Salomon Swapco Inc
Notes to Financial Statements
Note 2. Hedge swaps
Hedge swaps which Swapco uses to protect itself from market risk associated with investment securities which it
owns are not regarded as part of the company's derivatives portfolio and, accordingly, are not included in the data
in Note 1 above. Like all other Swapco/SBHC derivative transactions, however, hedge swaps are subject to the
Swapco/SBHC bilateral security agreement under which Swapco is over-collateralized at all times. Summary data
related to these hedge swap transactions is as follows (in thousands of dollars):
December 31, or year ended December 31, 1996 1995
December 31 notional amount
$126,889
$191,524
Average Month-end notional amount
173,259
202,638
December 31 market value (payable to SBHC)
(1,584)
(4,500)
Average month-end market value (payable to SBHC)
526
(4,083)
Profit (loss) incurred on hedge swaps
3,241
(15,800)
Note 3. Collateral
Swapco exchanges collateral under bilateral security agreements with a significant number of its customers as well
as with SBHC. Acceptable collateral includes cash, U.S. and certain other Government securities as well as certain
triple-A rated corporate securities. Detail of collateral amounts exchanged, including securities at their market
value, is as follows (in thousands of dollars):
December 31, 1996 1995
Collateral advanced by Swapco to counterparties
$631,603
$498,349
Collateral advanced by counterparties to Swapco
67,074
68,545
Collateral advanced by SBHC to Swapco
903,234
40,310
Note 4. Securities purchased under agreements to resell
At December 31, 1996, resale agreements were outstanding with four counterparties, all of which are unrelated to
Swapco. The market value of securities collateralizing resale agreements was $371 million.
Note 5. Receivables from and payables to affiliates
Amounts receivable from and payable to affiliated companies are netted, by company, and shown as assets or
liabilities. At December 31, 1996, these amounts included the following balances (in thousands of dollars):
SBHC
Receivable from affiliates
Costs incurred on behalf of affiliates
$492
$492
Salomon
Other
Brothers Inc affiliates Total
Payable to affiliates
Costs incurred on Swapco's behalf
$721
$721
Management and other fees charged by Swapco
(392)
(392)
Management and other fees charged to Swapco
140 $34 174
$469 $34 $503
18
