ACM Partnership, Southampton-Hamilton Company, Tax Matters Partner - Page 86

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          of deposit (CD's)) maturing December 4, 1989, and bearing                   
          interest at 8.15 to 8.20 percent.  Upon maturity, these funds               
          became available at no transaction cost to finance the following            
          purchases of Colgate debt between December 4 and 8:                         
                    $100 million principal amount of the Met Note for                 
               $99,291,000 plus accrued interest;                                     
                    $1 million principal amount of Euro Notes for                     
               $1,025,500 plus accrued interest;                                      
                    $4 million principal amount of Euro Notes for                     
               $4,102,000 plus accrued interest;                                      
                    $31 million principal amount of Long Bonds for                    
               $31,493,396 plus accrued interest.                                     
               During November, the groundwork was being laid for the                 
          disposition of some of the LIBOR Notes that ACM would acquire in            
          the sale.  A memorandum that Merrill prepared for Colgate                   
          entitled "Analysis of Partnership Hedging Activity," dated                  
          November 13, 1989, purports to demonstrate quantitatively how               
          either an increase in Southampton's share of the interest rate              
          volatility of the Colgate debt from 30 percent to 50 percent or             
          an exchange of the Long Bonds for a new issue of 5-year Colgate             
          debt would warrant a reduction in the amount of the LIBOR Note              
          hedge in the partnership portfolio by approximately $10 million.            
          Merrill reasoned that, in either case, ABN's interest rate                  
          exposure would fall by about 30 percent, and a 30-percent                   
          reduction in the size of the partnership's hedge would leave the            
          bank's net exposure unchanged.  Sometime in November, Pepe                  
          approached Neil Schickner (Schickner), head of the Capital                  




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