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Three analysts and top management from nine sector firms examine the paper & forest products sector in this special 42-page Paper & Forest Products issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info507.htm.

TWST: How are you approaching the group today?

Mr. Berler: I am advising investors to remain overweight the paper stocks here in the first half of 2002. We have been recommending our overweighting in paper stocks going back to the fall of 2000, almost 18 months ago. Our view then and continuing through the recent period is that the combination of depressed valuations, unprecedented capacity shut-ins and sharply curtailed capital spending, together with aggressive moves by the Fed to stimulate the economy, would lead to a re-rating of the paper stocks. Historically, the paper stocks outperform the broader market when the Fed is easing and after commodity prices and profits have fallen enough to trigger capacity shut-ins. We believe the macros (i.e., interest rates, yield curve and other indicators of economic recovery) remain favorable. So while the current earnings picture is bleak for the commodity producers, and estimates may still have some downside, we think the stocks should continue to work well in anticipation of an improvement in commodity markets — which will probably begin later this year and accelerate through 2003 and 2004. We may have already seen some early signs of recovery with strong housing pulling building products prices up off of cycle lows of this past fall.

TWST: Looking back to 2001, how did the stocks perform?

Mr. Berler: The paper stocks outperformed in 2001. The S&P paper index beat the S&P 500 by 8 percentage points, 800 basis points. In absolute dollar terms, paper stocks were flat in 2001. The period of greatest outperformance in the last 18 months actually happened in the fourth quarter of 2000, when we saw a terrific rotation in the stock market, out of the leading TMT (technology, media and telecom) stocks back into basic industry — really value-type names in general. Year to date in 2002, the paper stocks have continued to outperform. They’re up 5.5% in absolute terms, as of March 4, versus the S&P 500, which is now flat for the year.

TWST: What are your favorite names in the group today?

Mr. Berler: Right now we have a collection of recommendations. Some are straightforward plays on a recovery in commodity prices and profits. Other recommendations focus as much or more on company specific drivers of value creation. We believe that Westvaco’s (NYSE:MWV) merger with Mead should create value. The capitalization of $325 million of synergies, improved ROC, increased free cash flow, and greater return of capital to shareholders should keep investor interest high over the coming 12-24 months. Capacity rationalization is under way. Coated paper markets have been suffering from weak demand and increasing imports due to the strong US dollar. Producers are beginning to shut capacity and the merger provides an opportunity to rationalize underperforming assets. MWV pro forma earnings power could exceed $4.00 at the peak of cycle and $2.58 at the mid-cycle. MWV has the potential to generate more than $1.0 billion ($5.00 per share) in free cash flow over the next two years even if the cyclical recovery in commodity markets proves weak by historical standards. The free cash flow from the sale of non-core assets, cuts in working capital and capital spending, and cash from operations positions MWV to conduct one of the largest share repos in the industry.

This special issue includes:

1) Paper & Forest Products - In an in-depth (5,900 words) Analyst Interview, Matthew Berler, Managing Director at Morgan Stanley, examines the outlook for the sector including and shares specific stock recommendations.

2) Paper & Forest Products - In an in-depth (3,100 words) Analyst Interview, Anna E. Torma, North American Paper & Forest Products Analyst at Merrill Lynch Global Securities, examines the outlook for the sector including and shares specific stock recommendations.

3) Paper & Forest Products - In an in-depth (3,500 words) Analyst Interview, Mark Wilde, Managing Director at Deutsche Banc Alex. Brown, examines the outlook for the sector including and shares specific stock recommendations.

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