ACM Partnership, Southampton-Hamilton Company, Tax Matters Partner - Page 113

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          effect within the partnership portfolio.  It was clear to him               
          that effect would not be adequate, and hedging instruments of               
          greater precision and reliability were available.  Accordingly,             
          ABN New York arranged to neutralize the effect of the LIBOR Notes           
          on Kannex's interest.  The structure that it employed for this              
          purpose consisted of back-to-back swap transactions with Kannex             
          on the one hand and Merrill Capital on the other.  ABN New York             
          assumed the role of intermediary on the assumption that neither             
          Merrill Capital nor any other third party would accept Kannex's             
          credit risk.                                                                
               By swap confirmations effective November 27, 1989, the issue           
          date of the LIBOR Notes, ABN New York entered into a hedge swap             
          agreement with Merrill Capital.  Under the swap, ABN New York was           
          required to make to Merrill Capital quarterly payments of 3-month           
          LIBOR over 5 years equivalent to Kannex's 82.63 percent pro rata            
          share of the payments owed to ACM under the LIBOR Notes.  Merrill           
          Capital was required to pay to ABN New York the sum of                      
          $28,433,655 in 20 equal quarterly installments together with                
          interest on the unpaid balance at a rate of LIBOR minus 25 basis            
          points.  This amortizing principal amount was equal to 82.63                
          percent of $34,410,814, Kannex's pro rata share of the issue                
          price of the LIBOR Notes.  ABN New York entered into a matching             
          hedge swap with Kannex under which Kannex's rights and                      
          obligations vis-a-vis ABN New York corresponded to those of ABN             






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