Itt Educational Services Inc – ‘424B4’ on 6/4/98

As of:  Thursday, 6/4/98   ·   Accession #:  950124-98-3234   ·   File #:  333-46267

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Prospectus   —   Rule 424(b)(4)
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 424B4       Prospectus Dated 6-4-98                               87    547K 

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                                                FILED PURSUANT TO RULE 424(b)(4)
                                                      REGISTRATION NO. 333-46267

11,350,000 SHARES 

ITT EDUCATIONAL SERVICES, INC. LOGO 

COMMON STOCK
($.01 par value)
------------------------
All of the shares of common stock, $.01 par value (the "Common Stock"), of ITT  
Educational Services, Inc. (the "Company") offered hereby (the "Offering") are  
being offered by the Selling Stockholder named herein under "Principal and      
Selling Stockholder." The Company will not receive any of the proceeds from the 
sale of shares of Common Stock by the Selling Stockholder.                      
The Common Stock of the Company is listed on the New York Stock Exchange, Inc.  
(the "NYSE") under the symbol "ESI." On June 3, 1998, the last reported sale    
price of the Common Stock on the NYSE was $25.25 per share. See "Price Range of 
Common Stock."                                                                  

FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH
AN INVESTMENT IN THE COMMON STOCK, SEE "RISK FACTORS" BEGINNING ON PAGE 9.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES 
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. 

                                                        [Enlarge/Download Table]

                                                            UNDERWRITING   PROCEEDS TO  
                                                PRICE      DISCOUNTS AND     SELLING    
                                              TO PUBLIC     COMMISSIONS   STOCKHOLDER(1)
                                              ---------    -------------  --------------
                                                                                        
Per Share...................................    $24.25         $0.91          $23.34    
Total(2).................................... $275,237,500   $10,321,406    $264,916,094 

(1) The expenses of the Offering, estimated to be approximately $1,000,000, will
be paid by the Company.                                                 

(2) The Selling Stockholder has granted the Underwriters an option, exercisable 
for 30 days from the date of this Prospectus, to purchase a maximum of  
1,700,000 additional shares from the Selling Stockholder to cover over- 
    allotments of shares. If the option is exercised in full, the total Price to
   Public will be $316,462,500, Underwriting Discounts and Commissions will be
 $11,867,344 and proceeds to the Selling Stockholder will be $304,595,156.

     The shares of Common Stock are offered by the several Underwriters when, as
and if delivered to and accepted by the Underwriters and subject to their right 
to reject orders in whole or in part. It is expected that the shares of Common  
Stock will be ready for delivery on or about June 9, 1998, against payment in   
immediately available funds.                                                    

CREDIT SUISSE FIRST BOSTON                                                      
BEAR, STEARNS & CO. INC.                                  
BT ALEX. BROWN                      
   MERRILL LYNCH & CO.
                            MORGAN STANLEY DEAN WITTER
                                      SALOMON SMITH BARNEY
PROSPECTUS DATED JUNE 3, 1998 

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[LOGO]     ITT EDUCATIONAL SERVICES, INC.                                       

[PHOTO OF STUDENTS                    [PHOTO OF STUDENTS                        
IN CLASS]                             IN CLASS]                         

[PHOTO OF STUDENTS                    [PHOTO OF STUDENTS                        
AND INSTRUCTOR IN                     AND INSTRUCTOR IN                         
CLASS]                                CLASS]                            

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT  
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES OFFERED   
HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT   
COVERING TRANSACTIONS AND PENALTY BIDS.  FOR A DESCRIPTION OF THESE ACTIVITIES, 
SEE "UNDERWRITING."   

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THE COMPANY:  ITT Educational Services, Inc. (ESI) is a leading proprietary     
provider of technology-oriented programs of study.  ESI operates 63 ITT         
Technical Institutes in 27 states which predominantly provide career-focused,   
degree programs to approximately 24,000 students.  Headquartered in             
Indianapolis, Indiana, ESI has been actively involved in the higher education   
community in the United States since 1969.                                      

    [PHOTO OF STUDENTS                            [PHOTO OF STUDENTS
      IN CLASS]                                      IN CLASS]

  [PHOTO OF STUDENTS
     IN CLASS]

    [PHOTO OF STUDENTS                            [PHOTO OF STUDENTS
        IN CLASS]                                AND INSTRUCTOR IN
                                                  CLASS]

                                                  [PHOTO OF STUDENTS
                                                 AND INSTRUCTOR IN
                                                  CLASS]

The mission of ITT Educational Services, Inc. is to provide   
a quality postsecondary education and the services  
that can help a diverse student body begin to prepare for   
career opportunities in various fields involving technology.  

We will strive to establish an environment  
for students and employees which promotes professional growth, encourages each  
person to achieve his or her highest potential and fosters ethical  
responsibility and individual creativity within a framework of  
equal opportunity.  

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THE CURRICULA:  Curriculum offerings, leading primarily to associate's and      
bachelor's degrees, are designed to help students begin to prepare for career   
opportunities in various fields involving technology, including electronics,    
computer-aided drafting, industrial design, automated manufacturing, computer   
visualization, chemical technology, telecommunications and other areas.  One    
ITT Technical Institute also offers a master's degree program in project        
management.  Programs of study vary among ITT Technical Institute campuses.     
ITT Technical Institute programs of study blend traditional academic content    
with applied learning concepts, with a significant portion devoted to practical 
study in a lab environment.  Advisory commitees, comprised of representatives   
of local emoloyers, help each ITT Technical Institute periodically assess and   
update curricula, equipment and laboratory design.                              

 [PHOTO OF STUDENT     [PHOTO OF                    [PHOTO OF STUDENTS
    IN CLASS]          SCHOOL BUILDING]              AND INSTRUCTOR IN
                                                      CLASS]

                       [PHOTO OF STUDENTS           [PHOTO OF STUDENTS
                    AND INSTRUCTOR IN                  IN CLASS]
CLASS]      

MARKET SHARE:  According to U.S. Department of Education data, ITT Technical    
Institutes granted the largest percentage (16.3 percent) of the 26,824          
associate's degrees awarded in the U.S. in electronics and electronics-related  
programs in 1994-95 school year (the latest year available).  ITT Technical     
Institutes also granted the largest share (23.0 percent) of the 8,648           
associate's degrees awarded in the U.S. in drafting programs during the         
1994-1995 school year.                                                          

THE STUDENTS' SCHEDULE:  Students attend classes year-round with convenient     
breaks provided throughout the year. Year-round classes enable students to      
complete bachelor's degree programs and enter the work force full-time in as    
few as three years.  Bachelor's degree programs are offered only at select      
campuses.  Classes are generally offered in four-hour sessions five days a week 
and are typically available in the morning, afternoon and evening, depending on 
student enrollment.  This class schedule offers flexibility to students to      
pursue part-time employment opportunities.                                      

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THE ITT TECHNICAL INSTITUTE NETWORK   

       ITT Educational Services, Inc. operates more than
60 ITT Technical Institutes across the country.   

[MAP OF U.S.]   

ALABAMA                                                                         
Birmingham                                                                      

ARIZONA                                                                         
Phoenix                                                                         
Tucson                                                                          

ARKANSAS                                                                        
Little Rock                                                                     

CALIFORNIA                                                                      
Anaheim (Los Angeles)                                                           
Hayward (San Francisco)                                                         
Lathrop (Stockton)                                                              
Oxnard (Los Angeles)                                                            
Rancho Cordova (Sacramento)                                                     
San Bernardino (Los Angeles)                                                    
San Diego                                                                       
Santa Clara (San Francisco)                                                     
Sylmar (Los Angeles)                                                            
Torrance (Los Angeles)                                                          
West Covina (Los Angeles)                                                       

COLORADO                                                                        
Thornton (Denver)                                                               

FLORIDA                                                                         
Fort Lauderdale                                                                 
Jacksonville                                                                    
Maitland (Orlando)                                                              
Miami                                                                           
Tampa                                                                           

IDAHO                                                                           
Boise                                                                           

ILLINOIS                                                                        
Burr Ridge (Chicago)                                                            
Hoffman Estates (Chicago)                                                       
Matteson (Chicago)                                                              

INDIANA                                                                         
Fort Wayne                                                                      
Indianapolis                                                                    
Newburgh (Evansville)                                                           

KENTUCKY                                                                        
Louisville                                                                      

LOUISIANA                                                                       
St. Rose (New Orleans)                                                          

MASSACHUSETTS                                                                   
Framingham (Boston)                                                             

MICHIGAN                                                                        
Grand Rapids                                                                    
Troy (Detroit)                                                                  

MISSOURI                                                                        
Arnold (St. Louis)                                                              
Earth City (St. Louis)                                                          

NEBRASKA                                                                        
Omaha                                                                           

NEVADA                                                                          
Henderson (Las Vegas)                                                           

NEW MEXICO                                                                      
Albuquerque                                                                     

NEW YORK                                                                        
Albany                                                                          
Getzville (Buffalo)                                                             
Liverpool (Syracuse)                                                            

OHIO                                                                            
Dayton                                                                          
Norwood (Cincinnati)                                                            
Strongsville (Cleveland)                                                        
Youngstown                                                                      

OREGON                                                                          
Portland                                                                        

PENNSYLVANIA                                                                    
Mechanicsburg (Harrisburg)                                                      
Monroeville (Pittsburgh)                                                        
Pittsburgh                                                                      

SOUTH CAROLINA                                                                  
Greenville                                                                      

TENNESSEE                                                                       
Knoxville                                                                       
Memphis                                                                         
Nashville                                                                       

TEXAS                                                                           
Arlington                                                                       
Austin                                                                          
Garland (Dallas)                                                                
Houston (North)                                                                 
Houston (South)                                                                 
Houston (West)                                                                  
Richardson (Dallas)                                                             
San Antonio                                                                     

UTAH                                                                            
Murray (Salt Lake City)                                                         

VIRGINIA                                                                        
Norfolk                                                                         
Richmond                                                                        

WASHINGTON                                                                      
Bothell (Seattle)                                                               
Seattle                                                                         
Spokane                                                                         

WISCONSIN                                                                       
Greenfield (Milwaukee)                                                          

[LOGO] Opened prior to 1998     [LOGO] Opened or planned to open in 1998  

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DOCUMENTS INCORPORATED BY REFERENCE 

     The Company hereby incorporates in this Prospectus by reference thereto and
makes a part hereof (i) the Company's Annual Report on Form 10-K for the fiscal 
year ended December 31, 1997, (ii) the Company's Current Report on Form 8-K     
dated February 23, 1998, (iii) the Company's Current Report on Form 8-K dated   
March 31, 1998, (iv) the Company's Current Report on Form 8-K dated April 16,   
1998 and the amendment thereto on Form 8-K/A filed on April 17, 1998 and (v) the
Company's Quarterly Report on Form 10-Q for the three months ended March 31,    
1998.                                                                           

    All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),  
after the date of this Prospectus and prior to the termination of the Offering  
shall be deemed to be incorporated by reference in this Prospectus and to be a  
part hereof from the date of filing such documents. Any statement contained in a
document incorporated by reference herein shall be deemed to be modified or     
superseded for purposes of this Prospectus to the extent that a statement       
contained herein, or in any other subsequently filed document that is also      
incorporated or is deemed to be incorporated by reference herein, modifies or   
supersedes such statement. Any such statement so modified or superseded shall   
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus. Subject to the foregoing, all information appearing in this         
Prospectus is qualified in its entirety by the information appearing in the     
documents incorporated by reference.                                            

The Company undertakes to provide without charge, upon written or oral
request, to each person to whom this Prospectus is delivered, a copy of any or  
all such documents referenced above other than exhibits to such documents.      
Requests for such copies should be directed to Clark D. Elwood, Senior Vice     
President, General Counsel and Secretary, ITT Educational Services, Inc., 5975  
Castle Creek Parkway North Drive, P.O. Box 50466, Indianapolis, Indiana         
46250-0466, telephone (317) 594-9499.                                           

AVAILABLE INFORMATION 

  The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith files reports, proxy statements and other       
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information filed by the Company may be     
inspected and copied at the public reference facilities maintained by the       
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,   
D.C. 20549, and at the Commission's regional offices located at 7 World Trade   
Center, Suite 1300, New York, New York 10048, and Room 3190, Citicorp Center,   
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such    
material may be obtained from the Public Reference Section of the Commission at 
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at  
prescribed rates. In addition, material filed by the Company can be inspected   
and copied at the offices of the NYSE, 20 Broad Street, New York, New York      
10005. The Commission maintains a site on the World Wide Web at                 
http://www.sec.gov containing reports, proxy and information statements and     
other information regarding registrants that file electronically with the       
Commission, including the Company.                                              

    The Company has filed with the Commission a Registration Statement on Form
S-3 (the "Registration Statement") under the Securities Act of 1933, as amended 
(the "Securities Act"), with respect to the shares of Common Stock offered      
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules filed as a part thereof,  
as permitted by the rules and regulations of the Commission. For further        
information with respect to the Company and the Common Stock, reference is      
hereby made to such Registration Statement, including the exhibits and schedules
filed as a part thereof. Statements contained in this Prospectus as to the      
contents of any contract or other document referred to herein are not           
necessarily complete and where such contract or other document is an exhibit to 
the Registration Statement, each such statement is qualified in all respects by 
the provisions of such exhibit, to which reference is hereby made for a full    
statement of the provisions thereof. The Registration Statement, including the  
exhibits and schedules filed as a part thereof, may be inspected without charge 
at the public reference facilities maintained by the Commission as set forth in 
the preceding paragraph. Copies of these documents may be obtained at prescribed
rates from the Public Reference Section of the Commission at Room 1024,         
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the     
offices of the NYSE, 20 Broad Street, New York, New York 10005.                 
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PROSPECTUS SUMMARY

 The following summary is qualified in its entirety by the more detailed
information and the Company's Financial Statements and Notes thereto included   
elsewhere or incorporated by reference in this Prospectus. Prospective investors
should consider carefully, among other things, the information set forth under  
"Risk Factors" in this Prospectus. Unless otherwise indicated, all information  
in this Prospectus (i) gives effect to a three-for-two stock split of the Common
Stock effected as a stock dividend on April 15, 1996, (ii) gives effect to a    
three-for-two stock split of the Common Stock effected as a stock dividend on   
November 4, 1996 and (iii) assumes no exercise of the over-allotment option. As 
used in this Prospectus, unless the context indicates otherwise, the term       
"Company" refers to ITT Educational Services, Inc., including all of its        
educational institutions; the term "Starwood" refers collectively to Starwood   
Hotels & Resorts Worldwide, Inc., a Maryland corporation formerly known as      
Starwood Lodging Corporation ("Starwood, Inc."), and Starwood Hotels & Resorts, 
a Maryland real estate investment trust formerly known as Starwood Lodging Trust
or Starwood Hotels & Resorts Trust ("Starwood Trust"), and their subsidiaries   
other than the Company; the term "ITT" refers to ITT Corporation, a Nevada      
corporation, and its subsidiaries other than the Company; the terms "ITT        
Technical Institutes," "technical institutes" or "institutes" (in singular or   
plural form) refer to educational institutions owned and operated by the        
Company; and the term "institution" means a main campus and its additional      
locations or branch campuses, if any (hereinafter "campus group" in singular or 
plural form).                                                                   

THE COMPANY 

OVERVIEW                                                                        

ITT Educational Services, Inc. is a leading proprietary provider of   
technology-oriented postsecondary degree programs in the United States based on 
revenues and student enrollment. The Company offers associate, bachelor and     
master degree programs and non-degree diploma programs to approximately 24,000  
students through 63 ITT Technical Institutes located in 27 states. As of        
December 31, 1997, approximately 97% of ITT Technical Institute students were   
enrolled in a degree program, with approximately 74% enrolled in programs       
relating to electronics engineering technology ("EET") and approximately 23%    
enrolled in programs relating to computer-aided drafting technology ("CAD").    
While most graduates of ITT Technical Institutes are initially employed by      
numerous small, technology-oriented companies, employers have also included well
recognized corporations, such as AT&T, Boeing, Intel, MCI, Microsoft, Motorola, 
IBM and General Electric, and many federal and local government agencies. The   
Company has provided career-oriented education programs for 32 years and its    
schools have graduated over 125,000 students since 1976.                        

The Company has experienced significant growth, acquiring three and   
establishing 50 new technical institutes since January 1, 1981. Of the 63       
institutes currently operating, 20 have been established since January 1, 1993. 
The number of students attending ITT Technical Institutes has increased 32.1%   
from 18,539 at December 31, 1992 to 24,498 at December 31, 1997. Total revenues 
from the ITT Technical Institutes have increased 74.0% from $150.4 million      
(excluding discontinued operations) in 1992 to $261.7 million in 1997. The      
Company opened three new technical institutes in 1997 and one new technical     
institute in March 1998. The Company intends to continue expanding by opening   
new technical institutes (including five additional new institutes in the       
remainder of 1998) and offering a broader range of programs at its institutes.  

The Company expects that the demand for postsecondary education will  
continue to increase over the next several years as a result of favorable       
demographic, economic and social trends. These trends include, based on data    
from the United States Department of Education and data collected in the Current
Population Survey conducted by the Bureau of the Census, (a) 24% projected      
growth in the number of new high school graduates from approximately 2.5 million
in 1994 to approximately 3.1 million in 2004, (b) the relatively small          
percentage of adults over age 25 who possess a bachelor degree (approximately   
23% in 1995), (c) an increasing number of high school graduates attending       
postsecondary educational institutions (65% in 1996 versus 53% in 1983) and (d) 
a heightened recognition of the importance of postsecondary education to an     
individual's career prospects.                                                  

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  The Company believes that it is well positioned to take advantage of the
increasing demand for postsecondary education programs for the following        
reasons:                                                                        

  Employment Oriented Education.  ITT Technical Institutes offer
   curricula designed to teach the technical knowledge and skills desired by
 many employers for entry-level positions. Unlike many two-and four-year
     colleges, each undergraduate curriculum offered by ITT Technical Institutes
 has been designed, after consultation with employers, to help graduates
  begin to prepare for careers in various fields involving technology. The
   Company believes that the strength of its programs and career services is
   reflected in its graduate employment rates. Based on information provided
by graduates and employers, approximately 90% of the ITT Technical    
Institutes' 1997 graduates, other than graduates who continued in a   
bachelor degree program at an ITT Technical Institute, had obtained   
   employment or were already employed in fields involving their programs of
study as of April 24, 1998, the end of the most recently completed    
statistical year.                                                     

          Programs Designed for the Convenience of Students.  Each ITT Technical
   Institute operates year-round and undergraduate programs are offered on a
   quarterly basis, typically with four 12-week quarters during a year. This
  year-round format allows students to complete their program of study and
enter the work force more rapidly than students attending traditional 
colleges. Students are better able to be employed while attending ITT 
 Technical Institutes than while attending traditional colleges, because
  classes are typically offered in four-hour sessions five days a week and
    are generally available in the morning, afternoon and evening. Programs of
study are substantially standardized throughout the ITT Technical     
Institutes, enabling students to transfer, if necessary, to the same  
    program offered at another ITT Technical Institute with less disruption to
their education.                                                      

      Financial Strength and Regulatory Compliance.  Management believes
     that the Company's financial strength enables it to capitalize on expansion
opportunities and is an important factor in its ability to comply with
federal and state regulatory requirements.                            

BUSINESS STRATEGY                                                               

The Company has multiple opportunities for growth and has developed a 
business plan to increase revenues by increasing the number of programs of study
and students at existing ITT Technical Institutes while adding additional       
locations to enhance operating efficiencies throughout the Company. Principal   
elements of this plan include the following:                                    

ENHANCE RESULTS AT THE SCHOOL LEVEL                                   

   Increase Enrollments at Existing Schools.  ESI has successfully
 increased student enrollment. Total student enrollment at ITT Technical
  Institutes open for more than 24 months increased 6.2% from December 31,
   1996 to December 31, 1997 and 7.2% from December 31, 1995 to December 31,
1996. Management believes that current demographic trends will support
 increased enrollment of high school graduates. In addition, the Company
   intends to increase recruiting efforts aimed at increasing enrollments of
working adults.                                                       

   Broaden Availability of Current Program Offerings.  The Company
  intends to continue to expand program offerings at existing schools with
 the objective of offering at least three programs at each ITT Technical
   Institute. Since January 1, 1993, the Company has increased the number of
  institutes which offer three or more programs from 16 to 29. The Company
   increased the number of program offerings at three existing ITT Technical
Institutes in March 1998 and intends to increase the number of program
offerings at approximately nine additional existing institutes in the 
remainder of 1998. Management believes that the introduction of higher
 level programs at additional ITT Technical Institutes will attract more
students and increase the number of students continuing their studies 
beyond the associate degree level.                                    

          Develop or Acquire Additional Degree Programs.  The Company also plans
     to introduce programs in additional fields of study and at different degree
levels. ESI has introduced three new degree programs                  

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     since December 1995, which had a total of 319 students enrolled at December
     31, 1997. The Company believes that the development and introduction of new
   programs attract a broader base of students and motivate current students
     to extend their studies. ESI intends to test an associate degree program in
   Computer Network Systems Technology ("CNS") at one institute in September
  1998 to target the growing need for technically skilled personnel in the
    computer systems field. The new CNS program will be considered for testing
at additional institutes thereafter.                                  

      Extend Total Program Time.  By increasing the number of institutes
that offer graduates of the eight- and six-quarter associate degree   
  programs (which are the primary program offerings at most institutes) an
   additional four or six quarters of study, respectively, in which they can
earn a bachelor degree, the Company has been able to extend the total 
     program time for which a student can enroll. As a result, the average total
   program time for which ITT Technical Institute students have enrolled has
    increased from 18 months in 1986 to 24 months in 1997. The Company expects
that the average total program time for which ITT Technical Institute 
students enroll will increase further as additional bachelor degree   
programs are added.                                                   

          Improve Student Outcomes.  The Company seeks to improve the graduation
and graduate employment rates of the undergraduate students at ITT    
  Technical Institutes by providing extensive academic services and career
  services. From 1993 through 1997, the percent of ITT Technical Institute
    graduates (other than graduates who continued in a bachelor degree program
    at an ITT Technical Institute) who were employed in fields involving their
programs of study increased from 83% to 90%.                          

INCREASE THE NUMBER OF ITT TECHNICAL INSTITUTES                       

  The Company plans to add new ITT Technical Institutes at sites
throughout the United States. The Company opened three new technical  
institutes in 1997 and one new technical institute in March 1998 and  
   intends to open five additional new technical institutes in the remainder
   of 1998. The Company also intends to continue to evaluate the acquisition
of schools located in markets where ITT Technical Institutes are not  
presently located.                                                    

INCREASE MARGINS BY LEVERAGING FIXED COSTS AT SCHOOL AND HEADQUARTERS 
LEVELS                                                                          

     By optimizing school capacity and class size, the Company has the
ability to gain additional revenues from increased enrollment without 
 incurring a proportionate increase in fixed costs at the institutes. In
    addition, centralization of management functions and the implementation of
     operational uniformity among its 63 institutes have resulted in substantial
  operating efficiencies. Expenses incurred at headquarters (including the
     district offices) declined as a percentage of revenues from 6.8% in 1993 to
5.3% in 1997 as a result of increased revenues and these operating    
efficiencies.                                                         

RECENT DEVELOPMENTS                                                             

Starwood/ITT Merger.  On February 23, 1998, Starwood completed the    
acquisition of ITT in accordance with the Amended and Restated Agreement and    
Plan of Merger dated as of November 12, 1997 (the "Merger Agreement") among     
Starwood, Inc., Chess Acquisition Corp., a Nevada corporation and a subsidiary  
of Starwood, Inc. ("Chess"), Starwood Trust and ITT. Pursuant to the Merger     
Agreement, Chess was merged with and into ITT (the "Merger") and ITT became a   
subsidiary of Starwood, Inc. Starwood is the largest hotel and gaming company in
the world in terms of revenue and owns, manages or franchises a geographically  
diversified portfolio of approximately 650 hotel properties.                    

    ITT holds 22,500,000 shares, or 83.3%, of the Company's outstanding Common
Stock. Accordingly, the Merger constituted a change in control of the Company   
and its ITT Technical Institutes under the regulations of the U.S. Department of
Education ("DOE") and most state education authorities. As a result, each ITT   
Technical Institute campus group became ineligible to participate in federal    
student financial aid programs as of the date of the Merger. Effective March 20,
1998, the eligibility of each ITT Technical Institute campus group to           
participate in federal student financial aid programs was reinstated by the DOE.
The DOE's approval was on a provisional basis, which is the DOE's practice for  
all institutions following a change in control. See                             
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"Risk Factors -- Potential Adverse Effects of Regulation -- Change in Control"  
and "Management's Discussion and Analysis of Financial Condition and Results of 
Operations -- Three Months Ended March 31, 1998 Compared to Three Months Ended  
March 31, 1997 -- Change in Control Expenses."                                  

  Starwood, Inc. has announced that it is exploring a range of disposition
strategies for the Company. To that end, the Offering is being made hereby.     
Although the Offering will be considered a change in control by certain state   
education authorities, it will not be considered a change in control by the DOE 
or the two accrediting commissions that accredit the Company's institutes. The  
Company has obtained all approvals of the Offering from those state education   
authorities that require approval before the Offering occurs. Future sales or   
transfers of shares of Common Stock by ITT could result in a change in control  
of the Company. ITT has agreed not to make any such sales or transfers that     
would cause a change in control of the Company until the Company has received   
all of the required prior approvals from the applicable federal and state       
education authorities that regulate the Company's ITT Technical Institutes and  
the accrediting commissions that accredit the Company's ITT Technical           
Institutes. See "Risk Factors -- Potential Adverse Effects of Regulation --     
Change in Control" and "Relationship with Selling Stockholder and Related       
Transactions."                                                                  

THE OFFERING

Common Stock offered by the Selling                                             
Stockholder.........................     11,350,000 shares                  

Common Stock outstanding..............     26,999,952 shares(1)                 

NYSE Symbol...........................     ESI                                  
---------------                                                                 
(1) Excludes (i) 810,000 shares of Common Stock issuable upon the exercise of   
outstanding options (of which options for 266,250 shares are currently  
exercisable) and (ii) an aggregate of 3,645,000 shares of Common Stock  
reserved for issuance under the 1997 ITT Educational Services, Inc.     
Incentive Stock Plan (the "1997 Stock Plan") and the ITT Educational    
Services, Inc. 1994 Stock Option Plan (the "1994 Stock Option Plan" and,
together with the 1997 Stock Plan, the "Stock Plans").                  

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SUMMARY FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA) 

     The following table sets forth certain financial data for the Company. This
information should be read in conjunction with the Financial Statements and     
Notes thereto appearing elsewhere or incorporated by reference in this          
Prospectus. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."                                                         

                                                        [Enlarge/Download Table]

                                     THREE MONTHS ENDED                                                         
                                         MARCH 31,                        YEAR ENDED DECEMBER 31,               
                                   ----------------------   ----------------------------------------------------
                                      1998         1997       1997       1996       1995       1994       1993  
                                   -----------   --------   --------   --------   --------   --------   --------
                                        (UNAUDITED)                                                             
                                                                                                                
STATEMENT OF INCOME DATA:                                                                                       
Total revenue.....................  $ 72,287     $ 64,476   $261,664   $232,319   $201,831   $186,907   $168,997
Operating income..................    10,970        8,956     26,223     20,576     14,225     11,832     13,839
Interest income, net(1)...........     1,244        1,380      5,565      4,119      4,802        232         80
Income before income taxes........    12,214       10,336     31,788     24,695     19,027     12,064     13,919
Net income........................     7,328        6,202     19,123     14,851     11,391      7,162      8,314
Earnings per share (basic and                                                                                   
  diluted)(2).....................      $.27         $.23       $.71       $.55       $.42       $.32       $.37

OTHER OPERATING DATA:                                                                                           
EBITDA(3).........................  $ 13,184     $ 10,914   $ 34,162   $ 28,069   $ 21,767   $ 18,687   $ 20,182
Operating losses from new                                                                                       
  technical institutes before                                                                                   
  income taxes(4).................  $  1,060     $    964   $  3,165   $  5,721   $  7,123   $  7,316   $  2,914
Capital expenditures, net.........  $  2,265     $  4,027   $ 11,465   $  7,868   $  8,206   $  7,688   $  6,679
Number of students at end of                                                                                    
  period..........................    23,879       22,172     24,498     22,633     20,618     20,668     19,860
Number of technical institutes at                                                                               
  end of period...................        63           59         62         59         56         54         48
                                       AT                                                                       
                                    MARCH 31,      AT DECEMBER 31,                                              
                                   -----------   -------------------                                            
                                      1998         1997       1996                                              
                                   -----------   --------   --------                                            
                                   (UNAUDITED)                                                                  
BALANCE SHEET DATA:                                                                                             
Cash, restricted cash and cash                                                                                  
  invested with ITT...............  $ 96,906     $ 98,689   $ 95,793                                            

Total current assets..............   115,458      112,958    108,449                                            

Property and equipment less                                                                                     
  accumulated depreciation........    22,937       22,886     19,360                                            

Total assets......................   148,787      145,914    135,749                                            

Total current liabilities.........    51,463       55,946     65,405                                            

Shareholders' equity..............    95,143       87,815     68,692                                            


---------------                                                                 
(1) See Note 3 of Notes to Financial Statements for information concerning      
 intercompany interest between the Company and ITT. Prior to the Company's
 initial public offering in December 1994 (the "Initial Public Offering"),
    the Company did not receive interest on the full amount of net cash balances
    invested with ITT and was assessed an interest charge based on an allocation
    of the consolidated debt of ITT. After the Initial Public Offering and until
 February 5, 1998, the Company received interest from ITT on the amount of
any net cash balances invested with ITT and no longer was subject to an 
interest charge based on such an allocation. Since February 5, 1998, the
 Company has performed its own cash management functions and no longer has
any cash invested with ITT. Depending upon current interest rates on    
short-term investments, the Company may not be able to obtain the same  
yields on its cash balances that were being paid by ITT. Accordingly,   
interest income, net may decrease in 1998.                              

(2) Earnings per share data are based on historical net income and the number of
shares of Common Stock outstanding during each period after giving      
  retroactive effect to the three-for-two stock splits in April and November
   1996. Earnings per share for all periods have been calculated in conformity
with Statement of Financial Accounting Standards No. 128, "Earnings per 
Share."                                                                 

(3) EBITDA represents earnings before interest and financial charges, income    
  taxes, depreciation and amortization. The Company has included information
concerning EBITDA (which is not a measure of financial performance under
   generally accepted accounting principles) because it understands that it is
used by certain investors as one measure of an issuer's financial       
  performance. EBITDA should not be construed as an alternative to operating
income (as determined in accordance with generally accepted accounting  
   principles) as an indicator of the Company's performance or cash flows from
 operating activities (as determined in accordance with generally accepted
accounting principles) or as a measure of liquidity.                    

(4) Operating losses from new technical institutes before income taxes          
  represents operating losses before income taxes, including amortization of
deferred pre-opening costs, for institutes in the first 24 months after 
their first class start.                                                

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RISK FACTORS

In addition to the other information contained in this Prospectus, the
following risk factors should be considered carefully in evaluating the Company 
and its business before purchasing any shares of Common Stock offered hereby.   
This Prospectus contains certain statements that constitute "forward-looking    
statements" within the meaning of Section 27A of the Securities Act (and Section
21E of the Exchange Act). These forward-looking statements are based on the     
beliefs of, as well as assumptions made by and information currently available  
to, the Company's management. All statements which are not statements of        
historical fact are intended to be such forward-looking statements. Such        
statements reflect the current views of the Company or its management and are   
subject to certain risks, uncertainties and assumptions, including, but not     
limited to, those set forth in the following Risk Factors. Should one or more of
these risks or uncertainties materialize or should underlying assumptions prove 
incorrect, the Company's actual results, performance or achievements in 1998 and
beyond could differ materially from those expressed in, or implied by, such     
forward-looking statements.                                                     

POTENTIAL ADVERSE EFFECTS OF REGULATION                                         

The Company and the ITT Technical Institutes are subject to extensive 
regulation by federal and state governmental agencies and accrediting           
commissions. At the federal level, the Higher Education Act of 1965, as amended 
(the "HEA"), and the regulations promulgated thereunder by the DOE set forth    
numerous and complex standards that schools must satisfy in order to participate
in the federal student financial aid programs under Title IV of the HEA ("Title 
IV Programs"). These standards are designed to limit institutional dependence on
Title IV Program funds, prevent institutions with unacceptable student loan     
default rates from participating in Title IV Programs and, in general, require  
institutions to satisfy certain criteria related to educational value,          
administrative capability and financial responsibility. Sixty of the 63 ITT     
Technical Institutes currently participate in Title IV Programs, and the other  
three institutes, which were recently opened, have begun the certification      
process for participation in Title IV Programs. In 1997, the Company indirectly 
derived approximately 70% of its revenues from Title IV Programs.               

 Proprietary providers of postsecondary education have been subjected to
increased scrutiny and regulation by the DOE and other regulatory authorities as
a result of concern about fraud and abuse of federal student financial aid      
programs by certain proprietary institutions. The Company believes that the ITT 
Technical Institutes are in substantial compliance with the HEA and its         
implementing regulations. The Company cannot, however, predict with certainty   
how all of the HEA provisions and the implementing regulations will be applied. 
It is also possible that the HEA and its implementing regulations may be applied
in a way that could hinder the Company's operations or expansion plans. In the  
event of a determination by the DOE that one of the ITT Technical Institutes    
improperly disbursed Title IV Program funds or violated a provision of the HEA  
or the implementing regulations, the affected institute could be required to    
repay those funds, assessed an administrative fine, transferred to the          
"reimbursement" system of receiving Title IV Program funds (which delays the    
institute's receipt of such funds), and subjected to other civil and criminal   
penalties. The failure by any of the ITT Technical Institutes to comply with    
applicable federal, state or accrediting commission requirements could result in
the limitation, suspension or termination of that institution's ability to      
participate in Title IV Programs or the loss of state authorization or          
accreditation. Any such event could have a material adverse effect on the       
Company's financial condition, results of operations or cash flows. There are no
proceedings for any such purposes pending, and the Company has no reason to     
believe that any such proceeding by the DOE is contemplated. See                
"Business -- Regulation of Federal Financial Aid Programs."                     

Significant factors relating to Title IV Programs that could adversely
affect the Company include the following:                                       

     Change in Control.  The DOE, the two accrediting commissions that
   accredit the ITT Technical Institutes (the "Accrediting Commissions") and
 most of the state education authorities that regulate the ITT Technical
Institutes (the "SEAs") have laws, regulations and/or standards       
("Regulations") pertaining to the change in ownership and/or control  
   (collectively "change in control") of educational institutions, but these
   Regulations do not uniformly define what constitutes a change in control.
The DOE's Regulations describe certain transactions that constitute a 
    change in control, including the transfer of a controlling interest in the
voting stock of an institution or such institution's parent           
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     corporation. The DOE's standards also specify that a change in control of a
   publicly traded corporation, such as the Company, occurs when there is an
   event that obligates the corporation to file a Current Report on Form 8-K
     with the Securities and Exchange Commission disclosing a change in control.
    Upon the occurrence of a change in control under the DOE's Regulations, an
institution immediately becomes ineligible to participate in Title IV 
   Programs and can only receive and disburse certain Title IV Program funds
  that were previously committed to its students, until it has applied for
 certification and is reinstated by the DOE to continue Title IV Program
    participation under such institution's new ownership and control. The time
   required for the DOE to act on such an application can vary substantially
     and may take several months. The DOE's Regulations also require that all of
    the ITT Technical Institutes in a particular campus group have their state
  authorizations and accreditations reaffirmed or reestablished before any
   institute in that campus group can regain its eligibility from the DOE to
  continue participation in Title IV Programs. The Regulations of the SEAs
    and Accrediting Commissions vary widely with respect to what constitutes a
   change in control, with most including the sale of a controlling interest
of common stock in the definition of a change in control, but those   
Regulations are subject to varying interpretations as to whether a    
   particular transaction constitutes a change in control. Many of the SEAs,
    including the California SEA which authorizes 11 ITT Technical Institutes,
  require that a change in control of an institution be approved before it
occurs in order for the institution to maintain its SEA authorization.
    Other SEAs will only review a change in control of an institution after it
occurs. The Accrediting Commissions will not reaccredit an institution
following a change in control until the institution submits a complete
    application for reaccreditation, but may temporarily continue or reinstate
    an institution's accreditation to allow time for the completion and review
of the application.                                                   

        The DOE, the Accrediting Commissions and most of the SEAs (including
     the California SEA) considered the Merger to constitute a change in control
of the Company and the ITT Technical Institutes under their respective
 Regulations. As a result, effective upon the Merger, each ITT Technical
    Institute campus group immediately became ineligible to participate in all
   of the Title IV Programs. The Company obtained all prior approvals of the
Merger from the Accrediting Commission and the SEAs that required such
approval before the Merger occurred. Since the Merger, the Company has
obtained temporary approval of the Merger from the other Accrediting  
  Commission, final approvals of the Merger from some of the SEAs required
 after a change in control occurs and continued authorization to operate
from the remaining SEAs. The Company is continuing to pursue final    
   approvals from such Accrediting Commission and SEAs. The DOE approved the
    reinstatement of each ITT Technical Institute campus group's participation
    in Title IV Programs effective March 20, 1998. The DOE's approval was on a
provisional basis, which is the DOE's practice for all institutions   
following a change in control. As an additional condition of each     
institute's provisional certification, the DOE directed the Company to
  maintain a sufficient, but undefined, level of cash or cash equivalents,
   and to revise its current accounting treatment of direct marketing costs,
   revenue recognition and amortization of direct marketing costs or provide
     evidence that the Company's treatment of these items is in conformance with
 Generally Accepted Accounting Principles ("GAAP"). The Company believes
  that its treatment of these items is in accordance with GAAP and that it
  maintains cash and cash equivalents in sufficient amounts to satisfy the
   DOE, but there can be no assurance thereof. If the Company is required to
     change its accounting treatment for any of the above items, management does
  not believe that such change would have a material adverse effect on the
Company's financial condition or results of operations before the     
    cumulative effect of any change in accounting. Four campus groups each had
 one additional condition placed on their provisional certification. See
  "Business -- Regulation of Federal Financial Aid Programs -- Eligibility
and Certification Procedures" and "-- Change in Control."             

          The Offering will constitute a change in control under the Regulations
     of certain SEAs (but not the California SEA), but not under the Regulations
     of the DOE or of either Accrediting Commission. Thus, certain ITT Technical
   Institutes will be subject to review by their applicable SEAs to reaffirm
 their authorization as a result of the Offering. A significant delay in
   obtaining or the failure to obtain SEA authorization of any ITT Technical
   Institute could have a material adverse effect on the Company's financial
  condition or results of operations. The Company does not believe it will
experience any material                                               

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delay or difficulty in obtaining SEA authorization of any affected    
institute. The Company has obtained all approvals of the Offering from
those SEAs that require approval before the Offering occurs.          

         A change in control under the Regulations of the DOE, the Accrediting
    Commissions and most of the SEAs could also occur as the result of certain
    future transactions involving the ITT Technical Institutes, the Company or
    a principal stockholder, including but not limited to ITT's disposition of
   a significant portion of the shares of Common Stock that it retains after
    the Offering, certain corporate reorganizations and certain changes in the
     boards of directors of such corporations. Starwood, Inc. has announced that
it is exploring a range of disposition strategies for the Company. The
Company believes that if a future transaction results in a change in  
control of the ITT Technical Institutes, the Company or a principal   
 stockholder, the Company will be able to obtain all necessary approvals
   from the DOE, the SEAs and the Accrediting Commissions, with the possible
   exception of the California SEA. There can be no assurance, however, that
all such approvals can be obtained in a timely manner. In particular, 
  obtaining such approval from the California SEA, which authorizes 11 ITT
   Technical Institutes, could be adversely affected by a state statute that
     prohibits the California SEA from approving a change in control application
by any applicant that has been found in any judicial or administrative
    proceeding to have violated certain provisions of the California Education
Code ("CEC"). In October 1996, a state court jury determined that the 
Company, through its ITT Technical Institute in San Diego, California,
   violated those provisions of the CEC. The Company has appealed the jury's
verdict in that case. While the California SEA approved the change in 
  control application submitted by the Company with respect to the Merger,
     there can be no assurance that it will approve any future change in control
   application submitted by the Company. See "Business -- Change in Control"
and "Business -- Legal Proceedings."                                  

   A material adverse effect on the Company's financial condition,
     results of operations and cash flows would result if a change in control of
the Company occurred and a material number of ITT Technical Institutes
     failed, in a timely manner, to be reauthorized by their SEAs (including the
California SEA in particular), reaccredited by their Accrediting      
    Commissions or recertified by the DOE to participate in Title IV Programs.
See "Business -- Change in Control."                                  

 Risk of Legislative Action.  Title IV Programs are subject to
   significant political and budgetary pressures. The HEA is reauthorized by
the U.S. Congress approximately every six years, and the next         
   reauthorization is expected to be completed in 1998 or 1999. There can be
no assurance that funding for Title IV Programs will continue to be   
    available or maintained at current levels or that current requirements for
institutional participation and student eligibility will not change. A
reduction in Title IV Program funding levels or a limitation of the   
Company's participation in Title IV Programs could result in lower    
   enrollments and require the Company to arrange for alternative sources of
 financial aid for its students. Given the significant percentage of the
    Company's revenues that are indirectly derived from Title IV Programs, any
     significant reduction in Title IV Program funding or the ability of the ITT
    Technical Institutes or their students to participate in Title IV Programs
   could have a material adverse effect on the Company's financial condition
    or results of operations. See "Business -- Regulation of Federal Financial
Aid Programs -- Risk of Legislative Action."                          

      Student Loan Defaults.  Under the HEA, an institution may lose its
eligibility to participate in some or all Title IV Programs if student
defaults on federal student loans exceed certain rates. An institution
    whose cohort default rate on loans under the Federal Family Education Loan
  ("FFEL") programs and the Federal Direct Loan ("FDL") programs is 25% or
 greater for three consecutive federal fiscal years loses eligibility to
    participate in those programs for the remainder of the federal fiscal year
   in which the DOE determines that the institution has lost its eligibility
and for the two subsequent federal fiscal years.                      

      The ITT Technical Institute in Garland, Texas, which accounted for
   approximately 1.7% of the Company's revenues in its 1997 fiscal year, had
 FFEL/FDL cohort default rates exceeding 25% for the 1993, 1994 and 1995
 federal fiscal years, the three most recent years for which the DOE has
published official FFEL/FDL cohort default rates. On June 2, 1998, the
 Company received notification from the DOE that the Garland institute's
appeal of its 1995 FFEL/FDL cohort default rate had been denied and   

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that, as a result, such institute immediately became ineligible to    
  participate in the FFEL and FDL programs until at least October 1, 2000.
The Company has arranged for an unaffiliated private funding source to
provide loans to the students enrolled in the Garland institute. The  
   Company is also considering whether to stop enrolling new students in the
Garland institute, continue teaching the students already enrolled and
     close the institute once the students already enrolled have completed their
programs of study.                                                    

          The ITT Technical Institute in San Antonio, Texas, which accounted for
   approximately 2.4% of the Company's revenues in its 1997 fiscal year, had
   FFEL/FDL cohort default rates exceeding 25% for the 1994 and 1995 federal
 fiscal years, but had an FFEL/FDL cohort default rate below 25% for the
 1993 federal fiscal year and a preliminary FFEL/FDL cohort default rate
below 25% for the 1996 federal fiscal year. The San Antonio institute 
   appealed its 1995 FFEL/FDL cohort default rate with the DOE. There can be
  no assurance that this appeal will result in a recalculation of its 1995
FFEL/FDL cohort default rate to less than 25%. If the San Antonio     
     institute's appeal does not result in its 1995 FFEL/FDL cohort default rate
    being reduced to less than 25% and such institute subsequently receives an
     official 1996 FFEL/FDL cohort default rate equal to or greater than 25% and
     cannot reduce that rate to less than 25% through an appeal to the DOE, such
institute will become ineligible to participate in the FFEL and FDL   
   programs. Loss of eligibility to participate in the FFEL and FDL programs
  by both the Garland and San Antonio, Texas ITT Technical Institutes (but
     not by the Garland institute alone) could have a material adverse effect on
the Company's financial condition or results of operations.           

Other than the Garland and San Antonio, Texas ITT Technical 
    Institutes, no ITT Technical Institute campus group had an FFEL/FDL cohort
     default rate equal to or greater than 25% for the 1995 federal fiscal year.
   No ITT Technical Institute campus group had a preliminary FFEL/FDL cohort
     default rate equal to or greater than 25% for the 1996 federal fiscal year,
  which preliminary rates were issued by the DOE in May 1998. The official
     FFEL/FDL cohort default rates for the 1996 federal fiscal year are expected
to be published by the DOE in the last calendar quarter of 1998.      

         If an institution's FFEL/FDL cohort default rate is 25% or greater in
   any of the three most recent federal fiscal years, or if an institution's
  cohort default rate for loans under the Federal Perkins Loan ("Perkins")
 program exceeds 15% for any federal award year, that institution may be
     placed on provisional certification status by the DOE. When the Garland and
    San Antonio, Texas ITT Technical Institutes were provisionally recertified
 for participation in Title IV Programs following the Merger, one of the
 reasons each of those institutes received provisional certification was
  because the institute's FFEL/FDL cohort default rate exceeded 25% for at
least one of the three most recent federal fiscal years. Each of those
    institutes was told that it would remain provisionally certified until its
FFEL/FDL cohort default rates for the three most recent federal fiscal
years for which such rates have been published are all below 25%.     
Twenty-seven ITT Technical Institute campus groups (consisting of 53  
     institutes) had a Perkins cohort default rate in excess of 15% for students
    who were scheduled to begin repayment in the 1995/1996 federal award year,
     the most recent year for which such rates have been calculated. Thus, those
ITT Technical Institutes could be placed on provisional certification 
status based on their Perkins cohort default rates. To date, no ITT   
Technical Institute campus group has been placed on provisional       
certification status because of its Perkins cohort default rate. See  
   "Business -- Regulation of Federal Financial Aid Programs -- Student Loan
Defaults," "-- Administrative Capability" and "-- Eligibility and     
Certification Procedures."                                            

     Financial Responsibility Standards.  The HEA and its implementing
     regulations prescribe specific standards of financial responsibility that a
   proprietary institution must satisfy to participate in Title IV Programs.
Under such standards, an institution must (a) have an acid test ratio 
(defined as the ratio of cash, cash equivalents and current accounts  
receivable to current liabilities) of at least 1:1 at the end of each 
fiscal year, (b) have a positive tangible net worth at the end of each
     fiscal year and (c) not have a cumulative net operating loss during its two
     most recent fiscal years that results in a decrease of more than 10% of the
    institution's tangible net worth at the beginning of such two-year period.
  If the DOE determines that an institution does not satisfy each of these
numeric standards, that institution may establish its financial       
 responsibility on an alternative basis by posting a letter of credit in
favor of the DOE. Historically, the DOE has evaluated the financial   
condition of the ITT Technical Institutes on a                        
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   consolidated basis based on the Company's financial statements. The DOE's
     regulations, however, permit the DOE to examine the financial statements of
    each ITT Technical Institute campus group, the Company, Starwood, Inc. and
  ITT. The Company has calculated that its acid test ratio at December 31,
   1997 was 1.94:1, and the Company believes that it satisfied all the other
     standards of financial responsibility at the Company level as of that date.
As a part of the DOE's review of the applications of the ITT Technical
   Institute campus groups to have their eligibility to participate in Title
  IV Programs reinstated after the Merger, the DOE evaluated the financial
responsibility of all of the ITT Technical Institute campus groups    
 following the Merger. The DOE determined that each of the campus groups
satisfied the DOE's financial responsibility standards following the  
    Merger, but the DOE directed the Company to address certain issues related
to its financial condition and financial statements. See "-- Potential
     Adverse Effects of Regulation -- Change in Control" and "Business -- Change
in Control."                                                          

         In November 1997, the DOE issued new regulations, to take effect July
 1, 1998, which revised the DOE's standards of financial responsibility.
  These new standards replace the numeric tests described above with three
     different ratios: an equity ratio, a primary reserve ratio and a net income
   ratio, which are weighted and added together to produce a composite score
for the institution. The Company applied these new regulations to the 
 Company's audited financial statements for its 1997 fiscal year and has
     determined that it satisfied the new standards as of that date. The Company
 does not believe, based on its current understanding of how the revised
  financial responsibility standards will be applied, that these standards
     will have a material adverse effect on the Company's financial condition or
   results of operations or its expansion plans. See "Business -- Regulation
   of Federal Financial Aid Programs -- Financial Responsibility Standards."

        The "85/15 Rule."  Under a provision of the HEA commonly referred to
    as the "85/15 Rule," a proprietary institution, such as each ITT Technical
Institute campus group, becomes ineligible to participate in Title IV 
    Programs if more than 85% of its applicable revenues for a fiscal year are
     derived from Title IV Programs. If any ITT Technical Institute campus group
    were to violate the 85/15 Rule for any fiscal year, it would be ineligible
  to participate in Title IV Programs as of the first day of the following
  fiscal year and would be unable to apply to regain its eligibility until
the next fiscal year. For each of its 1996 and 1997 fiscal years, the 
     Company has calculated that no ITT Technical Institute campus group derived
more than 81% of its revenues from Title IV Programs, and for its 1997
    fiscal year, the range for the campus groups was from approximately 61% to
 approximately 80%. See "Business -- Regulation of Federal Financial Aid
Programs -- The '85/15 Rule.' "                                       

Additional Locations and Program Offerings of ITT Technical 
     Institutes.  The HEA requires proprietary educational institutions, such as
    the ITT Technical Institute campus groups, to be in full operation for two
years before the institution can qualify to participate in Title IV   
Programs. The HEA and applicable regulations, however, permit an      
   institution that is already certified to participate in Title IV Programs
    to establish additional locations that may, after review by the DOE, begin
to participate in Title IV Programs without satisfying the two-year   
  requirement so long as each such additional location satisfies all other
applicable requirements for institutional eligibility. The HEA and    
   applicable regulations also permit institutions participating in Title IV
 Programs to offer additional programs without restricting the number or
   delaying the introduction of such programs, but students can only receive
Title IV Program funds for enrollment in programs that satisfy all    
    applicable requirements for eligibility. Applicable accrediting commission
   standards and state laws and regulations generally permit institutions to
 establish additional locations and expand their program offerings under
certain conditions. Although such conditions limit the ability of the 
   Company to establish additional locations and expand program offerings in
   certain circumstances, the Company does not believe, based on its current
understanding of how the accrediting standards and state laws and     
  regulations will be applied, that these limitations will have a material
  adverse effect on the Company's expansion plans. The Company's expansion
plans assume its continued ability to (a) establish new ITT Technical 
     Institutes as additional locations of existing ITT Technical Institute main
  campuses and (b) expand the program offerings at existing institutes. In
 its last three fiscal years, the Company has: (i) established eight new
additional locations,                                                 

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     six of which are participating in Title IV Programs and two of which are in
  the process of obtaining certification to participate; and (ii) added 35
  programs at its existing ITT Technical Institutes. In addition, in March
   1998 the Company established one new additional location, which is in the
     process of obtaining certification to participate in Title IV Programs. See
 "Business -- Regulation of Federal Financial Aid Programs -- Additional
Locations and Program Offerings of ITT Technical Institutes."         

         Availability of Lenders and Guarantors.  In the Company's 1997 fiscal
   year, one lending institution provided approximately 62% of all federally
guaranteed student loans to ITT Technical Institute students and one  
student loan guaranty agency guaranteed approximately 94% of all FFEL 
program loans made to ITT Technical Institute students. The Company   
 believes that other lenders and guarantors would be willing to make and
   guarantee, respectively, FFEL program loans to its students if such loans
or guarantees were no longer available from its primary lender or     
guarantor, but there can be no assurance in this regard. See          
   "Business -- Regulation of Federal Financial Aid Programs -- Availability
of Lenders and Guarantors."                                           

        State Authorization and Accreditation.  Each ITT Technical Institute
must be authorized by the applicable state education authority(ies) to
    operate and grant degrees or diplomas to its students. State authorization
  and accreditation by an accrediting commission recognized by the DOE are
    also required in order for an institution to become and remain eligible to
   participate in Title IV Programs. Each ITT Technical Institute is subject
to extensive regulation by its state education authority(ies) and     
   accrediting commission, and the HEA specifies certain standards that each
   recognized accrediting commission must utilize in reviewing institutions.
 All 63 ITT Technical Institutes are currently authorized by one or more
   state education authorities. Sixty-one of those institutes are accredited
     by a recognized accrediting commission, and the other two institutes, which
 were recently opened, have applied for accreditation. One ITT Technical
Institute (an additional location) is on probation by its accrediting 
 commission. An institute on probation is required to demonstrate to the
   accrediting commission that the institute has taken corrective action and
   is in continuous compliance with accrediting commission standards. If any
ITT Technical Institute on probation fails to make the applicable     
     demonstration to the accrediting commission, the accrediting commission may
revoke, refuse to renew or otherwise condition the institute's        
accreditation. Loss of state authorization or accreditation by any ITT
Technical Institute: (a) would render (i) only the affected institute 
   ineligible to participate in Title IV Programs, if the affected institute
  was an additional location or (ii) the entire campus group ineligible to
participate in Title IV Programs, if the affected institute was a main
campus; and (b) could have a material adverse effect on the Company's 
  financial condition, results of operations and cash flows. Loss of state
   authorization by any ITT Technical Institute would also force the Company
   to close the institute, which could have a material adverse effect on the
Company's financial condition or results of operations. See           
"Business -- State Authorization and Accreditation."                  

CONTROL BY ITT; RELATIONSHIP WITH ITT                                           

    Prior to the Offering, ITT holds 83.3% of the outstanding shares of Common
Stock. Consequently, ITT has had significant influence over the policies and    
affairs of the Company. Effective upon the Merger, ITT became a wholly owned    
subsidiary of Starwood, Inc. See "Relationship With Selling Stockholder and     
Related Transactions," "Principal and Selling Stockholder" and "Description of  
Capital Stock." Upon the completion of the Offering, Starwood, Inc., through its
wholly owned subsidiary ITT, will beneficially own 41.3% of the outstanding     
shares of Common Stock (35.0% if the over-allotment option is exercised in      
full). Accordingly, ITT will continue to be able to substantially influence the 
outcome of corporate actions requiring stockholder approval, including the      
election of Directors, the adoption of amendments to the Company's Restated     
Certificate of Incorporation and the approval of mergers and certain sales of   
the Company's assets.                                                           

At the time the Merger was consummated, four of the ten members of the
Board of Directors of the Company (Bette B. Anderson, Robert A. Bowman, Richard 
S. Ward and Margita E. White, all of whom were directors and/or executive       
officers of ITT prior to the Merger) resigned effective February 23, 1998. On   
February 25, 1998, the remaining members of the Board of Directors of the       
Company elected four individuals recommended by Starwood, Inc. (Tony Coelho,    
Robin Josephs, Merrick R. Kleeman and Barry S. Sternlicht)                      
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to fill the vacancies caused by such resignations and to serve as Directors for 
terms expiring at the 2000, 1999, 2000 and 1998 Annual Meeting of Shareholders, 
respectively, and until such Director's successor is duly elected and qualified.
Mr. Sternlicht was re-elected as a Director at the Company's 1998 Annual Meeting
of Shareholders for a term expiring at the 2001 Annual Meeting of Shareholders. 
Mr. Sternlicht serves as chairman of the board and a director of Starwood, Inc. 
and as chairman of the board, chief executive officer and a trustee of Starwood 
Trust. Mr. Sternlicht is also the general manager of Starwood Capital Group,    
L.L.C., which, together with its affiliates and Mr. Sternlicht, beneficially    
owns approximately 5.3% of the outstanding paired shares of Starwood, Inc.      
common stock and Starwood Trust beneficial interest. Mr. Kleeman is also a      
managing director of Starwood Capital Group, L.L.C. Mr. Coelho and Ms. Josephs  
are not affiliated with ITT, Starwood, Inc., Starwood Trust or Starwood Capital 
Group, L.L.C. See "Relationship with Selling Stockholder and Related            
Transactions."                                                                  

 Under agreements with the Company, since the Initial Public Offering in
December 1994, ITT has provided certain administrative, financial, treasury,    
accounting, tax and other services to the Company and has made available certain
of its employee benefit plans to the Company's employees. In addition, ITT and  
the Company are parties to a number of intercompany agreements covering matters 
such as corporate governance, tax sharing arrangements, the use of the "ITT"    
name, registration rights and employee benefits. For a description of these     
arrangements and certain changes thereto in connection with the Merger and the  
Offering, see "Relationship With Selling Stockholder and Related Transactions." 
Included among the intercompany agreements to become effective upon the         
consummation of the Offering is a Stockholder Agreement, pursuant to which the  
Company's Board of Directors is required, in connection with each annual meeting
of the Company's stockholders, to nominate and recommend for election to the    
Board persons designated by ITT so that the total number of ITT designees on the
Board is in relative proportion to the percentage of the outstanding shares of  
Common Stock held by ITT and its affiliates, up to a maximum of four such       
designees.                                                                      

     A future change in ownership of Starwood, Inc. or ITT resulting in a change
in control of the Company or the ITT Technical Institutes could have significant
adverse regulatory consequences for the Company at the state and federal levels 
and could affect the accreditation of the ITT Technical Institutes. See         
"-- Potential Adverse Effects of Regulation -- Change in Control."              

   Conflicts of interest between the Company and ITT or Starwood, Inc. could
arise with respect to business dealings between them, including potential       
acquisitions of businesses or properties, the issuance or sale of additional    
securities, other transactions involving the Company, the election of new or    
additional directors and the payment of dividends by the Company. The Company   
has not instituted any formal plan or arrangement to address potential conflicts
of interest that may arise between the Company and ITT or Starwood, Inc. The    
Company's directors intend, however, to exercise reasonable judgment and take   
such steps as they deem necessary to resolve any specific conflict of interest  
that may occur and will determine what, if any, specific measures, such as the  
retention of an independent advisor or independent counsel or the appointment of
a special committee, may be necessary or appropriate. There can be no assurance 
that any conflicts will be resolved in favor of the Company.                    

MATERIAL LITIGATION                                                             

   The Company is subject to several pending legal proceedings instituted by
or on behalf of former students alleging misrepresentations and statutory       
violations. In October 1996, the Company had a judgment rendered against it in a
California state court for approximately $3.7 million, plus interest, in a      
lawsuit brought by seven graduates of the hospitality program at the San Diego  
ITT Technical Institute. The suit alleged, among other things,                  
misrepresentation, civil conspiracy and statutory violations of the state       
education code by the Company, based on the plaintiffs' claims that the         
defendants (a) made misrepresentations and engaged in deceptive acts in the     
recruitment of the plaintiffs for, and/or in the promotion of, the program, (b) 
provided inadequate instruction, (c) used inadequate facilities and equipment in
the program and inappropriate forms of contracts with the plaintiffs, (d) failed
to provide the plaintiffs with all required information and disclosures and (e) 
misrepresented the plaintiffs' prospects for employment upon graduation, the    
employment of the program's graduates and the plaintiffs' ability to transfer   
program credits. The Company has appealed that decision. The Company has made no
provision (other than for the Company's legal expenses) for the awards.         
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     Six other legal proceedings are pending in California state court involving
former students who attended the ITT Technical Institutes in California. The    
three plaintiffs in one of these legal proceedings each attended one of three   
different programs (i.e., hospitality, EET and CAD) and allege that the Company,
ITT and ten Company employees violated state education laws, based on the       
plaintiffs' claims that the defendants (a) made misrepresentations and engaged  
in deceptive acts in the recruitment of students for, and/or in the promotion   
of, the programs offered in California, (b) failed to provide students with all 
required information and disclosures and (c) misrepresented students' prospects 
for employment upon graduation and the employment of the programs' graduates.   
The request of the plaintiffs in that legal proceeding to have their action     
certified as a class action on behalf of all persons similarly situated who     
attended an ITT Technical Institute in California has been denied by the court. 
The 16 plaintiffs in the other five California state court legal proceedings    
each attended the hospitality program at the San Diego ITT Technical Institute  
and allege that the Company, ITT and a Company employee committed intentional   
misrepresentation and/or concealment, civil conspiracy and violations of state  
education, consumer protection and trade practices laws. The plaintiffs in those
actions claim that the defendants (a) made misrepresentations and engaged in    
deceptive acts in the recruitment of the plaintiffs for, and/or in the promotion
of, the program, (b) used inadequate facilities and equipment in the program and
inappropriate forms of contracts with the plaintiffs, (c) failed to provide the 
plaintiffs with all required information and disclosures and a fully executed   
copy of their contracts with the Company and (d) misrepresented the plaintiffs' 
prospects for employment upon graduation, the employment of the program's       
graduates and the plaintiffs' externship portion of the program. In May 1998,   
the Company agreed to settle all of the claims of ten of the 19 plaintiffs in   
these six legal proceedings. Payment of the settlement amount will not have a   
material effect on the Company's financial condition, results of operations or  
cash flows.                                                                     

Another legal proceeding is pending in federal court in California    
involving nine former students who attended the hospitality program at either   
the Maitland or San Diego ITT Technical Institute. The suit alleges that the    
Company and ITT committed common law fraud and/or concealment, civil conspiracy 
and violations of a federal racketeering statute and state education, consumer  
protection and trade practices laws. The plaintiffs in that action claim that   
the defendants (a) made misrepresentations and engaged in deceptive acts in the 
recruitment of students for, and/or in the promotion of, the program, (b) failed
to provide students with all required information and disclosures and (c)       
misrepresented students' prospects for employment upon graduation, the          
employment of the program's graduates and the students' externship portion of   
the program. The plaintiffs in that legal proceeding seek to have their action  
certified as a class action on behalf of all persons similarly situated who     
attended the program at the Indianapolis, Maitland, Portland or San Diego ITT   
Technical Institutes.                                                           

    In May 1998, the Company increased its provision for legal expenses in the
legal actions associated with the hospitality program by $1.2 million. The      
Company intends to reflect this increased provision in the Company's Quarterly  
Report on Form 10-Q for the three months ended June 30, 1998 and, as a result,  
expects that the cost of educational services for the three and six months ended
June 30, 1998 will increase, causing a decrease of approximately $0.03 and      
$0.03, respectively, in earnings per common share (both basic and diluted) for  
such periods. See "Management's Discussion and Analysis of Financial Condition  
and Results of Operations -- Results of Operations."                            

There can be no assurance as to the ultimate outcome of any of the    
litigation involving the Company. An unsuccessful appeal of the California      
judgment or judgments against the Company in the other California legal         
proceedings or in other similarly based legal proceedings could have a material 
adverse effect on the financial condition or results of operations of the       
Company. See "Business -- Legal Proceedings."                                   

COMPETITION                                                                     

The postsecondary education market in the United States is highly     
fragmented and competitive with no private or public institution enjoying a     
significant market share. ITT Technical Institutes compete for students with    
four-year and two-year degree granting institutions, which include non-profit   
public and private colleges and proprietary institutions, as well as with       
alternatives to higher education such as military service or immediate          
employment. Management believes that competition among educational institutions 
is based on                                                                     
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the quality of the educational program, perceived reputation of the institution,
cost of the program and employability of graduates. Certain public and private  
colleges may offer programs similar to those of the ITT Technical Institutes at 
a lower tuition cost due in part to governmental subsidies, government and      
foundation grants, tax deductible contributions or other financial resources not
available to proprietary institutions. Other proprietary institutions also offer
programs that compete with those of the ITT Technical Institutes. Certain of the
Company's competitors in both the public and private sector have greater        
financial and other resources than the Company. There can be no assurance that  
competitive pressures will not have a material adverse effect on the financial  
condition or results of operations of the Company.                              

SEASONALITY IN RESULTS OF OPERATIONS                                            

The Company's quarterly results of operations tend to fluctuate       
significantly within a fiscal year because of differences in the number of weeks
of earned tuition revenue in each fiscal quarter and the timing of student      
matriculations. The Company's first and third fiscal quarters have 13 weeks of  
earned tuition revenue, while the second and fourth quarters have 11 weeks of   
earned tuition revenue because of two-week vacation breaks in June and December.
In addition, revenues in the third and fourth fiscal quarters generally benefit 
from increased student matriculations as the number of new students entering ITT
Technical Institutes tends to be substantially higher in June and September     
because of the significant number of recent high school graduates entering ITT  
Technical Institutes for the academic quarters beginning in those two months.   
The Company's incurrence of costs, however, is generally not affected by the    
academic schedule, and such costs do not fluctuate significantly on a quarterly 
basis. See "Management's Discussion and Analysis of Financial Condition and     
Results of Operations -- Variations in Quarterly Results of Operations."        

RISKS ASSOCIATED WITH CHANGES IN MARKET NEEDS AND TECHNOLOGY                    

     Prospective employers of graduates of ITT Technical Institutes increasingly
demand that their entry-level employees possess appropriate technical skills.   
The Company believes its management processes and information systems should    
permit the Company to make changes in curricula content and supporting          
technology in response to market needs. The inability of the Company to         
adequately respond, however, to changes in market requirements due to financial 
constraints, unusually rapid technological change or other factors could have a 
material adverse effect on the Company's financial condition or results of      
operations.                                                                     

DEPENDENCE ON KEY EMPLOYEES                                                     

   The Company's future performance will depend, in part, on the efforts and
abilities of the Company's executive officers and in particular Rene R.         
Champagne, Chairman, President and Chief Executive Officer of the Company. The  
loss of the services of Mr. Champagne or one or more other executive officers   
could have an adverse effect on the Company's business. None of the Company's   
executive officers is subject to an employment or non-competition agreement with
the Company. The Company has no key man life insurance on any of its employees. 

POTENTIAL ADVERSE EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE                     

   No predictions can be made as to the effect, if any, that future sales of
shares of Common Stock, or the availability of shares of Common Stock for future
sale, will have on the market price of the Common Stock prevailing from time to 
time. Sales of substantial amounts of Common Stock in the public market         
following the Offering, or the perception that such sales could occur, could    
adversely affect the market price of the Common Stock and may make it more      
difficult for the Company to sell its equity securities in the future at a time 
and price which it deems appropriate.                                           

Immediately after the Offering, the Company will continue to have     
outstanding 26,999,952 shares of Common Stock. The shares of Common Stock sold  
in the Offering will be freely tradeable without restriction or further         
registration under the Securities Act except for any of those shares of Common  
Stock that are beneficially owned at any time by an "affiliate" of the Company  
within the meaning of Rule 144 under the Securities Act (which sales will be    
subject to the timing, volume and manner of sale limitations of Rule 144).      

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The 11,150,000 outstanding shares of Common Stock that will be held by the      
Selling Stockholder after the Offering (9,450,000 shares if the over-allotment  
option is exercised in full) are "restricted" securities within the meaning of  
Rule 144 under the Securities Act and may not be publicly resold, except in     
compliance with the registration requirements of the Securities Act or pursuant 
to an exemption from registration, including that provided by Rule 144 under the
Securities Act. The Selling Stockholder has certain registration rights with    
respect to the shares of Common Stock owned by it. See "Relationship with       
Selling Stockholder and Related Transactions."                                  

 The Company, its executive officers, ITT and Starwood, Inc. have agreed
that they will not offer, sell, contract to sell, announce any intention to sell
(other than general announcements by ITT or Starwood regarding their intentions 
to dispose of Common Stock), pledge or otherwise dispose of, directly or        
indirectly (in the case of ITT and Starwood in a public offering), or file with 
the Commission a registration statement under the Securities Act relating to,   
any shares of Common Stock or securities or other rights convertible into or    
exchangeable or exercisable for any shares of Common Stock, without the prior   
written consent of Credit Suisse First Boston Corporation, for a period of 180  
days after the date of this Prospectus; provided, however, that such            
restrictions will not affect the ability of the Company to grant stock options  
for Common Stock pursuant to the Stock Plans, or to issue Common Stock pursuant 
to the exercise of stock options currently outstanding or granted pursuant to   
the Stock Plans. See "Shares Eligible for Future Sale" and "Underwriting."      

ANTI-TAKEOVER PROVISIONS                                                        

   Certain provisions of Delaware law, the Company's Restated Certificate of
Incorporation and the Company's By-Laws could have the effect of making it more 
difficult for a third party to acquire, or discouraging a third party from      
attempting to acquire, control of the Company. Such provisions could limit the  
price that certain investors might be willing to pay in the future for shares of
Common Stock. These provisions of Delaware law, the Company's Restated          
Certificate of Incorporation and the Company's By-Laws may also have the effect 
of discouraging or preventing certain types of transactions involving an actual 
or threatened change of control of the Company (including unsolicited takeover  
attempts), even though such a transaction may offer the Company's stockholders  
the opportunity to sell their stock at a price above the prevailing market      
price. Certain of these provisions authorize the issuance of "blank check"      
preferred stock, divide the Board of Directors into three classes expiring in   
rotation, require advance notice for stockholder proposals and nominations,     
prohibit stockholders from calling a special meeting and prohibit stockholder   
action by written consent. These provisions may make it more difficult for      
stockholders to take certain corporate actions and could have the effect of     
delaying or preventing a change in control of the Company. See "Description of  
Capital Stock -- Preferred Stock," "-- Provisions of Restated Certificate of    
Incorporation and By-Laws Affecting Change in Control" and "-- Delaware General 
Corporation Law."                                                               

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PRICE RANGE OF COMMON STOCK 

    The Common Stock is listed on the NYSE under the trading symbol "ESI." The
prices set forth below reflect the high and low sale prices of the Common Stock 
during the periods indicated, as reported in the consolidated transaction       
reporting system of the NYSE. These prices have been restated to reflect the    
following adjustments to the market price of the Common Stock: (a) on April 16, 
1996 to reflect the three-for-two Common Stock split declared by the Company on 
March 22, 1996 and effected by payment of a stock dividend on April 15, 1996;   
and (b) on November 15, 1996 to reflect the three-for-two Common Stock split    
declared by the Company on October 8, 1996 and effected by payment of a stock   
dividend on November 4, 1996.                                                   

                                                                [Download Table]

                                                            HIGH        LOW  
                                                           -------    -------
                                                                             
1996                                                                         
First Quarter............................................  $15.109    $11.063
Second Quarter...........................................   22.750     14.891
Third Quarter............................................   25.672     17.500
Fourth Quarter...........................................   26.078     18.250
1997                                                                         
First Quarter............................................  $27.000    $21.500
Second Quarter...........................................   25.000     19.375
Third Quarter............................................   26.750     19.000
Fourth Quarter...........................................   26.000     20.750
1998                                                                         
First Quarter............................................  $28.375    $21.375
Second Quarter (through June 3, 1998)....................   32.750     25.000

  On June 3, 1998, the last reported sale price of the Common Stock on the
NYSE was $25.25 per share. There were approximately 200 holders of record, and  
approximately 1,500 beneficial owners, of the Common Stock on June 3, 1998.     

DIVIDEND POLICY 

     No cash dividends were declared by the Company in 1996 or 1997. The Company
anticipates that it will not pay any cash dividends on the Common Stock for the 
foreseeable future and that it will retain its earnings to finance future       
growth. The declaration and payment of dividends by the Company are subject to  
the discretion of its Board of Directors and compliance with applicable law. Any
determination as to the payment of dividends in the future will depend on, among
other things, general business conditions, the effect of such payment on the    
Company's financial condition and other factors the Company's Board of Directors
may in the future consider to be relevant.                                      

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CAPITALIZATION

   The following table sets forth the capitalization of the Company at March
31, 1998. The Company will not receive any of the proceeds from the Offering.   
See "Principal and Selling Stockholder." This table should be read in           
conjunction with the Financial Statements and Notes thereto included elsewhere  
in this Prospectus.                                                             

                                                                [Download Table]

                                                                 MARCH 31, 1998    
                                                                 --------------    
                                                             (DOLLARS IN THOUSANDS)
                                                                                   
Long-term debt..............................................        $    --        
Shareholders' equity:                                                              
  Preferred Stock, $.01 par value; 5,000,000 shares                                
     authorized; none issued and outstanding................             --        
  Common Stock, $.01 par value; 50,000,000 shares                                  
     authorized; 26,999,952 issued and outstanding(1).......            270        
  Capital surplus...........................................         32,513        
  Retained earnings.........................................         62,360        
                                                                    -------        
          Total shareholders' equity........................         95,143        
                                                                    -------        
  Total capitalization......................................        $95,143        
                                                                    =======        

---------------                                                                 
(1) Excludes 4,455,000 shares of Common Stock which may be issued pursuant to   
  the Company's Stock Plans, under which options to purchase an aggregate of
810,000 shares of Common Stock were outstanding on March 31, 1998.      

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SELECTED FINANCIAL AND OPERATING DATA 

The following selected financial data of the Company are qualified by 
reference to and should be read in conjunction with the Financial Statements and
Notes thereto and other financial data included elsewhere or incorporated by    
reference herein. The statement of income data set forth for each of the three  
years in the period ended December 31, 1997 and the balance sheet data as of    
December 31, 1997 and 1996 have been derived from the Financial Statements of   
the Company which have been audited by Price Waterhouse LLP, independent        
accountants, whose report thereon is included elsewhere in this Prospectus. The 
statement of income data for each of the two years in the period ended December 
31, 1994 and the balance sheet data as of December 31, 1995, 1994 and 1993 have 
been derived from audited financial statements of the Company not included in   
this Prospectus. The statement of income data for each of the three months ended
March 31, 1998 and 1997 and the balance sheet data as of March 31, 1998 have    
been derived from the Company's unaudited financial statements which were       
prepared on the same basis as the audited financial statements and which, in the
opinion of management, include all adjustments (consisting of only normal       
recurring adjustments) necessary to present fairly the information set forth    
below. These historical results are not necessarily indicative of the results to
be expected in the future. See "Management's Discussion and Analysis of         
Financial Condition and Results of Operations."                                 

                                                        [Enlarge/Download Table]

                                                  THREE MONTHS ENDED                                                         
                                                      MARCH 31,                        YEAR ENDED DECEMBER 31,               
                                                ----------------------   ----------------------------------------------------
                                                    1998        1997       1997       1996       1995       1994       1993  
                                                ------------   -------   --------   --------   --------   --------   --------
                                                             (IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)             
                                                                                                                             
STATEMENT OF INCOME DATA:                                                                                                    
Revenue:                                                                                                                     
  Tuition......................................   $ 62,587     $55,746   $222,457   $196,692   $171,936   $159,575   $144,908
  Other educational(1).........................      9,700       8,730     39,207     35,627     29,895     27,332     24,089
                                                  --------     -------   --------   --------   --------   --------   --------
        Total revenues.........................     72,287      64,476    261,664    232,319    201,831    186,907    168,997
                                                  --------     -------   --------   --------   --------   --------   --------
Cost of educational services...................     41,438      37,984    163,053    145,197    130,338    121,594    108,075
Student services and administrative expenses...     19,436      17,536     72,388     66,546     57,268     53,481     47,083
Change in control expenses.....................        443          --         --         --         --         --         --
                                                  --------     -------   --------   --------   --------   --------   --------
        Total costs and expenses...............     61,317      55,520    235,441    211,743    187,606    175,075    155,158
Operating income...............................     10,970       8,956     26,223     20,576     14,225     11,832     13,839
Interest income, net(2)........................      1,244       1,380      5,565      4,119      4,802        232         80
                                                  --------     -------   --------   --------   --------   --------   --------
Income before income taxes.....................     12,214      10,336     31,788     24,695     19,027     12,064     13,919
Income taxes...................................      4,886       4,134     12,665      9,844      7,636      4,902      5,605
                                                  --------     -------   --------   --------   --------   --------   --------
Net income.....................................   $  7,328     $ 6,202   $ 19,123   $ 14,851   $ 11,391   $  7,162   $  8,314
                                                  ========     =======   ========   ========   ========   ========   ========
Earnings per common share (basic and                                                                                         
  diluted)(3)..................................   $    .27     $   .23   $    .71   $    .55   $    .42   $    .32   $    .37
                                                  --------     -------   --------   --------   --------   --------   --------
OTHER OPERATING DATA:                                                                                                        
EBITDA(4)......................................   $ 13,184     $10,914   $ 34,162   $ 28,069   $ 21,767   $ 18,687   $ 20,182
Operating losses from new technical institutes                                                                               
  before income taxes(5).......................   $  1,060     $   964   $  3,165   $  5,721   $  7,123   $  7,316   $  2,914
Capital expenditures, net......................   $  2,265     $ 4,027   $ 11,465   $  7,868   $  8,206   $  7,688   $  6,679
Number of students at end of period............     23,879      22,172     24,498     22,633     20,618     20,668     19,860
Number of technical institutes at end of                                                                                     
  period.......................................         63          59         62         59         56         54         48

                                                        [Enlarge/Download Table]

                                                AT MARCH 31,                    AT DECEMBER 31,                   
                                                ------------  ----------------------------------------------------
                                                    1998        1997       1996       1995       1994       1993  
                                                ------------  --------   --------   --------   --------   --------
                                                                    (IN THOUSANDS)                                
                                                                                                                  
BALANCE SHEET DATA:                                                                                               
Cash, restricted cash and cash invested with                                                                      
  ITT..........................................   $ 96,906    $ 98,689   $ 95,793   $ 77,517   $ 66,810   $ 51,064
Total current assets...........................    115,458     112,958    108,449     87,567     76,460     61,383
Property and equipment less accumulated                                                                           
  depreciation.................................     22,937      22,886     19,360     18,985     18,321     17,488
Total assets...................................    148,787     145,914    135,749    114,284    102,899     87,305
Total current liabilities......................     51,463      55,946     65,405     58,766     57,646     50,247
Shareholders' equity...........................     95,143      87,815     68,692     53,841     42,450     35,288

---------------                                                                 
(1) Other educational revenue is comprised of laboratory and application fees   
and textbook sales.                                                     

(2) See Note 3 of Notes to Financial Statements for information concerning      
intercompany interest between the Company and ITT. Prior to the Initial 
 Public Offering in December 1994, the Company did not receive interest on
  the full amount of net cash balances invested with ITT and was assessed an
interest charge based on an allocation of the consolidated debt of ITT. 
 After the Initial Public Offering and until February 5, 1998, the Company
  received interest from ITT on the amount of any net cash balances invested
 with ITT and no longer was subject to an interest charge based on such an
  allocation. Since February 5, 1998, the Company has performed its own cash
    management functions and no longer has any cash invested with ITT. Depending
  upon current interest rates on short-term investments, the Company may not
   be able to obtain the same yields on its cash balances that were being paid
by ITT. Accordingly, interest income, net may decrease in 1998.         

(3) Earnings per share data are based on historical net income and the number of
shares of Common Stock outstanding during each period after giving      
  retroactive effect to the three-for-two stock splits in April and November
   1996. Earnings per share for all periods have been calculated in conformity
with Statement of Financial Accounting Standards No. 128, "Earnings per 
Share."                                                                 

(4) EBITDA represents earnings before interest and financial charges, income    
  taxes, depreciation and amortization. The Company has included information
concerning EBITDA (which is not a measure of financial performance under
   generally accepted accounting principles) because it understands that it is
used by certain investors as one measure of an issuer's financial       
  performance. EBITDA should not be construed as an alternative to operating
income (as determined in accordance with generally accepted accounting  
   principles) as an indicator of the Company's performance or cash flows from
 operating activities (as determined in accordance with generally accepted
accounting principles) or as a measure of liquidity.                    

(5) Operating losses from new technical institutes before income taxes          
  represents operating losses before income taxes, including amortization of
deferred pre-opening costs, for institutes in the first 24 months after 
their first class start.                                                

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF 
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 

  The following discussion should be read in conjunction with the Selected
Financial and Operating Data appearing elsewhere in this Prospectus and the     
Financial Statements and Notes thereto included elsewhere in this Prospectus.   

GENERAL                                                                         

     The Company operates 63 ITT Technical Institutes in 27 states which provide
technology-oriented postsecondary education to approximately 24,000 students.   
The Company derives its revenue almost entirely from tuition, textbook sales,   
fees and charges paid by, or on behalf of, its students. Most students at the   
ITT Technical Institutes rely on funds received under various                   
government-sponsored student financial aid programs, especially the federal     
student financial aid programs under Title IV of the Higher Education Act of    
1965, as amended ("Title IV Programs"), to pay a substantial portion of their   
tuition and other education-related expenses. In 1997, the Company indirectly   
derived approximately 70% of its revenues from Title IV Programs.               

 The Company's revenue varies based on the aggregate student population,
which is influenced by the number of students attending ITT Technical Institutes
at the beginning of a fiscal period, by the number of new first-time students   
entering and former students re-entering ITT Technical Institutes during such   
period and by student retention rates. New students generally enter ITT         
Technical Institutes at the beginning of an academic quarter that commences in  
March, June, September and December. The Company believes that the size of its  
student population is affected to some extent by general economic conditions,   
and that, in the absence of countervailing factors, student enrollments and     
retention rates tend to increase as opportunities for immediate employment for  
high school graduates decline and decrease as such opportunities increase. The  
establishment of new ITT Technical Institutes and the introduction of additional
program offerings at existing ITT Technical Institutes have been significant    
factors in increasing the aggregate student population in recent years.         

    A new technical institute must be authorized by the state in which it will
operate, accredited by an accrediting commission that has been recognized by the
U.S. Department of Education ("DOE"), and certified by the DOE to participate in
Title IV Programs. The approval processes for accreditation and DOE             
certification cannot commence until the first students begin classes. Such      
accreditation and DOE certification for a new additional location generally take
approximately one year from the first class start date. Certain direct costs    
incurred with respect to a new technical institute prior to the first class     
start ("institute start-up costs") are deferred and amortized over the first    
year of operation after the first class start. Since the beginning of 1993, the 
Company has opened 20 new technical institutes (six of which started classes in 
1996 or 1997 and one of which started classes in 1998). New technical institutes
historically incur a loss during the 24-month period after the first class start
date. These losses during the year by institutes in their first two years of    
operation, together with the amortization of institute start-up costs, are      
referred to as "operating losses from new technical institutes." Such operating 
losses from new technical institutes totaled $1.1 million and $1.0 million for  
the three months ended March 31, 1998 and 1997, respectively, and $3.2 million, 
$5.7 million and $7.1 million for the years ended December 31, 1997, 1996 and   
1995, respectively.                                                             

The Company earns tuition revenue on a weekly basis, pro rata over the
length of each of four, 12-week academic quarters in each fiscal year. Under    
federal and state regulations and accrediting commission standards, the Company 
generally is required to refund a portion of the tuition payments received from 
a student who withdraws from an ITT Technical Institute during an academic      
quarter. The amount of tuition, if any, that may be retained by the Company     
after payment of any refund is immediately recognized in the Company's statement
of income. Other educational revenue is comprised of textbook sales and         
laboratory and application fees.                                                

   The Company incurs expenses throughout a fiscal period in connection with
the operation of the ITT Technical Institutes. The cost of educational services 
includes faculty and administrative salaries, cost of                           

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books sold, occupancy costs, depreciation and amortization of equipment costs   
and leasehold improvements and certain other administrative costs incurred by   
the ITT Technical Institutes.                                                   

     Student services and administrative expenses include direct marketing costs
(which are marketing expenses directly related to new student recruitment),     
indirect marketing expenses, an allowance for doubtful accounts and             
administrative expenses incurred at corporate headquarters. Direct marketing    
costs include salaries and employee benefits for recruiting representatives and 
direct solicitation advertising expenses. Direct marketing costs, excluding     
advertising expenses, are capitalized and amortized on an accelerated basis over
the average course length of 24 months commencing on the class start date.      
Marketing costs that do not relate to the direct solicitation of potential      
students are expensed as incurred.                                              

    Until February 5, 1998, all cash receipts of the Company were forwarded to
ITT for investment on a daily basis after, in the case of certain receipts, the 
lapse of applicable regulatory restrictions. Cash disbursements of the Company  
were generally funded by ITT out of the cash balances of the Company held and   
invested for the Company by ITT. Net interest income represents principally     
interest paid or received from ITT and miscellaneous interest paid or received  
from other parties. Commencing in 1995, ITT has paid the Company interest on the
full amount of any net cash balances invested for the Company by ITT at an      
interest rate that was set for a six- or twelve-month period and was 30 basis   
points over the most recently published rate for six-or twelve-month treasury   
bills, as appropriate, and no longer assessed interest charges on the Company   
except with respect to funds actually advanced to the Company in excess of cash 
invested with ITT. ITT performed a number of other services for the Company,    
including the administration of certain employee benefit plans, for which it    
received compensation from the Company. The Company intends to perform          
substantially all of these services after the Offering. Since February 5, 1998, 
the Company has performed its own cash management functions and no longer has   
any cash invested with ITT. Depending upon current interest rates on short-term 
investments, the Company may not be able to obtain the same yields on its cash  
balances that were being paid by ITT. Accordingly, interest income, net may     
decrease in 1998.                                                               

VARIATIONS IN QUARTERLY RESULTS OF OPERATIONS                                   

The Company's quarterly results of operations tend to fluctuate       
significantly within a fiscal year because of differences in the number of weeks
of earned tuition revenue in each fiscal quarter and the timing of student      
matriculations. The Company's first and third fiscal quarters have 13 weeks of  
earned tuition revenue, while the second and fourth quarters have 11 weeks of   
earned tuition revenue because of two-week vacation breaks in June and December.
In addition, revenue in the third and fourth fiscal quarters generally benefits 
from increased student matriculations as the number of new students entering ITT
Technical Institutes tends to be substantially higher in June (31% of all new   
students in 1997) and September (36% of all new students in 1997) because of the
significant number of recent high school graduates entering ITT Technical       
Institutes for the academic quarters beginning in those two months. The         
Company's incurrence of costs, however, is generally not affected by the        
academic schedule, and such costs do not fluctuate significantly on a quarterly 
basis.                                                                          

     The following table sets forth the Company's revenue in each quarter during
the three prior fiscal years.                                                   

QUARTERLY REVENUE OF ITT TECHNICAL INSTITUTES 
(DOLLARS IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                              1997                1996                1995       
             THREE-MONTH               ------------------  ------------------  ------------------
             PERIOD ENDED               AMOUNT    PERCENT   AMOUNT    PERCENT   AMOUNT    PERCENT
             ------------              --------   -------  --------   -------  --------   -------
                                                                                                 
March 31.............................. $ 64,476      25%   $ 57,103      25%   $ 51,169      25% 
June 30...............................   58,412      22      51,568      22      44,969      22  
September 30..........................   73,060      28      65,113      28      56,017      28  
December 31...........................   65,716      25      58,535      25      49,676      25  
                                       --------     ---    --------     ---    --------     ---  
  Total for Year...................... $261,664     100%   $232,319     100%   $201,831     100% 
                                       ========     ===    ========     ===    ========     ===  

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RESULTS OF OPERATIONS                                                           

The following table sets forth the percentage relationship of certain 
statement of income data to tuition and other educational revenue for the       
periods indicated.                                                              

                                                        [Enlarge/Download Table]

                                                   THREE MONTHS                            
                                                      ENDED                                
                                                    MARCH 31,      YEAR ENDED DECEMBER 31, 
                                                  --------------   ----------------------- 
                                                  1998     1997    1997     1996     1995  
                                                  -----    -----   -----    -----    ----- 
                                                                                           
Tuition and other educational revenue............ 100.0%   100.0%  100.0%   100.0%   100.0%
Cost of educational services.....................  57.3     58.9    62.3     62.5     64.6 
Student services and administrative expenses.....  26.9     27.2    27.7     28.6     28.4 
Change in control expenses.......................    .6       --      --       --       -- 
                                                  -----    -----   -----    -----    ----- 
Operating income.................................  15.2     13.9    10.0      8.9      7.0 
Interest income, net.............................   1.7      2.1     2.1      1.7      2.4 
                                                  -----    -----   -----    -----    ----- 
Income before income taxes.......................  16.9%    16.0%   12.1%    10.6%     9.4%
                                                  =====    =====   =====    =====    ===== 

    In May 1998, the Company increased its provision for legal expenses in the
legal actions associated with the hospitality program by $1.2 million. The      
Company intends to reflect this increased provision in the Company's Quarterly  
Report on Form 10-Q for the three months ended June 30, 1998 and, as a result,  
expects that the cost of educational services for the three and six months ended
June 30, 1998 will increase, causing a decrease of approximately $0.03 and      
$0.03, respectively, in earnings per common share (both basic and diluted) for  
such periods. See "Business -- Legal Proceedings."                              

THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997 

  Revenue.  Revenues increased $7.8 million, or 12.1%, to $72.3 million in
the three months ended March 31, 1998 from $64.5 million in the three months    
ended March 31, 1997. This increase was due primarily to a 5% increase in       
tuition rates in September 1997 and an 8.2% increase in the total student       
enrollment at January 1, 1998 compared to January 1, 1997. The number of        
students attending ITT Technical Institutes at January 1, 1998 was 24,498       
compared to 22,633 at January 1, 1997.                                          

   The total number of first-time and re-entering students beginning classes
in March 1998 was 4,730 compared to 4,363 for the same period in 1997.          
First-time students numbered 3,882 in March 1998 compared to 3,619 in March     
1997. The total student enrollment on March 31, 1998 was 23,879, compared to    
22,172 on March 31, 1997, an increase of 7.7%.                                  

    Cost of Educational Services.  Cost of educational services increased $3.4
million, or 8.9%, to $41.4 million in the three months ended March 31, 1998 from
$38.0 million in the three months ended March 31, 1997. This increase was       
principally a result of costs required to service the increased enrollment,     
normal inflationary cost increases for wages, rent and other costs of services, 
and increased costs at new technical institutes (one opened in June 1997 and two
in December 1997). Cost of educational services decreased to 57.3% of revenues  
in the three months ended March 31, 1998 compared to 58.9% of revenues in the   
three months ended March 31, 1997, because there was no provision for legal     
expenses in the legal actions associated with the hospitality program during    
this period in 1998, compared with $0.5 million in the three months ended March 
31, 1997, and because the greater revenues did not cause an increase in the     
fixed portion of rent, administrative salaries and other costs included in the  
cost of educational services. See "Business -- Legal Proceedings."              

Student Services and Administrative Expenses.  Student services and   
administrative expenses increased $1.9 million, or 10.9%, to $19.4 million in   
the three months ended March 31, 1998 from $17.5 million in the three months    
ended March 31, 1997. The Company increased its media advertising expenses in   
the three months ended March 31, 1998 by approximately 8.1% over the same       
expenses incurred in the three months ended March 31, 1997. Student services and
administrative expenses decreased to 26.9% of revenues in the three months ended
March 31, 1998 compared to 27.2% in the three months ended March 31, 1997,      
primarily                                                                       

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because the greater revenues did not cause an increase in the fixed portion of  
the marketing and headquarters expenses.                                        

   Change in Control Expenses.  Change in control expenses represent fees to
the accrediting commissions and state education authorities that regulate the   
Company's ITT Technical Institutes, fees and expenses of accountants to conduct 
an audit of the balance sheet as of the date of the Merger as required under    
applicable regulations and other expenses caused by the Merger. See             
"Business -- Change in Control."                                                

    Interest Income.  Interest income in the three months ended March 31, 1998
decreased $0.1 million from the three months ended March 31, 1997 primarily     
because the Company did not receive any federal student financial aid funds from
February 22, 1998 to March 20, 1998 due to the change in control of the Company 
resulting from the Merger. Interest income earned on the increased cash         
investments was offset by a decrease in the interest rate earned on the cash    
invested by the Company (i.e., 5.5% in the three months ended March 31, 1998    
compared to 6.3% in the three months ended March 31, 1997).                     

   Net Income.  Net income increased $1.1 million, or 17.7%, to $7.3 million
for the three months ended March 31, 1998 from $6.2 million for the three months
ended March 31, 1997 (despite the change in control expenses of $0.3 million    
after tax), principally due to the 22.5% increase in operating income ($1.2     
million after tax).                                                             

YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996         

   Revenue.  Revenue increased by $29.4 million, or 12.7%, to $261.7 million
for the year ended December 31, 1997 from $232.3 million for the year ended     
December 31, 1996 primarily due to (i) a 9.8% increase in the total student     
enrollment at January 1, 1997 compared to January 1, 1996 (22,633 at January 1, 
1997 compared to 20,618 at January 1, 1996), (ii) a 5% increase in tuition rates
in September 1997 and 1996, (iii) a 2.3% increase in the number of new          
first-time students commencing their attendance at ITT Technical Institutes     
(19,911 in 1997 compared to 19,464 in 1996) and (iv) the opening of new         
institutes (two in March 1996, one in September 1996, one in June 1997 and two  
in December 1997). Student retention rates did not change materially in the two 
years. The three new ITT Technical Institutes beginning classes in 1997         
accounted for 140 new students.                                                 

  Cost of Educational Services.  Cost of educational services increased by
$17.9 million, or 12.3%, to $163.1 million in 1997 from $145.2 million in 1996  
principally as a result of increased costs related to the introduction of       
additional programs, an increase in salaries and occupancy costs at ITT         
Technical Institutes opened prior to 1995, costs at the two new institutes      
opened in 1995, costs at the three new institutes opened in 1996, costs at the  
three new institutes opened in 1997, and, to a lesser extent, as a result of an 
increase in the costs of books sold related to the increased student population.
Provisions for legal expenses increased by $1.9 million to $3.2 million in 1997 
($1.7 million in fourth quarter) from $1.3 million in 1996 ($1.0 million in     
fourth quarter) as a result of the legal actions associated with the California 
and Florida hospitality programs. See "Business -- Legal Proceedings." Cost of  
educational services decreased to 62.3% of revenues in 1997 compared to 62.5% in
1996, primarily because the greater revenues did not cause an increase in the   
fixed portion of rent, administrative salaries and other costs included in the  
cost of educational services. Excluding the provisions for the legal expenses,  
cost of educational services decreased to 61.1% of revenues in 1997 compared to 
61.9% in 1996.                                                                  

Student Services and Administrative Expenses.  Student services and   
administrative expenses increased by $5.9 million, or 8.9%, to $72.4 million in 
1997 from $66.5 million in 1996 principally as a result of a $5.0 million       
increase in marketing costs. This increase was due to (i) an increase in the    
marketing costs for the two new technical institutes opened in 1995 and the     
three new technical institutes opened in 1996, (ii) the commencement of         
marketing costs for the three new technical institutes opened in 1997 and (iii) 
the increased marketing costs for ITT Technical Institutes opened prior to 1995.
The Company's media advertising expenses increased by 10.9% in 1997 from 1996.  
Administrative expenses at the corporate headquarters increased by $0.3 million 
in 1997 from 1996 levels primarily due to increased headquarters staff. The     
provision for doubtful accounts in 1997 was approximately $0.6 million more than
in 1996 principally because of increased revenue and a regulatory change that   
delays the Company's receipt of funds under the                                 
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Title IV Programs (i.e., the students withdrew before they could secure federal 
student financial aid with which they could pay their obligations to the        
Company). See "-- Liquidity and Capital Resources" for a further description of 
the regulatory changes affecting when the Company receives Title IV Program     
funds after June 30, 1997. Student services and administrative expenses         
decreased to 27.7% of revenues in 1997 compared to 28.6% in 1996, primarily     
because the greater revenues did not cause an increase in the fixed portion of  
the marketing and headquarters expenses.                                        

     Interest Income.  Interest income increased by $1.4 million in 1997 because
of the increase in the interest rate earned on the cash invested by the Company 
with ITT (i.e., 6.3% in 1997 compared to 5.5% in 1996) and the increase in cash 
invested with ITT.                                                              

    Net Income.  Net income increased $4.2 million, or 28.2%, to $19.1 million
for 1997 from $14.9 million for 1996, principally due to the 27.4% increase in  
operating income ($3.4 million after tax).                                      

YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995         

   Revenue.  Revenue increased by $30.5 million, or 15.1%, to $232.3 million
for the year ended December 31, 1996 from $201.8 million for the year ended     
December 31, 1995 primarily due to a 17.7% increase in the number of new        
first-time students commencing their attendance at ITT Technical Institutes     
(19,464 in 1996 compared to 16,539 in 1995), a 5% increase in tuition rates in  
September 1995 and 1996, and the opening of new institutes (two in September    
1995, two in March 1996 and one in September 1996). The number of students      
attending ITT Technical Institutes at January 1, 1996 was approximately the same
as at January 1, 1995. Student retention rates did not change materially in the 
two years. The three new ITT Technical Institutes beginning classes in 1996     
accounted for 348 new students.                                                 

  Cost of Educational Services.  Cost of educational services increased by
$14.9 million, or 11.4%, to $145.2 million in 1996 from $130.3 million in 1995  
principally as a result of increased costs related to the introduction of       
additional programs, an increase in salaries and occupancy costs at ITT         
Technical Institutes opened prior to 1994, costs at the six new institutes      
opened in 1994, costs at the two new institutes opened in 1995, costs at the    
three new institutes opened in 1996, and, to a lesser extent, as a result of an 
increase in the costs of books sold related to the increased student population.
Provisions for legal expenses increased by $1.2 million in 1996 from 1995       
levels. This increase was principally a result of a $1.3 million provision in   
1996 ($1.0 million in fourth quarter and $0.3 million in third quarter) for the 
legal actions in Eldredge, et al. v. ITT Educational Services, Inc., et al. (the
"Eldredge Case"). (See Note 10 of Notes to Financial Statements for a further   
description.) Cost of educational services decreased to 62.5% of revenues in    
1996 compared to 64.6% in 1995, primarily because of greater revenues being     
spread over the fixed portion of cost of educational services.                  

Student Services and Administrative Expenses.  Student services and   
administrative expenses increased by $9.2 million, or 16.1%, to $66.5 million in
1996 from $57.3 million in 1995 principally as a result of a $7.9 million       
increase in marketing costs. This increase was due to (i) an increase in the    
marketing costs for the six new technical institutes opened in 1994 and the two 
new technical institutes opened in 1995, (ii) the commencement of marketing     
costs for the three new technical institutes opened in 1996 and (iii) the       
increased marketing costs for ITT Technical Institutes opened prior to 1994.    
Administrative expenses at the corporate headquarters increased by $0.7 million 
in 1996 from 1995 levels primarily due to increased headquarters staff. The     
provision for doubtful accounts in 1996 was approximately $0.6 million more than
in 1995 principally because of increased revenue and a delay in the DOE's       
certification of the new institutes opened in 1995 and 1996 to participate in   
the Title IV Programs (i.e., the delay resulted in a greater number of students 
who withdrew or were terminated from the institutes before they could secure    
federal student financial aid with which they could pay their obligations to the
Company). Student services and administrative expenses increased to 28.6% of    
revenues in 1996 as compared to 28.4% in 1995, because of increased television  
advertising.                                                                    

     Interest Income.  Interest income decreased by $0.7 million in 1996 because
of the reduction in the interest rate earned on the cash invested by the Company
with ITT (i.e., 5.5% in 1996 compared to 7.5% in 1995).                         
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    Net Income.  Net income increased $3.5 million, or 30.7%, to $14.9 million
for 1996 from $11.4 million for 1995, principally due to the 44.6% increase in  
operating income ($3.8 million after tax).                                      

LIQUIDITY AND CAPITAL RESOURCES                                                 

   In 1997, the Company indirectly derived approximately 70% of its revenues
from Title IV Programs. Federal regulations dictate the timing of disbursements 
of funds under Title IV Programs. Students must apply for a new loan for each   
academic year (three academic quarters). Loan funds are generally provided by   
lenders in three disbursements for each academic year. The first disbursement is
usually received either 30 days after (in the case of students commencing a     
program of study) or 10 days before the start of the first academic quarter of a
student's academic year, and the second and third disbursements are typically   
received 10 days before the start of the second and third academic quarters of a
student's academic year, respectively. While the timing of loan disbursements to
the Company is subject to a student's directions to the lender and to existing  
regulatory requirements regarding such disbursements, which last changed        
effective July 1, 1997, the Company has typically received student loan funds   
upon their disbursement by the lender.                                          

 The DOE issued new regulations in November 1996, which became effective
July 1, 1997, that revised the procedures governing how an institution          
participating in Title IV Programs requests, maintains, disburses and otherwise 
manages Title IV Program funds. These new regulations require the Company to    
receive Title IV Program loan funds in three equal quarterly disbursements      
rather than the two disbursements previously permitted. The Company estimates   
that this change decreased 1997 net cash provided by operating activities (a    
one-time effect) by approximately $15.0 million, and decreased 1997 interest    
income (an ongoing effect) by $0.2 million. The Company estimates that this     
change will decrease 1998 interest income (an ongoing effect) by $0.8 million to
$1.0 million.                                                                   

 The principal uses of cash are to pay salaries, occupancy and equipment
costs, recruiting and marketing expenses, administrative expenses and taxes,    
including institute start-up costs for new institutes. Until February 5, 1998,  
cash receipts of the Company were forwarded to ITT on a daily basis after, in   
the case of certain receipts, the lapse of applicable regulatory restrictions,  
and cash disbursements of the Company were generally funded by ITT out of the   
cash balances of the Company invested with ITT. The Company's net cash balances 
of the cash invested with ITT increased from $89.8 million at December 31, 1996 
to $94.8 million at December 31, 1997 and ranged from a low of $65.2 million in 
May 1997 to a high of $103.6 million in August 1997. Since February 5, 1998, the
Company has performed its own cash management functions and no longer has any   
cash invested with ITT.                                                         

 Net cash provided by operating activities was $0.5 million in the three
months ended March 31, 1998 compared to $4.9 million used for operating         
activities in the three months ended March 31, 1997. This $5.4 million increase 
in cash provided by operating activities was due primarily to the timing of     
payments to ITT under current intercompany agreements. As of March 31, 1998, the
Company had not made payments to ITT aggregating $4.7 million for estimated     
federal income taxes, pension expenses and medical expenses for the first       
quarter of 1998, pending the negotiation of new intercompany agreements between 
the Company and ITT in connection with the Merger and the Offering.             

    The Company has generated positive cash flows from operations for the past
five years. Cash flows from operations decreased by $11.7 million in 1997 to    
$14.4 million from $26.1 million in 1996. This decrease is primarily due to the 
decrease in deferred tuition revenue resulting from the July 1, 1997 regulatory 
change affecting when the Company receives federal student loan funds, as       
discussed above. Cash flows from operations in 1996 was $26.1 million, an       
increase of $7.2 million from $18.9 million in 1995. This increase was primarily
due to the increases in operating income and deferred tuition revenue resulting 
from increased student enrollment.                                              

At March 31, 1998, the Company had positive working capital of $64.0  
million. Deferred tuition revenue, which represents the unrecognized portion of 
tuition revenue received from students, was $23.0 million at March 31, 1998.    

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    An educational institution may lose its eligibility to participate in some
or all Title IV Programs if student defaults on federal student loans exceed    
certain rates. The ITT Technical Institute located in Garland, Texas has lost   
its eligibility to participate in the Federal Family Education Loan ("FFEL") and
the Federal Direct Loan ("FDL") programs due to its default rates, and the ITT  
Technical Institute located in San Antonio, Texas could lose its eligibility to 
participate in the FFEL and FDL programs due to its default rates. See          
"Business -- Regulation of Federal Financial Aid Programs -- Student Loan       
Defaults." Loss of eligibility to participate in the FFEL and FDL programs by   
both the Garland and San Antonio, Texas ITT Technical Institutes (but not by the
Garland institute alone) could have a material adverse effect on the Company's  
financial condition or results of operations. The Company has arranged for an   
unaffiliated, private funding source ("PFS") to provide loans to the students   
enrolled at the Garland institute. This alternative source of student financial 
aid requires the Company to guarantee repayment of the PFS loans. Based on the  
Company's experience with the repayment of Title IV Program loans by students   
who attended the Garland institute, the Company believes that such guaranty     
should not result in a material adverse effect on the Company's financial       
condition, results of operations or cash flows.                                 

  The DOE, the Accrediting Commissions and most of the SEAs considered the
Merger to constitute a change in control of the Company and the ITT Technical   
Institutes under their respective Regulations. As a result, effective upon the  
Merger, each ITT Technical Institute campus group immediately became ineligible 
to participate in Title IV Programs. The Company obtained all prior approvals of
the Merger from the Accrediting Commission and the SEAs that required such      
approval before the Merger occurred. Since the Merger, the Company has obtained 
temporary approval of the Merger from the other Accrediting Commission, final   
approvals of the Merger from some of the SEAs required after a change in control
occurs and continued authorization to operate from the remaining SEAs. The      
Company is continuing to pursue final approvals from such Accrediting Commission
and SEAs. The DOE approved the reinstatement of each ITT Technical Institute    
campus group's participation in Title IV Programs effective March 20, 1998. The 
DOE's approval was on a provisional basis, which is the DOE's practice for all  
institutions following a change in control. As an additional condition of each  
institute's provisional certification, the DOE directed the Company to maintain 
a sufficient, but undefined, level of cash or cash equivalents, and to revise   
its current accounting treatment of direct marketing costs, revenue recognition 
and amortization of direct marketing costs or provide evidence that the         
Company's treatment of these items is in conformance with GAAP. The Company     
believes that its treatment of these items is in accordance with GAAP and that  
it maintains cash and cash equivalents in sufficient amounts to satisfy the DOE,
but there can be no assurance thereof. If the Company is required to change its 
accounting treatment for any of the above items, management does not believe    
that such change would have a material adverse effect on the Company's financial
condition or results of operations before the cumulative effect of any change in
accounting.                                                                     

The Offering will not constitute a change in control under the DOE's  
Regulations. Any corporate reorganization of, or future disposition of the      
Common Stock by, ITT could, however, constitute a change in control of the      
Company and the ITT Technical Institutes. See "Business -- Change in Control."  

    A material adverse effect on the Company's financial condition, results of
operations and cash flows would result if a change in control of the Company    
occurred and a material number of ITT Technical Institutes failed, in a timely  
manner, to be reauthorized by their SEAs, reaccredited by their Accrediting     
Commissions or recertified by the DOE to participate in Title IV Programs.      

    The Company's capital assets consist primarily of classroom and laboratory
equipment (such as computers, electronic equipment and robotic systems),        
classroom and office furniture and leasehold improvements. All building         
facilities are leased. Capital expenditures totaled $11.5 million during 1997   
and included expenditures of $1.6 million for new technical institutes, $1.9    
million to expand curricula offerings at existing institutes, $7.3 million to   
replace or add furniture or equipment at existing institutes and $0.7 million on
leasehold improvements. Leasehold improvements represent part of a continuing   
effort by the Company to maintain its existing facilities in excellent          
condition. Capital expenditures increased by $3.6 million to $11.5 million in   
1997 from $7.9 million in 1996, principally due to the expenditure of           
approximately $3.0 million for the acquisition of new computers in 1997         
(required to accommodate a software upgrade for the Company's                   

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computer-aided drafting technology curriculum). New institutes have large       
capital additions in the first two years. To date, cash generated from          
operations has been sufficient to meet capital expenditures.                    

    The Company plans to continue to upgrade and expand current facilities and
equipment. The Company expects that the 1998 capital expenditures will be       
approximately $10.0 million, of which $2.3 million had been expended through    
March 31, 1998. The capital additions for a new institute are approximately $0.4
million and the capital expenditures for each new curriculum at an existing     
institute are approximately $0.2 million. The Company anticipates that its      
planned capital additions can be funded from cash flows from operations. Cash   
flows from operations on a long-term basis is highly dependent upon the receipt 
of funds from federal financial aid programs and the amount of funds spent on   
new institutes, curricula additions at existing institutes and possible         
acquisitions.                                                                   

YEAR 2000 COMPLIANCE                                                            

   The Company has made and will continue to make certain investments in its
software systems and applications to ensure the Company is year 2000 compliant. 
The financial impact to the Company to ensure year 2000 compliance has not been 
and is not anticipated to be material to its business, financial condition or   
results of operations. There can be no assurance, however, that the institutions
or governmental agencies with which the Company transacts business will not     
experience problems in year 2000 compliance that could adversely affect the     
financial condition or results of operations of the Company.                    

SFAS PUBLICATIONS WITH FUTURE EFFECTIVE DATES                                   

The Company is required to adopt the Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income," and SFAS No. 131, 
"Disclosure about Segments of an Enterprise and Related Information," and begin 
reporting the financial information required thereunder beginning with the      
Company's 1998 fiscal year. The Company's adoption of these standards will not  
have a material impact on the financial information it will report in future    
periods.                                                                        

     The American Institute of Certified Public Accountants (the "AICPA") issued
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer       
Software Developed or Obtained for Internal Use," in March 1998. SOP 98-1       
provides guidance on accounting for the costs of computer software developed or 
obtained for internal use and requires costs incurred in the application        
development stage (whether internal or external) to be capitalized. This SOP is 
applicable to all financial statements for fiscal years beginning after December
15, 1998, and should be applied to internal-use computer software costs incurred
in those fiscal years for all projects, including those projects in progress    
upon initial application of this SOP. Costs incurred prior to initial           
application of this SOP, whether or not capitalized, should not be adjusted to  
the amounts that would have been capitalized had this SOP been in effect when   
those costs were incurred. The adoption of this SOP is not expected to have a   
material impact on the annual operating results of the Company.                 

Additionally, the AICPA issued SOP 98-5, "Reporting on the Costs of   
Start-Up Activities," in April 1998. SOP 98-5 provides guidance on the financial
reporting of start-up costs and requires the cost of start-up activities to be  
expensed as incurred. This SOP is applicable to all financial statements for    
fiscal years beginning after December 15, 1998. Initial application should be   
reported as a cumulative effect of a change in accounting principle as described
in Accounting Principles Board (APB) Opinion No. 20, "Accounting Changes." The  
Company intends to adopt this standard in the first quarter of 1999. The        
cumulative effect of the change in accounting is not expected to have a material
effect on the 1999 annual operating results of the Company.                     

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BUSINESS

  Unless the context indicates otherwise, the term "Company" refers to ITT
Educational Services, Inc., including all of its educational institutions; the  
term "Starwood" refers collectively to Starwood Hotels & Resorts Worldwide,     
Inc., a Maryland corporation formerly known as Starwood Lodging Corporation     
("Starwood, Inc."), and Starwood Hotels & Resorts, a Maryland real estate       
investment trust formerly known as Starwood Lodging Trust or Starwood Hotels &  
Resorts Trust ("Starwood Trust"), and their subsidiaries other than the Company;
the term "ITT" refers to ITT Corporation, a Nevada corporation, and its         
subsidiaries other than the Company; the terms "ITT Technical Institutes,"      
"technical institutes" or "institutes" (in singular or plural form) refer to    
educational institutions owned and operated by the Company; and the term        
"institution" means a main campus and its additional locations or branch        
campuses, if any (hereinafter "campus group" in singular or plural form).       

BACKGROUND                                                                      

     Prior to its Initial Public Offering, which was consummated on December 27,
1994, the Company was a wholly owned subsidiary of ITT Corporation, formerly a  
Delaware corporation and now known as ITT Industries, Inc., an Indiana          
corporation ("Old ITT"). On September 29, 1995, ITT succeeded to the interests  
of Old ITT in the beneficial ownership of 83.3% of the Common Stock of the      
Company, as part of the division of Old ITT's businesses among itself and two of
its wholly owned subsidiaries (including ITT) and distribution of all the       
outstanding common stock of ITT and the other subsidiary to the shareholders of 
Old ITT, which occurred on December 19, 1995. On February 23, 1998, ITT became a
wholly owned subsidiary of Starwood, Inc. Starwood is the largest hotel and     
gaming company in the world in terms of revenue and owns, manages or franchises 
a geographically diversified portfolio of approximately 650 hotel properties.   

The Company is a Delaware corporation incorporated in 1946. Old ITT   
acquired a predecessor of the Company in 1966, and the Company changed its name 
to ITT Educational Services, Inc. in 1969. The principal executive offices of   
the Company are located at 5975 Castle Creek Parkway, North Drive, Indianapolis,
Indiana 46250, and its telephone number is (317) 594-9499.                      

OVERVIEW                                                                        

ITT Educational Services, Inc. is a leading proprietary provider of   
technology-oriented postsecondary degree programs in the United States based on 
revenues and student enrollment. The Company offers associate, bachelor and     
master degree programs and non-degree diploma programs to approximately 24,000  
students through 63 ITT Technical Institutes located in 27 states. The education
programs are designed, after consultation with employers, to help graduates     
begin to prepare for careers in various fields involving technology. As of      
December 31, 1997, approximately 97% of ITT Technical Institute students were   
enrolled in a degree program, with approximately 74% enrolled in programs       
relating to electronics engineering technology ("EET") and approximately 23%    
enrolled in programs relating to computer-aided drafting technology ("CAD").    
While most graduates of ITT Technical Institutes are initially employed by      
numerous small, technology-oriented companies, employers have also included well
recognized corporations, such as AT&T, Boeing, Intel, MCI, Microsoft, Motorola, 
IBM and General Electric. Additionally, the institutes' graduates have been     
hired by many federal and local government agencies, including the Federal      
Bureau of Investigation and the Central Intelligence Agency. The Company has    
provided career-oriented education programs for 32 years and its schools have   
graduated over 125,000 students since 1976.                                     

The Company has experienced significant growth, acquiring three and   
establishing 50 new technical institutes since January 1, 1981. Of the 63       
institutes currently operating, 20 have been established since January 1, 1993. 
The number of students attending ITT Technical Institutes has increased 32.1%   
from 18,539 at December 31, 1992 to 24,498 at December 31, 1997. Total revenues 
from the ITT Technical Institutes have increased 74.0% from $150.4 million      
(excluding discontinued operations) in 1992 to $261.7 million in 1997. The      
Company opened three new technical institutes in 1997 and one new technical     
institute in March 1998. The Company intends to continue expanding by opening   
new technical institutes (including five additional new institutes in the       
remainder of 1998) and offering a broader range of programs at its institutes.  

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The Company expects that the demand for postsecondary education will  
continue to increase over the next several years as a result of favorable       
demographic, economic and social trends. These trends include, based on data    
from the United States Department of Education and data collected in the Current
Population Survey conducted by the Bureau of the Census, (a) 24% projected      
growth in the number of new high school graduates from approximately 2.5 million
in 1994 to approximately 3.1 million in 2004, (b) the relatively small          
percentage of adults over age 25 who possess a bachelor degree (approximately   
23% in 1995), (c) an increasing number of high school graduates attending       
postsecondary educational institutions (65% in 1996 versus 53% in 1983) and (d) 
a heightened recognition of the importance of postsecondary education to an     
individual's career prospects.                                                  

  The Company believes that it is well positioned to take advantage of the
increasing demand for postsecondary education programs for the following        
reasons:                                                                        

  Employment Oriented Education.  ITT Technical Institutes offer
   curricula designed to teach the technical knowledge and skills desired by
 many employers for entry-level positions. Unlike many two-and four-year
     colleges, each undergraduate curriculum offered by ITT Technical Institutes
 has been designed, after consultation with employers, to help graduates
begin to prepare for careers in various fields involving technology.  
Curricula are reviewed on a regular basis by headquarters curriculum  
     managers, as well as by advisory committees comprised of representatives of
employers, to respond to changes in technology and industry needs. The
   Company believes that the strength of its programs and career services is
   reflected in its graduate employment rates. Based on information provided
by graduates and employers, approximately 90% of the ITT Technical    
Institutes' 1997 graduates, other than graduates who continued in a   
bachelor degree program at an ITT Technical Institute, had obtained   
   employment or were already employed in fields involving their programs of
study as of April 24, 1998, the end of the most recently completed    
statistical year.                                                     

     Programs Designed for the Convenience of Students.  ITT Technical
Institute programs are designed to provide students flexibility in    
  scheduling classes. Each ITT Technical Institute operates year-round and
 undergraduate programs are offered on a quarterly basis, typically with
     four 12-week quarters during a year. This year-round format allows students
  to complete their program of study and enter the work force more rapidly
   than students attending traditional colleges. Students are better able to
   be employed while attending ITT Technical Institutes than while attending
  traditional colleges, because classes are typically offered in four-hour
sessions five days a week and are generally available in the morning, 
 afternoon and evening. Programs of study are substantially standardized
   throughout the ITT Technical Institutes, providing greater uniformity and
     enabling students to transfer, if necessary, to the same program offered at
  another ITT Technical Institute with less disruption to their education.

      Financial Strength and Regulatory Compliance.  Management believes
     that the Company's financial strength enables it to capitalize on expansion
opportunities and is an important factor in its ability to comply with
federal and state regulatory requirements.                            

BUSINESS STRATEGY                                                               

The Company has multiple opportunities for growth and has developed a 
business plan to increase revenues by increasing the number of programs of study
and students at existing ITT Technical Institutes while adding additional       
locations to enhance operating efficiencies throughout the Company. Principal   
elements of this plan include the following:                                    

ENHANCE RESULTS AT THE SCHOOL LEVEL                                   

   Increase Enrollments at Existing Schools.  ESI has successfully
 increased student enrollment. Total student enrollment at ITT Technical
  Institutes open for more than 24 months increased 6.2% from December 31,
   1996 to December 31, 1997 and 7.2% from December 31, 1995 to December 31,
1996. Management believes that current demographic trends will support
 increased enrollment of high school graduates. In addition, the Company
   intends to increase recruiting efforts aimed at increasing enrollments of
working adults.                                                       
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   Broaden Availability of Current Program Offerings.  The Company
  intends to continue to expand program offerings at existing schools with
 the objective of offering at least three programs at each ITT Technical
  Institute. The Company's 63 institutes provide significant potential for
    the introduction of existing programs to a broader number of ITT Technical
    Institutes. Since January 1, 1993, the Company has increased the number of
  institutes which offer three or more programs from 16 to 29. The Company
   increased the number of program offerings at three existing ITT Technical
Institutes in March 1998 and intends to increase the number of program
offerings at approximately nine additional existing institutes in the 
remainder of 1998. Management believes that the introduction of higher
 level programs at additional ITT Technical Institutes will attract more
students and increase the number of students continuing their studies 
beyond the associate degree level.                                    

          Develop or Acquire Additional Degree Programs.  The Company also plans
     to introduce programs in additional fields of study and at different degree
   levels. ESI has introduced three new degree programs since December 1995,
which had a total of 319 students enrolled at December 31, 1997. The  
Company believes that the development and introduction of new programs
    attract a broader base of students and motivate current students to extend
    their studies. ESI intends to test an associate degree program in Computer
  Network Systems Technology ("CNS") at one institute in September 1998 to
   target the growing need for technically skilled personnel in the computer
systems field. The new CNS program will be considered for testing at  
additional institutes thereafter.                                     

      Extend Total Program Time.  By increasing the number of institutes
that offer graduates of the eight- and six-quarter associate degree   
  programs (which are the primary program offerings at most institutes) an
   additional four or six quarters of study, respectively, in which they can
earn a bachelor degree, the Company has been able to extend the total 
     program time for which a student can enroll. As a result, the average total
   program time for which ITT Technical Institute students have enrolled has
    increased from 18 months in 1986 to 24 months in 1997. The Company expects
that the average total program time for which ITT Technical Institute 
students enroll will increase further as additional bachelor degree   
programs are added.                                                   

          Improve Student Outcomes.  To attract new students and enhance student
retention, the Company seeks to improve the graduation and graduate   
    employment rates of the undergraduate students at ITT Technical Institutes
by providing extensive academic services and dedicating significant   
  administrative resources to career services. From 1993 through 1997, the
percent of ITT Technical Institute graduates (other than graduates who
   continued in a bachelor degree program at an ITT Technical Institute) who
  were employed in fields involving their programs of study increased from
83% to 90%.                                                           

INCREASE THE NUMBER OF ITT TECHNICAL INSTITUTES                       

  The Company plans to add new ITT Technical Institutes at sites
throughout the United States. The Company opened three new technical  
institutes in 1997 and one new technical institute in March 1998 and  
   intends to open five additional new technical institutes in the remainder
   of 1998. The Company also intends to continue to evaluate the acquisition
of schools located in markets where ITT Technical Institutes are not  
presently located.                                                    

INCREASE MARGINS BY LEVERAGING FIXED COSTS AT SCHOOL AND HEADQUARTERS 
LEVELS                                                                

     By optimizing school capacity and class size, the Company has the
ability to gain additional revenues from increased enrollment without 
 incurring a proportionate increase in fixed costs at the institutes. In
   addition, the Company has controlled its administrative costs through the
centralization of management functions and the implementation of      
operational uniformity among its 63 institutes. Centralization and    
 uniformity have resulted in substantial operating efficiencies. Between
  1993 and 1997, expenses incurred at headquarters (including the district
    offices) declined as a percentage of revenues from 6.8% in 1993 to 5.3% in
  1997 as a result of increased revenues and these operating efficiencies.

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PROGRAMS OF STUDY                                                               

The Company offers 14 degree programs and several diploma programs in 
various fields of study. All ITT Technical Institutes offer a degree or diploma 
program in EET and 54 ITT Technical Institutes offer a degree or diploma program
in CAD. Together the EET and CAD programs comprise the core of the ITT Technical
Institutes' program offerings. The table below sets forth information regarding 
the programs of study offered by the Company as of December 31, 1997.           

PROGRAMS OF STUDY OFFERED AT ITT TECHNICAL INSTITUTES 

                                                        [Enlarge/Download Table]

                                         NUMBER OF TECHNICAL INSTITUTES                                                       
                                                   OFFERING AT                         NUMBER OF STUDENTS ENROLLED AT         
                                                DECEMBER 31, 1997                            DECEMBER 31, 1997                
                                     ---------------------------------------  ------------------------------------------------
                                     MASTER   BACHELOR   ASSOCIATE            MASTER   BACHELOR   ASSOCIATE                   
           PROGRAM TITLE             DEGREE    DEGREE     DEGREE     DIPLOMA  DEGREE    DEGREE     DEGREE     DIPLOMA   TOTAL 
           -------------             ------   --------   ---------   -------  ------   --------   ---------   -------   ------
                                                                                                                              
Project Management..................   1         --         --         --      115         --          --        --        115
Electronics Engineering                                                                                                       
  Technology........................  --         17         61          1       --        833      16,539       322     17,694
Computer-Aided Drafting                                                                                                       
  Technology........................  --         --         52          2       --         --       4,858       227      5,085
Automated Manufacturing                                                                                                       
  Technology(1).....................  --          5         --         --       --        304          --        --        304
Tool Engineering Technology(2)......  --         --          3         --       --         --         193        --        193
Architectural Engineering                                                                                                     
  Technology(2).....................  --         --          3         --       --         --         173        --        173
Industrial Design(2)................  --          3         --         --       --        121          --        --        121
Computer Visualization                                                                                                        
  Technology(2).....................  --          4         --         --       --        114          --        --        114
Chemical Technology.................  --         --          2         --       --         --         106        --        106
Telecommunications Engineering                                                                                                
  Technology(1).....................  --          2         --         --       --         99          --        --         99
Hospitality (3).....................  --          1          1         --       --         26          62        --         88
Other Programs of Study(4)..........  --         --          3          2       --         --         239       167        406
                                                                               ---      -----      ------       ---     ------
    Total...........................                                           115      1,497      22,170       716     24,498

---------------                                                                 
(1) EET related program.                                                        

(2) CAD related program.                                                        

(3) In the Company's normal course of operations, it reviews the operations and 
viability of all of its programs of study (including the marketing,     
recruitment and enrollment procedures and materials relating to the     
   programs) and, from time to time, the Company makes changes with respect to
each of its programs. Due to the continuing lack of profitability of the
    Hospitality programs, the Company has recently ceased enrolling new students
  in the associate degree Hospitality program and intends to cease offering:
(a) the associate degree Hospitality program once all students currently
  enrolled therein have an opportunity to complete that program; and (b) the
bachelor degree Hospitality program once all students currently enrolled
therein have an opportunity to complete that program and all students   
currently enrolled in the associate degree Hospitality program have the 
opportunity to enroll in and complete the bachelor degree Hospitality   
program.                                                                

(4) Other programs consist of Business Technology and Administration, Business  
Management and Accounting, Automotive Service Technology and Heating/Air
Conditioning/Refrigeration.                                             

Students enrolled in programs related to EET and CAD represent        
approximately 74% and 23%, respectively, of the ITT Technical Institute student 
population as of December 31, 1997. The Company's EET programs are designed to  
help graduates begin to prepare for careers in various fields involving EET by  
providing students a practical education with respect to specific electronic    
circuits and specialized techniques and, in the case of the bachelor degree     
program, offering a broader foundation in EET through the study of subjects such
as circuit analysis, computer programming, computer operating systems and       
advanced communications systems. Graduates of the programs have obtained a      
variety of entry-level positions in various fields involving EET, such as       
electronics product design and fabrication, communications, computer technology,

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industrial electronics, instrumentation, telecommunications and consumer        
electronics. The Company's CAD program is designed to help graduates begin to   
prepare for careers in various fields involving CAD through the teaching of     
computer-aided drafting techniques and conventional drafting methods. Graduates 
have obtained a variety of entry-level positions in various fields involving    
CAD, such as computer-aided drafting, electrical and electronics drafting,      
mechanical drafting, architectural and construction drafting, civil drafting,   
interior design and landscape architecture.                                     

The academic schedule of undergraduate programs at the ITT Technical  
Institutes is generally organized on the basis of four 12-week quarters of      
instruction with new students beginning at the start of each academic quarter.  
Associate degree programs can be completed in eight academic quarters or less,  
and bachelor degree programs can typically be completed in 12 academic quarters 
(including academic quarters completed as part of a related associate degree    
program). Classes are typically offered in four-hour sessions five days a week  
and, depending on student enrollment, sessions are generally available in the   
morning, afternoon and evening. This class schedule generally affords           
flexibility to students to pursue part-time employment opportunities. Based on  
student surveys, the Company believes that a substantial majority of ITT        
Technical Institute students work at least part-time during their programs of   
study.                                                                          

    The academic schedule of the Master of Project Management ("MPM") program,
currently the Company's only graduate degree program of study, is organized on a
non-term basis pursuant to which one- to six-week courses are taken sequentially
one at a time. The MPM program can be completed in 21 months. Classes are       
typically offered in four-hour sessions one night a week, which generally       
accommodates students working full-time jobs. Students may generally begin the  
MPM program once the minimum number of applicants necessary to begin a new class
has been assembled. The MPM program is presently offered by one technical       
institute in Indiana, but at various sites throughout the state. The Company's  
ability to offer the MPM program at other ITT Technical Institutes is currently 
limited by the scope of the DOE's recognition of the accrediting commission that
accredits most of the ITT Technical Institutes. This accrediting commission     
intends to petition the DOE to expand its scope of recognition by the DOE to    
include master degree programs.                                                 

ITT Technical Institute programs of study blend traditional academic  
content with applied learning concepts and have the objective of helping        
graduates begin to prepare for a changing economic and technological            
environment. A significant portion of a typical student's day in an associate   
degree program at an ITT Technical Institute involves practical study in a lab  
environment.                                                                    

    The content of technical courses in each program of study is substantially
standardized among the ITT Technical Institutes to provide greater uniformity   
and to better enable students to transfer among the ITT Technical Institutes    
offering the same programs with less disruption to their education. Each        
curriculum is regularly reviewed to respond to changes in technology and        
industry needs. The ITT Technical Institutes have established advisory          
committees comprised of representatives of local employers for each field of    
study. These advisory committees assist the ITT Technical Institutes in         
assessing and updating curricula, equipment and laboratory design. In addition  
to courses directly related to a student's program of study, degree programs may
also include general education courses, such as economics, humanities, oral and 
written communications, environmental science and social psychology.            

  Tuition for a student entering an undergraduate program in December 1997
for three consecutive academic quarters (the equivalent of an academic year at  
traditional two- and four-year colleges) is $7,145 for the EET program and      
$8,456 for the CAD program. A student's tuition cost for a program of study is  
set at the time of a student's enrollment in the program, provided the student  
remains continually enrolled in the program and does not repeat any courses. The
majority of students attending an ITT Technical Institute lived in such         
institute's metropolitan area prior to enrollment. The Company does not provide 
any student housing.                                                            

STUDENT RECRUITMENT                                                             

  The Company seeks to attract students with the motivation and ability to
complete the career-oriented educational programs offered by the ITT Technical  
Institutes. To generate interest among potential students, the Company engages  
in a broad range of activities to inform potential students and their parents   
about the                                                                       

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ITT Technical Institutes and the programs offered. These activities include     
television and other media advertising, direct mailings and high school visits. 

The Company's television advertising is centrally coordinated and     
developed. Television advertising is directed at a combination of both the      
national market and the local markets in which ITT Technical Institutes are     
located. The Company's television commercials generally include a toll free     
telephone number for direct responses and information about the location of ITT 
Technical Institutes in the area. Direct responses to television advertising are
centrally received, tracked and promptly forwarded to the appropriate ITT       
Technical Institute representatives to contact prospective students and schedule
interviews. Responses to direct mail campaigns, which are targeted at high      
school students and other potential postsecondary students, are also centrally  
received, tracked and forwarded to the appropriate ITT Technical Institute      
representatives.                                                                

The Company employs a director of recruitment at each institute, who  
reports to the director of such institute. Recruiting policies and procedures,  
as well as standards for hiring and training representatives, are established   
centrally but are implemented at the local level. The Company employs           
approximately 80 high school coordinators who make thousands of presentations to
students at high schools annually. These coordinators promote ITT Technical     
Institutes and obtain information about high school juniors and seniors who may 
be interested in attending the ITT Technical Institutes. The Company employed   
approximately 485 other representatives as of December 31, 1997 to assist in    
local recruiting efforts. As of December 31, 1997, approximately 230            
representatives performed their services solely in student recruitment offices  
located at each institute, while approximately 255 representatives worked       
outside these offices and visited the homes of high school seniors and other    
prospective students.                                                           

   Local representatives of an ITT Technical Institute pursue expressions of
interest from potential undergraduate students by contacting prospective        
students and arranging for interviews either at such institute or at prospective
students' homes. The interview is designed to establish a prospective student's 
qualifications, academic background, interests, motivation and goals for the    
future. Prospective undergraduate students are generally shown a video providing
information about the ITT Technical Institutes and the programs of study.       
Expressions of interest from potential graduate students are pursued by         
contacting them and arranging for their attendance at an informational seminar  
providing information about the institute and the MPM program.                  

     The Company monitors the effectiveness of its various marketing efforts and
seeks to determine the extent to which each of its marketing efforts results in 
student enrollments. The Company estimates that in 1997 television advertising  
produced 39% of student enrollments at ITT Technical Institutes, high school    
coordinators accounted for 14%, referrals accounted for 15%, direct mail        
campaigns accounted for 11%, associate degree graduates enrolling in a bachelor 
degree program accounted for 6% and the remaining 15% were classified as        
miscellaneous.                                                                  

 Student recruitment activities are subject to substantial regulation at
both the state and federal level. Most states have bonding and licensing        
requirements that apply to many of the Company's representatives. The           
implementation of recruitment policies and procedures is overseen by the        
Company's National Director of Recruitment and the directors of field           
recruitment and training. In addition, the Company's internal audit department  
generally reviews the recruiting practices relating to the execution and        
completion of enrollment agreements at each ITT Technical Institute on an annual
basis.                                                                          

STUDENT ADMISSIONS AND RETENTION                                                

The Company seeks to ensure that incoming students have the necessary 
academic background to complete their chosen programs of study. All applicants  
for admission to any of the ITT Technical Institutes' associate degree or       
diploma programs are required to have a high school diploma or a recognized     
equivalent and also must pass an admissions examination. Students interested in 
bachelor degree programs or the MPM program must satisfy additional admissions  
criteria that generally require, among other things: (a) in the case of bachelor
degree programs, the student first earn an associate degree, complete an        
equivalent level program or complete an equivalent number of credit hours of    
coursework in the same or related subject matter; and (b) in the case of the MPM
program, the student first earn a bachelor degree and possess at least three    
years' full-time work experience. ITT Technical Institute students are of       
varying ages and backgrounds. At                                                
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December 31, 1997, approximately 93% of the students were high school graduates 
and the remaining students possessed the recognized equivalent of a high school 
diploma. In addition, approximately 34% of the students had some postsecondary  
educational experience prior to entering an ITT Technical Institute for the     
first time. Approximately 35% of the students were 19 years of age or younger,  
34% were between 20 and 24 years of age, 19% were between 25 and 30 years of age
and 12% were age 31 or over. Male students accounted for approximately 88% of   
total enrollment as of December 31, 1997, while total minority enrollment at the
ITT Technical Institutes (based on applicable federal classifications) was      
approximately 38%.                                                              

    ITT Technical Institute faculty and staff strive to help students overcome
obstacles to the completion of their programs of study. As is the case in other 
postsecondary institutions, however, students often fail to complete their      
programs for a variety of personal, financial or academic reasons. Student      
withdrawals prior to program completion not only affect the student, they also  
have a negative regulatory, financial and marketing effect on the institute. To 
minimize student withdrawals, each ITT Technical Institute devotes staff        
resources to assist and advise students regarding academic and financial        
matters. Academic advising and tutoring are encouraged in the case of           
undergraduate students experiencing academic difficulties. Assistance and advice
are also offered to undergraduate students looking for part-time employment and 
housing. In addition, factors relating to student retention are considered in   
the performance evaluation of every instructor.                                 

Students are most likely to withdraw before they begin their second   
academic quarter of study at an ITT Technical Institute. Of all students who    
enroll in ITT Technical Institutes, approximately 22% withdraw before their     
second academic quarter of study and approximately 23% withdraw at some point   
after the start of their second quarter. As a result, new technical institutes  
generally have higher withdrawal rates than institutes which have been open for 
five or more years. Approximately 70% of all students who continue their        
education past their first academic quarter complete their education at an ITT  
Technical Institute.                                                            

GRADUATE EMPLOYMENT                                                             

   ITT Technical Institutes have graduated over 125,000 students since 1976.
The Company believes that the success of graduates from undergraduate programs  
who begin their careers in various fields involving their programs of study is  
critical to the ability of the ITT Technical Institutes to continue to recruit  
undergraduate students. The Company seeks to obtain data on the number of       
undergraduate students employed following graduation. The reliability of such   
data is largely dependent on information that students and employers report to  
the Company. Based on information from students and employers, the Company      
believes that students graduating from ITT Technical Institute undergraduate    
programs during the prior five years obtained employment or were already        
employed in various fields involving their programs of study as of June 30 or   
earlier of the year following graduation, as set forth below:                   

GRADUATE EMPLOYMENT STATISTICS

                                                                [Download Table]

                                                          PERCENT OF EMPLOYABLE    
                                                         GRADUATES WHO OBTAINED    
                                                       EMPLOYMENT OR WERE ALREADY  
          GRADUATING            NUMBER OF EMPLOYABLE  EMPLOYED IN FIELDS INVOLVING 
            CLASSES                 GRADUATES(1)         THEIR PROGRAMS OF STUDY   
          ----------            --------------------  -----------------------------
                                                                                   
1997...........................        8,248                       90%             
1996...........................        8,422                       88%             
1995...........................        8,005                       87%             
1994...........................        7,459                       85%             
1993...........................        7,015                       83%             

---------------                                                                 
(1) Employable graduates exclude graduates who continue in a bachelor degree    
program at an ITT Technical Institute.                                  

Each ITT Technical Institute employs personnel to offer students and  
graduates of undergraduate programs career services, including job search       
assistance and soliciting employment opportunities from                         

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employers. In addition, undergraduate students receive instruction during their 
programs of study on such job search techniques as the identification of        
potential employment opportunities, the use of relevant reference materials, the
composition of resumes and letters of introduction and the appropriate          
preparation, appearance and conduct for interviews. No career services are      
offered to students in the graduate program of study. The increase in employment
rates set forth in the table above may also be due in part to improved          
conditions in the economy as a whole.                                           

     Based on information from students and employers who responded to inquiries
from the Company, the Company estimates that average annual starting salaries   
reported for 1997 graduates of certain programs offered by the ITT Technical    
Institutes who obtained employment or were already employed in fields involving 
their programs of study were as follows:                                        

AVERAGE STARTING SALARIES 

                                                        [Enlarge/Download Table]

                                                            NUMBER OF   AVERAGE ANNUAL 
                                                            EMPLOYABLE    SALARY UPON  
                         PROGRAM                            GRADUATES     GRADUATION   
----------------------------------------------------------  ----------  ---------------
                                                                                       
Automated Manufacturing Technology (Bachelor Degree)......      310         $28,440    
Electronics Engineering Technology (Bachelor Degree)......      786         $27,228    
Industrial Design (Bachelor Degree).......................       57         $26,592    
Computer-Aided Drafting Technology, Tool Engineering                                   
  Technology and Architectural Engineering Technology                                  
  (Associate Degree and Diploma)..........................    2,429         $21,286    
Electronics Engineering Technology (Associate Degree                                   
  and Diploma)............................................    4,271         $23,172    

Average annual salaries upon graduation for ITT Technical Institute   
graduates may vary significantly among ITT Technical Institutes depending on    
local employment conditions and each graduate's background. Initial employers of
graduates from ITT Technical Institute undergraduate programs include both      
small, technology-oriented companies and well recognized corporations.          

FEDERAL AND OTHER FINANCIAL AID PROGRAMS                                        

   In 1997, the Company indirectly derived approximately 70% of its revenues
from federal financial aid programs under Title IV ("Title IV Programs") of the 
Higher Education Act of 1965, as amended ("HEA"), although ITT Technical        
Institute students also rely on state financial aid programs, family            
contributions, personal savings, employment and other resources to pay their    
educational expenses. Students at the ITT Technical Institutes receive grants   
and loans to fund the cost of their education under the following Title IV      
Programs: (a) the Federal Pell Grant program, which accounted in aggregate for  
approximately 11% of the Company's revenues in 1997; (b) the Federal            
Supplemental Educational Opportunity Grant ("SEOG") program, which accounted in 
aggregate for less than 1% of the Company's revenues in 1997; (c) the Federal   
Family Education Loan ("FFEL") programs (consisting of the Federal Stafford Loan
program, Federal PLUS Loan program and Federal Consolidation Loan program),     
which accounted in aggregate for approximately 55% of the Company's revenues in 
1997; (d) the Federal Perkins Loan ("Perkins") program, which accounted in      
aggregate for less than 1% of the Company's revenues in 1997; (e) the Federal   
Work-Study ("Work-Study") program, under which federal funds are made available 
to provide part-time employment to students and pursuant to which the ITT       
Technical Institutes employed approximately 500 students and paid $957,000 in   
student wages in 1997; and (f) the Federal Direct Loan ("FDL") programs         
(consisting of the Federal Direct Stafford Loan program, Federal Direct PLUS    
Loan program and Federal Direct Consolidation Loan program), which accounted in 
aggregate for approximately 3% of the Company's revenues in 1997. The SEOG,     
Perkins and Work-Study programs each require the institution to make a matching 
contribution in the amount of 25% of all federal funds the institution receives 
from the DOE each year. In 1997, the Company's 25% matching contribution        
amounted to $17,000 for the SEOG program, $33,000 for the Perkins program and   
$360,000 for the Work-Study program.                                            

     In 1997, approximately 2% of the Company's revenues were indirectly derived
from state financial aid programs and the Company awarded $738,000 in           
institutional scholarships. The Company also provides                           

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tuition discounts to full-time employees of the Company and their dependents to 
attend ITT Technical Institutes. For 1997, the cost of these employee           
educational discounts was $639,000.                                             

REGULATION OF FEDERAL FINANCIAL AID PROGRAMS                                    

  In order to participate in Title IV Programs, an institution must comply
with numerous and complex standards set forth in the HEA and the regulations    
promulgated thereunder by the U.S. Department of Education ("DOE"). These       
standards are designed to limit institutional dependence on Title IV Program    
funds, prevent institutions with unacceptable student loan default rates from   
participating in Title IV Programs and, in general, require institutions to     
satisfy certain criteria related to educational value, administrative capability
and financial responsibility. These standards are applied primarily on an       
institutional basis, with an institution defined as a main campus and its       
additional locations or branch campuses, if any. Among the 63 ITT Technical     
Institutes, 30 are considered to be main campuses and 33 are considered to be   
additional locations. The HEA standards require an institution to obtain and    
periodically renew its certification by the DOE as an "eligible institution"    
that has been authorized by the relevant state education authority(ies) and     
accredited by an accrediting commission recognized by the DOE. Sixty of the 63  
ITT Technical Institutes currently participate in Title IV Programs, and the    
other three institutes, which were recently opened, have begun the certification
process for participation in Title IV Programs.                                 

 Proprietary providers of postsecondary education have been subjected to
increased scrutiny and regulation by the DOE and other regulatory authorities as
a result of concern about fraud and abuse of federal student financial aid      
programs by certain proprietary institutions. The Company believes that the ITT 
Technical Institutes are in substantial compliance with the HEA and its         
implementing regulations. The Company cannot, however, predict with certainty   
how all of the HEA provisions and the implementing regulations will be applied. 
As described below, the violation of Title IV Program requirements by the       
Company or any ITT Technical Institute could have a material adverse effect on  
the Company's financial condition, results of operations or cash flows. In      
addition, it is possible that the HEA and its implementing regulations may be   
applied in a way that could hinder the Company's operations or expansion plans. 

Significant factors relating to Title IV Programs that could adversely
affect the Company include the following:                                       

 Risk of Legislative Action.  Title IV Programs are subject to
   significant political and budgetary pressures. The HEA is reauthorized by
the U.S. Congress approximately every six years, and the next         
   reauthorization is expected to be completed in 1998 or 1999. There can be
no assurance that funding for Title IV Programs will continue to be   
    available or maintained at current levels or that current requirements for
institutional participation and student eligibility will not change. A
reduction in Title IV Program funding levels or a limitation of the   
Company's participation in Title IV Programs could result in lower    
   enrollments and require the Company to arrange for alternative sources of
 financial aid for its students. Given the significant percentage of the
    Company's revenues that are indirectly derived from Title IV Programs, any
     significant reduction in Title IV Program funding or the ability of the ITT
    Technical Institutes or their students to participate in Title IV Programs
   could have a material adverse effect on the Company's financial condition
or results of operations.                                             

        If an ITT Technical Institute lost its eligibility to participate in
   Title IV Programs, or if the amount of available Title IV Program funding
was reduced, the Company would seek to arrange or provide alternative 
    sources of financial aid for that institute's students. There are a number
of private organizations that provide loans to students. Although the 
     Company believes that one or more private organizations would be willing to
     provide loans to students attending an ITT Technical Institute, there is no
   assurance that this would occur or that the interest rate and other terms
of such loans would be as favorable as for Title IV Program loans. In 
  addition, the Company would be required to guarantee all or part of this
assistance and might incur other additional costs in connection with  
securing alternative sources of student financial aid. If the Company 
provided more direct financial assistance to ITT Technical Institute  
students, it would incur additional costs and assume increased credit 
risks.                                                                

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      Student Loan Defaults.  Under the HEA, an institution may lose its
eligibility to participate in some or all Title IV Programs if student
 defaults on federal student loans exceed certain rates. These rates are
   calculated on an institutional basis and represent the number of students
who have defaulted, not the dollar amount of such defaults. An        
   institution's cohort default rate is calculated on an annual basis as the
    rate at which borrowers scheduled to begin repayment on their loans in one
year default on those loans by the end of the next year. For each year
 through federal fiscal year 1994, each institution participating in the
    FFEL programs received an FFEL cohort default rate. Beginning with federal
     fiscal year 1995, the DOE also included loans under the FDL programs in the
   calculation of an institution's cohort default rate, and each institution
received an FFEL/FDL cohort default rate based solely on FFEL program 
  loans, solely on FDL program loans or on a weighted average of both FFEL
     and FDL program loans, depending on whether the institution participated in
the FFEL programs only, the FDL programs only or both FFEL and FDL    
   programs, respectively. An institution whose FFEL/FDL cohort default rate
is 25% or greater for three consecutive federal fiscal years loses    
   eligibility to participate in the FFEL and FDL programs for the remainder
     of the federal fiscal year in which the DOE determines that the institution
   has lost its eligibility and for the two subsequent federal fiscal years,
   unless it successfully appeals such disqualification under the procedures
   provided by the HEA and its implementing regulations. During the pendency
    of any such appeal, the institution retains its eligibility to participate
    in the FFEL and FDL programs. An institution whose FFEL/FDL cohort default
  rate for any federal fiscal year exceeds 40% may have its eligibility to
participate in all Title IV Programs limited, suspended or terminated.

         One ITT Technical Institute campus group, consisting of the institute
   in Garland, Texas which accounted for approximately 1.7% of the Company's
    revenues in its 1997 fiscal year, had FFEL/FDL cohort default rates of 25%
 or greater for three consecutive federal fiscal years: 27.7%, 36.8% and
   26.8% for the 1993, 1994 and 1995 federal fiscal years, respectively. The
1995 federal fiscal year is the most recent year for which the DOE has
published official FFEL/FDL cohort default rates. On June 2, 1998, the
Company received notification from the DOE that the Garland, Texas ITT
   Technical Institute's appeal of its 1995 FFEL/FDL cohort default rate had
been denied and that, as a result, such institute immediately became  
ineligible to participate in the FFEL and FDL programs. The Garland   
   institute can reapply to the DOE to regain its eligibility to participate
     in the FFEL and FDL programs on or after October 1, 2000, provided that the
     Garland institute's official 1996 FFEL/FDL cohort default rate is less than
    25%. The Garland institute's preliminary 1996 FFEL/FDL cohort default rate
    was 19.2%. If the Garland institute subsequently receives an official 1996
     FFEL/FDL cohort default rate equal to or greater than 25% and cannot reduce
 that rate to less than 25% through an appeal to the DOE, such institute
will be unable to reapply to the DOE to regain its eligibility to     
     participate in the FFEL and FDL programs until on or after October 1, 2001.
The Company has arranged for an unaffiliated, private funding source  
     ("PFS") to provide loans to the students enrolled at the Garland institute.
  This alternative source of student financial aid requires the Company to
 guarantee repayment of the PFS loans. Based on the Company's experience
   with the repayment of Title IV Program loans by students who attended the
Garland institute, the Company believes that such guaranty should not 
   result in a material adverse effect on the Company's financial condition,
results of operations or cash flows. The Company is also considering  
   whether to stop enrolling new students in the Garland institute, continue
 teaching the students already enrolled and close the institute once the
students already enrolled have completed their programs of study.     

   Another ITT Technical Institute campus group, consisting of the
   institute in San Antonio, Texas which accounted for approximately 2.4% of
     the Company's revenues in its 1997 fiscal year, had FFEL/FDL cohort default
     rates of 25% or greater for two consecutive federal fiscal years: 25.6% and
 26.1% for the 1994 and 1995 federal fiscal years, respectively. The San
Antonio institute, however, had a 1993 FFEL/FDL cohort default rate of
     22.9% and a preliminary 1996 FFEL/FDL cohort default rate of 21.8%. The San
   Antonio institute appealed its 1995 FFEL/FDL cohort default rate with the
 DOE based on the servicing and collection of the loans included in such
  rate and erroneous data used to calculate such rate. The Company expects
  that this appeal will be resolved in 1998, but there can be no assurance
that this appeal will result in a recalculation of the San Antonio    
institute's 1995 FFEL/FDL cohort                                      

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   default rate to less than 25%. If the San Antonio institute's appeal does
   not result in its 1995 FFEL/FDL cohort default rate being reduced to less
     than 25% and such institute subsequently receives an official 1996 FFEL/FDL
 cohort default rate equal to or greater than 25% and cannot reduce that
 rate to less than 25% through an appeal to the DOE, such institute will
become ineligible to participate in the FFEL and FDL programs. Loss of
     eligibility to participate in the FFEL and FDL programs by both the Garland
 and San Antonio, Texas ITT Technical Institutes (but not by the Garland
institute alone) could have a material adverse effect on the Company's
financial condition or results of operations.                         

Other than the Garland and San Antonio, Texas ITT Technical 
    Institutes, no ITT Technical Institute campus group had an FFEL/FDL cohort
     default rate equal to or greater than 25% for the 1995 federal fiscal year.
   No ITT Technical Institute campus group had a preliminary FFEL/FDL cohort
     default rate equal to or greater than 25% for the 1996 federal fiscal year,
    which preliminary rates were issued by the DOE in May 1998. The DOE issues
preliminary FFEL/FDL cohort default rates to provide institutions an  
    opportunity to correct any errors in the data used to calculate such rates
  before the rates are published as official. The official FFEL/FDL cohort
     default rates for the 1996 federal fiscal year are expected to be published
by the DOE in the last calendar quarter of 1998.                      

         If an institution's FFEL/FDL cohort default rate is 25% or greater in
     any of the three most recent federal fiscal years, or if its cohort default
    rate for loans under the Perkins program exceeds 15% for any federal award
year (i.e., July 1 through June 30), that institution may be placed on
provisional certification status by the DOE. When the Garland and San 
    Antonio, Texas ITT Technical Institutes were provisionally recertified for
     participation in Title IV Programs following the Merger, one of the reasons
     each of those institutes received provisional certification was because the
   institute's FFEL/FDL cohort default rate exceeded 25% for at least one of
  the three most recent federal fiscal years. Each of those institutes was
     told that it would remain provisionally certified until its FFEL/FDL cohort
     default rates for the three most recent federal fiscal years for which such
 rates have been published are all below 25%. Twenty-seven ITT Technical
    Institute campus groups (consisting of 53 institutes) had a Perkins cohort
default rate in excess of 15% for students who were scheduled to begin
 repayment in the 1995/1996 federal award year, the most recent year for
     which such rates have been calculated. Thus, these ITT Technical Institutes
    could be placed on provisional certification status based on their Perkins
    cohort default rates. To date, no ITT Technical Institute campus group has
been placed on provisional certification status because of its Perkins
cohort default rate.                                                  

         The HEA requires an institution with a Perkins cohort default rate of
15% or greater to establish a default management plan, and each ITT   
  Technical Institute has developed such a plan. Twenty-four ITT Technical
    Institute campus groups (consisting of 46 institutes) had a Perkins cohort
  default rate of 20% or greater for the 1995/1996 federal award year. The
HEA subjects institutions with a Perkins cohort default rate of 20% or
greater to a "default penalty" that reduces the amount of additional  
    federal funds allocated annually to the institution for use in the Perkins
 program by: (a) 10%, if the rate is at least 20% but less than 25%; (b)
 30%, if the rate is at least 25% but less than 30%; or (c) 100%, if the
rate is 30% or greater. The Perkins loans disbursed to ITT Technical  
  Institute students amounted to less than 1% of the Company's revenues in
 1997, and less than half of the ITT Technical Institutes disburse their
  entire annual allocation. As a result, the Company does not believe that
its financial condition or results of operations will be materially   
    affected by any reduction of additional federal funds allocated to the ITT
Technical Institute campus groups for use in the Perkins program. See 
"-- Regulation of Federal Financial Aid Programs -- Administrative    
Capability" and "-- Eligibility and Certification Procedures."        

        A substantial factor in controlling FFEL/FDL cohort default rates is
   the servicing and collection efforts of student loan lenders and guaranty
 agencies, which are independent of the Company. The Company supplements
     such efforts by attempting to contact students who are delinquent in making
payments to advise them of their responsibilities and any deferment or
 forbearance for which they may qualify. The Company has also contracted
 with third-party servicers to provide additional assistance in reducing
  defaults under the FFEL, FDL and Perkins programs by delinquent students
who attended certain ITT Technical Institutes.                        

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     Financial Responsibility Standards.  The HEA and its implementing
regulations prescribe specific and detailed financial responsibility  
standards that an institution must satisfy to participate in Title IV 
  Programs. Among the most significant of these standards is a requirement
     that proprietary institutions have an acid test ratio (defined as the ratio
of cash, cash equivalents and current accounts receivable to current  
     liabilities) of at least 1:1 at the end of each of the institution's fiscal
  years. In addition, an institution must (a) have a positive tangible net
worth at the end of each fiscal year and (b) not have a cumulative net
  operating loss during its two most recent fiscal years that results in a
  decrease of more than 10% of the institution's tangible net worth at the
beginning of such two-year period. If the DOE determines that an      
institution does not satisfy each of these numeric standards, that    
  institution may establish its financial responsibility on an alternative
  basis by (i) posting a letter of credit in an amount equal to 50% of the
total Title IV Program funds received by students enrolled at such    
    institution during the most recent year for which the DOE has data or (ii)
   posting a letter of credit in an amount equal to 10% of such prior year's
     Title IV Program funds and agreeing to receive Title IV Program funds under
   an arrangement other than the DOE's standard advance funding arrangement.
     Another significant financial responsibility standard requires institutions
  to post a letter of credit with the DOE in an amount equal to 25% of the
   total dollar amount of refunds paid by the institution in its most recent
     fiscal year, if the institution has not paid refunds timely in its two most
recent fiscal years.                                                  

          Historically, the DOE has evaluated the financial condition of the ITT
Technical Institutes on a consolidated basis based on the Company's   
 financial statements. The DOE's regulations, however, permit the DOE to
 examine the financial statements of each ITT Technical Institute campus
     group, the Company, Starwood, Inc. and ITT. The Company has calculated that
its acid test ratio at December 31, 1997 was 1.94:1 and the Company   
believes that it satisfied all the other standards of financial       
     responsibility at the Company level as of that date. As a part of the DOE's
    review of the applications of the ITT Technical Institute campus groups to
     have their eligibility to participate in Title IV programs reinstated after
  the Merger, the DOE evaluated the financial responsibility of all of the
ITT Technical Institute campus groups following the Merger. The DOE   
 determined that each of the campus groups satisfied the DOE's financial
 responsibility standards following the Merger, but the DOE directed the
  Company to address certain issues related to its financial condition and
financial statements. See "--Change in Control."                      

         In November 1997, the DOE issued new regulations, to take effect July
 1, 1998, which revised the DOE's standards of financial responsibility.
 These new standards replace the acid test ratio, the tangible net worth
   standard and the operating loss test described above with three different
  ratios: an equity ratio, a primary reserve ratio and a net income ratio.
   The equity ratio measures the institution's capital resources, ability to
borrow and financial viability. The primary reserve ratio measures the
institution's ability to support current operations from expendable   
   resources. The net income ratio measures the ability of an institution to
operate at a profit. The results of each ratio are assigned a strength
factor on a scale from negative 1.0 to positive 3.0, with negative 1.0
 reflecting financial weakness and 3.0 reflecting financial strength. An
institution's strength factors are then weighted based on an assigned 
weighting percentage for each ratio. The weighted scores for the three
ratios are then added together to produce a composite score for the   
   institution. The composite score must be at least 1.5 for the institution
to be deemed financially responsible by the DOE without the need for  
     further oversight. The Company has calculated that the application of these
    new regulations to the Company's audited financial statements for its 1997
fiscal year results in a composite score of 3.0. The Company does not 
  believe, based on its current understanding of how the revised financial
    responsibility standards will be applied, that these standards will have a
  material adverse effect on the Company's financial condition, results of
operations or expansion plans.                                        

        The "85/15 Rule."  Under a provision of the HEA commonly referred to
    as the "85/15 Rule," a proprietary institution, such as each ITT Technical
Institute campus group, becomes ineligible to participate in Title IV 
  Programs if, on a cash accounting basis, more than 85% of its applicable
   revenues for a fiscal year are derived from Title IV Programs. If any ITT
 Technical Institute campus group were to violate the 85/15 Rule for any
    fiscal year, it would be ineligible to participate in Title IV Programs as
of                                                                    

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    the first day of the following fiscal year and would be unable to apply to
   regain its eligibility until the next fiscal year. Furthermore, if an ITT
Technical Institute campus group violated the 85/15 Rule and became   
  ineligible to participate in Title IV Programs but continued to disburse
   Title IV Program funds, the DOE would consider all Title IV Program funds
disbursed to the institution after the effective date of the loss of  
    eligibility to be a liability subject to repayment by the institution. For
    each of its 1996 and 1997 fiscal years, the Company has calculated that no
    ITT Technical Institute campus group derived more than 81% of its revenues
 from Title IV Programs, and for its 1997 fiscal year, the range for the
campus groups was from approximately 61% to approximately 80%.        

 The Company believes that, due to the expansion and increased
    availability of funding under certain Title IV Programs resulting from the
 1992 reauthorization of the HEA, students have increasingly relied, and
probably will continue to rely, on Title IV Programs to finance their 
     education, thereby increasing the prospect that a greater percentage of ITT
Technical Institute revenues will be indirectly derived from Title IV 
Programs. In an effort to prevent any future loss of Title IV Program 
    eligibility by any ITT Technical Institute campus group as a result of the
85/15 Rule, the Company has implemented various measures to reduce the
percentage of applicable revenues indirectly derived from Title IV    
     Programs. Some of these alternatives require the Company to incur costs not
associated with Title IV Programs.                                    

Additional Locations and Program Offerings of ITT Technical 
    Institutes.  The Company's expansion plans assume its continued ability to
(a) establish new ITT Technical Institutes as additional locations of 
   existing ITT Technical Institute main campuses and (b) expand the program
offerings at existing institutes. In its last three fiscal years, the 
   Company has: (i) established eight new additional locations, six of which
    are participating in Title IV Programs and two of which are in the process
  of obtaining certification to participate; and (ii) added 35 programs at
its existing ITT Technical Institutes. In addition, in March 1998 the 
     Company established one new additional location, which is in the process of
obtaining certification to participate in Title IV Programs. The HEA  
  requires proprietary educational institutions, such as the ITT Technical
   Institute campus groups, to be in full operation for two years before the
  institution can qualify to participate in Title IV Programs. The HEA and
applicable regulations, however, permit an institution that is already
certified to participate in Title IV Programs to establish additional 
    locations that may, after review by the DOE, begin to participate in Title
 IV Programs without satisfying the two-year requirement so long as each
  such additional location satisfies all other applicable requirements for
institutional eligibility.                                            

      The HEA and applicable regulations permit students to use Title IV
   Program funds only to pay the cost of attending eligible programs offered
    by institutions participating in Title IV Programs. The HEA and applicable
    regulations do not, however, restrict the number or delay the introduction
 of educational programs that an institution may offer, but students can
     only receive Title IV Program funds for enrollment in programs that satisfy
all applicable requirements for eligibility.                          

          Fifty-eight ITT Technical Institutes are accredited by the Accrediting
 Commission of Career Schools and Colleges of Technology ("ACCSCT"), and
  three are accredited by the Accrediting Council for Independent Colleges
and Schools ("ACICS"). The ACCSCT standards generally permit an       
    institution's main campus to establish an additional location, if the main
    campus: (a) is not on probation; (b) is not subject to a show cause order;
(c) is not subject to outcomes reporting, or, if subject to outcomes  
reporting, has been expressly permitted by the ACCSCT to establish an 
additional location; (d) has not applied for accreditation for an     
    additional location within the past two years; and (e) has not undergone a
 change in control for at least one year, but this requirement generally
   does not apply to an accreditation application for an additional location
  submitted prior to the change in control. Prior to the change in control
    caused by the Merger, the Company submitted applications for accreditation
 to the ACCSCT for all additional locations that the Company anticipates
   opening in 1998 and for most of the additional locations that the Company
anticipates opening in 1999. The ACICS standards generally permit an  
    institution's main campus to establish a branch campus (referred to herein
   as an "additional location") if: (i) the main campus is not on probation;
     (ii) neither the main campus nor any of its additional locations is subject
to a show cause order; (iii) neither the main campus nor any of its   
   additional locations is subject to a financial or outcomes review, or, if
subject to a financial or outcomes                                    
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review, has been expressly permitted by the ACICS to establish an     
    additional location; and (iv) the main campus does not have any additional
location awaiting final accreditation.                                

          The ACCSCT standards generally permit an institution's main campus and
its additional locations to expand their program offerings if (a) the 
 institute is not on probation and (b) the institute is not subject to a
 show cause order. The ACICS standards generally permit an institution's
    main campus and its additional locations to expand their program offerings
     if: (i) the institute is not on probation; and (ii) neither the main campus
   nor any of its additional locations is subject to a financial or outcomes
   review or, if subject to an outcomes review, has been expressly permitted
by the ACICS to expand its program offerings.                         

          One ITT Technical Institute (an additional location) accredited by the
  ACCSCT is on probation and 22 ITT Technical Institutes (14 main campuses
 and eight additional locations) accredited by the ACCSCT are subject to
   outcomes reporting. No ITT Technical Institute accredited by the ACICS is
   on probation or subject to a financial or outcomes review. The ACCSCT may
   place an institution's main campus or additional location on probation or
   subject it to outcomes reporting for a variety of reasons. All of the ITT
     Technical Institutes that are on probation or subject to outcomes reporting
   by the ACCSCT received such status because the ACCSCT determined that the
     student completion rates for certain programs of study offered by these ITT
 Technical Institutes are not reasonable. Under the ACCSCT and the ACICS
standards, as applicable, an institution's main campus or additional  
     location that is: (a) placed on probation is required to demonstrate to the
   accrediting commission that the institute has taken corrective action and
is in continuous compliance with accrediting commission standards; (b)
subjected to outcomes reporting is required to periodically report its
    results in such areas to the accrediting commission; or (c) subjected to a
financial or outcomes review is required to report its results in such
areas to the accrediting commission. Although the ACCSCT and the ACICS
standards limit the ability of the Company to establish additional    
locations and expand the programs offered at an institute in certain  
circumstances, the Company does not believe, based on its current     
    understanding of how the accrediting standards will be applied, that these
    limitations will have a material adverse effect on the Company's expansion
plans.                                                                

 State laws and regulations generally treat each ITT Technical
     Institute location as a separate institution and do not distinguish between
     main campuses and additional locations. Thus, ITT Technical Institutes that
are recognized as additional locations by the DOE and their respective
 accrediting commissions are, for the most part, recognized as separate,
    unaffiliated institutions by their respective state education authorities.
State laws and regulations generally do not limit the number of       
institutions that can be established within the state or the number of
     programs that can be offered by an institution, so long as each institution
    satisfies all requirements to obtain the requisite state authorization(s).
   The requirements to obtain the requisite state authorization(s) limit the
  ability of the Company in certain states to establish new institutes and
offer new programs, and the process of obtaining the requisite state  
     authorization(s) can delay the opening of new institutes or the offering of
    new programs. Although state laws and regulations limit the ability of the
   Company to establish new ITT Technical Institutes and expand the programs
     offered at an institute, the Company does not believe, based on its current
     understanding of how the state laws and regulations in effect in the states
 where the Company is located or anticipates establishing a new location
     will be applied, that these limitations will have a material adverse effect
on the Company's expansion plans. See "-- State Authorization and     
Accreditation."                                                       

     Administrative Capability.  The HEA directs the DOE to assess the
  administrative capability of each institution to participate in Title IV
   Programs. The DOE has issued regulations that require each institution to
satisfy a series of separate standards. Failure to satisfy any of the 
standards may lead the DOE to determine that the institution lacks    
   administrative capability and, therefore, is not eligible to continue its
participation in Title IV Programs or must be placed on provisional   
  certification status as a condition of such continued participation. One
   standard that is applicable to certain programs with the stated objective
 of preparing students for employment requires the institution to show a
reasonable relationship between the length of the program and the     
 entry-level job requirements of the relevant field of employment. Other
  standards provide that an institution lacks administrative capability if
its                                                                   

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 FFEL/FDL cohort default rate equals or exceeds 25% for any of the three
  most recent federal fiscal years for which FFEL/FDL cohort default rates
  are available, or if its Perkins cohort default rate exceeds 15% for any
federal award year. Two ITT Technical Institute campus groups (each   
     consisting of one institute) had a FFEL/FDL cohort default rate equal to or
   greater than 25% for at least one of the three most recent federal fiscal
years for which FFEL/FDL cohort default rates have been published.    
Twenty-seven ITT Technical Institute campus groups (consisting of 53  
     institutes) had a Perkins cohort default rate in excess of 15% for the most
   recent federal award year for which such rates have been calculated. When
the Garland and San Antonio, Texas ITT Technical Institutes were      
    provisionally recertified for participation in Title IV Programs following
the Merger, one of the reasons each of those institutes received      
provisional certification was because the institute's FFEL/FDL cohort 
     default rate exceeded 25% for at least one of the three most recent federal
fiscal years. Each of those institutes was told that it would remain  
 provisionally certified until its FFEL/FDL cohort default rates for the
three most recent federal fiscal years for which such rates have been 
 published are all below 25%. To date, no ITT Technical Institute campus
  group has been placed on provisional certification status because of its
  Perkins cohort default rate. See "-- Regulation of Federal Financial Aid
  Programs -- Student Loan Defaults" and "-- Eligibility and Certification
Procedures."                                                          

   An additional standard in the HEA prohibits an institution from
   providing any commission, bonus or other incentive payment based directly
  or indirectly on success in securing enrollments or financial aid to any
     person or entity engaged in any student recruitment, admission or financial
aid awarding activity. The DOE has provided only limited guidance     
respecting compliance with this requirement. ITT Technical Institute  
employees involved in student recruitment, admissions or financial aid
     receive only a salary. The Company believes that its method of compensating
     persons and entities engaged in student recruitment, admission or financial
aid awarding activity complies with the requirements of the HEA. The  
    regulations do not, however, establish clear standards for compliance, and
  there can be no assurance that the DOE will not find deficiencies in the
Company's present or former methods of compensation.                  

      Under new regulations issued by the DOE in November 1996, starting
    January 1, 1998 each institution must utilize certain electronic processes
 provided by the DOE in order to be considered administratively capable.
   Although the Company will have to adjust some of its current practices in
 order for its institutes to comply fully with this new requirement, the
  Company does not believe, based on its current understanding of how this
 new requirement will be applied, that the Company's financial condition
will be materially affected by this new standard.                     

    Eligibility and Certification Procedures.  Under the HEA and its
implementing regulations, each institution is required to periodically
 reapply to the DOE for continued eligibility to participate in Title IV
    Programs. Each institution deemed to be in compliance with the HEA and the
 DOE's regulations is recertified for a period not to exceed four years,
 before which time it must apply again for continued recertification. In
1997, 13 ITT Technical Institute campus groups (consisting of 20      
institutes) were required by the DOE to apply for recertification to  
 participate in Title IV Programs. The DOE combined each of these campus
groups' applications for recertification with their applications for  
     reinstatement of participation in Title IV Programs following the change in
   control caused by the Merger. The DOE normally requires an institution to
submit an updated application for institutional eligibility and       
certification when it opens an additional location that offers a full 
educational program or raises its level of program offering.          

          An institution may be placed on provisional certification status for a
 period not to exceed three years, if the DOE finds that the institution
    does not fully satisfy all the eligibility and certification standards. If
  an institution successfully participates in the Title IV Programs during
its period of provisional certification but fails to satisfy the full 
 certification criteria, the DOE may renew the institution's provisional
    certification. An institution's provisional certification may be withdrawn
by the DOE without advance notice if the DOE determines that the      
institution is not fulfilling all applicable requirements, and an     
institution that is provisionally certified may be subjected to closer
     review by the DOE if it applies for approval to open a new location or some
    other significant change in its eligibility, but provisional certification
     does not otherwise limit an institution's access to Title IV Program funds.
 Further, any institution seeking eligibility to participate in Title IV
Programs after a change in control will be                            
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provisionally certified for a limited period, following which the     
   institution will be required to reapply for continued eligibility. No ITT
 Technical Institute campus group was provisionally certified by the DOE
prior to the Merger. As a result of the Merger, each ITT Technical    
    Institute campus group was recertified to participate in Title IV Programs
    on a provisional basis for a three-year period. As an additional condition
     of each institute's provisional certification, the DOE directed the Company
    to address certain issues related to its financial condition and financial
     statements. Four campus groups (consisting of six ITT Technical Institutes)
each had one additional condition placed on their provisional         
certification, as follows: (a) the Garland and San Antonio, Texas ITT 
    Technical Institutes were each cited for having an FFEL/FDL cohort default
     rate equal to or greater than 25% for at least one of the three most recent
     federal fiscal years for which such rates have been published, and each was
     told that it would stay on provisional certification status until its rates
  for the three most recent federal fiscal years for which such rates have
been published are all below 25%; (b) the San Diego, California ITT   
    Technical Institute was cited for having a pending DOE program review, and
was told it would stay on provisional certification status until all  
     liabilities identified in the program review were paid and all deficiencies
 identified in the program review were resolved; and (c) the Youngstown,
     Ohio ITT Technical Institute campus group was cited because its accrediting
 commission, the ACICS, had only temporarily extended the campus group's
  accreditation following the Merger and had not yet formally reaccredited
the campus group. See "-- Change in Control."                         

         Title IV Program Funds Management.  The DOE issued new regulations in
 November 1996 which became effective July 1, 1997 and which revised the
    procedures governing how an institution participating in Title IV Programs
requests, maintains, disburses and otherwise manages Title IV Program 
     funds. One significant change is the requirement that institutions disburse
     all Title IV Program funds by payment period, which, in the case of the ITT
   Technical Institutes, corresponds to an academic quarter. This regulation
increases the number of disbursements of federal student loans that   
   institutions on a quarter system, like the ITT Technical Institutes, must
  make and, therefore, delays each institute's receipt and disbursement of
     federal student loan funds. Other significant changes include expanding the
     requirements for institutions to notify Title IV Program fund recipients of
certain information and reducing the time by which an institution must
     return undisbursed Title IV Program funds. These new regulations materially
  affect the Company's cash flow and increase the Company's administrative
   burden, but they will not have a material adverse effect on the Company's
    financial condition or results of operations. See "Management's Discussion
    and Analysis of Financial Condition and Results of Operations -- Liquidity
and Capital Resources."                                               

      Availability of Lenders and Guarantors.  For a variety of reasons,
    including the high default rates of students attending certain proprietary
     institutions, the growth of the FDL programs and the potential assertion of
   claims against holders of student loans, the number of lenders willing to
    make federally guaranteed student loans to students at certain proprietary
  institutions has declined. To date, however, the availability of lenders
    has not affected the ability of ITT Technical Institute students to obtain
FFEL program loans. In the Company's 1997 fiscal year, one lending    
    institution provided approximately 62% of all federally guaranteed student
    loans to ITT Technical Institute students. The Company believes that other
     lenders would be willing to make FFEL program loans to its students if such
   loans were no longer available from any of its current lenders, but there
can be no assurance in this regard. In addition, the HEA requires the 
 establishment of lenders of last resort in every state to make loans to
  students at any school that cannot otherwise identify lenders willing to
 make federally guaranteed loans to its students. Using a lender of last
resort may delay the receipt of FFEL program loans by ITT Technical   
Institute students and slightly reduce the total loan access for ITT  
 Technical Institute students, but it should not have a material adverse
 effect on the Company. The lenders of last resort will not provide PLUS
   loans, which accounted for 11% of the Company's revenues in 1997, and are
  not required to provide any unsubsidized Stafford loans, which accounted
for 23% of the Company's revenues in 1997.                            

       In the Company's 1997 fiscal year, one student loan guaranty agency
guaranteed approximately 94% of all FFEL program loans made to ITT    
Technical Institute students. The Company believes that other guaranty
    agencies would be willing to guarantee FFEL program loans to ITT Technical
   Institute students if that guaranty agency ceased guaranteeing such loans
or reduced the volume of loans guaranteed, but                        

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 there can be no assurance in this regard. Most states have a designated
     guaranty agency that the Company believes would guarantee most, if not all,
    FFEL program loans made to ITT Technical Institute students in that state.
In addition, the HEA's lender of last resort program provides for the 
   guarantee of FFEL program loans made by lenders of last resort. Thus, any
   reduction in the volume of FFEL program loans for ITT Technical Institute
   students guaranteed by the institutes' primary guaranty agency should not
have a material adverse effect on the Company's financial condition,  
     results of operations or cash flows. Neither ITT, Starwood, Inc. nor any of
their subsidiaries or affiliates (including the Company) makes or     
guarantees any Title IV Program loans to any student attending any ITT
Technical Institute.                                                  

 Compliance with Regulatory Standards and Effect of Regulatory
Violations.  The Company maintains an internal audit department that  
reviews the compliance of the ITT Technical Institutes with Title IV  
Program requirements. The Company's audit plan provides for an annual 
on-site compliance review of each ITT Technical Institute. The review 
 addresses numerous compliance areas, including student tuition refunds,
     student academic progress, student admissions, graduate employment, student
    attendance, student financial aid applications and implementation of prior
audit recommendations.                                                

 The ITT Technical Institutes are subject to audits or program
   compliance reviews by various external agencies, including the DOE, state
  agencies, guaranty agencies and accrediting commissions. The HEA and its
    implementing regulations also require that an institution's administration
    of Title IV Program funds be audited annually by an independent accounting
     firm. If the DOE or another regulatory agency were to determine that an ITT
    Technical Institute had improperly disbursed Title IV Program funds or had
violated a provision of the HEA or the implementing regulations, the  
    affected institute could be required to repay such funds to the DOE or the
    appropriate state agency or lender and could be assessed an administrative
    fine. The DOE could also transfer the institute from the advance system of
     receiving Title IV Program funds to the reimbursement system, under which a
   school must disburse its own funds to students and document the students'
     eligibility for Title IV Program funds before receiving such funds from the
DOE. Violations of Title IV Program requirements could also subject an
institute or the Company to other civil and criminal penalties. In    
     addition, significant violations of regulatory standards governing Title IV
     Programs by the Company or any of the ITT Technical Institutes could be the
basis for a proceeding by the DOE to limit, suspend or terminate the  
   participation of the affected institutes in Title IV Programs. If the DOE
 terminates the eligibility of an institution to participate in Title IV
    Programs, the institution in most circumstances must wait 18 months before
    requesting a reinstatement of its participation. An institution that loses
 its eligibility to participate in the FFEL and FDL programs due to high
    cohort default rates for three consecutive years normally may not apply to
resume participation in those programs for at least two federal fiscal
     years. An institution that loses its eligibility to participate in Title IV
Programs due to a violation of the 85/15 Rule may not apply to resume 
participation in Title IV Programs for at least one year.             

        The DOE performed a program review of the ITT Technical Institute in
   San Diego, California. As a part of that program review, the DOE directed
   the Company to (a) remit a nominal amount of money to lenders and the DOE
   and (b) adopt a policy of refunding late disbursement amounts directly to
students, instead of to students' lenders for the purpose of reducing 
students' Title IV Program loan balances. The Company has made such   
  remittance and has adopted such a policy and submitted it to the DOE for
review. These actions will not have a material adverse effect on the  
   Company's financial condition, results of operations or cash flows. There
is no proceeding pending to fine, limit, suspend or terminate any ITT 
   Technical Institute's participation in Title IV Programs, and the Company
    has no reason to believe that any such proceeding is contemplated. If such
  a proceeding were initiated and resulted in a substantial curtailment of
the Company's participation in Title IV Programs, the Company would be
     materially adversely affected, even if the Company could arrange or provide
alternative sources of student financial aid. If an institute lost its
   eligibility to participate in Title IV Programs and the Company could not
arrange for alternative sources of financial aid for the institute's  
students, the Company probably would have to close that institute.    

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STATE AUTHORIZATION AND ACCREDITATION                                           

   The Company is subject to extensive and varying regulation in each of the
27 states in which an ITT Technical Institute currently operates and in four    
other states in which the institutes recruit students. Each ITT Technical       
Institute must be authorized by the applicable state education authority(ies) to
operate and grant degrees or diplomas to its students. In addition, certain     
states require an institute to be in operation for a period of up to two years  
before such institute can be authorized to award degrees. All 63 ITT Technical  
Institutes are currently authorized by one or more state education authorities. 

  ITT Technical Institutes that confer bachelor or master degrees must, in
most cases, meet additional regulatory standards. Raising the curricula of      
existing ITT Technical Institutes to the bachelor and/or master degree level    
requires the approval of state education authorities and accrediting            
commissions. State education laws and regulations affect the Company's          
operations and may limit the ability of the Company to introduce degree programs
or to obtain authorization to operate in certain states. If any ITT Technical   
Institute lost its state authorization, the institute would be unable to offer  
postsecondary education and the Company would be forced to close the institute. 
Closing an ITT Technical Institute could have a material adverse effect on the  
Company's financial condition or results of operations.                         

  The HEA specifies a series of standards that each recognized accrediting
commission must utilize in reviewing institutions. For example, accrediting     
commissions must assess the length of each academic program and the tuition     
charged by each institution in relation to the subject matters taught and the   
objectives of the degrees or diplomas offered. Further, accrediting commissions 
must evaluate each institution's success with respect to student achievement, as
measured by rates of program completion, passing of state licensing examinations
and job placement. In 1997, seven ITT Technical Institutes were reviewed and    
reaccredited by their respective accrediting commission and one ITT Technical   
Institute obtained its initial accreditation.                                   

State authorization and accreditation by a recognized accrediting     
commission are required in order for an institution to become and remain        
eligible to participate in Title IV Programs. In addition, some states require  
institutions operating therein to be accredited as a condition of state         
authorization. Fifty-eight ITT Technical Institutes are accredited by the ACCSCT
and three are accredited by the ACICS, both of which are accrediting commissions
recognized by the DOE. The other two institutes, which were recently opened,    
have applied for accreditation. One ITT Technical Institute (an additional      
location) accredited by the ACCSCT is on probation and 22 ITT Technical         
Institutes (14 main campuses and eight additional locations) accredited by the  
ACCSCT are subject to outcomes reporting. No ITT Technical Institute accredited 
by the ACICS is on probation or subject to a financial or outcomes review. Under
the ACCSCT and the ACICS standards, as applicable, an institution's main campus 
or additional location may be placed on probation, subjected to outcomes        
reporting or subjected to a financial or outcomes review for a variety of       
reasons. All of the ITT Technical Institutes that are on probation or subject to
outcomes reporting by the ACCSCT received such status because the ACCSCT        
determined that the student completion rates for certain programs of study      
offered by these ITT Technical Institutes are not reasonable. Under the ACCSCT  
and the ACICS standards, as applicable, an institution's main campus or         
additional location that is: (a) placed on probation is required to demonstrate 
to the accrediting commission that the institute has taken corrective action and
is in continuous compliance with accrediting commission standards; (b) subjected
to outcomes reporting is required to periodically report its results in such    
areas to the accrediting commission; or (c) subjected to a financial or outcomes
review is required to report its results in such areas to the accrediting       
commission. If any ITT Technical Institute on probation by the ACCSCT fails to  
make the applicable demonstration to the ACCSCT, the ACCSCT may revoke, refuse  
to renew or otherwise condition the institute's accreditation. The loss of      
accreditation by an existing ITT Technical Institute or the failure of a new    
technical institute to obtain full accreditation: (a) would render (i) only the 
affected institute ineligible to participate in Title IV Programs, if the       
affected institute was an additional location or (ii) the entire campus group   
ineligible to participate in Title IV Programs, if the affected institute was a 
main campus; and (b) could have a material adverse effect on the Company's      
financial condition, results of operations and cash flows.                      

CHANGE IN CONTROL                                                               

The DOE, the ACCSCT and the ACICS (collectively, the "Accrediting     
Commissions") and most of the state education authorities that regulate the ITT 
Technical Institutes (the "SEAs") have laws, regulations                        
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and/or standards (collectively "Regulations") pertaining to changes in ownership
and/or control (collectively "change in control") of educational institutions,  
but these Regulations do not uniformly define what constitutes a change in      
control. The DOE's Regulations describe certain transactions that constitute a  
change in control, including the transfer of a controlling interest in the      
voting stock of an institution or such institution's parent corporation. The    
DOE's standards also specify that a change in control of a publicly traded      
corporation, such as the Company, occurs when there is an event that obligates  
the corporation to file a Current Report on Form 8-K with the Securities and    
Exchange Commission disclosing a change in control. Most of the SEAs and the    
Accrediting Commissions include the sale of a controlling interest of common    
stock in the definition of a change in control. The change in control           
Regulations adopted by the DOE, the Accrediting Commissions and the SEAs are    
subject to varying interpretations as to whether a particular transaction       
constitutes a change in control.                                                

    Upon the occurrence of a change in control under the DOE's Regulations, an
institution immediately becomes ineligible to participate in Title IV Programs, 
cannot commit additional Title IV Program funds to its students, and can only   
receive and disburse certain Title IV Program funds that were previously        
committed to its students. Thereafter, the institution must file a complete     
application with the DOE in order to have its eligibility to participate in     
Title IV Programs reinstated. Reinstatement of an institution's certification to
participate in Title IV Programs is dependent on the DOE's determination that   
the institution, under its new ownership and control, is in compliance with     
specified DOE requirements for institutional eligibility. The time required for 
the DOE to act on an application for certification under new ownership and      
control can vary substantially and may take several months. To be complete,     
among other things, such application must demonstrate that, following the change
in control, the main campus and all of the additional locations and branch      
campuses that comprise the institution are authorized by the appropriate state  
educational authority(ies) and accredited by an accrediting commission          
recognized by the DOE.                                                          

    The Accrediting Commissions will not reaccredit an institution following a
change in control until the institution submits a complete application for      
reaccreditation, which requires (among other things) documentation that the     
institution has been reauthorized, or continues to be authorized, by the        
appropriate SEA(s). The standards of the ACCSCT (which accredits 58 ITT         
Technical Institutes) provide that, during the 30 days immediately preceding the
change in control, the ACCSCT will determine whether to temporarily continue the
institution's accreditation for a period of six months after the change to allow
time for the completion and review of the application. The standards of the     
ACICS (which accredits three ITT Technical Institutes) provide that, generally  
within five business days after an institution documents (among other things)   
that it has been reauthorized, or continues to be authorized, by the appropriate
SEA(s) following a change in control, the ACICS will determine whether to       
temporarily reinstate the institution's accreditation for an undefined period to
allow for the completion and review of the application.                         

Many of the SEAs, including the California SEA which authorizes 11 ITT
Technical Institutes, require that a change in control of an institution be     
approved before it occurs in order for the institution to maintain its SEA      
authorization. Other SEAs will only review a change in control of an institution
after it occurs.                                                                

  The DOE, the Accrediting Commissions and most of the SEAs (including the
California SEA) considered the Merger to constitute a change in control of the  
Company and the ITT Technical Institutes under their respective Regulations. As 
a result, effective upon the Merger, each ITT Technical Institute campus group  
immediately became ineligible to participate in all of the Title IV Programs.   
The Company obtained all prior approvals of the Merger from the ACCSCT and the  
SEAs that required such approval before the Merger occurred. Since the Merger,  
the Company has obtained temporary approval of the Merger from the ACICS, final 
approvals of the Merger from some of the SEAs required after a change in control
occurs and continued authorization to operate from the remaining SEAs. The      
Company is continuing to pursue final approvals from the ACICS and SEAs. The DOE
approved the reinstatement of each ITT Technical Institute campus group's       
participation in Title IV Programs effective March 20, 1998. The DOE's approval 
was on a provisional basis, which is the DOE's practice for all institutions    
following a change in control. As an additional condition of each institute's   
provisional certification, the DOE directed the Company to maintain a           
sufficient, but undefined, level of cash or cash equivalents, and to revise its 
current accounting treatment of direct marketing costs, revenue recognition and 
amortization of direct marketing costs or provide evidence that the Company's   
treatment of these items is in conformance with GAAP. The Company believes      
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that its treatment of these items is in accordance with GAAP and that it        
maintains cash and cash equivalents in sufficient amounts to satisfy the DOE,   
but there can be no assurance thereof. If the Company is required to change its 
accounting treatment for any of the above items, management does not believe    
that such change would have a material adverse effect on the Company's financial
condition or results of operations before the cumulative effect of any change in
accounting. Four campus groups (consisting of six ITT Technical Institutes) each
had one additional condition placed on their provisional certification. See "-- 
Regulation of Federal Financial Aid Programs -- Eligibility and Certification   
Procedures."                                                                    

   The Offering will constitute a change in control under the Regulations of
certain SEAs (but not the California SEA), but not under the Regulations of the 
DOE or of either Accrediting Commission. Thus, certain ITT Technical Institutes 
will be subject to review by their applicable SEAs to reaffirm their            
authorization. A significant delay in obtaining or the failure to obtain SEA    
authorization of any ITT Technical Institute could have a material adverse      
effect on the Company's financial condition or results of operations. The       
Company does not believe it will experience any material delay or difficulty in 
obtaining SEA authorization for any affected institute. The Company has obtained
all approvals of the Offering from those SEAs that require approval before the  
Offering occurs.                                                                

A change in control under the Regulations of the DOE, the Accrediting 
Commissions and most of the SEAs could also occur as a result of certain future 
transactions involving the ITT Technical Institutes, the Company or a principal 
stockholder, including but not limited to ITT's disposition of a significant    
portion of the shares of Common Stock that it retains after the Offering,       
certain corporate reorganizations and certain changes in the boards of directors
of such corporations. Starwood, Inc. has announced that it is exploring a range 
of disposition strategies for the Company.                                      

  The Company believes that if a future transaction results in a change in
control of the ITT Technical Institutes, the Company or a principal stockholder,
the Company will be able to obtain all necessary approvals from the DOE, the    
SEAs and the Accrediting Commissions, with the possible exception of the        
California SEA. There can be no assurance, however, that all such approvals can 
be obtained in a timely manner that would not unreasonably delay the            
availability of Title IV Program funds to ITT Technical Institute students or   
prevent certain ITT Technical Institute students from receiving Title IV Program
funds for which they would otherwise be eligible. In particular, obtaining such 
approval from the California SEA, which authorizes 11 ITT Technical Institutes, 
could be adversely affected by a state statute that prohibits the California SEA
from approving a change in control application by any applicant that has been   
found in any judicial or administrative proceeding to have violated Chapter 7   
(formerly Chapter 3) of the California Education Code ("Chapter 7"). In October 
1996, the jury in the Eldredge Case determined that the Company, through its ITT
Technical Institute in San Diego, California, violated Chapter 7. The Company   
has appealed the jury's verdict in the Eldredge Case. While the California SEA  
approved the change in control application submitted by the Company with respect
to the Merger, there can be no assurance that it will approve any future change 
in control application submitted by the Company. See "-- Legal Proceedings."    

    A material adverse effect on the Company's financial condition, results of
operations and cash flows would result if a change in control of the Company    
occurred and a material number of ITT Technical Institutes failed to timely: (a)
obtain the approvals of the SEAs required prior to a change in control,         
including the California SEA in particular; (b) obtain the requisite            
reauthorizations from the SEAs which review a change in control after it occurs;
(c) regain accreditation (or have their accreditation temporarily continued or  
reinstated) by the Accrediting Commissions; or (d) regain eligibility to        
participate in Title IV Programs from the DOE. In addition, the time of year at 
which a change in control of the Company occurs, coupled with the length of time
required by the ITT Technical Institutes to regain their eligibility to         
participate in Title IV Programs, could have a material adverse effect on the   
amount of Title IV Program funds students can obtain to pay the education costs 
of attending the ITT Technical Institutes and, accordingly, on the Company's    
business, financial condition and results of operations.                        

FEDERAL INCOME TAX RELIEF                                                       

  Federal income tax relief in the form of tax credits, tax deductions and
income exclusions is available to students and their families beginning in 1998 
under the Taxpayer Relief Act of 1997 ("TRA"). The TRA                          
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provides: (a) an annual Hope Scholarship tax credit of up to $1,500 for tuition 
and related expenses incurred on or after January 1, 1998 for each of a         
student's first two years of postsecondary education; (b) an annual Lifetime    
Learning tax credit of up to $1,000 in 1998 through 2002 and up to $2,000 in    
subsequent years for tuition and related expenses incurred on or after July 1,  
1998, but the Lifetime Learning tax credit is not available in any tax year in  
which the taxpayer is claiming the Hope Scholarship tax credit; (c) an annual   
tax deduction, ranging from up to $1,000 in 1998 to up to $2,500 in 2001 and    
thereafter, for interest paid during the first 60 months in which interest      
payments are required on any student loan(s); and (d) an annual income exclusion
of up to $5,250 for undergraduate educational expenses incurred on or after     
January 1, 1998 and before June 1, 2000 that are paid by the student's employer.
The TRA also allows taxpayers to establish Education IRAs, for taxable years    
beginning on or after January 1, 1998, that can be funded with non-deductible   
contributions of up to $500 annually for any child up to the age of 18 years,   
and the earnings on those accounts are tax-free if the funds are used to pay for
qualified higher education expenses. The tax benefits provided by the TRA may   
help reduce the effective cost of postsecondary education to the student and his
or her family and may, as a result, lead to higher enrollments at ITT Technical 
Institutes, decreased student dependence on Title IV Program funds and fewer    
Title IV Program loan defaults. Educational institutions are required to submit 
certain information about the student and the student's family to the Internal  
Revenue Service ("IRS") in order for the student and the student's family to    
qualify for some of the tax benefits under the TRA. The Company's administrative
burden will increase as a result of these IRS reporting requirements, but such  
compliance will not have a material adverse effect on the Company's financial   
condition or results of operations.                                             

FACULTY                                                                         

  Faculty members are hired in accordance with criteria established by the
Company, the Accrediting Commissions and the SEAs. The Company strives to hire  
faculty with related work experience and academic credentials to teach most     
technical subjects. Faculty members typically include education supervisors, who
act as department heads for a program of study, and various categories of       
instructors. As of December 31, 1997, the ITT Technical Institutes employed 994 
full-time faculty members and 167 part-time faculty members. The ratio of the   
number of all ITT Technical Institute students to all ITT Technical Institute   
full-time instructors is approximately 25 to 1.                                 

ADMINISTRATION AND EMPLOYEES                                                    

    Each ITT Technical Institute is administered by a director who has overall
responsibility for the management of the institute. The administrative staff of 
each ITT Technical Institute also includes a director of recruitment, a director
of career services, a director of finance and a director of education. The      
Company employs approximately 160 people at its corporate headquarters in       
Indianapolis, Indiana. As of December 31, 1997, the Company had approximately   
2,750 full-time and regular part-time employees. In addition, the Company       
employed approximately 600 students as laboratory assistants and in other       
part-time positions at that date. None of the Company's employees is represented
by labor unions.                                                                

The Company's headquarters provides centralized services to all ITT   
Technical Institutes in the following areas: accounting, marketing, public      
relations, curricula development, purchasing, human resources, regulatory and   
legislative affairs and real estate. In addition, national directors of each    
major technical institute function (i.e., recruiting, finance, education and    
career services) reside at the headquarters and develop policies and procedures 
to guide these functions at the technical institutes. Managers located at the   
headquarters closely monitor the operating results of each ITT Technical        
Institute and frequently conduct on-site reviews.                               

COMPETITION                                                                     

The postsecondary education market in the United States is highly     
fragmented and competitive with no private or public institution enjoying a     
significant market share. ITT Technical Institutes compete for students with    
four-year and two-year degree granting institutions, which include nonprofit    
public and private colleges and proprietary institutions, as well as with       
alternatives to higher education such as military service or                    
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immediate employment. Competition among educational institutions is believed to 
be based on the quality of the educational program, perceived reputation of the 
institution, cost of the program and employability of graduates. Certain public 
and private colleges may offer programs similar to those of the ITT Technical   
Institutes at a lower tuition cost due in part to government subsidies,         
foundation grants, tax deductible contributions or other financial resources not
available to proprietary institutions. Other proprietary institutions offer     
programs that compete with those of the ITT Technical Institutes. Certain of the
Company's competitors in both the public and private sector have greater        
financial and other resources than the Company.                                 

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PROPERTIES                                                                      

  All ITT Technical Institute facilities are leased by the Company, except
for a parking lot adjacent to the Houston (North), Texas ITT Technical Institute
that is owned by the Company. The average lease term is approximately eight     
years. The table below sets forth certain information regarding the ITT         
Technical Institute facilities leased by the Company as of March 31, 1998.      

ITT TECHNICAL INSTITUTE FACILITIES LEASES 

                                                                [Download Table]

                                     AREA IN  
  LOCATION (METROPOLITAN AREA)     SQUARE FEET
---------------------------------  -----------
                                              
Birmingham, Alabama..............    23,907   
Phoenix, Arizona.................    25,900   
Tucson, Arizona..................    17,818   
Little Rock, Arkansas............    22,766   
Anaheim, California (Los                      
  Angeles).......................    35,646   
Hayward, California (San                      
  Francisco).....................    20,009   
Lathrop, California (Stockton)...    13,274(1)
Oxnard, California (Los                       
  Angeles).......................    27,098   
Rancho Cordova, California                    
  (Sacramento)...................    27,020   
San Bernardino, California                    
  (Los Angeles)..................    33,551   
San Diego, California............    34,360   
Santa Clara, California                       
  (San Francisco)................    24,390   
Sylmar, California (Los                       
  Angeles).......................    30,000   
Torrance, California (Los                     
  Angeles).......................    30,000   
West Covina, California                       
  (Los Angeles)..................    36,382   
Aurora, Colorado (Denver)........    23,450(2)
Thornton, Colorado (Denver)......    27,076   
Fort Lauderdale, Florida.........    16,341   
Jacksonville, Florida............    25,200   
Maitland, Florida (Orlando)......    32,418   
Miami, Florida...................    21,347   
Tampa, Florida...................    35,000   
Boise, Idaho.....................    27,978   
Burr Ridge, Illinois (Chicago)...    21,000(1)
Hoffman Estates, Illinois                     
  (Chicago)......................    24,000   
Matteson, Illinois (Chicago).....    19,058   
Fort Wayne, Indiana..............    67,000   
Indianapolis, Indiana............    58,692   
Newburgh, Indiana (Evansville)...    20,000   
Louisville, Kentucky.............    20,232   
St. Rose, Louisiana (New                      
  Orleans).......................    21,000(3)
Framingham, Massachusetts                     
  (Boston).......................    19,938   
Grand Rapids, Michigan...........    25,000   

                                                                [Download Table]

                                     AREA IN  
  LOCATION (METROPOLITAN AREA)     SQUARE FEET
---------------------------------  -----------
                                              
Troy, Michigan (Detroit).........    32,000   
Arnold, Missouri (St. Louis).....    21,000(1)
Earth City, Missouri (St.                     
  Louis).........................    29,360   
Omaha, Nebraska..................    22,400   
Henderson, Nevada (Las Vegas)....    11,166(1)
Albuquerque, New Mexico..........    21,588   
Albany, New York.................    21,000(3)
Getzville, New York (Buffalo)....    22,765   
Liverpool, New York (Syracuse)...    21,000(3)
Dayton, Ohio.....................    45,591   
Norwood, Ohio (Cincinnati).......    21,272   
Strongsville, Ohio (Cleveland)...    21,548   
Youngstown, Ohio.................    22,500   
Portland, Oregon.................    39,600   
Mechanicsburg, Pennsylvania                   
  (Harrisburg)...................    21,000   
Monroeville, Pennsylvania                     
  (Pittsburgh)...................    23,791   
Pittsburgh, Pennsylvania.........    19,232   
Greenville, South Carolina.......    22,065   
Knoxville, Tennessee.............    30,000   
Memphis, Tennessee...............    21,648   
Nashville, Tennessee.............    34,690   
Arlington, Texas.................    19,600   
Austin, Texas....................    25,480   
Garland, Texas (Dallas)..........    21,138   
Houston (North), Texas...........    22,695   
Houston (South), Texas...........    22,954   
Houston (West), Texas............    36,413   
Richardson, Texas (Dallas).......    23,500(3)
San Antonio, Texas...............    25,000   
Murray, Utah (Salt Lake City)....    33,600   
Norfolk, Virginia................    25,572   
Richmond, Virginia...............    21,000(3)
Bothell, Washington (Seattle)....    27,800   
Seattle, Washington..............    30,316   
Spokane, Washington..............    16,378   
Greenfield, Wisconsin                         
  (Milwaukee)....................    29,650   

---------------                                                                 
(1) Institutes in the first year of operation.                                  

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(2) Facility under lease from which the Company relocated the ITT Technical     
 Institute to Thornton, Colorado. While the Company remains subject to the
lease for the Aurora facility, an ITT Technical Institute is no longer  
located in this facility.                                               

(3) Facility under lease at which the Company plans to open a new ITT Technical 
Institute.                                                              

     ITT Technical Institutes are generally located in suburban areas near major
population centers. Campus facilities are generally situated in modern, air     
conditioned buildings, which include classrooms, laboratories, student break    
areas and administrative offices. ITT Technical Institutes have accessible      
parking facilities and are generally near a major highway. Approximately 32 ITT 
Technical Institutes occupy an entire building. New ITT Technical Institutes    
typically lease facilities for a six to 11 year term. If desirable or necessary,
a facility may be relocated to a new location reasonably near the existing      
facility at the end of the lease term.                                          

    The Company leases approximately 41,100 square feet of office space in its
headquarters building in Indianapolis, Indiana. As of December 31, 1997, the    
lease requires payments of approximately $3.5 million over the remaining term of
the lease, which expires in 2003.                                               

    The Merger was, and the Offering will be, deemed a change in control under
certain of the Company's leases and, absent the consent of the landlord, would  
cause such leases to be in default. The Company has obtained all such consents. 

LEGAL PROCEEDINGS                                                               

The Company is subject to litigation in the ordinary course of its    
business. Among the legal actions currently pending are:                        

1.  Eldredge, et al. v. ITT Educational Services, Inc., et al. (Civil 
        Action No. 689376) (the "Eldredge Case"), was filed on June 8, 1995 in
    the Superior Court of San Diego County in San Diego, California by
 seven graduates of the hospitality program at the San Diego ITT
Technical Institute. The suit alleged, among other things,    
     misrepresentation, civil conspiracy and statutory violations of the
        California Education Code ("CEC"), California Business and Professions
       Code ("CBPC") and California Consumer Legal Remedies Act ("CCLRA") by
     the Company, ITT and three employees of the Company. The plaintiffs
        claimed that the defendants (a) made misrepresentations and engaged in
        deceptive acts in the recruitment of the plaintiffs for, and/or in the
       promotion of, the program, (b) provided inadequate instruction to the
         plaintiffs, (c) used inadequate facilities and equipment in the program
         and inappropriate forms of contracts with the plaintiffs, (d) failed to
      provide the plaintiffs with all required information and disclosures
      and (e) misrepresented the plaintiffs' prospects for employment upon
graduation, the employment of the program's graduates and the 
      plaintiffs' ability to transfer program credits. The jury rendered a
     verdict against the Company and ITT in this action in October 1996.
         General damages of approximately $0.2 million were assessed against the
         Company and ITT, jointly, on the plaintiffs' misrepresentations and CEC
 claims. Exemplary damages of $2.6 million and $4.0 million were
    assessed against the Company and ITT, respectively. The judge also
   awarded the plaintiffs attorney's fees and costs in the amount of
      approximately $0.9 million. Prejudgment interest was assessed on the
      general damages award and post-judgment interest was assessed on the
      entire award. The plaintiffs' CBPC and CCLRA claims and their claims
         against the Company employees were dismissed, and the judge vacated the
         jury verdict against ITT. The Company is seeking to overturn the awards
        and has appealed the decision. Although the Company is optimistic that
  it may be able to reverse or reduce the verdict, there can be no
         assurance thereof. Management, based on the advice of counsel, believes
 it is probable that it will prevail in its appeal and, thus, no
      provision (other than the Company's legal expenses) for these awards
        has been made. If the Company's appeal of the judgment in the Eldredge
        Case is unsuccessful, a charge to earnings would be taken at that time
  in the amount of the awards, including the general and exemplary
       damages assessed against the Company, the plaintiffs' attorney's fees
   and costs and the prejudgment and post-judgment interest assessed
    thereon. In addition, a California statute prohibits the Company's
    California regulator from approving an application for a change in
    control of any institution submitted by an applicant that has been
found in any judicial or                                      

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        administrative proceeding to have violated Chapter 7 (formerly Chapter
  3) of the CEC ("Chapter 7"). Since the jury in the Eldredge Case
    determined that the Company violated Chapter 7, it is questionable
        whether the Company's California regulator will approve any subsequent
         application for a change in control submitted by the Company for any of
        the 11 ITT Technical Institutes in California; however, the California
   regulator has approved the Company's applications for a change in
       control of the 11 ITT Technical Institutes in California necessitated
        by the Merger. There can be no assurance that the California regulator
       will approve any subsequent application for a change in control of an
     ITT Technical Institute in California submitted by the Company. See
  "Management's Discussion and Analysis of Financial Condition and
Results of Operations."                                       

    Other legal proceedings (such as the actions discussed below) have
         resulted and may continue to result from other persons alleging similar
 claims of misrepresentation and violations of certain statutory
provisions.                                                   

  2.  Robb, et al. v. ITT Educational Services, Inc., et al. (Civil Action
       No. 00707460), was filed on January 24, 1997 in the Superior Court of
        San Diego County in San Diego, California by four graduates of the San
        Diego ITT Technical Institute. The suit, as originally filed, alleged,
     among other things, statutory violations of the CEC and CBPC by the
 Company and ten employees of the Company. The plaintiffs in the
  original complaint sought compensatory damages, civil penalties,
  injunctive relief, disgorgement of ill-gotten gains, restitution
         (including return of educational costs) on behalf of plaintiffs and all
other persons similarly situated who attended an ITT Technical
     Institute in California, attorney's fees and costs, and to have the
  action certified as a class action. The plaintiffs amended their
       complaint on August 14, 1997. The amended complaint deletes three and
       adds two named plaintiffs. Each of the three plaintiffs was a student
      who attended one of three different programs (i.e., hospitality, EET
         and CAD) at an ITT Technical Institute in California. The plaintiffs in
       the amended complaint allege only violations of the CEC, based on the
        plaintiffs' claims that the defendants (a) made misrepresentations and
         engaged in deceptive acts in the recruitment of students for, and/or in
     the promotion of, the programs offered in California, (b) failed to
        provide students with all required information and disclosures and (c)
       misrepresented students' prospects for employment upon graduation and
      the employment of the programs' graduates. The plaintiffs seek (a) a
        refund of an unspecified amount representing all consideration paid to
        the Company by the plaintiffs and all other persons similarly situated
         who attended any of the programs in California at any time from January
        1, 1991 through December 31, 1996, (b) a state statutory penalty equal
  to two times the refund amount, (c) injunctive relief and (d) an
  unspecified amount of attorney's fees and costs. The plaintiffs'
  request to have this action certified as a class action has been
        denied. In May 1998, the Company agreed to settle all of the claims of
      one of the three plaintiffs in this legal proceeding. Payment of the
    settlement amount will not have a material effect on the Company's
financial condition, results of operations or cash flows.     

     3.  Iverson, et al. v. ITT Educational Services, Inc., et al. (Civil Action
      No. 00707705); Ohrt v. ITT Educational Services, Inc., et al. (Civil
        Action No. 00707706); Sayers v. ITT Educational Services, Inc., et al.
 (Civil Action No. 00707707); Barrent, et al. v. ITT Educational
  Services, Inc., et al. (Civil Action No. 00707708) (the "Barrent
      Case"); and Kellum, et al. v. ITT Educational Services, Inc., et al.
     (Civil Action No. 00707709) (the "Kellum Case"), were each filed on
   January 31, 1997 in the Superior Court of San Diego County in San
      Diego, California. Each of the five actions (involving, in total, 16
       former students who attended the hospitality program at the San Diego
       ITT Technical Institute) alleges statutory violations of the CEC, the
  CBPC and the California Consumer Contract Awareness Act of 1990,
        intentional misrepresentation and/or concealment, and civil conspiracy
       by the Company, ITT and a Company employee. The plaintiffs claim that
     the defendants (a) made misrepresentations and engaged in deceptive
        acts in the recruitment of the plaintiffs for, and/or in the promotion
      of, the program, (b) used inadequate facilities and equipment in the
       program and inappropriate forms of contracts with the plaintiffs, (c)
    failed to provide the plaintiffs with all required information and
   disclosures and a fully executed copy of their contracts with the
         Company and (d) misrepresented the plaintiffs' prospects for employment
    upon graduation, the employment of the program's graduates and the
       plaintiffs' externship portion of the program. The plaintiffs in each
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     action seek various forms of recovery, including (a) an unspecified
    amount for compensatory damages, disgorgement of ill-gotten gains,
       restitution, attorney's fees and costs, (b) state statutory penalties
      equal to two times actual damages, (c) injunctive relief and (d) $10
  million in exemplary damages. These actions are currently at the
       discovery stage. In May 1998, the Company agreed to settle all of the
      claims of four of the five plaintiffs in the Kellum Case and five of
   the six plaintiffs in the Barrent Case. Payment of the settlement
   amount will not have a material effect on the Company's financial
condition, results of operations or cash flows.               

 4.  DeBattista, et al. v. ITT Educational Services, Inc., et al. (Civil
        Action No. 97-1366-CA-15-W), was filed on June 25, 1997 in the Circuit
       Court of Seminole County in Orlando, Florida by three former students
    who attended the hospitality program at the Maitland ITT Technical
     Institute. The suit alleged violations of the Florida Deceptive and
       Unfair Trade Practices Act ("FDUTPA"), the Florida Civil Remedies for
    Criminal Practices Act ("FCRCPA") and Florida statutes prohibiting
    misleading advertising, common law fraud and/or concealment, civil
      conspiracy and rescission by the Company, ITT and seven employees of
       the Maitland ITT Technical Institute. The plaintiffs claimed that the
         defendants (a) made misrepresentations and engaged in deceptive acts in
  the recruitment of students for, and/or in the promotion of, the
        program and (b) misrepresented students' prospects for employment upon
         graduation, the employment of the program's graduates and the students'
        externship portion of the program. The plaintiffs sought various forms
      of recovery, including an unspecified amount for (a) actual damages,
    statutory penalties equal to three times actual damages, exemplary
      damages and equitable rescission on behalf of the plaintiffs and all
  other persons similarly situated who attended the program at the
   Maitland ITT Technical Institute at any time from January 1, 1991
        through December 31, 1995 and (b) attorney's fees, interest and costs.
    The plaintiffs also sought to have the action certified as a class
         action. The plaintiffs dismissed this action without prejudice in April
1998.                                                         

     5.  Collins, et al. v. ITT Educational Services, Inc., et al. (Civil Action
      No. 98 cv 0659 BTM), was filed on April 6, 1998 in the U.S. District
        Court for the Southern District of California in San Diego, California
        by nine former students who attended the hospitality program at either
     the Maitland or San Diego ITT Technical Institute. The suit alleges
violations of the federal Racketeer Influenced and Corrupt    
         Organizations Act, the CEC, the CBPC, the CCLRA, the FDUTPA, the FCRCPA
     and Florida statutes prohibiting misleading advertising, common law
       fraud and/or concealment and civil conspiracy by the Company and ITT.
      The plaintiffs claim that the defendants (a) made misrepresentations
   and engaged in deceptive acts in the recruitment of students for,
         and/or in the promotion of, the program, (b) failed to provide students
      with all required information and disclosures and (c) misrepresented
       students' prospects for employment upon graduation, the employment of
     the program's graduates and the students' externship portion of the
         program. The plaintiffs seek various forms of recovery on behalf of the
      plaintiffs and all other persons similarly situated who attended the
  program at the Indianapolis, Maitland, Portland or San Diego ITT
        Technical Institutes at any time from January 1, 1990 through December
         31, 1996, including (a) an unspecified amount for compensatory damages,
      exemplary damages, rescission and the return of all tuition and fees
  paid to the Company by or on behalf of students who attended the
        program, the disgorgement of ill-gotten gains, restitution, attorney's
      fees and costs, (b) state statutory penalties of two and three times
        actual damages, (c) a federal statutory penalty of $45 million and (d)
        injunctive relief. The plaintiffs seek to have the action certified as
a class action.                                               

  On September 22, 1997, the Company received an inquiry from the staff of
the U.S. Federal Trade Commission requesting information relating to the        
Company's offering and promotion of vocational or career training. The Company  
has since responded to this inquiry and provided the requested information.     

While there can be no assurance as to the ultimate outcome of any     
litigation involving the Company, management does not believe any pending legal 
proceeding will result in a judgment or settlement that will have a material    
adverse effect on the Company's financial condition, results of operations or   
cash flows. Any litigation alleging violations of education or consumer         
protection laws and/or regulations, misrepresentation, fraud or deceptive       
practices, however, may subject the affected ITT Technical Institute to         
additional regulatory scrutiny.                                                 
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MANAGEMENT

EXECUTIVE OFFICERS                                                              

The following table sets forth certain information about the Company's
current executive officers.                                                     

                                                        [Enlarge/Download Table]

                NAME                 AGE                          POSITION                    
                ----                 ---                          --------                    
                                                                                              
Rene R. Champagne................... 56   Chairman, President and Chief Executive Officer     
Gene A. Baugh....................... 55   Senior Vice President and Chief Financial Officer   
Clark D. Elwood..................... 37   Senior Vice President, General Counsel and Secretary
Edward G. Hartigan.................. 58   Senior Vice President                               
Thomas W. Lauer..................... 52   Senior Vice President                               

RENE R. CHAMPAGNE has served as Chairman of ESI since October 1994,   
President and Chief Executive Officer of ESI since September 1985 and a Director
of ESI since October 1985.                                                      

   GENE A. BAUGH has served as Chief Financial Officer of ESI since December
1996 and Senior Vice President of ESI since January 1993. From 1981 through     
November 1996 he served as Treasurer and Controller of ESI.                     

   CLARK D. ELWOOD has served as Senior Vice President of ESI since December
1996, Secretary of ESI since October 1992 and General Counsel of ESI since May  
1991. From January 1993 through November 1996, he served as Vice President of   
ESI.                                                                            

     EDWARD G. HARTIGAN has served as Senior Vice President of ESI since January
1993.                                                                           

  THOMAS W. LAUER has served as Senior Vice President of ESI since January
1993.                                                                           

PRINCIPAL AND SELLING STOCKHOLDER 

The following table sets forth certain information concerning the     
beneficial ownership by Starwood, Inc. of the Common Stock, and as adjusted to  
reflect consummation of the Offering.                                           

                                                        [Enlarge/Download Table]

                                         SHARES BENEFICIALLY                     SHARES BENEFICIALLY 
                                             OWNED PRIOR                             OWNED AFTER     
                                           TO THE OFFERING                         THE OFFERING(1)   
            NAME AND ADDRESS             --------------------       SHARES       --------------------
          OF BENEFICIAL OWNER              NUMBER     PERCENT  BEING OFFERED(1)    NUMBER     PERCENT
          -------------------            ----------   -------  ----------------  ----------   -------
                                                                                                     
Starwood Hotels & Resorts Worldwide,                                                                 
  Inc.(2)............................... 22,500,000    83.3%      11,350,000     11,150,000    41.3% 
  2231 E. Camelback Road,                                                                            
  Suite 400                                                                                          
  Phoenix, Arizona 85016                                                                             

---------------                                                                 
(1) Assumes the underwriters' over-allotment option for 1,700,000 shares is not 
    exercised. If the over-allotment option is exercised in full, Starwood, Inc.
would beneficially own 9,450,000 shares after the Offering (35.0% of the
shares outstanding).                                                    

(2) The shares are held of record by ITT, a wholly owned subsidiary of Starwood,
Inc. since the Merger. ITT is the Selling Stockholder.                  

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RELATIONSHIP WITH SELLING STOCKHOLDER AND RELATED TRANSACTIONS

GENERAL                                                                         

    Prior to the Offering, ITT holds 83.3% of the outstanding shares of Common
Stock. In addition, prior to the Merger on February 23, 1998, three directors of
the Company (Rand V. Araskog, Robert A. Bowman and Richard S. Ward) served as   
executive officers of ITT and three other directors of the Company (Bette B.    
Anderson, Vin Weber and Margita E. White) served on ITT's board of directors.   
Mr. Araskog and Mr. Bowman also served on ITT's board of directors. In          
connection with the Merger, Mrs. Anderson, Mr. Bowman, Mr. Ward and Mrs. White  
resigned from the Company's Board of Directors, effective February 23, 1998. On 
February 25, 1998, the remaining members of the Board of Directors of the       
Company elected four individuals recommended by Starwood, Inc. (Tony Coelho,    
Robin Josephs, Merrick R. Kleeman and Barry S. Sternlicht) to fill the vacancies
caused by such resignations and to serve as Directors for terms expiring at the 
2000, 1999, 2000 and 1998 Annual Meeting of Shareholders, respectively, and     
until such Director's successor is duly elected and qualified. Mr. Sternlicht   
was re-elected as a Director at the 1998 Annual Meeting of Shareholders for a   
term expiring at the 2001 Annual Meeting of Shareholders. Mr. Sternlicht serves 
as chairman of the board and a director of Starwood, Inc. and as chairman of the
board, chief executive officer and a trustee of Starwood Trust. Mr. Sternlicht  
is also the general manager of Starwood Capital Group, L.L.C., which, together  
with its affiliates and Mr. Sternlicht, beneficially owns approximately 5.3% of 
the outstanding paired shares of Starwood, Inc. common stock and Starwood Trust 
beneficial interest. Mr. Kleeman is also a managing director of Starwood Capital
Group, L.L.C. Mr. Coelho and Ms. Josephs are not affiliated with ITT, Starwood, 
Inc., Starwood Trust or Starwood Capital Group, L.L.C.                          

SERVICES                                                                        

     Set forth below are descriptions of certain services provided by ITT to the
Company since the Initial Public Offering. As described below and in "--        
Agreements With Selling Stockholder," there have been changes in such           
arrangements in connection with the Merger and the Offering.                    

    Treasury and Financing Services.  Until February 5, 1998, ITT provided the
Company with centralized treasury and financing services. As part of these      
functions, surplus cash receipts of the Company were remitted to ITT, and ITT   
advanced cash, as necessary, to the Company. For 1997, the net amount of cash   
transferred from the Company to ITT, exclusive of payments for the services     
described below, was $24,293,000 and aggregate payments for the services        
described below were $20,472,000. ITT paid interest to the Company on the       
average net cash balances of the Company held by ITT. For 1997, the Company     
received net interest income from ITT in the amount of $5,682,000. Since        
February 5, 1998, the Company manages and invests its own cash. Depending upon  
current interest rates on short-term investments, the Company may not be able to
obtain the same yields on its cash balances that were being paid by ITT.        
Accordingly, interest income, net may decrease in 1998.                         

   General and Administrative Services.  Under agreements in place since the
Initial Public Offering, ITT periodically provided advice and assistance to the 
Company with regard to certain risk management, accounting, tax and other       
management services. The fee for such services (the "contract service charge")  
is 0.25% of the Company's annual revenues. For 1997, the contract service charge
was $654,000. The Company ceased utilizing substantially all of these services  
and incurring the related fee at the time of the Merger.                        

     Pension Plan.  The Company participates in the Retirement Plan for Salaried
Employees of ITT Corporation (the "Pension Plan"), a non-contributory defined   
benefit pension plan which covers substantially all employees of the Company.   
ITT determines the aggregate amount of pension expense on a consolidated basis  
based on actuarial calculations, and such expense is allocated to participating 
units on the basis of compensation covered by the plan. Prior to December 19,   
1995, the Company participated in the Retirement Plan for Salaried Employees of 
Old ITT (the "Old Pension Plan"), which was substantially identical to the terms
of the Pension Plan. For 1997, the Company's pension expense was $4,458,000.    
Federal legislation limits the amount of benefits that can be paid and          
compensation that may be recognized under a tax-qualified retirement plan. ITT  
has adopted a non-qualified unfunded retirement plan ("Excess Pension Plan") for
payment of those benefits at retirement that cannot be paid from the qualified  
Pension Plan. The practical                                                     
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effect of the Excess Pension Plan is to continue calculation of retirement      
benefits to all employees on a uniform basis. Benefits for the Company's        
employees under the Excess Pension Plan are generally to be paid directly by the
Company. Any "excess" benefit accrued to any such employee will be immediately  
payable in the form of a single discounted lump sum payment upon the occurrence 
of a change in corporate control (as defined in the Excess Pension Plan). The   
approval by ITT's shareholders of the Merger constituted a change in corporate  
control as defined in the Excess Pension Plan, which resulted in a distribution 
of all of the accrued benefits under the Excess Pension Plan to the             
participants. After the Offering, the Company will implement its own pension and
excess pension plans.                                                           

Retirement Savings Plan.  The Company participates in The ITT 401k    
Retirement Savings Plan (the "Savings Plan"), a defined contribution pension    
plan which covers substantially all employees of the Company. Employees can     
contribute (subject to certain Internal Revenue Service limitations) amounts    
ranging from 2% to 16% of base pay. The Company contributes 1% of the employee's
covered pay and matches the employee's contributions at the rate of 50% up to a 
maximum of 5% of covered pay, amounting to a maximum matching contribution of   
2.5% of the employee's covered pay. The Company's non-matching and matching     
contributions were, prior to the Merger, in the form of common shares of ITT and
are, since the Merger, in the form of paired shares of Starwood, Inc. common    
stock and Starwood Trust beneficial interest. Federal legislation limits the    
annual contributions which an employee may make to the Savings Plan, a tax-     
qualified retirement plan. Accordingly, ITT adopted, and the Company            
participated in, prior to the Merger, an ITT Excess Savings Plan (the "Excess   
Savings Plan"), a non-qualified retirement plan, which enables employees who are
precluded by these limitations from contributing 5% of their salary to the      
tax-qualified plan to make up the shortfall through salary deferrals and,       
thereby, receive the 1% non-matching company contribution and the 2.5% matching 
company contribution otherwise allowable under the tax-qualified plan. Salary   
deferrals, company contributions and imputed earnings are entered into a book   
reserve account maintained by ITT for each participant. The costs of the        
Company's non-matching and matching contributions are charged by ITT to the     
Company. For 1997, the costs of providing this benefit (including an allocation 
of the administrative costs of the plan) were $2,104,000. The account balance   
maintained on behalf of a participant will be immediately payable in a single   
lump sum payment upon the occurrence of a change in control (as defined in the  
Excess Savings Plan). The approval by ITT's shareholders of the Merger          
constituted a change in control as defined in the Excess Savings Plan, which    
resulted in a distribution of all the account balances maintained under the     
Excess Savings Plan to participants. The Company has adopted its own 401(k) and 
excess savings plans that will become effective on the closing of the Offering. 

     Group Medical and Life Benefits.  During 1997, the Company's employees were
provided certain medical benefits and life insurance through ITT. In 1998, the  
Company began providing all of its own medical and life insurance benefits to   
its employees, but the Company continues to utilize ITT's services in the       
administration of the Company's indemnity medical plan. The Company is          
responsible for all claims incurred under its indemnity plan, subject to stop   
loss coverage for individual medical claims greater than $50,000, for which the 
Company pays an allocated share of all claims in excess of $50,000 for all ITT  
subsidiaries in the United States. The Company also pays its share of the       
administrative and stop loss pooling expenses incurred by ITT with respect to   
these services. For 1997, payments by the Company to ITT for medical and life   
insurance claims totaled $1,783,000.                                            

   Worker's Compensation and General Liability.  The Company is self-insured
with respect to worker's compensation and general liability claims. During 1997,
the Company participated in the ITT claims program which provided stop loss     
protection for claims greater than $100,000. Amounts equal to actual claims     
applicable to the Company under $100,000 plus an allocation of the estimated    
total ITT claims in excess of $100,000 are paid to ITT. For 1997, payments by   
the Company for worker's compensation and general liability claims were         
$1,074,000. In 1998, the Company began servicing its own claims and obtained    
stop loss protection from a third party provider.                               

     Federal Income Taxes.  Prior to the Offering, the Company has been included
in the consolidated U.S. federal income tax return of ITT. Under an agreement   
with ITT, income taxes are allocated among affiliates of ITT based upon the     
amounts they would pay or receive if they filed a separate income tax return.   

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For 1997, the Company's allocated federal income taxes were $10,399,000. After  
the Offering, the Company will no longer be included in the consolidated return 
of ITT.                                                                         

AGREEMENTS WITH SELLING STOCKHOLDER                                             

    Set forth below are descriptions of certain agreements between the Company
and ITT and/or its affiliates that are being entered into in connection with the
Offering.                                                                       

     Amended and Restated Registration Rights Agreement. An Amended and Restated
Registration Rights Agreement (the "Registration Rights Agreement"), among other
things, provides that, upon request of ITT, the Company will register under the 
Securities Act any of the shares of Common Stock held by ITT for sale in        
accordance with ITT's intended method of disposition thereof, and will take such
other action necessary to permit the sale thereof in other jurisdictions. ITT   
has the right to request two such registrations after the Offering. The Company 
will pay all registration expenses (other than underwriting discounts and       
commissions and ITT's legal, accounting and advisors expenses) in connection    
with such registrations. ITT also has the right, which it may exercise at any   
time and from time to time during the term of the agreement, to include the     
shares of Common Stock held by it in other registrations of shares of Common    
Stock initiated by the Company on its own behalf or on behalf of any other      
person. The Company will pay all registration expenses (other than underwriting 
discounts and commissions related to the shares of Common Stock sold by ITT,    
ITT's legal, accounting and advisors expenses, and the filing fees payable under
the Securities Act for the shares of Common Stock sold by ITT) in connection    
with each such registration. The rights of ITT under the Registration Rights    
Agreement are transferable by ITT. The Registration Rights Agreement terminates 
five years after the closing of the Offering. The Company did not incur any cost
or expense under the Registration Rights Agreement or its predecessor in 1997;  
however, the Company will be paying the costs of the Offering in 1998 pursuant  
to the predecessor to the Registration Rights Agreement.                        

 The Registration Rights Agreement prohibits the holder of any shares of
Common Stock registered by the Company pursuant to such agreement from disposing
of any such shares if the disposition would cause a change in control of the    
Company or any of its ITT Technical Institutes, until the Company receives all  
of the required prior approvals of the DOE, Accrediting Commissions and SEAs.   

  Trade Name and Service Mark License Agreement.  A Trade Name and Service
Mark License Agreement (the "License Agreement"), among other things, provides  
that ITT Sheraton Corporation ("Sheraton"), an ITT affiliate, grants to the     
Company, for a period of seven years from the closing of the Offering (which    
period may be extended for an additional five years if requested by the Company 
and the Company and Sheraton agree upon the amount of royalties, if any, that   
the Company would pay during such extension), a non-exclusive, non-transferable,
worldwide, royalty-free license to use the "ITT" corporate and trade name,      
service mark and trademark "ITT" (the "Licensed Mark") solely in connection with
the operation of the Company's business and in a manner specifically identified 
in the License Agreement. The License Agreement further provides that (a) the   
Company's use of the Licensed Mark shall be consistent with Sheraton guidelines 
and standards, (b) certain of the Company's materials bearing the Licensed Mark 
must contain a prescribed notice and (c) certain changes in control of the      
Company, as defined in the License Agreement, will terminate the License        
Agreement. In 1997, the Company did not pay any amounts to ITT under the License
Agreement or its predecessor.                                                   

    Amended and Restated Income Tax Sharing Agreement.  Prior to the Offering,
the Company has been included in the consolidated United States federal income  
tax return of ITT. The Company also has been included in certain state and local
tax returns of ITT or its subsidiaries. An Amended and Restated Income Tax      
Sharing Agreement (the "Tax Agreement") which will become effective at the time 
of the Offering provides, among other things, for the allocation of liability   
for federal, state and local taxes between ITT and the Company. Under the Tax   
Agreement, the Company is responsible for all federal, state and local taxes    
related to the Company's operations before and after the Offering, and Starwood,
Inc. is responsible for all such taxes related to all other operations of       
Starwood, Inc. and its subsidiaries before and after the Offering.              

 The Tax Agreement also sets forth procedures for filing returns, paying
estimated taxes, amending returns, allocating refunds, tax audits and contests  
and certain tax elections. In particular, all tax refunds                       
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attributable to the Company's operations will be paid to the Company and all tax
assessments, interest and penalties attributable to the Company's operations    
will be paid by the Company. Starwood, Inc. is responsible for preparing and    
filing all tax returns, and any amendments thereto, involving the Company's     
operations prior to the Offering, and the Company is responsible for preparing  
and filing all tax returns, and any amendments thereto, involving the Company's 
operations following the Offering.                                              

Stockholder Agreement.  A Stockholder Agreement (the "Stockholder     
Agreement"), among other things, provides that (a) the authorized number of     
directors on the Company's Board of Directors (the "Board") shall not exceed 10,
(b) the authorized number of classes of directors of the Board shall not exceed 
three, (c) in connection with each annual meeting of the Company's shareholders 
the Board shall nominate and recommend such number of persons (rounded up to the
next whole number but not to exceed four) designated by ITT to be elected to the
Board so that the total number of ITT designees on the Board is in relative     
proportion to the percentage of the outstanding shares of the Common Stock held 
by ITT and its affiliates (collectively, the "ITT Group") and (d) the membership
of the Company's standing Nominating Committee of the Board shall be limited to 
four members, two of whom must be directors who are ITT designees until the     
number of ITT designees on the Board is two, in which event only one ITT        
designated director must be on the Nominating Committee, and if there is one ITT
designee on the Board, such designee is not required to be on the Nominating    
Committee (collectively, the "Board Rights"). The Stockholder Agreement also    
provides that the Board Rights shall terminate when the ITT Group holds less    
than 7.5% of the outstanding shares of the Common Stock. The ITT Group may      
assign the Board Rights in whole, but not in part, to any one transferee from   
the ITT Group of 10% or more of the outstanding shares of the Common Stock (the 
"Rights Transferee"). The ITT designees currently on the Board are Tony Coelho, 
Robin Josephs, Merrick R. Kleeman and Barry S. Sternlicht.                      

     The Stockholder Agreement prevents the Company as a result of any statutory
anti-takeover or other anti-takeover provisions adopted by the Company from (a) 
significantly limiting or restricting the ability of the ITT Group or any       
transferee from the ITT Group of 10% or more of the outstanding shares of Common
Stock to transfer or vote the Common Stock held by it or (b) significantly      
adversely affecting the value of the shares of Common Stock currently owned by  
the ITT Group or any transferee from the ITT Group of 10% or more of the        
outstanding shares of the Common Stock. The Stockholder Agreement also prevents 
the Company from taking any action that would subject any such shares to any    
restriction, limitation or provision of law to which other holders of Common    
Stock are not subject. These restrictions will end when the ITT Group holds less
than 10% of the outstanding shares of the Common Stock.                         

    The Stockholder Agreement prohibits the ITT Group or the Rights Transferee
from transferring any of the shares of the Common Stock if such transfer would  
cause a change in control of the Company or any of the ITT Technical Institutes,
until the Company receives all of the required prior approvals of the DOE,      
Accrediting Commissions and SEAs.                                               

    The Stockholder Agreement also includes reciprocal indemnifications of ITT
and the Company by the other against all losses, claims and expenses arising    
after the closing of the Offering arising from (a) any misstatements or         
omissions by the indemnifying party in the Registration Statement and Prospectus
for the Offering or (b) any current or future litigation involving the          
indemnifying party's operations or business. Pursuant to these provisions, the  
Company will indemnify ITT against all expenses and any liabilities incurred by 
ITT in connection with the Eldredge case and other pending lawsuits described   
under "Business -- Legal Proceedings."                                          

The Stockholder Agreement preserves the Company's access to certain   
insurance policies covering the Company when it was a subsidiary of ITT.        

     Employee Benefits Agreement.  An Employee Benefits Agreement (the "Benefits
Agreement"), among other things, provides for the allocation and assignment of  
the respective rights and obligations of the Company and ITT before and after   
the Offering with respect to benefits and compensation matters pertaining to    
current and former employees of the Company. The terms of the Benefits Agreement
provide that, as of the closing of the Offering, the Company will cease         
participation in all ITT employee benefit plans and programs, the services      
provided to the Company under its current Employee Benefits and Administrative  
Services                                                                        
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Agreement with ITT will cease and the Company will be responsible for           
establishing and maintaining its own employee benefit plans and programs.       

     In particular, the Benefits Agreement provides that the Company's employees
will cease participating in the Pension Plan, the Excess Pension Plan, the      
Savings Plan and the Excess Savings Plan. The Pension Plan will retain all      
assets and all liabilities for the benefits accrued thereunder by each current  
and former employee of the Company prior to the closing of the Offering. The    
Company will assume the liability for all benefits accrued under the Excess     
Pension Plan by each participating employee of the Company since the date of the
Merger and prior to the closing of the Offering. The Savings Plan will transfer 
all assets in such plan for the accounts of the Company's employees to a        
qualified 401(k) plan established by the Company, and the Company will assume   
all obligations with respect to such transferred assets. The Company will assume
the liability for all benefits accrued under the Excess Savings Plan by each    
participating employee of the Company since the date of the Merger and prior to 
the closing of the Offering. All benefits under the Excess Pension Plan and the 
Excess Savings Plan as of the date of the Merger have been paid to the          
participants.                                                                   

  The Benefits Agreement also provides that, during 1998, the Company will
utilize ITT's services in the administration of the Company's indemnity medical 
plan. The Company will be responsible for all claims incurred under its         
indemnity plan, subject to stop loss coverage for individual medical claims     
greater than $50,000, for which the Company will pay an allocated share of all  
claims in excess of $50,000 for all ITT subsidiaries in the United States. The  
Company will also pay its share of the administrative and stop loss pooling     
expenses incurred by ITT with respect to these services.                        

The Benefits Agreement further provides that ITT will transfer assets 
relating to, and the Company will assume all obligations for, (a) all future    
post-retirement medical plan obligations attributable to one Company employee   
and (b) medical and life insurance coverage of those current and former disabled
employees of the Company entitled to such coverage. The Benefits Agreement also 
provides that ITT will retain all assets relating to, and all obligations to    
provide, (a) retiree life insurance coverage to former employees of the Company 
entitled to such coverage as of December 31, 1997 and (b) disability payments to
current and former employees of the Company who were disabled as of December 31,
1997 and are receiving disability payments under ITT's long-term disability     
plan.                                                                           

In addition to the other employee benefit plans and programs currently
offered by the Company, the Company intends to establish its own 401(k) plan,   
excess savings plan, pension plan and excess pension plan for the benefit of the
Company's employees, at a cost expected to be similar to what the Company paid  
to participate in comparable plans offered by ITT.                              

DESCRIPTION OF CAPITAL STOCK

 The Company's authorized capital stock consists of 50,000,000 shares of
Common Stock and 5,000,000 shares of preferred stock, $.01 par value (the       
"Preferred Stock"). As of March 31, 1998, 26,999,952 shares of Common Stock     
(including the shares of Common Stock being offered by the Selling Stockholder) 
were outstanding. No shares of Preferred Stock have been issued.                

COMMON STOCK                                                                    

   All outstanding shares of the Common Stock are validly issued, fully paid
and non-assessable. Each outstanding share of Common Stock is entitled to such  
dividends as may be declared from time to time by the Company's Board of        
Directors consistent with the provisions of the Company's Restated Certificate  
of Incorporation, By-Laws and applicable law. See "Dividend Policy." Each       
outstanding share is entitled to one vote on all matters submitted to a vote of 
stockholders. There are no cumulative voting rights, and therefore, the holders 
of a majority of the shares voting for the election of the classified Board of  
Directors can elect all of the Directors in any class up for election, if they  
so choose. In the event of liquidation, dissolution or winding up of the        
Company, holders of Common Stock are entitled to receive on a pro rata basis any
assets remaining after provision for payment of creditors and after payment of  
any liquidation preferences to holders of Preferred Stock. Holders of Common    
Stock have no conversion rights or preemptive rights to purchase or             

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subscribe for additional Common Stock or any other securities of the Company.   
The rights, preferences and privileges of holders of shares of Common Stock are 
subject to, and may be adversely affected by, the rights of the holders of      
shares of any series of Preferred Stock the Company may designate and issue in  
the future.                                                                     

PREFERRED STOCK                                                                 

 The authorized Preferred Stock of the Company is available for issuance
from time to time at the discretion of the Board of Directors of the Company    
without stockholder approval. The Board of Directors has the authority to       
prescribe for each series of Preferred Stock it establishes the number of shares
in that series, the consideration (not less than its par value) for such shares 
in that series and the designations, powers, preferences and relative,          
participating, optional or other special rights, and the qualifications,        
limitations or restrictions thereof. Depending upon the rights of such Preferred
Stock, the issuance of Preferred Stock could have an adverse effect on holders  
of Common Stock by delaying or preventing a change in control of the Company,   
making removal of the present management of the Company more difficult or       
resulting in restrictions upon the payment of dividends and other distributions 
to the holders of Common Stock. The Company currently has no intention to issue 
any shares of any class or series of its Preferred Stock.                       

CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK                                

 Immediately after the Offering, there will continue to be approximately
23,000,000 shares of Common Stock and 5,000,000 shares of Preferred Stock       
available for future issuance. Delaware law does not require stockholder        
approval for any issuance of authorized shares. However, the listing            
requirements of the NYSE, which would apply so long as the Common Stock remained
listed on the NYSE, require stockholder approval of certain issuances equal to  
or exceeding 20% of the then-outstanding voting power of the Company. These     
additional shares may be used for a variety of corporate purposes, including    
future public offerings to raise additional capital or to facilitate corporate  
acquisitions. The Company currently does not have any plans to issue additional 
shares of Common Stock or Preferred Stock.                                      

   If the Company did not have a controlling stockholder, one of the effects
of the existence of unissued and unreserved Common Stock and Preferred Stock may
be to enable the Board of Directors to issue shares to persons friendly to      
current management, which issuance could render more difficult or discourage an 
attempt to obtain control of the Company by means of a merger, tender offer,    
proxy contest or otherwise, and thereby protect the continuity of the Company's 
management and possibly deprive the stockholders of opportunities to sell their 
shares of Common Stock at prices higher than prevailing market prices. Such     
additional shares also could be used to dilute the stock ownership of persons   
seeking to obtain control of the Company pursuant to the operation of a         
stockholders' rights plan or otherwise.                                         

PROVISIONS OF RESTATED CERTIFICATE OF INCORPORATION AND BY-LAWS AFFECTING CHANGE
IN CONTROL                                                                      

The Restated Certificate of Incorporation and By-Laws provide that the
Board of Directors will be divided into three classes of directors, each class  
to be as nearly equal in number as possible. The term of office of one class of 
directors expires each year in rotation so that one class is elected at each    
annual meeting of stockholders for a full three-year term. Under Delaware law,  
members of a classified Board of Directors can be removed by stockholders only  
for "cause" unless a corporation's certificate of incorporation provides        
otherwise. The Company's Restated Certificate of Incorporation does not provide 
for removal without cause. The Restated Certificate of Incorporation provides   
that the Board of Directors shall consist of not less than three nor more than  
20 members. The number of directors will be fixed from time to time by          
resolution of the Board of Directors. The affirmative vote of the holders of a  
majority of the outstanding shares of capital stock of the Company entitled to  
vote is required to amend, alter, change or repeal the classified board of      
directors provisions of the Restated Certificate of Incorporation or to remove a
director with cause prior to the expiration of his or her term. Under the       
classified board of directors provisions described above, it would take at least
two elections of directors for any individual or group to gain control of the   
Board of Directors. Accordingly, these provisions would tend to discourage      
unfriendly takeovers.                                                           

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  The Company's By-Laws also contain provisions that may limit or restrict
the ability of stockholders to effect changes in control. Under the Company's   
By-Laws, stockholders do not have the right to call special meetings of         
stockholders. In addition, stockholders must comply with the advance notice     
provisions of the Company's By-Laws to make nominations for members of the Board
of Directors and to submit matters for a vote at meetings of stockholders.      

DELAWARE GENERAL CORPORATION LAW                                                

   The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"). In general, Section 203 provides that a corporation may not
engage in a "business combination" with an "interested stockholder" for a period
of three years from the date that such person became an interested stockholder  
unless (a) the transaction that results in the person's becoming an interested  
stockholder, or the business combination, is approved by the board of directors 
of the corporation before the person becomes an interested stockholder, (b) upon
consummation of the transaction which results in the stockholder becoming an    
interested stockholder, the interested stockholder owns 85% or more of the      
voting stock of the corporation outstanding at the time the transaction         
commenced, excluding shares owned by persons who are directors and officers, and
shares owned by employee stock plans or (c) on or after the date the person     
becomes an interested stockholder, the business combination is approved by the  
corporation's board of directors and by holders of at least two-thirds of the   
corporation's outstanding voting stock, excluding shares owned by the interested
stockholder, at a meeting of stockholders. Under Section 203, an "interested    
stockholder" is defined as any person, other than the corporation and any direct
or indirect majority-owned subsidiaries, that is (a) the owner of 15% or more of
the outstanding voting stock of the corporation or (b) an affiliate or associate
of the corporation and the owner of 15% or more of the outstanding voting stock 
of the corporation at any time within the three-year period immediately prior to
the date on which it is sought to be determined whether such person is an       
interested stockholder or (c) an affiliate or associate of such person. Section 
203 defines a "business combination" to include, without limitation, mergers,   
consolidations, stock sales and asset based transactions and other transactions 
resulting in a financial benefit to the interested stockholder.                 

Under certain circumstances, Section 203 makes it more difficult for a
person who would be an "interested stockholder" to effect various business      
combinations with a corporation for a three-year period, although the           
stockholders may elect to exclude a corporation from the restrictions imposed   
thereunder. The Company's Restated Certificate of Incorporation does not exclude
the Company from the restrictions imposed under Section 203. The provisions of  
Section 203 may encourage companies interested in acquiring the Company to      
negotiate in advance with the Company's Board of Directors, because the         
stockholder approval requirement would be avoided if a majority of the directors
then in office approve either the business combination or the transaction which 
results in the stockholder becoming an interested stockholder. Such provisions  
also may have the effect of preventing changes in the management of the Company.
It is possible that such provisions could make it more difficult to accomplish  
transactions which stockholders may otherwise deem to be in their best          
interests.                                                                      

  Section 203 excludes from the definition of "interested stockholder" any
stockholder of the Company that owned over 15% of the Company's outstanding     
voting stock on December 23, 1987, so long as such holder continues to own over 
15% of outstanding voting stock of the Company. Accordingly, ITT is not subject 
to the restrictions of Section 203.                                             

TRANSFER AGENT AND REGISTRAR                                                    

    The transfer agent and registrar of the Company's Common Stock is The Bank
of New York.                                                                    

SHARES ELIGIBLE FOR FUTURE SALE 

   No predictions can be made as to the effect, if any, that future sales of
shares of Common Stock, or the availability of shares of Common Stock for future
sale, will have on the market price of the Common Stock prevailing from time to 
time. Sales of substantial amounts of the Common Stock in the public market     
following the Offering, or the perception that such sales could occur, could    
adversely affect the market price of                                            

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the Common Stock and may make it more difficult for the Company to sell its     
equity securities in the future at a time and price which it deems appropriate. 

Immediately after the Offering, the Company will continue to have     
outstanding 26,999,952 shares of Common Stock. The Shares sold in the Offering  
will be freely tradeable without restriction or further registration under the  
Securities Act except for any of those Shares that are beneficially owned at any
time by an "affiliate" of the Company (an "Affiliate") within the meaning of    
Rule 144 under the Securities Act (which sales will be subject to the timing,   
volume and manner of sale limitations of Rule 144). The 11,150,000 outstanding  
shares of Common Stock held by the Selling Stockholder after the Offering       
(9,450,000 shares if the over-allotment option is exercised in full) are        
"restricted" securities within the meaning of Rule 144 under the Securities Act 
and may not be publicly resold, except in compliance with the registration      
requirements of the Securities Act or pursuant to an exemption from             
registration, including that provided by Rule 144 under the Securities Act. The 
Selling Stockholder has certain registration rights with respect to the shares  
of Common Stock owned by it. See "Relationship with Selling Stockholder and     
Related Transactions."                                                          

    In general, under Rule 144 as currently in effect, if one year has elapsed
since the date of acquisition of beneficial ownership of restricted shares of   
Common Stock from the Company or any Affiliate, the acquiror or subsequent      
holder thereof is entitled to sell within any three-month period a number of    
such shares that does not exceed the greater of 1% of the then outstanding      
shares of Common Stock or the reported average weekly trading volume of the     
Common Stock on national securities exchanges during the four calendar weeks    
preceding such sale. Sales under Rule 144 are also subject to certain provisions
regarding the manner of sale, notice requirements and the availability of       
current public information about the Company. If two years have elapsed since   
the date of acquisition of restricted shares of Common Stock from the Company or
any affiliate and the acquiror or subsequent holder is not deemed to have been  
an Affiliate of the Company for at least 90 days prior to a proposed            
transaction, such person would be entitled to sell such shares under Rule 144   
without regard to the limitations described above.                              

 The Company, its executive officers, ITT and Starwood, Inc. have agreed
that they will not offer, sell, contract to sell, announce the intention to sell
(other than general announcements by ITT or Starwood regarding their intentions 
to dispose of Common Stock), pledge or otherwise dispose of, directly or        
indirectly (in the case of ITT and Starwood in a public offering), or file with 
the Commission a registration statement under the Securities Act relating to,   
any shares of Common Stock or securities or other rights convertible into or    
exchangeable or exercisable for any shares of Common Stock, without the prior   
written consent of Credit Suisse First Boston Corporation, for a period of 180  
days after the date of this Prospectus; provided, however, that such            
restrictions will not affect the ability of the Company to grant options for    
Common Stock pursuant to the Stock Plans, or to issue Common Stock pursuant to  
the exercise of stock options currently outstanding or granted pursuant to the  
Stock Plans.                                                                    

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UNDERWRITING

    Under the terms and subject to the conditions contained in an Underwriting
Agreement dated June 3, 1998 (the "Underwriting Agreement"), the underwriters   
named below (the "Underwriters"), for whom Credit Suisse First Boston           
Corporation, Bear, Stearns & Co. Inc., BT Alex. Brown Incorporated, Merrill     
Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated   
and Smith Barney Inc. are acting as the representatives (the "Representatives"),
have severally but not jointly agreed to purchase from the Selling Stockholder  
the following respective numbers of shares of Common Stock:                     

                                                                [Download Table]

                                                              NUMBER OF 
                        UNDERWRITER                             SHARES  
                        -----------                           --------- 
                                                                        
Credit Suisse First Boston Corporation......................   1,683,335
Bear, Stearns & Co. Inc. ...................................   1,683,333
BT Alex. Brown Incorporated.................................   1,683,333
Merrill Lynch, Pierce, Fenner & Smith.......................   1,683,333
             Incorporated                                               
Morgan Stanley & Co. Incorporated...........................   1,683,333
Smith Barney Inc............................................   1,683,333
ABN AMRO Incorporated.......................................     250,000
Barrington Research Associates, Inc.........................     250,000
Everen Securities, Inc......................................     250,000
Invemed Associates, Inc.....................................     250,000
Charles Schwab & Co., Inc...................................     250,000
                                                              ----------
     Total..................................................  11,350,000
                                                              ==========

The Underwriting Agreement provides that the obligations of the       
Underwriters are subject to certain conditions precedent and that the           
Underwriters will be obligated to purchase all the shares of Common Stock       
offered hereby (other than those shares covered by the over-allotment option    
described below) if any are purchased. The Underwriting Agreement provides that,
in the event of a default by an Underwriter, in certain circumstances the       
purchase commitments of nondefaulting Underwriters may be increased or the      
Underwriting Agreement may be terminated.                                       

     The Selling Stockholder has granted to the Underwriters an option, expiring
at the close of business on the 30th day after the date of this Prospectus, to  
purchase up to 1,700,000 additional shares from the Selling Stockholder at the  
public offering price, less the underwriting discounts and commissions, all as  
set forth on the cover page of this Prospectus. Such option may be exercised    
only to cover over-allotments in the sale of the shares of Common Stock offered 
hereby. To the extent such option is exercised, each Underwriter will become    
obligated, subject to certain conditions, to purchase approximately the same    
percentage of such additional shares of Common Stock as it was obligated to     
purchase pursuant to the Underwriting Agreement.                                

The Company and the Selling Stockholder have been advised by the      
Representatives that the Underwriters propose to offer shares of Common Stock to
the public initially at the public offering price set forth on the cover page of
this Prospectus and, through the Representatives, to certain dealers at such    
price less a concession of $0.54 per share, and the Underwriters and such       
dealers may allow a discount of $0.10 per share on sales to certain other       
dealers. After the initial public offering, the public offering price and       
concession and discount to dealers may be changed by the Representatives.       

 At the request of the Company, the Underwriters are reserving up to 1.1
million shares of Common Stock from the Offering for sale to certain persons    
identified by the Company at the public offering price. Up to 800,000 of such   
shares may be purchased by the ESI 401(k) Plan. Any shares of Common Stock not  
purchased in this reserve program will be sold to the general public in the     
Offering.                                                                       

 The Company, its executive officers, ITT and Starwood, Inc. have agreed
that they will not offer, sell, contract to sell, announce an intention to sell 
(other than general announcements by ITT or Starwood regarding their intentions 
to dispose of Common Stock), pledge or otherwise dispose of, directly or        
indirectly                                                                      

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(in the case of ITT and Starwood in a public offering), or file with the        
Commission a registration statement under the Securities Act relating to, any   
shares of Common Stock or securities or other rights convertible into or        
exchangeable or exercisable for any shares of Common Stock, without the prior   
written consent of Credit Suisse First Boston Corporation, for a period of 180  
days after the date of this Prospectus; provided, however, that such            
restrictions will not affect the ability of the Company to grant options for    
Common Stock pursuant to the Stock Plans or to issue Common Stock, pursuant to  
the exercise of stock options currently outstanding or granted pursuant to the  
Stock Plans.                                                                    

The Company and the Selling Stockholder have agreed to indemnify the  
Underwriters against certain liabilities, including civil liabilities under the 
Securities Act, or contribute to payments that the Underwriters may be required 
to make in respect thereof.                                                     

The Common Stock is listed on the NYSE under the symbol "ESI."        

The Representatives, on behalf of the Underwriters, may engage in     
over-allotment, stabilizing transactions, syndicate covering transactions and   
penalty bids in accordance with Regulation M under the Exchange Act.            
Over-allotment involves syndicate sales in excess of the offering size, which   
creates a syndicate short position. Stabilizing transactions permit bids to     
purchase shares of Common Stock so long as the stabilizing bids do not exceed a 
specified maximum. Syndicate covering transactions involve purchases of shares  
of Common Stock in the open market after the distribution has been completed in 
order to cover syndicate short positions. Penalty bids permit the               
Representatives to reclaim a selling concession from a syndicate member when the
shares of Common Stock originally sold by such syndicate member are purchased in
a syndicate covering transaction to cover syndicate short positions. Such       
stabilizing transactions, syndicate covering transactions and penalty bids may  
cause the price of the shares of Common Stock to be higher than it would        
otherwise be in the absence of such transactions. These transactions may be     
effected on the NYSE or otherwise and, if commenced, may be discontinued at any 
time.                                                                           

   Certain of the Underwriters have provided advisory and investment banking
services to the Company in the past, for which customary compensation has been  
received.                                                                       

NOTICE TO CANADIAN RESIDENTS

RESALE RESTRICTIONS                                                             

The distribution of the Common Stock in Canada is being made only on a
private placement basis exempt from the requirement that the Company and the    
Selling Stockholder prepare and file a prospectus with the securities regulatory
authorities in each province where trades of the Common Stock are effected.     
Accordingly, any resale of the Common Stock in Canada must be made in accordance
with applicable securities laws which will vary depending on the relevant       
jurisdiction, and which may require resales to be made in accordance with       
available statutory exemptions or pursuant to a discretionary exemption granted 
by the applicable Canadian securities regulatory authority. Purchasers are      
advised to seek legal advice prior to any resale of the Common Stock.           

REPRESENTATIONS OF PURCHASERS                                                   

Each purchaser of Common Stock in Canada who receives a purchase      
confirmation will be deemed to represent to the Company, the Selling Stockholder
and the dealer from whom such purchase confirmation is received that (a) such   
purchaser is entitled under applicable provincial securities laws to purchase   
such Common Stock without the benefit of a prospectus qualified under such      
securities laws, (b) where required by law, that such purchaser is purchasing as
principal and not as agent, and (c) such purchaser has reviewed the text above  
under "Resale Restrictions."                                                    

RIGHTS OF ACTION (ONTARIO PURCHASERS)                                           

The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by       
Section 32 of the Regulation under the Securities Act (Ontario). As a           

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result, Ontario purchasers must rely on other remedies that may be available,   
including common law rights of action for damages or rescission of rights of    
action under the civil liability provisions of the U.S. federal securities laws.

ENFORCEMENT OF LEGAL RIGHTS                                                     

 All of the issuer's directors and officers as well as the experts named
herein and the Selling Stockholder may be located outside of Canada and, as a   
result, it may not be possible for Canadian purchasers to effect service of     
process within Canada upon the issuer, such persons or the Selling Stockholder. 
All or a substantial portion of the assets of the issuer, such persons and the  
Selling Stockholder may be located outside of Canada and, as a result, it may   
not be possible to satisfy a judgment against the issuer, such persons or the   
Selling Stockholder in Canada or to enforce a judgment obtained in Canadian     
courts against the issuer, such persons or the Selling Stockholder outside of   
Canada.                                                                         

NOTICE TO BRITISH COLUMBIA RESIDENTS                                            

   A purchaser of Common Stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British     
Columbia Securities Commission a report within ten days of the sale of any      
Common Stock acquired by such purchaser pursuant to the Offering. Such report   
must be in the form attached to British Columbia Securities Commission Blanket  
Order BOR #95/17, a copy of which may be obtained from the Company. Only one    
such report must be filed in respect of Common Stock acquired on the same date  
and under the same prospectus exemption.                                        

TAXATION AND ELIGIBILITY FOR INVESTMENT                                         

    Canadian purchasers of Common Stock should consult their own legal and tax
advisers with respect to the tax consequences of an investment in the Common    
Stock in their particular circumstances and with respect to the eligibility of  
the Common Stock for investment by the purchaser under relevant Canadian        
legislation.                                                                    

CERTAIN U.S. FEDERAL TAX CONSIDERATIONS 
FOR NON-U.S. HOLDERS OF COMMON STOCK

 The following is a general discussion of certain United States ("U.S.")
federal income and estate tax consequences of the ownership and disposition of  
Common Stock applicable to a beneficial owner thereof that is a "Non-U.S.       
Holder." As used herein, the term "Non-U.S. Holder" means a person or entity    
other than (a) a citizen or individual resident of the United States, (b) a     
corporation or partnership created or organized in or under the laws of the     
United States or any political subdivision thereof, (c) an estate the income of 
which is subject to U.S. federal income tax regardless of its source, or (d) in 
general, a trust if (i) a court within the United States is able to exercise    
primary supervision over the administration of the trust and (ii) one or more   
United States persons have the authority to control all substantial decisions of
the trust.                                                                      

   This discussion is based on the Internal Revenue Code of 1986, as amended
(the "Code"), existing and proposed regulations promulgated thereunder and      
administrative and judicial interpretations thereof, all as of the date hereof, 
and all of which are subject to change, possibly with retroactive effect. This  
discussion does not address all aspects of U.S. federal income and estate       
taxation that may be important to Non-U.S. Holders in light of their particular 
circumstances (including tax consequences applicable to certain former citizens 
or long-term residents of the United States and to certain Non-U.S. Holders that
are, or hold interests in Common Stock through, partnerships or other fiscally  
transparent entities (including "hybrid entities")) and does not address United 
States state and local or non-United States tax consequences. PROSPECTIVE       
NON-U.S. HOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE
PARTICULAR UNITED STATES FEDERAL INCOME AND ESTATE TAX CONSEQUENCES TO THEM OF  
OWNING AND DISPOSING OF COMMON STOCK, AS WELL AS THE TAX CONSEQUENCES ARISING   
UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION.                                

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DIVIDENDS                                                                       

    The Company anticipates that it will not pay dividends on shares of Common
Stock for the foreseeable future. See "Dividend Policy." In the event, however, 
that the Company does pay dividends on shares of Common Stock, a Non-U.S. Holder
of Common Stock generally will be subject to withholding of U.S. federal income 
tax at a rate of 30% of the gross amount of the dividend, or such lower rate as 
may be specified by an income tax treaty between the United States and a foreign
country of which the Non-U.S. Holder is treated as a resident within the meaning
of the applicable tax treaty. Under currently effective United States Treasury  
regulations, dividends paid to an address in a foreign country are presumed to  
be paid to a resident of that country for purposes of the withholding discussed 
above (unless the payor has knowledge to the contrary), and, under the current  
interpretation of United States Treasury regulations, for purposes of           
determining the applicability of a lower rate of withholding tax provided by a  
tax treaty. Under United States Treasury regulations published on October 14,   
1997, as modified by IRS Notice 98-16 released on March 27, 1998 (the "New      
Withholding Regulations"), a Non-U.S. Holder of Common Stock who wishes to claim
the benefit of an applicable treaty rate (and avoid backup withholding as       
discussed below) generally will be required to satisfy specified certification  
and other requirements with respect to dividends paid after December 31, 1999   
(and, in certain circumstances, may be required to satisfy such certification   
and other requirements with respect to dividends paid after December 31, 1998). 
In addition, the New Withholding Regulations contain special rules regarding the
availability of treaty benefits for payments made to (a) foreign intermediaries,
(b) U.S. or foreign wholly-owned entities that are disregarded for U.S. federal 
income tax purposes and (c) partnerships and other entities that are treated as 
fiscally transparent in the United States, the applicable income tax treaty     
jurisdiction, or both. Prospective investors should consult their own tax       
advisors as to the effect, if any, of the New Withholding Regulations on an     
investment in the Common Stock.                                                 

Dividends paid to a Non-U.S. Holder that are either (a) effectively   
connected with the Non-U.S. Holder's conduct of a trade or business within the  
United States or (b) if a tax treaty applies, attributable to a permanent       
establishment maintained by the Non-U.S. Holder, will not be subject to the     
withholding tax (provided in either case the Non-U.S. Holder files the          
appropriate documentation with the Company or its agent), but, instead, will be 
subject to regular U.S. federal income tax at the graduated rates in the same   
manner as if the Non-U.S. Holder were a U.S. resident. In addition to such      
graduated tax, in the case of a Non-U.S. Holder that is a corporation,          
effectively connected dividends or, if a tax treaty applies, dividends          
attributable to a U.S. permanent establishment of the corporate Non-U.S. Holder,
may be subject to a "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 tax treaty) of the non-U.S. corporation's "effectively connected     
earnings and profits," subject to certain adjustments.                          

  A Non-U.S. Holder of Common Stock that is eligible for a reduced rate of
United States withholding tax pursuant to a tax treaty may obtain a refund of   
any excess amounts withheld by filing a timely claim for refund with the        
Internal Revenue Service.                                                       

GAIN ON DISPOSITION OF COMMON STOCK                                             

    A Non-U.S. Holder generally will not be subject to U.S. federal income tax
with respect to gain recognized on a sale or other taxable disposition of Common
Stock unless (a) the gain is effectively connected with a trade or business of  
the Non-U.S. Holder in the United States or, if a tax treaty applies,           
attributable to a United States permanent establishment of the Non-U.S. Holder, 
(b) in the case of a Non-U.S. Holder who is a nonresident alien individual and  
holds the Common Stock as a capital asset, such individual is present in the    
United States for 183 or more days in the taxable year of the sale or other     
disposition and certain other conditions are met, or (c) the Company is or has  
been a "U.S. real property holding corporation" for United States federal income
tax purposes at any time within the shorter of the five-year period preceding   
such disposition or the period such Non-U.S. Holder held the Common Stock. A    
corporation is a "U.S. real property holding corporation" if the fair market    
value of the United States real property interests held by the corporation is   
50% or more of the aggregate fair market value of certain assets of the         
corporation. The Company believes that it is not and has not been, and the      
Company does not anticipate becoming, a "U.S. real property holding             
corporation." If the Company were, or were to become, a U.S. real property      
holding                                                                         
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corporation, so long as the Common Stock is "regularly traded" on an established
securities market within the meaning of the Code, only a Non-U.S. Holder that   
owns, directly or pursuant to certain attribution rules, more than 5% of the    
Common Stock (at any time during the shorter of the periods described above)    
will be subject to U.S. federal income tax on the sale or other disposition of  
the Common Stock.                                                               

  If an individual Non-U.S. Holder is described in clause (a) above, he or
she will be taxed on the net gain derived from the sale or other disposition at 
regular graduated U.S. federal income tax rates. If an individual Non-U.S.      
Holder falls under clause (b) above, he or she will be subject to a flat 30% tax
on the gain derived from the sale or other disposition, which may be offset by  
certain U.S.-source capital losses (notwithstanding the fact that such          
individual is not considered a resident of the United States). If a Non-U.S.    
Holder that is a corporation falls under clause (a) above, it will be taxed on  
its net gain derived from the sale or other disposition at regular graduated    
U.S. federal income tax rates and may be subject to an additional branch profits
tax at a rate of 30% (or such lower rate as may be specified by an applicable   
tax treaty) on the non-U.S. corporation's "effectively connected earnings and   
profits," subject to certain adjustments.                                       

INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING                       

     Generally, the Company must report annually to the Internal Revenue Service
the amount of dividends paid to a Non-U.S. Holder and the amount, if any, of tax
withheld with respect to, such Non-U.S. Holder. A similar report is sent to the 
Non-U.S. Holder. Pursuant to tax treaties or certain other agreements, the      
Internal Revenue Service ("IRS") may make its reports available to tax          
authorities in the recipient's country of residence.                            

Currently, United States backup withholding tax (which generally is a 
withholding tax imposed at a rate of 31% on certain payments to persons that    
fail to furnish the information required under the United States information    
reporting requirements) will generally not apply to dividends paid on Common    
Stock to a Non-U.S. Holder at an address outside the United States, unless the  
payor has actual knowledge that the payee is a U.S. Holder. Backup withholding  
tax generally will apply to dividends paid on Common Stock at addresses inside  
the United States to Non-U.S. Holders who fail to provide certain identifying   
information in the manner required.                                             

     In addition, information reporting and backup withholding imposed at a rate
of 31% will apply to the proceeds of a disposition of Common Stock paid to or   
through a U.S. office of a broker unless the disposing holder, under penalties  
of perjury, certifies as to its non-U.S. status or otherwise establishes an     
exemption. Generally, U.S. information reporting and backup withholding will not
currently apply to a payment of disposition proceeds if the payment is made     
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 outside the United States if the
payment is made through an office outside the United States of a broker that is 
(a) a U.S. person, (b) a foreign person that derives 50% or more of its gross   
income for certain periods from the conduct of a trade or business in the United
States or (c) a "controlled foreign corporation" for U.S. federal income tax    
purposes, unless the broker maintains documentary evidence that the holder is a 
Non-U.S. Holder and certain other conditions are met, or the holder otherwise   
establishes an exemption.                                                       

  Under the New Withholding Regulations, which generally are effective for
payments made after December 31, 1999 (but which, in certain circumstances, may 
apply to payments made after December 31, 1998), the payment of dividends, and  
the payment of proceeds from the disposition of Common Stock through brokers    
having certain connections with the United States, may be subject to information
reporting and backup withholding at a rate of 31% unless certain IRS            
certification requirements are satisfied or an exemption is otherwise           
established. Prospective investors should consult with their own tax advisers   
regarding the application of the New Withholding Regulations to their particular
circumstances.                                                                  

   Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by a credit for 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.    
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FEDERAL ESTATE TAX                                                              

  Shares of Common Stock owned or treated as owned by an individual who is
not a citizen or resident of the United States at the time of his or her death  
will be includible in the individual's gross estate for United States federal   
estate tax purposes, unless an applicable tax treaty provides otherwise, and may
be subject to United States federal estate tax. Estates of non-resident aliens  
are generally allowed a statutory credit which has the effect of offsetting the 
United States federal estate tax imposed on the first $60,000 of the taxable    
estate.                                                                         

LEGAL MATTERS 

     The validity of the Common Stock offered hereby will be passed upon for the
Company by Baker & Daniels, Indianapolis, Indiana. Certain legal matters        
relating to the Offering will be passed upon for the Underwriters by Dewey      
Ballantine LLP, New York, New York.                                             

EXPERTS 

  The financial statements of the Company as of December 31, 1997 and 1996
and for each of the three years in the period ended December 31, 1997 included  
in this Prospectus have been so included in reliance on the report of Price     
Waterhouse LLP, independent accountants, given on the authority of said firm as 
experts in accounting and auditing.                                             

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INDEX TO FINANCIAL STATEMENTS 

                                                                [Download Table]

                                                              PAGE
                                                              ----
                                                                  
Report of Independent Accountants...........................  F-2 
Statements of Income and Retained Earnings for the years          
  ended December 31, 1997, December 31, 1996 and December         
  31, 1995 and for the three months ended March 31, 1998 and      
  1997 (unaudited)..........................................  F-3 
Balance Sheets as of December 31, 1997 and December 31, 1996      
  and March 31, 1998 (unaudited)............................  F-4 
Statements of Cash Flows for years ended December 31, 1997,       
  December 31, 1996 and December 31, 1995 and the three           
  months ended March 31, 1998 and 1997 (unaudited)..........  F-5 
Notes to Financial Statements...............................  F-6 

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REPORT OF INDEPENDENT ACCOUNTANTS 

To the Board of Directors and Shareholders of ITT Educational Services, Inc.    

    In our opinion, the accompanying balance sheets and the related statements
of income and retained earnings and of cash flows present fairly, in all        
material respects, the financial position of ITT Educational Services, Inc. at  
December 31, 1997 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles. These financial statements are   
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our  
audits of these statements in accordance with generally accepted auditing       
standards which 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, assessing the          
accounting principles used and significant estimates made by management, and    
evaluating the overall financial statement presentation. We believe that our    
audits provide a reasonable basis for the opinion expressed above.              

PRICE WATERHOUSE LLP                                                            
Indianapolis, Indiana                                                           
January 10, 1998, except for                                                    
Note 1 which is                                                             
as of April 7, 1998,                                                        
Note 3 which is                                                             
as of April 28, 1998 and                                                    
Note 10 which is as of May 7, 1998                                          

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ITT EDUCATIONAL SERVICES, INC.

STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA) 

                                                        [Enlarge/Download Table]

                                              THREE MONTHS ENDED                                  
                                                  MARCH 31,           YEAR ENDED DECEMBER 31,     
                                              ------------------  --------------------------------
                                               1998       1997      1997        1996        1995  
                                              -------    -------  --------    --------    --------
                                                 (UNAUDITED)                                      
                                                                                                  
REVENUES                                                                                          
Tuition...................................... $62,587    $55,746  $222,457    $196,692    $171,936
Other educational............................   9,700      8,730    39,207      35,627      29,895
                                              -------    -------  --------    --------    --------
          Total revenues.....................  72,287     64,476   261,664     232,319     201,831

COSTS AND EXPENSES                                                                                
Cost of educational services.................  41,438     37,984   163,053     145,197     130,338
Student services and administrative                                                               
  expenses...................................  19,436     17,536    72,388      66,546      57,268
Change in control expenses...................     443         --        --          --          --
                                              -------    -------  --------    --------    --------
          Total costs and expenses...........  61,317     55,520   235,441     211,743     187,606

Operating income.............................  10,970      8,956    26,223      20,576      14,225
Interest income, net.........................   1,244      1,380     5,565       4,119       4,802
                                              -------    -------  --------    --------    --------

Income before income taxes...................  12,214     10,336    31,788      24,695      19,027
Income taxes.................................   4,886      4,134    12,665       9,844       7,636
                                              -------    -------  --------    --------    --------

Net income...................................   7,328      6,202    19,123      14,851      11,391
Retained earnings, beginning of period.......  55,032     35,909    35,909      21,058       9,667
                                              -------    -------  --------    --------    --------
Retained earnings, end of period............. $62,360    $42,111  $ 55,032    $ 35,909    $ 21,058
                                              =======    =======  ========    ========    ========

Earnings per common share (basic and                                                              
  diluted)................................... $   .27    $   .23  $    .71    $    .55    $    .42
                                              =======    =======  ========    ========    ========

The accompanying notes are an integral part of these financial statements.
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ITT EDUCATIONAL SERVICES, INC.

BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA) 

                                                        [Enlarge/Download Table]

                                                            MARCH 31,       DECEMBER 31,    
                                                           -----------  --------------------
                                                              1998        1997        1996  
                                                           -----------  --------    --------
                                                           (UNAUDITED)                      
                                                                                            
ASSETS                                                                                      
Current assets                                                                              
  Cash and cash equivalents...............................  $ 90,217    $     29    $     74
  Restricted cash.........................................     6,689       3,860       5,911
  Cash invested with ITT Corporation......................        --      94,800      89,808
  Accounts receivable, less allowance for doubtful                                          
     accounts of $932, $1,393 and $1,044..................    12,770       9,680       9,378
  Deferred income tax.....................................     1,843       2,019       1,455
  Prepaids and other current assets.......................     3,939       2,570       1,823
                                                            --------    --------    --------
          Total current assets............................   115,458     112,958     108,449
Property and equipment, net...............................    22,937      22,886      19,360
Direct marketing costs....................................     7,054       6,882       5,774
Other assets..............................................     3,338       3,188       2,166
                                                            --------    --------    --------
          Total assets....................................  $148,787    $145,914    $135,749
                                                            ========    ========    ========
LIABILITIES AND SHAREHOLDERS' EQUITY                                                        
Current liabilities                                                                         
  Accounts payable........................................  $ 11,639    $ 14,974    $ 12,188
  Accrued compensation and benefits.......................     5,054       3,245       4,253
  Other accrued liabilities...............................    11,729       6,877       5,432
  Deferred tuition revenue................................    23,041      30,850      43,532
                                                            --------    --------    --------
          Total current liabilities.......................    51,463      55,946      65,405
Other liabilities.........................................     2,181       2,153       1,652
                                                            --------    --------    --------
          Total liabilities...............................    53,644      58,099      67,057
                                                            --------    --------    --------
Commitments and contingent liabilities (Note 10)                                            
Shareholders' equity                                                                        
  Preferred stock, $.01 par value, 5,000,000 shares                                         
     authorized, none issued or outstanding...............        --          --          --
  Common stock, $.01 par value, 50,000,000 shares                                           
     authorized, 26,999,952 issued and outstanding........       270         270         270
  Capital surplus.........................................    32,513      32,513      32,513
  Retained earnings.......................................    62,360      55,032      35,909
                                                            --------    --------    --------
          Total shareholders' equity......................    95,143      87,815      68,692
                                                            --------    --------    --------
          Total liabilities and shareholders' equity......  $148,787    $145,914    $135,749
                                                            ========    ========    ========

The accompanying notes are an integral part of these financial statements.
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ITT EDUCATIONAL SERVICES, INC.

STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                           THREE MONTHS ENDED                                         
                                                MARCH 31,              YEAR ENDED DECEMBER 31,        
                                           -------------------   ------------------------------------ 
                                            1998        1997       1997          1996          1995   
                                           -------    --------   --------      --------      -------- 
                                               (UNAUDITED)                                            
                                                                                                      
Cash flows from operating activities:                                                                 
Net income...............................  $ 7,328    $  6,202   $ 19,123      $ 14,851      $ 11,391 
Adjustments to reconcile net income to                                                                
  net cash provided by operating                                                                      
  activities:                                                                                         
     Depreciation and amortization.......    2,214       1,958      7,939         7,493         7,542 
     Provision for doubtful accounts.....      674         453      2,354         1,738         1,173 
     Deferred taxes......................      232         227        202          (443)         (240)
     Increase/decrease in operating                                                                   
       assets and liabilities:                                                                        
       Accounts receivable...............   (3,764)       (872)    (2,656)       (3,524)       (2,189)
       Direct marketing costs............     (172)       (195)    (1,108)         (743)           23 
       Accounts payable and accrued                                                                   
          liabilities....................    3,298       2,240      2,958         3,083         1,438 
       Prepaids and other assets.........   (1,519)     (2,205)    (1,769)          220           683 
       Deferred tuition revenue..........   (7,809)    (12,732)   (12,682)        3,469          (908)
                                           -------    --------   --------      --------      -------- 
Net cash provided by (used for) operating                                                             
  activities.............................      482      (4,924)    14,361        26,144        18,913 
                                           -------    --------   --------      --------      -------- 
Cash flows used for investing activities:                                                             
  Capital expenditures, net..............   (2,265)     (4,027)   (11,465)       (7,868)       (8,206)
  Net decrease ( increase) in cash                                                                    
     invested with ITT Corporation.......   94,800       3,872     (4,992)      (17,923)      (15,975)
                                           -------    --------   --------      --------      -------- 
Net cash provided by (used for) investing                                                             
  activities.............................   92,535        (155)   (16,457)      (25,791)      (24,181)
                                           -------    --------   --------      --------      -------- 
Net increase (decrease) in cash and                                                                   
  restricted cash........................   93,017      (5,079)    (2,096)          353        (5,268)
Cash and restricted cash at beginning of                                                              
  period.................................    3,889       5,985      5,985         5,632        10,900 
                                           -------    --------   --------      --------      -------- 
Cash and restricted cash at end of                                                                    
  period.................................  $96,906    $    906   $  3,889      $  5,985      $  5,632 
                                           =======    ========   ========      ========      ======== 
Supplemental disclosure of cash flow                                                                  
  information:                                                                                        
  Cash paid during the period for:                                                                    
     Income taxes........................  $   121    $  2,619   $ 12,352      $ 10,051      $  8,168 
     Interest............................       67          55        291           273           550 

The accompanying notes are an integral part of these financial statements.
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ITT EDUCATIONAL SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS 
DECEMBER 31, 1997, 1996 AND 1995, AND MARCH 31, 1998
AND 1997 (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)

1.  OWNERSHIP AND CHANGE IN CONTROL                                             

 Since the ITT Educational Services, Inc. (the "Company") initial public
offering in 1994, 83.3% of the outstanding Common Stock of the Company has been 
owned by ITT Corporation ("ITT") and 16.7% has been owned by others.            

     On February 23, 1998, Starwood Hotels & Resorts Worldwide, Inc. ("Starwood,
Inc.") completed the acquisition (the "Merger") of ITT and ITT became a         
subsidiary of Starwood, Inc. As a result of the Merger, each ITT Technical      
Institute campus group became ineligible to participate in federal student      
financial aid programs. Effective March 20, 1998, the eligibility of each ITT   
Technical campus group to participate in federal student financial aid programs 
was reinstated by the U.S. Department of Education ("DOE") with certain         
conditions imposed by the DOE. The Company believes that it is in compliance    
with or satisfies these DOE conditions.                                         

2.  SUMMARY OF ACCOUNTING PRINCIPLES AND POLICIES                               

  Business Activities.  The Company is a leading proprietary postsecondary
education system primarily offering career-focused, technical degree programs of
study. At December 31, 1997, the Company operated sixty-two (62) technical      
institutes throughout the United States (63 at March 31, 1998). The Company     
maintains corporate headquarters in Indianapolis, Indiana.                      

  Interim Financial Information (unaudited). The results of operations for
the three months ended March 31, 1998 and 1997 are not necessarily indicative of
the results to be expected for the full fiscal year. All information as of March
31, 1998 and for the three months ended March 31, 1998 and 1997 is unaudited    
but, in the opinion of management, contains all adjustments, consisting only of 
normal recurring adjustments, necessary to present fairly the financial         
condition, results of operation and cash flows of the Company.                  

Use of Estimates.  The preparation of these financial statements, in  
conformity with generally accepted accounting principles, includes estimates    
that are determined by the Company's management.                                

     Property and Equipment.  The Company includes all property and equipment in
the financial statements at cost. Provisions for depreciation of property and   
equipment have generally been made using the straight-line method for financial 
reporting purposes and accelerated methods for tax purposes. Estimated useful   
lives generally range from three to ten years for furniture and equipment and   
leasehold improvements. Maintenance, repairs and renewals not of a capital      
nature are expensed as incurred. Fully depreciated assets no longer in use are  
removed from both the asset and accumulated depreciation accounts in the year of
their retirement. Any gains or losses on dispositions are credited or charged to
income, as appropriate.                                                         

    Fair Value of Financial Instruments.  The carrying amounts reported in the
balance sheets for cash, restricted cash, cash invested with ITT Corporation,   
accounts receivable, accounts payable, other accrued liabilities and deferred   
tuition revenue approximate fair value because of the immediate or short-term   
maturity of these financial instruments.                                        

  Recognition of Revenues.  Tuition revenue is recorded on a straight-line
basis over the length of the applicable course. If a student discontinues       
training, the revenue related to the remainder of that quarter is recorded with 
the amount of refund resulting from the application of federal, state or        
accreditation requirements recorded as an expense. On an individual student     
basis, tuition earned in excess of cash received is recorded as accounts        
receivable, and cash received in excess of tuition earned is recorded as        
deferred tuition revenue.                                                       

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ITT EDUCATIONAL SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Other educational revenue is comprised of laboratory fees and textbook
sales. Laboratory fees are recorded as revenue at the beginning of each quarter.
Textbook sales are recognized when they occur.                                  

     Advertising Costs.  The Company expenses all advertising costs as incurred.

   Direct Marketing Costs.  Direct costs incurred relating to the enrollment
of new students are capitalized using the successful efforts method. Direct     
marketing costs include recruiting representatives' salaries, employee benefits 
and other direct costs less enrollment fees. Direct marketing costs are         
amortized on an accelerated basis over the average course length of 24 months   
commencing on the start date.                                                   

Direct marketing costs on the balance sheet totaled $7,054, $6,882 and
$5,774 at March 31, 1998, December 31, 1997 and December 31, 1996, respectively,
net of accumulated amortization of $7,326, $5,861 and $5,065 at those dates,    
respectively.                                                                   

     Institute Start-Up Costs.  Deferred institute start-up costs consist of all
direct costs incurred at a new institute (excluding advertising costs) that are 
incurred from the date a lease for a technical institute facility is entered    
into until the first class start. Such capitalized costs are amortized on a     
straight-line basis over a one-year period. At March 31, 1998, December 31, 1997
and December 31, 1996, deferred start-up costs included in other assets in the  
balance sheet totaled $1,286, $1,316 and $521, respectively, net of accumulated 
amortization of $454, $174 and $799 at such dates, respectively.                

 Income Taxes.  The Company is included in the consolidated U.S. federal
income tax return of ITT and determines its income tax provision principally on 
a separate return basis in conformity with Statement of Financial Accounting    
Standards ("SFAS") No. 109. Under a tax sharing policy with ITT, income taxes   
are allocated to members of the U.S. consolidated group based principally on    
amounts they would pay or receive if they filed a separate income tax return.   
Deferred income taxes are provided on the differences in the book and tax basis 
of assets and liabilities recorded on the books of the Company (temporary       
differences) at the statutory tax rates expected to be in effect when such      
differences reverse. Temporary differences related to SFAS No. 106, SFAS No.    
112, pension and self-insurance costs are recorded on the books of ITT where the
related assets and liabilities are recorded. ITT pays current federal income    
taxes on behalf of the Company, as calculated under the tax sharing policy, and 
reflects the funding through the cash invested with ITT Corporation account.    

    Earnings Per Common Share.  Earnings per common share for all periods have
been calculated in conformity with SFAS No. 128, "Earnings Per Share." Such data
is based on historical net income and the average number of shares of Common    
Stock outstanding during each period. The number of average shares outstanding  
utilized for basic earnings per share were 26,999,952 in the three months ended 
March 31, 1998, and in 1997, 1996 and 1995. Average shares outstanding utilized 
for diluted earnings per share were 27,105,000, 27,092,000 and 27,032,000, for  
1997, 1996 and 1995, respectively (27,144,000 and 27,109,000 for the three      
months ended March 31, 1998 and 1997, respectively). The difference in shares   
utilized in calculating basic and diluted earnings per share represents the     
average number of shares issued under the Company's stock option plan less      
shares assumed to be purchased with proceeds from the exercise of the stock     
options.                                                                        

3.  RELATED PARTY TRANSACTIONS                                                  

At December 31, 1997, and during the three-year period then ended, the
relationship between the Company and ITT was governed by various agreements     
summarized as follows:                                                          

     Intercompany Activities.  ITT provides the Company with certain centralized
treasury and financing functions. The Company transfers all unrestricted cash   
receipts to ITT and receives funds from ITT for all disbursements. The Company  
earns interest on the average net cash balance held by ITT, at an interest rate 
that is set for a 12-month period and is 30 basis points over the most recently 
published rate for 12-month                                                     

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ITT EDUCATIONAL SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

treasury bills. The net of all such cash transfers as well as charges from ITT  
for expenses related to the Company's participation in ITT's plans (such as     
pensions, medical insurance, federal income taxes, etc.) resulted in a net      
balance of cash invested with ITT as of December 31, 1997 and 1996, of $94,800  
and $89,808, respectively. On February 5, 1998, ITT transferred approximately   
$83,000 to the Company and since that date the Company has been performing its  
own cash management function.                                                   

ITT also provides certain risk management, tax and pension management 
services. The fee (contract service charge) for such services is 0.25% of the   
Company's annual revenue. The contract service charges were $654, $578 and $504 
for the years ended December 31, 1997, 1996 and 1995, respectively ($15 and $163
for the three months ended March 31, 1998 and 1997, respectively).              

  The Company's employees participate in certain employee benefit programs
which are sponsored and administered by ITT. Administrative costs relating to   
these services and participation in these plans are charged to the Company using
allocation methods management believes are reasonable. The Company pays a       
processing fee related to its participation in ITT's consolidated medical plan. 
The processing fees were $159, $280 and $464 in 1997, 1996 and 1995,            
respectively.                                                                   

     Tax Agreement.  ITT and the Company entered into a tax agreement providing,
among other things, that the Company will pay ITT, with respect to federal      
income taxes for each period that the Company is included in ITT's consolidated 
federal return, that amount that the Company would have been required to pay had
it filed a separate federal income tax return under the tax sharing policy      
described in Note 2.                                                            

    Similarly, with respect to state, corporate, franchise or income taxes for
those states where ITT files a combined or consolidated state return that       
includes the Company, the Company will pay as if it filed a separate tax return.
With respect to ITT's consolidated federal and state returns, the Company will  
be responsible for any deficiencies assessed with respect to such returns if    
such deficiencies relate to the Company. Similarly, the Company will be entitled
to all refunds paid with respect to such returns that relate to the Company. The
Company will be responsible for all taxes, including assessments, if any, for   
prior years with respect to all other taxes payable by the Company.             

Management believes the statements of income include a reasonable     
allocation of costs incurred by ITT which benefit the Company. The              
aforementioned agreements have been modified since the Merger and the new       
agreements will become effective upon the closing of the Offering. Management   
believes that the new agreements, including the transfer of any assets or       
liabilities from ITT to the Company contemplated thereunder, will not have a    
material effect on the Company's financial position, results of operations or   
cash flows.                                                                     

4.  FINANCIAL AID PROGRAMS                                                      

     The Company participates in various Title IV Programs. Approximately 70% of
the Company's 1997 revenue was derived from funds distributed under these       
programs.                                                                       

  The Company participates in the Federal Perkins Loan ("Perkins") program
and administers on behalf of the federal government a pool of Perkins student   
loans which aggregated $8,517 and $8,235 at December 31, 1997 and 1996,         
respectively. The Company has recorded in its financial statements only its     
aggregate mandatory contributions to this program which at December 31, 1997 and
1996 aggregated $1,588 and $1,572, respectively. The Company has provided $971  
and $955, respectively, for potential losses related to funds committed by the  
Company at December 31, 1997 and 1996.                                          

    The Title IV Programs are administered by the Company in separate accounts
as required by government regulation. The Company is required to administer the 
funds in accordance with the requirements of the Higher Education Act and DOE   
regulations and must use due diligence in approving and disbursing funds and    
servicing loans. In the event the Company does not comply with federal          
requirements, or if student loan                                                

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ITT EDUCATIONAL SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

default rates rise to a level considered excessive by the federal government,   
the Company could lose its eligibility to participate in the Title IV Programs  
or could be required to repay funds determined to have been improperly          
disbursed. Management believes that it is in substantial compliance with the    
federal requirements. Currently, the Company has been informed by the DOE that  
one ITT Technical Institute in Garland, Texas has default rates that are        
considered excessive. The Company is in the process of appealing that decision. 
Should the appeal be denied by the DOE, the Company does not believe the loss of
Title IV Program funding at this one institute will have a material adverse     
effect on the Company's financial position, results of operations or cash flows.

5.  RESTRICTED CASH                                                             

   The Company participates in the Electronic Funds Transfer ("EFT") program
through the DOE. All monies transferred to the Company via the EFT system are   
subject to certain holding period restrictions, generally from three to seven   
days, before they can be drawn into the Company's cash account. Such amounts are
classified as restricted until they are applied to the students' accounts.      

6.  PROPERTY AND EQUIPMENT                                                      

Fixed assets include the following:                                   

                                                                [Download Table]

                                             MARCH 31,         DECEMBER 31,     
                                            -----------    -------------------- 
                                               1998          1997        1996   
                                            -----------    --------    -------- 
                                            (UNAUDITED)                         
                                                                                
Furniture and equipment...................   $ 64,068      $ 62,514    $ 52,317 
Leasehold improvements....................      7,941         7,848       7,017 
Land and land improvements................        110           110         110 
Construction in progress..................        200           325       1,142 
                                             --------      --------    -------- 
                                               72,319        70,797      60,586 
Less accumulated depreciation.............    (49,382)      (47,911)    (41,226)
                                             --------      --------    -------- 
                                             $ 22,937      $ 22,886    $ 19,360 
                                             ========      ========    ======== 

7.  TAXES                                                                       

The provision for income taxes includes the following:                

                                                                [Download Table]

                           THREE MONTHS ENDED                               
                               MARCH 31,         YEAR ENDED DECEMBER 31,    
                           ------------------  ---------------------------- 
                            1998       1997     1997       1996       1995  
                           -------    -------  -------    -------    ------ 
                              (UNAUDITED)                                   
                                                                            
Current                                                                     
  Federal................. $3,898     $3,273   $10,399    $ 8,673    $6,571 
  State...................    756        634     2,064      1,614     1,305 
                           ------     ------   -------    -------    ------ 
                            4,654      3,907    12,463     10,287     7,876 
Deferred                                                                    
  Federal.................    194        189       168       (370)     (200)
  State...................     38         38        34        (73)      (40)
                           ------     ------   -------    -------    ------ 
                              232        227       202       (443)     (240)
                           ------     ------   -------    -------    ------ 
                           $4,886     $4,134   $12,665    $ 9,844    $7,636 
                           ======     ======   =======    =======    ====== 

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ITT EDUCATIONAL SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Deferred tax assets (liabilities) include the following:              

                                                                [Download Table]

                                    MARCH 31,             DECEMBER 31,          
                                   -----------    ----------------------------- 
                                      1998         1997       1996       1995   
                                   -----------    -------    -------    ------- 
                                   (UNAUDITED)                                  
                                                                                
Direct marketing costs...........    $(2,767)     $(2,698)   $(2,263)   $(1,973)
Institute start-up costs.........       (504)        (516)      (204)      (392)
Depreciation.....................        759          759        785        744 
Reserves and other...............      2,224        2,399      1,828      1,324 
                                     -------      -------    -------    ------- 
Net deferred tax assets                                                         
  (liabilities)..................    $  (288)     $   (56)   $   146    $  (297)
                                     =======      =======    =======    ======= 

Differences between effective income tax rates and the statutory U.S. 
federal income tax rates are as follows:                                        

                                                                [Download Table]

                                         THREE MONTHS                          
                                            ENDED              YEAR ENDED      
                                          MARCH 31,           DECEMBER 31,     
                                        --------------    -------------------- 
                                        1998     1997     1997    1996    1995 
                                        -----    -----    ----    ----    ---- 
                                         (UNAUDITED)                           
                                                                               
Statutory U.S. federal income tax                                              
  rate................................   35.0%    35.0%   35.0%   35.0%   35.0%
State income taxes, net of federal                                             
  benefit.............................    4.1      4.1     4.1     4.1     4.3 
Permanent differences and other.......     .9       .9      .7      .8      .8 
                                        -----    -----    ----    ----    ---- 
Effective income tax rate.............   40.0%    40.0%   39.8%   39.9%   40.1%
                                        =====    =====    ====    ====    ==== 

8.  RETIREMENT PLANS                                                            

     Employee Pension Benefits.  The Company participates in the Retirement Plan
for Salaried Employees of ITT Corporation, a non-contributory defined benefit,  
final average pay pension plan which covers substantially all employees of the  
Company. ITT determines the aggregate amount of pension expense on a            
consolidated basis based on actuarial calculations and such expense is allocated
to participating units on the basis of compensation covered by the plan. For the
years ended December 31, 1997, 1996 and 1995, pension expense as a percentage of
covered compensation for employees over age 21 who had more than one year of    
service was 6.84%, 6.57% and 5.52%, respectively (6.00% and 5.50% for three     
months ended March 31, 1998 and 1997, respectively) which resulted in charges to
the Company of $4,458, $3,783 and $2,983, respectively ($1,050 and $900 for the 
three months ended March 31, 1998 and 1997, respectively).                      

Retirement Savings Plan.  The Company participates in The ITT 401K    
Retirement Savings Plan, a defined contribution plan which covers substantially 
all employees of the Company. The Company's non-matching and matching           
contributions under this plan are provided for through the issuance of common   
shares of ITT. The costs of the non-matching and matching Company contributions 
are charged by ITT to the Company. For the years ended December 31, 1997, 1996  
and 1995, the costs of providing this benefit (including an allocation of the   
administrative costs of the plan) were $2,104, $1,749 and $1,369, respectively  
($395 and $555 for the three months ended March 31, 1998 and 1997,              
respectively).                                                                  

9.  STOCK OPTION AND KEY EMPLOYEE INCENTIVE PLANS                               

The Company adopted and the stockholders approved the ITT Educational 
Services, Inc. 1994 Stock Option Plan ("1994 Plan") and the 1997 ITT Educational
Services, Inc. Incentive Stock Plan ("1997 Plan"). The Company has adopted the  
disclosure only provisions of SFAS No. 123, "Accounting for Stock-Based         
Compensation." Accordingly, no compensation cost has been recognized in the     
financial statements for the 1994 Plan or the 1997 Plan. The Company has        
elected, as permitted by the standard, to continue following its intrinsic value
based method of accounting for stock options consistent with APB Opinion No. 25,
"Accounting for Stock Issued to Employees." Under the intrinsic method,         
compensation cost for stock options                                             

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ITT EDUCATIONAL SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

is measured as the excess, if any, of the quoted market price of the company's  
stock at the measurement date over the exercise price.                          

 Under the 1994 Plan, a maximum of 405,000 shares of Common Stock may be
issued upon exercise of options. Under the 1997 Plan, a maximum of 1.5% of the  
outstanding common shares may be issued each year commencing in 1997, with any  
unissued shares issuable in later years. Under the 1997 Plan, a maximum of      
4,050,000 shares of Common Stock may be issued upon exercise of options. The    
option price may not be less than 100% of the fair market value of the Common   
Stock on the date of grant and the options will vest and become exercisable in  
three equal annual installments commencing with the first anniversary of the    
grant. The options outstanding at March 31, 1998 and December 31, 1997, are as  
follows:                                                                        

1994 PLAN                                                             

                                                                [Download Table]

                                        MARCH 31, 1998        DECEMBER 31, 1997 
                                      -------------------    -------------------
                                      NUMBER OF    OPTION    NUMBER OF    OPTION
           DATE OF GRANT               SHARES      PRICE      SHARES      PRICE 
           -------------              ---------    ------    ---------    ------
                                                                                
December 27, 1994...................   135,000     $ 4.44     135,000     $ 4.44
October 2, 1995.....................    56,250       8.89      56,250       8.89
February 12, 1996...................    67,500      11.94      67,500      11.94
February 10, 1997...................   146,250      24.25     146,250      24.25
                                       -------                -------           
                                       405,000                405,000           
                                       =======                =======           
1997 PLAN                                                                       
January 13, 1998....................   405,000      21.69                       
                                       =======     ======                       

    During 1997, 1996 and 1995 no options were exercised, expired or canceled.
At December 31, 1997 and March 31, 1998, 195,000 and 266,250 stock options,     
respectively, were exercisable with a weighted average price of $6.16 and $9.96,
respectively.                                                                   

  Compensation costs for the 1994 Plan, calculated in accordance with SFAS
No. 123, are not significant for the years ending December 31, 1996 and 1995.   
Had compensation costs been determined based upon the fair value of the stock   
options at grant date consistent with SFAS No. 123, the Company's net income and
earnings per share for the year ended December 31, 1997 would have been reduced 
to the pro forma amounts of $18,519 and $.69 (basic earnings per share) and $.68
(diluted earnings per share), respectively, from the as reported amounts of     
$19,123 and $.71.                                                               

The fair value of each option grant was estimated on the date of grant
using the Black-Sholes option-pricing model with the following assumptions for  
1997, 1996 and 1995, respectively: risk-free interest rates of 6.6%, 5.7% and   
6.4%; expected lives of 10 years; volatility of 46% and no dividend yield.      

     In January 1998, an additional 405,000 stock options, at an option price of
$21.69 each, were granted by the Board of Directors.                            

10.  COMMITMENTS AND CONTINGENT LIABILITIES                                     

    Lease Commitments.  The Company leases substantially all of its facilities
under operating lease agreements. A majority of the operating leases contain    
renewal options that can be exercised after the initial lease term. Renewal     
options are generally for periods of one to five years. All operating leases    
will expire over the next fourteen years and management expects that leases will
be renewed or replaced by other leases in the normal course of business. There  
are no material restrictions imposed by the lease agreements and the Company has
not entered into any significant guarantees related to the leases. The Company  
is required to make additional payments under the operating lease terms for     
taxes, insurance and other operating expenses incurred during the operating     
lease period.                                                                   

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ITT EDUCATIONAL SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Rent expense was composed of the following:                           

                                                                [Download Table]

                                                   YEAR ENDED DECEMBER 31,   
                                                -----------------------------
                                                 1997       1996       1995  
                                                -------    -------    -------
                                                                             
Minimum rentals...............................  $18,961    $17,131    $15,842
Contingent rentals............................      272        249        223
                                                -------    -------    -------
                                                $19,233    $17,380    $16,065
                                                =======    =======    =======

  Future minimum rental payments required under operating leases that have
initial or remaining non-cancelable lease terms in excess of one year as of     
December 31, 1997, are as follows:                                              

                                                                [Download Table]
                                                                    
1998....................................................    $ 20,855
1999....................................................      19,681
2000....................................................      19,818
2001....................................................      15,982
2002....................................................      13,547
Later Years.............................................      43,885
                                                            --------
                                                            $133,768
                                                            ========

Operating leases related to four institutes that are still in the     
developmental phase at December 31, 1997 include special clauses that allow the 
Company to terminate the lease within one year of signing the lease if the new  
school is not accredited. If this were to occur, the Company would be liable, at
the date of termination, for an agreed upon termination cost based on the       
lessor's tenant improvement costs. The future minimum rental payments schedule  
above includes such termination costs for the four institutes. If the institutes
are accredited as expected, aggregate additional minimum rental payments of     
$4,290 will be required over the lease term.                                    

     Rent expense and future minimum rental payments related to equipment leases
are not material.                                                               

Contingent Liabilities.  In December 1994, the Company entered into an
agreement with an unaffiliated, private funding source to provide loans to      
students of certain technical institutes. The agreement requires the Company to 
guarantee repayment of the loans. Outstanding loans at December 31, 1997        
aggregated $1,457. Additionally, the Company is required to maintain on deposit 
with the lender 15% of the aggregate principal balance of outstanding loans.    
This interest bearing deposit is included in other assets in the balance sheet. 

   The Company has a number of pending legal and other claims arising out of
the normal course of business. Among the legal actions is Eldredge, et al. v.   
ITT Educational Services, Inc., et al. (the "Eldredge Case"). This action was   
filed on June 8, 1995 in San Diego, California, by seven graduates of the San   
Diego ITT Technical Institute. In October 1996, the jury in this action rendered
a verdict against the Company and awarded the plaintiffs general damages of     
approximately $0.2 million and exemplary damages of $2.6 million. The judge also
awarded the plaintiffs attorney's fees and costs, in the amount of approximately
$0.9 million, and interest. The Company is seeking to overturn the awards and   
has appealed the decision. Management, based on the advice of counsel, believes 
it is probable that it will prevail in its appeal, thus no provision (other than
the Company's legal expenses) for these awards has been made. If the Company's  
appeal of the judgment in the Eldredge Case is unsuccessful, a charge to        
earnings would be taken at that time in the amount of the awards, including the 
general and exemplary damages assessed against the Company, the plaintiffs'     
attorney's fees and costs and the interest assessed thereon.                    

  In January 1997, six legal actions were filed against the Company in San
Diego, California by a total of 21 former students of the San Diego ITT         
Technical Institute. In June 1997, a legal action was filed against the Company 
in Orlando, Florida by three former students of the Maitland ITT Technical      
Institute. The plaintiffs                                                       

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ITT EDUCATIONAL SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

in one of the California actions and in the Florida action seek to have each of 
their actions certified as a class action. Recently, the court denied the       
plaintiffs' request to have the California action certified as a class action.  
In April 1998, the legal action in Florida was dismissed without prejudice by   
the plaintiffs. The claims alleged in all seven legal actions are similar to the
claims alleged in the Eldredge Case, relate primarily to the Company's marketing
and recruitment practices and include misrepresentation and violations of       
certain state statutes. In April 1998, a legal action was filed against the     
Company in San Diego, California by nine former students who attended the       
hospitality program at either the Maitland or San Diego ITT Technical Institute.
The claims alleged in this action are similar to the claims alleged in the      
Eldredge Case, relate primarily to the Company's marketing and recruitment      
practices and include fraud and violations of certain federal and state         
statutes. The plaintiffs seek to have their action certified as a class action  
on behalf of all persons similarly situated who attended the hospitality program
at the Indianapolis, Maitland, Portland or San Diego ITT Technical Institutes.  
If a class action is certified in either California action, the number of       
plaintiffs that may be awarded damages would increase significantly. In May     
1998, the Company increased its provision for litigation costs related to       
certain of the aforementioned legal actions by $1.2 million. This additional    
provision will be recorded in the three month period ending June 30, 1998. The  
Company believes that it has meritorious defenses and intends to vigorously     
defend itself against these claims.                                             

  In the opinion of management, the ultimate outcome of these matters will
not have a material adverse effect on the Company's financial position, results 
of operations or cash flows.                                                    

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------------------------------------------------------                          

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY      
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS 
HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDER OR ANY           
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A          
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY     
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH    
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE         
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE       
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR   
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.    

------------------

TABLE OF CONTENTS 

                                                                [Download Table]

                                        PAGE
                                        ----
                                            
Documents Incorporated by Reference...    3 
Available Information.................    3 
Prospectus Summary....................    4 
Risk Factors..........................    9 
Price Range of Common Stock...........   19 
Dividend Policy.......................   19 
Capitalization........................   20 
Selected Financial and Operating            
  Data................................   21 
Management's Discussion and Analysis        
  of Financial Condition and Results        
  of Operations.......................   22 
Business..............................   30 
Management............................   56 
Principal and Selling Stockholder.....   56 
Relationship With Selling Stockholder       
  and Related Transactions............   57 
Description of Capital Stock..........   61 
Shares Eligible for Future Sale.......   63 
Underwriting..........................   65 
Notice to Canadian Residents..........   66 
Certain U.S. Federal Tax                    
  Considerations for Non-U.S. Holders       
  of Common Stock.....................   67 
Legal Matters.........................   70 
Experts...............................   70 
Index to Financial Statements.........  F-1 

======================================================                          

ITT EDUCATIONAL SERVICES, INC. LOGO 

11,350,000 Shares 
  Common Stock
($.01 par value)

PROSPECTUS
CREDIT SUISSE FIRST BOSTON
BEAR, STEARNS & CO. INC.
BT ALEX. BROWN
MERRILL LYNCH & CO. 
MORGAN STANLEY DEAN WITTER
SALOMON SMITH BARNEY
------------------------------------------------------                          

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘424B4’ Filing		Date		First		Last			Other Filings
		10/1/01		42
		10/1/00		15		42			4
		6/1/00		53
		12/31/99		71		72			10-K405,  11-K
		12/31/98		71		72			10-K405,  11-K
		12/15/98		32
		7/1/98		16		53
		6/30/98		19		86			10-Q
		6/9/98		1
Filed on:		6/4/98
		6/3/98		1		68			S-8
		6/2/98		14		42
		5/7/98		75
		4/28/98		75					10-Q
		4/24/98		8		34
		4/17/98		6					8-K/A
		4/16/98		6					8-K,  8-K/A
		4/7/98		75
		4/6/98		58
		3/31/98		6		84			10-Q,  8-K
		3/27/98		71
		3/20/98		9		79
		2/25/98		17		60
		2/23/98		6		79			3,  8-K
		2/22/98		28
		2/5/98		11		81
		1/13/98		84
		1/10/98		75
		1/1/98		27		53
		12/31/97		6		85			10-K
		11/12/97		9
		10/14/97		71
		9/22/97		58
		8/14/97		57
		7/1/97		30		48
		6/30/97		29					10-Q
		6/25/97		58
		3/31/97		24		83			10-Q
		2/10/97		84
		1/31/97		57
		1/24/97		57
		1/1/97		27		28
		12/31/96		8		84			10-K,  10-K/A
		11/15/96		22
		11/4/96		7		22
		10/8/96		22
		4/16/96		22
		4/15/96		7		22
		3/22/96		22
		2/12/96		84
		1/1/96		28		29
		12/31/95		8		84
		12/19/95		33		60
		10/2/95		84
		9/29/95		33
		6/8/95		56		85
		1/1/95		29
		12/31/94		24
		12/27/94		33		84
		12/31/93		24
		1/1/93		7		35
		12/31/92		7		33
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