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Technology Stocks : Amazon.com, Inc. (AMZN) -- Ignore unavailable to you. Want to Upgrade?

To: H James Morris who wrote (76537)	9/4/1999 10:51:00 PM
From: Glenn D. Rudolph	Read Replies (1) \| Respond to of 164684

It appears Merrill believes Amazon is in trouble: "Investment Highlights: * Effective today, we are replacing Amazon.com 4.75% 2009 with Tribune/AOL 2% PHONES in order to improve the credit quality of our internet exposure. * We are currently recommending two internet-related convertibles in our Model Portfolio, AtHome?s OID bond and Tribune/AOL PHONES, though we are not recommending an overweight in this group. * The internet sector?s weight in our Model Portfolio is roughly 4%-5%, vs. 5%-6% for our master index. Tribune/AOL 2% PHONES America Online (AOL, $96, D-1-1-9) is the leading consumer internet stock, bar none. With 18 million subscribers and an estimated 100 million monthly users, AOL should benefit from strength in all three of the major value-drivers: traffic, advertising, and commerce. The company also owns AOL Studios, which creates, markets and distributes original interactive titles, properties and new channels on America Online & the World Wide Web, & CompuServe (an online service targeting high-end users). (H. Blodget, 8/18/99) The Tribune/AOL 2% exchangeable PHONES is the only internet convert in our universe with an investment grade rating?backed by Tribune Co?s credit, it is A3/A-. The PHONES are 30-year exchangeable subordinated debentures issued by Tribune at the AOL stock price. At maturity, holders will receive cash equal to the greater of the value of 1.0 share of AOL or the ?contingent principal amount? for each 1.0 PHONES. Quarterly interest payments are at the rate of 2.0% plus dividends on AOL (currently zero). The contingent principal amount will be reduced upon any increase in the AOL dividend rate. The PHONES are also exchangeable at any time into the cash value of 0.95 share of AOL. Payments on the PHONES may be deferred for up to 20 consecutive quarters, in which case the early exchange ratio would increase temporarily to 1.0. The PHONES are quoted at 112-1/2, for a 23.4% conversion premium, and a 2.8% current yield. Using model assumptions of 40% annualized stock volatility (capped) and 162 bp credit spread over the 30 year US Treasuries, we estimate theoretical value at 118.35 (4.9% ?cheap?). One year total return horizons are +15.0% and ?9.7%, based on a stock change of +/-25%. Once again, keeping in mind that the model may overstate the downside support, we are recommending it as an equity alternative. Comment United States 20 August 1999 T. Anne Cox, CFA First Vice President Anne Elliott Convertible Statistician Convertible Model Portfolio Removing AMZN 4.75% 2009, Adding TRB/AOL 2% PHONES Merrill Lynch & Co. Global Securities Research & Economics Group Global Convertibles Research Group RC#41323205 Convertibles"