- 22 -22
sale of the PPNs. AlliedSignal filed a Form 1139 claiming a
$27,151,087 refund in 1987 attributable to a $181,628,283 net
capital loss carryback (i.e., some of which was attributable to
other capital gains and losses AlliedSignal incurred in 1990).
After the 1990 LIBOR note sale, ASIC held no LIBOR notes and
AlliedSignal held LIBOR notes with a total notional principal
amount of $280,810,000. The total cost of selling the LIBOR
notes was $6,110,000, rather than Merrill Lynch's initial
estimate of less than $500,000.
Merrill Lynch structured and entered into swap transactions
that transferred the interest rate risk of the LIBOR notes from
Generale Bank and Unibank A/S to Merrill Lynch. These swaps were
an effective inducement for the banks to buy the LIBOR notes. On
November 9, 1990, AlliedSignal entered into its sixth swap with
Merrill Lynch to further hedge its interest rate risk relating to
its LIBOR notes. After this swap was in place, AlliedSignal was
hedged on 94 percent of its LIBOR notes. On November 13, 1990,
AlliedSignal purchased 5-year Treasury futures to lock in
interest rates on the LIBOR notes it intended to sell later that
month.
VIII. Dominguito's Partnership Interest Is Reduced
On November 22, 1991, ASA redeemed 7.57 percent of
Dominguito's interest for $91,898,434. The redemption reduced
Dominguito's interest to 33 percent and increased AlliedSignal's
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