ILB Processing Example 4

An entity purchases 100,000,000.00 of a US TIP, CUSIP 9182727R8, on 01/02/2007, with a ILB index ratio of 1.15941, and at a price of 100. The inflation adjusted shares and cost of investment of this tax lot is 115,941,000.00. The closing price in this scenario is the same as the open unit price of the tax lot, 100.00. When earnings are run on 01/02/2007, Eagle Accounting uses the 1/03/2007 ILB index ratio of 1.15936. When earnings is complete, the tax lot reflects a cost of investments and inflation adjusted shares of 115,936,000.00. Since the closing price is the same as the open unit price, there is no unrealized gain/loss.

If the current Trading ILB Index Ratio is used (01/02/2007 in this scenario), Eagle Accounting calculates an inflated adjusted shares of 115,941,000 versus a cost of 115,936,000.00. This occurs because the cost of investments would be adjusted down by 5,000.00 when the earnings process, using the following day's ILB index ratio, was invoked (this scenario is in a deflationary period for the month). When the unrealized process was invoked, Eagle Accounting would calculate an unrealized gain of 5,000.00, even though there were no price changes from the open transactions.

For multiple tax lot positions, including tax lots that have not reached settlement date, Eagle Accounting uses the ILB index used in earnings, for the pricing date of the entire position. For example, on 01/02/2007, Eagle Accounting uses the 01/03/07 ILB index ratio in earnings. Eagle Accounting also uses the 01/03/2007 ILB index in the unrealized gain/loss process. The reason for this is that the unrealized gain\loss process is calculated at a position level, and not a tax lot level. Hence, only one ILB index ratio can be used.