4872 Federal Register / Vol. 66, No. 12 / Thursday, January 18, 2001 / Notices

1CityFed Financial Corp., Investment Company

Act Release Nos. 24252 (Jan. 13, 2000) (notice) and

24283 (Feb. 9, 2000) (order).

equity or debt of a publicly traded

company that is either a Sub-Adviser or

an entity that controls, is controlled by,

or is under common control with a SubAdviser.

For the Commission, by the Division of

Investment Management, pursuant to

delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–1405 Filed 1–17–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Investment Company Act Release No.

24825; 812–12352]

CityFed Financial Corp.; Notice of

Application

January 11, 2001.

AGENCY: Securities and Exchange

Commission (‘‘SEC’’ or ‘‘Commission’’).

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 until February 9,

2001.1

FILING DATES: The application was filed

on December 4, 2000 and amended on

January 10, 2001.

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 5, 2001, 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 who wish to be notified of a

hearing may request notification by

writing to the SEC’s Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth

Street, NW., Washington, DC 20549–

0609. CityFed, 4 Young’s Way, P.O. Box

3126, Nantucket, MA 02584.

FOR FURTHER INFORMATION CONTACT:

Bruce R. MacNeil, Senior Counsel, 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, NW., Washington, DC 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, 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. Thus, since

December 8, 1989, almost all of

CityFed’s assets consisted of cash that

has been invested in (i) money market

instruments with a maturity of one year

or less, and (ii) money market mutual

funds.

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

Notice of Charges (‘‘OTS Action’’)

against CityFed and certain current or

former directors and, in some cases,

officers of CityFed and City Federal

(‘‘Individual Respondents’’). The OTS

Action sought restitution from and a

civil money penalty against both

CityFed and the Individual

Respondents. Also on June 2, 1994, the

OTS issued a Temporary Order to Cease

and Desist (‘‘Temporary Order’’) against

CityFed. The Temporary Order sought

to freeze CityFed’s assets by placing

them in various respects under the

controls of the OTS. On October 26,

1994, CityFed and the OTS entered into

an escrow agreement with CoreStates

Bank, N.A. (now First Union National

Bank (‘‘First Union’’)) (‘‘Escrow

Agreement’’) pursuant to which CityFed

transferred substantially all of its assets

to First Union for deposit into an escrow

account. The Escrow Agreement

provided CityFed with $15,000 per

month for operating expenses and

allowed CityFed to sell and purchase

securities in the escrow account.

4. On May 19, 2000, CityFed finalized

with the OTS and the Federal Deposit

Insurance Corporation (‘‘FDIC’’), the

statutory successor to the RTC, a

settlement of the OTS Action

(‘‘Settlement’’). Pursuant to the

Settlement, the OTS dismissed with

prejudice the OTS Action and the FDIC

gave full and complete releases to

CityFed and the Individual

Respondents. In turn, CityFed and the

Individual Respondents gave full and

complete releases to the OTS and the

FDIC. The OTS also dissolved the

Temporary Order and authorized First

Union to release to CityFed all of its

assets remaining in the escrow account.

5. On December 7, 1992, the RTC filed

suit against CityFed and two former

officers of City Federal seeking damages

of $12 million for failure to maintain the

net worth of City Federal (‘‘First RTC

Action’’ ). In light of the filing of the

OTS Action on June 2, 1994, the RTC

and CityFed agreed to dismiss without

prejudice the RTC’s claim against

CityFed in the First RTC Action.

Pursuant to the Settlement, the FDIC

released CityFed from all claims in the

First RTC Action.

6. The RTC also filed suit against

several former directors and officers of

City Federal alleging gross negligence

and breach of fiduciary duty with

respect tot certain loans (‘‘Second RTC

Action’’). The RTC sought in excess of

$200 million in damages. CityFed states

that all of the defendants in the Second

RTC Action have settled with the RTC

or the FDIC. Pursuant to the Settlement,

the FDIC assigned any rights it acquired

in these settlements to CityFed. Under

its bylaws, CityFed may be obligated to

indemnify these former officers and

directors and pay their legal expenses,

including settlement amounts. On the

advice of counsel to a special committee

of CityFed’s board of directors,

comprised of directors who have not

been named in the First or Second RTC

Action, CityFed advanced reasonable

Federal Register / Vol. 66, No. 12 / Thursday, January 18, 2001 / Notices 4873

defense costs to the former directors and

officers named in the 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.

7. 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

seeking damages for loss of ‘‘supervisory

goodwill’’ on its books as a result of

various acquisitions by City Federal of

troubled depository institutions.

Pursuant to the Settlement, CityFed

assigned to the FDIC all of CityFed’s

interest in its supervisory goodwill

action, ceased to be a party to the case,

and has no right to share in the recovery

in that case, should there be one.

8. CityFed is subject to a number of

loss contingencies for which it is

currently unable to assess reasonably

the probability or range of loss. CityFed

intends to resolve all claims against it at

the minimum cost possible. While

CityFed’s board of directors has

considered from time to time whether to

engage in an operating business,

CityFed states that it cannot resume an

operating business at the present time

because the amount required to resolve

its currently outstanding claims cannot

be reasonably estimated and could

exceed CityFed’s assets. Following the

Settlement, CityFed may undergo

reorganization, perhaps involving a

bankruptcy proceeding. It is anticipated

that CityFed’s outstanding claims,

including its indemnification claims,

will be addressed prior to, or as part of,

any reorganization.

9. CityFed states that at present there

is no public market for its stock and that

it is traded sporadically in the over-thecounter market. Since City Federal’s

receivership, the operating expenses of

CityFed have consisted of the

employees’ salaries, office expenses,

and accounting and legal expenses.

CityFed currently has one full-time

employee and one office. As of

September 30, 2000, CityFed held cash

and securities of approximately $6.4

million.

Applicant’s Legal Analysis

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

investment company as any issuer ‘‘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 through such company

were 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 9,

2001, 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. 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 modifications described

in condition 4, below), 17(e), 17(f), 36

through 45, and 47 through 51 of the

Act and the rules thereunder.

Applicant’s Conditions

CityFed agrees that the requested

order will be subject to the following

conditions:

1. CityFed will not purchase or

otherwise acquire any securities other

than short-term U.S. government

securities, certificates of deposit,

commercial paper rated A–1/P–1, and

shares of registered money market

funds; except that CityFed may acquire

equity securities of an issuer that is not

an investment company as defined in

section 3(a) of the 1940 Act or is relying

on an exclusion from the definition of

investment company under section 3(c)

of the 1940 Act other than section

3(c)(1) or 3(c)(7), in connection with the

acquisition of an operating business as

evidenced by a resolution approved by

CityFed’s board of directors.

2. CityFed will not hold itself out as

being engaged in the business of

investing, reinvesting, owning, holding,

or trading in securities.

3. 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.

4. 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

4874 Federal Register / Vol. 66, No. 12 / Thursday, January 18, 2001 / Notices

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

2 17 CFR 240.19b–4.

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 Commission, by the Division of

Investment Management, under delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–1484 Filed 1–17–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43827; File No. SR–CBOE–

00–60]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Chicago Board Options Exchange,

Inc. To Change Its Membership

Application Posting Process and

Clarify Its Membership Rules

January 9, 2001.

Pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Act’’)1 and Rule 19b–4 thereunder,2

notice is hereby given that on November

22, 2000, the Chicago Board Options

Exchange, Inc. (‘‘CBOE’’ or ‘‘Exchange’’)

filed with the Securities and Exchange

Commission (‘‘Commission’’) the

proposed rule change as described in

Items I, II, and III below, which Items

have been prepared by the Exchange.

The Commission is publishing this

notice to solicit comments on the

proposed rule change from interested

persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The CBOE proposes to change its

membership application posting process

and to make some clarifying revisions to

its membership rules.

Below is the text of the proposed rule

change. Proposed new language is

italicized and proposed deletions are in

brackets.

Chicago Board Options Exchange,

Incorporated—Rules

* * * * *

Chapter III—Membership

* * * * *

Application Procedures and Approval

or Disapproval

Rule 3.9.

(a)–(d) Unchanged.

(e) Within a reasonable time following

receipt of an application for

membership from an applicant that has

not been a member within 6 months

prior to the date of receipt of the

application by the Membership

Department[, an application to change

membership capacity statutes set forth

in Rule 3.2(b) or 3.3(b),] or an

application to change Clearing

Members, the name of the applicant and

the application request shall be

published in the Exchange Bulletin and

posted on the Exchange Bulletin Board.

The Membership Committee shall

determine for each type of the foregoing

applications the required time period

that the above information must be

posted on the Exchange Bulletin Board,

provided that in no event shall any such

required posting period be less than 10

days. Notwithstanding the foregoing, the

required posting period for a member’s

application to change Clearing Members

shall be waived if the Clearing

Member(s) that will no longer be

guaranteeing the member’s Exchange

transactions consent to such waiver in

a form and manner prescribed by the

Exchange. The Membership Committee

may also determine to implement a

posting period requirement for other

types of applications submitted

pursuant to paragraph (a) of this Rule.

The Membership Committee may

shorten or waive a required posting

period for an applicant if the

Membership Committee determines that

doing so is warranted due to

extenuating circumstances.

(f) The Membership Department shall

investigate each applicant applying to

be a member organization, each

associated person required to be

approved by the Membership

Committee pursuant to Rule 3.6(b), and

each applicant applying to be an

individual member (with the exception

of any associated person applicant that

is a current member, any [individual]

member applicant that [who] was a [an

individual] member within 6 months

prior to the date of receipt of that

applicant’s membership application by

the Membership Department, and any

member or associated person applicant

that was investigated by the

Membership Department within 6

months prior to the date of receipt of

that applicant’s application by the

Membership Department). The

Membership Department may [also]

investigate any applicant that is not

required to be investigated pursuant to

this paragraph (f) and any other person

or organization that submits an

application pursuant to paragraph (a) of

this Rule.

(g) Unchanged.

(h) The Membership Committee may

approve an application submitted

pursuant to paragraph (a) of this Rule

only if any applicable posting period

requirement pursuant to paragraph (e) of

this Rule has been satisfied, any

investigation pursuant to paragraph (f)

of this Rule has been completed, and

any applicable orientation and exam

requirements pursuant to paragraph (g)

of this Rule have been satisfied.

* * * Interpretations and Policies:

.01–.02 Unchanged.

* * * * *

Purchase of Membership

Rule 3.13.

(a)–(b) Unchanged.

(c) Payment. Not later than the second

business day following the acceptance

of a bid pursuant to paragraph (a) of this

Rule or the matching of a bid and offer

pursuant to paragraph (b) of this Rule,

the purchaser shall deliver to the

Membership Department a certified or

cashier’s check in the amount of the

purchase price made payable to the

Exchange [covering the purchase price

of the membership] or complete a wire

transfer in the amount of the purchase

price to an Exchange account

designated the Exchange.

Sale and Transfer of Membership

Rule 3.14.

(a)–(b) Unchanged.

(c) Transfer by Owner. The owner of

a transferable membership may transfer

the membership without adhering to the

provisions contained in Rule 3.13(b)

and paragraph (a) of this Rule so long as

one of the following qualifying

circumstances is applicable to and

descriptive of the desired transfer and

the transferee is approved to be an

owner or lessor:

(i) The owner of a transferable

membership (whether or not the

membership is registered for a member

organization) requests the transfer of the

membership to the member’s spouse,

brother, sister, parent, child,

grandparent, or grandchild;

(ii) The owner of a transferable

membership requests the transfer of the

membership to an organization which

has succeeded, through statutory

merger, exchange of stock, or

acquisition of assets to the business of

the transferor;

(iii) The owner of a transferable

membership requests the transfer of the