ACM Partnership, Southampton-Hamilton Company, Tax Matters Partner - Page 18

                                       - 107 -                                        
          Policies, the Citicorp Notes were treated as a cash equivalent              
          for this reason.                                                            
               According to petitioner, this understanding is subject to              
          significant qualifications.  Petitioner relies on the                       
          observations of one of its experts, Joseph Grundfest (Grundfest)            
          of Stanford University.  Grundfest notes that the decision to               
          purchase a FRN locks in a return tied to a specified floating               
          rate index.  There are several indices, LIBOR, treasury bill,               
          Federal funds rates, etc., and their relationship is not stable             
          over time.  Payments on FRN's can vary substantially depending on           
          the choice of the underlying index.  Grundfest goes on to cite              
          actual examples of significant discrepancies between certain                
          floating rate indices that occurred during and around the years             
          at issue.                                                                   
               We cannot quarrel with these observations.  How much                   
          significance we should attach to the potential for such market              
          discrepancies as a basis for a reasonable expectation of profit             
          is another matter.  FRN's are commonly used by investors as a               
          substitute for short term money market instruments such as                  
          certificates of deposit (CD's).  Historical interest rate data              
          introduced in evidence confirm that changes in the 1-month                  
          commercial paper rate and CD rate are not perfectly correlated.             
          Over the 71 months from January 1984 to November 1989, the two              
          rates fluctuated, but generally remained within 15 basis points             






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