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, 2005
[ ] 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,
2005 of $1.91 per unit was approximately $74.5 million.
At December 31, 2005, 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 $0.10 per Unit was approximately $3.9 million.
To Our Unit Holders:
The Trustees are pleased to report that on March 15, 2006, a $0.116 final cash
distribution per Trust Unit was declared to be paid on April 18, 2006 to Unit
Holders of record on March 31, 2006. The aggregate cash distribution to a Unit
Holder involving less than a full cent will be rounded up to the nearest whole
cent. After March 31, 2006, the outstanding certificates that represented Units
of Beneficial Interest in the Trust and formerly represented shares of Common
Stock of City Investing Company will have no value and will cease trading. The
Trust will cease doing business and be dissolved shortly after remitting the
final distribution, audited financial statements for the Trust's final
accounting period and a 2006 Tax Information letter.
The accompanying financial report sets forth the status of the City Investing
Company Liquidating Trust at December 31, 2005. The 2005 tax letter dated
January 26, 2006, pages A through D, that provides 2005 United States Federal
income tax information relevant to Unit Holders was mailed previously to all
Unit Holders. The Trust's 2005 United States Federal income tax information
should be helpful in calculating your 2005 tax consequences.
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, 2005. The Trust has also
posted on its web site all of the tax letters issued since its inception in
1985.
Since the Trust was created, the Trustees' objectives have been to maximize the
return to Unit Holders by resolving legal claims and reducing to cash the
Trust's remaining non-liquid assets as efficaciously as possible. With this
final cash distribution, the Trust will have distributed to original Unit
Holders who hold their Units to March 31, 2006, approximately $9.45 per Unit in
cash and stock.
On August 15, 2005, the Trust paid a $2.00 partial liquidating distribution to
Unit Holders of record on August 8, 2005. As a result the Trust's assets
declined to approximately $4.9 million at December 31, 2005. On January 18,
2006, the Nasdaq Stock Market Staff notified the Trust that the Trust's Units
would be delisted from the Nasdaq Capital Market on January 27, 2006, since, as
previously disclosed to Unit Holders, the market value of its publicly held
Units no longer satisfied Nasdaq's minimum market value requirement. On January
27, 2006, the Trust Units were delisted from the Nasdaq Capital Market. The
Trust Units are currently being quoted on the Pink Sheets under the symbol
CNVLZ.
The final installment of principal and interest, net of expenses, on the Texas
City mortgage note due in June 2006 held by the Trust was prepaid and received
by the Trust in January 2006 in the amount of approximately $720,000. The Trust
settled all claims asserted against it in the State of California v. Lake
Oroville Area Public Utility District litigation (described in Item 8 --
Note 7, 'Litigation and Other Contingent Liabilities') by payment of $15,000 in
February 2006.
The Trustees are pleased to have maximized the return to the Trust's Unit
Holders. Following payment of the Trust's final cash distribution, the Trust
will have no remaining assets and there will be no further value to Trust Units.
The Trust will cease doing business and be dissolved shortly after remitting
the final distribution, audited financial statements for the Trust's final
accounting period and a 2006 Tax Information letter. It has been our pleasure to
have served you.
Cordially,
Charles R. Carson John J. Quirk Lester J. Mantell
Trustee Trustee Trustee
March 15, 2006
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, 480 Washington Blvd.,
Jersey City, NJ 07606
Web site: http://www.melloninvestor.com
For FINANCIAL (10-K, 8-K AND 10-Q) AND TAX INFORMATION, please go to the
Trust's web site:
http://www.cnvlz.com
-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, 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.
On July 29, 2005, the Trustees extended the time limit of the Trust's existence
to September 25, 2006 from September 25, 2005 in order to continue the orderly
resolution of legal exposures of the Trust and reducing to cash the remaining
non-liquid assets.
On April 18, 2006, the Trust will pay a $0.116 final cash distribution to Unit
Holders of record on March 31, 2006. The aggregate cash distribution to a Unit
Holder involving less than a full cent will be rounded up to the nearest whole
cent. After March 31, 2006, the outstanding certificates that represented Units
of Beneficial Interest in the Trust and formerly represented shares of Common
Stock of City will have no value and will cease trading. The Trust will cease
doing business and be dissolved shortly after remitting the final distribution,
audited financial statements for the Trust's final accounting period and a 2006
Tax Information letter.
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. At the present time, there is no pending or threatened
litigation against the Trust in any jurisdiction. For a description of recent
claims that affected 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') traded on The Nasdaq stock
exchange and appeared daily in the list entitled Nasdaq Capital Market, under
the symbol CITYINVLQ or CNVLZ until January 27, 2006. Commencing January 27,
2006, the Trust Units are currently being quoted on the Pink Sheets under the
symbol CNVLZ.
The high and low prices for the Units during 2005 and 2004 were as follows:
<Table>
<Caption>
- --------------------------------------------------------------------------------------------------------
2005 2004
---- ----
HIGH LOW HIGH LOW
- --------------------------------------------------------------------------------------------------------
First Quarter $1.96 $1.13 $2.28 $1.85
Second Quarter 1.95 1.90 2.00 1.90
Third Quarter 2.35 0.08 1.99 1.90
Fourth Quarter 0.14 0.08 1.99 1.90
- --------------------------------------------------------------------------------------------------------
</Table>
As of December 31, 2005, there were approximately 12,500 registered holders of
the Trust's Units of Beneficial Interest. A $2.00 cash distribution was made on
August 15, 2005 to Unit Holders of record on August 8, 2005. A $0.116 final cash
distribution will be paid on April 18, 2006 to Unit Holders of record on March
31, 2006. The aggregate cash distribution to a Unit Holder involving less than a
full cent will be rounded up to the nearest whole cent. No cash distribution was
made in 2004.
After March 31, 2006, the outstanding certificates that represented Units of
Beneficial Interest in the Trust and formerly represented shares of Common Stock
of City Investing Company will have no value and will cease trading. The Trust
will cease doing business and be dissolved shortly after remitting the final
distribution, audited financial statements for the Trust's final accounting
period and a 2006 Tax Information letter.
ITEM 6. SELECTED FINANCIAL DATA
<Table>
<Caption>
- ----------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31
(AMOUNTS IN THOUSANDS, EXCEPT PER -----------------------
UNIT DATA) 2005 2004 2003 2002 2001
- ----------------------------------------------------------------------------------------------------
Losses on dispositions of assets,
net $(258) $(339) $(141) $(797) $(268)
Interest, dividend and other
income 1,767 790 1,457 2,707 5,953
Net income/(loss) 164 (1,391) 924 1,504 5,337
Net income/(loss) per unit 0.00 (0.04) 0.02 0.04 0.14
Total assets 4,918 82,713 84,104 83,180 81,676
Book value per unit 0.13 2.12 2.16 2.13 2.10
- ----------------------------------------------------------------------------------------------------
</Table>
The selected financial data is prepared on a basis of accounting used for
Federal Income Tax Reporting purposes.
-4-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Trust recorded net income of $164,000 ($0.00 per unit) in 2005 compared with
a net loss of $1,391,000 ($0.04 per unit) in 2004 and net income of $924,000
($0.02 per unit) in 2003. 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 2003 and 2005, cash payment installments of $850,000 and $800,000, were
received on a mortgage note secured by property in Texas City, Texas, which
resulted in a recognized long-term gain, net of expenses, of $183,000 and
$184,000. The deferred gain of $235,000 at December 31, 2005 and $469,000 at
December 31, 2004, is netted against the gross mortgage receivable of $737,000
at December 31, 2005 and $1,473,000 at December 31, 2004. A one-year extension
of the non-recourse mortgage 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. The final installment of principal and interest, net of
expenses, on the mortgage note due in June 2006 was prepaid in January 2006 in
the amount of approximately $720,000.
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 this investment 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 $441,000
in 2005, compared to $312,000 in 2004 and $324,000 in 2003 are reflected as
losses on dispositions of assets and are reported as long-term capital losses.
Interest, dividend and other income of $1,767,000 in 2005, $790,000 in 2004 and
$1,457,000 in 2003, was principally derived from interest earned on United
States Treasury securities. Notwithstanding the distribution to Unit Holders in
2005, the increase in interest income for the 2005 period was essentially due to
the timing of the receipt of interest collected on matured securities and to
higher interest rates in the 2005 versus 2004 period. Declining interest rates
adversely affected interest income received in 2004. Interest income, net of
expenses, of $114,000 in 2005, which included a late payment penalty, $110,000
in 2004 and $165,000 in 2003 was received from the mortgage receivable.
Administrative expenses (including legal fees that are attributable to issues
arising after the liquidation of City) were $1,345,000 in 2005, $1,842,000 in
2004, and $392,000 in 2003. 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.
Administrative expenses in 2005 included insurance premium expenses for
additional environmental liability coverage for a ten-year period.
The Trust is a party to a five-year lease of office space (which upon the
Trust's liquidation can be cancelled at any time). The five-year lease was
cancelled upon the January 31, 2006 notification to the landlord. Total
remaining lease payments of $12,000 are due by May 1, 2006.
At December 31, 2005, the Trust reflected on its cash-basis balance sheet cash
and cash equivalents and investment securities of $4,412,000. The Trustees
believe that such cash resources and investment securities were sufficient to
meet all anticipated liquidity requirements on that date.
On August 15, 2005, the Trust paid a $2.00 cash distribution to Unit Holders of
record on August 8, 2005. Prior to that, no cash distribution had been made
since May 12, 1990. A $0.116 final cash distribution will be paid on April 18,
2006 to Unit Holders of record on March 31, 2006. The aggregate cash
distribution to a Unit Holder involving less than a full cent will be rounded up
to the nearest whole cent.
-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, 2005. 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, 2005. The Trustee's assessment of the effectiveness of internal
control over financial reporting as of December 31, 2005 has been audited by
KPMG LLP, an independent registered public accounting firm, as stated in their
report which is included herein.
Dated: March 15, 2006 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, 2005, 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, 2005, 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, 2005, 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, 2005 and 2004, 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, 2005, and our report dated
March 15, 2006 expressed an unqualified opinion on those financial statements.
/s/ KPMG LLP
New York, New York
March 15, 2006
-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, 2005 and 2004, 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, 2005. 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 the
variances between the basis of accounting used for Federal income tax reporting
purposes and accounting principles generally accepted in the United States,
reflecting an entity in liquidation, are described in Note 10. As described in
Note 1 to the financial statements, the Trust's sole purpose is to liquidate
assets and liabilities transferred to the Trust by City Investing Company.
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, 2005 and 2004, 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, 2005, 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, 2005, 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 March 15, 2006 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
March 15, 2006
-8-
CITY INVESTING COMPANY LIQUIDATING TRUST
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------
(AMOUNTS IN THOUSANDS, EXCEPT PER UNIT DATA) 2005 2004 2003
- ---------------------------------------------------------------------------------------------------
Losses on dispositions of assets, net $(258) $(339) $(141)
Interest, dividend and other income 1,767 790 1,457
- ---------------------------------------------------------------------------------------------------
Total income 1,509 451 1,316
Administrative expenses 1,345 1,842 392
- ---------------------------------------------------------------------------------------------------
NET INCOME/(LOSS) $164 $(1,391) $924
- ---------------------------------------------------------------------------------------------------
NET INCOME/(LOSS) PER UNIT $0.00 $(0.04) $0.02
- ---------------------------------------------------------------------------------------------------
OUTSTANDING UNITS 38,979 38,979 38,979
- ---------------------------------------------------------------------------------------------------
</Table>
BALANCE SHEETS
DECEMBER 31
<Table>
<Caption>
- --------------------------------------------------------------------------------
($ IN THOUSANDS) 2005 2004
- --------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $207 $56
Investment securities 4,205 81,649
Restricted funds 4 4
Mortgage receivable, net of deferred gain 502 1,004
- --------------------------------------------------------------------------------
TOTAL ASSETS $4,918 $82,713
- --------------------------------------------------------------------------------
LIABILITIES AND TRUST EQUITY
Trust equity $4,918 $82,713
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND TRUST EQUITY $4,918 $82,713
- --------------------------------------------------------------------------------
</Table>
See accompanying notes to financial statements.
-9-
CITY INVESTING COMPANY LIQUIDATING TRUST
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31
<Table>
<Caption>
- -------------------------------------------------------------------------------------------------------
($ IN THOUSANDS) 2005 2004 2003
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) $164 $(1,391) $924
Adjustments to reconcile net income/(loss) to
net cash provided by/(used for) operating
activities:
Gain on sale of real estate (184) -- (183)
Loss on investment in Oklahoma Energy Corp. -- 27 --
Net amortization of premium of investment
securities 100 615 1,458
- -------------------------------------------------------------------------------------------------------
Net cash provided by/(used for) operating
activities 80 (749) 2,199
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities/sales of investment securities 402,850 392,661 121,277
Purchases of investment securities (325,506) (391,934) (124,242)
Proceeds from sale of real estate 686 -- 685
Other, net -- -- 1
- -------------------------------------------------------------------------------------------------------
Net cash provided by/(used for) investing
activities 78,030 727 (2,279)
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distribution to Unit Holders (77,959) -- --
- -------------------------------------------------------------------------------------------------------
Net cash used for financing activities (77,959)
- -------------------------------------------------------------------------------------------------------
Net increase/(decrease) in cash and cash
equivalents 151 (22) (80)
Cash and cash equivalents at beginning of
year 56 78 158
- -------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $207 $56 $78
- -------------------------------------------------------------------------------------------------------
</Table>
STATEMENTS OF CHANGES IN TRUST EQUITY
YEAR ENDED DECEMBER 31
<Table>
<Caption>
- -------------------------------------------------------------------------------------------------------
($ IN THOUSANDS) 2005 2004 2003
- -------------------------------------------------------------------------------------------------------
Balance at beginning of year $82,713 $84,104 $83,180
Net income/(loss) 164 (1,391) 924
Cash distribution to Unit Holders (77,959) -- --
- -------------------------------------------------------------------------------------------------------
BALANCE AT END OF YEAR $4,918 $82,713 $84,104
- -------------------------------------------------------------------------------------------------------
</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, 2006. On April 18, 2006, the
Trust will pay a $0.116 final cash distribution to Unit Holders of record on
March 31, 2006. The aggregate cash distribution to a Unit Holder involving less
than a full cent will be rounded up to the nearest whole cent. After March 31,
2006, the outstanding certificates that represented Units of Beneficial Interest
in the Trust and formerly represented shares of Common Stock of City will have
no value and will cease trading. The Trust will cease doing business and be
dissolved shortly after remitting the final distribution, audited financial
statements for the Trust's final accounting period and a 2006 Tax Information
letter.
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
-11-
CITY INVESTING COMPANY LIQUIDATING TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
market prices and restrictions with respect to disposition. Assets acquired
after September 25, 1985, are generally carried at cost.
Income taxes: For Federal income tax 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.
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 six months, consist of United
States Treasuries and are carried at original cost, net of premium/(discount)
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>
- ------------------------------------------------------------------------------------------
2005 2004
---------------------------- -----------------------------
CARRYING AMORTIZED FAIR CARRYING AMORTIZED FAIR
($ IN THOUSANDS) VALUE COST VALUE VALUE COST VALUE
- ------------------------------------------------------------------------------------------
United States Treasuries $4,205 $4,205 $4,253 $81,649 $81,649 $82,046
- ------------------------------------------------------------------------------------------
</Table>
The gross unrealized gains on investment securities at December 31, consist of
the following:
<Table>
<Caption>
- --------------------------------------------------------------------------------------------
($ IN THOUSANDS) 2005 2004
- --------------------------------------------------------------------------------------------
Gross unrealized gains $48 $397
- --------------------------------------------------------------------------------------------
</Table>
NOTE 4 - RESTRICTED FUNDS
Restricted funds at December 31, 2005 and 2004 represent a rent deposit of
$4,000.
NOTE 5 - INVESTMENTS
Investments at December 31 are as follows:
<Table>
<Caption>
- --------------------------------------------------------------------------------------------
($ IN THOUSANDS) 2005 2004
- --------------------------------------------------------------------------------------------
Oklahoma Energy Corp. $ -- $ --
- --------------------------------------------------------------------------------------------
</Table>
The Trust held 310,810 shares of Oklahoma Energy Corp. Common Stock, which were
carried at their tax basis. 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.
-12-
CITY INVESTING COMPANY LIQUIDATING TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 2003 and 2005, cash payment
installments of $850,000 and $800,000, respectively, were received which
resulted in a recognized long-term gain, net of expenses, of $183,000 and
$184,000 and net interest income of $165,000 and $114,000, which included a late
payment penalty, respectively. In June 2004, interest income, net of expenses,
of $110,000 was received. The deferred gains of $235,000 at December 31, 2005
and $469,000 at December 31, 2004 and December 31, 2003 are netted against the
gross mortgage receivable of $737,000 at December 31, 2005 and $1,473,000 at
December 31, 2004 and December 31, 2003. A one-year extension of the
non-recourse mortgage 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. The final installment of principal and interest, net of
expenses, on the mortgage note due in June 2006 was prepaid in January 2006 in
the amount of approximately $720,000.
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. At the present time, there is no pending litigation
against the Trust in any jurisdiction.
State of California, v. Lake Oroville Area Public Utility District (Case
No. 124772). On or about May 26, 2000, the State of California Department of
Parks and Recreation filed a complaint in the Superior Court for the County of
Butte against the Lake Oroville Area Public Utility District ('LOAPUD'), Kelly
Ridge Property Sales ('KRPS') and the owners of certain real estate in the Kelly
Ridge residential subdivision ('Property Owners') asserting, among others,
quantum meruit claims against KRPS and the Property Owners seeking reimbursement
for expenses incurred in providing sewer service to KRPS and the Property Owners
from and after 1996. The State of California alleged that Southern California
Financial Corporation ('SoCal') had been the developer of the land in the Kelly
Ridge subdivision. SoCal was at one time a subsidiary of City Investing Company
('City'). The State alleged that KRPS is engaged in real estate development
activities, that KRPS owns many of the properties which the State alleged SoCal
had under development, that KRPS is engaged in the development of the Kelly
Ridge residential properties and that KRPS has sold many lots to the Property
Owners. The State of California alleged that it has incurred and will continue
to incur unreimbursed expenses for the operation, maintenance and repair of
sewer facilities providing sewer service to the Kelly Ridge properties.
KRPS filed a cross claim seeking indemnity from the Trust for any liability or
expenses KRPS may incur as a result of the claims filed by the State of
California or cross claims filed by LOAPUD and/or the Property Owners. The State
of California and LOAPUD amended their complaints to assert claims against the
Trustees as successors in interest to SoCal. The litigation was stayed to permit
the State of California and LOAPUD an opportunity to mediate. A settlement
agreement binding all the parties was executed in January 2006, whereby the
Trust paid $15,000 to resolve the matter, and the litigation was dismissed in
February 2006.
Other Matters: A dispute between the Trust and The Travelers Indemnity Company
('Travelers') under an insurance policy issued to City Investing Company
covering general liability, workers' compensation and certain other risks
insured for the years 1974, 1975 and 1976 was resolved in November 2005 by the
payment of $303,000 by the Trust to Travelers.
-13-
CITY INVESTING COMPANY LIQUIDATING TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Lease Commitment. The Trust has leased office space at 853 Broadway, Suite 1607,
New York, NY 10003-4703, beginning July 1, 2002. Base annual lease expense
beginning July 1, 2002, was approximately $24,000 during the first year of the
lease. Annual lease expense was $28,000 in 2005, $26,000 in 2004, and $25,000 in
2003. The five-year lease was cancelled upon the January 31, 2006 notification
to the landlord. Total remaining lease payments of $12,000 are due by May 1,
2006.
NOTE 8 - FUTURE DISTRIBUTIONS OF TRUST ASSETS
On August 15, 2005, the Trust paid a cash distribution of $2.00 per unit to Unit
Holders of record on August 8, 2005. On March 15, 2006, the Trustees declared a
$0.116 final cash distribution per Trust Unit of Beneficial Interest to be paid
on April 18, 2006, to Unit Holders of record on March 31, 2006. The aggregate
cash distribution to a Unit Holder involving less than a full cent will be
rounded up to the nearest whole cent. This final distribution will exhaust the
remaining Trust assets and there will be no further value to the Trust Units.
NOTE 9 - QUARTERLY FINANCIAL DATA (UNAUDITED)
The quarterly financial data for 2005 and 2004 are as follows:
<Table>
<Caption>
- -------------------------------------------------------------------------------------------
THREE MONTHS ENDED:
-------------------------------------------------
(AMOUNTS IN THOUSANDS, EXCEPT PER UNIT MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
DATA) 2005 2005 2005 2005
- -------------------------------------------------------------------------------------------
Total income/(loss) $776 $805 $262 $(334)
Administrative expenses 1,051 86 74 134
- -------------------------------------------------------------------------------------------
NET INCOME/(LOSS) $(275) $719 $188 $(468)
- -------------------------------------------------------------------------------------------
NET INCOME/(LOSS) PER UNIT $(0.01) $0.02 $0.00 $(0.01)
- -------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------------------------------------
THREE MONTHS ENDED:
--------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
(AMOUNTS IN THOUSANDS, EXCEPT PER UNIT 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>
-14-
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/(discount) 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/(discount) 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/(discount) 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 material
liability to the Trust.
-15-
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
RECONCILIATION TO:
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) 2005 2004 2003
- -----------------------------------------------------------------------------------------------------
Net income/(loss) for the year per Federal
Income Tax Reporting Principles (FITR) $164 $(1,391) $924
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 (586) 415 (155)
Interest, dividend and other income 16 (56) (185)
Administrative expenses 157 (125) 5
- -----------------------------------------------------------------------------------------------------
NET (LOSS)/INCOME FOR THE YEAR PER GAAPLIQ $(249) $(1,157) $589
- -----------------------------------------------------------------------------------------------------
NET (LOSS)/INCOME PER UNIT PER GAAPLIQ $(.00) $(.03) $.02
- -----------------------------------------------------------------------------------------------------
OUTSTANDING UNITS 38,979 38,979 38,979
- -----------------------------------------------------------------------------------------------------
</Table>
-16-
CITY INVESTING COMPANY LIQUIDATING TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
BALANCE SHEETS
RECONCILIATION TO:
ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA,
REFLECTING AN ENTITY IN LIQUIDATION
DECEMBER 31
<Table>
<Caption>
- --------------------------------------------------------------------------------
($ IN THOUSANDS) 2005 2004
- --------------------------------------------------------------------------------
TOTAL ASSETS PER FEDERAL INCOME TAX
REPORTING PRINCIPLES (FITR) $4,918 $82,713
To adjust from FITR to accounting principles
generally accepted in the United States of
America, reflecting an entity in
liquidation (GAAPLIQ):
Investment securities 48 397
Prepaid expenses 72 130
Mortgage receivable, net of deferred gain 269 538
- --------------------------------------------------------------------------------
TOTAL ASSETS PER GAAPLIQ $5,307 $83,778
- --------------------------------------------------------------------------------
TOTAL LIABILITIES PER FEDERAL INCOME TAX
REPORTING PRINCIPLES (FITR) $0 $0
To adjust from FITR to GAAPLIQ:
Accrued liabilities 69 332
- --------------------------------------------------------------------------------
TOTAL LIABILITIES PER GAAPLIQ $69 $332
- --------------------------------------------------------------------------------
TRUST EQUITY PER FEDERAL INCOME TAX
REPORTING PRINCIPLES (FITR) $4,918 $82,713
- --------------------------------------------------------------------------------
To adjust from FITR to GAAPLIQ:
Net (loss)/income adjustments from
Statements of Operations for GAAPLIQ (413) 234
- --------------------------------------------------------------------------------
Adjustments for prior periods for GAAPLIQ 733 499
- --------------------------------------------------------------------------------
TRUST EQUITY PER GAAPLIQ $5,238 $83,446
- --------------------------------------------------------------------------------
</Table>
-17-
CITY INVESTING COMPANY LIQUIDATING TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CASH FLOWS
RECONCILIATION TO:
ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA,
REFLECTING AN ENTITY IN LIQUIDATION
YEAR ENDED DECEMBER 31
<Table>
<Caption>
- -------------------------------------------------------------------------------------------------------
($ IN THOUSANDS) 2005 2004 2003
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) per Federal Income Tax
Reporting Principles (FITR): $164 $(1,391) $924
Cash flows from operating activities per
accounting principles generally accepted in
the United States of America, reflecting an
entity in liquidation (GAAPLIQ): (413) 234 (335)
Adjustments to reconcile net income/(loss) to
net cash provided by/(used for) operating
activities to GAAPLIQ:
Loss on investment in Oklahoma Energy Corp. -- 27 --
Uncollected interest income on investment
securities (50) 182 168
Amortization of premium of investment
securities 100 489 1,441
Excess of fair market value over amortized
cost of investment securities 399 (397) (6)
Changes in other assets and liabilities:
Prepaid expenses 59 (76) --
Mortgage receivable 34 -- 34
Accrued liabilities (213) 183 (27)
- -------------------------------------------------------------------------------------------------------
Net cash provided by/(used for) operating
activities in GAAPLIQ 80 (749) 2,199
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities/sales of investment securities 402,850 392,661 121,277
Purchases of investment securities (325,506) (391,934) (124,242)
Proceeds from sale of real estate 686 -- 685
Other, net -- -- 1
- -------------------------------------------------------------------------------------------------------
Net cash provided by/(used for) investing
activities 78,030 727 (2,279)
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distribution to Unit Holders (77,959) -- --
- -------------------------------------------------------------------------------------------------------
Net cash used for financing activities (77,959) -- --
- -------------------------------------------------------------------------------------------------------
Net increase/(decrease) in cash and cash
equivalents 151 (22) (80)
- -------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of
period 56 78 158
- -------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $207 $56 $78
- -------------------------------------------------------------------------------------------------------
</Table>
-18-
CITY INVESTING COMPANY LIQUIDATING TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN TRUST EQUITY
RECONCILIATION TO:
ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA,
REFLECTING AN ENTITY IN LIQUIDATION
YEAR ENDED DECEMBER 31
<Table>
<Caption>
- ----------------------------------------------------------------------------------------------------
($ IN THOUSANDS) 2005 2004 2003
- ----------------------------------------------------------------------------------------------------
Balance at beginning of year per Federal
Income Tax Reporting Principles (FITR): $82,713 $84,104 $83,180
Net (loss)/income per GAAPLIQ (249) (1,157) 589
Cash distribution to Unit Holders (77,959) -- --
Adjustments for prior periods for GAAPLIQ 733 499 840
- ----------------------------------------------------------------------------------------------------
BALANCE AT END OF YEAR PER GAAPLIQ $5,238 $83,446 $84,609
- ----------------------------------------------------------------------------------------------------
</Table>
NOTE 11 - NOTIFICATION OF NASDAQ DELISTING
On January 18, 2006, the Nasdaq Stock Market Staff notified the Trust that the
Trust's Units would be delisted from the Nasdaq Capital Market on January 27,
2006, since, as previously disclosed to Unit Holders, the market value of its
publicly held Units no longer satisfied the minimum market value requirement. As
of January 27, 2006, City Investing Company Liquidating Trust Units have been
delisted from the Nasdaq Capital Market. The Trust Units are currently being
quoted on the Pink Sheets under the symbol CNVLZ.
-19-
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 (60) 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 (62) 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 (68) 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.
-20-
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 Amendment No. 16 to Schedule 13D of
Farallon Capital Management, L.L.C. filed with the SEC as of September 30, 2005,
from Form 4 of Goldman, Sachs & Co., as filed with the Securities and Exchange
Commission ('SEC') as of August 10, 2001, 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
- -----------------------------------------------------------------------------------------
FARALLON CAPITAL MANAGEMENT, L.L.C. 12,655,658 32.4%
One Maritime Plaza, Suite 1325, San Francisco, CA 94111
GOLDMAN, SACHS & CO. 12,631,464 32.4%
85 Broad Street, New York, NY 10004
FRANKLIN MUTUAL ADVISERS, LLC 6,529,648 16.8%
51 John F. Kennedy Parkway, Short Hills, NJ 07078
- -----------------------------------------------------------------------------------------
TOTALS 31,816,770 81.6%
- -----------------------------------------------------------------------------------------
</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 6,
2006.
<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:
<Table>
<Caption>
2005 2004
---- ----
$222,840 $55,580
</Table>
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 $167,840 for 2004, which were paid in 2005.
-21-
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,
Management's Report......................................... 6
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) as amended on July 29, 2005 by action of John J.
Quirk, Charles R. Carson and Lester J. Mantell, as
</Table>
-22-
<Table>
Trustees, (incorporated by reference to Exhibit 6.1 to City
Investing Company Liquidating Trust Form 10-Q for the
quarter ended June 30, 2005).
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 (incorporated by
reference to Exhibit 99.4 to City Investing Company
Liquidating Trust Form 10-K for the fiscal year ended
December 31, 2004).
Exhibits 31 and 32 are included in the Form 10-K posted on our web
site: http://www.cnvlz.com.
(b) Form 8-K
The Trust filed two Current Reports on Form 8-K during the quarter
ended December 31, 2005.
</Table>
<Table>
<Caption>
DATE EVENT REPORTED
---- --------------
October 3, 2005 On October 3, 2005, the Registrant issued a press release
announcing a proposed delisting from Nasdaq SmallCap (which
is currently called Capital) Market.
The foregoing summary of the October 3, 2005 press release
is qualified in its entirety by the complete text of such
document, a copy of which was filed as an Exhibit to the
Form 8-K.
October 21, 2005 On October 21, 2005, the Registrant issued a press release
announcing a proposed delisting from Nasdaq SmallCap (which
is currently called Capital) Market.
The foregoing summary of the October 21, 2005 press release
is qualified in its entirety by the complete text of such
document, a copy of which was filed as an Exhibit to the
Form 8-K.
</Table>
-23-
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 15th day of
March 2006.
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 15th day of March 2006.
The Trustees:
CHARLES R. CARSON
Trustee
JOHN J. QUIRK
Trustee
LESTER J. MANTELL
Trustee
-24-