Publish date:

daily06-28-99's DAILY BULLETIN

June 29, 1999


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Market Data as of Close, 6/28/99:

o Dow Jones Industrial Average: 10,655.15 up 102.59, 0.97%

o Nasdaq Composite Index: 2,602.44 up 49.79, 1.95%

o S&P 500: 1,331.35 up 16.04, 1.22%

o TSC Internet: 582.32 up 13.88, 2.44%

o Russell 2000: 448.61 up 5.50, 1.24%

o 30-Year Treasury: 88 15/32, up 22/32, yield 6.095%

Companies in Today's Bulletin:

Yahoo! (YHOO:Nasdaq)

Philip Morris (MO:NYSE)

Seagate Technology (SEG:NYSE)

Ford (F:NYSE)

In Today's Bulletin:

o Wrong! Rear Echelon Revelations: What's the Big Idea?
o Mutual Funds: Amerindo Technology Fund Warns of Huge Capital Gains
o Evening Update: Philip Morris Issues Downbeat Outlook; Brenneman Won't Join Compaq
o Bond Focus: Bonds Rally, but Analysts Expect More Selling

Also on

Brokerages/Wall Street: Bear Stearns Gets Caught in $25 Million Trap

The company gets slapped with SEC fines over its association with indicted brokerage firm A.R. Baron. And the saga may not end there.

Internet: The Face That Launched a Thousand Sites

You've never heard of George Chen, but you've likely seen his image in ad campaigns for several Internet companies.

Semiconductors: Clear Connection: RF Micro Expands Reach With Motorola, Ericsson Deals

For the wireless-phone chipmaker, there's a world beyond Nokia.

Tech Savvy: How Application Service Providers Will Change Your Life

Buying software is about to change in a big way, and ASPs stand to be the next big winners in the business.

Wrong! Rear Echelon Revelations: What's the Big Idea?


James J. Cramer

The Street's out of good ideas right now. How can I tell? Because when someone has a good idea, everybody else has it too, that's how.

Take this morning. In my first meeting with my partner

Jeff Berkowitz

-- yes, the meeting you will be able to attend if you win the

investment challenge -- we went over companies that report this week.

"Here's an interesting one:


(FDX) - Get FedEx Corporation Report

," I told Jeff. "We think oil's going lower, we like the Net, the stock's down from 60, probably good for a three-point trade in a flat tape."

Jeff then picked at it a bit, wondering why it was down, questioning how the quarter had been going, what people were thinking. I said that I had heard things were good, that the company has a tendency to be promotional about the Net, which is great if you are long it and crummy if you are short it. I said I wanted to get 15 in, or 15,000 at a quarter point around the close. (Newbies, I wanted to buy 15,000 shares around where the stock went out Friday.)

All of that is pretty standard for us.

Later on in the morning I noticed that



pushed the stock a bit, but nothing aggressive, and I still thought I had a pretty good chance to get some stock in, maybe with a little give. (A little give is about a half-point above where it went out.)

Bamm, next thing I know the stock gaps up three. The whole gain I was looking for happens at the opening. There are so few money-making ideas on the Street that, when people see them, they will pay anything.

Or as my wife, the

Trading Goddess

, would have said: "You had to buy Fedex Friday."

It's like that in the summer. We are all trying to find something that makes sense. There's just not enough to go around.

Random musings

: Downright enjoyable tape as good news from the Net filtered out of the

Thomas Weisel

meetings, where reports were that pageviews remain strong for the stalwarts despite the dog days ... Getting tired of hearing the "you have to own the infrastructure Net plays" -- predictably, they will be over-owned shortly ... Weird mark in


(IBM) - Get International Business Machines (IBM) Report

, which I am long, a small block takes it up more than a buck at the bell, but I guess I can't complain. Small block of



takes that one down, and I would complain except I bought on it!

Berko strikes again. Remember when he said no to me about




few weeks back and I shared it with you immediately. Good call, Seagate just blew up... Had to sell the


(MO) - Get Altria Group Inc Report

, talk about a meeting that failed to deliver on expectations: earning below plan, no thought to splitting up the company, and a plethora of lawsuits ahead. Next!


James J. Cramer is manager of a hedge fund and co-founder of At time of publication, his fund was long IBM, Allied-Signal and Merrill Lynch. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at

Mutual Funds: Amerindo Technology Fund Warns of Huge Capital Gains


Joe Bousquin

Staff Reporter

Investors in the


Amerindo Technology fund could find that its stellar, 103% return this year comes with a big tax bill.

The fund realized capital gains amounting to 55% of its net asset value as of April 30, according to its prospectus. That unusually large gain means investors could be turning over a good portion of their returns to Uncle Sam at tax time.

"That's very high," says Stephanie Kendall, a mutual fund analyst with fund-tracker


. "You wouldn't want to pay over 10% or 20% normally

in capital-gains distributions."

Amerindo has not yet distributed these gains to its shareholders, as it's required to do by law. The fund has until Oct. 31, the end of its fiscal year, to make the distribution, and it could lower the final amount by offsetting it with realized losses.

Because realized capital gains are distributed to all shareholders on the record date of the distribution, shareholders who invest after April 30 could get hit with the distribution, even if they didn't take part in the fund's meteoric returns.

The $156 million fund lowered its minimum investment for A and D shares to $2,500 from $10,000 and $150,000, respectively, in late March. It attracted $10.6 million in new assets during May, according to

Financial Research Corp.

in Boston. That accounts for 42% of the new cash the fund has taken in so far this year.

A spokesman for Amerindo declined to comment.

The fund realized $6.13 per share in long-term capital gains and $8.92 per share in short-term gains through April 30. The total of $15.05 represents 55% of the fund's $27.44 net asset value that day. Short-term gains are taxed at a taxpayer's ordinary tax rate. Long-term gains are taxed at a 20% rate for most taxpayers.

Kendall says the situation illustrates the importance of researching a fund thoroughly before buying it.

"This shows that investors need to look at more than just performance when buying a fund," Kendall says. "On the whole, this is why you want to look for funds that have a low history of capital-gains payouts."

That would not have helped in this case, though. According to


, the Amerindo fund, which was launched in October 1996, has never made a capital-gains distribution.

And the fund's adviser has previously shown a knack for innovative accounting that has produced benefits for shareholders. For instance,

reported in March that Amerindo's unusually large position in



-- it accounted for as much as 43% of the fund's assets at one point -- during 1998 put it at risk of losing its mutual fund tax status. But by taking advantage of a one-time provision in the tax law, Amerindo changed the end of its fiscal year -- the day on which it had to report its holdings -- to a point in time when it met the law's diversification requirements.

But as of March 31, 1999, the fund was still heavily concentrated, with 25.8% of its assets in Yahoo!, 23.3% of its assets in


(EBAY) - Get eBay Inc. Report

and 16.5% of its assets in

(AMZN) - Get, Inc. Report

, according to its Web site.

Large realized gains aren't that surprising for a highflying technology fund like Amerindo, says Ray Liberatore, an analyst at Financial Research Corp.

"It's almost to be expected, in a sense, in such a volatile tech fund," says Liberatore. "These funds are sort of an animal unto themselves. They don't follow the traditional mutual fund analysis, and they're difficult to get a grasp on."

But a large capital-gains distribution wouldn't be such a bad thing for a fund that returned more than 100% so far this year, says Lou Stanasolovich, a financial planner with

TheStreet Recommends

Legend Financial Advisors

in Pittsburgh.

"Are you going to be upset about that return?" Stanasolovich asks. "So many people focus so much on taxes that they let it immobilize them. Yes, it's true you should avoid taxes when possible. But even in the worst of cases, it's not that bad."

But for an investor who hasn't participated in those returns, the potential capital-gains burden is a real concern, he says.

"I would not go into the fund at this point," says Stanasolovich. "On the other hand, if you're really concerned and you've been a holder of the fund for more than a year, you may want to sell it now" to avoid the distribution.

Because distributions are made on a per-share basis, Stanasolovich points out that, if investors cash out to avoid a distribution, the shareholders left behind would be hit with an even bigger distribution.

"The ones still in the fund are left holding the bag," he says.

Evening Update: Philip Morris Issues Downbeat Outlook; Brenneman Won't Join Compaq


Heather Moore

Staff Reporter

Philip Morris

(MO) - Get Altria Group Inc Report

told analysts at a New York meeting that volume and profits from its international tobacco business will not meet full-year expectations. Second-quarter volume is expected to drop 6% and full-year volume is expected to drop 4%. The company cited the impact of duty-free sales and a weak euro. The company said it sees full-year earnings at $3.30 a share, 2 cents below the 12-analyst

First Call

forecast but above the year-ago $3.17.


(CAL) - Get Caleres, Inc. Report

President and COO Greg Brenneman said he will no longer vie for the open CEO post at




wrote about Compaq's CEO search this afternoon before the announcement.



reported that



is expected to formally announce early tomorrow morning rumored plans to buy Compaq's


Internet assets.

Japanese traders were treated to mixed economic news this morning in Tokyo. The May

jobless rate

slipped to 4.6% from 4.8%. Economists polled by the

Nihon Keizai Shimbun

expected the rate to climb to 4.9%. But the May

industrial output index

fell by 0.5% against expectations of a 1% gain.

In other postclose news (earnings estimates from First Call; earnings reported on a diluted basis unless otherwise specified):

Earnings/revenue reports and previews



posted third-quarter earnings of 49 cents a share, in line with the five-analyst estimate and above the year-ago 42 cents.



reported second-quarter earnings of 69 cents a share, topping the five-analyst prediction by 1 cent and moving ahead of the year-ago 37 cents.

Citing long-distance pricing erosion and the loss of a U.K. wholesale customer,


(FRO) - Get Frontline Ltd. Report

warned it sees second-quarter earnings coming in 6 cents to 8 cents below the 11-analyst forecast for 28 cents a share. The company, which made 26 cents in the year-ago quarter, also said its board continues to mull over



unsolicited takeover bid.

Metro One Telecommunications


said it sees second-quarter earnings of a penny a share, which would fall below both the six-analyst forecast of 11 cents and the year-ago 8 cents. Metro One attributed the warning to increased staffing and infrastructure costs.

Newport News Shipbuilding


upped its second-quarter net earnings estimate by 40 cents, to 92 cents a share. The company said it will post a $25 million pretax gain in the second quarter related to its terminated merger agreement with

Avondale Industries

(AVDL) - Get Avadel Pharmaceuticals Plc Sponsored ADR Report

and the settlement of insurance claims on completed contracts. The single-analyst estimate calls for operating earnings of 51 cents vs. the year-ago 45 cents.


(PCG) - Get PG&E Corporation Report

said its second-quarter earnings likely will fall short of the five-analyst forecast for 58 cents a share but that it probably will meet full-year expectations for $2.12. PG&E told a Houston energy conference that a rate increase the company applied for probably won't be granted until the third quarter.

Seagate Technology


said its fourth-quarter results will miss estimates due to weak disk-drive demand and continued falling prices. The company sees quarter earnings of 32 cents to 37 cents a share, below the 11-analyst outlook for 49 cents but above the year-ago 9 cents.



(F) - Get Ford Motor Company Report

said it's voluntarily recalling 703,000 1996-1998 model-year Ford Contour and Mercury Mystique cars due to a possible problem with the headlight switch wiring harness connector.

SBC Communications


will pay $1.3 million to settle an investigation by the

Federal Communications Commission

into the company's merger with

Southern New England Telecommunications


Bond Focus: Bonds Rally, but Analysts Expect More Selling


David A. Gaffen

Staff Reporter

Today's rally proves that what goes down eventually comes up. Then again, so do drowning victims.

Short covering and professional buying were the primary drivers for today's Treasury rally, but analysts didn't put much stock in the whole affair, as the volume indicated it lacked conviction. The market was heartened by a friendly inflation nugget contained in the May

personal income and consumption

report released today, but two sources said people will sell this rally ahead of Wednesday's anticipated interest-rate hike and key economic data due at the end of the week.

"This is a bounce after a very, very depressing week, and maybe we were due for a bounce," said Jim Kochan, senior bond market strategist at

Robert W. Baird

in Milwaukee. "But there's so many excuses for customers or for investors to do some selling in the face of a rally."

Today's bounce took the form of a 24/32 rise in the 30-year bond's price, to 88 16/32. The yield fell 6 basis points to 6.09%. Volume, per usual lately, was very low, down 27.5% when compared with the usual second-quarter Monday, according to tracker



The market had already formed the basis of this thin rally when the May personal income and consumption report was released by the

Commerce Department

at 8:30 a.m. EDT. The report's inflationary component, the personal consumption deflator, was unchanged, providing a jolt of bond-friendly news for the market. On a year-over-year basis, this measure is rising at a 1.4% rate, an indication that consumer inflation is still low by historical standards. The 0.4% rise in overall personal income and the 0.6% consumption increase were more or less in line with expectations, and didn't move the market.

Kochan's argument about excuses is a force to be reckoned with. This week's calendar is a veritable hypochondriac's catalogue of bond market ailments, and Wednesday's decision on interest rates is just the beginning. The assumption is that the

Federal Open Market Committee

, the Fed's interest-rate setting committee, will raise the short-term fed funds target to 5% from 4.75%. The agita only starts there -- Will the Fed maintain a tightening bias, and will that quash any possibility of a relief rally in the bond market?

Retaining the bias "might be more distressing a message than they want to send out," said Adam Blankman, Treasury market analyst at

Standard & Poor's MMS

. "If they take off the bias they're not forbidden from tightening -- it doesn't really slow them down much."

Right now, the market seems to be expecting at least a second tightening, even if it's quietly praying for just one move. More clues on this situation will emerge with the potentially ulcer-causing

National Association of Purchasing Management's index of business sentiment

for June, released Thursday, and the two-ton June

employment report

, due out Friday.

The NAPM report, a survey of various aspects of the manufacturing sector, is considered important because it gauges how executives will make decisions in the sector in the coming months. It's expected to fall to 54.4 in June, according to a


survey, down from 55.2. (A reading greater than 50 indicates expansion in the sector; less than 50, contraction, so the prediction is for a strong figure.)

With regard to the employment report, economists are forecasting a 220,000 rise in nonfarm payrolls in June. However, the overall job growth isn't the Fed's pressing concern -- it's the tightness in the labor market, represented by the household unemployment rate. Fed Chairman

Alan Greenspan

said in

testimony two weeks ago that the tightness in the labor market will eventually cause inflation, so it's clear the Fed is hoping for a bit of loosening in the job market. The household unemployment rate is expected to remain unchanged at 4.2% in June, according to economists.


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