FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR ( ) TRANSITION REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended June 30, 2000
Commission File Number 333-87663
SALOMON SMITH BARNEY DIVERSIFIED 2000 FUTURES FUND L.P.
(Exact name of registrant as specified in its charter)
New York 13-4077759
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o Smith Barney Futures Management LLC
388 Greenwich St. - 7th Fl.
New York, New York 10013
(Address and Zip Code of principal executive offices)
(212) 723-5424
(Registrant's telephone number, including area code)
----------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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SALOMON SMITH BARNEY DIVERSIFIED 2000 FUTURES FUND L.P.
FORM 10-Q
INDEX
Page
Number
PART I - Financial Information:
Item 1. Financial Statements:
Statement of Financial Condition
at June 30, 2000 (unaudited). 3
Statement of Income and Expenses
and Partners' Capital for the period
from August 25, 1999 (date
Partnership was organized)
to June 30, 2000 (unaudited). 4
Notes to Financial Statements
(unaudited) 5 - 9
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 10 - 11
Item 3. Quantitative and Qualitative
Disclosures of Market Risk 12 - 13
PART II - Other Information 14 - 17
2
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PART I
Item 1. Financial Statements
Salomon Smith Barney Diversified 2000 Futures Fund L.P.
Statement of Financial Condition
(Unaudited)
June 30,
2000
------------------
Assets:
Equity in commodity futures trading account:
Cash $ 15,769,930
Net unrealized appreciation
on open futures contracts 224,579
------------------
15,994,509
Interest receivable 52,909
------------------
$ 16,047,418
==================
Liabilities and Partners' Capital:
Liabilities:
Accrued expenses:
Commissions $ 70,890
Management fees 24,147
Other 32,856
Due to SSB 750,000
------------------
877,893
------------------
Partners' Capital:
General Partner, 162 Unit equivalents
outstanding in 2000 158,162
Limited Partners, 16,040 Units of Limited
Partnership Interest outstanding in 2000 15,011,363
------------------
15,169,525
------------------
$ 16,047,418
==================
See Notes to Financial Statements.
3
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SALOMON SMITH BARNEY DIVERSIFIED 2000 FUTURES FUND L.P.
STATEMENT OF INCOME AND EXPENSES AND PARTNERS' CAPITAL
(UNAUDITED)
PERIOD FROM
JUNE 1, 2000
(COMMENCEMENT OF
TRADING OPEATIONS)
TO JUNE 30,
2000
------------------------
Income:
Net gains (losses) on trading of commodity
futures:
Realized losses on closed positions $ (431,203)
Change in unrealized gains (losses) on open
positions 224,579
------------------------
(206,624)
Less, brokerage commissions including clearing fees
of $3,866 (78,756)
------------------------
Net realized and unrealized gains (losses) (285,380)
Interest income 52,909
------------------------
(232,471)
------------------------
Expenses:
Management fees 24,148
Other 32,856
------------------------
57,004
------------------------
Net loss (289,475)
Proceeds from offering - Limited Partner 16,047,000
- General Partner 162,000
Offering and organization expense (750,000)
------------------------
Partners' capital, end of period $ 15,169,525
========================
Net asset value per Unit
( 16,209 Units outstanding at June 30, 2000) $ 935.87
========================
Net loss per Unit of Limited Partnership
interest and General partner Unit equivalent $ (64.13)
========================
Redemption Net asset value per Unit $ 980.56
========================
See Notes to Financial Statements.
4
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Salomon Smith Barney Diversified 2000 Futures Fund L.P.
Notes to Financial Statements
June 30, 2000
(Unaudited)
1. General:
Salomon Smith Barney Diversified 2000 Futures Fund L.P. (the
"Partnership") is a limited partnership organized under the laws of the State of
New York, on August 25, 1999 to engage in the speculative trading of a
diversified portfolio of commodity interests including futures contracts,
options and forward contracts. The commodity interests that are traded by the
Partnership are volatile and involve a high degree of market risk. The
Partnership commenced trading operations on June 1, 2000.
Between January 31, 2000 (commencement of the offering period) and May
31, 2000, 16,047 Units of limited partnership interest and 162 Unit equivalents
representing the general partner's contribution were sold at $1,000 per unit.
The proceeds of the offering were held in an escrow account until May 31, 2000,
at which time they were turned over to the Partnership for trading.
Smith Barney Futures Management LLC acts as the general partner (the
"General Partner") of the Partnership. The Partnership's commodity broker is
Salomon Smith Barney Inc. ("SSB"). SSB is an affiliate of the General Partner.
The General Partner is wholly owned by Salomon Smith Barney Holdings Inc.
("SSBHI"), which is the sole owner of SSB. SSBHI is a wholly owned subsidiary of
Citigroup Inc. All trading decisions are made for the Partnership by Campbell &
Company, Inc., ("Campbell"), Beacon Management Corp. ("Beacon"), Bridgewater
Associates, Inc. ("Bridgewater") and Rabar Market Research, Inc. ("Rabar")
(collectively, the "Advisors").
The accompanying financial statements are unaudited but, in the opinion
of management, include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the Partnership's financial
condition at June 30, 2000 and the results of its operations for the period from
June 1, 2000 (commencement of trading operations) to June 30, 2000. These
financial statements present the results of interim periods and do not include
all disclosures normally provided in annual financial statements.
5
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Due to the nature of commodity trading, the results of operations for
the interim periods presented should not be considered indicative of the results
that may be expected for the entire year.
2. Net Asset Value Per Unit:
Changes in net asset value per Unit for the period from August 25, 1999,
(date Partnership was organized) to June 30, 2000 was as follows:
PERIOD FROM
AUGUST 25, 1999
(DATE PARTNERSHIP
WAS ORGANIZED)
TO
JUNE 30, 2000
Net realized and unrealized
losses $ (17.61)
Interest income 3.26
Expenses (49.78)
----------
Decrease for period (64.13)
Net Asset Value per Unit,
beginning of period 1,000.00
Net Asset Value per Unit,
end of period $ 935.87
=========
Redemption Net Asset Value
Per Unit * $ 980.56
=========
* For the purpose of a redemption, any remaining deferred liability for
reimbursement of offering and organization expenses will not reduce redemption
net asset value per unit. (see note 3)
3. Offering and Organization Costs:
Offering and organization expenses of approximately $750,000 relating to
the issuance and marketing of the Partnership's Units offered were initially
paid by SSB. These costs have been recorded as due to SSB in the statement of
financial condition. These costs are being reimbursed to SSB by the Partnership
in 24 equal monthly installments (together with interest at the prime rate
quoted by the Chase Manhattan Bank).
As of June 30, 2000, $25,653 of these cost are currently payable to SSB.
6
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The remaining deferred liability for these costs due to SSB of $750,000
(exclusive of interest charges) will not reduce Net Asset Value per Unit for any
purpose (other than financial reporting), including calculation of advisory and
brokerage fees and the redemption value of Units.
4. Trading Activities:
The Partnership was formed for the purpose of trading contracts in a
variety of commodity interests, including derivative financial instruments and
derivative commodity instruments. The results of the Partnership's trading
activity are shown in the statement of income and expenses and partners'
capital.
The Customer Agreement between the Partnership and SSB gives the
Partnership the legal right to net unrealized gains and losses.
All of the commodity interests owned by the Partnership are held for
trading purposes. The average fair value during the period ended June 30, 2000
based on the monthly calculation, was $224,579. The fair value of these
commodity interests, including options thereon, if applicable, at June 30, 2000,
was $224,579 as detailed below.
Fair Value
June 30,
2000
Currency:
- Exchange Traded Contracts $(148,007)
- OTC Contracts Energy (264)
Energy 263,423
Grains 146,867
Interest Rates U.S. (3,203)
Interest Rates Non-U.S. (33,509)
Livestock 34,630
Metals (76,275)
Softs 61,358
Indices (20,441)
----------
Total $ 224,579
=========
7
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5. Financial Instrument Risk
The Partnership is party to financial instruments with off-balance sheet
risk, including derivative financial instruments and derivative commodity
instruments, in the normal course of its business. These financial instruments
may include forwards, futures and options, whose value is based upon an
underlying asset, index, or reference rate, and generally represent future
commitments to exchange currencies or cash flows, to purchase or sell other
financial instruments at specific terms at specified future dates, or, in the
case of derivative commodity instruments, to have a reasonable possibility to be
settled in cash, through physical delivery or with another financial instrument.
These instruments may be traded on an exchange or over-the-counter ("OTC").
Exchange traded instruments are standardized and include futures and certain
option contracts. OTC contracts are negotiated between contracting parties and
include forwards and certain options. Each of these instruments is subject to
various risks similar to those related to the underlying financial instruments
including market and credit risk. In general, the risks associated with OTC
contracts are greater than those associated with exchange traded instruments
because of the greater risk of default by the counterparty to an OTC contract.
Market risk is the potential for changes in the value of the financial
instruments traded by the Partnership due to market changes, including interest
and foreign exchange rate movements and fluctuations in commodity or security
prices. Market risk is directly impacted by the volatility and liquidity in the
markets in which the related underlying assets are traded.
Credit risk is the possibility that a loss may occur due to the failure
of a counterparty to perform according to the terms of a contract. Credit risk
with respect to exchange traded instruments is reduced to the extent that an
exchange or clearing organization acts as a counterparty to the transactions.
The Partnership's risk of loss in the event of counterparty default is typically
limited to the amounts recognized in the statement of financial condition and
not represented by the contract or notional amounts of the instruments. The
Partnership has concentration risk because the sole counterparty or broker with
respect to the Partnership's assets is SSB.
The General Partner monitors and controls the Partnership's risk
exposure on a daily basis through financial, credit and risk management
monitoring systems and accordingly believes that it has effective procedures for
evaluating and limiting the credit and market risks to which the Partnership is
subject. These monitoring systems allow the General Partner to statistically
analyze actual trading results with risk adjusted performance indicators and
correlation statistics. In addition, on-line monitoring systems provide account
analysis of futures, forwards and options positions by sector, margin
requirements, gain and loss transactions and collateral positions.
8
<PAGE>
The notional or contractual amounts of these instruments, while not
recorded in the financial statements, reflect the extent of the Partnership's
involvement in these instruments. The majority of these instruments mature
within one year of June 30, 2000. However, due to the nature of the
Partnership's business, these instruments may not be held to maturity.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
The Partnership does not engage in the sale of goods or services. Its
only assets are its equity in its commodity futures trading account, consisting
of cash, net unrealized appreciation (depreciation) on open futures and forward
contracts, commodity options, if applicable, and interest receivable. Because of
the low margin deposits normally required in commodity futures trading,
relatively small price movements may result in substantial losses to the
Partnership. While substantial losses could lead to a decrease in liquidity, no
such losses occurred during the period ended June 30, 2000.
The Partnership's capital consists of the capital contributions of the
partners as increased or decreased by gains or losses on commodity futures
trading, expenses, interest income, additions and redemptions of Units and
distributions of profits, if any.
For the period ended June 30, 2000, Partnership capital decreased 6.4%
from $16,209,000 (proceeds from offering) to $15,169,525. This decrease was
attributable to the initial expense of offering and organization costs of
$750,000.
Results of Operations
During the period from June 1, 2000 (commencement of trading operations)
to June 30, 2000, the partnership's net assets value per unit decreased 6.4%
from $1,000.00 to $935.87. The Partnership experienced a net trading loss before
brokerage commissions and related fees in the period ended June 30, 2000 of
$206,624. Losses were primarily attributable to the trading of commodity futures
in currencies, U.S. and non-U.S. interest rates and metals and were partially
offset by gains in energy, grains, softs, indices and livestock. The Partnership
commenced trading operations on June 1, 2000, and as a result, comparative
information is not available.
Commodity futures markets are highly volatile. Broad price fluctuations
and rapid inflation increase the risks involved in commodity trading, but also
increase the possibility of profit. The profitability of the Partnership depends
on the existence of major price trends and the ability of the Advisors to
identify correctly those price trends. Price trends are influenced by, among
other things, changing supply and demand relationships, weather, governmental,
agricultural, commercial and trade programs and policies, national and
international political and economic events and changes in interest rates. To
the extent that market trends exist and the Advisors are able to identify them,
the Partnership expects to increase capital through operations.
10
<PAGE>
Interest income on 80% of the Partnership's daily equity maintained in
cash was earned on the monthly average 30-day U.S. Treasury bill rate determined
weekly by SSB based on the non competitive yield on the three month U.S.
Treasury bill maturing in 30 days.
Brokerage commissions are calculated on the adjusted net asset value on
the last day of each month and, therefore, vary according to trading
performance, additions and redemptions.
All trading decisions for the Partnership are currently being made by
the Advisors. Management fees are calculated as a percentage of the
Partnership's net asset value as of the end of each month and are affected by
trading performance, additions and redemptions.
Incentive fees are based on the new trading profits generated by each
advisor as defined in the advisory agreements between the Partnership, the
General Partner and each Advisor.
11
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Item 3. Quantitative and Qualitative Disclosures of Market Risk
Introduction
The Partnership is a speculative commodity pool. The market sensitive
instruments held by it are acquired for speculative trading purposes, and all or
substantially all of the Partnership's assets are subject to the risk of trading
loss. Unlike an operating company, the risk of market sensitive instruments is
integral, not incidental, to the Partnership's main line of business.
Market movements result in frequent changes in the fair market value of
the Partnership's open positions and, consequently, in its earnings and cash
flow. The Partnership's market risk is influenced by a wide variety of factors,
including the level and volatility of interest rates, exchange rates, equity
price levels, the market value of financial instruments and contracts, the
diversification effects of the Partnership's open positions and the liquidity of
the markets in which it trades.
The Partnership rapidly acquires and liquidates both long and short
positions in a wide range of different markets. Consequently, it is not possible
to predict how a particular future market scenario will affect performance, and
the Partnership's past performance is not necessarily indicative of its future
results.
Value at Risk is a measure of the maximum amount which the Partnership
could reasonably be expected to lose in a given market sector. However, the
inherent uncertainty of the Partnership's speculative trading and the recurrence
in the markets traded by the Partnership of market movements far exceeding
expectations could result in actual trading or non-trading losses far beyond the
indicated Value at Risk or the Partnership's experience to date (i.e., "risk of
ruin"). In light of the foregoing as well as the risks and uncertainties
intrinsic to all future projections, the inclusion of the quantification
included in this section should not be considered to constitute any assurance or
representation that the Partnership's losses in any market sector will be
limited to Value at Risk or by the Partnership's attempts to manage its market
risk.
Exchange maintenance margin requirements have been used by the
Partnership as the measure of its Value at Risk. Maintenance margin requirements
are set by exchanges to equal or exceed the maximum losses reasonably expected
to be incurred in the fair value of any given contract in 95%-99% of any one-day
intervals. Maintenance margin has been used rather than the more generally
available initial margin, because initial margin includes a credit risk
component, which is not relevant to Value at Risk.
12
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The following table indicates the trading Value at Risk associated with
the Partnership's open positions by market category as of June 30, 2000. All
open position trading risk exposures of the Partnership have been included in
calculating the figures set forth below. As of June 30, 2000, the Partnership's
total capitalization was approximately $15,169,525.
June 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Year to Date
% of Total High Low
Market Sector Value at Risk Capitalization Value at Risk Value at Risk
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Currencies:
- Exchange Traded Contracts $ 291,727 1.92% $471,507 $291,727
- OTC Contracts 13,750 0.09% 38,081 13,750
Energy 277,000 1.83% 298,000 209,400
Grains 116,600 0.77% 116,600 27,850
Interest Rates U.S. 77,600 0.51% 91,200 67,843
Interest Rates Non-U.S. 404,944 2.67% 455,637 223,434
Livestock 41,800 0.28% 44,130 9,610
Metals 156,275 1.03% 197,425 100,200
Softs 115,600 0.76% 133,600 50,750
Indices 495,200 3.26% 504,320 228,399
----------- ------
Total $1,990,496 13.12%
=========== ======
</TABLE>
13
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PART II OTHER INFORMATION
Item 1. Legal Proceedings -
For information concerning a suit filed by Harris Trust Savings Bank (as trustee
for the Ameritech Pension Trust) and others against Salomon Brothers Inc., and
Salomon Brothers Realty Corp., see the description that appears in the second
and third paragraphs under the caption "Legal Proceedings" of the Annual Report
on Form 10-K of the Partnership for the year ended December 31, 1999, which
description is included as Exhibit 99.1 to this Form 10-Q and incorporated by
reference herein, and in the first paragraph under the caption "Legal
Proceedings" of the Quarterly Report on Form 10-Q of the Partnership for the
quarterly period ended March 31, 2000, which description is included as Exhibit
99.2 to this Form 10-Q and incorporated by reference herein. On June 12, 2000,
the U.S. Supreme Court reversed the U.S. Court of Appeals for the Seventh
Circuit's judgment, which had overturned the denial of defendants' motion for
summary judgment and dismissed the sole remaining ERISA claim against Salomon
Smith Barney Holdings, Inc. ("SSBH"), and remanded the matter to the circuit
court for further proceedings.
14
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Exhibit 99.1
Second and third paragraphs under the caption "Legal Proceedings" beginning on
page 11 of the Annual Report on Form 10-K of SSBH for the year ended December
31, 1999 (File No. 1-4346).
In September 1992, Harris Trust and Savings Bank (as trustee for Ameritech
Pension Trust ("APT")), Ameritech Corporation, and an officer of Ameritech filed
suit against Salomon Brothers Inc. ("SBI") and Salomon Brothers Realty
Corporation ("SBRC") in the U.S. District Court for the Northern District of
Illinois (Harris Trust Savings Bank, not individually but solely as trustee for
the Ameritech Pension Trust, Ameritech Corporation and John A. Edwardson v.
Salomon Brothers Inc and Salomon Brothers Realty Corp.). The second amended
complaint alleges that three purchases by APT from defendants of participation
interests in net cash flow or resale proceeds of three portfolios of motels
owned by Motels of America, Inc. ("MOA"), as well as a fourth purchase by APT of
a similar participation interest in a portfolio of motels owned by Best Inns,
Inc. ("Best"), violated the Employee Retirement Income Security Act ("ERISA"),
and that APT's purchase of the participation interests in the third MOA
portfolio and in the Best portfolio violated the Racketeer Influenced and
Corrupt Organization Act ("RICO") and the Illinois Consumer Fraud and Deceptive
Practices Act ("Consumer Fraud Act"), and constituted fraud, negligent
misrepresentation, breach of contract and unjust enrichment. SBI had acquired
the participation interests when it purchased principal mortgage notes issued by
MOA and Best to finance purchases of motel portfolios; 95% of three of those
interests and 100% of the fourth were sold to APT for a total of approximately
$20.9 million. Plaintiffs' second amended complaint seeks judgment (a) on the
ERISA claims for the approximately $20.9 million purchase price, for rescission
and for disgorgement of profits, as well as other relief, and (b) on the RICO
and state law claims in the amount of $12.3 million, with damages trebled to $37
million on the RICO claims and punitive damages in excess of $37 million on
certain of the state law claims as well as other relief. Following motions by
defendants, the court dismissed the RICO, Consumer Fraud Act, fraud, negligent
misrepresentation, breach of contract, and unjust enrichment claims. The court
also found that defendants were not ERISA fiduciaries and dismissed two of the
three claims based on that allegation. Defendants moved for summary judgment on
plaintiffs' only remaining claim, which alleged an ERISA violation. The motion
was denied, and defendants appealed to the U.S. Court of Appeals for the Seventh
Circuit. In July 1999, the U.S. Court of Appeals for the Seventh Circuit
reversed the denial of defendants' motion for summary judgment and dismissed the
sole remaining ERISA claim against SSBH. Plaintiffs filed a petition for
certiorari with the U.S. Supreme Court seeking review of the decision of the
Court of Appeals. The petition was granted in January 2000.
15
<PAGE>
Both the Department of Labor and the Internal Revenue Service have advised SBI
that they were or are reviewing the underlying transactions. With respect to the
Internal Revenue Service, SSBH, SBI and SBRC have consented to extensions of
time for the assessment of excise taxes that may be claimed with respect to the
transactions for the years 1987, 1988 and 1989. In August 1996, the IRS sent
SSBH, SBI and SBRC what appeared to be draft "30-day letters" with respect to
the transactions and SSBH, SBI and SBRC were given an opportunity to comment on
whether the IRS should issue 30-day letters, which would actually commence the
assessment process. In October 1996, SSBH, SBI and SBRC submitted a memorandum
setting forth reasons why the IRS should not issue such 30-day letters. Since
that time, the IRS has not issued such 30-day letters to SSBH, SBI or SBRC.
16
<PAGE>
Exhibit 99.2
First paragraph under the caption "Legal Proceedings" beginning on page 17 of
the Quarterly Report on Form 10-Q of SSBH for the quarterly period ended March
31, 2000 (File No.1-4346).
For information concerning a suit filed by Harris Trust Savings Bank (as trustee
for the Ameritech Pension Trust) and others against Salomon Brothers Inc., and
Salomon Brothers Realty Corp., see the description that appears in the second
and third paragraphs under the caption "Legal Proceedings" of the Annual Report
on Form 10-K of the Partnership for the year ended December 31, 1999, which
description is included as Exhibit 99.1 to this Form 10-Q and incorporated by
reference herein. In April 2000, the U.S. Supreme Court heard oral argument on
plaintiffs' petition to reverse the decision of the U.S. Court of Appeals for
the Seventh Circuit. The U.S.
Supreme Court reserved its decision, and has not yet released its opinion.
Item 2. Changes in Securities and Use of Proceeds - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. (a) Exhibits - None
(b) Reports on Form 8-K - None
17
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SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SALOMON SMITH BARNEY DIVERSIFIED 2000 FUTURES FUND L.P.
By: Smith Barney Futures Management LLC
(General Partner)
By: /s/ David J. Vogel, President
David J. Vogel, President
Date: 8/14/00
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: Smith Barney Futures Management LLC
(General Partner)
By: /s/ David J. Vogel, President
David J. Vogel, President
Date: 8/14/00
By: /s/ Daniel A. Dantuono
Daniel A. Dantuono
Chief Financial Officer and
Director
Date: 8/14/00