Salomon IR 96 2 Q Page 4
Salomon Swapco Inc
To Our Clients
8-day movement in the value of the Swapco
book related to each day's calculated cushion.
For each day, the measure of market movement
is taken as positive regardless of the direction of
the actual movement. (In an actual termination,
the only market movements that would threaten
the adequacy of the cushion would be those in
Swapco's favor. In order to assess the
conservatism of the cushion calculation,
however, it is appropriate to compare the size of
an 8-day movement in either direction with the
magnitude of the calculated cushion).
On every New York business day, Swapco
calculates the volatility cushion required from
SBHC based upon portfolio values as of close
of business on the prior day. SBHC posts
collateral, including cushion, in the form of cash
or U.S. Government securities, before close of
business on the day each calculation is
performed. Were SBHC to fail to meet one of
those daily collateral calls, a "Collateral Cure
Period" would begin. If the failure was not
remedied within 48 hours (a period which is
included in the 8-days used in the volatility
computation), a termination trigger event would
occur.
Swapco's structure is designed to provide
triple-A credit quality to our derivatives
counterparties. We believe that the structure
succeeds in achieving that level of protection -
and that it does so efficiently. The result is that
Swapco can trade a broader range of contracts,
at more attractive levels, than its comparably-
rated competitors.
4
Salomon Swapco Inc
To Our Clients
If you have any questions about our collateral
and volatility cushion mechanism, or any
questions about other topics involving Swapco,
please contact any of the representatives listed
on page 24 of this report.
Yours very truly,
John G. Macfarlane III
Chairman of the Board
5
