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general ledger for the period ended March 31, 1990, at
$40,094,384. Saba carried the LIBOR notes on its audited and
unaudited financial statements at cost; i.e., the present value
of the LIBOR notes of $38,594,384, plus the $1,500,000 private
placement discount on the sale of the Chase PPNs. Saba adopted
this approach based upon advice from Merrill Lynch. As discussed
in detail below, the private placement discount on the sale of
the Chase PPNs eventually was borne solely by Brunswick following
the distribution and sale of the LIBOR notes.
A portion of the $1,500,000 private placement discount on
the sale of the Chase PPNs was attributable to the PPNs' lack of
liquidity. If Saba had invested directly in LIBOR notes, as
opposed to first purchasing and then selling the Chase PPNs, Saba
could have avoided the portion of the $1,500,000 discount
attributable to the PPNs' lack of liquidity.
O'Brien understood that Saba had invested in the Chase PPNs,
prior to its investment in the LIBOR notes, to ensure that the
transactions would be treated for tax purposes as CINS
transactions. The Chase PPNs were not readily tradeable on an
established market. In addition, because the LIBOR notes
provided for 20 variable quarterly payments, Saba could not
determine the aggregate selling price of the Chase PPNs by the
end of its March 31, 1990, taxable year. Consequently, Saba
reported the sale of the Chase PPNs as an "installment sale"
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