ACM Partnership, Southampton-Hamilton Company, Tax Matters Partner - Page 39

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          could have been expected to add an insignificant volatility to              
          the consolidated financial performance of the Colgate group.  The           
          question arises whether this undesirable accounting byproduct of            
          Colgate's liability management strategy would have provided                 
          reasonable grounds for hedging within the partnership.                      
               We do not think so.  If the standard financial accounting              
          treatment of hedging activities was a cause for concern                     
          warranting countervailing positions designed to eliminate the               
          effects from the financial statements of the business, businesses           
          would routinely offset their own hedges and receive little or no            
          net economic benefit from them.  In July 1989, Colgate had                  
          entered into $300 million notional principal amount of interest             
          rate swaps for liability management reasons similar to those that           
          actuated its investment in ACM.  That these swaps were also                 
          marked to market for financial reporting purposes evidently did             
          not trouble Colgate, for it took no action to counteract their              
          economic effects.  Thus, a desire to stabilize the value of the             
          ACM investment on its financial statements could not have                   
          provided a rational basis for the decision to hedge inside the              
          partnership.                                                                
               ABN never had any intention of using the LIBOR Notes as a              
          hedge for Kannex's interest in the partnership.  Instead, it                
          hedged Kannex's exposure to the Colgate debt by means of swaps              
          outside the partnership and, by separate swaps, eliminated the              






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