AMERICA ONLINE UPDATE REPORT (NYSE: AOL)

The initial coverage report on America Online, Inc. (AOL) was prepared as of 2 February 2000. This update report on AOL reviews the current (5 July 2000) status of AOL within the context of the major factors addressed in the initial coverage report.

AOL has continued the expansion of its customer base and the scope of the services it offers since the issuance of the initial coverage report in February 2000. While the merger with Time-Warner continues to be investigated by regulatory authorities in both the European Community and the United States, we believe that the merger ultimately will be approved on both sides of the Atlantic. The promise by AOL that competitors will be allowed access to its post-merger broadband networks, we believe, provides an incentive for regulators to approve the merger. The secret for speedy approval of the merger by regulators may lie in assurances by AOL that open access will not be impeded by unreasonable fees, limitations on services or content, or preferences. Such assurances, we believe, will go a long way toward softening opposition to the merger by major competitors, such as Walt Disney. Further, the European Union (EU) already has rejected the AOL overture divest some of its European operations as a means of gaining approval for the merger. The EU rejection of the AOL overture appears to us to imply that AOL must be willing to change the way it opera

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with Internet services and computer services firms, however, may change the equation. While WorldCom's attempt to merge with Earthlink (itself recently merged with MindSpring) appears to have been thwarted by American regulators, we believe that such mergers will come to pass sooner rather than later. Terra Networks, Spain's leading telecom, has acquired Lycos. We believe that other such mergers are sure to follow; that major telecoms in the United States will acquire Internet content providers and portals, and that AOL will become a full-fledged telecommunications-Internet services-entertainment giant within five years. Strategies for Growth, Alliances, and Strategic Partnerships The actions of AOL over the past three years, along with continuing operations, reflect a growth strategy based on an expansion of the scope of the corporation's operations, both within its existing industry orientations and across compatible industries. Alliances and strategic partnerships are one of the three legs of the AOL growth strategy. Strategic acquisitions through merger are the second essential leg of this strategy. Strong ongoing growth in the corporation's existing business operations are the powerful third leg of this growth strate
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Approximate Word count = 1209
Approximate Pages = 5 (250 words per page)