[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