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Two analysts and top management from three sector firms examine the Tobacco sector in this special 22-page issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info408.htm.

TWST: What should investors make of the 100 million punitive damage award in the Boeken case? Does this raise the bar for future claims?

Mr. Adelman: I think probably the most important thing that occurred last week when the punitive damage judgment was reduced from 3 billion to 100 million was that Boeken has now become just a component of the broader California legal issue, whereas prior to the reduction, on an independent basis Boeken could have been a substantial issue. The key point in the reduction to 100 million is that Boeken is no longer potentially a singularly catastrophic event, but the initial verdict is clearly consistent with a continuing broader legal issue in California.

TWST: Are there any other cases that are likely to be heard in the second half of 2001 or the first half of 2002?

Mr. Adelman: There will probably be some cases, but it is always difficult to know with precision which cases will actually go to trial. In all likelihood, there will be at least one individual smoker case litigated in the second half of this year in California (Lucier; December 10). And then there will be two class action claims for medical monitoring — one in Louisiana, the Scott case, and one in West Virginia, the Blankenship case.

TWST: Just focusing more on these emerging markets, are the companies supporting their established brands in these markets, or are they introducing new products perhaps at lower price points?

Mr. Adelman: Well again, it depends on the market circumstances. There is a general business philosophy when you enter an emerging market through acquisition to simultaneously upgrade the quality of the products purchased, to launch new higher-quality local products, and to introduce leading international brands. A perfect example of this type of development has been BAT’s (AMEX:BTI) execution in Russia. The company increased the quality of a locally acquired product, Java, introduced a higher quality local product Java Gold (which has been very successful), and with increased market scale and distribution capability, BAT has increasingly emphasized its leading international brands.

TWST: To what extent, in your opinion, is price a determining factor for cigarette smokers?

Mr. Adelman: There are very few markets in the world where consumers make the decision of whether or not to smoke based on price; affordability is simply not an issue. In most regions of the world, if someone chooses to smoke, it is a very affordable pleasure. I think pricing is an issue only to the extent to which, in any particular market, the industry can raise prices over time to generate higher profits and margins, without encouraging consumers to trade down to lower priced, less profitable products. Note that tobacco remains, relative to most other large-scale consumer product sectors, the one with the greatest relative and absolute pricing power.

This special issue includes:

1) Tobacco Stocks - In an in-depth (4,400 words) Analyst Interview, David Adelman, Principal at Morgan Stanley Dean Witter, examines the outlook for the sector and shares specific stock recommendations.

2) Outlook for the Tobacco Industry - In an in-depth (3,800 words) Analyst Interview, Bonnie Herzog, Vice President at Credit Suisse First Boston, examines the outlook for the sector and shares specific stock recommendations.

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