Mr. William R. Riedl, President, Fairvest Securities. Dr. Lawrence P. Schwartz, Senior Economist. Mr. Lloyd Atkinson, Chief Investment Officer. We do not assume additional market risk by using equity swaps compared with making direct cash investments in equities.
Derivatives provide flexibility in implementing our investment strategy.
Approximately 95 percent of these investments were derivative contracts and 5 percent equity securities funded with cash. The derivative investments are primarily implemented by our staff specialists who generally exchange the fixed-interest income from Ontario debentures for floating rate interest and then exchange these floating cash flows for equity returns in the United States and overseas. One party typically agrees to pay a fixed interest rate in return for receiving a floating interest rate. Equity and commodity swaps are contractual obligations between two counterparties to exchange cash flows based upon an equity or a commodity index return. Typically, one party agrees to pay a floating interest rate in return for receiving a return on a specified equity or commodity index.