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that the partnership planned to hold the notes, any premium yield
it may have earned from them could not have covered an
appreciable amount of the costs that the partnership expected to
incur upon their sale.
The acquisition of the LIBOR Notes, ostensibly to minimize
the partners' exposure to a rise in interest rates, was planned
and carried out at a time when Colgate expected interest rates
would fall over the next several months, and accordingly desired
leveraged exposure to interest rate risk within the partnership.
Instead of initially setting Southampton's share of the Yield
Component at the target level of approximately triple its pro
rata share, Colgate caused Southampton to increase its share in
two steps over a period of 6 weeks to provide part of the
rationale for why the partnership no longer needed the hedging
effect of the BFCE Notes, in accordance with scenarios developed
several weeks beforehand. The acquisition of the LIBOR Notes was
planned with the expectation that Kannex would not in fact have
any net exposure to hedge, and the acquisition proceeded as
planned even after ABN and Merrill had entered into an agreement
that would offset their effect on ABN's interest altogether.
Each of the steps in the section 453 investment strategy was
planned and arrangements commenced considerably in advance of
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