REMEMBER CORPORATE AMERICA'S

grand new paradigm for the Internet Age? The one that insisted a company's Internet properties should be separated into tracking stocks as quickly as possible to cash in on dot-com mania and fuel hyperaggressive growth?

It looks like that strategy has crumbled to pieces along with every piece of logic that Wall Street used to prop it up.

For the latest evidence of that hard reality, look no further than Walt Disney's decision Monday to shut down the Go.com Web site, headquarters for such popular destinations as ESPN.com, movies.com and Infoseek. Disney's retrenchment plan calls for the House of Mouse to buy back its Disney Internet Group tracking stock for 0.19353 of a Disney share, take more than $700 million in charges and lay off 400 employees. Do you hear the sound of a paradigm crashing?

Just 18 months ago, tracking stocks were all the rage as Fortune 500 companies sought to reintroduce themselves to the investing public as clicks-and-mortar savvy. Whether we're talking about General Electric through NBC Internet; Barnes & Noble through Barnes & Noble.com; or Donaldson Lufkin & Jenrette via DLJ Direct, traditional companies were jumping all over each other to cash in on the market's insatiable appetite for Internet ventures and use the proceeds to fulfill their Internet destinies.

There were other motivations as well including the need for stock-option coin with which to retain employees being wooed by other dot-coms promising IPO riches. It didn't hurt, either, that shares of the issuing parent would almost certainly puff up nicely ahead of what was almost guaranteed to be a big first day of trading. You might recall, for instance, that in the autumn of 1999, AT&T surged $15 into the high 50s as it made plans for a $10 billion spinoff of AT&T Wireless.

That stock is one of the rare trackers issued over the past year or so that is doing OK. Its negative return of 14% since its inception trails the S&P 500 index, but beats the Nasdaq, which is probably a fairer comparison. And like we said, it's rare. More common is Disney's experience.

When Disney announced its absorption of DIG Monday, the latter was trading at a little less than $6 roughly 80% off its 52-week high of $29.44. That capitulation was the culmination of a series of failed Internet rejiggerings by the media titan, which included the 1999 launch of the Go Network as a portal aimed at competing with Yahoo! and America Online, and its 2000 rebirth as a lifestyle and entertainment site rechristened the Disney Internet Group. Now Disney says it will take second-quarter charges of $790 million to $940 million (or 37 cents a share) to shut down the portal. All this trouble for a venture that lost $396 million in fiscal year 2000.

Even GE's storied Jack Welch has dirtied his hands in the tracking-stock game. Take a look at NBC Internet. That stock was hitting $100 around this time last year, inspiring the company to dip into the secondary markets to raise another $280 million. Now, the stock is worth just $4.25 a share, despite the fact GE, which owns 39% of NBC Internet, has done all it can to resuscitate the struggling portal.

Last summer and fall, for instance, GE's NBC, CNBC and MSNBC networks gave up millions in prime-time ad revenue to air freebie NBCi commercials. Later, NBCi devoted a whole new ad campaign to tout its ho-hum QuickClick text-analysis function. And in its most perplexing promotion, the Web site paired up with bankruptcy victim Montgomery Ward to distribute one million CD-ROMs offering free Internet access. None of that prevented the company from slashing 30% of its payroll on Jan. 18, while cutting its 2001 revenue forecast to $100 million from an earlier projection of $150 million. NBCi lost $416.8 million for the nine months ended September 2000.

Other parents have chosen to abandon their Internet tracking stocks in a basket by the river. Last fall, when Credit Suisse First Boston acquired DLJ, the investment bank's lagging online brokerage DJL Direct was unceremoniously left out of the deal. While CSFB has since renamed the service CSFBdirect and continues to promote it, DLJ Direct shareholders nevertheless missed out on the chunky premium savored by DLJ common holders in the $11.5 billion deal. To this day, despite several lawsuits, CSFB has given no indication that it ever intends to absorb Direct shares along the lines of the Disney-DIG reintegration. The stock sits stagnant at $5.

None of this is much of a surprise to Anand Vijh and Matthew Billett of the University of Iowa. They performed a study of 28 tracking stocks issued before 1999 and found that on average they trailed both their peers and the broader market. These issues earned 11.7% a year during the first three years of existence, compared with an 18.1% return by a benchmark portfolio of their industry rivals. The overall market, meanwhile, tallied a 21% annual gain.

And this study doesn't even take into account the dot-com trackers, the overwhelming majority of which were issued after the study. The academic duo is eager to revisit the study with fresh numbers from the Internet tracking-stock frenzy of the past two years.

"A tracking stock is a structure that should not exist," scoffs Vijh. "The long-term returns are quite poor and, too often, they just add a layer of confusion. It's hard to explain why they still exist."

Harder still if you happen to be a shareholder in Disney Internet Group, NBCi and DLJ Direct.