<Table>
CITY INVESTING COMPANY LIQUIDATING TRUST Fed. I.D. #13-6859211 February 4, 2005
</Table>
2004 UNITED STATES FEDERAL INCOME TAX INFORMATION
This letter provides information relating to the amount and character of the
income, gain, loss, deductions and basis adjustment ('Tax Items') of the City
Investing Company Liquidating Trust ('Trust') for 2004. You should use this
information in preparing your 2004 United States Federal income tax return.
If you (i) acquired Trust Units ('Units') upon liquidation of City Investing
Company, (ii) reported long-term capital gain or loss upon the liquidation, and
(iii) did not dispose of any Units in 2004, you can calculate on the Schedule
your share of the Trust Tax Items by multiplying the Amount per Unit
[Column IA] of each Tax Item by the Number of Units you held [Column IB]and
entering the product under the Taxable Amount [Column IC].
If you (i) disposed of Units in 2004, or (ii) acquired your Units other than
upon the liquidation of City Investing Company, or (iii) did not report
long-term capital gain or loss upon the liquidation, you will probably have
different income tax consequences that cannot readily be calculated by the
Trust. For administrative convenience, you may calculate your share of the Trust
Tax Items by (i) multiplying the Amount per Unit [Column A] of each Tax Item by
the Number of Units you held [Column B] on the first day of each month
applicable to your holding period, (ii) entering the product under the Taxable
Amount [Column C] and (iii) entering the sum of the amounts in Columns IIC
through XIIIC, if any, in Column XIV.
Individual taxpayers may report on Form 1040 the amounts of Tax Items
computed for United States Federal income tax purposes as follows:
Tax Item 1c. Interest Income -- line 1, Schedule B
Tax Item 2. Dividend Income -- line 5, Schedule B
Tax Item 3. Net Long-Term Capital Gain/(Loss) -- line 12, Schedule D, Column (f)
Tax Item 4. Gain on Sale of Real Estate -- With Installment Sale Method
4a. Payments Received During Year -- line 21, Form 6252
4b. Installment sale income -- Qualified 5-Year Gain -- line 24, Form 6252
Tax Item 5. Miscellaneous Income -- line 21
Tax Item 6. Trust Expenses -- line 22, Schedule A, (if you itemize deductions)
Tax Item 7. Adjustment to Basis -- WITH INSTALLMENT SALE METHOD -- FOR INFORMATION PURPOSES
Tax Item 8. Adjustment to Basis -- WITHOUT INSTALLMENT SALE METHOD -- FOR INFORMATION PURPOSES
THIS LETTER IS NOT INTENDED TO PROVIDE INCOME TAX ADVICE RELATING TO THE
ACQUISITION, HOLDING AND DISPOSITION OF UNITS. YOU ARE STRONGLY ENCOURAGED TO
DISCUSS THE INCOME TAX CONSEQUENCES OF ACQUIRING, HOLDING AND DISPOSING OF UNITS
WITH YOUR TAX ADVISOR.
For all information about UNIT HOLDINGS:
UNITS HELD IN STREET NAME, PLEASE COMMUNICATE WITH YOUR BANK OR BROKER.
REGISTERED UNIT HOLDERS, PLEASE COMMUNICATE WITH MELLON INVESTOR
SERVICES, transfer agent for City Investing Company Liquidating Trust, at:
telephone: 1-800-839-2608
write to: Mellon Investor Services, P.O. Box 3315,
South Hackensack, NJ 07606
web site: http://www.melloninvestor.com
For current FINANCIAL AND TAX INFORMATION (10-K, 8-K AND 10-Q), please go to the
Trust's web site:
http://www.cnvlz.com
For all INFORMATION OTHER THAN UNIT HOLDINGS, please communicate with us at:
<Table>
write to: CITY INVESTING COMPANY LIQUIDATING TRUST
853 Broadway, Suite 1607, New York, NY 10003-4703
telephone: 212-473-1918 fax: 212-473-3927 e-mail:
shr@cnvlz.com
</Table>
CITY INVESTING COMPANY LIQUIDATING TRUST UNITS TRADE ON THE NASDAQ STOCK MARKET
AND APPEAR DAILY IN THE LIST ENTITLED SMALL CAPITALIZATION ISSUES UNDER THE
SYMBOL CITYINVLQ OR CNVLZ.
-A-
CITY INVESTING COMPANY LIQUIDATING TRUST
---------------------------------------------------------
I
TOTAL IF HELD FROM
JANUARY 1 THROUGH
DECEMBER 31
---------------------------------------------------------
A X B = C
TAX ITEM:(*) AMOUNT
- ------------ PER NO. OF TAXABLE
UNIT X UNITS = AMOUNT(#)
---------------------------------------------------------
1. Interest Income:
a) U. S. Gov't. Obligations 0.017223 x =
b) All Other 0.003024 x =
c) Total Interest Income
(1a+1b) 0.020247 x =
2. Dividend Income 0.000027 x =
3. Net Long-Term Capital
Gain/(Loss): (0.008698) x =
4. Gain on Sale of Real
Estate -- With Installment
Sale Method
a) Payments Received During Year 0.000000 x =
b) Installment Sale Income
[Qualified 5-Year Gain] 0.000000 x =
5. Miscellaneous Income 0.000000 x =
6. Trust Expenses 0.047262 x =
7. ADJUSTMENT TO BASIS -- WITH
INSTALLMENT SALE METHOD TAX
ITEMS (1c+2+3+4b+5-6) (0.035686) x =
8. ADJUSTMENT TO BASIS -- WITHOUT
INSTALLMENT SALE METHOD TAX
ITEMS (1c+2+3+5-6) (0.035686) x =
</Table>
II
JANUARY
------------------------------------------------------------
A X B = C
TAX ITEM:(*) AMOUNT
- ------------ PER NO. OF TAXABLE
UNIT X UNITS = AMOUNT(o)
-------------------------------------------------------------
1. Interest Income:
a) U. S. Gov't. Obligations 0.000000 x =
b) All Other 0.000000 x =
c) Total Interest Income
(1a+1b) 0.000000 x =
2. Dividend Income 0.000001 x =
3. Net Long-Term Capital
Gain/(Loss): (0.000552) x =
4. Gain on Sale of Real
Estate -- With Installment
Sale Method
a) Payments Received During Year 0.000000 x =
b) Installment Sale Income
[Qualified 5-Year Gain] 0.000000 x =
5. Miscellaneous Income 0.000000 x =
6. Trust Expenses 0.000907 x =
7. ADJUSTMENT TO BASIS -- WITH
INSTALLMENT SALE METHOD TAX
ITEMS (1c+2+3+4b+5-6) (0.001458) x =
8. ADJUSTMENT TO BASIS -- WITHOUT
INSTALLMENT SALE METHOD TAX
ITEMS (1c+2+3+5-6) (0.001458) x =
III
FEBRUARY
-------------------------------------------------------------
A X B = C
TAX ITEM:(*) AMOUNT
- ------------ PER NO. OF TAXABLE
UNIT X UNITS = AMOUNT(o)
-------------------------------------------------------------
1. Interest Income:
a) U. S. Gov't. Obligations 0.001022 x =
b) All Other 0.000000 x =
c) Total Interest Income
(1a+1b) 0.001022 x =
2. Dividend Income 0.000001 x =
3. Net Long-Term Capital
Gain/(Loss): (0.000095) x =
4. Gain on Sale of Real
Estate -- With Installment
Sale Method
a) Payments Received During Year 0.000000 x =
b) Installment Sale Income
[Qualified 5-Year Gain] 0.000000 x =
5. Miscellaneous Income 0.000000 x =
6. Trust Expenses 0.000716 x =
7. ADJUSTMENT TO BASIS -- WITH
INSTALLMENT SALE METHOD TAX
ITEMS (1c+2+3+4b+5-6) 0.000212 x =
8. ADJUSTMENT TO BASIS -- WITHOUT
INSTALLMENT SALE METHOD TAX
ITEMS (1c+2+3+5-6) 0.000212 x =
VIII
JULY
------------------------------------------------------------
A X B = C
TAX ITEM:(*) AMOUNT
- ------------ PER NO. OF TAXABLE
UNIT X UNITS = AMOUNT(o)
------------------------------------------------------------
1. Interest Income:
a) U. S. Gov't. Obligations 0.000009 x =
b) All Other 0.000000 x =
c) Total Interest Income
(1a+1b) 0.000009 x =
2. Dividend Income 0.000005 x =
3. Net Long-Term Capital
Gain/(Loss): (0.000490) x =
4. Gain on Sale of Real
Estate -- With
Installment Sale Method
a) Payments Received During Year 0.000000 x =
b) Installment Sale
Income [Qualified 5-Year Gain] 0.000000 x =
5. Miscellaneous Income 0.000000 x =
6. Trust Expenses 0.037211 x =
7. ADJUSTMENT TO BASIS -- WITH
INSTALLMENT SALE METHOD TAX
ITEMS (1c+2+3+4b+5-6) (0.037687) x =
8. ADJUSTMENT TO BASIS -- WITHOUT
INSTALLMENT SALE METHOD TAX
ITEMS (1c+2+3+5-6) (0.037687) x =
IX
AUGUST
-------------------------------------------------------------
A X B = C
TAX ITEM:(*) AMOUNT
- ------------ PER NO. OF TAXABLE
UNIT X UNITS = AMOUNT(o)
-------------------------------------------------------------
1. Interest Income:
a) U. S. Gov't. Obligations 0.000000 x =
b) All Other 0.000000 x =
c) Total Interest Income
(1a+1b) 0.000000 x =
2. Dividend Income 0.000002 x =
3. Net Long-Term Capital
Gain/(Loss): 0.000000 x =
4. Gain on Sale of Real
Estate -- With
Installment Sale Method
a) Payments Received During Year 0.000000 x =
b) Installment Sale
Income [Qualified 5-Year Gain] 0.000000 x =
5. Miscellaneous Income 0.000000 x =
6. Trust Expenses 0.000271 x =
7. ADJUSTMENT TO BASIS -- WITH
INSTALLMENT SALE METHOD TAX
ITEMS (1c+2+3+4b+5-6) (0.000269) x =
8. ADJUSTMENT TO BASIS -- WITHOUT
INSTALLMENT SALE METHOD TAX
ITEMS (1c+2+3+5-6) (0.000269) x =
X
SEPTEMBER
-------------------------------------------------------------
A X B = C
TAX ITEM:(*) AMOUNT
- ------------ PER NO. OF TAXABLE
UNIT X UNITS = AMOUNT(o)
-------------------------------------------------------------
1. Interest Income:
a) U. S. Gov't. Obligations 0.006096 x =
b) All Other 0.000000 x =
c) Total Interest Income
(1a+1b) 0.006096 x =
2. Dividend Income 0.000002 x =
3. Net Long-Term Capital
Gain/(Loss): (0.000483) x =
4. Gain on Sale of Real
Estate -- With
Installment Sale Method
a) Payments Received During Year 0.000000 x =
b) Installment Sale
Income [Qualified 5-Year Gain] 0.000000 x =
5. Miscellaneous Income 0.000000 x =
6. Trust Expenses 0.002515 x =
7. ADJUSTMENT TO BASIS -- WITH
INSTALLMENT SALE METHOD TAX
ITEMS (1c+2+3+4b+5-6) 0.003100 x =
8. ADJUSTMENT TO BASIS -- WITHOUT
INSTALLMENT SALE METHOD TAX
ITEMS (1c+2+3+5-6) 0.003100 x =
- --------------
(*) The Trust Tax Items for 2004 have been calculated in accordance with the
letter on the front side of this page, and our letter of November 26, 1985
(reproduced on Page D) providing certain tax information, which are integral
parts hereof and which you should review with your tax advisor before
reporting your share of the Trust Tax Items on your 2004 United States
Federal income tax return.
(#) Taxable Amount [Column IC] is equal to the Amount per Unit
[Column IA]multiplied by No. of Units you held [Column IB] continuously
from January 1 through December 31, 2004.
(o) Taxable Amount [Column C] is equal to the Amount per Unit [Column A]
multiplied by No. of Units you held [Column B] on the first day of each
month.
(!) Taxable Amount [Column XIV] is equal to the sum of the Taxable Amounts in
Columns IIC through XIIIC for each month that you held Trust Units on the
first day.
-B-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2004
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-13881
CITY INVESTING COMPANY LIQUIDATING TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<Table>
Delaware 13-6859211
(STATE OF ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
853 Broadway, Suite 1607
New York, New York 10003-4703
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</Table>
Registrant's telephone number, including area code: (212) 473-1918
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Units of Beneficial Interest
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
'Act') during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [x] No [ ]
The aggregate market value of the Trust's Units of Beneficial Interest held by
non-affiliates of the Trust based on the closing price of the Units on June 30,
2004 of $1.97 per unit was approximately $76.8 million.
At December 31, 2004, there were 38,979,372 Trust Units of Beneficial Interest
outstanding. The aggregate market value of the Trust's Units of Beneficial
Interest held by non-affiliates of the Trust based on the closing price of the
Units on such date of $1.93 per Unit was approximately $75.2 million.
To Our Unit Holders:
The accompanying financial report sets forth the status of the City Investing
Company Liquidating Trust at December 31, 2004. Wrapped around this report is
the February 4, 2005 tax letter, pages A through D, that provides 2004 United
States Federal income tax information relevant to Unit Holders. Please remove
wrap-around pages A through D carefully, as they should be helpful in
calculating your 2004 tax consequences.
Since the Trust was created, the Trustees' objectives have been and continue to
be to maximize the return to Unit Holders by resolving legal exposures and
reducing to cash the remaining non-liquid assets as efficaciously as possible.
The Trust has posted on its web site: http://www.cnvlz.com the financial report
and the tax letter for the year ended December 31, 2004. The Trust has also
posted on its web site all of the tax letters issued since its inception in
1985. Quarterly financial reports for 2005 should be available on the Trust's
web site no later than May 5, August 4, and November 4, 2005.
In May 2004, Eben W. Pyne resigned his position as Trustee, having served the
Trust since its September 25, 1985 inception. Charles R. Carson, investment
banker and former Treasurer of City Investing Company from 1978 to 1985,
accepted an appointment as successor Trustee.
The Trustees are focused on reducing outstanding liabilities, claims and
exposures of the Trust to a level that will permit a significant distribution.
Certain of these outstanding risks, by their nature, cannot be eliminated within
a reasonable time frame. To accelerate the time at which a significant
distribution can be made, the Trust has procured and continues to negotiate to
obtain insurance against these risks. During 2004, the Trust's cash and cash
equivalents and investment securities decreased by $1.4 million to $81.7
million, which was due, in part, to insurance premium expenses for environmental
liability coverage for a ten-year period and professional liability coverage
through October 25, 2006, in addition to six-year run-off coverage to be
effective on the date the Trust is liquidated.
The major assets held by the Trust are investments in United States Treasury
securities. The Trustees believe that these resources are sufficient to meet all
anticipated liquidity requirements. The Trust will continue to retain cash and
investment reserves pending the resolution of continuing exposures to
environmental remediation expense at certain Superfund sites formerly owned by
affiliates of City Investing Company. The Trustees will continue to devote their
energies to addressing the unresolved claims and to realizing the greatest value
for the Trust's remaining assets in order to maximize a final distribution as
soon as is prudently possible.
Cordially,
Charles R. Carson John J. Quirk Lester J. Mantell
Trustee Trustee Trustee
February 4, 2005
For all information about UNIT HOLDINGS:
UNITS HELD IN STREET NAME, PLEASE COMMUNICATE WITH YOUR BANK OR BROKER.
REGISTERED UNIT HOLDERS, PLEASE COMMUNICATE WITH MELLON INVESTOR
SERVICES, transfer agent for City Investing Company Liquidating Trust,
at:
telephone: 1-800-839-2608
write to: Mellon Investor Services, P.O. Box 3315,
South Hackensack, NJ 07606
Web site: http://www.melloninvestor.com
For FINANCIAL AND TAX INFORMATION (10-K, 8-K AND 10-Q), please go to the
Trust's:
Web site: http://www.cnvlz.com
For all INFORMATION OTHER THAN UNIT HOLDINGS, please communicate with us
at:
<Table>
write to: CITY INVESTING COMPANY LIQUIDATING TRUST
853 Broadway, Suite 1607, New York, NY 10003-4703
fax: 212-473-3927
e-mail: shr@cnvlz.com
telephone: 212-473-1918
</Table>
-2-
PART I
ITEM 1. BUSINESS
THE TRUST
On September 25, 1985, pursuant to the Plan of Complete Liquidation and
Dissolution of City Investing Company ('City') approved by stockholders of City
on December 12, 1984, City transferred all its remaining assets and liabilities
('Trust Estate') to the City Investing Company Liquidating Trust (the 'Trust')
to assure compliance with Section 337 of the Internal Revenue Code. The common
stock transfer books of City were permanently closed on September 25, 1985, and
the holders of record of common stock of City as of the close of business on
that date became holders of units of beneficial interest in the Trust on the
basis of one unit of beneficial interest for each share of common stock of City
held on September 25, 1985. After September 25, 1985, the outstanding
certificates that formerly represented shares of common stock of City are deemed
to evidence the same number of units of beneficial interest in the Trust.
The City Investing Company Liquidating Trust Agreement ('Trust Agreement')
provides that the Trust is organized for the sole purpose of liquidating the
Trust Estate in a manner calculated to conserve and protect the Trust Estate,
and to collect and distribute to the beneficiaries proceeds therefrom in as
prompt and orderly a fashion as possible after the payment of, or provision for,
expenses and liabilities. The Trustees are required to distribute to the
beneficiaries cash or other property comprising a portion of the Trust Estate as
the Trustees may, in their sole discretion, determine may be distributed without
detriment to the ability of the Trust to pay or discharge claims, expenses,
charges, liabilities and obligations. The existence of the contingent
liabilities referred to in Note 7 to the Trust's Financial Statements will
affect the timing of future distributions of Trust assets, see Item
8 -- Note 8, 'Future Distributions of Trust Assets'.
On August 3, 2004, the Trustees extended the time limit of the Trust's existence
to September 25, 2005 from September 25, 2004 in order to continue the orderly
resolution of legal exposures of the Trust and reducing to cash the remaining
non-liquid assets.
ITEM 3. LEGAL PROCEEDINGS
In accordance with the Trust Agreement, the Trust has assumed the obligation to
make payments, where required, to discharge certain litigation and other
contingent liabilities of City which existed at September 25, 1985 or which have
subsequently arisen. For a description of claims that may affect the Trust, see
Item 8 -- Note 7, 'Litigation and Other Contingent Liabilities'.
-3-
PART II
ITEM 5. MARKET PRICE OF UNITS
The Trust's Units of Beneficial Interest ('Units') trade on The Nasdaq stock
exchange and appear daily in the list entitled Small Capitalization Issues,
under the symbol CITYINVLQ or CNVLZ. Selected contemporaneous trading
information is available on the Internet and can be accessed as follows --
http://www.nasdaq.com. The high and low prices for the Units during 2004 and
2003 were as follows:
<Table>
<Caption>
- ------------------------------------------------------------------------------------------------------
2004 2003
---- ----
HIGH LOW HIGH LOW
- ------------------------------------------------------------------------------------------------------
First Quarter $2.28 $1.85 $2.50 $1.66
Second Quarter 2.00 1.90 2.11 1.54
Third Quarter 1.99 1.90 2.14 1.50
Fourth Quarter 1.99 1.90 2.01 1.82
- ------------------------------------------------------------------------------------------------------
</Table>
As of December 31, 2004, there were approximately 12,600 registered holders of
the Trust's Units of Beneficial Interest. No cash distributions were made in
either 2004 or 2003.
The Trust may have a contingent liability to the United States Environmental
Protection Agency and other third parties.
ITEM 6. SELECTED FINANCIAL DATA
<Table>
<Caption>
- -------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31
(AMOUNTS IN THOUSANDS, EXCEPT PER -------------------------------------------------------------------
UNIT DATA) 2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------
Losses on dispositions of assets, net $(339) $(141) $(797) $(268) $(38)
Interest, dividend and other income 790 1,457 2,707 5,953 3,711
Net (loss)/income (1,391) 924 1,504 5,337 3,387
Net (loss)/income per unit (0.04) 0.02 0.04 0.14 0.09
Total assets 82,713 84,104 83,180 81,676 76,339
Book value per unit 2.12 2.16 2.13 2.10 1.96
- -------------------------------------------------------------------------------------------------------
</Table>
-4-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Trust recorded a net loss of $1,391,000 ($0.04 per unit) in 2004 compared
with net income of $924,000 ($0.02 per unit) in 2003 and $1,504,000 ($0.04 per
unit) in 2002. It is difficult to compare amounts in comparable periods, as the
financial statements of the Trust are prepared on the basis of accounting used
for Federal income tax purposes; that is, certain amounts are reflected in the
financial statements when such amounts are received or paid. In June 2002 and
2003, cash payment installments of $907,000 and $850,000 were received in
respect of a prior sale of real estate, which resulted in a recognized long-term
gain, net of expenses, of $183,000 in each of the years. A deferred gain of
$469,000, subject to expenses estimated to be $102,000 at December 31, 2004 and
December 31, 2003, is netted against a gross mortgage receivable of $1,473,000
at December 31, 2004 and December 31, 2003. A one-year extension of the
non-recourse promissory note to pay only interest in 2004 and principal and
interest in 2005 and 2006 was requested by the mortgagor and was approved by the
holders of the mortgage.
In 1985, City Investing Company purchased a group annuity contract from The
Prudential Insurance Company of America (Prudential). Upon the 2002
demutualization of Prudential, the Trust received 885 shares of Prudential
Financial Inc. As the Trust had a $0 basis in this asset, all of the $29,000
proceeds received upon the 2002 sale of these shares is reported as long-term
capital gain. In 2004, the Trust wrote-off as worthless its investment in
Oklahoma Energy Corp. As the Trust had a $27,000 basis in this asset, all of the
$27,000 loss was recognized upon the recording of these shares as worthless and
is reported as long-term capital loss.
Legal fees attributable to issues that relate to periods before the liquidation
of City and a payment in settlement of litigation exposure aggregating $312,000
in 2004, compared to legal fees of $324,000 in 2003 and $1,009,000 in 2002 are
reflected as losses on dispositions of assets and are reported as long-term
capital losses.
Interest, dividend and other income of $790,000 in 2004, $1,457,000 in 2003 and
$2,707,000 in 2002, was principally derived from interest earned on United
States Treasury securities. Declining interest rates and shorter holding periods
adversely affected interest income received in 2004 and 2003. Net interest
income of $110,000 in 2004, $165,000 in 2003 and $222,000 in 2002 was received
from the mortgage receivable.
Administrative expenses (including legal fees that are attributable to issues
arising after the liquidation of City) were $1,842,000 in 2004, $392,000 in
2003, and $406,000 in 2002. In 2004, the increase was due, in part, to insurance
premium expenses for environmental liability coverage for a ten-year period and
professional liability coverage through October 25, 2006, in addition to
six-year run-off coverage to be effective on the date the Trust is liquidated.
The Trustees are focused on reducing outstanding liabilities, claims and
exposures of the Trust to a level that will permit a significant distribution.
Certain of these outstanding risks, by their nature, cannot be eliminated within
a reasonable time frame. To accelerate the time at which a significant
distribution can be made, the Trust has procured and continues to negotiate to
obtain insurance against these risks.
The Trust is a party to a five-year lease of office space (which in the event of
the Trust's liquidation can be cancelled at any time without penalty) which
requires total remaining lease payments of $69,000, $27,000 of which is due in
less than one year and $42,000 is due in more than one year and less than three
years.
At December 31, 2004, the Trust had cash and cash equivalents and investment
securities of $81,705,000. The Trustees believe that such cash resources and
investment securities are sufficient to meet all anticipated liquidity
requirements.
No cash distributions have been made since May 12, 1990. For information
regarding considerations affecting the future distribution of Trust assets, see
Item 8 -- Note 8, 'Future Distributions of Trust Assets'.
-5-
REPORTING ON INTERNAL CONTROL OVER FINANCIAL REPORTING
MANAGEMENT'S REPORT
The management of the City Investing Company Liquidating Trust ('Trust') is
responsible for establishing and maintaining adequate internal control over
financial reporting. This internal control system has been designed to provide
reasonable assurance to the Trustees regarding the preparation and fair
presentation of the Trust's published financial statements.
All internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement
preparation and presentation.
The management of the Trust has assessed the effectiveness of the Trust's
internal control over financial reporting as of December 31, 2004. To make this
assessment, we used the criteria for effective internal control over financial
reporting described in Internal Control -- Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on the
evaluation of the integrated framework of internal control, the Trustees
concluded that the internal control over financial reporting was effective as of
December 31, 2004. The Trustee's assessment of the effectiveness of internal
control over financial reporting as of December 31, 2004 has been audited by
KPMG LLP, an independent registered public accounting firm, as stated in their
report which is included herein.
Dated: February 4, 2005 By: /s/ Lester J. Mantell, Trustee
-6-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
THE TRUSTEES AND HOLDERS OF UNITS OF BENEFICIAL INTEREST
CITY INVESTING COMPANY LIQUIDATING TRUST:
We have audited management's assessment, included in the accompanying Reporting
on Internal Control Over Financial Reporting, Management's Report, that City
Investing Company Liquidating Trust maintained effective internal control over
financial reporting as of December 31, 2004, based on criteria established in
Internal Control -- Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). City Investing Company
Liquidating Trust's management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting. Our responsibility is to express an
opinion on management's assessment and an opinion on the effectiveness of the
Trust's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
An entity's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with the basis of accounting used for Federal income tax reporting purposes. An
entity's internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
assets of the entity; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with the basis of accounting used for Federal income tax reporting
purposes, and that receipts and expenditures of the entity are being made only
in accordance with authorizations of management and Trustees of the entity; and
(3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the entity's assets that could
have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, management's assessment that City Investing Company Liquidating
Trust maintained effective internal control over financial reporting as of
December 31, 2004, is fairly stated, in all material respects, based on criteria
established in Internal Control -- Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our
opinion, City Investing Company Liquidating Trust maintained, in all material
respects, effective internal control over financial reporting as of
December 31, 2004, based on criteria established in Internal Control --
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the balance sheets of City Investing
Company Liquidating Trust as of December 31, 2004 and 2003, and the related
statements of operations, cash flows, and changes in Trust equity for each of
the years in the three-year period ended December 31, 2004, and our report dated
February 4, 2005 expressed an unqualified opinion on those financial statements.
/s/ KPMG LLP
New York, New York
February 4, 2005
-7-
ITEM 8. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
THE TRUSTEES AND HOLDERS OF UNITS OF BENEFICIAL INTEREST
CITY INVESTING COMPANY LIQUIDATING TRUST:
We have audited the accompanying balance sheets of City Investing Company
Liquidating Trust as of December 31, 2004 and 2003, and the related statements
of operations, cash flows, and changes in Trust equity for each of the years in
the three-year period ended December 31, 2004. These financial statements are
the responsibility of the Trust's Trustees. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by the Trustees, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As described in Note 2 to the financial statements, the Trust's policy is to
prepare its financial statements on the basis of accounting used for Federal
income tax reporting purposes. The effects on the financial statements of
variances between the basis of accounting used for Federal income tax reporting
purposes and accounting principles generally accepted in the United States of
America are described in Note 10. Accordingly, the accompanying financial
statements are not intended to present financial position, results of
operations, cash flows and changes in Trust equity in conformity with accounting
principles generally accepted in the United States of America.
See Note 7 to the financial statements for a description of litigation and other
contingent liabilities.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of City Investing Company
Liquidating Trust as of December 31, 2004 and 2003, and the results of
its operations, cash flows and changes in Trust equity for each of the years in
the three-year period ended December 31, 2004, in conformity with the basis of
accounting used for Federal income tax reporting purposes.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of City Investing
Company Liquidating Trust's internal control over financial reporting as of
December 31, 2004, based on criteria established in Internal Control --
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), and our report dated February 4, 2005 expressed an
unqualified opinion on management's assessment of, and the effective operation
of, internal control over financial reporting.
/s/ KPMG LLP
New York, New York
February 4, 2005
-8-
CITY INVESTING COMPANY LIQUIDATING TRUST
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31
<Table>
<Caption>
- -----------------------------------------------------------------------------------------------------
(AMOUNTS IN THOUSANDS, EXCEPT PER UNIT DATA) 2004 2003 2002
- -----------------------------------------------------------------------------------------------------
Losses on dispositions of assets, net $(339) $(141) $(797)
Interest, dividend and other income 790 1,457 2,707
- -----------------------------------------------------------------------------------------------------
Total income 451 1,316 1,910
Administrative expenses 1,842 392 406
- -----------------------------------------------------------------------------------------------------
NET (LOSS)/INCOME $(1,391) $924 $1,504
- -----------------------------------------------------------------------------------------------------
NET (LOSS)/INCOME PER UNIT $(0.04) $0.02 $0.04
- -----------------------------------------------------------------------------------------------------
OUTSTANDING UNITS 38,979 38,979 38,979
- -----------------------------------------------------------------------------------------------------
</Table>
BALANCE SHEETS
DECEMBER 31
<Table>
<Caption>
- --------------------------------------------------------------------------------
($ IN THOUSANDS) 2004 2003
- --------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $56 $78
Investment securities 81,649 82,991
Restricted funds 4 4
Investments -- 27
Mortgage receivable, net of deferred gain 1,004 1,004
- --------------------------------------------------------------------------------
TOTAL ASSETS $82,713 $84,104
- --------------------------------------------------------------------------------
LIABILITIES AND TRUST EQUITY
Trust equity $82,713 $84,104
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND TRUST EQUITY $82,713 $84,104
- --------------------------------------------------------------------------------
</Table>
See accompanying notes to financial statements.
-9-
CITY INVESTING COMPANY LIQUIDATING TRUST
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31
<Table>
<Caption>
- -------------------------------------------------------------------------------------------------------
($ IN THOUSANDS) 2004 2003 2002
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)/ income $(1,391) $924 $1,504
Adjustments to reconcile net (loss)/ income
to net cash (used for)/provided by
operating activities:
Gain on sale of real estate -- (183) (183)
Gain on sale of securities -- -- (29)
Loss on investment in Oklahoma Energy Corp. 27 -- --
Amortization of premium of investment
securities 615 1,458 2,043
- -------------------------------------------------------------------------------------------------------
Net cash (used for)/provided by operating
activities (749) 2,199 3,335
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities/sales of investment securities 392,661 121,277 79,149
Purchases of investment securities (391,934) (124,242) (83,228)
Proceeds from sale of real estate -- 685 685
Proceeds from sale of securities -- -- 29
Other, net -- 1 1
- -------------------------------------------------------------------------------------------------------
Net cash provided by/(used for) investing
activities 727 (2,279) (3,364)
- -------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (22) (80) (29)
Cash and cash equivalents at beginning of
year 78 158 187
- -------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $56 $78 $158
- -------------------------------------------------------------------------------------------------------
</Table>
STATEMENTS OF CHANGES IN TRUST EQUITY
YEAR ENDED DECEMBER 31
<Table>
<Caption>
- -------------------------------------------------------------------------------------------------------
($ IN THOUSANDS) 2004 2003 2002
- -------------------------------------------------------------------------------------------------------
Balance at beginning of year $84,104 $83,180 $81,676
Net (loss)/income (1,391) 924 1,504
- -------------------------------------------------------------------------------------------------------
BALANCE AT END OF YEAR $82,713 $84,104 $83,180
- -------------------------------------------------------------------------------------------------------
</Table>
See accompanying notes to financial statements.
-10-
CITY INVESTING COMPANY LIQUIDATING TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
The City Investing Company Liquidating Trust (the 'Trust') was created on
September 25, 1985, pursuant to an Agreement and Declaration of Trust ('Trust
Agreement') by and between City Investing Company ('City') and the three
individuals then serving as trustees of the Trust ('Trustees'). The Trust
Agreement is governed by the laws of the State of Delaware.
On September 25, 1985, pursuant to a Plan of Complete Liquidation and
Dissolution approved by stockholders of City on December 12, 1984, City
transferred all its remaining assets and liabilities ('Trust Estate') to the
Trust to assure compliance with Section 337 of the Internal Revenue Code. The
sole purpose of the Trust is to liquidate the Trust Estate in a manner
calculated to conserve and protect the Trust Estate, and to collect and
distribute to the beneficiaries the income and proceeds therefrom in as prompt
and orderly a fashion as possible after the payment of, or provision for,
expenses and liabilities.
The common stock transfer books of City were permanently closed on
September 25, 1985, and the holders of record of common stock of City as of the
close of business on that date became holders of units of beneficial interest in
the Trust on the basis of one unit of beneficial interest for each share of
common stock of City held on September 25, 1985. After September 25, 1985, the
outstanding certificates that formerly represented shares of common stock of
City are deemed to evidence the same number of units of beneficial interest in
the Trust.
The Trust Agreement, signed on September 25, 1985, set forth a time limit of
three years for the disposition of the Trust's assets and distribution to the
unit holders unless a later termination was required by the Trustees. As a
result of the protracted nature of certain litigation and other claims asserted
against the Trust, the Trustees extended the time limit of the Trust's existence
a number of times, most recently to September 25, 2005.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation: The accompanying financial statements have been prepared
in accordance with Federal Income Tax Reporting Principles ('FITR').
Accordingly, certain revenue and the related assets are recognized when received
rather than when earned; certain expenses are recognized when paid rather than
when the obligation is incurred; and assets are reflected at their tax basis.
For information concerning the financial statements prepared on accounting
principles generally accepted in the United States of America, reflecting an
entity in liquidation, and a reconciliation of the Trust's FITR to accounting
principles generally accepted in the United States of America, reflecting an
entity in liquidation, see Note 10.
Valuation of assets and liabilities: The Trust Equity balance on September 25,
1985 was established at an amount equivalent to the number of units of
beneficial interest outstanding (38,979,372) multiplied by the average of the
high and low trading prices of such units on the first day of trading ($3.1875),
or an aggregate of $124.2 million. For FITR purposes, the fair market value of
each asset other than cash and cash equivalents was determined by that asset's
proportionate share of the Trust Equity increased by accounts payable and
decreased by cash and cash equivalents at September 25, 1985. The proportionate
share of each of these assets was determined by the estimated value of such
Trust asset in relation to the estimated value of all of the Trust assets other
than cash and cash equivalents. In determining the estimated value of Trust
assets, the Trustees evaluated, where appropriate, such factors as City's
historical carrying values, expected amounts and dates of realization,
prevailing interest rates, available market prices and restrictions with respect
to disposition. Assets acquired after September 25, 1985, are generally carried
at cost.
Income taxes: For FITR purposes, the September 25, 1985 transfer of assets and
liabilities to the Trust and distribution to stockholders of units in the Trust
was treated as a distribution of assets and liabilities by City to its
stockholders and a contribution by the stockholders of such net assets to the
Trust in return for units.
The Trust is treated as a grantor trust and not as a corporation. Accordingly,
any income or loss of the Trust will not be taxable to the Trust but will be
taxable to the unit holders as if the unit holders had themselves realized the
income or loss from their undivided interests in Trust assets.
-11-
CITY INVESTING COMPANY LIQUIDATING TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Losses on dispositions of assets: Losses on dispositions of assets, net of
gains, includes expenses attributable to litigation exposures that relate to
periods before the liquidation of City.
Net income per unit: Net income per unit is calculated by dividing net income of
the Trust by the number of outstanding Units of Beneficial Interest.
Cash and cash equivalents: The Trust considers all investments in money market
funds as cash equivalents.
NOTE 3 - INVESTMENT SECURITIES
Investment securities, all of which mature within one year, consist of United
States Treasuries and are carried at original cost, net of premium amortization
recorded at interest collection dates. The fair value of United States
Treasuries is based on quoted market prices.
Investment securities at December 31, consist of the following:
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------
2004 2003
----------------------------- -------------------------------
CARRYING AMORTIZED FAIR CARRYING AMORTIZED FAIR
($ IN THOUSANDS) VALUE COST VALUE VALUE COST VALUE
- ---------------------------------------------------------------------------------------------
United States Treasuries $81,649 $81,649 $82,046 $82,991 $82,991 $83,053
- ---------------------------------------------------------------------------------------------
The gross unrealized gains/(losses) on investment securities at December 31, consist of the
following:
- ---------------------------------------------------------------------------------------------
($ IN THOUSANDS) 2004 2003
- ---------------------------------------------------------------------------------------------
Gross unrealized gains $397 $68
- ---------------------------------------------------------------------------------------------
Gross unrealized (losses) -- (6)
- ---------------------------------------------------------------------------------------------
</Table>
NOTE 4 - RESTRICTED FUNDS
Restricted funds at December 31, 2004 and 2003 represent a rent deposit of
$4,000.
NOTE 5 - INVESTMENTS
Investments at December 31 are as follows:
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------
($ IN THOUSANDS) 2004 2003
- ---------------------------------------------------------------------------------------------
Oklahoma Energy Corp. $ -- $27
- ---------------------------------------------------------------------------------------------
</Table>
The Trust held 310,810 shares of Oklahoma Energy Corp. common stock, which were
carried at their tax basis. At December 31, 2003, the fair value of the Oklahoma
Energy stock, based on the average of quoted market prices, was $31. In 2004,
the Trust wrote-off as worthless its investment in Oklahoma Energy Corp. As the
Trust had a $27,000 basis in this asset, all of the $27,000 loss was recognized
upon the recording of these shares as worthless and is reported as long-term
capital loss.
NOTE 6 - MORTGAGE RECEIVABLE
In February 2000, the Trust sold 39 percent of certain real estate acreage
located in Texas City, Texas for $2,410,000 in cash, which resulted in a
recognized long-term capital gain, net of expenses, of $610,000. In May 2000,
the Trust sold the remaining Texas City real estate acreage for $478,000 in cash
and a non-recourse promissory note of $3,683,000, payable in five equal annual
installments plus interest at 8 percent. The May 2000 sale resulted in a
recognized long-term capital gain, net of expenses, of $171,000 and deferred
gain of $1,173,000. The deferred gain of $1,173,000 was recorded as a reduction
to the $3,683,000 mortgage receivable. In June 2002 and 2003, cash payment
installments of $907,000 and $850,000, respectively, were received which
resulted in a recognized long-term gain, net of expenses, of $183,000 in each of
the years and net interest income of $222,000 and $165,000, respectively. The
deferred gains of $469,000 at December 31, 2004 and December 31, 2003 and
$704,000 at December 31,
-12-
CITY INVESTING COMPANY LIQUIDATING TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2002 are netted against the gross mortgage receivable of $1,473,000 at
December 31, 2004 and December 31, 2003 and $2,210,000 at December 31, 2002. A
one-year extension of the non-recourse promissory note to pay only interest in
2004 and principal and interest in 2005 and 2006 was requested by the mortgagor
and was approved by the holders of the mortgage. In June 2004, net interest
income of $110,000 was received. It is projected that the remaining deferred
gain of $469,000 will be subject to expenses estimated to be $102,000.
NOTE 7 - LITIGATION AND OTHER CONTINGENT LIABILITIES
In accordance with the Trust Agreement, the Trust has assumed the obligation,
where required, to discharge certain litigation and other contingent liabilities
of City Investing Company. As a result, the Trust is subject to possible claims
by the United States Environmental Protection Agency and certain other third
parties. At the present time, there is no pending or threatened litigation
against the Trust in any jurisdiction.
Lease Commitment. The Trust has leased office space at 853 Broadway, Suite 1607,
New York, NY 10003-4703, beginning July 1, 2002. The five-year lease (which in
the event of the Trust's liquidation can be cancelled at any time without
penalty) requires total remaining lease payments of $69,000, $27,000 of which is
due in less than one year and $42,000 is due in more than one year and less than
three years. Base annual lease expense beginning July 1, 2002, was approximately
$24,000 during the first year of the lease, escalating to an estimated $27,000
during the last year of the lease. Annual lease expense was $26,000 in 2004,
$25,000 in 2003, and $31,000 in 2002.
NOTE 8 - FUTURE DISTRIBUTIONS OF TRUST ASSETS
The Trustees are focused on reducing outstanding liabilities, claims and
exposures of the Trust to a level that will permit a significant distribution.
Certain of these outstanding risks, by their nature, cannot be eliminated within
a reasonable time frame. To accelerate the time at which a significant
distribution can be made, the Trust has procured and continues to negotiate to
obtain insurance against these risks.
Pending resolution of possible claims by the United States Environmental
Protection Agency and other third parties, see Note 7 to Financial Statements
- --Litigation and Other Contingent Liabilities, the Trust is unable to make any
dividend payments or liquidation distributions.
NOTE 9 - QUARTERLY FINANCIAL DATA (UNAUDITED)
The quarterly financial data for 2004 and 2003 are as follows:
<Table>
<Caption>
- -------------------------------------------------------------------------------------------
THREE MONTHS ENDED:
-------------------------------------------------
(AMOUNTS IN THOUSANDS, EXCEPT PER UNIT MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
DATA) 2004 2004 2004 2004
- -------------------------------------------------------------------------------------------
Total income/(loss) $170 $108 $201 $(28)
Administrative expenses 90 108 1,559 85
- -------------------------------------------------------------------------------------------
NET INCOME/(LOSS) $80 $0 $(1,358) $(113)
- -------------------------------------------------------------------------------------------
NET INCOME/(LOSS) PER UNIT $0.00 $0.00 $(0.03) $(0.01)
- -------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
THREE MONTHS ENDED:
-------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
(AMOUNTS IN THOUSANDS, EXCEPT PER UNIT DATA) 2003 2003 2003 2003
- -----------------------------------------------------------------------------------------------
Total income $404 $623 $225 $64
Administrative expenses 125 73 47 147
- -----------------------------------------------------------------------------------------------
NET INCOME/(LOSS) $279 $550 $178 $(83)
- -----------------------------------------------------------------------------------------------
NET INCOME/(LOSS) PER UNIT $0.01 $0.01 $0.01 $(0.01)
- -----------------------------------------------------------------------------------------------
</Table>
-13-
CITY INVESTING COMPANY LIQUIDATING TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 - DIFFERENCES BETWEEN FEDERAL INCOME TAX REPORTING PRINCIPLES AND
ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA,
REFLECTING AN ENTITY IN LIQUIDATION
These financial statements have been prepared in accordance with Federal Income
Tax Reporting Principles ('FITR') which differ in certain respects with those
principles and practices that the Trust would have followed had its financial
statements been prepared in accordance with accounting principles generally
accepted in the United States of America, reflecting an entity in liquidation
('GAAPLIQ').
The material differences between FITR and GAAPLIQ, which are relevant to the
Trust's Statements of Operations, Balance Sheets, Statements of Cash Flows and
Statements of Changes in Trust Equity are summarized as follows:
a. Accounting for Investment Securities
For FITR, Investment Securities are carried at original cost, net of premium
amortization. This amortization is included in income when interest is
collected. For GAAPLIQ, all of the Trust's securities would be reflected at
net realizable value; thus, any changes in net realizable value are
recognized through income. For FITR, interest income is recorded when
collected; for GAAPLIQ, a ratable portion of interest income is recognized at
each period end.
b. Accounting for Prepaid Expenses
For FITR, expenses, other than premium amortization discussed in a. above,
are recorded when paid. For GAAPLIQ, the recoverable portion of an expense
paid is recognized as an asset. For FITR, no expenses are recorded as
prepaid. For GAAPLIQ, a prepaid asset is recognized at each period end for a
ratable portion of expenses that relate to subsequent periods.
c. Accounting for Mortgage Receivable and Mortgage Interest
Receivable
Upon the sale of the Texas City Property in the year 2000, a Mortgage
Receivable was recorded. For FITR, the income, net of collection expenses,
attributable to the five annual installment amounts is recorded when the
principal and interest are collected. For GAAPLIQ, the full gain on the sale
attributable to the Texas City Property would have been recognized in the
year 2000. For GAAPLIQ, a ratable portion of Mortgage Interest Receivable,
net of collection expenses, attributable to each period would have been
amortized into income at each period end. For GAAPLIQ, the Texas City
Mortgage is reflected at net realizable value.
d. Accounting for Accrued Liabilities
For FITR, accrued liabilities, other than premium amortization, discussed in
a. above, are recorded when paid. For GAAPLIQ, accrued liabilities are
recognized as a liability in the period the assets are purchased or the
services are incurred.
e. Accounting for Loss Contingencies
For FITR, loss contingencies are recorded when paid. For GAAPLIQ, loss
contingencies are recorded when contingencies are reasonably estimable and
probable of resulting in a liability. The Trustees currently believe that
there are no contingencies that are probable of resulting in a liability to
the Trust.
-14-
CITY INVESTING COMPANY LIQUIDATING TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
f. The effect of the different treatments described above on the
Trust's financial statements would be as follows:
STATEMENTS OF OPERATIONS
ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA,
REFLECTING AN ENTITY IN LIQUIDATION
YEAR ENDED DECEMBER 31
<Table>
<Caption>
- -----------------------------------------------------------------------------------------------------
(AMOUNTS IN THOUSANDS, EXCEPT PER UNIT DATA) 2004 2003 2002
- -----------------------------------------------------------------------------------------------------
Net (loss)/income for the year per Federal
Income Tax Reporting
Principles (FITR) $(1,391) $924 $1,504
To adjust from FITR to accounting principles
generally accepted in the United States of
America, reflecting an entity in liquidation
(GAAPLIQ):
Gains/(losses) on dispositions of assets,
net 415 (155) 249
Interest, dividend and other income (56) (185) (364)
Administrative expenses (125) 5 40
- -----------------------------------------------------------------------------------------------------
NET (LOSS)/INCOME FOR THE YEAR PER GAAPLIQ $(1,157) $589 $1,429
- -----------------------------------------------------------------------------------------------------
NET (LOSS)/INCOME PER UNIT PER GAAPLIQ $(.03) $.02 $.04
- -----------------------------------------------------------------------------------------------------
OUTSTANDING UNITS 38,979 38,979 38,979
- -----------------------------------------------------------------------------------------------------
</Table>
-15-
CITY INVESTING COMPANY LIQUIDATING TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
BALANCE SHEETS
ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA,
REFLECTING AN ENTITY IN LIQUIDATION
DECEMBER 31
<Table>
- ---------------------------------------------------------------------------------
($ IN THOUSANDS) 2004 2003
- ---------------------------------------------------------------------------------
TOTAL ASSETS PER FEDERAL INCOME TAX
REPORTING PRINCIPLES (FITR) $82,713 $84,104
To adjust from FITR to accounting principles
generally accepted in the United States of
America, reflecting an entity in
liquidation (GAAPLIQ):
Investment securities 397 61
Prepaid expenses 130 55
Mortgage receivable, net of deferred gain 538 538
- ---------------------------------------------------------------------------------
TOTAL ASSETS PER GAAPLIQ $83,778 $84,758
- ---------------------------------------------------------------------------------
TOTAL LIABILITIES PER FEDERAL INCOME TAX
REPORTING PRINCIPLES (FITR) $0 $0
To adjust from FITR to GAAPLIQ:
Accrued liabilities 332 149
- ---------------------------------------------------------------------------------
TOTAL LIABILITIES PER GAAPLIQ $332 $149
- ---------------------------------------------------------------------------------
TRUST EQUITY PER FEDERAL INCOME TAX
REPORTING PRINCIPLES (FITR) $82,713 $84,104
- ---------------------------------------------------------------------------------
To adjust from FITR to GAAPLIQ:
Net income/(loss) adjustments from
Statements of Operations for GAAPLIQ 234 (335)
- ---------------------------------------------------------------------------------
Adjustments for prior periods for GAAPLIQ 499 840
- ---------------------------------------------------------------------------------
TRUST EQUITY PER GAAPLIQ $83,446 $84,609
- ---------------------------------------------------------------------------------
</Table>
-16-
CITY INVESTING COMPANY LIQUIDATING TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CASH FLOWS
ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA,
REFLECTING AN ENTITY IN LIQUIDATION
YEAR ENDED DECEMBER 31
<Table>
<Caption>
- -------------------------------------------------------------------------------------------------------
($ IN THOUSANDS) 2004 2003 2002
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)/income per Federal Income Tax
Reporting Principles (FITR): $(1,391) $924 $1,504
Cash flows from operating activities per
accounting principles generally accepted in
the United States of America, reflecting an
entity in liquidation (GAAPLIQ): 234 (335) (75)
Adjustments to reconcile net (loss)/ income
to net cash provided by operating
activities to GAAPLIQ:
Gain on sale of securities -- -- (29)
Loss on investment in Oklahoma Energy Corp. 27 -- --
Uncollected interest income on investment
securities 182 168 486
Amortization of premium of investment
securities 489 1,441 1,885
Excess of fair market value over amortized
cost of investment securities (397) (6) (194)
Changes in other assets and liabilities:
Prepaid expenses (76) -- (2)
Mortgage receivable -- 34 36
Accrued liabilities 183 (27) (276)
- -------------------------------------------------------------------------------------------------------
Net cash provided by operating activities in
GAAPLIQ (749) 2,199 3,335
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities/sales of investment securities 392,661 121,277 79,149
Purchases of investment securities (391,934) (124,242) (83,228)
Proceeds from sale of real estate -- 685 685
Proceeds from sale of securities -- -- 29
Other, net -- 1 1
- -------------------------------------------------------------------------------------------------------
Net cash provided by/(used for) investing
activities 727 (2,279) (3,364)
- -------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (22) (80) (29)
- -------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of
period 78 158 187
- -------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $56 $78 $158
- -------------------------------------------------------------------------------------------------------
</Table>
-17-
CITY INVESTING COMPANY LIQUIDATING TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN TRUST EQUITY
ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA,
REFLECTING AN ENTITY IN LIQUIDATION
YEAR ENDED DECEMBER 31
<Table>
<Caption>
- -----------------------------------------------------------------------------------------------------
($ IN THOUSANDS) 2004 2003 2002
- -----------------------------------------------------------------------------------------------------
Balance at beginning of year per Federal Income
Tax Reporting Principles (FITR): $84,104 $83,180 $81,676
Net (loss)/income per GAAPLIQ (1,157) 589 1,429
Adjustments for prior periods for GAAPLIQ 499 840 1,109
- -----------------------------------------------------------------------------------------------------
BALANCE AT END OF YEAR PER GAAPLIQ $83,446 $84,609 $84,214
- -----------------------------------------------------------------------------------------------------
</Table>
-18-
ITEM 9A. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, the Trust carried out an
evaluation, under the supervision and with the participation of the Trust's
management, including the Trustee who is the functional equivalent of the Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Trust's internal disclosure controls and procedures
pursuant to Exchange Act Rule 13a-15. That Rule requires that such controls and
procedures assure that information required to be included in the Trust's
periodic SEC filings is recorded, processed, summarized and reported within the
time periods specified by the rules and forms. Based upon that evaluation, the
Trustees concluded that the Trust's internal disclosure controls and procedures
are effective in assuring that information required to be disclosed by the Trust
in its periodic SEC filings is accurate and communicated to the Trust's
management in order to allow timely decisions regarding required disclosure.
There have not been any significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of such evaluation.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
THE TRUSTEES
The Trustees of the Trust are Charles R. Carson, John J. Quirk and Lester J.
Mantell. Each Trustee will serve for the term of the Trust subject to his
earlier resignation or removal. In May 2004, Eben W. Pyne resigned his position
as Trustee. There are no family relationships between the Trustees.
Charles R. Carson (59) is a Co-founder and Principal of Cronus Partners LLC. He
was a Senior Advisor at The Nassau Group, Inc. from 2002-2004. He was a
Principal at Churchill Capital, Inc., a private equity firm, from 1998 to 2002.
He was a Principal and Co-founder of Quirk Carson Peppet Inc. from 1985 to 1998.
He served as Vice President and Treasurer of City prior to March 1985.
John J. Quirk (61) is a Managing Director at Morgan Joseph & Co. Inc. He was a
Principal at Churchill Capital, Inc., a private equity firm, from 1998 to 2001.
He was the Chairman and Co-founder of Quirk Carson Peppet Inc. from 1985 to
1998. He served as Senior Vice President and Treasurer of City prior to March
1985.
Lester J. Mantell (67) was an officer of City and AmBase Corporation prior to
1997.
The Audit Committee of the Trust consists of Messrs. Carson and Quirk, neither
of whom has been determined to be an 'audit committee financial expert' within
the meaning of Item 401 (h) (i) of Regulation S-K since neither possesses all
the attributes required for such designation by that regulation. See
Exhibit 99.4 'Charter of the Audit Committee of the Trustees of City Investing
Company Liquidating Trust'.
The Trust has adopted a Code of Ethics that is applicable to the Trustees, one
of whom is the functional equivalent of its principal executive officer and its
principal financial officer, and the Trust's Administrator. See
Exhibit 14 -- 'Code of Ethics'.
ITEM 11. EXECUTIVE COMPENSATION
Pursuant to Section 9.1 of the Trust Agreement, the Trustees, in lieu of
commissions or other compensation fixed by law for Trustees, receive as
compensation for services the aggregate sum of $36,000 per year to be allocated
equally among the Trustees. Each Trustee is also reimbursed from the Trust
Estate for all expenses reasonably incurred by him in the performance of his
duties pursuant to the Trust Agreement.
There are no plans, pursuant to which cash or non-cash compensation was paid or
distributed during the last fiscal year, or is proposed to be paid or
distributed in the future, to the Trustees, except for amounts that one former
Trustee may receive as a holder of 1,000 Units of Beneficial Interest.
-19-
ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following are the only persons known to the Trust to own beneficially
(within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934)
more than five percent of the Trust's Units of Beneficial Interest. The
information provided below was obtained from Form 4 of Goldman, Sachs & Co., as
filed with the Securities and Exchange Commission ('SEC') as of August 10, 2001,
from Form 4 of Farallon Capital Management, L.L.C. filed with the SEC as of
January 28, 2005, and from Amendment No. 3 to Schedule 13G as filed with the SEC
by Franklin Mutual Advisers, LLC as of January 22, 2002.
<Table>
<Caption>
- -----------------------------------------------------------------------------------------
UNITS
BENEFICIALLY %
NAMES AND ADDRESSES OF BENEFICIAL OWNERS OWNED OF CLASS
- -----------------------------------------------------------------------------------------
GOLDMAN, SACHS & CO. 12,631,464 32.4%
85 Broad Street, New York, NY 10004
FARALLON CAPITAL MANAGEMENT, L.L.C. 12,610,298 32.3%
One Maritime Plaza, Suite 1325, San Francisco, CA 94111
FRANKLIN MUTUAL ADVISERS, LLC 6,529,648 16.8%
51 John F. Kennedy Parkway, Short Hills, NJ 07078
- -----------------------------------------------------------------------------------------
TOTALS 31,771,410 81.5%
- -----------------------------------------------------------------------------------------
</Table>
The following table shows the Units of Beneficial Interest of the Trust
beneficially owned by each Trustee and the Trustees as a group as of January 7,
2005.
<Table>
<Caption>
- -----------------------------------------------------------------------------------------
UNITS
BENEFICIALLY %
NAMES OF BENEFICIAL OWNERS OWNED OF CLASS
- -----------------------------------------------------------------------------------------
Charles R. Carson -- --
John J. Quirk -- --
Lester J. Mantell -- --
Trustees as a group (three) -- --
- -----------------------------------------------------------------------------------------
</Table>
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit fees: The aggregate fees paid in each of the last two fiscal years for
professional services rendered by KPMG LLP for the audit of the Trust's annual
financial statements and review of the financial statements included in the
Trust's Forms 10-Q were as follows:
2004 2003
---- ----
$55,580 $43,750
The Audit Committee of the Trust met in the first quarter of each of the fiscal
years shown above and unanimously approved a proposal by KPMG LLP to provide the
services described above. There were no tax or non-audit fees paid to KPMG LLP
by the Trust during the periods shown above. The Trust was billed for audit fees
of $96,300 for 2004, which were paid in January 2005.
-20-
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<Table>
<Caption>
Page
----
(a) Documents Filed as Part of This Report:
1. Index to Financial Statements:
Reporting on Internal Control over Financial Reporting, 6
Management's Report.........................................
Report of Independent Registered Public Accounting Firm..... 7
Report of Independent Registered Public Accounting Firm..... 8
Statements of Operations.................................... 9
Balance Sheets.............................................. 9
Statements of Cash Flows.................................... 10
Statements of Changes in Trust Equity....................... 10
Notes to Financial Statements............................... 11
2. Index to Financial Statement Schedules:
Not applicable
3. Exhibits:
2. Plan of Complete Liquidation and Dissolution of City
Investing Company (incorporated by reference to Exhibit 2A
to City Investing Company Form 8-K dated December 12, 1984
and filed on December 21, 1984).
3. Agreement and Declaration of Trust dated September 25, 1985
by and between City Investing Company and Geo. T.
Scharffenberger, Eben W. Pyne and Lester J. Mantell, as
Trustees, together with Schedule I thereto (incorporated by
reference to Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1985), as amended on
September 7, 1988 (incorporated by reference to Exhibit 6.1
to City Investing Company Liquidating Trust Form 10-Q for
the quarter ended September 30, 1988), as amended on
April 23, 1990 (incorporated by reference to Exhibit 6.1 to
City Investing Company Liquidating Trust Form 10-Q for the
quarter ended September 30, 1990), as amended on
September 2, 1992 (incorporated by reference to Exhibit 6.1
to City Investing Company Liquidating Trust Form 10-Q for
the quarter ended September 30, 1992), as amended on
June 16, 1994 (incorporated by reference to Exhibit 6.1 to
City Investing Company Liquidating Trust Form 10-Q for the
quarter ended September 30, 1994), as amended on June 27,
1996 (incorporated by reference to Exhibit 6.1 to City
Investing Company Liquidating Trust Form 10-Q for the
quarter ended June 30, 1996), as amended on July 28, 1998
(incorporated by reference to Exhibit 6.1 to City Investing
Company Liquidating Trust Form 10-Q for the quarter ended
June 30, 1998), as amended on July 8, 1999 (incorporated by
reference to Exhibit 6.1 to City Investing Company
Liquidating Trust Form 10-Q for the quarter ended June 30,
1999), as amended on July 17, 2000 (incorporated by
reference to Exhibit 6.1 to City Investing Company
Liquidating Trust Form 10-Q for the quarter ended June 30,
2000) as amended on July 23, 2001 (incorporated by reference
to Exhibit 6.1 to City Investing Company Liquidating Trust
Form 10-Q for the quarter ended June 30, 2001) as amended on
July 30, 2002 by action of John J. Quirk, Eben W. Pyne and
Lester J. Mantell, as Trustees, (incorporated by reference
to Exhibit 6.1 to City Investing Company Liquidating Trust
Form 10-Q for the quarter ended June 30, 2002) as amended on
June 18, 2003 by action of John J. Quirk, Eben W. Pyne and
Lester J. Mantell, as Trustees, (incorporated by reference
to Exhibit 6.1 to City Investing Company Liquidating Trust
Form 10-Q for the quarter ended June 30, 2003) as amended on
August 3, 2004 by action of John J. Quirk, Charles R.
Carson and Lester J. Mantell, as Trustees, (incorporated by
reference to Exhibit 6.1 to City Investing Company
Liquidating Trust Form 10-Q for the quarter ended June 30,
2004).
</Table>
-21-
<Table>
3a. Specimen certificate representing Units of Beneficial
Interest in City Investing Company Liquidating Trust
(certificate formerly representing shares of Common Stock of
City Investing Company, showing legends to be placed on
certificates when issued from time to time upon transfer of
Units of Beneficial Interest) (incorporated by reference to
Exhibit 3.4 of City Investing Company Liquidating Trust
Form 8-B filed with the Commission on September 25, 1985).
14. Code of Ethics (incorporated by reference to Exhibit 99.3 to
City Investing Company Liquidating Trust Form 10-K for the
fiscal year ended December 31, 2002)
31. Certification Pursuant to Section 302(a) of the
Sarbanes-Oxley Act of 2002
32. Certification Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
99.4 Charter of the Audit Committee of the Trustees of City
Investing Company Liquidating Trust
Exhibits 31, 32 and 99.4 are included in the Form 10-K posted on
our web site: http://www.cnvlz.com.
(b) Form 8-K
The Trust was not required to file a Current Report on Form 8-K
during the quarter ended December 31, 2004.
</Table>
SIGNATURES:
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the registrant has duly caused this report on Form 10-K to be signed on
its behalf by the undersigned, thereunto duly authorized on this 4th day of
February 2005.
CITY INVESTING COMPANY LIQUIDATING TRUST
LESTER J. MANTELL
Trustee
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
on Form 10-K has been signed below by the following persons on behalf of the
Registrant on the 4th day of February 2005.
The Trustees:
CHARLES R. CARSON
Trustee
JOHN J. QUIRK
Trustee
LESTER J. MANTELL
Trustee
-22-
[THIS PAGE INTENTIONALLY LEFT BLANK]
[THIS PAGE INTENTIONALLY LEFT BLANK]
SCHEDULE OF 2004 UNITED STATES FEDERAL TAX ITEMS
<Table>
<Caption>
IV
MARCH
- ------------------------------------------------------------------
A X B = C
AMOUNT
PER NO. OF TAXABLE
UNIT X UNITS = AMOUNT(o)
- ------------------------------------------------------------------
0.004206 x =
0.000000 x =
0.004206 x =
0.000001 x =
(0.000230) x =
0.000000 x =
0.000000 x =
0.000000 x =
0.000686 x =
0.003291 x =
0.003291 x =
</Table>
<Table>
<Caption>
V
APRIL
- ------------------------------------------------------------------
A X B = C
AMOUNT
PER NO. OF TAXABLE
UNIT X UNITS = AMOUNT(o)
- ------------------------------------------------------------------
0.000841 x =
0.000000 x =
0.000841 x =
0.000002 x =
(0.000055) x =
0.000000 x =
0.000000 x =
0.000000 x =
0.001385 x =
(0.000597) x =
(0.000597) x =
</Table>
<Table>
<Caption>
VI
MAY
- ------------------------------------------------------------------
A X B = C
AMOUNT
PER NO. OF TAXABLE
UNIT X UNITS = AMOUNT(o)
- ------------------------------------------------------------------
0.001265 x =
0.000000 x =
0.001265 x =
0.000000 x =
(0.000945) x =
0.000000 x =
0.000000 x =
0.000000 x =
0.000789 x =
(0.000469) x =
(0.000469) x =
</Table>
<Table>
<Caption>
VII
JUNE
- ------------------------------------------------------------------
A X B = C
AMOUNT
PER NO. OF TAXABLE
UNIT X UNITS = AMOUNT(o)
- ------------------------------------------------------------------
0.003784 x =
0.003024 x =
0.006808 x =
0.000003 x =
(0.005132) x =
0.000000 x =
0.000000 x =
0.000000 x =
0.000602 x =
0.001077 x =
0.001077 x =
</Table>
<Table>
<Caption>
XI XII
OCTOBER NOVEMBER
- ---------------------------------------------------------------------------------------------------------------------------
A X B = C A X B = C
AMOUNT AMOUNT
PER NO. OF TAXABLE PER NO. OF TAXABLE
UNIT X UNITS = AMOUNT(o) UNIT X UNITS = AMOUNT(o)
- ---------------------------------------------------------------------------------------------------------------------------
0.000000 x = 0.000000 x =
0.000000 x = 0.000000 x =
0.000000 x = 0.000000 x =
0.000004 x = 0.000003 x =
(0.000016) x = 0.000000 x =
0.000000 x = 0.000000 x =
0.000000 x = 0.000000 x =
0.000000 x = 0.000000 x =
0.000491 x = 0.000939 x =
(0.000503) x = (0.000936) x =
(0.000503) x = (0.000936) x =
</Table>
<Table>
<Caption>
XIII XIV
DECEMBER TOTAL IF HELD ON SOME,
BUT NOT ALL,
FIRST DAYS OF EACH MONTH
- --------------------------------------------------------------------------------------------------------------
IIC + IIIC + IVC + VC + VIC +
A X B = C VIIC + VIIIC + IXC +
AMOUNT
PER NO. OF TAXABLE XC + XIC + XIIC + XIIIC
UNIT X UNITS = AMOUNT(o) TAXABLE AMOUNT!
- --------------------------------------------------------------------------------------------------------------
0.000000 x =
0.000000 x =
0.000000 x =
0.000003 x =
(0.000700) x =
0.000000 x =
0.000000 x =
0.000000 x =
0.000750 x =
(0.001447) x =
(0.001447) x =
</Table>
-C-
CITY INVESTING COMPANY LIQUIDATING TRUST
RE: TAX INFORMATION
This letter is to advise you of the tax return information to be provided to
you annually as a holder of units ('Units') in the City Investing Company
Liquidating Trust ('Trust'). The Trust, being a 'grantor' trust, will be
disregarded for Federal income tax purposes and you will be treated as having a
direct interest in an allocable portion of each asset and liability of the
Trust. Consequently, an allocable portion of all items of Trust income,
deductions and credits ('Tax Items') must be reported by you on your income tax
return. Your taxable year and accounting method will determine the income tax
treatment of your allocable portion of Tax Items. As soon as practicable after
the end of each year, but no later than April 15 of the following year, you will
be provided with a schedule listing your allocable share of Tax Items for the
year, which will be determined by the number of Units you own in relation to the
total number of outstanding Units. This will enable you to file your federal,
state and local income tax returns. The types of Tax Items which will be
required to be reported by you on your income tax return may include, but are
not limited to interest income, original issue discount income, short-term and
long-term capital gains and losses, dividend income, market discount income,
depreciation, state, local and foreign taxes and deductible expenses incurred by
the Trust.
For purposes of determining gain or loss from the sale or other disposition
of your undivided interest in assets held by the Trust, your holding period and
adjusted basis for your undivided interest in each of the assets held by the
Trust will be determined by your date of acquisition and the price you paid for
your Units. If you received your Units upon the liquidation of City Investing
Company, you will be treated as acquiring your undivided interest in the net
assets of the Trust at a price of $3.1875 per Unit and your holding period for
your undivided interest in the assets held by the Trust will have begun on
September 26, 1985. If you sell your Units, you will be deemed to sell an
undivided interest in each asset of the Trust for an allocable portion of the
sales price for the Units. For example, if you sell your Units, you may be
required to recognize ordinary income with respect to your interest in market
discount obligations held by the Trust. For administrative convenience, gains
and losses from the sale or other disposition by the Trust of assets held by the
Trust, including the collection of installment notes receivable, will be
reported to you by the Trust as if all Unit holders obtained their Units, and,
consequently, their undivided interests in the assets held by the Trust, upon
the liquidation of City Investing Company. Subsequent Unit holders may have
different income tax consequences, but these tax consequences cannot readily be
calculated. For example, with respect to the collection of installment notes
receivable, the Trust will report to you the portion of amounts received which
are reportable as market discount, which will be taxed as ordinary income, on
the basis of an acquisition date of September 25, 1985 and a price per Unit of
$3.1875. For this purpose, it will be assumed that the installment notes
receivable will not be eligible for installment sales reporting tax treatment.
For administrative convenience, certain special rules will apply to the
determination of the effective date of transfers of Units. A transfer will not
be considered effective until the first day of the month following the month in
which the transfer occurs (or, if earlier, the first day following the date on
which the Trust disposes of any asset the basis of which exceeds 5% of the bases
of all the assets held by the Trust on September 25, 1985). Record holders of
Units on the first day of a month or the day after which such a disposition of
assets takes place will be entitled to receive all distributions made on or
after such date and before any subsequent effective date of transfer and will be
treated for tax purposes as the owner of the underlying assets of the Trust for
such period. In accordance with these rules, the Trust will determine for
periods ending at the end of each month (and for periods ending on the day the
Trust disposes of any asset the basis of which exceeds 5% of the bases of all
assets held by the Trust on September 25, 1985) the Tax Items to be included on
the schedule to be provided to you annually. For administrative convenience, Tax
Items will be determined using the cash method of tax accounting.
This letter is not intended to provide income tax advice relating to the
holding of Units. As such, you are strongly encouraged to discuss the income tax
consequences of an investment in Units with your tax advisor.
November 26, 1985
-D-