ASA Investerings Partnership, Alliedsignal Inc., Tax Matters Partner - Page 34

                                                    - 34 -34                                                      

             distribution of the LIBOR notes would result in a corresponding                                      
             decrease in AlliedSignal's capital account).                                                         
                          2.  Loss on LIBOR Notes                                                                 
                    With respect to the LIBOR notes, the only ASA investment                                      
             with any significant potential to fluctuate in value, ABN                                            
             intended from the outset, and did, fully hedge its risk.  A                                          
             decline in interest rates, between the LIBOR notes acquisition                                       
             date and AlliedSignal's August 2 purchase, resulted in a                                             
             $6,342,068 decline in the LIBOR notes' value.  Consequently,                                         
             AlliedSignal paid $3,134,884 less to acquire Barber's and                                            
             Dominguito's partnership interests than it would have paid if                                        
             interest rates had remained constant.  This "loss", however, was                                     
             offset by ABN's swap income.  As Mr. den Baas testified, "as soon                                    
             as the hedge was in place, we didn't care anymore about the                                          
             principal risk of the LIBOR notes".  Moreover, when asked by the                                     
             Court about ABN's upside potential relating to the LIBOR notes,                                      
             Mr. den Baas explained that "we certainly took care that it would                                    
             never happen", because any increase in the value of the LIBOR                                        
             notes would be offset by losses from ABN's swap transactions.                                        
                    Petitioner contends that in determining whether ABN bore any                                  
             risk of loss relating to the LIBOR notes, the Court should not                                       
             consider swap transactions outside the partnership.  This                                            
             contention, however, is inconsistent with petitioner's assertion                                     
             that AlliedSignal's swaps were part of an "integrated investment                                     





Page:  Previous  22  23  24  25  26  27  28  29  30  31  32  33  34  35  36  37  38  39  40  41  Next

Last modified: May 25, 2011