ACM Partnership, Southampton-Hamilton Company, Tax Matters Partner - Page 35

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          environment outlined by Pohlschroeder in his memorandum, it held            
          Southampton's exposure at this level until September 1990.                  
               One might suppose that if the LIBOR Notes were acquired for            
          their utility to Colgate as a hedge within the partnership it was           
          because, even if Colgate might have desired leveraged exposure to           
          treasury risk at the outset, at some point in the future when a             
          rise in interest rates appeared imminent it would wish to                   
          minimize its exposure.  Yet, before the LIBOR Notes were                    
          acquired, Colgate and Merrill had planned for the immediate                 
          disposal of 30 percent of them.  The timing of the acquisition              
          and disposition of the LIBOR Notes bore no relationship to                  
          Colgate's interest rate expectations.                                       
               If Colgate had intended to use the LIBOR Notes for                     
          protection against rising interest rates, they would not have               
          been a cost-effective instrument for this purpose.  Colgate                 
          appears to have had no reason to believe otherwise.  In an                  
          undated document entitled "Risk Allocation Analysis" that seems             
          to have been prepared for Colgate in late October or November,              
          before the LIBOR Notes were acquired, Merrill estimated that a              
          200 basis point increase in interest rates would cause $35                  
          million market value of LIBOR Notes to appreciate to $40.31                 
          million.  This appreciation of just over 15 percent would offset            
          less than half of the devaluation of the Colgate bonds.                     
          Southampton's original 17.07 percent pro rata share of the gain             






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