ACM Partnership, Southampton-Hamilton Company, Tax Matters Partner - Page 27

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          Rather, we view the transaction as bundled and judge it in its              
          entirety.                                                                   
               Colgate's position within the partnership was functionally             
          analogous to an interest rate swap.  This is the way                        
          contemporaneous documents of its treasury department analyzed               
          Colgate's overall interest rate exposure, the way Colgate's                 
          accountants recommended that the investment in ACM be treated for           
          financial reporting purposes, and the way Pohlschroeder described           
          Colgate's intentions in designing ACM.  The swap analogy is apt             
          and useful for purposes of our economic substance analysis.                 
          Suppose that Colgate issues fixed-rate debt and, in order to                
          reduce its exposure to interest rate movements, enters into a               
          "plain vanilla" interest rate swap in which it receives fixed and           
          pays floating interest.  As a result, Colgate is hedged.  Now               
          suppose that Colgate modifies the swap agreement such that                  
          whenever interest rates fall or rise the fixed rate that it is              
          entitled to receive on the asset leg of the swap will be lowered            
          or raised by some specified proportion of the notional principal            
          amount.  The reason offered for this modification is that Colgate           
          wants to limit its exposure to interest rates "within the four              
          corners of the swap", by ensuring that both its rights and                  
          obligations under the swap will move in tandem.  There is a major           
          fallacy in this proposition.  The only effect of modifying the              








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