and other investments portfolio are subject to price risk.  The Company uses options to hedge its price risk on certain highly volatile equity securities.

The Company uses a value-at-risk (VAR) model to estimate and quantify its market risks.  The VAR model is not intended to represent actual losses in fair value, but is used as a risk estimation and management tool.  Assumptions applied to the VAR model at June 30, 1999 and 2000 include the following: normal market conditions; Monte Carlo modeling with 10,000 simulated market price paths; a 97.5% confidence interval; and a 20-day estimated loss in fair value for each market risk category.  Accordingly, 97.5% of the time the estimated 20-day loss in fair value would be nominal for foreign currency denominated investments and accounts receivable at June 30, 1999 and 2000, and would not exceed $95 million and $211 million at June 30, 1999 and 2000 for interest-sensitive investments or $1.38 billion or $1.02 billion at June 30, 1999 and 2000 for equity securities.



Intellectual Property Rights

Microsoft diligently defends its intellectual property rights, but unlicensed copying of software represents a loss of revenue to the Company.  While this adversely affects U.S. revenue, revenue loss is even more significant outside of the United States, particularly in countries where laws are less protective of intellectual property rights.  Throughout the world, Microsoft actively educates consumers on the benefits of licensing genuine products and educates lawmakers on the advantages of a business climate where intellectual property rights are protected.  However, continued efforts may not affect revenue positively.



Litigation

Litigation regarding intellectual property rights, patents, and copyrights occurs in the PC software industry.  In addition, there are government regulation and investigation risks along with other general corporate legal risks.  The Company is a defendant in a lawsuit filed by the Antitrust Division of the U.S. Department of Justice and a group of nineteen state Attorneys General alleging violations of the Sherman Act and various state antitrust laws.  After the trial, the District Court entered Findings of Fact and Conclusions of Law stating that Microsoft had violated sections of the Sherman Act and various state antitrust laws.  A Judgment was entered on June 7, 2000 ordering, among other things, the breakup of Microsoft into two companies.  On June 20, 2000, the District Court entered an order staying the Judgment of June 7, 2000 in its entirety until the appeal therefrom is heard and decided, unless the stay is earlier vacated by an appellate court.  Although Microsoft believes it will obtain ultimate relief from the Judgment, the Company cannot predict with certainty when or the extent to which such relief will be obtained. The failure to obtain relief from certain provisions of the Judgment through the appeal would likely have a material adverse effect on the Company.  A large number of antitrust class action lawsuits have been initiated against Microsoft.  These cases allege that Microsoft has competed unfairly and unlawfully monopolized alleged markets for