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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: Robin, what has happened to the stocks of the cruise line companies over the past 12 to 18 months?

Ms. Farley: The last 18 months has definitely been a challenging period for the cruise lines. The stocks came under pressure last year after a couple of very strong years of performance, both by the companies and the stocks in 1998 and 1999. 2000 brought the cruise stocks a tough pricing environment, which was unexpected, given the fact that the economy in early 2000 was still going strong. I think it’s recognized that it’s going to be a tough pricing environment this year, but the cruise line story is really a longer-term growth picture. While there has been recognition of that more recently, the last 12-18 months have been tough for the stocks.

TWST: Haven’t the cruise lines historically been able to ride out a weaker economic environment?

Ms. Farley: If you look back to 1991, the last time we had a slowdown in the economy, the cruise industry was a much smaller part of the vacation market. Ticket prices did fall back in that 1990-1991 period. However, earnings continued to grow for Carnival (NYSE:CCL) back then, because the earnings driver was capacity. Capacity is sort of a bad word these days in the industry because there are a lot of concerns about the new ships coming online. But, historically, capacity has been a big driver of earnings and is a driver of earnings even in a tough pricing environment, as we’re seeing now.

TWST: And what’s the rationale behind the Buy on Carnival?

Ms. Farley: Our rationale there is that Carnival is the highest quality name in the group. Carnival has what an investor would want to look for in a company in this business. Looking at the cruise sector, there is a tough pricing environment and there’s going to be a lot of pressure on revenue per passenger, so in our view, you want to own the company that is lowering its expenses and is getting economies of scale and, bottom-line, is still growing earnings despite the ticket-price weakness. And that company is Carnival.

TWST: And do you expect to maintain the Buy on Carnival?

Ms. Farley: Yes. I think, given that our view of the industry is positive long term and that Carnival is the highest-quality name in the group, that is the best stock. There may be things that make Princess (NYSE:POC) or Royal (NYSE:RCL) at different times attractive on a valuation basis, but as the highest-quality name in the group, as long as the industry is growing, Carnival is a high-quality way to play that.

TWST: So Carnival is the one to own.

Ms. Farley: Yes, in our view. There definitely can be opportunities at times when, for instance, I think under 19 a share, Royal has downside protection. Before we end, I would also comment on one more dynamic we are seeing. Given the price weakness in the North American market, we’re seeing a lot of capacity from the three largest cruise operators being transferred to Europe and a lot of expansion in the European market — not just sending North Americans to cruise over in the Mediterranean, but actually sourcing passengers from Europe.

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.