Federal Register / Vol. 65, No. 14 / Friday, January 21, 2000 / Notices 3507

1CityFed Financial Corp., Investment Company

Act Release Nos. 23659 (Jan. 20, 1999) (notice) and

23692 (Feb. 12, 1999) (order).

hiring of a Sub-Adviser, an information

statement meeting the requirements of

Regulation 14C, Schedule 14C, and Item

22 of Schedule 14A under the Exchange

Act, except as modified by the order to

permit Aggregate Fee Disclosure.

7. The Adviser will provide

management services to each Fund

relying on the requested order,

including overall supervisory

responsibility for the general

management and investment of the

Fund’s assets, and, subject to review

and approval by the Board; will: (a) set

the Fund’s overall investment strategies;

(b) evaluate, select and recommend SubAdvisers to manage all or a part of the

Fund’s assets; (c) when appropriate,

allocate and reallocate the Fund’s assets

among multiple Sub-Advisers; (d)

monitor and evaluate the investment

performance of Sub-Advisers; and (e)

ensure that the Sub-Advisers comply

with the Fund’s investment objectives,

policies, and restrictions by, among

other things, implementing procedures

reasonably designed to ensure

compliance.

8. No Trustee or officer of the Trust,

or director of officer of Wachovia who

participates directly in Wachovia’s

investment advisory activities

(including the management or

administration of the Trust) or

otherwise is able to influence the

selection of Sub-Advisers, will own

directly or indirectly (other than

through a pooled investment vehicle

that is not controlled by such person)

any interest in a Sub-Adviser except for

(a) ownership of interests in (i)

Wachovia or an entity that controls, is

controlled by, or is under common

control with Wachovia or (ii) Federated

or an entity that controls, is controlled

by, or is under common control with

Federated; or (b) ownership of less than

1% of the outstanding securities of any

class of equity or debt of a publiclytraded company that is either a SubAdviser or an entity that controls, is

controlled by, or is under common

control with a Sub-Adviser.

9. The Trust will disclose in its

registration statement the Aggregate Fee

Disclosure.

10. Independent counsel

knowledgeable about the Act and the

duties of Independent Trustees will be

engaged to represent the Independent

Trustees. The selection of such counsel

will be within the discretion of the

Independent Trustees.

11. With respect to the Funds relying

on the relief requested, the Adviser will

provide the Board, no less frequently

than quarterly, with information about

the Adviser’s profitability on a per Fund

basis. This information will reflect the

impact on the profitability of the hiring

or termination of any Sub-Adviser

during the applicable quarter.

12. Whenever a Sub-Adviser is hired

or terminated, the Adviser will provide

the Board with information showing the

expected impact on the Adviser’s

profitability.

For the Commission, by the Division

of Investment Management, under

delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–1472 Filed 1–20–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Investment Company Act Release No.

24252; 812–11844]

CityFed Financial Corp. Notice of

Application

DATE: January 13, 2000.

AGENCY: Securities and Exchange

Commission (‘‘SEC’’).

ACTION: Notice of application for an

order under sections 6(c) and 6(e) of the

Investment Company Act of 1940

(‘Act’’) for exemption from all

provisions of the Act, except sections 9,

17(a) (modified as discussed in the

application), 17(d) (modified as

discussed in the application), 17(e),

17(f), 36 through 45, and 47 through 51

of the Act and the rules thereunder.

SUMMARY OF APPLICATION: The requested

order would exempt the applicant,

CityFed Financial Corp. (‘‘CityFed’’),

from certain provisions of the Act until

the earlier of one year from the date the

requested order is issued or such time

as CityFed would no longer be required

to register as an investment company

under the Act. The order would extend

an exemption granted will February 12,

2000.1

Filing Date: The application was filed

on November 5, 1999.

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 8, 2000, 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’ interest, the reason for the

request, and the issues contested.

Persons who wish to be notified of a

hearing may request notification by

writing to the SEC’s Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth

Street, N.W., Washington, D.C. 20549–

0609. CityFed, 35 Old South Road, P.O.

Box 3126, Nantucket, MA 02584.

FOR FURTHER INFORMATION CONTACT:

Bruce R. MacNeil, Staff Attorney, at

(202) 942–0634, or Mary Kay Frech,

Branch Chief, at (202) 942–0564

(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, 450 Fifth

Street, N.W., Washington, D.C., 20549–

0102 (tel. no. 202–942–8090).

Applicant’s Representations

1. CityFed was a savings and loan

holding company that conducted its

savings and loan operations through its

wholly-owned subsidiary, City Federal

Savings Bank (‘‘City Federal’’). During

the five year period ending December

31, 1988, City Federal was the source of

substantially all of CityFed’s revenues

and income. As a result of substantial

losses in its mortgage banking and real

estate operations, City Federal was

unable to meet its regulatory capital

requirements. Accordingly, on

December 7, 1989, the Office of Thrift

Supervision (‘‘OTS’’) placed City

Federal into receivership and appointed

the Resolution Trust Corporation

(‘‘RTC’’) as City Federal’s receiver. City

Federal’s deposits and substantially all

of its assets and liabilities were acquired

by a newly created federal mutual

savings bank, City Savings Bank, F.S.B.

(‘‘City Savings’’). The OTS appointed

the RTC as receiver of City Savings.

2. Once City Federal was placed into

receivership, CityFed no longer

conducted savings and loan operations

through any subsidiary and

substantially all of its assets consisted of

cash that has been invested in money

market instruments with a maturity of

one year or less and money market

mutual funds. As of September 30,

1999, CityFed held cash and securities

of approximately $9.5 million.

3. While CityFed’s board of directors

(‘‘Board’’) has considered from time to

time whether to engage in an operating

business, the Board has determined not

to engage in an operating business at the

present time because of the claims filed

3508 Federal Register / Vol. 65, No. 14 / Friday, January 21, 2000 / Notices

against CityFed, whose liability

thereunder cannot be reasonably

estimated any may exceed its assets.

4. On June 2, 1994, the OTS issued a

Notice of Charges and Hearing for Cease

and Desist Order to Direct Restitution

and Other Appropriate Relief and

Notice of Assessment of Civil Money

Penalties (‘‘Notice of Charges’’) against

CityFed and certain current or former

directors and, in some cases, officers of

CityFed and City Federal. The Notice of

Charges requests that an order be

entered by the Director of the OTS

requiring CityFed to make restitution,

reimburse, indemnify or guarantee the

OTS against loss in an amount not less

than $118.4 million, which the OTS

alleges represents the regulatory capital

deficiency (‘‘Net Worth Maintenance

Claim’’) reported by City Federal in the

fall of 1989. On November 30, 1995, the

OTS issued an Amended Notice of

Charges and Hearing for Cease and

Desist Order to Direct Restitution and

Other Appropriate Relief and Notice of

Assessment of Civil Money Penalties

(‘‘Amended Notice of Charges’’) that is

identical to the Notice of Charges,

except that the Amended Notice of

Charges includes a reference to a federal

statutory provision not referred to in the

Notice of Charges that the OTS asserts

provides an additional basis for the

issuance of a Cease and Desist Order

against CityFed and certain current or

former directors and, in some cases,

officers of CityFed and of City Federal

(‘‘Respondents’’). On February 1, 1996,

an administrative law judge (‘‘ALJ’’)

issued a prehearing order (‘‘Prehearing

Order’’) granting the OTS’s motion for

partial summary disposition with

respect to CityFed and denying both

CityFed’s motion for partial summary

disposition of the OTS’s assessment of

civil money penalties and its crossmotion for summary adjudication. On

June 12, 1996, CityFed moved for

interlocutory review by the acting

director of the OTS of the conclusions

in the Prehearing Order and, if

necessary, will seek appellate review of

any adverse decision. On August 20,

1997, the OTS Director issued a

decision and order granting CityFed’s

motion for interlocutory review. The

Director concluded that the ALJ had

erred in recommending summary

disposition on the OTS Net Worth

Maintenance Claim against CityFed and

held that there were disputed issues of

fact on that claim that precluded

summary judgment, and he remanded

the case to the ALJ for further

proceedings consistent with his

decision. The ALJ has lifted the stay of

the proceedings, and CityFed and the

OTS have begun to engage in discovery

on the Net Worth Maintenance Claim.

5. Also on June 2, 1994, the OTS

issued a Temporary Order to Cease and

Desist (‘‘Temporary Order’’) against

CityFed. The Temporary Order required

CityFed to post $9.0 million as security

for the payment of the amount sought by

the OTS in its Notice of Charges.

CityFed unsuccessfully petitioned the

district court for an injunction against

the Temporary Order. CityFed and the

Respondents filed notices of appeal

from the D.C. Court’s Order to the

United States Court of Appeals for the

District of Columbia Circuit (‘‘D.C.

Circuit’’), and the Respondents filed a

motion in the D.C. Circuit for an

expedited appeal and an order enjoining

the enforcement of the Temporary Order

during the pendency of the appeal. The

D.C. Circuit denied the Respondents’

motion for injunction on October 21,

1994. On July 11, 1995, the D.C. Circuit

affirmed the denial by the D.C. Court of

the motions by CityFed and the

Respondents for a temporary restraining

order and an injunction against the

Temporary Order. On October 26, 1994,

CityFed and the OTS entered into an

Escrow Agreement (‘‘Escrow

Agreement’’) with CoreStates Bank, N.A.

(‘‘CoreStates’’) pursuant to which

CityFed transferred substantially all of

its assets to CoreStates for deposit into

an escrow account to be maintained by

CoreStates. CityFed’s assets in the

escrow account continue to be invested

in money market instruments with a

maturity of one year or less and money

market mutual funds. Withdrawals or

disbursements from the escrow account

are not permitted without the written

authorization of the OTS, other than for

(a) monthly transfers to CityFed in the

amount of $15,000 for operating

expenses, (b) the disbursement of funds

on account of purchases of securities by

CityFed, and (c) the payment of the

escrow fee and expenses to CoreStates.

The Escrow Agreement also provides

that CoreStates will restrict the escrow

account in such a manner as to

implement the terms of the Escrow

Agreement and to prevent a change in

status or function of the escrow account

unless authorized by CityFed and the

OTS in writing.

6. On December 7, 1992, the RTC filed

suit against CityFed and two former

officers of City Federal seeking damages

of $12 million dollars for failure to

maintain the net worth of City Federal

(‘‘First RTC Action’’). In light of the

filing by the OTS of the Notice of

Charges on June 2, 1994, the RTC and

CityFed agreed to dismiss without

prejudice the RTC’s claim against

CityFed in the First RTC Action.

7. In addition, the RTC filed suit

against several former directors and

officers of City Federal alleging gross

negligence and breach of fiduciary duty

with respect to certain loans (‘‘Second

RTC Action’’). The RTC seeks in excess

of $200 million in damages. under its

bylaws, CityFed may be obligated to

indemnify these former officers and

directors and advice their legal

expenses. On the advice of counsel to a

special committee of CityFed’s Board,

comprised of directors who have not

been named in the First or Second RTC

Action, CityFed advanced reasonable

defense costs to such former directors

and officers in such Actions. CityFed is

unable to determine with any accuracy

the extent of its liability with respect to

these indemnification claims, although

the amount may be material.

8. On August 7, 1995, CityFed, acting

in its own right and as shareholder of

City Federal, filed a civil action in the

United States Court of Federal Claims

(‘‘Claims Court’’) seeking damages for

loss of ‘‘supervisory goodwill.’’

CityFed’s goodwill suit is presently

pending in that court. The Claims Court

has established a procedure for deciding

supervisory goodwill claims and its

decision on this issue may affect

CityFed’s right to assert a claim for the

loss of supervisory goodwill on the

books of City Federal.

9. Currently, CityFed’s stock is traded

sporadically in the over-the-counter

market. CityFed has one employee who

is president, chief executive officer, and

treasurer. CityFed’s secretary does not

receive any compensation for her

service.

Applicant’s Legal Analysis

1. Section 3(a)(1)(A) defines an

investment company as any issuer who

‘‘is or holds itself out as being engaged

primarily * * * in the business of

investing, reinvesting or trading in

securities.’’ Section 3(a)(1)(C) further

defines an investment company as an

issuer who is engaged in the business of

investing in securities that have a value

in excess of 40% of the issuer’s total

assets (excluding government securities

and cash).

2. Section 6(c) of the Act provides that

the SEC may exempt any person from

any provision of the Act ‘‘if and to the

extent that such exemption is necessary

or appropriate in the public interest.’’

Section 6(e) provides that in connection

with any SEC order exempting an

investment company from any provision

of section 7, certain specified provisions

of the Act shall be applicable to such

company, and to other persons in their

transactions and relations with such

company, as though such company were

Federal Register / Vol. 65, No. 14 / Friday, January 21, 2000 / Notices 3509

1 15 U.S.C. 78s(a).

2Letter from Sal Ricca, President and Chief

Operating Officer, GSCC (December 30, 1999).

3 15 U.S.C. 78q–1(b) and 78s(a).

4 17 CFR 240.17Ab2–1.

registered under the Act, if the SEC

deems it necessary or appropriate in the

public interest or for the protection of

investors.

3. CityFed acknowledges that it may

be deemed to fall within one of the Act’s

definitions of an investment company.

Accordingly, CityFed requests an

exemption under sections 6(c) and 6(e)

from all provisions of the Act, subject to

certain exceptions described below.

CityFed requests an exemption until the

earlier of one year from the date of the

requested order or such time as it would

no longer be required to register as an

investment company under the Act.

4. In determining whether to grant an

exemption for a transient investment

company, the SEC considers such

factors as whether the failure of the

company to become primarily engaged

in a non-investment business or

excepted business or liquidate within

one year was due to factors beyond its

control; whether the company’s officers

and employees during that period tried,

in good faith, to effect the company’s

investment of its assets in a noninvestment business or excepted

business or to cause the liquidation of

the company; and whether the company

invested in securities solely to preserve

the value of its assets. CityFed believes

that it meets these criteria.

5. CityFed believes that its failure to

become primarily engaged in a noninvestment business by February 12,

2000, is due to factors beyond its

control. CityFed asserts that the amount

required to resolve its currently

outstanding claims cannot be reasonably

estimated and could exceed its assets. If

CityFed is unable to resolve these

claims successfully, it states that it may

seek protection from the bankruptcy

courts or liquidate. CityFed also asserts

that it probably will not be in a position

to determine what course of action to

pursue until most, if not all, of its

contingent liabilities are resolved.

Additionally, CityFed states that its

circumstances are unlikely to change

over the requested one year period in

light of the number of claims currently

pending against it and because of the

existence of the Escrow Agreement.

Since the filing of its initial application

for exemptive relief under sections 6(c)

and 6(e) on October 19, 1990, CityFed

has invested in money market

instruments and money market mutual

funds solely to preserve the value of its

assets.

6. During the term of the proposed

exemption, CityFed states that it will

comply with sections 9, 17(a) and (d)

(subject to the exception below and the

modifications described in condition 3,

below), 17(e), 17(f), 36 through 45, and

47 through 51 of the Act and the rules

thereunder. With respect to section

17(d), CityFed represents that it

established a stock option plan when it

was an operating company. Although

the plan has been terminated, certain

former employees of City Federal have

existing rights under the plan. CityFed

believes that the plan may be deemed a

joint enterprise or other joint

arrangement or profit-sharing plan

within the meaning of section 17(d) and

rule 17d–1 thereunder. Because the plan

was adopted when CityFed was an

operating company and to the extent

there are existing rights under the plan,

CityFed seeks an exemption to the

extent necessary from section 17(d).

Applicant’s Conditions

CityFed agrees that the requested

exemption will be subject to the

following conditions:

1. CityFed will not purchase or

otherwise acquire any additional

securities other than securities that are

rated investment grade or higher by a

nationally recognized statistical rating

organization or, if unrated, deemed to be

of comparable quality under guidelines

approved by CityFed’s Board, subject to

two exceptions:

a. CityFed may make an equity

investment in issuers that are not

investment companies as defined in

section 3(a) of the Act (including issuers

that are not investment companies

because they are covered by a specific

exclusion from the definition of

investment company under section 3(c)

of the Act other than sections 3(c)(1)

and 3(c)(7)) in connection with the

possible acquisition of an operating

business as evidenced by a resolution

approved by CityFed’s Board; and

b. CityFed may invest in one or more

money market mutual funds that limit

their investments to ‘‘Eligible

Securities’’ within the meaning of rule

2a–7(a)(10) promulgated under the Act.

2. CityFed’s Form 10–KSB, Form 10–

QSB and annual reports to shareholders

will state that an exemptive order has

been granted pursuant to sections 6(c)

and 6(e) of the Act and that CityFed and

other persons, in their transactions and

relations with CityFed, are subject to

sections 9, 17(a), 17(d), 17(e), 17(f), 36

through 45, and 47 through 51 of the

Act, and the rules thereunder, as if

CityFed were a registered investment

company, except as permitted by the

order requested hereby.

3. Notwithstanding sections 17(a) and

17(d) of the Act, an affiliated person (as

defined in section 2(a)(3) of the Act) of

CityFed may engage in a transaction that

otherwise would be prohibited by these

sections with CityFed:

a. If such proposed transaction is first

approved by a bankruptcy court on the

basis that (i) the terms thereof, including

the consideration to be paid or received,

are reasonable and fair to CityFed, and

(ii) the participation of CityFed in the

proposed transaction will not be on a

basis less advantageous to CityFed than

that of other participants; and

b. In connection with each such

transaction, CityFed shall inform the

bankruptcy court of (i) the identity of all

of its affiliated persons who are parties

to, or have a direct or indirect financial

interest in, the transaction; (ii) the

nature of the affiliation; and (iii) the

financial interests of such persons in the

transaction.

For the SEC, by the Division of Investment

Management, under delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–1473 Filed 1–20–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release 34–42335; File No. 600–23]

Self-Regulatory Organizations;

Government Securities Clearing

Corporation; Notice of Filing and Order

Extending Temporary Registration as a

Clearing Agency

January 12, 2000.

Notice is hereby given that on

December 30, 1999, the Government

Securities Clearing Corporation

(‘‘GSCC’’) filed with the Securities and

Exchange Commission (‘‘Commission’’)

an application pursuant to Section 19(a)

of the Securities Exchange Act of 1934

(‘‘Act’’) 1 requesting that the

Commission grant GSCC full registration

as a clearing agency or in the alternative

extend GSCC temporary registration as a

clearing agency until such time as the

Commission is able to grant GSCC

permanent registration.2 The

Commission is publishing this notice

and order to solicit comments from

interested persons and to extend GSCC’s

temporary registration as a clearing

agency through July 31, 2000.

On May 24, 1988, pursuant to

Sections 17A(b) and 19(a) of the Act 3

and Rule 17Ab2–1 promulgated

thereunder,4 the Commission granted

GSCC registration as a clearing agency

on a temporary basis for a period of