects which
are similar to sale-leaseback transactions. This statement also
amends other existing authoritative pronouncements to make
various technical corrections, clarify meanings, or describe
their applicability under changed conditions. The provisions of
SFAS No. 145 related to the rescission of FASB No. 4
are effective for fiscal years beginning after May 15,
2002. The provisions of SFAS No. 145 related to FASB
No. 13 are effective for transactions occurring after
May 15, 2002. All other provisions of SFAS No. 145 are
effective for financial statements issued on or after
May 15, 2002. The Company does not expect to have any
material changes to its financial statements as a result of SFAS
No. 145.
(b) Accounting for Costs Associated
    with Exit or Disposal Activities
In June 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities
. SFAS No. 146 requires that a liability for
costs associated with exit or disposal activities be recognized
when the liability is incurred. Existing generally accepted
accounting principles provide for the recognition of such costs
at the date of management's commitment to an exit plan. In
addition, SFAS No. 146 requires that the liability be
measured at fair value and be adjusted for changes in estimated
cash flows. The provisions of the new standard are effective for
exit or disposal activities initiated after December 31,
2002. It is not expected that SFAS No. 146 will materially
affect the Company's financial statements.
F-26
Nelnet, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
(c) Accounting for Acquisitions of
    Certain Financial Institutions
In October 2002, the FASB issued Statement
No. 147,
Acquisitions of Certain Financial
Institutions
, which amends Statement No. 72,
Accounting for Certain Acquisitions of Banking and Thrift
Institutions
, Statement No. 144,
Accounting for
Impairment or Disposal of Long-Lived Assets
, and FASB
Interpretation No. 9. Except for transactions between two
or more mutual enterprises, this Statement removes acquisitions
of financial institutions from the scope of both Statement
No. 72 and Interpretation 9 and requires that those
transactions be accounted for in accordance with FASB Statements
No. 141,
Business Combinations
, and No. 142,
Goodwill and Other Intangible Assets
. Thus, the
requirement in paragraph 5 of Statement No. 72 to
recognize any excess of the fair value of liabilities assumed
over the fair value of tangible and identifiable intangible
assets acquired as an unidentifiable intangible asset of a
business no longer applies to acquisitions within the scope of
this Statement. In addition, this Statement amends Statement
No. 144 to include in its scope long-term
customer-relationship intangible assets of financial
institutions such as depositor- and borrower-relationship
intangible assets and credit cardholder intangible assets.
Consequently, those intangible assets are subject to the same
undiscounted cash flow recoverability test and impairment loss
recognition and measurement provisions that Statement
No. 144 requires for other long-lived assets that are held
and used. With some exceptions, the requirements of Statement
No. 147 were effective October 1, 2002. The adoption
of this Statement did not have a material impact on the
Company's financial statements.
(d) Accounting for Stock-Based
    Compensation
In December 2002, the FASB issued SFAS
No. 148,
Accounting for Stock-Based
Compensation — Transition and Disclosure, an amendment
to FASB Statement No. 123
. SFAS No. 148 requires
annual disclosures about the method of accounting for
stock-based compensation and tabular information about the
effect of the method accounting for stock-based compensation on
net income and earnings per share, including pro forma amounts,
in the "Summary of Significant Accounting Policies."
On a quarterly basis, SFAS No. 148 requires prominent
disclosure in tabular form of the effect of the method of
stock-based compensation on net income and earnings per share
for all periods presented as accounted for under APB Opinion
No. 25. This statement is effective for financial
statements for fiscal years ending after December 15, 2002.
The disclosures required by SFAS No. 148 will be made when
required for shares issued under our employee share purchase
plan.
(e) Accounting for
    Guarantees
In November 2002, the FASB issued FASB
Interpretation (FIN) No. 45,
Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others
. FIN No. 45
identifies characteristics of certain guarantee contracts and
requires that a liability be recognized at fair value at the
inception of such guarantees for the obligations undertaken by
the guarantor. Additional disclosures also are prescribed for
certain guarantee contracts. The initial recognition and initial
measurement provisions of FIN No. 45 are effective for
these guarantees issued or modified after December 31,
2002. The disclosure requirements of FIN No. 45 were
effective for the Company at December 31, 2002. Disclosure
required by FIN No. 45 relating to the Company's
guarantee contracts is included in the Company's financial
statements. We do not believe such guarantees require a
liability to be recognized.
(f) Consolidation of Variable Interest
    Entities
In January 2003, the FASB issued FIN No. 46,
Consolidation of Variable Interest Entities
. FIN
No. 46 clarifies the application of Accounting Research
Bulletin No. 51,
Consolidated Financial Statements
,
to certain entities in which equity investors do not have the
characteristics of a controlling
F-27
Nelnet, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
financial interest or do not have sufficient
equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties
("variable interest entities"). Variable interest
entities (VIEs) are required to be consolidated by their primary
beneficiaries if they do not effectively disperse risks among
parties involved. The primary beneficiary of a VIE is the party
that absorbs a majority of the entity's expected losses,
receives a majority of its expected residual returns, or both,
as a result of holding variable interests. FIN No. 46 also
requires new disclosures about VIEs. The Company does not
believe, at this time, that FIN No. 46 will have a material
effect on its financial statements.
(g) Statement of Financial Accounting
    Standards No. 149 — Amendment of Statement 133 on
    Derivative Instruments and Hedging Activities
This Statement amends and clarifies financial
accounting and reporting for derivative instruments, including
certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging
activities under FASB Statement No. 133,
Accounting for
Derivative Instruments and Hedging Activities
. This
Statement is effective for contracts entered into or modified
after June 30, 2003, except as stated below and for hedging
relationships designated after June 30, 2003. In addition,
except as stated below, all provisions of this Statement should
be applied prospectively. The provisions of this Statement that
relate to Statement 133 Implementation Issues that have been
effective for fiscal quarters that began prior to June 15,
2003 should continue to be applied in accordance with their
respective effective dates. In addition, paragraphs 7(a)
and 23(a) of Statement 133 Implementation Issues, which
relate to forward purchases or sales of when-issued securities
or other securities that do not yet exist, should be applied to
both existing contracts and new contracts entered into after
June 30, 2003. The Company does not believe FAS
No. 149 will have a significant impact on its financial
statements.
(h) Accounting for Certain Financial
    Instruments with Characteristics of both Liabilities and
    Equity
In May 2003, the FASB issued SFAS No. 150,
Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity.
SFAS
No. 150 establishes standards for how an issuer classifies
and measures certain financial instruments with characteristics
of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a
liability (or an asset in some circumstances). SFAS No. 150
is effective for financial instruments entered into or modified
after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after
June 15, 2003. The Company will adopt the standard on
July 1, 2003. The Company does not believe, that SFAS
No. 150 will have a significant impact, if any, on its
financial statements.
F-28
Nelnet, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
(18) Condensed Parent Company Financial
Statements
The following represents the condensed balance
sheets as of December 31, 2002 and 2001 and condensed
statements of income and cash flows for each of the years in the
three-year period ended December 31, 2002 for Nelnet, Inc.
(formerly Nelnet Loan Services, Inc.).
Balance Sheets
(Parent Company Only)
December 31, 2002 and 2001
(Dollars in Thousands)
2002
2001
Assets
Current assets:
Cash
$
1,137
865
Restricted cash — due to loan program
    customers
132,375
65,792
Investment in subsidiary
71,064
28,111
Accounts receivable and other (net of allowance
    for doubtful accounts of $115 in 2002 and $121 in 2001)
20,151
11,413
Due from subsidiary and its affiliates
12,110
5,464
Income taxes receivable
13,788
14,538
Capitalized software, net
1,127
556
Deferred income taxes
1,949
2,863
Intangible asset, net
508
5,169
Fixed assets, net
—
5,261
Other assets
—
2,060
Total assets
$
254,209
142,092
Liabilities and Shareholders'
    Equity
Liabilities:
Accounts payable and accrued expenses
$
7,558
8,779
Program reimbursement reserve
5,154
3,150
Due to loan program customers
132,375
65,792
Other liabilities
—
1,185
Total liabilities
145,087
78,906
Shareholders' equity:
Preferred stock
—
—
Common stock:
Class A
309
309
Class B
140
140
Additional paid-in capital
52,714
52,714
Retained earnings
55,959
10,023
Total shareholders' equity
109,122
63,186
Total liabilities and shareholders' equity
$
254,209
142,092
F-29
Nelnet, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
Statements of Income
(Parent Company Only)
Years Ended December 31, 2002, 2001 and
2000
(Dollars in Thousands)
2002
2001
2000
Revenues:
Loan servicing
$
113,477
83,352
81,207
Other operating
4,712
4,170
4,124
118,189
87,522
85,331
Expenses:
Salaries and benefits
38,692
43,382
49,931
Other
67,417
47,688
33,907
106,109
91,070
83,838
Net operating income (loss)
12,080
(3,548
)
1,493
Nonoperating income, interest income
1,515
2,121
3,807
Income before income tax expense, preacquisition
    earnings and equity in earnings in subsidiaries
13,595
(1,427
)
5,300
Income tax expense
7,194
2,482
4,050
Income before deducting preacquisition earnings
    and equity in earnings in subsidiaries
6,401
(3,909
)
1,250
Preacquisition earnings, net of taxes of $1,104
—
—
(1,775
)
Income (loss) before equity in earnings in
    subsidiaries
6,401
(3,909
)
(525
)
Equity in earnings of subsidiaries
42,137
11,056
3,620
Net income
$
48,538
7,147
3,095
F-30
Nelnet, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
Statements of Cash Flows
(Parent Company Only)
Years Ended December 31, 2002, 2001 and
2000
(Dollars in Thousands)
2002
2001
2000
Cash flows from operating activities:
Net income
$
48,538
7,147
3,095
Adjustments to reconcile net income to net cash
    flows from operating activities:
Depreciation and amortization
6,890
12,714
9,478
Deferred income tax benefit
471
(458
)
(9
)
Provision for losses on program reimbursements
1,502
600
440
Net (gain) loss on disposal of fixed assets
—
(234
)
2
Equity in earnings of subsidiaries and equity
    method investment
(39,152
)
(11,055
)
3,722
)
Decrease (increase) in accounts receivable and
    other, net
(6,564
)
(228
)
1,927
Decrease (increase) in due from subsidiaries
(8,713
)
2,363
(4,957
)
Decrease in other assets
2,695
421
382
Increase in income taxes receivable
2,302
(10,770
)
(5,585
)
Increase in accounts payable and accrued expenses
(2,369
)
2,731
1,033
Increase (decrease) in deferred revenue
—
(295
)
118
Decrease in other liabilities
(2,427
)
(654
)
(374
)
Net cash flows provided by operating activities
3,173
2,282
1,828
Cash flows from investing activities:
For acquisition of InTuition, Inc. assets and
    liabilities, less cash acquired
(1,776
)
—
—
Cash received from sale of fixed assets to Nelnet
    Corporation
5,818
—
—
Cash received on sale of Infovisa
6,051
—
—
Purchase of preferred stock of affiliate
(10,000
)
—
—
Purchases of fixed assets
—
(4,004
)
(4,003
)
Proceeds from disposition of fixed assets
—
250
—
Investment in equity method investee
—
(5
)
—
Net cash flows provided by (used in) investing
    activities
93
(3,759
)
(4,003
)
Cash flows from financing activities:
Proceeds from issuance of common stock
—
2,010
—
Dividend distribution
(2,994
)
—
—
Net cash flows provided by (used in) financing
    activities
(2,994
)
2,010
—
Net increase (decrease) in cash and cash
    equivalents
272
533
(2,175
)
Cash and cash equivalents, beginning of year
865
332
2,507
Cash and cash equivalents, end of year
$
1,137
865
332
Supplemental cash flow information, cash paid for
    income tax
$
6,677
13,709
4,753
F-31
Nelnet, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
The Company is limited in the amount of funds
that can be transferred to it by its subsidiaries through
intercompany loans, advances, or cash dividends. These
limitations relate to the restrictions by trust indentures under
the Student Lending Subsidiaries debt financing arrangements.
The amounts of cash and investments restricted in the respective
reserve accounts of the Student Lending Subsidiaries are shown
on the consolidated balance sheets as restricted cash and
investments.
(19) Subsequent Event —
Recapitalization
Effective August 14, 2003, the shareholders
of the Company approved amended and restated articles of
incorporation. The amended and restated articles of
incorporation effected a recapitalization of the Company whereby
each share of Class A voting common stock, and shares of
Class B non-voting common stock held by two principal
shareholders and a related entity (the Principal Shareholders),
was converted into 210 shares of new Class B common
stock, and each share of Class B nonvoting common stock
(other than these owners by the Principal Shareholders) was
converted into 210 shares of new Class A common stock.
Also, effective with the conversion of the Class B shares
to Class A, certain former Class B shareholders elected to
convert their new Class B shares into new Class A
shares. The new Class B common stock has ten votes per
share, and the new Class A common stock has one vote per
share. Each Class B share is convertible at any time at the
holder's option into one Class A share. With the
exception of the voting rights and the conversion feature, the
Class A and Class B shares are identical in terms of
other rights, including dividend and liquidation rights. The
Company's shareholders' equity has been restated to
reflect the new capital stock structure for all periods
presented.
F-32
ANNEX A
THE FEDERAL FAMILY EDUCATION LOAN
PROGRAM
The Federal Family Education Loan
Program
The Higher Education Act provides for a program
of direct federal insurance for student loans as well as
reinsurance of student loans guaranteed or insured by state
agencies or private non-profit corporations.
The Higher Education Act currently authorizes
certain student loans to be covered under the Federal Family
Education Loan Program. The 1998 Amendments to the Higher
Education Act extended the authorization for the FFEL Program
through September 30, 2004. Congress has extended similar
authorization dates in prior versions of the Higher Education
Act. However, the current authorization dates may not again be
extended and the other provisions of the Higher Education Act
may not be continued in their present form.
Generally, a student is eligible for loans made
under the FFEL Program only if he or she:
•
has been accepted for enrollment or is enrolled
    in good standing at an eligible institution of higher education;
•
is carrying or planning to carry at least
    one-half the normal full-time workload for the course of study
    the student is pursuing as determined by the institution;
•
has agreed to promptly notify the holder of the
    loan of any address change; and
•
meets the applicable "needs"
    requirements.
Eligible institutions include higher educational
institutions and vocational schools that comply with specific
federal regulations. Each loan is to be evidenced by an
unsecured note.
The Higher Education Act also establishes maximum
interest rates for each of the various types of loans. These
rates vary not only among loan types, but also within loan types
depending upon when the loan was made or when the borrower first
obtained a loan under the FFEL Program. The Higher Education Act
allows lesser rates of interest to be charged.
Types of Loans
Four types of loans are currently available under
the FFEL Program:
•
Stafford loans,
•
Unsubsidized Stafford loans,
•
PLUS loans, and
•
Consolidation loans.
These loan types vary as to eligibility
requirements, interest rates, repayment periods, loan limits and
eligibility for interest subsidies and special allowance
payments. Some of these loan types have had other names in the
past. References to these various loan types include, where
appropriate, their predecessors.
The primary loan under the FFEL Program is the
subsidized Stafford loan. Students who are not eligible for
subsidized Stafford loans based on their economic circumstances
may be able to obtain unsubsidized Stafford loans. Parents of
students may be able to obtain PLUS loans. Consolidation loans
are available to borrowers with existing loans made under the
FFEL Program and other federal programs to consolidate repayment
of the borrower's existing loans. Prior to July 1,
1994, the FFEL Program also offered SLS loans to graduate and
professional students and independent undergraduate students
and, under certain circumstances, dependent undergraduate
students, to supplement their Stafford loans.
A-1
Subsidized Stafford Loans
General.
Subsidized
Stafford loans are eligible for reinsurance under the Higher
Education Act if the eligible student to whom the loan is made
has been accepted or is enrolled in good standing at an eligible
institution of higher education or vocational school and is
carrying at least one-half the normal full-time workload at that
institution. Subsidized Stafford loans have limits as to the
maximum amount which may be borrowed for an academic year and in
the aggregate for both undergraduate and graduate/ professional
study. Both aggregate limitations exclude loans made under the
SLS and PLUS programs. The Secretary of Education has discretion
to raise these limits to accommodate students undertaking
specialized training requiring exceptionally high costs of
education.
Subsidized Stafford loans are generally made only
to student borrowers who meet the needs tests provided in the
Higher Education Act. Provisions addressing the implementation
of needs analysis and the relationship between unmet need for
financing and the availability of subsidized Stafford loan
funding have been the subject of frequent and extensive
amendment in recent years. Further amendment to such provisions
may materially affect the availability of Subsidized Stafford
loan funding to borrowers or the availability of subsidized
Stafford loans for secondary market acquisition.
Interest rates for subsidized Stafford loans.
For a Stafford loan made prior to
July 1, 1994, the applicable interest rate for a borrower
who, on the date the promissory note was signed, did not have an
outstanding balance on a previous FFELP loan:
(1) is 7% per annum for a loan covering a
    period of instruction beginning before January 1,1981;
(2) is 9% per annum for a loan covering a
    period of instruction beginning on or before January 1,
    1981, but before September 13, 1983;
(3) is 8% per annum for a loan covering a
    period of instruction beginning on or after September 13,
    1983, but before July 1, 1988;
(4) is 8% per annum for the period from the
    disbursement of the loan to the date which is four years after
    the loan enters repayment, for a loan made prior to
    October 1, 1992, covering a period of instruction beginning
    on or after July 1, 1988, and thereafter shall be adjusted
    annually, and for any 12-month period commencing on a
    July 1 shall be equal to the bond equivalent rate of 91-day
    U.S. Treasury bills auctioned at the final auction prior to
    the preceding June 1, plus 3.25% per annum (but not to
    exceed 10% per annum); or
(5) for a loan made on or after
    October 1, 1992 shall be adjusted annually, and for any
    12-month period commencing on a July 1 shall be equal to
    the bond equivalent rate of 91-day U.S. Treasury bills
    auctioned at the final auction prior to the preceding
    June 1, plus 3.1% per annum (but not to exceed 9% per
    annum).
For a Stafford loan made prior to July 1,
1994, the applicable interest rate for a borrower who, on the
date the promissory note evidencing the loan was signed, had an
outstanding balance on a previous loan made insured or
guaranteed under the FFEL Program:
(1) for a loan made prior to July 23,
    1992 is the applicable interest rate on the previous loan or, if
    the previous loan is not a Stafford loan, 8% per annum or
(2) for a loan made on or before
    July 23, 1992 shall be adjusted annually, and for any
    twelve month period commencing on a July 1 shall be equal
    to the bond equivalent rate of 91-day
A-2
U.S. Treasury bills auctioned at the final
    auction prior to the preceding June 1, plus 3.1% per annum
    but not to exceed:
•
7% per annum in the case of a Stafford loan made
    to a borrower who has a loan described in clause (1)above;
•
8% per annum in the case of:
—
a Stafford loan made to a borrower who has a loan
    described in clause (3) above,
—
a Stafford loan which has not been in repayment
    for four years and which was made to a borrower who has a loan
    described in clause (4) above,
—
a Stafford loan for which the first disbursement
    was made prior to December 20, 1993 to a borrower whose
    previous loans do not include a Stafford loan or an unsubsidized
    Stafford loan;
•
9% per annum in the case of a Stafford loan made
    to a borrower who has a loan described in clauses (2) or
    (5) above or a Stafford loan for which the first disbursement
    was made on or after December 20, 1993 to a borrower whose
    previous loans do not include a Stafford loan or an unsubsidized
    Stafford loan; and
•
10% per annum in the case of a Stafford loan
    which has been in repayment for four years or more and which was
    made to a borrower who has a loan described in clause (4)
    above.
The interest rate on all Stafford loans made on
or after July 1, 1994 but prior to July 1, 1998,
regardless of whether the borrower is a new borrower or a repeat
borrower, is the rate described in clause (7) above, except
that the interest rate shall not exceed 8.25% per annum. For any
Stafford loan made on or after July 1, 1995, the interest
rate is further reduced prior to the time the loan enters
repayment and during any deferment periods. During deferment
periods, the formula described in clause (7) above is
applied, except that 2.5% is substituted for 3.1%, and the rate
shall not exceed 8.25% per annum.
For Stafford loans made on or after July 1,
1998 but before July 1, 2006, the applicable interest rate
shall be adjusted annually, and for any twelve month period
commencing on a July 1 shall be equal to the bond equivalent
rate of 91-day U.S. Treasury bills auctioned at the final
auction prior to the proceeding June 1, plus 1.7% per annum
prior to the time the loan enters repayment and during any
deferment periods, and 2.3% per annum during repayment, but not
to exceed 8.25% per annum.
For loans the first disbursement of which is made
on or after July 1, 2006, the applicable interest rate will
be 6.8%. There can be no assurance that the interest rate
provisions for these loans will not be further amended.
Unsubsidized Stafford Loans
General.
Unsubsidized Stafford loans were
created by Congress in 1992 for students who do not qualify for
subsidized Stafford loans due to parental and/or student income
and assets in excess of permitted amounts. These students are
entitled to borrow the difference between the Stafford loan
maximum and their subsidized Stafford eligibility. The general
requirements for unsubsidized Stafford loans are essentially the
same as those for subsidized Stafford loans. The interest rate,
the annual loan limits and the special allowance payment
provisions of the unsubsidized Stafford loans are the same as
the subsidized Stafford loans. However, the terms of the
unsubsidized Stafford loans differ materially from subsidized
Stafford loans in that the federal government will not make
interest subsidy payments and the loan limitations are
determined without respect to the expected family contribution.
The borrower will be required to either pay interest from the
time the loan is disbursed or capitalize the interest until
repayment begins. Unsubsidized Stafford loans were not available
before October 1, 1992. A student meeting the general
eligibility requirements for a loan under the FFEL Program is
eligible for an unsubsidized Stafford loan without regard to
need.
A-3
Interest rates for unsubsidized Stafford
loans.
Unsubsidized Stafford loans are
subject to the same interest rate provisions as subsidized
Stafford loans.
PLUS Loans
General.
PLUS loans
are made only to borrowers who are parents and, under certain
circumstances, spouses of remarried parents, of dependent
undergraduate students. For PLUS loans made on or after
July 1, 1993, the parent borrower must not have an adverse
credit history as determined pursuant to criteria established by
the Department of Education. The basic provisions applicable to
PLUS loans are similar to those of subsidized Stafford loans
with respect to the involvement of guaranty agencies and the
Secretary of Education in providing federal reinsurance on the
loans. However, PLUS loans differ significantly from subsidized
Stafford loans, particularly because federal interest subsidy
payments are not available under the PLUS loan program and
special allowance payments are more restricted.
Interest rates for PLUS loans.
The applicable interest rate depends
upon the date of issuance of the loan and the period of
enrollment for which the loan is to apply. The applicable
interest rate on a PLUS loan:
•
made on or after January 1, 1981, but before
    October 1, 1981, is 9% per annum;
•
made on or after October 1, 1981, but before
    November 1, 1982, is 14% per annum;
•
made on or after November 1, 1982, but
    before July 1, 1987, is 12% per annum;
•
made on or after July 1, 1987, but before
    October 1, 1992 shall be adjusted annually, and for any
    12-month period beginning on July 1 shall be equal to the
    bond equivalent rate of 52-week U.S. Treasury bills
    auctioned at the final auction prior to the preceding
    June 1, plus 3.25% per annum (but not to exceed 12% per
    annum);
•
made on or after October 1, 1992, but before
    July 1, 1994, shall be adjusted annually, and for any
    12-month period beginning on July 1 shall be equal to the
    bond equivalent rate of 52-week U.S. Treasury bills
    auctioned at the final auction prior to the preceding
    June 1, plus 3.1% per annum (but not to exceed 10% per
    annum);
•
made on or after July 1, 1994, but before
    July 1, 1998, is the same as that for a loan made on or
    after October 1, 1992, but before July 1, 1994, except
    that such rate shall not exceed 9% per annum;
•
made on or after July 1, 1998, but before
    July 1, 2006, shall be adjusted annually, and for any
    12-month period beginning on July 1 shall be equal to the
    bond equivalent rate of 91-day U.S. Treasury bills
    auctioned at the final auction prior to the preceding
    June 1, plus 3.1% per annum (but not to exceed 9% per
    annum); or
•
the first disbursement of which is made on or
    after July 1, 2006 will be 7.9%.
For any 12-month period beginning on July 1,
2001 or any succeeding year, the weekly average 1-year constant
maturity Treasury yield, as published by the Board of Governors
of the Federal Reserve System, for the last calendar week before
such June 26, will be substituted for the 52-week Treasury
bill as the index for interest rate calculations.
SLS loans
General.
SLS loans
were limited to graduate or professional students, independent
undergraduate students, and dependent undergraduate students, if
the students' parents were unable to obtain a PLUS loan and
were also unable to provide the students' expected family
contribution. Except for dependent undergraduate students,
eligibility for SLS loans was determined without regard to need.
SLS loans are similar to subsidized Stafford loans with respect
to the involvement of guaranty agencies and the Secretary of
Education in providing federal reinsurance on the loans.
However, SLS loans differ significantly from
A-4
subsidized Stafford loans, particularly because
federal interest subsidy payments are not available under the
SLS loan program and special allowance payments are more
restricted.
Interest rates for SLS loans.
The applicable interest rates on SLS
loans made prior to October 1, 1992 are identical to the
applicable interest rates on PLUS loans made at the same time.
For SLS loans made on or after October 1, 1992, the
applicable interest rate is the same as the applicable interest
rate on PLUS loans, except that the ceiling is 11% per annum
instead of 10% per annum.
Consolidation Loans
General.
The Higher
Education Act authorizes a program under which certain borrowers
may consolidate their various student loans into a single loan
insured and reinsured on a basis similar to subsidized Stafford
loans. Consolidation loans may be obtained in an amount
sufficient to pay outstanding principal, unpaid interest and
late charges on federally insured or reinsured student loans
incurred under the FFEL Program, excluding PLUS loans made to
"parent borrowers," selected by the borrower, as well
as loans made pursuant to the Perkins (formally National Direct
Student Loan) and Health Professional Student Loan Programs. To
be eligible for a consolidation loan, a borrower must:
•
have outstanding indebtedness on student loans
    made under the FFEL Program and/or certain other federal student
    loan programs, and
•
be in repayment status or in a grace period, or
•
be a defaulted borrower who has made arrangements
    to repay any defaulted loan satisfactory to the holder of the
    defaulted loan.
If requested by the borrower, an eligible lender
may consolidate SLS or PLUS loans of the same borrower held by
the lender under a single repayment schedule. The repayment
period for each included loan shall be based on the commencement
of repayment of the most recent loan. The consolidated loan
shall bear interest at a rate equal to the weighted average of
the rates of the included loans. Such a consolidation shall not
be treated as the making of a new loan. In addition, at the
request of the borrower, a lender may refinance an existing
fixed rate SLS or PLUS loan, including an SLS or PLUS loan held
by a different lender who has refused to refinance the loan, at
a variable interest rate. In this case, proceeds of the new loan
are used to discharge the original loan.
A married couple who agree to be jointly liable
on a consolidation loan, for which the application is received
on or after January 1, 1993, may be treated as an
individual for purposes of obtaining a consolidation loan. For
consolidation loans disbursed prior to July 1, 1994 the
borrower was required to have outstanding student loan
indebtedness of at least $7,500. Prior to the adoption of the
Higher Education Technical Amendments Act of 1993, PLUS loans
could not be included in the consolidation loan. For
consolidation loans for which the applications were received
prior to January 1, 1993, the minimum student loan
indebtedness was $5,000 and the borrower could not be delinquent
more than 90 days in the payment of such indebtedness. For
applications received on or after January 1, 1993,
borrowers may add additional loans to a consolidation loan
during the 180-day period following the origination of the
consolidation loan.
Interest rates for consolidation loans.
A consolidation loan made prior to
July 1, 1994 bears interest at a rate equal to the weighted
average of the interest rates on the loans retired, rounded to
the nearest whole percent, but not less than 9% per annum.
Except as described in the next sentence, a consolidation loan
made on or after July 1, 1994 bears interest at a rate
equal to the weighted average of the interest rates on the loans
retired, rounded upward to the nearest whole percent, but with
no minimum rate. For a consolidation loan for which the
application is received by an eligible lender on or after
November 13, 1997 and before October 1, 1998, the
interest rate shall be adjusted annually, and for any
twelve-month period commencing on a July 1 shall be equal to the
bond equivalent rate of 91-day U.S. Treasury bills auctioned at
the final auction prior to the preceding June 1, plus 3.1%
per annum, but not to exceed 8.25% per annum. Notwithstanding
these general interest rates, the portion, if any, of a
consolidation loan that repaid a loan made under title VII,
Sections 700-721 of the Public Health Services Act, as
amended, has
A-5
a different variable interest rate. Such portion
is adjusted on July 1 of each year, but is the sum of the
average of the T-Bill Rates auctioned for the quarter ending on
the preceding June 30, plus 3.0%, without any cap on the
interest rate. Consolidation loans made on or after
October 1, 1998 and before July 1, 2006 will bear
interest at a per annum rate equal to the lesser of 8.25% or the
weighted average of the interest rates on the loans being
consolidated, rounded to the nearest higher  1/8 of 1%.
Consolidation loans for which the application is received on or
after July 1, 2006, will bear interest also at a rate per
annum equal to the lesser of 8.25% or the weighted average of
the interest rates on the loans being consolidated, rounded to
the nearest higher  1/8 of 1%. For a discussion of required
payments that reduce the return on consolidation loans, see
"Fees — Rebate Fees on Consolidation Loans"
in this Appendix.
Maximum Loan Amounts
Each type of loan is subject to limits on the
maximum principal amount, both with respect to a given year and
in the aggregate. Consolidation loans are limited only by the
amount of eligible loans to be consolidated. All of the loans
are limited to the difference between the cost of attendance and
the other aid available to the student. Stafford loans are also
subject to limits based upon needs analysis. Additional limits
are described below.
Loan limits for Stafford and unsubsidized
Stafford loans.
Stafford and
unsubsidized Stafford loans are generally treated as one loan
type for loan limit purposes. A student who has not successfully
completed the first year of a program of undergraduate education
may borrow up to $2,625 in an academic year. A student who has
successfully completed the first year, but who has not
successfully completed the second year may borrow up to $3,500
per academic year. An undergraduate student who has successfully
completed the first and second year, but who has not
successfully completed the remainder of a program of
undergraduate education, may borrow up to $5,500 per academic
year. For students enrolled in programs of less than an academic
year in length, the limits are generally reduced in proportion
to the amount by which the programs are less than one year in
length. A graduate or professional student may borrow up to
$8,500 in an academic year. The maximum aggregate amount of
Stafford and unsubsidized Stafford loans, including that portion
of a consolidation loan used to repay such loans, which an
undergraduate student may have outstanding is $23,000. The
maximum aggregate amount for a graduate and professional
student, including loans for undergraduate education, is
$65,500. The Secretary of Education is authorized to increase
the limits applicable to graduate and professional students who
are pursuing programs which the Secretary of Education
determines to be exceptionally expensive.
Prior to the enactment of the Higher Education
Amendments of 1992, an undergraduate student who had not
successfully completed the first and second year of a program of
undergraduate education could borrow Stafford loans in amounts
up to $2,625 in an academic year. An undergraduate student who
had successfully completed the first and second year, but who
had not successfully completed the remainder of a program of
undergraduate education could borrow up to $4,000 per academic
year. The maximum for graduate and professional students was
$7,500 per academic year. The maximum aggregate amount of
Stafford loans which a borrower could have outstanding,
including that portion of a consolidation loan used to repay
such loans, was $17,250. The maximum aggregate amount for a
graduate or professional student, including loans for
undergraduate education, was $54,750. Prior to the 1986 changes,
the annual limits were generally lower.
Loan limits for PLUS loans.
For PLUS loans made on or after
July 1, 1993, the amounts of PLUS loans are limited only by
the student's unmet need. Prior to that time PLUS loans
were subject to limits similar to those of SLS loans applied
with respect to each student on behalf of whom the parent
borrowed.
Loan limits for SLS loans.
A student who had not successfully
completed the first and second year of a program of
undergraduate education could borrow an SLS loan in an amount of
up to $4,000. A student who had successfully completed the first
and second year, but who had not successfully completed the
remainder of a program of undergraduate education could borrow
up to $5,000 per year. Graduate and professional students could
borrow up to $10,000 per year. SLS loans were subject to an
aggregate maximum of $23,000 ($73,000 for graduate and
professional students). Prior to the 1992 changes, SLS
A-6
loans were available in amounts of $4,000 per
academic year, up to a $20,000 aggregate maximum. Prior to the
1986 changes, a graduate or professional student could borrow
$3,000 of SLS loans per academic year, up to a $15,000 maximum,
and an independent undergraduate student could borrow $2,500 of
SLS loans per academic year minus the amount of all other
Federal Family Education Loan Program loans to such student for
such academic year, up to the maximum amount of all FFELP loans
to that student of $12,500. In 1989, the amount of SLS loans for
students enrolled in programs of less than an academic year in
length were limited in a manner similar to the limits described
above under "Subsidized Federal Stafford Loans."
Disbursement Requirements
The Higher Education Act now requires that
virtually all Stafford loans and PLUS loans be disbursed by
eligible lenders in at least two separate installments. The
proceeds of a loan made to any undergraduate first-year student
borrowing for the first time under the program must be delivered
to the student no earlier than thirty days after the enrollment
period begins.
Repayment
Repayment periods.
Loans made under FFEL Program, other
than consolidation loans, must provide for repayment of
principal in periodic installments over a period of not less
than five nor more than ten years. After the 1998 Amendments,
lenders are required to offer extended repayment schedules to
new borrowers who accumulate outstanding loans of more than
$30,000, in which case the repayment period may extend up to 25
years subject to certain minimum repayment amounts. A
consolidation loan must be repaid during a period agreed to by
the borrower and lender, subject to maximum repayment periods
which vary depending upon the principal amount of the
borrower's outstanding student loans, but may not be longer
than 30 years. For consolidation loans for which the
application was received prior to January 1, 1993, the
repayment period could not exceed 25 years. Repayment of
principal on a Stafford loan does not commence while a student
remains a qualified student, but generally begins upon
expiration of the applicable grace period. Grace periods may be
waived by borrowers. For Stafford loans for which the applicable
rate of interest is 7% per annum, the repayment period commences
not more than twelve months after the borrower ceases to pursue
at least a half-time course of study. For other Stafford loans
and unsubsidized Stafford loans, the repayment period commences
not more than six months after the borrower ceases to pursue at
least a half-time course of study. The six month or
12 month periods are the "grace periods."
In the case of SLS, PLUS and consolidation loans,
the repayment period commences on the date of final disbursement
of the loan, except that the borrower of an SLS loan who also
has a Stafford loan may defer repayment of the SLS loan to
coincide with the commencement of repayment of the Stafford or
unsubsidized Stafford loan. During periods in which repayment of
principal is required, payments of principal and interest must
in general be made at a rate of not less than the greater of
$600 per year or the interest that accrues during the year,
except that a borrower and lender may agree to a lesser rate at
any time before or during the repayment period. A borrower may
agree, with concurrence of the lender, to repay the loan in less
than five years with the right subsequently to extend his
minimum repayment period to five years. Borrowers may
accelerate, without penalty, the repayment of all or any part of
the loan.
Income-sensitive repayment schedules.
Since 1992, lenders of consolidation
loans have been required to establish graduated or
income-sensitive repayment schedules and lenders of Stafford and
SLS loans have been required to offer borrowers the option of
repaying in accordance with graduated or income-sensitive
repayment schedules. A trust may implement graduated repayment
schedules and income-sensitive repayment schedules. Use of
income-sensitive repayment schedules may extend the ten-year
maximum term for up to five years. In addition, if the repayment
schedule on a loan that has been converted to a variable
interest rate does not provide for adjustments to the amount of
the monthly installment payments, the ten-year maximum term may
be extended for up to three years.
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Deferment periods.
No principal repayments need be made
during certain periods of deferment prescribed by the Higher
Education Act. For loans to a borrower who first obtained a loan
which was disbursed before July 1, 1993, deferments are
available:
•
during a period not exceeding three years while
    the borrower is a member of the Armed Forces, an officer in the
    Commissioned Corps of the Public Health Service or, with respect
    to a borrower who first obtained a student loan disbursed on or
    after July 1, 1987, or a student loan to cover the cost of
    instruction for a period of enrollment beginning on or after
    July 1, 1987, an active duty member of the National Oceanic
    and Atmospheric Administration Corps;
•
during a period not in excess of three years
    while the borrower is a volunteer under the Peace Corps Act;
•
during a period not in excess of three years
    while the borrower is a full-time volunteer under the Domestic
    Volunteer Act of 1973;
•
during a period not exceeding three years while
    the borrower is in service, comparable to the service described
    above as a full-time volunteer for an organization which is
    exempt from taxation under Section 501(c)(3) of the Code;
•
during a period not exceeding two years while the
    borrower is serving an internship necessary to receive
    professional recognition required to begin professional practice
    or service, or a qualified internship or residency program;
•
during a period not exceeding three years while
    the borrower is temporarily totally disabled, as established by
    sworn affidavit of a qualified physician, or while the borrower
    is unable to secure employment by reason of the care required by
    a dependent who is so disabled;
•
during a period not to exceed twenty-four months
    while the borrower is seeking and unable to find full-time
    employment;
•
during any period that the borrower is pursuing a
    full-time course of study at an eligible institution (or, with
    respect to a borrower who first obtained a student loan
    disbursed on or after July 1, 1987, or a student loan to
    cover the cost of instruction for a period of enrollment
    beginning on or after July 1, 1987, is pursuing at least a
    half-time course of study for which the borrower has obtained a
    loan under the FFEL Program), or is pursuing a course of study
    pursuant to a graduate fellowship program or a rehabilitation
    training program for disabled individuals approved by the
    Secretary of Education;
•
during a period, not in excess of 6 months,
    while the borrower is on parental leave; and
•
only with respect to a borrower who first
    obtained a student loan disbursed on or after July 1, 1987,
    or a student loan to cover the cost of instruction for a period
    of enrollment beginning on or after July 1, 1987, during a
    period not in excess of three years while the borrower is a
    full-time teacher in a public or nonprofit private elementary or
    secondary school in a "teacher shortage area" (as
    prescribed by the Secretary of Education), and during a period
    not in excess of 12 months for mothers, with preschool age
    children, who are entering or re-entering the work force and who
    are compensated at a rate not exceeding $1 per hour in excess of
    the federal minimum wage.
For loans to a borrower who first obtains a loan
on or after July 1, 1993, deferments are available:
•
during any period that the borrower is pursuing
    at least a half-time course of study at an eligible institution
    or a course of study pursuant to a graduate fellowship program
    or rehabilitation training program approved by the Secretary of
    Education;
A-8
•
during a period not exceeding three years while
    the borrower is seeking and unable to find full-time employment;
    and
•
during a period not in excess of three years for
    any reason which the lender determines, in accordance with
    regulations under the Higher Education Act, has caused or will
    cause the borrower economic hardship. Economic hardship includes
    working full time and earning an amount not in excess of the
    greater of the minimum wage or the poverty line for a family of
    two. Additional categories of economic hardship are based on the
    relationship between a borrower's educational debt burden
    and his or her income.
Prior to the 1992 changes, only certain of the
deferment periods described above were available to PLUS loan
borrowers, and only certain deferment periods were available to
consolidation loan borrowers. Prior to the 1986 changes, PLUS
loan borrowers were not entitled to certain deferment periods.
Deferment periods extend the ten-year maximum term.
Forbearance period.
The Higher Education Act also provides
for periods of forbearance during which the borrower, in case of
temporary financial hardship, may defer any payments. A borrower
is entitled to forbearance for a period not to exceed three
years while the borrower's debt burden under Title IV
of the Higher Education Act (which includes the FFEL Program)
equals or exceeds 20% of the borrower's gross income, and
also is entitled to forbearance while he or she is serving in a
qualifying medical or dental internship program or in a
"national service position" under the National and
Community Service Trust Act of 1993. In addition, mandatory
administrative forbearances are provided in exceptional
circumstances such as a local or national emergency or military
mobilization, or when the geographical area in which the
borrower or endorser resides has been designated a disaster area
by the President of the United States or Mexico, the Prime
Minister of Canada, or by the governor of a state. In other
circumstances, forbearance is at the lender's option.
Forbearance also extends the ten year maximum term.
Interest payments during grace, deferment and
forbearance periods.
The Secretary of
Education makes interest payments on behalf of the borrower of
certain eligible loans while the borrower is in school and
during grace and deferment periods. Interest that accrues during
forbearance periods and, if the loan is not eligible for
interest subsidy payments, while the borrower is in school and
during the grace and deferment periods, may be paid monthly or
quarterly or capitalized not more frequently than quarterly.
Fees
Guarantee fee.
A
guaranty agency is authorized to charge a premium, or guarantee
fee, of up to 1% of the principal amount of the loan, which must
be deducted proportionately from each installment payment of the
proceeds of the loan to the borrower. Guarantee fees may not
currently be charged to borrowers of consolidation loans.
However, borrowers may be charged an insurance fee to cover the
costs of increased or extended liability with respect to
consolidation loans. For loans made prior to July 1, 1994,
the maximum guarantee fee was 3% of the principal amount of the
loan, but no such guarantee fee was authorized to be charged
with respect to unsubsidized Stafford loans.
Origination fee.
An
eligible lender is authorized to charge the borrower of a
Stafford loan, an unsubsidized Stafford loan or PLUS loan an
origination fee in an amount not to exceed 5% of the principal
amount of the loan, and is required to charge the borrower of an
unsubsidized Stafford loan or a PLUS loan an origination fee in
the amount of 3% of the principal amount of the loan. These fees
must be deducted proportionately from each installment payment
of the loan proceeds prior to payment to the borrower. These
fees are not retained by the lender, but must be passed on to
the Secretary of Education.
Lender origination fee.
The lender of any loan under the FFEL
Program made on or after October 1, 1993 is required to pay
to the Secretary of Education a fee equal to 0.5% of the
principal amount of such loan.
Rebate fee on Consolidation Loans.
The holder of any consolidation loan
made on or after October 1, 1993 is required to pay to the
Secretary of Education a monthly fee equal to .0875% (1.05%
A-9
per annum) of the principal amount of, and
accrued interest on the consolidation loan. For loans made
pursuant to applications received on or after October 1,
1998, and on or before January 31, 1999 the fee on
consolidation loans of 1.05% is reduced to .62%.
Interest Subsidy Payments
Interest subsidy payments are interest payments
paid with respect to an eligible loan before the time that the
loan enters repayment and during grace and deferment periods.
The Secretary of Education and the guaranty agencies enter into
interest subsidy agreements whereby the Secretary of Education
agrees to pay interest subsidy payments to the holders of
eligible guaranteed loans for the benefit of students meeting
certain requirements, subject to the holders' compliance
with all requirements of the Higher Education Act. Only Stafford
loans and consolidation loans for which the application was
received on or after January 1, 1993, are eligible for
interest subsidy payments. Consolidation loans made after
August 10, 1993 are eligible for interest subsidy payments
only if all loans consolidated thereby are Stafford loans,
except that consolidation loans for which the application is
received by an eligible lender on or after November 13,
1997 and before October 1, 1998, are eligible for interest
subsidy payments on that portion of the Consolidation loan that
repays Stafford loans or similar subsidized loans made under the
direct loan program. In addition, to be eligible for interest
subsidy payments, guaranteed loans must be made by an eligible
lender under the applicable guaranty agency's guarantee
program, and must meet requirements prescribed by the rules and
regulations promulgated under the Higher Education Act.
The Secretary of Education makes interest subsidy
payments quarterly on behalf of the borrower to the holder of a
guaranteed loan in a total amount equal to the interest which
accrues on the unpaid principal amount prior to the commencement
of the repayment period of the loan or during any deferment
period. A borrower may elect to forego interest subsidy
payments, in which case the borrower is required to make
interest payments.
Special Allowance Payments
The Higher Education Act provides for special
allowance payments to be made by the Secretary of Education to
eligible lenders. The rates for special allowance payments are
based on formulas that differ according to the type of loan, the
date the loan was originally made or insured and the type of
funds used to finance the loan (taxable or tax-exempt).
Subsidized and unsubsidized Stafford loans.
The effective formulas for special
allowance payment rates for Stafford and unsubsidized Stafford
loans are summarized in the following chart. The T-Bill Rate
mentioned in the chart refers to the average of the bond
equivalent yield of the 91-day Treasury bills auctioned during
the preceding quarter.
Date of Loans
Annualized SAP Rate
On or after October 1, 1981
T-Bill Rate less Applicable Interest Rate + 3.5%
On or after November 16, 1986
T-Bill Rate less Applicable Interest Rate + 3.25%
On or after October 1, 1992
T-Bill Rate less Applicable Interest Rate + 3.1%
On or after July 1, 1995
T-Bill Rate less Applicable Interest Rate +
    3.1%(1)
On or after July 1, 1998
T-Bill Rate less Applicable Interest Rate +
    2.8%(2)
On or after January 1, 2000 and before
    July 1, 2003
3 Month Commercial Paper Rate less Applicable(3)
    Interest Rate + 2.34%
(1)
Substitute 2.5% in this formula while loans are
    in-school, grace or deferment status.
(2)
Substitute 2.2% in this formula while such loans
    are in-school, grace or deferment status.
(3)
Substitute 1.74% in this formula while such loans
    are in-school, grace or deferment status.
A-10
Federal PLUS, SLS and consolidation loans.
The formula for special allowance
payments on PLUS, SLS and Consolidation Loans are as follows:
Date of Loans
Annualized SAP Rate
On or after October 1, 1992
T-Bill Rate less applicable Interest Rate + 3.1%
On or after January 1, 2000
3 Month Commercial Paper Rate less applicable
    Interest Rate + 2.64%
For PLUS and SLS loans which bear interest at
rates adjusted annually, special allowance payments are made
only in years during which the interest rate ceiling on such
loans operates to reduce the rate that would otherwise apply
based upon the applicable formula. See "Interest rates for
PLUS loans" and "Interest rates for SLS loans" in
this Appendix. Special allowance payments are paid with respect
to PLUS Loans made on or after October 1, 1992 only if the
rate that would otherwise apply exceeds 10% per annum. For PLUS
loans made after July 1, 1998 and before July 1, 2006,
special allowance is paid only if the sum of the 91-day Treasury
bill rate determined at an auction held on June 1 of each year
plus 3.1% exceeds 9.0%. For PLUS loans first disbursed on or
after July 1, 2006, special allowance is paid for such
loans in any 12-month period beginning on July 1 and ending on
June 30 only if the sum of the average of the bond
equivalent rates of the quotes of the 3-month commercial paper
rate for the last calendar week ending on or before such
July 1 plus 2.64% exceeds 9.0%. The portion, if any, of a
consolidation loan that repaid a loan made under Title VII,
Sections 700-721 of the Public Health Services Act, as
amended, is ineligible for special allowance payments.
Special allowance payments for loans financed
by tax-exempt bonds.
The effective
formulas for special allowance payment rates for Stafford Loans
and Unsubsidized Stafford Loans differ depending on whether
loans to borrowers were acquired or originated with the proceeds
of tax-exempt obligations. The formula for special allowance
payments for loans financed with the proceeds of tax-exempt
obligations originally prior to October 1, 1993 is:
T Bill Rate less Applicable Interest Rate + 3.5%
2
provided
that the
special allowance applicable to the loans may not be less than
9 1/2% less the Applicable Interest Rate. Loans acquired
with the proceeds of tax-exempt obligations originally issued
after October 1, 1993 receive special allowance payments
made on other loans.
Adjustments to special allowance payments.
Special allowance payments and
interest subsidy payments are reduced by the amount which the
lender is authorized or required to charge as an origination
fee. In addition, the amount of the lender origination fee is
collected by offset to special allowance payments and interest
subsidy payments. The Higher Education Act provides that if
special allowance payments or interest subsidy payments have not
been made within 30 days after the Secretary of Education
receives an accurate, timely and complete request therefor, the
special allowance payable to such holder shall be increased by
an amount equal to the daily interest accruing on the special
allowance and interest subsidy payments due the holder.
Description of the Guaranty Agencies
The following discussion relates to guaranty
agencies under the FFELP.
A guaranty agency guarantees loans made to
students or parents of students by lending institutions such as
banks, credit unions, savings and loan associations, certain
schools, pension funds and insurance companies. A guaranty
agency generally purchases defaulted student loans which it has
guaranteed with its reserve fund. A lender may submit a default
claim to the guaranty agency after the student loan has been
delinquent for at least 270 days. The default claim package
must include all information and documentation required under
the FFELP regulations and the guaranty agency's policies
and procedures.
A-11
In general, a guaranty agency's reserve fund
has been funded principally by administrative cost allowances
paid by the Secretary of Education, guarantee fees paid by
lenders, investment income on moneys in the reserve fund, and a
portion of the moneys collected from borrowers on guaranteed
loans that have been reimbursed by the Secretary of Education to
cover the guaranty agency's administrative expenses.
Various changes to the Higher Education Act have
adversely affected the receipt of revenues by the guaranty
agencies and their ability to maintain their reserve funds at
previous levels, and may adversely affect their ability to meet
their guarantee obligations. These changes include:
•
the reduction in reinsurance payments from the
    Secretary of Education because of reduced reimbursement
    percentages;
•
the reduction in maximum permitted guarantee fees
    from 3% to 1% for loans made on or after July 1, 1994;
•
the replacement of the administrative cost
    allowance with a student loan processing and issuance fee equal
    to 65 basis points (40 basis points for loans made on
    or after October 1, 1993) paid at the time a loan is
    guaranteed, and an account maintenance fee of 12 basis
    points (10 basis points for fiscal years 2001-2003) paid
    annually on outstanding guaranteed student loans;
•
the reduction in supplemental preclaims
    assistance payments from the Secretary of Education; and
•
the reduction in retention by a guaranty agency
    of collections on defaulted loans from 27% to 24% (23% beginning
    on October 1, 2003).
Additionally, the adequacy of a guaranty
agency's reserve fund to meet its guaranty obligations with
respect to existing student loans depends, in significant part,
on its ability to collect revenues generated by new loan
guarantees. The Federal Direct Student Loan Program discussed
below may adversely affect the volume of new loan guarantees.
Future legislation may make additional changes to the Higher
Education Act that would significantly affect the revenues
received by guaranty agencies and the structure of the guaranty
agency program.
The Higher Education Act gives the Secretary of
Education various oversight powers over guaranty agencies. These
include requiring a guaranty agency to maintain its reserve fund
at a certain required level and taking various actions relating
to a guaranty agency if its administrative and financial
condition jeopardizes its ability to meet its obligations. These
actions include, among others, providing advances to the
guaranty agency, terminating the guaranty agency's federal
reimbursement contracts, assuming responsibility for all
functions of the guaranty agency, and transferring the guaranty
agency's guarantees to another guaranty agency or assuming
such guarantees. The Higher Education Act provides that a
guaranty agency's reserve fund shall be considered to be
the property of the United States to be used in the operation of
the FFEL Program or the FDL Program, and, under certain
circumstances, the Secretary of Education may demand payment of
amounts in the reserve fund.
The 1998 Amendments mandate the recall of
guaranty agency reserve funds by the Secretary of Education
amounting to $85 million in fiscal year 2002,
$82.5 million in fiscal year 2006, and $82.5 million
in fiscal year 2007. However, certain minimum reserve levels are
protected from recall, and under the 1998 Amendments, guaranty
agency reserve funds were restructured to provide guaranty
agencies with additional flexibility in choosing how to spend
certain funds they receive. The new recall of reserves for
guaranty agencies increases the risk that resources available to
guaranty agencies to meet their guarantee obligation will be
significantly reduced. Relevant federal laws, including the
Higher Education Act, may be further changed in a manner that
may adversely affect the ability of a guaranty agency to meet
its guarantee obligations.
Student loans originated prior to October 1,
1993 are fully guaranteed as to principal and accrued interest.
Student loans originated after October 1, 1993 are
guaranteed as to 98% of principal and accrued interest.
A-12
Under the Higher Education Act, if the Department
of Education has determined that a guaranty agency is unable to
meet its insurance obligations, the holders of loans guaranteed
by such guaranty agency must submit claims directly to the
Department of Education, and the Department of Education is
required to pay the full guarantee payment due with respect
thereto in accordance with guarantee claims processing standards
no more stringent than those applied by the guaranty agency.
There are no assurances as to the Secretary of
Education's actions if a guaranty agency encounters
administrative or financial difficulties or that the Secretary
of Education will not demand that a guaranty agency transfer
additional portions or all of its reserve fund to the Secretary
of Education.
Federal Agreements
General.
A guaranty
agency's right to receive federal reimbursements for
various guarantee claims paid by such guaranty agency is
governed by the Higher Education Act and various contracts
entered into between guaranty agencies and the Secretary of
Education. Each guaranty agency and the Secretary of Education
have entered into federal reimbursement contracts pursuant to
the Higher Education Act, which provide for the guaranty agency
to receive reimbursement of a percentage of insurance payments
that the guaranty agency makes to eligible lenders with respect
to loans guaranteed by the guaranty agency prior to the
termination of the federal reimbursement contracts or the
expiration of the authority of the Higher Education Act. The
federal reimbursement contracts provide for termination under
certain circumstances and also provide for certain actions short
of termination by the Secretary of Education to protect the
federal interest.
In addition to guarantee benefits, qualified
student loans acquired under the FFEL Program benefit from
certain federal subsidies. Each guaranty agency and the
Secretary of Education have entered into an Interest Subsidy
Agreement under the Higher Education Act which entitles the
holders of eligible loans guaranteed by the guaranty agency to
receive interest subsidy payments from the Secretary of
Education on behalf of certain students while the student is in
school, during a six to twelve month grace period after the
student leaves school, and during certain deferment periods,
subject to the holders' compliance with all requirements of
the Higher Education Act.
United States Courts of Appeals have held that
the federal government, through subsequent legislation, has the
right unilaterally to amend the contracts between the Secretary
of Education and the guaranty agencies described herein.
Amendments to the Higher Education Act in 1986, 1987, 1992,
1993, and 1998, respectively:
•
abrogated certain rights of guaranty agencies
    under contracts with the Secretary of Education relating to the
    repayment of certain advances from the Secretary of Education,
•
authorized the Secretary of Education to withhold
    reimbursement payments otherwise due to certain guaranty
    agencies until specified amounts of such guaranty agencies'
    reserves had been eliminated,
•
added new reserve level requirements for guaranty
    agencies and authorized the Secretary of Education to terminate
    the Federal Reimbursement Contracts under circumstances that did
    not previously warrant such termination,
•
expanded the Secretary of Education's
    authority to terminate such contracts and to seize guaranty
    agencies' reserves, and
•
mandated the additional recall of guaranty agency
    reserve funds.
Federal Insurance and Reimbursement of
Guaranty Agencies
Effect of annual claims rate.
With respect to loans made prior to
October 1, 1993, the Secretary of Education currently
agrees to reimburse the guaranty agency for up to 100% of the
amounts paid on claims made by lenders, as discussed in the
formula described below, so long as the eligible lender has
properly serviced such loan. The amount of reimbursement is
lower for loans originated after October 1,
A-13
1993, as described below. Depending on the claims
rate experience of a guaranty agency, such reimbursement may be
reduced as discussed in the formula described below. The
Secretary of Education also agrees to repay 100% of the unpaid
principal plus applicable accrued interest expended by a
guaranty agency in discharging its guarantee obligation as a
result of the bankruptcy, death, or total and permanent
disability of a borrower, or in the case of a PLUS loan, the
death of the student on behalf of whom the loan was borrowed, or
in certain circumstances, as a result of school closures, which
reimbursements are not to be included in the calculations of the
guaranty agency's claims rate experience for the purpose of
federal reimbursement under the Federal Reimbursement Contracts.
The formula used for loans initially disbursed
prior to October 1, 1993 is summarized below:
Claims Rate
Federal Payment
0% up to 5%
100%
5% up to 9%
100% of claims up to 5%; 90% of claims 5% and over
9% and over
100% of claims up to 5%; 90% of claims 5% and
    over, up to 9%; 80% of claims 9% and over
The claims experience is not accumulated from
year to year, but is determined solely on the basis of claims in
any one federal fiscal year compared with the original principal
amount of loans in repayment at the beginning of that year.
The 1993 Amendments reduce the reimbursement
amounts described above, effective for loans initially disbursed
on or after October 1, 1993 as follows: 100% reimbursement
is reduced to 98%, 90% reimbursement is reduced to 88%, and 80%
reimbursement is reduced to 78%, subject to certain limited
exceptions. The 1998 Amendments further reduce the federal
reimbursement amounts from 98% to 95%, 88% to 85%, and 78% to
75% respectively, for student loans first disbursed on or after
October 1, 1998.
The reduced reinsurance for federal guaranty
agencies increases the risk that resources available to guaranty
agencies to meet their guarantee obligation will be
significantly reduced.
Reimbursement.
The
original principal amount of loans guaranteed by a guaranty
agency which are in repayment for purposes of computing
reimbursement payments to a guaranty agency means the original
principal amount of all loans guaranteed by a guaranty agency
less:
•
the original principal amount of such loans that
    have been fully repaid, and
•
the original amount of such loans for which the
    first principal installment payment has not become due.
Guaranty agencies with default rates below 5% are
required to pay the Secretary of Education annual fees
equivalent to 0.51% of new loans guaranteed, while all other
such agencies must pay a 0.5% fee. The Secretary of Education
may withhold reimbursement payments if a guaranty agency makes a
material misrepresentation or fails to comply with the terms of
its agreements with the Secretary of Education or applicable
federal law.
Under the guarantee agreements, if a payment on a
FFELP loan guaranteed by a guaranty agency is received after
reimbursement by the Secretary of Education, the guaranty agency
is entitled to receive an equitable share of the payment.
Any originator of any student loan guaranteed by
a guaranty agency is required to discount from the proceeds of
the loan at the time of disbursement, and pay to the guaranty
agency, an insurance premium which may not exceed that permitted
under the Higher Education Act.
Under present practice, after the Secretary of
Education reimburses a guaranty agency for a default claim paid
on a guaranteed loan, the guaranty agency continues to seek
repayment from the borrower. The guaranty agency returns to the
Secretary of Education payments that it receives from a borrower
after
A-14
deducting and retaining: a percentage amount
equal to the complement of the reimbursement percentage in
effect at the time the loan was reimbursed, and an amount equal
to 24% of such payments for certain administrative costs. The
Secretary of Education may, however, require the assignment to
the Secretary of defaulted guaranteed loans, in which event no
further collections activity need be undertaken by the guaranty
agency, and no amount of any recoveries shall be paid to the
guaranty agency.
A guaranty agency may enter into an addendum to
its Interest Subsidy Agreement that allows the guaranty agency
to refer to the Secretary of Education certain defaulted
guaranteed loans. Such loans are then reported to the IRS to
"offset" any tax refunds which may be due any
defaulted borrower. To the extent that the guaranty agency has
originally received less than 100% reimbursement from the
Secretary of Education with respect to such a referred loan, the
guaranty agency will not recover any amounts subsequently
collected by the federal government which are attributable to
that portion of the defaulted loan for which the guaranty agency
has not been reimbursed.
Rehabilitation of defaulted loans.
Under the Higher Education Act, the
Secretary of Education is authorized to enter into an agreement
with a guaranty agency pursuant to which the guaranty agency
shall sell defaulted loans that are eligible for rehabilitation
to an eligible lender. The guaranty agency shall repay the
Secretary of Education an amount equal to 81.5% of the then
current principal balance of such loan, multiplied by the
reimbursement percentage in effect at the time the loan was
reimbursed. The amount of such repayment shall be deducted from
the amount of federal reimbursement payments for the fiscal year
in which such repayment occurs, for purposes of determining the
reimbursement rate for that fiscal year.
For a loan to be eligible for rehabilitation, the
guaranty agency must have received consecutive payments for
12 months of amounts owed on such loan. Upon
rehabilitation, a loan is eligible for all the benefits under
the Higher Education Act for which it would have been eligible
had no default occurred (except that a borrower's loan may
only be rehabilitated once).
Eligibility for federal reimbursement.
To be eligible for federal
reimbursement payments, guaranteed loans must be made by an
eligible lender under the applicable guaranty agency's
guarantee program, which must meet requirements prescribed by
the rules and regulations promulgated under the Higher Education
Act, including the borrower eligibility, loan amount,
disbursement, interest rate, repayment period and guarantee fee
provisions described herein and the other requirements set forth
in the Higher Education Act.
Prior to the 1998 Amendments, a FFELP loan was
considered to be in default for purposes of the Higher Education
Act when the borrower failed to make an installment payment when
due, or to comply with the other terms of the loan, and if the
failure persists for 180 days in the case of a loan
repayable in monthly installments or for 240 days in the
case of a loan repayable in less frequent installments. Under
the 1998 Amendments, the delinquency period required for a
student loan to be declared in default is increased from
180 days to 270 days for loans payable in monthly
installments on which the first day of delinquency occurs on or
after the date of enactment of the 1998 Amendments and from
240 days to 330 days for a loan payable less
frequently than monthly on which the delinquency occurs after
the date of enactment of the 1998 Amendments.
The guaranty agency must pay the lender for the
defaulted loan prior to submitting a claim to the Secretary of
Education for reimbursement. The guaranty agency must submit a
reimbursement claim to the Secretary of Education within
45 days after it has paid the lender's default claim.
As a prerequisite to entitlement to payment on the guarantee by
the guaranty agency, and in turn payment of reimbursement by the
Secretary of Education, the lender must have exercised
reasonable care and diligence in making, servicing and
collecting the guaranteed loan. Generally, these procedures
require:
•
that completed loan applications be processed;
•
a determination of whether an applicant is an
    eligible borrower attending an eligible institution under the
    Higher Education Act be made;
•
the borrower's responsibilities under the
    loan be explained to him or her;
A-15
•
the promissory note evidencing the loan be
    executed by the borrower; and
•
that the loan proceeds be disbursed by the lender
    in a specified manner.
After the loan is made, the lender must establish
repayment terms with the borrower, properly administer
deferments and forbearances and credit the borrower for payments
made. If a borrower becomes delinquent in repaying a loan, a
lender must perform certain collection procedures, primarily
telephone calls, demand letters, skiptracing procedures and
requesting assistance from the applicable guaranty agency, that
vary depending upon the length of time a loan is delinquent.
Direct Loans
The 1993 Amendments authorized a program of
"direct loans," to be originated by schools with funds
provided by the Secretary of Education. Under the FDL Program,
the Secretary of Education is directed to enter into agreements
with schools, or origination agents in lieu of schools, to
disburse loans with funds provided by the Secretary of
Education. Participation in the program by schools is voluntary.
The goals set forth in the 1993 Amendments call for the direct
loan program to constitute 5% of the total volume of loans made
under the FFELP Program and the FDL Program for academic year
1994-1995, 40% for academic year 1995-1996, 50% for academic
years 1996-1997 and 1997-1998 and 60% for academic year
1998-1999. No provision is made for the size of the FDL Program
thereafter. Based upon information released by the General
Accounting Office, participation by schools in the FDL Program
has not been sufficient to meet the goals for the 1995-1996 or
1996-1997 academic years. The 1998 Amendments removed references
to the "phase-in" of the FDL Program, including
restrictions on annual limits for FDL Program volume and the
Secretary's authority to select additional institutions to
achieve balanced school representation.
The loan terms are generally the same under the
FDL Program as under the FFEL Program, though more flexible
repayment provisions are available under the FDL Program. At the
discretion of the Secretary of Education, students attending
schools that participate in the FDL Program (and their parents)
may still be eligible for participation in the FFEL Program,
though no borrower could obtain loans under both programs for
the same period of enrollment.
It is difficult to predict the impact of the FDL
Program. There is no way to accurately predict the number of
schools that will participate in future years, or, if the
Secretary authorizes students attending participating schools to
continue to be eligible for FFEL Program loans, how many
students will seek loans under the direct loan program instead
of the FFEL Program. In addition, it is impossible to predict
whether future legislation will eliminate, limit or expand the
FDL Program or the FFEL Program.
A-16
Shares
Class A Common Stock
Prospectus
JPMorgan
Banc of America Securities LLC
Credit Suisse First Boston
Morgan Stanley
,
2003
PART II
INFORMATION NOTE REQUIRED IN
PROSPECTUS
Item 13.
Other
Expenses of Issuance and Distribution
The following table shows the costs and expenses,
other than underwriting discounts, payable in connection with
the sale and distribution of the securities being registered.
Except as otherwise noted, the registrant will pay all of these
amounts. All amounts except the Securities and Exchange
Commission Registration Fee and the National Association of
Securities Dealers, Inc. Filing Fee are estimated.
Securities and Exchange Commission Registration
    Fee
$
16,180
National Association of Securities Dealers, Inc.
    Filing Fee
20,500
New York Stock Exchange Listing Fees
*
Printing Expenses
*
Legal Fees and Expenses
*
Accounting Fees and Expenses
*
Transfer Agent and Registrar Agent Fees
*
Miscellaneous
*
Total
$
*
*
To be provided by amendment.
Item 14.
Indemnification
of Directors and Officers
Under the Nebraska Business Corporation Act, a
Nebraska corporation may provide indemnification to directors
and officers for judgments, fines, settlements and expenses,
including attorney's fees, incurred in connection with any
threatened, pending or completed action, suit or proceeding
other than an action by or in the right of the corporation. This
applies to any civil, criminal, investigative or administrative
action provided that the director or officer involved acted in
good faith, in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and, with
respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful. The corporation may
also provide indemnification to directors and officers for
judgments, fines, settlements and expenses, including
attorney's fees, incurred in connection with any
threatened, pending or completed action or suit by or in the
right of the corporation if such director or officer acted in
good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation. However,
no indemnification shall be made in respect of any claim, issue
or matter in which such person is adjudged to be liable for
negligence or misconduct in the performance of his duties to the
corporation unless the court in which the action is brought
deems indemnity proper. The grant of indemnification to a
director or officer shall be determined by a majority of a
quorum of disinterested directors, by a written opinion from
independent legal counsel or by the shareholders.
Indemnification shall be provided to any directors and officers
for expenses, including attorney's fees, actually and
reasonably incurred in the defense of any action, suit or
proceeding to the extent that he or she has been successful on
the merits.
The registrant's amended and restated
articles of incorporation provide that the registrant shall, to
the maximum extent and in the manner permitted by the Nebraska
Business Corporation Act, indemnify each of its directors,
officers, employees and agents against expenses, including
attorney's fees, judgments, fines, settlements and other
amounts actually and reasonably incurred in connection with any
proceeding arising by reason of the fact that such person is or
was an agent of the registrant. The registrant shall pay
expenses incurred in defending any civil or criminal action or
proceeding for which indemnification is available in advance of
the final disposition of such action or proceeding, following
authorization thereof by the board of directors in the case of
an employee or agent, upon receipt of an undertaking by or on
behalf of the indemnified party to repay such amount if it shall
be ultimately determined by final judicial decision, from which
there is no further right of appeal, that the indemnified party
is not entitled to be indemnified.
II-1
In addition, the registrant's amended and
restated articles of incorporation provide that the registrant
may purchase and maintain insurance on behalf of any person who
is or was an agent of the registrant against any liability
asserted against or incurred by such person in such capacity
arising out of such person's status as such, whether or not
the registrant would have the power to indemnify him or her
against such liability under the registrant's amended and
restated articles of incorporation and the Nebraska Business
Corporation Act. The registrant has obtained insurance for the
benefit of its officers and directors insuring such persons
against liabilities, including liabilities under the securities
laws.
The registrant's amended and restated
articles of incorporation also limit the personal liability of
the directors and officers of the registrant for breaches of
fiduciary duty to the registrant or its shareholders, except in
certain circumstances including (1) breach of the duty of
loyalty to the registrant or its shareholders, (2) acts or
omissions not in good faith or involving intentional misconduct
or a knowing violation of law, (3) acts or omissions for
which the Nebraska Business Corporation Act does not permit
indemnity for directors under Section 21-2018(2)(e) of the
Nebraska Business Corporation Act, which include intentional
infliction of harm on the registrant or its shareholders, voting
for or assenting to an unlawful distribution and intentional
violation of criminal law, or (4) any transaction from
which the director derived an improper personal benefit.
Item 15.
Recent Sales of Unregistered
    Securities.
During the past three years, the Company has
issued unregistered securities in the transactions described
below. Securities issued in such transactions were offered and
sold in reliance upon the exemption from registration under
Section 4(2) of the Securities Act of 1933, relating to
sales by an issuer not involving any public offering. The sales
of securities were made without the use of an underwriter and
the certificates evidencing the shares bear a restricted legend
permitting the transfer thereof only upon registration of the
shares or an exemption under said Act.
1.
On May 25, 2001, the registrant issued
    1,535,520 shares of Class A common stock to Farmers
    & Merchants Investment Inc. for approximately $1.31 per
    share, or an aggregate of $2,009,703.
2.
On March 12, 2003, the registrant issued an
    aggregate of 331,800 shares of Class A common stock to
    35 employees for $2.43 per share, or an aggregate of $806,274.
3.
On August 14, 2003, in connection with the
    recapitalization effected pursuant to the registrant's
    amended and restated articles of incorporation, the registrant
    issued an aggregate of 45,038,488 shares of its
    Class A and Class B common stock to the holders of its
    pre-recapitalization Class A voting common stock and
    Class B non-voting common stock.
Item 16.
Exhibits and Financial Statement
    Schedules.
(a) Exhibits
See Exhibit Index beginning on
page II-6 of this registration statement.
(b) Financial Statement
Schedules
None.
Item 17.
Undertakings.
(a)
The undersigned registrant hereby undertakes to
    provide to the underwriters at the closing specified in the
    underwriting agreement certificates in such denominations and
    registered in such names as required by the underwriters to
    permit prompt delivery to each purchaser.
(b)
Insofar as indemnification for liabilities
    arising under the Securities Act of 1933 may be permitted to
    directors, officers and controlling persons of the registrant
    pursuant to the foregoing provisions, or otherwise, the
    registrant has been advised that in the opinion of the
    Securities and Exchange Commission such indemnification is
    against public policy as expressed in the Act and is, therefore,
II-2
unenforceable. In the event that a claim for
    indemnification against such liabilities (other than the payment
    by the registrant of expenses incurred or paid by a director,
    officer or controlling person of the registrant in the
    successful defense of any action, suit or proceeding) is
    asserted against the registrant by such director, officer or
    controlling person in connection with the securities being
    registered, the registrant will, unless in the opinion of its
    counsel the matter has been settled by controlling precedent,
    submit to a court of appropriate jurisdiction the question
    whether such indemnification by it is against public policy as
    expressed in the Act and will be governed by the final
    adjudication of such issue.
(c)
The undersigned registrant hereby undertakes that:
(1)
For purposes of determining any liability under
    the Securities Act of 1933, the information omitted from the
    form of prospectus filed as part of this registration statement
    in reliance upon Rule 430A and contained in a form of
    prospectus filed by the registrant pursuant to
    Rule 424(b)(1) or (4) or 497(h) under the Securities Act
    shall be deemed to be part of this registration statement as of
    the time it was declared effective.
(2)
For the purpose of determining any liability
    under the Securities Act of 1933, each post-effective amendment
    that contains a form of prospectus shall be deemed to be a new
    registration statement relating to the securities offered
    therein, and the offering of such securities at that time shall
    be deemed to be the initial bona fide offering thereof.
II-3
SIGNATURES
Pursuant to the requirements of the Securities
Act of 1933, the registrant has duly caused this registration
statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the city of Lincoln, State of
Nebraska, on August 18, 2003.
NELNET, INC.
By:
/s/ MICHAEL S. DUNLAP
Name: Michael S. Dunlap
Title:
Chairman and Co-Chief Executive Officer
We, the undersigned directors and officers of
Nelnet, Inc., do hereby constitute and appoint Michael S.
Dunlap, Stephen F. Butterfield and Terry J. Heimes, and each and
any of them, our true and lawful attorneys-in-fact and agents to
do any and all acts and things in our names and our behalf in
our capacities as directors and officers and to execute any and
all instruments for us and in our name in the capacities
indicated below, which said attorneys and agents, or any of
them, may deem necessary or advisable to enable Nelnet, Inc. to
comply with the Securities Act of 1933 and any rules,
regulations and requirements of the Securities and Exchange
Commission in connection with this registration statement or any
registration statement for this offering of securities that is
to be effective upon filing pursuant to Rule 462(b) under
the Securities Act of 1933, including specifically, but without
limitation, any and all amendments (including post-effective
amendments) hereto, and we hereby ratify and confirm all that
said attorneys and agents, or any of them, shall do or cause to
be done by virtue thereof.
Pursuant to the requirements of the Securities
Act of 1933, this registration statement has been signed by the
following persons in the capacities and on the dates indicated.
Signature
Title
Date
/s/ MICHAEL S. DUNLAP
Michael S. Dunlap
Chairman and
Co-Chief Executive Officer
August 18, 2003
/s/ STEPHEN F. BUTTERFIELD
Stephen F. Butterfield
Vice Chairman and
Co-Chief Executive Officer
August 18, 2003
/s/ TERRY J. HEIMES
Terry J. Heimes
Chief Financial Officer (Principal and
Accounting Officer)
August 18, 2003
/s/ DON R. BOUC
Don R. Bouc
President and Director
August 18, 2003
/s/ JAMES P. ABEL
James P. Abel
Director
August 18, 2003
/s/ THOMAS E. HENNING
Thomas E. Henning
Director
August 18, 2003
/s/ LEE E. MIKLES
Lee E. Mikles
Director
August 18, 2003
II-4
Signature
Title
Date
/s/ ARTURO MORENO
Arturo Moreno
Director
August 18, 2003
/s/ BRIAN J. O'CONNOR
Brian J. O'Connor
Director
August 18, 2003
/s/ JAMES H. VANHORN
James H. VanHorn
Director
August 18, 2003
II-5
EXHIBIT INDEX
Exhibit
No.
Description
1
.1*
Form of Underwriting Agreement.
3
.1*
Amended and Restated Articles of Incorporation of
    Nelnet, Inc.
3
.2*
Amended and Restated By-laws of Nelnet, Inc.
4
.1*
Form of Class A Common Stock Certificate of
    Nelnet, Inc.
5
.1*
Opinion of Perry, Guthery, Haase & Gessford,
    P.C., L.L.O. regarding the legality of the securities being
    registered.
21
.1*
Subsidiaries of Nelnet, Inc.
23
.1
Consent of KMPG LLP, Independent Auditors.
23
.2*
Consent of Perry, Guthery, Haase & Gessford,
    P.C., L.L.O. (included in Exhibit 5.1).
24
.1
Powers of Attorney authorizing execution of
    registration statement on Form S-1 on behalf of certain
    directors and officers of Nelnet, Inc. (included on the
    signature page to this registration statement).
*
To be filed by amendment.