Microsoft 2010 Annual Report Download - page 49

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48
$456 million, respectively. In addition, we use “To Be Announced” forward purchase commitments of mortgage-
backed assets to gain exposure to agency mortgage-backed securities. These meet the definition of a derivative
instrument in cases where physical delivery of the assets is not taken at the earliest available delivery date. As of
June 30, 2010 and 2009, the total notional derivative amount of mortgage contracts purchased were immaterial and
$1.3 billion, respectively.
Credit
Our fixed-income portfolio is diversified and consists primarily of investment-grade securities. We use credit default
swap contracts, not designated as hedging instruments, to manage credit exposures relative to broad-based indices
and to facilitate portfolio diversification. We use credit default swaps as they are a low cost method of managing
exposure to individual credit risks or groups of credit risks. As of June 30, 2010 and 2009, the total notional amounts
of credit contracts purchased and sold were immaterial.
Commodity
We use broad-based commodity exposures to enhance portfolio returns and to facilitate portfolio diversification. We
use swap, futures and option contracts, not designated as hedging instruments, to generate and manage exposures
to broad-based commodity indices. We use derivatives on commodities as they can be low-cost alternatives to the
purchase and storage of a variety of commodities, including, but not limited to, precious metals, energy, and grain.
As of June 30, 2010, the total notional amounts of commodity contracts purchased and sold were $1.1 billion and
$376 million, respectively. As of June 30, 2009, the total notional amounts of commodity contracts purchased and
sold were $543 million and $33 million, respectively.
Credit-Risk-Related Contingent Features
Certain of our counterparty agreements for derivative instruments contain provisions that require our issued and
outstanding long-term unsecured debt to maintain an investment grade credit rating and require us to maintain a
minimum liquidity of $1.0 billion. To the extent we fail to meet these requirements, we will be required to post
collateral, similar to the standard convention related to over-the-counter derivatives. As of June 30, 2010, our long-
term unsecured debt rating was AAA, and cash investments were in excess of $1.0 billion. As a result, no collateral is
required to be posted.