Executive Summary

During the 12-month period that began in October 1998 with the opening of Bellagio, the Las Vegas hotel room inventory is expected to grow by nearly 13%.  This increased room supply is driven mainly by four major new casino resorts:  Mirage Resorts� (NYSE: MIR) $1.6 billion Bellagio; Mandalay Resort Group�s (NYSE: MBG; formerly Circus Circus Enterprises) $1 billion Mandalay Bay; The Las Vegas Sands� $1.5 billion Venetian; and Park Place Entertainment�s (NYSE: PPE) $760 million Paris.

The opening of these new properties follows a period of sluggish demand in Las Vegas that resulted in reduced cash flows for most Las Vegas strip properties during 1998. Unfavorable trends that led to these weaker 1998 results included flat visitor volume, flat strip gaming revenue and reduced occupancy percentages during the midweek period.

Consequently, the increased room capacity is likely to cause further pressure on the cash flows of existing Las Vegas properties while the room supply is being absorbed during the next two years. At the same time, while there is early evidence that Bellagio and Mandalay Bay have helped stimulate market demand, DCR believes it is unlikely that the new wave of strip resorts will achieve the level of returns on invested capital that strip operators
earned with their investments during previous expansion cycles. An additional concern is the level of cannibalization that the new properties will have on the sister properties of each resort operator.

DCR believes that the new Las Vegas resorts and recent investments made in other major properties in the city have added to the market�s cyclicality. In particular, with substantial additions in room supply and expectations for higher room rates, the bargain aspect of a Las Vegas hotel room is diminished. This means that new market segments need to be developed, which could take time. Also, the substantial amount of investment devoted to convention and conference facilities, which are focused on the business traveler, increases the market�s exposure to general economic conditions. Finally, the variety of amenities at these resorts, including high-end shopping, dining and entertainment, are also expenditures that are vulnerable during a weak economic environment.

Although many Las Vegas operators have delayed further new development until the implications of the new supply shock are better understood, DCR is concerned that The Aladdin, which is expected to open in 2000, will cannibalize rather than grow the market.
Nevertheless, Las Vegas operators have historically demonstrated the remarkable ability to continually transform the city�s product offerings, which led to remarkable market growth following the openings of compelling new resorts during both 1990 and 1994. DCR believes that four of the five major new properties are attractive and unique and, although the absorption period may prove unsettling for certain operators, that market growth will
ultimately catch up with the supply.

Synopsis of New Las Vegas Resorts

Bellagio, owned by MIR, opened on October 15, 1998.  This destination resort, which has a price tag of more than $1.6 billion (excluding a $300 million art collection), brings a new standard of European-style quality to Las Vegas.  In addition to 3,005 guest rooms, including 365 suites, the property contains extensive meeting and convention facilities, 16 restaurants, 21 largely upscale retail shops and specialized attractions, including an elaborate Cirque de Soleil theatrical production, 1,200 fountains choreographed to music in an 8-acre lake, a botanical garden, an art museum and a health spa.  Importantly, the property resides at a highly favorable location at the center of the Las Vegas strip.

The property is designed to have worldwide appeal as a resort, while offering a 150,000 square foot casino with high limit stakes. In its first 167 days of operation, DCR estimates that Bellagio has generated approximately $115 million of EBITDA on an estimated $475 million of net revenue, a roughly 24% margin. The EBITDA margin should improve as the operating inefficiencies historically associated with the opening of new resorts, including planned overstaffing, improve. Nevertheless, annualizing the run-rate would result in EBITDA of $250 million, or a 15-16% return on invested capital.

DCR believes that Bellagio�s initial performance suggests that the property, on a stand-alone basis, will be quite successful. However, the initial performance of Bellagio also suggests that the property is a formidable competitor to the company�s Mirage property, whose cash flows have declined an estimated 20-25% since Bellagio�s opening. A significant component of the decline is due to a substantial shift in the company�s high-end baccarat play business (a depressed business at present) to Bellagio. Factoring in the cannibalization that MIR has experienced reduces the company�s early investment returns to the low double-digit level.
Mandalay Bay, owned by MBG, commenced operations on March 2, 1999.

The South Seas-themed property, which contains 3,700 rooms, including a 424-room Four Seasons hotel, is located at the southern end of the Las Vegas strip, adjacent to the company�s Luxor property. In addition to 135,000 square feet of gaming space, the property�s attractions include an 11-acre tropical lagoon featuring a sand-and-surf beach and a lazy river ride. In addition to 13 restaurants, the property offers a House of Blues nightclub; a 125,000-square foot convention facility; a 1,700-seat showroom; a 12,000-seat special events arena; and a health spa. In addition, a 1.2 million square- foot mall connecting Luxor and Mandalay Bay is expected to open in 2001.

Given what could be considered a disadvantaged location at the southern end of the strip, where walk-in traffic is rather limited, the property�s features and amenities provide for a compelling and exciting resort experience. To help drive walk-in traffic, the company constructed an elevated train system that currently carries approximately 15,000 passengers per day through the �Mandalay Mile,� the one-mile long stretch of Las Vegas Boulevard frontage owned by the company.

Early indications suggest that the property will be successful. In particular, Mandalay Bay generated EBITDA of $22.6 million during its first 59 days of operation ending April 30, 1999, suggesting a $140 million run rate, or a roughly 14% return on invested capital. Importantly, for the company, MBG�s other properties appear to have benefited from the supply- driven demand growth as Luxor produced operating cash flow of $29.1 million, a 28% increase compared with the prior year quarter, and Excalibur�s operating cash flow rose 12% to $23.6 million.

While a full quarter of comparative data has yet to be released, these initial results suggest that Mandalay Bay will help grow the Las Vegas strip market, while at the same time also develop a new customer base for the company.

The Venetian, which opened May 3, 1999, is the first all-suites hotel on the Las Vegas strip. Built on the site of the former Sands Hotel and Casino across from MIR�s Treasure Island
property, its standard rooms are the largest in the city and offer appointments aimed at the business traveler, including a sunken living room area furnished with a convertible sofa, two upholstered chairs and a desk.  Additionally, the standard room features a fax machine that doubles as a copier and computer printer, three telephones with dual lines and dataport access.

Mirrored after Renaissance Venice, the highly themed resort offers replicas of famous Venetian landmarks; 120,000 square feet of gaming floor; 500,000 square feet of meeting space at The Venetian Congress Center; and a direct link to the 1.2 million square-foot Sands Expo and Convention Center. The property also contains a 500,000 square foot shopping mall, featuring a one-quarter mile Venetian streetscape canal running its length with a fleet
of functional gondolas. Other amenities include 11 restaurants, a 65,000 square foot health spa and a Madame Tussaud�s wax museum.

Unlike Bellagio and Mandalay Bay, which were each developed by experienced publicly owned, investment-grade-rated casino operators, The Venetian is privately held by the highly leveraged Las Vegas Sands and represents the company�s first effort at developing a casino resort. In addition, prior to the early May opening, Las Vegas Sands did not have any other meaningful operations. As a result, the company was highly motivated to begin operations in order to generate cash flow to service its significant fixed-charge requirements, which are approximately $115 million during the first year and step up to more than $130 million during the second year.

While initial results from this property are not yet available, management�s decision to open its doors on May 3 with only a small percentage of its guest rooms available, without the majority of its restaurants and with the shopping mall and other amenities yet to be completed is troubling. A more experienced and less leveraged operator likely would have waited until the resort was substantially complete, which is expected to occur in mid-to- late June, before commencing operations. Also of concern, but less troubling, is management�s decision
to oppose culinary union representation for its employees, a confrontational rarity in Las Vegas.

DCR believes The Venetian contains many ingredients for success, including a superior location for its target market of business travelers during midweek periods, and a unique compelling theme, offering luxury and amenities that distinguish the property from the competition. These ingredients have generally been successful in spurring Las Vegas� market growth. However, The Venetian�s management is a wild card, having never developed
or operated a property in Las Vegas. DCR is concerned that, while management�s questionable decision to open its property prematurely should not have broader market implications, future decisions, particularly as they relate to room pricing, could have far-reaching effects on the market.

Paris Las Vegas, owned by PPE, features 2,916 guest rooms, including 295 suites, 130,000 square feet of convention and meeting space, with an 85,000 square foot ballroom, the largest
in Las Vegas. Working in tandem with its adjacent sister property, Bally�s Las Vegas, Paris will aim to serve convention groups and mid- to upper-mid-market tourists. With its hotel tower modeled after the famous Hotel de Ville in Paris, the resort has eight French- themed restaurants, a health spa and a 1,200-seat theatre. The property recreates replicas of famous Parisian landmarks, including the Arc de Triomphe, Paris Opera House, The Louvre
and a 50-story Eiffel Tower.

The property, which is scheduled to open in late September, has a highly favorable location at the center of the strip, adjacent to Bally�s and directly opposite Bellagio. While this property will carry the smallest level of investment-$760 million-of the new wave of properties, its superior location, strong theme and solid management suggest that Paris will generate investment returns in the mid-to-high teens. However, DCR is concerned that Paris may cannibalize a portion of Bally�s business, which could result in a dilution in PPE�s return on investment.

Aladdin, which seeks to open next year, is advantageously located in the center of the strip between the MGM Grand and Paris and across the street from Bellagio. This $825 million property is expected to include a 2,600-room hotel, a 116,000 square foot casino, a 462,000 square foot retail and entertainment complex (which will be operated by TrizecHahn, an experienced mall developer) and a 7,000-seat theater.

Similar to The Venetian, this property is being developed by a highly leveraged, privately held company with no previous experience developing a Las Vegas strip resort. At the same time, DCR believes this property, which contains an Arabian-theme and amenities that are already in abundance in Las Vegas, will not adequately distinguish itself from other properties to have a favorable impact on market growth. In addition, the construction of this project has been delayed by financing difficulties and the potential for cost overruns exists.

Market Outlook

As we head into the second half of 1999, and the traditionally slower summer period in Las Vegas, investors would be wise to use caution when evaluating the sector for investment.  During the 12-month period that began when Bellagio opened its doors on October 15, 1998, through the expected late September 1999 debut of Paris Las Vegas, nearly 14,000 hotel rooms, a 13% increase, will be added to the Las Vegas room supply.  As a result, the Las Vegas room base is expected to approximate 120,000 at the end of 1999.

The bulk of the new room supply-more than 12,600 rooms-will be contained within the four aforementioned properties (excluding Aladdin). To be sure, these new resorts have raised the bar for operators in Las Vegas, as the new properties all contain a menu of amenities and entertainment not previously offered under one roof.

However, the new resorts are opening during a challenging period for existing Las Vegas properties, as evidenced by 1998 trends that included flat gaming revenue on the Las Vegas strip, reduced occupancy percentages, flat room pricing and sluggish growth in visitor volume. As a result, the theory of �if you build it, they will come� will be challenged in 1999 more so than ever in Las Vegas.

Other factors that present challenges to Las Vegas operators are the continued softness in the Asian economy.

The Las Vegas strip baccarat market experienced a more than 20% revenue decline during 1998 due to its dependence on the economic health of certain countries in the Far East, a primary source of high-end baccarat play. As a result, baccarat contributed only 11.6% of strip gaming revenue in 1998, compared with 14.6% in 1997.

On an encouraging note, however, it appears that baccarat play has stabilized during 1999 and that the market trough has been reached.

Longer term, the passage of Proposition 5 in California could result in a substantial increase in Las Vegas-style slot machines in what is Las Vegas� largest feeder market. However, the passage of this legislation is currently being litigated, which could tie up the matter in court for some time.

Also, transportation issues abound. Airline service to Las Vegas has not kept pace with the growth in room inventory as the major carriers, benefiting from a strong domestic economy, have been able to realize more attractive yields in traditional business markets. To some degree, however, fledgling start-up carriers, such as National Airlines, which recently began service to Las Vegas from Los Angeles and Chicago and will soon serve the New York and San Francisco markets, will help alleviate the supply issue. Also, the Southern California
drive-in market is capacity-constrained due to traffic congestion, which makes the likelihood of increased drive-in visitation unlikely.

Another serious transportation issue greets visitors who attempt to travel around Las Vegas, particularly during peak weekend times, when traffic congestion is at its worst. While many operators acknowledge that a monorail or other type of citywide public transportation would offer a solution to the congestion issues, implementing such a plan is an onerous task, given the varying agendas that many operators possess, as is obtaining the necessary financing to pay for such a project. In any event, a workable solution does not appear forthcoming in
the near term.

DCR also believes that the new Las Vegas resorts and recent investments made in other major properties in the city have added to the market�s cyclicality. In particular, with substantial additions in room supply and expectations for higher rates, the bargain aspect of a Las Vegas hotel room is diminished. Also, the substantial amount of investment devoted to convention and conference facilities, which obviously attract the business traveler, increases exposure to general economic conditions. Finally, the variety of amenities at these resorts, including high-end shopping, dining and entertainment, are also expenditures that are vulnerable during a weak economic environment.

Las Vegas Trends

Despite DCR�s cautionary outlook, recent trends in Las Vegas have been very strong, indicating that the first half of the new supply wave (Bellagio and Mandalay Bay) has sparked increased visitation to the city during the first quarter of 1999.  In particular, 1999 visitor volume increased 8.9% during the first quarter, room occupancy levels increased from 85.4% to 89.2%, with weekend occupancies increasing 3.1 percentage points to 95.6% and midweek gaining 4.1 percentage points to 86.2%.  It should be noted, however, that a significant factor supporting the midweek growth is a 31% increase in convention attendance, which can be quite cyclical.  Nevertheless, the increased visitation has come by air and auto, as airline passenger volume rose 8.3% and automobile passenger traffic rose 5.8%, including a 9.1% increase from the important Southern California feeder market.

The increased visitor volume sparked a 20.8% increase in gaming revenue on the Las Vegas strip during first quarter 1999, while Clark County as a whole experienced a 14.6% volume increase. Room rates have also experienced double- digit increases at many of the major strip properties.

These encouraging statistics are all the more impressive following a difficult 1998 in which the Las Vegas market saw new room supply outpace market demand, as room inventory grew 3.8% during the year and visitor volume remained largely flat. Of course, 2.8% of the growth in the room base occurred upon the October 15, 1998 opening of the 3,005-room Bellagio.

Nevertheless, room and occupancy rates were pressured throughout the city in 1998, with many properties experiencing RevPAR (Revenue Per Available Room) and cash flow declines. Although hotel room occupancy levels (hotels represent approximately 82% of citywide room inventory) were stable at 90.3% compared with 1997, total occupancy levels (hotels and motels) were down 0.6 percentage points from 86.4% to 85.8%. The decline in 1998 is more significant when compared with hotel and total occupancy levels in 1996 of 93.4% and 90.4%,
respectively. A 6.2% decline in convention attendance and a 9.8% drop in convention room nights occupied contributed to weak overall occupancy and room rates as these customers generally pay higher room rates and fill occupancy levels in the midweek periods (midweek occupancy rates declined 1.5 percentage points during 1998).

As a result, most major Las Vegas properties experienced 7-15% declines in operating cash flows and margins in 1998. Certain properties, such as MGM Grand and The Mirage, which experienced roughly 27-30% cash flow declines, were more severely impacted due to their reliance on high-end baccarat play. As previously noted, baccarat volume was off 20% during 1998 and the market shares of these resorts were further impacted by Bellagio�s formidable entrance into the market. The 23% decline at New York-New York is largely explainable by
the reduced novelty of the property in its second year of operations.

Conversely, Las Vegas Hilton and Caesars Palace, which both market to high-end international baccarat customers, posted 29% and 20% cash flow gains during 1998, while Circus Circus, largely through cost-containment measures, reported a 9% cash flow increase. The Las Vegas Hilton cash flow growth was attributable to operational improvements, an increase in high-end domestic table play and a substantially improved baccarat hold percentage. However, it should be noted that Caesars Palace benefited from the
completion of a $400 million expansion and remodeling that, among other things, included a more than 80% increase in guest rooms and Circus Circus� cash flows were still 20% below 1995 levels, when the property had 27% more guest rooms.

The resorts opening in the 1998-99 time frame certainly differentiate themselves from their predecessors earlier in the decade. Although the new resorts have a largely similar number of room keys and casino space as the major properties opened since 1993, these new properties are much costlier and more elaborate, containing broader revenue sources such as expanded entertainment facilities, increased shopping and restaurant offerings, state- of-the-art conference and convention facilities, and a variety of other attractions and amenities.

In anticipation of the competitive bar being raised, both Luxor, owned by MBG, and MGM Grand received substantial follow-on investment since their 1993 openings. In particular, Luxor added nearly 2,000 rooms in late 1996, while also undergoing extensive remodeling at a cost of more than $400 million. MGM Grand has nearly completed a more than $570 million enhancement and expansion of its property, which includes, among other things, an $88 million, 380,000 square foot conference center, the addition of 29 private suites and villas, and
expansion of its entertainment, restaurant and retail shopping areas. At the same time, more than $400 million of capital was invested in Caesars Palace during 1996-98 to create a more exciting gaming environment, add a new hotel tower, and construct new meeting and banquet facilities.

While this capital spending better positions these properties to compete in the new, more competitive environment, the returns on these investments have been significantly below the traditional 20% benchmark experienced by new successful properties. To date, DCR estimates that the Luxor add-on investment, which was largely completed at the end of 1996, has generated a roughly 4% return, while, based on Luxor�s last 12 months of operation, the property is currently generating a roughly 13% return on invested capital. As both the Luxor
and MGM Grand properties are less than six years old, the substantial follow-on spending at both properties illustrates the increased capital intensive nature of the gaming industry. At the same time, the investment at Caesars Palace, which is 30 years old, could be viewed as overdue. As a result, to a large degree, a significant portion of these investments has been made to preserve historical cash flows in light of the new competitive landscape.

Importantly, however, the corporate owners of these particular properties, by virtue of their investment-grade credit profiles, have the necessary access to capital to maintain and improve their properties. This is an important advantage that DCR believes will have Darwinian implications during the next few years, particularly if the absorption period for the new resorts proves longer than expected.

Going forward, in order to maintain stable occupancy levels at 85.8% (assuming the average length of stay remains unchanged) in 1999, Las Vegas visitation, in terms of occupied room nights, needs to grow by 9%. Although occupied room nights rose 9.5% during first quarter 1999, DCR considers this rate of growth for the full year to be unlikely, particularly as the seasonally slower summer months have yet to test the market. As a result, pricing pressures are likely to occur gradually throughout the year, as room inventory grows progressively larger. (It should be noted that the Las Vegas Convention and Visitors Authority projects visitation to Las Vegas to increase 5.9%, to 32.3 million, during 1999, subsequently growing
5.3% to 34 million in 2000.)

The company with the most exposure to the trends on the Las Vegas strip, MBG, controlled approximately 12.5% of the market�s hotel rooms at the end of 1998. With the opening of Mandalay Bay, MBG�s market share is projected to grow to 14.5% at yearend 1999. MIR, which owned 11.9% of hotel room inventory at yearend 1998, will lose its second-place position following PPE�s pending acquisition of Caesar�s Palace (expected to close in
fourth quarter 1999) and the debut of Paris. PPE�s projected market share at the end of 1999 is 12.5%, whereas MIR�s market share will decline to 10.8%.

Although DCR expects market demand will continue to be stimulated by the new spectacle-type properties, investment returns will likely be below the more than 20% historically achieved by successful new resorts. In addition, absorption of the new properties is likely to negatively impact the cash flows of existing Las Vegas properties during 1999 and 2000. At the same time, newer strip properties (i.e., those opened during the last 10 years) that maintain strong strip locations and are owned by companies with access to capital (i.e., the ability to reinvest in their properties) will likely benefit disproportionately from the expected growth in visitation.

Conversely, those properties at the bottom of the food chain are likely to feel the most dramatic negative impact during the absorption period.