Good afternoon, all, those of you in the other room andthose of you on the phone. We did get to see one another at our shareholdermeeting a couple of months ago, although given the turnover in the stock, I’mnot sure you are any of the same people. I feel a little bit like this is a coming out party. We wereon our way to being private and your presence here is a vivid reminder that weare a public company. We are a public company engaged in what appears to be anextremely uncertain transaction. We are here to talk to you a little bit today about thecurrent events of the company and then I will go on to talk a little bit moreabout how I see things as they are. I have to confess that we’ve not paid agreat deal of attention to shareholder reporting of earnings and other itemsover the last six months because under the merger agreement that we signed inApril, all of the economics of the company accrued to our buyers. Just for your information, those earnings at this pointaggregate something in excess of $1.50 since we signed the agreement, so onemight say that that $60 purchase price is now effectively $58.50. Over the last six months, we have been working internally totransform the company to a private company. That is an interesting process.I’ve not been totally a part of it because I’ve not been inside the company forthe last six months. The fact is, it’s a bit of a cultural change. Actually,it’s a fairly large cultural change. My interaction with people in the companymakes it quite clear that that change has been transpiring. It’s a cultural change. Also, our buyers have done virtually100% of the company’s financing over the last six months at a higher cost thanwe…

Thank you, Al and good afternoon, everyone. It’s a pleasureto be here with you and hopefully everyone in the outlying areas, the otherroom and on the phone can hear me and I’ll do my best to be clear to those thatcan’t see me as well, but it’s a pleasure to be here. What I want to do is spend a few minutes to quicklyhighlight the quarter, as well as it’s context for the future. As Al said, thislast several months has been one of a unique experience. There have been a lotof moving parts, a lot of disruptions, not only with the transaction but alsowith legislation and other things that are going on in our industry, so there’sbeen a lot of challenges and we’ve been operating the company in thatenvironment. But what I want to do today is spend some time talking aboutthe third quarter but frame that in the context really of what the thirdquarter means to the future, so you can get I think a good understanding of howwe feel about our fundamentals and where we believe we are going in the futurewith them. And the best way for me to do that is really to talk aboutthe real drivers of our business. First, I am going to spend a few minutestalking about the loan side, the loan drivers, the loan volume and the loan mixas a driver of the business. Then I’ll talk a little bit about the pricing sideof the house and what drives that, and then cover with you our fee business,comment briefly on our expenses, and then talk a little bit about the fundingside of our business and liquidity, certainly which is important as we lookahead and certainly important in this environment of other market disruptionsthat have occurred as well. And then I will…

Thanks, C.E. So that’s the third quarter. The third quarteris -- what is it, 11 days old now? Old news. Where do we go from here? You guys are the shareholders. I actually own less than 1%of the stock, although I oftentimes treat the company as if it is mine. I guess25 years will do that to you. What I would like to do is review a few of those years, justto give you a little bit of a backdrop where we. Sallie Mae is now a 34-yearold company. Its first 10 years, we were 100% financed by the government. Weborrowed our first $5 billion from the U.S. Treasury and about 10 years later,the company went public in the equity markets. We’ve been a public company for24 years. Shortly thereafter, we paid off the $5 billion to thefederal government and cut our creditor/debtor relationship. And then in 2004,some 30 years after the company was created, we also ended our GSE status. Sothe company is a totally -- I hate to call it government free because itdoesn’t seem that way, company. During those 34 years, the company has gone from zero to$160 billion in assets. In the last 20 years, just to give you someperspective, this special allowance, which is called a subsidy from thegovernment has gone from about 350 basis points to about 150 basis points,almost a 200 basis point reduction over the last 20 years. If you do thatarithmetic, it doesn’t happen in 10 by 10 bp increments, or decrements, in thiscase, but it happens. For us, declines in the special allowance don’t change as amaterial adverse change. They don’t change our business -- they are ourbusiness and we’ve undergone 200 basis points of change over the last 20 yearsand averaged 15% earnings growth during that same time period.…

-- you were disappointed in the quarter and what therun-rate is and how you need to pick up the pace. I just wondered if you couldclarify something for me; is your view that since the results aren’t quite whatyou expected, there is no negotiation on your point of view on price? Is it the$60 or no deal, given your comments? And has anyone contacted you?

The question, if I can restate it, is that do I feeldifferently about the $60 price in light of the quarter’s earnings?

-- run-rate predictions of $2.80 versus $3 to $3.20.

Well, we’re at $2.80, but we’re going to grow. No, I don’tthink -- one doesn’t have anything to do with the other, in my opinion. I think the second question is have I talked to anybody? Iassume you mean the buyer? Oh, any buyer? Well, we get calls. We get calls butit is kind of hard for me to talk about them. I am actually not allowed to talkabout them. Yes, sir. That’s you, Doug.

You might not be able to answer this, but these constraintsthat you are operating the company under because the buyer is making thedecisions, what is the timeframe, assuming the deal didn’t go through? Whenwould you be able to come back and make these changes to run the business theway you’d like to?

We’re working on that. Soon, very soon. As I said, the goalis to get this thing sorted out fast. Yes, sir.

If you would like to sort it out fast, why haven’t you madea motion for expedited hearing yet in Delaware?

Well, that -- I mean, I would like to short it out fast andthe shareholders would like to sort it out fast, but I don’t think that’s goingto give a judge a reason to short it out fast. The way I understand that, therehas to be something of an emergency and there has to be some immediate harm tosomebody or some thing to get expedited treatment. You are probably a lawyer and you are going to disagree withme. I’ll sick my lawyer on you, okay? Yes, sir.

You said that JPMorgan and Banc of America are providing youvery expensive financing. Can you quantify that, either in basis points or innumbers, how much is it costing us and -- I guess in basis points and how muchare they making in dollars?

How much they make? That depends on their cost of funds.

I understand that, but if you were to dump JP and Banc ofAmerica and go back and finance your own business your own way, what would thatdo to you operations?

I don’t know. It’s about 25 basis points maybe. I think thisis -- I would guess that you are talking about a three- to six-month process tounravel what they’ve done and to get either additional liquidity fromelsewhere. And we are conducting conversations about that as we speak. I think it’s roughly a 25 basis point differential, plusfees that we pay them. Keep in mind, this was the game plan for the company.That was how it was going to finance itself, that we finance itself throughthose banks forever so this was really just starting that process and the economicsof that were theirs anyway, so if they charge us 50 basis points higher, itwouldn’t really matter because they were the beneficiaries when they owned it. I am not complaining about it. It’s just a fact. Okay.

[inaudible]

Yes.

[inaudible]

Well, it’s always been your money until they made it theirmoney. We are very much in the process of changing that. I mean, that’s reallywhere we are right now.

What I’m really interested in is how much more of the bankstaking out of Sallie Mae now that would not go out of the company were it nottied up in this preposterous financing scheme?

It sounded like you might be a little annoyed at these guys.

I don’t play chess either.

What they are doing -- I don’t view what they are doing aspreposterous. It’s a fact. It’s as they designed it and it reflects -- my guessis it reflects the split of the economics among the buyer group between Flowersand the two of them.

[inaudible]

Well, I’m not going to give you the number now because Idon’t know the number now, but we would be happy to give it to you. Obviouslyit is going to require a little bit of estimation but we would be happy tofurnish it to you. Yes, sir.

[inaudible]

You’re not with a union, are you? Last time it was aprepared statement, there were three of them and they kept going on and on andon. Go right ahead.

Let me qualify; it’s a statement of support.

Support? Take your time.

Mr. Lord, members of the Sallie Mae board, I am hear onbehalf of the Heyman Companies, holders of the Sallie Mae shares and derivativecontracts, representing more than 30 million shares, constituting more than 7%of the company’s outstanding equity. I have several comments. First, as a substantial investor inthe company, we’ve done a careful analysis of the recently enacted student loanlegislation, which demonstrates that the legislation has no more than a nominalincremental effect, if any, on the company. In short, there is nothing herevaguely resembling a material adverse change. Under what we regard as the most likely scenario, wecalculate that the legislation will have no effect on the company over andabove that of the legislation referred to in the merger agreement as the basecase. Under a worst-case scenario, assuming a slightly differentinterpretation of the agreement, the incremental adverse effect would equate toapproximately 1% of the total equity value of the company, which is, of course,nowhere near what the law requires to show a material adverse change. Incidentally, our calculations do not purport to take intoaccount a not insubstantial offset associated with what we and otherknowledgeable observers believe to be the likelihood that the legislation willinevitably bring about further consolidation of the student loan industry,which should in turn result in increased market share for Sallie Mae. Second, it is important to bear in mind that despite theposturing, Mr. Flowers has yet to commit himself. Although he has protestedthat there has been a MAC and he is entitled to a price reduction, and has evenproposed a lower price, he has yet to take a definitive position. In refusing to do so, he has refrained from exercising hisright to terminate, which would carry with it a $900 million liability. He hasnot invoked a MAC, which would similarly expose him, his investors, andpartners to the…

Thank you. If you want to speak again, you just raise yourhand, okay? It is not a democracy up here. Yes, sir.

Are you aware among the buyout group whether there arecertain members who are more or less willing to or wanting to negotiate?

The actual honest answer to that is I am not aware. I havelots and lots of thoughts on it but I think they are probably pretty good atpassing the -- there are three of them. It’s a little like the shell game --who’s under the white hat at any point in time and the black hat. I reallydon’t know. Are there any questions on the phone, or in the other room?

(Operator Instructions)

While we wait, go ahead, sir.

[inaudible] -- this quarter, just a brief look at this, itlooks like the loans are [inaudible]. What’s the cause of that and how does theloans for forbearance move into the provision for loan losses?

I’ll let C.E. handle that.

They have -- actually, is this on? -- increased, ticked upin the quarter. Actually, a couple of things are going on: one, we had donesome things last year when we encountered, some of the problems we encounteredin the Fall, they kind of pushed them down. So last year and I think we arereturning to something that maybe is a bit more of a normal level. But secondly, one of the things we’re finding in ourcollection process that had some effect on it is that we are able to do betterskip tracing and other things that we do today, so we are actually connectingwith borrowers better than we used to in the past. That’s one of the changesand successes we’ve had, which we believe has caused some up-tick in theforbearance. As far as what we do with them though, it’s a consciousdecision whether a loan goes into forbearance. They do receive higherprovisioning. I mean, our historical analysis of loss experience of loans thatare in forbearance has a higher provision, loan loss provision rate to it. Soif the loan is there, it’s receiving, if you will, a provisioning burden. It’sgreater than loans in other categories, so we take that into account when wequantify our loan loss reserve and our loan loss provisions.

What do you expect going forward with the forbearance? Doyou expect it to keep ticking up like it has been, or --

No, I would not. I mean, I think we should see that itremains reasonably stable. There is some seasonality to it at points in timewhen loans go into repayment, et cetera. So it does have some seasonality butaside from that, it ought to sustain some relative stability to it. Weshouldn’t see it continuously tick up, certainly. And the other thing we look to --

The answer is no.

Yeah. The other thing, we monitor the age of it as well,which also affects provisions, so we monitor it closely. Madam.

Two question; one, you mentioned the FFELP loans were kindof put in the door and the private loans were the economic driver of thebusiness. In your view sort of post benefit retraction and the new legislation,will the FFELP business be a profitable business for you, a business that issubstantially above your cost of capital? And then, just to follow up on one question or comment youmade about not asking for an expedited process because there was no emergency,but it sounds like actually the company and shareholders are currently beingharmed by this current situation. Why wouldn’t you ask for an expeditedprocess?

C.E. will answer first. Let me think about it.

In terms of the school channel and the FFELP business, withthe margin compression, basically what we will do over time, we haven’t doneall this yet, we will adjust the benefits we offer to borrowers, which willoffset some of the reduction, not all of the reduction. That’s kind of thepricing or economic change that we will make and we will do that and time thatwhen we think it makes sense from a business standpoint, recognizing one of ourobjectives is to use our school channel to capitalize on the market sharegrowth. Once that’s done, we think it will remain a profitablebusiness. It won’t be as profitable as it was obviously with the margincompression, but we think the school channel is essential to generate thegrowth. Even though I mentioned the tuition -- our direct consumergrew at 48%, it still is a modest fraction of our total portfolio, private portfoliogrowth. The school channel is essential and it’s a huge competitive advantagewe have, so we really need to continue to build upon that and we will make thegovernment loans profitable, just not as profitable as they have been obviouslyin the past. Focus on the margin, though. We try to manage to where wecan hold that margin and that kind of collapses everything into one measure.

No, that was ample. I’m going to have to -- I’m not reallyable to answer your question. My understanding of this is that somebody’s gotto be, for emergency, were it an emergency, not an injured shareholder. There’s no question that with the economics of transactionskewed the way they are based on the direction we were headed, that currentshareholders are harmed. Current shareholders were harmed when they announcedthe MAC in July, right? Shareholders have been in and out of this stock atvarious prices and there is no question harm has transpired. But the company is not in any kind of difficulty and I don’tthink anybody else is in the kind of difficulty I understand it would take toget a judge to move more quickly than judges normally move, unfortunately. Let’s try this gentlemen over here.

Just curious, given the loss of some of the guaranteed FFELPdollars, do we need to revisit any of our relationships on the private loanside? Say, for example, some of the riskier assets, maybe the for profit careertools? Do we need to be more conscious of those relationships going forward nowthat we lost some guaranteed FFELP dollars?

I never thought of any dollars of earnings as there to coverdollars of loss. If we have dollars of loss in some of our borrower classes,we’re always looking at that and to your specific point, I think which runs tocertain schools, we are looking very carefully at some of our relationships. The first six months loan losses was a bit of an eye openerfor some of us. Sir.

[inaudible] -- why, not that I disagree with you, but whywould this be an ideal company private?

I think it would be run -- could be run a lot differentlywithout having all of its negotiations on sensitive subjects like students.Having the shareholders, really the detail of those conversations. Also, Ithink the financial structure of the company is such that it has a high cashflow, which can service the debt and provide delightful returns to theinvestors. But I think as an operation for the company, I think thelower its profile, the better. That’s having been through four reauthorizationprocesses and any number of political changes in Washington, and the loser isalways the shareholder. We come out of every one of these exciting timeperiods, political time periods probably with a stronger operation butshareholders lose a ton of money. It really seems a little silly.

So the disadvantages of staying public? Just the opposite?

Are you in a public company?

No.

Well, try it sometime. Try it sometime. Yes, sir.

Are the decisions being made right now as far as thecompany’s future, such as suing the buying group, is that being made by theentire board or just the transaction committee?

It depends on the significance of the decision, whether thetransaction committee does it or fully engages the board. The transactioncommittee has been delegated a great deal of authority in this transaction.

And just a quick, separate question; as part of the proposedmerger, the banks were I think going to do a $28 billion ABCP conduit facility.Given what’s happened in the ABCP market, do you know if that type of facilityis even feasible today?

I don’t know.

Thank you.

There’s a guy in the back. I’m afraid he’s going to saysomething. Do you want to say something, Oliver? Or are you scratching yourear? Oh, I’m sorry. I thought he had the ABCP answer. Is there a question on the phone?

Yes, your first question comes from the line of Tim Wilsonwith Credit Suisse.

Mr. Lord, you’ve got a lot of stakeholders other than justshareholders and we happen to be an unsecured bond holder, along with 50billion others. And this transaction effectively has picked off the short-termbond holders and monetized that value to enable the buyer to increase thepurchase price. You’ve now got a very hostile bond market. How do you anticipatedealing with that, either in a situation where the deal falls apart or in asituation where you have to sell secured bonds to that audience?

I didn’t hear the last part of your sentence -- in asituation where we have to?

Sell your secured product to some of those same bondholders. In other words, the bond holders have been severely punished by thistransaction. The bonds are trading typically around $0.90 on the dollar andthat had entailed in huge losses for people who have been financing you for 10years, loyally, I might add, and some of those buyers are the same buyers whoare buying the secured debt. How do you anticipate dealing with that situation?

I think we’ve talked about re-entering the credit markets.We fully expect that we try to enter the unsecured market, that we’ll bedealing with different covenants than we’ve dealt with in the past. I think weare working on a program right now literally as we speak to issue debt and reemergein the debt markets. We recognize that damage has been done to the market valuesof secured debt. I would say if they are trading at $0.90 on the dollar, theyare a very good buy. The company has been around 34 years and has alwayshonored its obligations.

Thank you.

You’re welcome. I think I see a hand back there. Go ahead.

Are you able to give any guidance for 2008? I mean, theproxy had core EPS of $3.66 per share. Is that realistic, given the run-ratethat you described earlier?

The proxy?

The proxy statement in management projections [inaudible] .

That was designed under a different operating model, whichwas make and sell loans, not under -- I don’t know that we did it. There’s notanything equivalent to core earnings under make and hold, right? $3.66 does notlook to be in the cards, though. I would say we try to get that run-rate upwell past 70 and shoot at say $3.25 next year, but we are not at $3.65. All right, if there aren’t any questions on the phone or inthe other room, we’re about done.

There are no further questions.

No further questions. Okay, I see some of you guys aregetting ready to rush up here. Is there a back exit? All right, I’m finished.Thank you very much.

This concludes today’s conference call. You may nowdisconnect.