[Federal Register Volume 59, Number 21 (Tuesday, February 1, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-2195]
[[Page Unknown]]
[Federal Register: February 1, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-20037; 811-4591]
Connecticut Liquidity Investment Fund, Inc.; Application for
Deregistration
January 26, 1994.
AGENCY: Securities and Exchange Commission (the ``SEC'' or the
``Commission'').
ACTION: Notice of application for deregistration under the Investment
Company Act of 1940 (the ``Act'').
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APPLICANT: Connecticut Liquidity Investment Fund, Inc.
RELEVANT 1940 ACT SECTION: Section 8(f).
SUMMARY OF APPLICATION: Applicant seeks an order declaring that it has
ceased to be an investment company.
FILING DATE: The application was filed on October 5, 1993 and amended
on December 23, 1993.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
applicant with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on February 22,
1994, and should be accompanied by proof of service on applicant, in
the form of an affidavit or, for lawyers, a certificate of service.
Hearing requests should state the nature of the writer's interest, the
reason for the request, and the issues contested. Persons may request
notification of a hearing by writing to the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 5th Street, NW., Washington, DC 20549
Applicant, c/o Mr. Lindsey Pinkham, Secretary, c/o Connecticut Bankers
Association, 450 Church Street, Hartford, CT 06103.
FOR FURTHER INFORMATION CONTACT: Marilyn Mann, Special Counsel, (202)
504-2259, or Barry D. Miller, Senior Special Counsel, (202) 272-3018
(Division of Investment Management, Office of Investment Company
Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee at the
SEC's Public Reference Branch.
Applicant's Representations
1. Applicant is an open-end, diversified management company
organized as a corporation under the laws of the State of Maryland. On
or about February 21, 1986, applicant filed a Notification of
Registration on Form N-8A pursuant to section 8(a) of the Act. On May
28, 1986, applicant filed a registration statement on Form N-1A with
the Commission.
2. In reliance on the advice and recommendation of applicant's
independent auditor and legal advisors, in 1985 applicant distributed a
written offering memorandum dated April 3, 1985 to certain
institutional investors within the state of Connecticut, who were the
only entities eligible to purchase shares of the Fund. The offering
memorandum repeatedly described applicant as an unregistered investment
company and stated that applicant was not an investment company as
defined by the Act because its securities were beneficially owned by
not more than one hundred persons and registration was therefore not
required. Applicant's shares are not registered under the Securities
Act of 1993 and have never been publicly offered. When the application
was filed, applicant had twenty-nine securityholders.\1\ Applicant
operated as an unregistered investment company from on or about April
23, 1985 to February 1986.
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\1\Applicant's security holders include the Federal Deposit
Insurance Corporation as receiver for the New England Savings Bank,
which failed on or about May 18, 1993.
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3. In or about January 1986, applicant's independent auditor and
legal advisors became aware that applicant was not qualified as a
regulated investment company so as to be entitled to favorable income
tax treatment that would permit applicant to pass all or virtually all
of its income to its shareholders without it being liable to pay
Federal or state corporate income tax. Upon learning this information
in February 1986, applicant promptly took steps to register with the
SEC as an investment company under the Act and thereby qualify itself
prospectively as a regulated investment company under the Code.
4. Shortly after applicant discovered that it was not qualified as
a regulated investment company under the Code, applicant redeemed all
of its securityholders' investments in applicant's securities, with the
exception of a nominal 100 shares per securityholder (which amount was
deemed by applicant necessary to be retained so that applicant could
have shareholders able to function as such). In mid-1986, when
applicant was faced with approximately $5.8 million in unfunded income
tax liabilities attributable to applicant's failure to register under
the Act, applicant requested, and applicant's securityholders
voluntarily paid an aggregate assessment of approximately $5.8 million,
so that applicant would have the funds necessary to satisfy its tax
obligation. Applicant promised to pay its securityholders on a
proportional pro rata basis whatever monies applicant recovered from
any litigation against its former professional advisors.
5. In May, June, and August 1986, applicant was required to and did
pay an aggregate of approximately $5,885,861 in Federal and Connecticut
corporate income taxes and interest for the tax years ended September
30, 1985 and February 28, 1986.
6. In 1987, applicant sued its former independent auditor and legal
advisors to recover the Federal and Connecticut corporate income taxes
and interest that applicant had had to pay. On or about May 7, 1987,
applicant also filed amended returns with the Internal Revenue Service
(the ``IRS'') for the fiscal year ending September 30, 1985 and
February 28, 1986, and claimed a refund of Federal corporate income
taxes paid in the amount of $1,733,668 and $2,877,162 respectively. In
or about December 1987, applicant filed amended tax returns with the
Connecticut Department of Revenue Services for the fiscal years ending
September 30, 1985 and February 28, 1986, and claimed a refund of
Connecticut corporate income taxes paid. The amount of applicant's
Connecticut refund claims is approximately $1,641,000 including
interest through June 30, 1993.
7. In December 1991, the litigation with applicant's former legal
advisors was settled. Under the terms of the settlement agreement, the
former legal advisors paid applicant a cash settlement, the net
proceeds of which (after applicant's expenses for legal and accounting
fees) were distributed to applicant's securityholders in December 1991.
On May 27, 1992, applicant settled its claims with its former
independent auditor. One of the terms of the settlement was that the
former independent auditor would assume complete responsibility for the
prosecution of applicant's Federal and state refund claims, applicant
would give its former independent auditor a power of attorney, and the
former independent auditor would guarantee a certain cash payment to
applicant. In the event that the former independent auditor was able to
recover a refund above this guaranteed amount from applicant's Federal
and state refund claims, it would equally split with applicant the
proceeds above the guaranteed amount.
8. In April 1993, the former independent auditor was able to obtain
for applicant a Federal refund in the amount of $3.7 million plus
interest accrued thereon. The $3.7 million plus interest Federal
refund, however, was not all received in cash from the IRS, as the IRS
made certain pre-refund deductions relating to certain tax deductions
which had been made by applicant's shareholders. Thus, applicant only
received approximately $1.3 million in cash from the IRS. Under the
terms of the May 27, 1992 settlement agreement, applicant owned its
former independent auditor a total of $2,559,868.90, of which applicant
was only able to pay $1,873,587.25. Accordingly, applicant still owes
its former independent auditor $686,281.75, which applicant hopes to
pay with the proceeds from its Connecticut corporate tax refund claims.
These claims were initially rejected on or about August 25, 1993 by the
Connecticut Department of Revenue Services and applicant, acting
through a power of attorney previously granted to its former
independent auditor, intends to appeal such rejection to the Appellate
Division of the Connecticut Department of Revenue Services. Applicant
does not believe that it is likely that it will recover any amount on
its fifty percent share of its pending refund claims in excess of the
$686,282 liability due to its former independent auditor. Any net
amount recovered by applicant will be applied first to satisfy the
outstanding liability to applicant's former independent auditor,
applicant's only creditor. Any balance remaining will then be
distributed to applicant's securityholders.
9. On July 1, 1993, applicant's board of directors and
securityholders determined that it was advisable that applicant be
dissolved. Applicant's board of directors unanimously adopted a
resolution declaring that the dissolution of applicant was advisable
and directing that the proposed dissolution be submitted for
consideration to applicant's shareholders at their annual meeting. The
board of directors also authorized and directed applicant's officers to
take any and all steps necessary and appropriate to effectuate the
dissolution of applicant in accordance with applicable Maryland law,
including the filing of articles of dissolution with the State of
Maryland and the filing of Form N-8F with the Securities and Exchange
Commission. Applicant's securityholders approved the dissolution of
applicant by a vote of 66,177 shares in favor and none opposed
(representing approximately ninety-three percent of the outstanding
stock voting in favor, with sixteen securityholders present and voting
in person and nine securityholders voting by written proxy), in
accordance with the applicable provisions of Maryland law, and
authorized applicant's board of directors and officers to take all
steps necessary and appropriate to effectuate such dissolution,
including the filing of articles of dissolution with the State of
Maryland and the filing of the application on Form N-8F with the
Commission.
10. Approximately $6,500 in cash has been retained in applicant's
bank accounts to pay miscellaneous liquidation and dissolution
expenses, including any additional attorney's fees and accounting fees
for the dissolution of applicant and for the preservation of
applicant's pending Connecticut income tax refund claims. Applicant
also has assets in the form of prepaid retainers with its auditors and
counsel for services rendered and to be rendered on and after September
1, 1993.
11. As of September 10, 1993, applicant had 70,301 shares
outstanding of its common stock and the net asset (liability) value
attributable to such common stock was a net liability of $654,734.46 or
$9.31 per share. These numbers do not include applicant's one-half
interest in its Connecticut income tax refund claims.
12. Applicant's expenses incurred or to be incurred in connection
with its liquidation include: (i) A $50.00 filing fee payable to the
State of Maryland upon the filing of applicant's Articles of
Dissolution; (ii) accounting fees incurred and to be incurred for the
preparation of applicant's final Federal and Connecticut corporation
income tax returns, and amendment(s) to prior years' returns, and
advice in connection with the prosecution of applicant's pending
Connecticut income tax refund claims, in the aggregate amount of
approximately $15,000; and (iii) attorneys' fees and disbursements
incurred and to be incurred in connection with the prosecution of
applicant's pending Connecticut income tax refund claims, negotiations
on behalf of the applicant with the one outstanding creditor of
applicant, the preparation of Articles of Dissolution and the
application for deregistration, and advice related thereto, in the
approximate amount of $30,000. These expenses were paid out of
applicant's assets and thereby reduced the net asset (liability) value
of all outstanding shares of applicant's common stock.
13. Applicant is not presently engaged, nor does it propose to
engage, in any business activities other than those necessary for the
winding-up of its affairs.
14. Applicant intends to file articles of dissolution to effectuate
its dissolution, as required under Maryland law.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-2195 Filed 1-31-94; 8:45 am]
BILLING CODE 8010-01-M
