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Five analysts and top management from sixteen sector firms examine the Leisure Goods & Services sector in this special 89-page issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info384.htm

TWST: Are there any common themes that are driving these companies? How economically vulnerable are they?

Ms. Kissel: There is one overarching theme — the aging baby boomer — that provides a long-term positive demand backdrop for the industry. As you get older, your family obligations moderate and you have more time and more disposable income. The biggest constraint for consumption of leisure is time. Furthermore, per capita spending on leisure is highest for people between the ages of 45 and 54 and second highest for those between the ages of 55 and 64. So as people age, it is good for companies that sell boats, golf clubs, vacations and resort real estate.

TWST: Does this all suggest that Mattel (NYSE:MAT) has weathered the storms of the past year and the departure of its former CEO and is on track again?

Ms. Kissel: Yes, I think it’s on track. They brought in a very strong CEO a little over a year ago, and he has really put the company back on track. The brands had been in good shape, a little undermanaged perhaps because of all of the internal stress. Bob Eckert, the new CEO, has really boosted employee morale. He set a consistent strategic direction for the company, and all the different product managers are on board with his vision.

TWST: How would you differentiate between the two in terms of their investment attractiveness at this time?

Ms. Kissel: Historically, Mattel has shown more stable growth. They’ve managed their internal brands better than Hasbro (NYSE:HAS) has.

TWST: What are you telling investors to do with the stocks right now?

Ms. Kissel: We have a buy on Mattel. We think we’re going to see a very interesting second half with the Barbie Nutcracker. Barbie is their highest-margin product line, so if we get better-than-expected Barbie sales, we think that should drive some strong earnings. And taken together with cost-cutting initiatives that should come into play in the second half of the year, we see some very good earnings growth beginning in the third quarter. We have Hasbro rated neutral. We think the stock is overvalued, given how much progress they have made in the restructuring, and we still think there’s earnings risk into the third quarter.

TWST: Is there a final word that you would leave investors with who are thinking about putting money into leisure and toys?

Ms. Kissel: I think it’s been an interesting period for these stocks. They’ve outperformed the S&P 500 through May of this year. Through May, the group is up 11% and the S&P is down 5%, and we think there is an opportunity for continued outperformance for two reasons. First, since late 1998 investors have been anticipating this economic slowdown and the valuations on these stocks have compressed. Now that we are here and many companies are performing better than expected, it could cause continued multiple expansion. Second, many of these companies have new, more focused management teams that will impart greater financial discipline. This should help valuation levels expand.

This special issue includes:

1) Leisure Goods & Services - In an in-depth (4,100 words) Analyst Interview, Timothy Conder, Vice President at A.G. Edwards & Sons, Inc., examines the outlook for the sector and shares specific stock recommendations.

2) Leisure Industry Overview - In an in-depth (3,700 words) Analyst Interview, Hayley Kissel, Director of Merrill Lynch's Global Securities Research and Economics Division, examines the outlook for the sector and shares specific stock recommendations.

3) Outlook for Leisure Stocks - In an in-depth (3,900 words) Analyst Interview, Scott Barry, Director in Credit Suisse First Boston's Equity Research group, examines the outlook for the sector and shares specific stock recommendations.

4) Cruise Lines & Motor Sports - In an in-depth (2,600 words) Analyst Interview, Joseph Hovorka, Senior Analyst at Raymond James & Associates, examines the outlook for the sector and shares specific stock recommendations.

5) Outlook for Cruise Lines - In an in-depth (4,100 words) Analyst Interview, Robin Farley, Executive Director in the equity research division of UBS Warburg, examines the outlook for the sector and shares specific stock recommendations.

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