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book value was consistently adjusted to reflect the current ask
price. This convention had the effect of ensuring that the
bid-ask spread would be borne solely by the partner(s) that held
an interest in the Notes, directly or indirectly, at the time
they matured or were sold.
Finally, unlike the policies governing the revaluation of
Colgate debt, there is no provision in any agreement for
adjusting the book value of the LIBOR Notes to reflect changes in
the credit quality of the issuers. As a result, any credit risk
would be borne only upon the sale of the Notes to a third party.
As a corollary to the Accounting Policies described above,
the partners agreed that in the event that any of the LIBOR Notes
were distributed to a partner before maturity, they would be
distributed at book value. As a result, the distributee
partner's capital accounts and outside basis would be reduced.
This reduction would result in the distributee in effect paying
the full origination cost and bid-ask spread attributable to the
distributed LIBOR Notes. In connection with the distribution of
the BFCE Notes to Southampton, as of December 13, the
partnership's assets were revalued. The book value of the BFCE
Notes was adjusted to $10,133,540. For financial and tax
accounting purposes, Southampton's capital account was reduced by
this amount, resulting in a decrease in its ownership percentage
from 16.89 percent to 12.60 percent.
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