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Two analysts and top management from five sector firms examine the Education sector in this 25-page TWST Education Issue from The Wall Street Transcript, available at (212/952-7433) or www.twst.com

TWST: Bob, what’s gone on in the education market from an operating point of view over the last year or so that’s key?

Mr. Craig: Let me summarize by sector. First, in postsecondary, business has generally been very strong. Based on continued favorable demographic and socioeconomic factors and supply/demand characteristics, enrollment growth trends have remained healthy. It tends to be a business that is predominantly acyclical, although one could argue that in the case of the older/graduate student demographic, it may be modestly countercyclical. So the sluggish economy has actually benefited many industry participants, with the notable exception being those firms focused exclusively on the depressed technology market. Pricing power remains intact. Most of the companies that we cover have continued to raise prices, on average, by about 4%-6% per year, and we think that’s going to continue — and that’s a very rare ability in the marketplace generally. These stocks have been widely viewed as safe havens with above-average growth prospects and earnings predictability, strong and improving profitability, healthy cash flow generation and unusual pricing power; and their performance since 2000 has reflected that. In the training space it’s certainly been a different story. There, cutbacks in corporate spending, including technology and software purchases, have dramatically affected top- and bottom-line performance and, consequently, stock prices. Cost cutting, increased operating efficiency and more focused business models have helped many industry players meet already lowered EPS expectations on lackluster top-line performance, and we think this trend will continue in 2003. Lead indicators to a recovery may be the enterprise software space, which stands to reason since many of the companies that we cover — Learning Tree (LTRE) and SkillSoft (SKIL) in particular — basically train people to use their products and/or IT staffing plans. Neither has offered much encouragement thus far and training expenditures are likely to lag an overall recovery in corporate spending. Having said that, most of these stocks are washed out and offer good long-term value.

TWST: You mentioned that the universe you look at consists of publicly traded companies. Are there a number of private players in this as well?

Mr. Craig: There are. Obviously, based on our job function, we deal predominantly with the publicly traded players, but it is an extremely fragmented market. There are quite a few private players, but not a lot of private players with critical mass and size.

TWST: As you look at this market, are you recommending any names at this point?

Mr. Craig: We have been actively recommending Sylvan Learning Systems (Nasdaq:SLVN), which recently announced its intention to separate the faster-growing postsecondary/adult education businesses from the core K-12 businesses and to dissolve its money-losing Sylvan Ventures operation. The latter, combined with the company’s overall complexity, had significantly penalized market valuation. The remaining business consists of partial or complete ownership positions in six international universities; Canter, the largest provider of teacher development/training services in the US; Walden, a rapidly growing and fully accredited online university; and NTU, which is also a fully accredited virtual university with a focus on IT and engineering. We like the growth prospects of both the international postsecondary market and online education, and it is far less expensive than the average domestic postsecondary company.

This Special Issue includes:

1) Outlook for Education Services - In an in-depth (3,200 words) Analyst Interview, Robert Craig, a Managing Director & Senior Equity Analyst and Jerry R. Herman, a Managing Director & Senior Equity Analyst at Legg Mason Wood Walker, examine the outlook for the sector and share specific stock recommendations.

2) CEO interviews (average 2,500 words). Top management of five - sector firms examine the outlook for their firm and the sector.