ACM Partnership, Southampton-Hamilton Company, Tax Matters Partner - Page 73

                                       - 31 -                                         
               To allocate gains and losses arising in connection with                
          Colgate debt instruments in the partnership portfolio for each              
          revaluation period, the Partnership Agreement distinguished                 
          between that portion of any change in value attributable to                 
          changes in the general level of interest rates (the Yield                   
          Component) and that portion of any change in value attributable             
          to changes in the market's perception of risks specifically                 
          associated with Colgate's credit quality (the Quality Component).           
          Together, the Yield Component and Quality Component would capture           
          all of the fluctuation in market value of the Colgate debt held             
          by the partnership.                                                         
               The Yield Component was initially allocated among the                  
          partners based on their respective capital interests.7                      
          Southampton could elect, however, to change its and Kannex's                
          relative shares of the Yield Component to any level it desired              
          within a specified range, on 5 days notice.  It could increase              
          its own share to as much as 49.7 percent, thereby reducing                  
          Kannex's share to 51 percent, and it could reduce its own share             
          to as little as 10 percent, causing Kannex to take 89.7 percent.            
               The allocation of the Quality Component depended on whether            
          Colgate's credit had improved or deteriorated during the relevant           
          revaluation period.  Improvement or deterioration was measured by           


               7 Kannex's share was set slightly higher (83 percent) and              
          Southampton's slightly lower (16.7 percent) than their respective           
          capital interests.                                                          




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