<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 29, 1997
REGISTRATION NOS. 333-
811-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933 [X]
Pre-Effective Amendment No. [_]
Post-Effective Amendment No. [_]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 [X]
Amendment No.
(Check Appropriate Box or Boxes)
----------------
SECURITY CAPITAL EMPLOYEE REIT FUND INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
11 SOUTH LASALLE STREET
CHICAGO, ILLINOIS 60603
(312) 345-5800
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE)
ANTHONY R. MANNO, JR.
11 SOUTH LASALLE STREET
CHICAGO, ILLINOIS 60603
(NAME AND ADDRESS OF AGENT FOR SERVICE)
WITH COPY TO:
JEFFREY A. KLOPF DANIEL F. PHILIP J. NIEHOFF
SECURITY CAPITAL GROUP MIRANDA MAYER, BROWN &
INCORPORATED 11 SOUTH LASALLE PLATT
125 LINCOLN AVENUE STREET 190 SOUTH LASALLE
SANTA FE, NEW MEXICO 87501 CHICAGO, STREET
ILLINOIS 60603 CHICAGO, ILLINOIS
60603
----------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: From time to time after the
effective date of this registration statement.
It is proposed that this filing will become effective (check appropriate
box):
[_] immediately upon filing pursuant to paragraph (b).
[_] on (date) pursuant to paragraph (b).
[_] 60 days after filing pursuant to paragraph (a)(1).
[_] on (date) pursuant to paragraph (a)(1) of Rule 485.
[_] 75 days after filing pursuant to paragraph (a)(2).
[_] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[_] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
RULE 24F-2 NOTICE
An indefinite number of shares of Common Stock of the Registrant are being
registered by this Registration Statement pursuant to Rule 24f-2 under the
Investment Company Act of 1940.
----------------
THE REGISTRANT HEREBY AMENDS THE REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), SHALL DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JANUARY 29, 1997
PROSPECTUS
LOGO
11 SOUTH LASALLE STREET
CHICAGO, ILLINOIS 60603
TELEPHONE: (312) 345-5800
Security Capital Employee REIT Fund Incorporated ("SC-ERF") is a non-
diversified, no-load, open-end management investment company ("mutual fund")
that seeks to provide shareholders with above-average total returns, including
current income and capital appreciation, primarily through investments in real
estate securities in the United States. Long term, SC-ERF's objective is to
achieve top-quartile total returns as compared with other mutual funds that
invest primarily in the securities of publicly traded real estate investment
trusts ("REITs") in the United States, by integrating in-depth proprietary real
estate market research with sophisticated capital markets research and modeling
techniques. Security Capital Investment Research Group Incorporated ("SC
Investment Research") serves as both investment adviser and administrator to
SC-ERF.
An investment in SC-ERF should not be the sole source of investment for a
shareholder. Rather, an investment in SC-ERF should be considered as part of an
overall portfolio strategy which includes fixed income and equity securities.
SC-ERF is designed for long-term investors, including those who wish to use
shares for tax deferred retirement plans and individual retirement accounts,
and not for investors who intend to liquidate their investments after a short
period of time.
This Prospectus sets forth concisely the information a prospective investor
should know before investing in SC-ERF. A Statement of Additional Information
dated January , 1997, containing additional and more detailed information
about SC-ERF has been filed with the Securities and Exchange Commission and is
hereby incorporated by reference into this Prospectus. It is available without
charge and can be obtained by writing or calling SC-ERF at the address and
telephone number printed on the back cover of this Prospectus.
Shares of SC-ERF are being offered only to Security Capital Group
Incorporated ("Security Capital Group"), and directors, trustees and employees
of Security Capital Group and its affiliates, and members of their families.
See "Purchase of Shares."
INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE
REFERENCE.
THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
IN ANY STATE OR JURISDICTION WHERE PROHIBITED BY LAW OR TO ANY FIRM OR
INDIVIDUAL TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CON-
TRARY IS A CRIMINAL OFFENSE.
January , 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Expenses................................................................... 3
Investment Objective and Policies.......................................... 4
Real Estate Investment Trusts.............................................. 5
Investment Strategy........................................................ 5
Risk Factors............................................................... 6
Non-Diversified Status; Portfolio Turnover................................. 7
Investment Restrictions.................................................... 7
Management of SC-ERF....................................................... 8
Investment Advisory Agreement.............................................. 9
Administrator and Sub-Administrator........................................ 10
Determination of Net Asset Value........................................... 10
Purchase of Shares......................................................... 11
Redemption of Shares....................................................... 13
Dividends and Distributions................................................ 15
Taxation................................................................... 15
Organization and Description of Capital Stock.............................. 16
Custodian and Transfer and Dividend Disbursing Agent....................... 16
Reports to Shareholders.................................................... 17
Performance Information.................................................... 17
Additional Information..................................................... 17
</TABLE>
2
<PAGE>
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
Shareholder transaction expenses are direct charges which are incurred when
shareholders buy or sell shares of SC-ERF.
ANNUAL FUND OPERATING EXPENSES
SC-ERF pays for certain expenses directly out of its assets. These expenses
are related to management of SC-ERF, administration and other services. For
example, SC-ERF pays an advisory fee and an administrative fee to SC
Investment Research. SC-ERF also has other customary expenses for services
such as transfer agent fees, custodial fees paid to the bank that holds its
portfolio securities, audit fees and legal expenses. These operating expenses
are subtracted from SC-ERF's assets to calculate SC-ERF's net asset value per
share. In this manner, shareholders pay for these expenses indirectly.
The following table is provided to help shareholders understand the direct
expenses of investing in SC-ERF and the portion of SC-ERF's operating expenses
that they might expect to bear indirectly. The numbers reflected below are
based on SC-ERF's projected expenses for its current fiscal period ending
December 31, 1997, assuming that SC-ERF's average annual net assets for such
fiscal year are $250 million. The actual expenses in future years may be more
or less than the numbers in the table, depending on a number of factors,
including the actual value of SC-ERF's assets.
FEE TABLE
<TABLE>
<S> <C>
Shareholder Transaction Expenses:
Maximum sales charge on purchases and reinvested
distributions................................................ None
Redemption fee................................................ None(1)
Annual Fund Operating Expenses (as a percentage of average net
assets):
Management fees(2)............................................ 0.85%
12b-1 fees.................................................... None
Other expenses................................................ 0.29%
Total fund operating expenses(2)............................ 1.14%
</TABLE>
- --------
(1) A service fee of $12.00 is charged for each wire redemption.
(2) SC Investment Research has committed to waive fees and/or reimburse
expenses to maintain SC-ERF's total operating expenses at no more than
1.20% of SC-ERF's average net assets for the year ending December 31,
1997.
EXAMPLE
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS
-------- -----------
<S> <C> <C>
A shareholder would bear the following expenses on a
$1,000 investment, assuming a five percent annual
return and operating expenses as outlined in the
fee table above.................................... $12.00 $36.00
</TABLE>
3
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
SC-ERF's investment objective is to provide shareholders with above-average
total returns, including current income and capital appreciation, primarily
through investments in real estate securities in the United States. Long term,
SC-ERF's objective is to achieve top-quartile total returns as compared with
other mutual funds that invest primarily in the securities of publicly traded
REITs in the United States, by integrating in-depth proprietary real estate
market research with sophisticated capital markets research and modeling
techniques. SC-ERF's investment objective is "fundamental" and cannot be
changed without approval of a majority of its outstanding voting securities.
None of SC-ERF's policies, other than its investment objective and the
investment restrictions described below under "Investment Restrictions," are
fundamental and thus may be changed by SC-ERF's Board of Directors without
shareholder approval. There can be no assurance that SC-ERF's investment
objective will be achieved.
Under normal circumstances, SC-ERF will invest substantially all of its
assets in equity securities of publicly held real estate companies. Such
equity securities will consist of (i) common stocks (including shares in
REITs), (ii) rights or warrants to purchase common stocks, (iii) securities
convertible into common stocks where the conversion feature represents, in SC
Investment Research's view, a significant element of the securities' value,
and (iv) preferred stocks. For purposes of SC-ERF's investment policies, a
"real estate company" is one that derives at least 50% of its revenues from
the ownership, construction, financing, management or sale of commercial,
industrial, or residential real estate or that has at least 50% of its assets
invested in such real estate. SC-ERF does not presently intend to invest in
any real estate company that is controlled by Security Capital Group or any of
its affiliates. When, in the judgment of SC Investment Research, market or
general economic conditions justify a temporary defensive position, SC-ERF
will deviate from its investment objective and invest all or any portion of
its assets in high-grade debt securities, including corporate debt securities,
U.S. government securities, and short-term money market instruments, without
regard to whether the issuer is a real estate company. SC-ERF may also at any
time invest funds awaiting investment or held as reserves to satisfy
redemption requests or to pay dividends and other distributions to
shareholders in short-term money market instruments.
SC-ERF will not invest more than 10% of its net assets in illiquid
securities. For this purpose, illiquid securities include, among others,
securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions on resale. SC Investment Research
will monitor the liquidity of such restricted securities under the supervision
of SC-ERF's Board of Directors. See SC-ERF's Statement of Additional
Information for further discussion of illiquid securities.
SC-ERF may engage in short sale transactions in securities listed on one or
more national securities exchanges or on National Association of Securities
Dealers Automated Quotations, Inc. ("NASDAQ"). Short selling involves the sale
of borrowed securities. At the time a short sale is effected, SC-ERF incurs an
obligation to replace the security borrowed at whatever its price may be at
the time that SC-ERF purchases it for delivery to the lender. When a short
sale transaction is closed out by delivery of the securities, any gain or loss
on the transaction is taxable as a short term capital gain or loss. Until the
security is replaced, SC-ERF is required to pay to the lender amounts equal to
any dividends or interest which accrue during the period of the loan. All
short sales will be fully collateralized. SC-ERF may also engage in short
sales against the box, which involves selling a security SC-ERF holds in its
portfolio for delivery at a specified date in the future. SC-ERF will not
engage in short sales or short sales against the box if immediately following
such transaction the aggregate market value of all securities sold short and
sold short against the box would exceed 10% of SC-ERF's net assets (taken at
market value). See SC-ERF's Statement of Additional Information for further
discussion of short sales and short sales against the box.
SC-ERF was formed on January 23, 1997. It is currently a private investment
company whose sole investor is SCERF Incorporated, an indirect, wholly-owned
subsidiary of Security Capital Group. As of December 31, 1996, SC-ERF had
assets of $9.9 million.
4
<PAGE>
REAL ESTATE INVESTMENT TRUSTS
SC-ERF may invest without limit in shares of REITs. REITs pool investors'
funds for investment primarily in income producing real estate or real estate
related loans or interests. A REIT is not taxed on income distributed to
shareholders if it complies with several requirements relating to its
organization, ownership, assets, and income and a requirement that it
distribute to its shareholders at least 95% of its taxable income (other than
net capital gains) for each taxable year. REITs can generally be classified as
Equity REITs, Mortgage REITs and Hybrid REITs. Equity REITs, which invest the
majority of their assets directly in real property, derive their income
primarily from rents. Equity REITs can also realize capital gains by selling
properties that have appreciated in value. Mortgage REITs, which invest the
majority of their assets in real estate mortgages, derive their income
primarily from interest payments on real estate mortgages in which they are
invested. Hybrid REITs combine the characteristics of both Equity REITs and
Mortgage REITs.
INVESTMENT STRATEGY
SC-ERF intends to follow an investment strategy similar to that of Security
Capital U.S. Realty Special Opportunity Portfolio ("USREALTY Special
Opportunity"). USREALTY Special Opportunity is a private investment portfolio
with assets of $178 million (at cost, as of December 31, 1996) that invests
primarily in publicly traded REITs in the United States. USREALTY Special
Opportunity is advised by an affiliate of SC Investment Research, relying on
the same research and analytical tools and models that SC Investment Research
will rely on in making investments on behalf of SC-ERF. For the year ended
December 31, 1996, USREALTY Special Opportunity achieved a total return of
approximately 62.5%, after the deduction of fees and expenses. Past
performance is not necessarily indicative of future results. In addition, as a
private investment portfolio, USREALTY Special Opportunity is not subject to
the same regulatory requirements, including the diversification requirements
of the Internal Revenue Code of 1986, as amended (the "Code"). Accordingly,
there can be no assurance that SC-ERF can achieve results similar to those
achieved by USREALTY Special Opportunity.
REIT INDUSTRY OVERVIEW
SC Investment Research believes that the U.S. real estate industry has
experienced a fundamental transformation in the last five years which has
created a significant market opportunity. Direct investment of equity capital
in real estate, as was prevalent in the 1980s, has decreased while investments
in publicly traded Equity REITs has increased. The aggregate market
capitalization of Equity REITs has increased from $11.9 billion at December
31, 1990 to $132.5 billion at December 31, 1996, primarily as a result of
$48.3 billion of public offerings conducted during that period. This
increasing securitization of the U.S. real estate industry, primarily in the
form of REITs, offers significant benefits to shareholders, including enhanced
liquidity, real-time pricing and the opportunity for optimal growth and
sustainable rates of return through a more rational and disciplined approach
to capital allocation and operating management.
In addition to providing greater liquidity than direct real estate
investments, REITs have also outperformed direct real estate investments for
each of the past one, five, ten and fifteen year periods ended December 31,
1996. The following chart reflects the performance of U.S. REITs compared to
direct U.S. real estate investments and other indices.
REITS VS. OTHER INVESTMENTS
(COMPOUNDED ANNUAL TOTAL RATES OF RETURN*)
<TABLE>
<CAPTION>
THROUGH DECEMBER 31, NAREIT(1) NCREIF(2) CONSUMER
1996 EQUITY INDEX INDEX S&P 500 BONDS PRICE INDEX
-------------------- ------------ --------- ------- ----- -----------
<S> <C> <C> <C> <C> <C>
6 months................ 26.63% 4.76% 11.68% 9.83% 2.90%
1 year.................. 37.27 8.47 22.96 2.94 3.32
5 year.................. 17.14 2.38 15.18 7.22 2.83
15 year................. 15.08 N/A 16.78 11.43 3.58
20 year................. 16.13 N/A 14.55 8.36 5.14
</TABLE>
- --------
1. National Association of Real Estate Investment Trusts.
5
<PAGE>
2. National Counsel of Real Estate Investment Fiduciaries; Index began in
1982, data as of September 30, 1996.
3. Merrill Lynch Government/Corporate Bond Index (Master).
* The above listed indices reflect past performance and are not necessarily
indicative of future results of such indices or individual stocks contained
therein.
SC Investment Research believes that the increasing securitization of the
U.S. real estate industry is still in its initial stages and that this trend
will continue over the next decade. SC-ERF intends to benefit from this
restructuring by investing in Equity REITs that SC Investment Research
believes could produce above-average returns.
A RESEARCH-DRIVEN PHILOSOPHY AND APPROACH
SC-ERF seeks to achieve top-quartile returns by investing primarily in
Equity REITs which have the potential to deliver above-average growth. SC
Investment Research believes that these investment opportunities can only be
identified through the integration of extensive property market research and
in-depth operating company cash flow modeling.
Property Market Research. SC-ERF is uniquely positioned to access
meaningful, proprietary real estate research collected at the market,
submarket and property level. This market research is provided by operating
professionals within the Security Capital Group affiliate company network and
assists SC Investment Research in identifying attractive growth markets and
property sectors prior to making investment decisions. Specifically, SC-ERF
endeavors to identify markets reaching a "marginal turning point." The market
research conducted by SC-ERF includes a comprehensive evaluation of real
estate supply and demand factors (such as population and economic trends,
customer and industry needs, capital flows and building permit and
construction data) on a market and submarket basis and by product type.
Specifically, primary market research evaluates normalized cash flow lease
economics (accounting for capital expenditures and other leasing costs) to
determine whether the core economy of a market is expected to improve,
stabilize or decline. Only through disciplined real estate market research
does SC-ERF believe it can identify markets, and thus, real estate operating
companies, with the potential for higher than average growth prospects.
Real Estate Operating Company Evaluation and Cash Flow Modeling. SC
Investment Research believes that analyzing the quality of funds from
operations ("FFO") growth of a REIT, both historically and prospectively, is
another fundamental step toward identifying above-average growth opportunities
in REITs. In the case of non-REITs, SC Investment Research believes that
analyzing the quality of net cash flow ("NCF") growth of a company, as shown
on the company's cash flow statement, is the appropriate identifier of above-
average growth opportunities. SC Investment Research believes that FFO is
helpful in understanding a property portfolio in that such calculation
reflects cash flow from operations and the properties' ability to support
interest payments and general operating expenses before the impact of certain
activities, such as gains or losses from sales of depreciated property and
changes in accounts receivable and accounts payable. Certain REIT valuation
models utilized by SC Investment Research integrate property market research
with analysis on specific property portfolios in order to establish an
independent value of the underlying sources of a company's FFO. Additional
valuation models measure and compare the impact of certain factors, both
internal and external, on FFO growth expectations. The data from these
valuation models is ultimately compiled and reviewed in order to identify real
estate operating companies with significant potential for growth.
RISK FACTORS
RISKS OF INVESTMENT IN REAL ESTATE SECURITIES
SC-ERF will not invest in real estate directly, but only in securities
issued by real estate companies. However, SC-ERF may be subject to risks
similar to those associated with the direct ownership of real estate (in
addition to securities markets risks) because of its policy of concentration
in the securities of companies in the
6
<PAGE>
real estate industry. Such risks include declines in the value of real estate,
risks related to general and local economic conditions, possible lack of
availability of mortgage funds, overbuilding, extended vacancies of
properties, increased competition, increases in property taxes and operating
expenses, changes in zoning laws, losses due to costs resulting from the
clean-up of environmental problems, liability to third parties for damages
resulting from environmental problems, casualty or condemnation losses,
limitations on rents, changes in neighborhood values, the appeal of properties
to customers and changes in interest rates.
In addition to these risks, Equity REITs may be affected by changes in the
value of the underlying property owned by the REITs, while Mortgage REITs may
be affected by the quality of any credit extended. Further, Equity and
Mortgage REITs are dependent on the management skills of the management of the
REIT and of the operators of the real estate in which the REITs are invested
and generally may not be diversified. Equity and Mortgage REITs are also
subject to heavy cash flow dependency, defaults by borrowers or customers and
self-liquidation. In addition, Equity and Mortgage REITs could possibly fail
to qualify for tax free pass-through of income under the Code, or to maintain
their exemptions from registration under the Investment Company Act of 1940
(the "1940 Act"). The above factors may also adversely affect a borrower's or
a customer's ability to meet its obligations to the REIT. In the event of a
default by a borrower or customer, the REIT may experience delays in enforcing
its rights as a mortgagee or lessor and may incur substantial costs associated
with protecting its investments.
NON-DIVERSIFIED STATUS; PORTFOLIO TURNOVER
SC-ERF intends to operate as a "non-diversified" investment company under
the 1940 Act, which means SC-ERF is not limited by the 1940 Act in the
proportion of its assets that may be invested in the securities of a single
issuer. However, SC-ERF intends to conduct its operations so as to qualify as
a "regulated investment company" for purposes of the Code, which generally
will relieve SC-ERF of any liability for Federal income tax to the extent its
earnings are distributed to shareholders. See "Taxation." To qualify as a
regulated investment company, among other requirements, SC-ERF will limit its
investments so that, at the close of each quarter of the taxable year, (i) not
more than 25% of the market value of SC-ERF's total assets will be invested in
the securities of a single issuer, and (ii) with respect to 50% of the market
value of its total assets, not more than 5% of the market value of its total
assets will be invested in the securities of a single issuer and SC-ERF will
not own more than 10% of the outstanding voting securities of a single issuer.
SC-ERF's investments in securities issued by the U.S. Government, its agencies
and instrumentalities are not subject to these limitations. Because SC-ERF, as
a non-diversified investment company, may invest in a smaller number of
individual issuers than a diversified investment company, an investment in SC-
ERF may present greater risk to an investor than an investment in a
diversified company.
SC-ERF anticipates that its annual portfolio turnover rate will not exceed
150%, but the turnover rate will not be a limiting factor when SC Investment
Research deems portfolio changes appropriate. The turnover rate may vary
greatly from year to year. An annual turnover rate of 150% occurs, for
example, when all of the securities held by SC-ERF are replaced one and one-
half times in a period of one year. A higher turnover rate results in
correspondingly greater brokerage commissions and other transactional expenses
which are borne by SC-ERF. High portfolio turnover may result in the
realization of net short-term capital gains by SC-ERF which, when distributed
to shareholders, will be taxable as ordinary income. See "Taxation."
INVESTMENT RESTRICTIONS
SC-ERF has adopted certain investment restrictions, which may not be changed
without the approval of the holders of a majority of SC-ERF's outstanding
voting securities as defined below. The percentage limitations set forth
below, as well as those described elsewhere in this Prospectus, apply only at
the time an investment is made or other relevant action is taken by SC-ERF.
7
<PAGE>
In addition to other fundamental investment restrictions listed elsewhere in
this Prospectus, SC-ERF will not:
1. Purchase more than 10% of the voting securities of any issuer;
2. Make loans except through the purchase of debt obligations in
accordance with its investment objective and policies;
3. Borrow money, or pledge its assets, except that SC-ERF may borrow
money from banks for temporary or emergency purposes, including the meeting
of redemption requests which might require the untimely disposition of
securities, but not in an aggregate amount exceeding 33 1/3% of the value
of SC-ERF's total assets (including the amount borrowed) less liabilities
(not including the amount borrowed) at the time the borrowing is made.
Outstanding borrowings in excess of 5% of the value of SC-ERF's total
assets will be repaid before any subsequent investments are made;
4. Invest in illiquid securities, as defined in "Investment Objective and
Policies," if immediately after such investment more than 10% of SC-ERF's
net assets (taken at market value) would be invested in such securities;
5. Engage in short sales or short sales against the box if immediately
following such transaction the aggregate market value of all securities
sold short and sold short against the box would exceed 10% of SC-ERF's net
assets (taken at market value); or
6. Purchase or sell real estate, except that SC-ERF may purchase
securities issued by companies in the real estate industry and will, as a
matter of fundamental policy, concentrate its investments in such
securities.
The foregoing restrictions are fundamental policies for purposes of the 1940
Act and therefore may not be changed without the approval of a majority of SC-
ERF's outstanding voting securities. As used in this Prospectus, a majority of
SC-ERF's outstanding voting securities means the lesser of (a) more than 50%
of its outstanding voting securities or (b) 67% or more of the voting
securities present at a meeting at which more than 50% of the outstanding
voting securities are present or represented by proxy. SC-ERF policies and
restrictions which are not fundamental may be modified by SC-ERF's Board of
Directors without shareholder approval if, in the reasonable exercise of its
business judgment, modification is determined to be necessary or appropriate
to carry out SC-ERF's objective. However, SC-ERF will not change its
investment policies or restrictions without written notice to shareholders.
MANAGEMENT OF SC-ERF
BOARD OF DIRECTORS
The overall management of the business and affairs of SC-ERF is vested with
the Board of Directors. The Board of Directors approves all significant
agreements between SC-ERF and persons or companies furnishing services to it,
including SC-ERF's agreements with SC Investment Research, or its
administrator, custodian and transfer agent. The management of SC-ERF's day-
to-day operations is delegated to its officers, SC Investment Research and the
administrator, subject always to the investment objective and policies of SC-
ERF and to general supervision by the Board of Directors. Although SC-ERF is
not required by law to hold annual meetings, it may hold shareholder meetings
from time to time on important matters, and shareholders have the right to
call a meeting to remove a Director or to take other action described in SC-
ERF's Articles of Incorporation. The Directors and officers of SC-ERF and
their principal occupations are set forth below.
Anthony R. Manno, Jr.... Director and President of SC-ERF; President of SC
Investment Research and a Managing Director of
Security Capital Investment Research Incorporat-
ed.
Daniel F. Miranda....... Executive Vice President, Secretary and Treasurer
of SC-ERF; Executive Vice President, Secretary
and Treasurer of SC Investment Research; and a
Managing Director of Security Capital Investment
Research Incorporated.
8
<PAGE>
Kenneth D. Statz........ Senior Vice President of SC-ERF; Senior Vice
President of SC Investment Research; and Senior
Vice President of Security Capital Investment
Research Incorporated.
SC INVESTMENT RESEARCH
Security Capital Investment Research Group Incorporated ("SC Investment
Research"), with offices located at 11 South LaSalle Street, Chicago, Illinois
60603, has been retained to provide investment advice, and, in general, to
conduct the management and investment program of SC-ERF under the overall
supervision and control of the Directors of SC-ERF. SC Investment Research
intends to achieve top-quartile returns, compared with other mutual funds that
invest primarily in securities issued by U.S. real estate companies, by
integrating in-depth, proprietary property market research with sophisticated
capital markets research and modelling. There can be no assurance that SC
Investment Research will achieve this goal. SC Investment Research was formed
in December 1996, and is registered as an investment adviser with the
Securities and Exchange Commission (the "SEC"). Its principal officers are
Anthony R. Manno, Jr., President, Daniel F. Miranda, Executive Vice President,
Secretary and Treasurer and Kenneth D. Statz, Senior Vice President. Messrs.
Manno, Miranda and Statz are responsible for the day-to-day management of SC-
ERF's portfolio. SC Investment Research is a wholly-owned subsidiary of
Security Capital Group, a privately-held Maryland corporation engaged in the
creation, operation and control of highly focused, fully integrated,
securitized real estate operating companies.
INVESTMENT ADVISORY AGREEMENT
Pursuant to an investment advisory agreement (the "Advisory Agreement"), SC
Investment Research furnishes a continuous investment program for SC-ERF's
portfolio, makes the day-to-day investment decisions for SC-ERF, and generally
manages SC-ERF's investments in accordance with the stated policies of SC-ERF,
subject to the general supervision of SC-ERF's Board of Directors. SC
Investment Research also selects brokers and dealers to execute purchase and
sale orders for the portfolio transactions of SC-ERF. Consistent with the
Rules of Fair Practice of the National Association of Securities Dealers,
Inc., and subject to seeking best price and execution, SC Investment Research
may consider sales of shares of SC-ERF as a factor in the selection of brokers
and dealers to enter into portfolio transactions with SC-ERF. SC Investment
Research provides persons satisfactory to the Directors of SC-ERF to serve as
officers of SC-ERF. Such officers, as well as certain other employees and
Directors of SC-ERF, may be directors, officers, or employees of SC Investment
Research. Under the Advisory Agreement, SC-ERF pays SC Investment Research a
monthly management fee in an amount equal to 1/12th of .85% of the average
daily net assets of SC-ERF (approximately .85% on an annual basis). This fee
is higher than that incurred by most other investment companies. SC Investment
Research has committed to waive fees and/or reimburse expenses to maintain SC-
ERF's total operating expenses at no more than 1.20% of SC-ERF's average net
assets for the year ending December 31, 1997.
In addition to the payments to SC Investment Research under the Advisory
Agreement described above, SC-ERF pays certain other costs of its operations
including (a) custody, transfer and dividend disbursing expenses, (b) fees of
Directors who are not affiliated with SC Investment Research, (c) legal and
auditing expenses, (d) clerical, accounting and other office costs, (e) costs
of printing SC-ERF's prospectus and shareholder reports, (f) costs of
maintaining SC-ERF's existence, (g) interest charges, taxes, brokerage fees
and commissions, (h) costs of stationery and supplies, (i) expenses and fees
related to registration and filing with federal and state regulatory
authorities, and (j) upon the approval of SC-ERF's Board of Directors, costs
of personnel of the Adviser or its affiliates rendering clerical, accounting
and other office services.
The Advisory Agreement provides that SC Investment Research will reimburse
SC-ERF for its expenses (exclusive of interest, taxes, brokerage, distribution
expenditures and extraordinary expenses, all to the extent permitted by
applicable state securities laws and regulations) which in any year exceed the
limits prescribed by any state in which SC-ERF's shares are qualified for
sale. SC-ERF may not qualify its shares for sale in every state. Expense
reimbursements, if any, are accrued daily and paid monthly.
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ADMINISTRATOR AND SUB-ADMINISTRATOR
SC Investment Research has also entered into a fund administration and
servicing agreement with SC-ERF (the "Administration Agreement") under which
SC Investment Research performs certain administrative functions for SC-ERF,
including (i) providing office space, telephone, office equipment and supplies
for SC-ERF; (ii) paying compensation of SC-ERF's officers for services
rendered as such; (iii) authorizing expenditures and approving bills for
payment on behalf of SC-ERF; (iv) supervising preparation of the periodic
updating of SC-ERF's Prospectus and Statement of Additional Information; (v)
supervising preparation of quarterly reports to SC-ERF's shareholders, notices
of dividends, capital gains distributions and tax credits, and attending to
routine correspondence and other communications with individual shareholders;
(vi) supervising the daily pricing of SC-ERF's investment portfolio and the
publication of the net asset value of SC-ERF's shares, earnings reports and
other financial data; (vii) monitoring relationships with organizations
providing services to SC-ERF, including the custodian ("Custodian"), transfer
agent ("Transfer Agent") and printers; (viii) providing trading desk
facilities for SC-ERF; (ix) maintaining books and records for SC-ERF (other
than those maintained by the Custodian and Transfer Agent) and preparing and
filing of tax reports other than SC-ERF's income tax returns; and (x)
providing executive, clerical and secretarial help needed to carry out these
responsibilities.
In accordance with the terms of the Administration Agreement and with the
approval of SC-ERF's Board of Directors, SC Investment Research has caused SC-
ERF to retain Firstar Trust Company (the "Sub-Administrator") as sub-
administrator under a fund administration and servicing agreement (the "Sub-
Administration Agreement").
Under the Sub-Administration Agreement, the Sub-Administrator has assumed
responsibility for performing certain of the foregoing administrative
functions, including determining SC-ERF's net asset value and preparing such
figures for publication, maintaining certain of SC-ERF's books and records
that are not maintained by SC Investment Research, or the custodian or
transfer agent, preparing financial information for SC-ERF's income tax
returns, proxy statements, quarterly and annual shareholders reports, and SEC
filings, and responding to shareholder inquiries. Under the terms of the Sub-
Administration Agreement, SC-ERF pays the Sub-Administrator a monthly
administration fee at the annual rate of .06% of the first $200 million of SC-
ERF's average daily net assets, and at lower rates on SC-ERF's average daily
net assets in excess of that amount, subject to a annual minimum fee of
$30,000. The Sub-Administrator also serves as SC-ERF's Custodian and Transfer
Agent. See "Custodian and Transfer and Dividend Disbursing Agent."
Under the Administration Agreement, SC Investment Research remains
responsible for monitoring and overseeing the performance by the Sub-
Administrator of its obligations to SC-ERF under the Sub-Administration
Agreement, subject to the overall authority of SC-ERF's Board of Directors.
For its services under the Administration Agreement, SC Investment Research
receives a monthly fee from SC-ERF at the annual rate of .02% of SC-ERF's
average daily net assets.
DETERMINATION OF NET ASSET VALUE
Net asset value per share of common stock of SC-ERF, $.01 par value per
share ("Common Stock"), will be determined on each day the New York Stock
Exchange is open for trading and on each other day on which there is a
sufficient degree of trading in SC-ERF's investments to affect the net asset
value, as of the close of trading on the New York Stock Exchange, by adding
the market value of all securities in SC-ERF's portfolio and other assets,
subtracting liabilities, incurred or accrued, and dividing by the total number
of SC-ERF's shares then outstanding.
For purposes of determining SC-ERF's net asset value per share, readily
marketable portfolio securities listed on the New York Stock Exchange are
valued, except as indicated below, at the last sale price reflected on the
consolidated tape at the close of the New York Stock Exchange on the business
day as of which such value is being determined. If there has been no sale on
such day, the securities are valued at the mean of the closing
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bid and asked prices on such day. If no bid or asked prices are quoted on such
day, then the security is valued by such method as the Directors shall
determine in good faith to reflect its fair market value. Readily marketable
securities not listed on the New York Stock Exchange but listed on other
domestic or foreign securities exchanges or admitted to trading on the NASDAQ
National Market are valued in a like manner. Portfolio securities traded on
more than one securities exchange are valued at the last sale price on the
business day as of which such value is being determined as reflected on the
tape at the close of the exchange representing the principal market for such
securities.
Readily marketable securities traded in the over-the-counter market,
including listed securities whose primary market is believed by SC Investment
Research to be over-the-counter, but excluding securities admitted to trading
on the NASDAQ National Market, are valued at the mean of the current bid and
asked prices as reported by NASDAQ or, in the case of securities not quoted by
NASDAQ, the National Quotation Bureau or such other comparable sources as the
Directors deem appropriate to reflect their fair market value. Where securities
are traded on more than one exchange and also over-the-counter, the securities
will generally be valued using the quotations the Board of Directors believes
reflect most closely the value of such securities. Any securities, or other
assets, for which market quotations are not readily available are valued in
good faith in a manner determined by the Board of Directors that best reflects
the fair value of such securities or assets.
PURCHASE OF SHARES
Shares of SC-ERF are being offered only to directors, trustees and employees
of Security Capital Group and its affiliates, and members of their families.
For purposes of this Prospectus, members of the families of a director, trustee
or employee include the director's, trustee's or employee's spouse and parents,
siblings, grandparents, children and grandchildren of the employee and his or
her spouse.
Shares of SC-ERF may be purchased through any dealer which has entered into a
sales agreement with Security Capital Markets Group Incorporated, in its
capacity as principal distributor of SC-ERF's shares (the "Distributor").
Firstar Trust Company, SC-ERF's Transfer Agent, may also accept purchase
applications.
The minimum initial investment in SC-ERF is $5,000. Subsequent investments in
the amount of at least $500 may be made by mail or by wire. For individual
retirement accounts and employee benefit plans qualified under Sections 401,
403(b)(7) or 457 of the Code, the minimum initial investment is $2,000. For
investors using the Automatic Investment Plan (described below), the minimum
investment is $500. These minimums can be changed or waived by SC-ERF at any
time. A shareholder will be given at least 30 days' notice of any increase in
the minimum dollar amount of subsequent investments.
Applications will not be accepted unless they are accompanied by payment in
U.S. funds. Payment should be made by check or money order drawn on a U.S.
bank, savings and loan, or credit union or by wire transfer. Orders for shares
of SC-ERF will become effective at the net asset value per share next
determined after receipt of payment. Checks must be payable in U.S. dollars and
will be accepted subject to collection at full face value. All funds will be
invested in full and fractional shares. A confirmation indicating the details
of each purchase transaction will be sent to a shareholder promptly following
each transaction. If a purchase order is placed through a dealer, the dealer
must promptly forward the order, together with payment, to the Transfer Agent.
By investing in SC-ERF, a shareholder appoints the Transfer Agent, as his or
her agent, to establish an open account to which all shares purchased will be
credited, together with any dividends and capital gain distributions that are
paid in additional shares. See "Dividends and Distributions." Although most
shareholders elect not to receive stock certificates, certificates for full
shares can be obtained on specific written request to the Transfer Agent. All
fractional shares will be held in book-entry form. IT IS MORE COMPLICATED TO
REDEEM SHARES HELD IN CERTIFICATE FORM.
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INITIAL INVESTMENT
Shares may be purchased by completing the enclosed application and mailing it
along with a check or money order payable to "Security Capital Employee REIT
Fund Incorporated," to a securities dealer or the Transfer Agent. If mailing to
the Transfer Agent, please use the following address: Firstar Trust Company,
Mutual Fund Services, P.O. Box 701, Milwaukee, Wisconsin 53201-0701. Overnight
mail should be sent to the following address: Security Capital Employee REIT
Fund Incorporated, Firstar Trust Company, Mutual Fund Services, Third Floor,
615 East Michigan Street, Milwaukee, Wisconsin 53202. SC-ERF does not consider
the U.S. Postal service or other independent delivery services to be its
agents. Therefore, deposit in the mail or with such services, or receipt at the
Transfer Agent's post office box, of purchase applications does not constitute
receipt by the Transfer Agent or SC-ERF. Do not mail letters by overnight
courier to the post office box.
If a shareholder chooses a securities dealer that has not entered into a
sales agreement with the Distributor, such dealer may, nevertheless, offer to
place an order for the purchase SC-ERF shares. Such dealer may charge a
transaction fee, as determined by the dealer. That fee may be avoided if shares
are purchased through a dealer who has entered into a sales agreement with the
Distributor or through the Transfer Agent.
If a shareholder's check does not clear, a service fee of $20.00 will be
charged. Such shareholder will also be responsible for any losses suffered by
SC-ERF as a result. Neither cash nor third-party checks will be accepted. All
applications to purchase shares are subject to acceptance by SC-ERF and are not
binding until so accepted. SC-ERF reserves the right to decline or accept a
purchase order application in whole or in part.
WIRE PURCHASES
Shares may be purchased by wire only through the Transfer Agent. The
following instructions should be followed when wiring funds to the Transfer
Agent for the purchase of shares:
Wire to: Firstar Bank
ABA Number 075000022
Credit: Firstar Trust Company
Account 112-952-137
Further Credit:
Security Capital Employee REIT Fund Incorporated
(shareholder account number)
(shareholder name/account registration)
Please call 1-888- - (toll free) prior to wiring any funds to notify
the Transfer Agent that the wire is coming and to verify the proper wire
instructions so that the wire is properly applied when received. SC-ERF is not
responsible for the consequences of delays resulting from the banking or
Federal Reserve wire system.
TELEPHONE PURCHASES
Additional shares may be purchased by moving money from a shareholder's bank
account to his or her SC-ERF account. Only bank accounts held at domestic
financial institutions that are Automated Clearing House ("ACH") members can be
used for telephone transactions. In order for shares to be purchased at the net
asset value determined as of the close of regular trading on a given date, the
Transfer Agent must receive both the purchase order and payment by Electronic
Funds Transfer through the ACH System before the close of regular trading on
such date. Most transfers are completed within 3 business days. Telephone
transactions may not be used for initial purchases of shares.
AUTOMATIC INVESTMENT PLAN
The Automatic Investment Plan allows regular, systematic investments in SC-
ERF from a bank checking or NOW account. SC-ERF will reduce the minimum initial
investment to $500 if a shareholder elects to use the Automatic Investment
Plan. To establish the Automatic Investment Plan, the appropriate section in
SC-ERF's
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application must be completed. The Automatic Investment Plan can be set up with
any financial institution that is a member of the ACH. Under certain
circumstances (such as discontinuation of the Automatic Investment Plan before
the minimum initial investment is reached, or, after reaching the minimum
initial investment, the account balance is reduced to less than $500), SC-ERF
reserves the right to close such account. Prior to closing any account for
failure to reach the minimum initial investment, SC-ERF will give a shareholder
written notice and 60 days in which to reinstate the Automatic Investment Plan
or otherwise reach the minimum initial investment. A shareholder should
consider his or her financial ability to continue in the Automatic Investment
Plan until the minimum initial investment amount is met because SC-ERF has the
right to close such account for failure to reach the minimum initial
investment. Such closing may occur in periods of declining share prices.
Under the Automatic Investment Plan, a shareholder may choose to make
investments on the day of his or her choosing (or the next business day
thereafter) in amounts of $500 or more. There is no service fee for
participating in the Automatic Investment Plan. However, a service fee of
$20.00 will be deducted from a shareholder's SC-ERF account for any Automatic
Investment Plan purchase that does not clear due to insufficient funds or, if
prior to notifying SC-ERF in writing or by telephone to terminate the plan, a
shareholder closes his or her bank account or in any manner prevent withdrawal
of funds from the designated bank checking or NOW account.
The Automatic Investment Plan is a method of using dollar cost averaging
which is an investment strategy that involves investing a fixed amount of money
at a regular time interval. However, a program of regular investment cannot
ensure a profit or protect against a loss from declining markets. By always
investing the same amount, a shareholder will be purchasing more shares when
the price is low and fewer shares when the price is high. Since such a program
involves continuous investment regardless of fluctuating share values, a
shareholder should consider his or her financial ability to continue the
program through periods of low share price levels.
SUBSEQUENT INVESTMENTS
Additional investments in SC-ERF of at least $500 may be made by mail or by
wire. When an additional purchase is made by mail, a check payable to "Security
Capital Employee REIT Fund Incorporated" along with the Additional Investment
Form provided on the lower portion of a shareholder's account statement must be
enclosed. To make an additional purchase by wire, a shareholder may call 1-888-
- (toll free) for complete wiring instructions.
REDEMPTION OF SHARES
A shareholder may request redemption of part or all of his or her shares at
any time at the next determined net asset value. See "Determination of Net
Asset Value." SC-ERF normally will mail the redemption proceeds to the
shareholder on the next business day and, in any event, no later than seven
business days after receipt of a redemption request in good order. However,
when a purchase has been made by check, SC-ERF may hold payment on redemption
proceeds until it is reasonably satisfied that the check has cleared, which may
take up to twelve days.
Redemptions may also be made through brokers or dealers. Such redemptions
will be effected at the net asset value next determined after receipt by SC-ERF
of the broker or dealer's instruction to redeem shares. In addition, some
brokers or dealers may charge a fee in connection with such redemptions. See
"Determination of Net Asset Value."
REDEMPTION BY TELEPHONE
Shares may also be redeemed by calling the Transfer Agent at 1-888- -
(toll free). In order to utilize this procedure, a shareholder must have
previously elected this option in writing, which election will be reflected in
the records of the Transfer Agent, and the redemption proceeds must be mailed
directly to such shareholder or
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transmitted to a predesignated account. To change the designated account, a
written request with signature(s) guaranteed must be sent to the Transfer
Agent. See "--Signature Guarantees" below. To change the address, the Transfer
Agent may be called or a written request with signature(s) guaranteed must be
sent to the Transfer Agent. No telephone redemptions will be allowed within 15
days of such a change. SC-ERF reserves the right to limit the number of
telephone redemptions by a shareholder. Once made, telephone redemption
requests may not be modified or canceled.
The Transfer Agent will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. Such procedures may include
requiring some form of personal identification prior to acting upon telephone
instructions, providing written confirmations of all such transactions, and/or
tape recording all telephone instructions. Assuming procedures such as the
above have been followed, SC-ERF will not be liable for any loss, cost, or
expense for acting upon a shareholder's telephone instructions or for any
unauthorized telephone redemption. SC-ERF reserves the right to refuse a
telephone redemption request if so advised.
REDEMPTION BY MAIL
For most redemption requests, a shareholder need only furnish a written,
unconditional request to redeem his or her shares (or a fixed dollar amount) at
net asset value to SC-ERF's Transfer Agent: Firstar Trust Company, Mutual Fund
Services, P.O. Box 701, Milwaukee, Wisconsin 53201-0701. Overnight mail should
be sent to Security Capital Employee REIT Fund Incorporated, Firstar Trust
Company, Mutual Fund Services, Third Floor, 615 East Michigan Street,
Milwaukee, Wisconsin 53202. Requests for redemption must be signed exactly as
the shares are registered, including the signature of each joint owner. A
shareholder must also specify the number of shares or dollar amount to be
redeemed. If the shares to be redeemed were issued in certificate form, the
certificate must be endorsed for transfer (or be accompanied by a duly executed
stock power) and must be submitted to Firstar Trust Company together with a
redemption request. Redemption proceeds made by written redemption request may
also be wired to a commercial bank that you have authorized on your account
application. The Transfer Agent charges a $12.00 service fee for wire
transactions. Additional documentation may be requested from corporations,
executors, administrators, trustees, guardians, agents, or attorneys-in-fact.
SC-ERF does not consider the U.S. Postal Service or other independent delivery
services to be its agents. Therefore, deposit in the mail or with such
services, or receipt at the Transfer Agent's post office box, of redemption
requests does not constitute receipt by the Transfer Agent or SC-ERF. Do not
mail letters by overnight courier to the post office box. Any written
redemption requests received within 15 days after an address change must be
accompanied by a signature guarantee.
SIGNATURE GUARANTEES
Signature guarantees are required for: (i) redemption requests to be mailed
or wired to a person other than the registered owner(s) of the shares; (ii)
redemption requests to be mailed or wired to other than the address of record;
(iii) any redemption request if a change of address request has been received
by SC-ERF or Transfer Agent within the last 15 days and (iv) any redemption
request involving $100,000 or more. A signature guarantee may be obtained from
any eligible guarantor institution, as defined by the SEC. These institutions
include banks, savings associations, credit unions, brokerage firms and others.
OTHER REDEMPTION INFORMATION
Unless other instructions are given in proper form, a check for the proceeds
of a redemption will be sent to the shareholder's address of record. The
Custodian may benefit from the use of redemption proceeds until the redemption
check for such proceeds has cleared.
SC-ERF may suspend the right of redemption during any period when (i) trading
on the New York Stock Exchange is restricted or that Exchange is closed, other
than customary weekend and holiday closings, or (ii) an emergency, as defined
by rules adopted by the SEC, exists making disposal of portfolio securities or
determination of the value of the net assets of SC-ERF not reasonably
practicable.
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The proceeds of redemption may be more or less than the amount invested and,
therefore, a redemption may result in a gain or loss for federal income tax
purposes.
A shareholder's account may be terminated by SC-ERF on not less than 30 days'
notice if, at the time of any redemption of shares in his or her account, the
value of the remaining shares in the account falls below $5,000 ($2,000 in the
case of individual retirement accounts and employee benefit plans qualified
under Sections 401, 403(b)(7) or 457 of the Code). Upon any such termination, a
check for the redemption proceeds will be sent to the account of record within
seven business days of the redemption. However, if a shareholder is affected by
the exercise of this right, he or she will be allowed to make additional
investments prior to the date fixed for redemption to avoid liquidation of the
account.
DIVIDENDS AND DISTRIBUTIONS
Dividends from SC-ERF's investment income will be declared and distributed
quarterly. SC-ERF intends to distribute net realized capital gains, if any, at
least annually although SC-ERF's Board of Directors may in the future determine
to retain realized capital gains and not distribute them to shareholders. For
information concerning the tax treatment of SC-ERF's distribution policies for
SC-ERF and its shareholders, see "Taxation."
Distributions will automatically be paid in full and fractional shares of SC-
ERF based on the net asset value per share at the close of business on the
payable date unless the shareholder has elected to have distributions paid in
cash.
TAXATION
The following discussion is intended for general information only.
Shareholders should consult with their own tax advisers as to the tax
consequences of an investment in SC-ERF, including the status of distributions
under applicable state or local law.
FEDERAL INCOME TAXES
SC-ERF intends to qualify to be taxed as a "regulated investment company"
under the Code. To the extent that SC-ERF distributes its taxable income and
net capital gain to its shareholders, qualification as a regulated investment
company relieves SC-ERF of federal income and excise taxes on that part of its
taxable income including net capital gains which it pays out to its
shareholders. Dividends out of net ordinary income and distributions of net
short-term capital gains are taxable to the recipient shareholders as ordinary
income. In the case of corporate shareholders, such dividends may be eligible
for the dividends-received deduction, except that the amount eligible for the
deduction is limited to the amount of qualifying dividends received by SC-ERF,
which does not include distributions received by SC-ERF from REITs. A
corporation's dividends-received deduction will be disallowed unless the
corporation holds shares in SC-ERF at least 46 days. Furthermore, the
dividends-received deduction will be disallowed to the extent a corporation's
investment in shares of SC-ERF is financed with indebtedness.
The excess of net long-term capital gains over the net short-term capital
losses realized and distributed by SC-ERF to its shareholders as capital gains
distributions is taxable to the shareholders as long-term capital gains,
irrespective of the length of time a shareholder may have held his or her
stock. Long-term capital gains distributions are not eligible for the
dividends-received deduction referred to above.
Under the current federal tax law, the amount of an income dividend or
capital gains distribution declared by SC-ERF during October, November or
December of a year to shareholders of record as of a specified date in such a
month that is paid during January of the following year is includable in the
prior year's taxable income of shareholders that are calendar year taxpayers.
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Any dividend or distribution received by a shareholder on shares of SC-ERF
will have the effect of reducing the net asset value of such shares by the
amount of such dividend or distribution. Furthermore, a dividend or
distribution made shortly after the purchase of such shares by a shareholder,
although in effect a return of capital to that particular shareholder, would be
taxable to him or her as described above. If a shareholder held shares six
months or less and during that period received a distribution taxable to such
shareholder as long-term capital gain, any loss realized on the sale of such
shares during such six-month period would be a long-term capital loss to the
extent of such distribution.
A dividend or capital gains distribution with respect to shares of SC-ERF
held by a tax-deferred or qualified plan, such as an individual retirement
account, 403(b)(7) retirement plan or corporate pension or profit-sharing plan,
will not be taxable to the plan, except to the extent the shares are debt-
financed within the meaning of Section 514 of the Code. Distributions from such
plans will be taxable to individual participants under applicable tax rules
without regard to the character of the income earned by the qualified plan.
SC-ERF will be required to withhold 31% of any payments made to a shareholder
if the shareholder has not provided a certified taxpayer identification number
to SC-ERF, or the Secretary of the Treasury notifies SC-ERF that the
shareholder has not reported all interest and dividend income required to be
shown on the shareholder's Federal income tax return. Any amounts withheld may
be credited against the shareholder's U.S. federal income tax liability.
Further information relating to tax consequences is contained elsewhere in
this Prospectus and in the Statement of Additional Information.
STATE AND LOCAL TAXES
SC-ERF distributions also may be subject to state and local taxes.
Shareholders should consult their own tax advisers regarding the particular tax
consequences of an investment in SC-ERF.
ORGANIZATION AND DESCRIPTION OF CAPITAL STOCK
SC-ERF was incorporated on January 23, 1997 as a Maryland corporation and is
authorized to issue 50,000,000 shares of Common Stock, $.01 par value per
share. SC-ERF's Board of Directors may, without shareholder approval, increase
or decrease the number of authorized but unissued shares of SC-ERF's Common
Stock. Each of SC-ERF's shares has equal dividend, distribution, liquidation
and voting rights. There are no conversion or preemptive rights in connection
with any shares of SC-ERF. All shares of SC-ERF when duly issued will be fully
paid and nonassessable. The rights of the holders of shares of Common Stock may
not be modified except by the vote of a majority of the shares outstanding. The
Board of Directors is authorized to reclassify and issue any unissued shares of
SC-ERF without shareholder approval. Accordingly, in the future, the Directors
may create additional series of shares with different investment objectives,
policies or restrictions. Any issuance of shares of another class would be
governed by Maryland law.
SC-ERF is not required to hold regular annual shareholders' meetings. A
shareholders' meeting shall, however, be called by the secretary upon the
written request of the holders of not less than 10% of the outstanding shares
of SC-ERF. SC-ERF will assist shareholders wishing to communicate with one
another for the purpose of requesting such a meeting.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
Firstar Trust Company, which has its principal business address at 615 East
Michigan Street, Milwaukee, Wisconsin 53202 has been retained to act as
Custodian of SC-ERF's investments and to serve as SC-ERF's transfer and
dividend disbursing agent. Firstar Trust Company does not have any part in
deciding SC-ERF's investment policies or which securities are to be purchased
or sold for SC-ERF's portfolio.
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REPORTS TO SHAREHOLDERS
The fiscal year of SC-ERF ends on December 31 of each year. SC-ERF will send
to its shareholders, at least semi-annually, reports showing the investments
and other information (including unaudited financial statements). An annual
report, containing financial statements audited by SC-ERF's independent
accountants, will be sent to shareholders each year.
PERFORMANCE INFORMATION
From time to time, SC-ERF may advertise its "average annual total return"
over various periods of time. This total return figure shows the average
percentage change in value of an investment in SC-ERF from the beginning date
of the measuring period to the ending date of the measuring period. The figure
reflects changes in the price of SC-ERF's shares and assumes that any income,
dividends and/or capital gains distributions made by SC-ERF during the period
are reinvested in shares of SC-ERF. Figures will be given for recent one-,
five- and ten-year periods (when applicable), and may be given for other
periods as well (such as from commencement of SC-ERF's operations, or on a
year-by-year basis). When considering "average" total return figures for
periods longer than one year, investors should note that SC-ERF's annual total
return for any one year in the period might have been greater or less than the
average for the entire period. SC-ERF also may use "aggregate" total return
figures for various periods, representing the cumulative change in value of an
investment in SC-ERF for the specific period (again reflecting changes in SC-
ERF's share price and assuming reinvestment of dividends and distributions).
Aggregate total returns may be shown by means of schedules, charts or graphs,
and may indicate subtotals of the various components of total return (that is,
the change in value of initial investment, income dividends and capital gains
distributions).
It is important to note that total return figures are based on historical
earnings and are not intended to indicate future performance. The Statement of
Additional Information further describes the methods used to determine SC-ERF's
performance.
ADDITIONAL INFORMATION
Any shareholder inquiries may be directed to SC-ERF at the address or
telephone number listed on the cover page of this Prospectus. This Prospectus,
including the Statement of Additional Information which is incorporated by
reference herein, does not contain all the information set forth in the
Registration Statement filed by SC-ERF with the SEC under the Securities Act of
1933. Copies of the Registration Statement may be obtained at a reasonable
charge from the SEC or may be examined, without charge, at the offices of the
SEC in Washington, D.C. or may be obtained from the SEC's worldwide web site at
http://www.sec.gov.
17
<PAGE>
LOGO
11 SOUTH LASALLE STREET
CHICAGO, ILLINOIS 60603
TELEPHONE: (312) 345-5800
STATEMENT OF ADDITIONAL INFORMATION
January , 1997
Security Capital Employee REIT Fund Incorporated ("SC-ERF") is a non-
diversified, no-load, open-end management investment company ("mutual fund")
that seeks to provide shareholders with above-average total returns, including
current income and capital appreciation, primarily through investments in real
estate securities in the United States. Long term, SC-ERF's objective is to
achieve top-quartile total returns as compared with other mutual funds that
invest primarily in the securities of publicly traded real estate investment
trusts ("REITs") in the United States, by integrating in-depth proprietary
real estate market research with sophisticated capital markets research and
modeling techniques. Security Capital Investment Research Group Incorporated
(SC Investment Research) serves as both investment adviser and administrator
to SC-ERF.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION ONLY WHEN PRECEDED OR ACCOMPANIED BY SC-ERF'S
PROSPECTUS DATED , 1997 (THE "PROSPECTUS"). THIS STATEMENT OF
ADDITIONAL INFORMATION CONTAINS ADDITIONAL AND MORE DETAILED INFORMATION THAN
THAT SET FORTH IN THE PROSPECTUS AND SHOULD BE READ IN CONJUNCTION WITH THE
PROSPECTUS, ADDITIONAL COPIES OF WHICH MAY BE OBTAINED WITHOUT CHARGE BY
WRITING OR CALLING SC-ERF AT THE ADDRESS AND TELEPHONE NUMBER GIVEN ABOVE.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objective and Policies.................................... 2
Investment Restrictions.............................................. 3
Management of SC-ERF................................................. 4
Determination of Net Asset Value..................................... 8
Redemption of Shares................................................. 8
Portfolio Transactions and Brokerage................................. 8
Taxation............................................................. 9
Organization and Description of Capital Stock........................ 12
Distributor.......................................................... 13
Custodian and Transfer and Dividend Disbursing Agent................. 13
Performance Information.............................................. 13
Counsel and Independent Accountants.................................. 15
Financial Statements................................................. 16
</TABLE>
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The following discussion of SC-ERF's investment objective and policies
supplements, and should be read in conjunction with, the information regarding
SC-ERF's investment objective and policies set forth in the Prospectus. Except
as otherwise provided below under "Investment Restrictions," SC-ERF's
investment policies are not fundamental and may be changed by SC-ERF's Board
of Directors without the approval of the shareholders; however, SC-ERF will
not change its investment policies without written notice to shareholders.
ILLIQUID SECURITIES
SC-ERF will not invest in illiquid securities if immediately after such
investment more than 10% of SC-ERF net assets (taken at market value) would be
invested in such securities. For this purpose, illiquid securities include,
among others, securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions on resale.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities
Act"), and securities which are otherwise not readily marketable. Securities
which have not been registered under the Securities Act are referred to as
private placements or restricted securities and are purchased directly from
the issuer or in the secondary market. Mutual funds do not typically hold a
significant amount of these restricted or other illiquid securities because of
the potential for delays on resale and uncertainty in valuation. Limitations
on resale may have an adverse effect on the marketability of portfolio
securities and a mutual fund might be unable to dispose of restricted or other
illiquid securities promptly or at reasonable prices and might thereby
experience difficulty satisfying redemptions within seven business days. A
mutual fund might also have to register such restricted securities in order to
dispose of them, resulting in additional expense and delay. Adverse market
conditions could impede such a public offering of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be
readily resold or on an issuer's ability to honor a demand for repayment. The
fact that there are contractual or legal restrictions on resale to the general
public or to certain institutions may not be indicative of the liquidity of
such investments. The Securities and Exchange Commission (the "SEC") has
adopted Rule 144A which allows a broader institutional trading market for
securities otherwise subject to restriction on resale to the general public.
Rule 144A establishes a "safe harbor" from the registration requirements of
the Securities Act of resales of certain securities to qualified institutional
buyers.
SC Investment Research will monitor the liquidity of restricted securities
in SC-ERF's portfolio under the supervision of the Board of Directors. In
reaching liquidity decisions, SC Investment Research will consider, among
other factors, the following: (1) the frequency of trades and quotes for the
security; (2) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (3) dealer undertakings to make
a market in the security; and (4) the nature of the security and the nature of
the marketplace trades (e.g., the time needed to dispose of the security, the
method of soliciting offers and the mechanics of the transfer).
SHORT SALES AND SHORT SALES AGAINST THE BOX
SC-ERF will not engage in a short sale or a short sale against the box if
immediately after such transaction the aggregate market value of all
securities sold short and sold short against the box would exceed 10% of
SC-ERF's net assets (taken at market value).
Short Sales
SC-ERF may seek to realize gains through short sale transactions in
securities listed on one or more national securities exchanges or on National
Association of Securities Dealers Automated Quotations, Inc. Short selling
2
<PAGE>
involves the sale of borrowed securities. At the time a short sale is effected,
SC-ERF incurs an obligation to replace the security borrowed at whatever its
price may be at the time that SC-ERF purchases it for delivery to the lender.
When a short sale transaction is closed out by delivery of the securities, any
gain or loss on the transaction is taxable as a short term capital gain or
loss. Until the security is replaced, SC-ERF is required to pay to the lender
amounts equal to any dividends or interest which accrue during the period of
the loan. To borrow the security, SC-ERF also may be required to pay a premium,
which would increase the cost of the security sold. Until SC-ERF replaces a
borrowed security in connection with a short sale, SC-ERF will: (a) maintain
daily a segregated account containing cash or U.S. government securities, at
such a level that (i) the amount deposited in the segregated account plus the
amount deposited with the broker as collateral will equal the current value of
the security sold short and (ii) the amount deposited in the segregated account
plus the amount deposited with the broker as collateral will not be less than
the market value of the security at the time it was sold short; or (b)
otherwise cover its short position.
Since short selling can result in profits when stock prices generally
decline, SC-ERF in this manner, can, to a certain extent, hedge the market risk
to the value of its other investments and protect its equity in a declining
market. However, SC-ERF could, at any given time, suffer both a loss on the
purchase or retention of one security, if that security should decline in
value, and a loss on a short sale of another security, if the security sold
short should increase in value. Moreover, to the extent that in a generally
rising market SC-ERF maintains short positions in securities rising with the
market, the net asset value of SC-ERF would be expected to increase to a lesser
extent than the net asset value of an investment company that does not engage
in short sales.
Short Sales Against the Box
When SC Investment Research believes that the price of a particular security
in SC-ERF's portfolio may decline, it may sell the security short against the
box which involves selling the security for delivery at a specified date in the
future. If, for example, SC-ERF bought 100 shares of XYZ REIT at $40 per share
in January and the price appreciates to $50 in March, SC-ERF might "sell short"
the 100 shares at $50 for delivery the following July. Thereafter, if the price
of the stock declines to $45, it will realize the full $1,000 gain rather than
the $500 gain it would have received had it sold the stock in the market. On
the other hand, if the price appreciates to $55 per share, SC-ERF would be
required to sell at $50 and thus receive a $1,000 gain rather than the $1,500
gain it would have received had it sold the stock in the market. SC-ERF may
also be required to pay a premium for short sales against the box which would
partially offset its gain.
INVESTMENT RESTRICTIONS
SC-ERF is subject to certain investment restrictions, in addition to those
listed in the Prospectus, which are deemed fundamental policies of SC-ERF. Such
fundamental policies are those which cannot be changed without the approval of
the holders of a majority of SC-ERF's outstanding shares which means the vote
of (i) 67% or more of SC-ERF's shares present at a meeting, if the holders of
more than 50% of the outstanding shares of SC-ERF are present or represented by
proxy, or (ii) more than 50% of SC-ERF's outstanding shares, whichever is less.
SC-ERF may not:
1. Pledge, hypothecate, mortgage or otherwise encumber its assets, except
to secure permitted borrowings;
2. Participate on a joint or joint and several basis in any securities
trading account;
3. Invest in companies for the purpose of exercising control;
4. Purchase a security if, as a result (unless the security is acquired
pursuant to a plan of reorganization or an offer of exchange), SC-ERF would
own any securities of an open-end investment company or more than 3% of the
value of SC-ERF's total assets would be invested in securities of any
closed-end investment company or more than 10% of such value in closed-end
investment companies in general; or
3
<PAGE>
5. (a) purchase or sell commodities or commodity contracts; (b) invest in
interests in oil, gas, or other mineral exploration or development
programs; (c) purchase securities on margin, except for such short-term
credits as may be necessary for the clearance of transactions and except
for borrowings in an amount not exceeding 33 1/3% of the value of SC-ERF's
total assets; or (d) act as an underwriter of securities, except that SC-
ERF may acquire restricted securities under circumstances in which, if such
securities were sold, SC-ERF might be deemed to be an underwriter for
purposes of the Securities Act.
MANAGEMENT OF SC-ERF
The directors and officers of SC-ERF and their principal occupations during
the past five years are set forth below.
<TABLE>
<CAPTION>
PRINCIPAL
OCCUPATIONS DURING
NAME AND ADDRESS OFFICE THE PAST FIVE YEARS
---------------- ------ -------------------
<S> <C> <C>
Anthony R. Manno, Jr.... Director and Mr. Manno has served as President of
1 South LaSalle Street President SC Investment Research since
Chicago, Illinois 60603 December 1996 and as a Managing
Director of Security Capital
Investment Research Incorporated
since January 1995, where he is
responsible for overseeing all
investment and capital allocation
recommendations for Security Capital
Investment Research's public market
securities activities and also
responsible for company and industry
analysis, market strategy and
trading and reporting. Mr. Manno
served as a member of the Security
Capital Group Incorporated
Investment Committee from March 1994
to June 1996. From March 1980 to
March 1994, Mr. Manno served as a
Managing Director of LaSalle
Partners Limited, a real estate
investment firm, where he was
responsible for the firm's Finance
Group and where he served as a
member of the firm's Investment
Committee. Mr. Manno received his
M.B.A. from the University of
Chicago Graduate School of Business,
an M.A. and B.A. in Economics from
Northwestern University and is a
Certified Public Accountant.
Daniel F. Miranda....... Executive Vice Mr. Miranda has served as Executive
11 South LaSalle Street President, Secretary Vice President, Secretary and
Chicago, Illinois 60603 and Treasurer Treasurer of SC Investment Research
since December 1996 and as a
Managing Director of Security
Capital Investment Research
Incorporated since September 1996,
where he is responsible for
operating oversight of Security
Capital Investment Research's public
market securities activities and
various private U.S. real estate
operating companies. Mr. Miranda has
served as a
</TABLE>
4
<PAGE>
<TABLE>
<S> <C> <C>
member of the Security Capital
Investment Research Investment
Committee from September 1996 to the
present. From September 1991 to
September 1996, Mr. Miranda was a
managing director of GE Capital
Finance, where he was responsible
for national real estate services
(from September 1994 to September
1996) and a $1.2 billion real estate
portfolio in the 14-state Midwest
region (from September 1991 to
September 1994) and where he also
served as a member of its Senior
Management Committee. Mr. Miranda
received his J.D. from Columbia
University and an A.B. from the
University of California at
Berkeley.
Kenneth D. Statz............... Senior Vice Mr. Statz has served as Senior Vice
11 South LaSalle Street President President of SC Investment Research
Chicago, Illinois 60603 since December 1996. Mr. Statz has
also served
as Vice President of Security
Capital Investment Research
Incorporated from March 1995 to May
1996 and Senior Vice President since
July 1996, where he is responsible
for the development and
implementation of portfolio
investment strategy. From February
1993 to January 1995, Mr. Statz was
a Vice President in
the investment research department
of Goldman, Sachs & Co.,
concentrating on research and
underwriting for the REIT industry.
From August 1982 to February 1992,
Mr. Statz was a REIT portfolio
manager and a managing director of
Chancellor Capital Management. Mr.
Statz received his M.B.A. and B.B.A.
from the University of Wisconsin,
Madison.
</TABLE>
COMPENSATION OF DIRECTORS AND CERTAIN OFFICERS
The Directors of SC-ERF who are interested persons, as defined in the
Investment Company Act of 1940, as amended (the "1940 Act"), of SC-ERF (which
includes persons who are employees of SC Investment Research or officers or
employees of any of its affiliates) receive no remuneration from SC-ERF. Each
of the other Directors is paid an annual retainer of $14,000, an additional
annual retainer of $1,000 for each committee of the Board of Directors for
which he or she serves as chairperson, and a fee of $1,000 for each meeting
attended (other than telephonically) and is reimbursed for the expenses of
attendance at such meetings. The following table sets forth information
regarding estimated compensation of Directors by SC-ERF for the fiscal year
ending December 31, 1997.
5
<PAGE>
COMPENSATION TABLE(1)
FISCAL YEAR ENDING DECEMBER 31, 1997
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT
BENEFITS ESTIMATED
ACCRUED AS ANNUAL TOTAL
AGGREGATE PART OF BENEFITS COMPENSATION
COMPENSATION SC-ERF UPON FROM SC-ERF
NAME OF PERSON, POSITION FROM SC-ERF EXPENSES RETIREMENT PAID TO DIRECTORS
- ------------------------ ------------ ---------- ---------- -----------------
<S> <C> <C> <C> <C>
**Anthony R. Manno, Jr.
Director and President. 0 N/A N/A 0
</TABLE>
- --------
**"Interested person," as defined in the Investment Company Act of 1940, of SC-
ERF because of the affiliation with SC Investment Research.
(1) For the period January 1, 1997 to December 31, 1997.
SC INVESTMENT RESEARCH AND INVESTMENT ADVISORY AGREEMENT
Security Capital Investment Research Group Incorporated, a registered
investment adviser, was formed in December 1996 and specializes in the
management of real estate securities portfolios. SC Investment Research is a
wholly-owned subsidiary of Security Capital Group, a privately-held Maryland
corporation.
Certain other clients of SC Investment Research may have investment
objectives and policies similar to those of SC-ERF. SC Investment Research may,
from time to time, make recommendations which result in the purchase or sale of
a particular security by its other clients simultaneously with SC-ERF. If
transactions on behalf of more than one client during the same period increase
the demand for securities being sold, there may be an adverse effect on the
price of such securities. It is the policy of SC Investment Research to
allocate advisory recommendations and the placing of orders in a manner which
is deemed equitable by SC Investment Research to the accounts involved,
including SC-ERF. When two or more of the clients of SC Investment Research
(including SC-ERF) are purchasing or selling the same security on a given day
through the same broker-dealer, such transactions may be averaged as to price.
Pursuant to an investment advisory agreement (the "Advisory Agreement"), SC
Investment Research furnishes a continuous investment program for SC-ERF's
portfolio, makes the day-to-day investment decisions for SC-ERF, executes the
purchase and sale orders for the portfolio transactions of SC-ERF and generally
manages SC-ERF's investments in accordance with the stated policies of SC-ERF,
subject to the general supervision of SC-ERF's Board of Directors.
Under the Advisory Agreement, SC-ERF will pay SC Investment Research a
monthly management fee in an amount equal to 1/12th of .85% of the average
daily value of the net assets of SC-ERF (approximately .85% on an annual
basis). SC Investment Research has committed to waive fees and/or reimburse
expenses to maintain SC-ERF's total operating expenses at no more than 1.20% of
SC-ERF's average net assets for the year ending December 31, 1997. Expense
reimbursements, if any, are accrued daily and paid monthly.
SC Investment Research also provides SC-ERF with such personnel as SC-ERF may
from time to time request for the performance of clerical, accounting and other
office services, such as coordinating matters with the administrator, the
transfer agent and the custodian, which SC Investment Research is not required
to furnish under the Advisory Agreement. The personnel rendering these
services, who may act as officers of SC-ERF, may be employees of SC Investment
Research or its affiliates. The cost to SC-ERF of these services must be agreed
to by SC-ERF and is intended to be no higher than the actual cost to SC
Investment Research or its affiliates of providing the services. SC-ERF does
not pay for services performed by officers of SC Investment Research or its
affiliates. SC-ERF may from time to time hire its own employees or contract to
have services
6
<PAGE>
performed by third parties, and the management of SC-ERF intends to do so
whenever it appears advantageous to SC-ERF.
The Advisory Agreement was approved on February , 1997 by SC-ERF's
Directors, including a majority of the Directors who are not interested
persons (as defined in the 1940 Act) of SC-ERF or SC Investment Research and
by the sole initial shareholder of SC-ERF on February , 1997. The Advisory
Agreement continues in effect until February , 1999 and will continue in
effect from year to year thereafter, provided that its continuance is
specifically approved prior to the initial expiration of the Advisory
Agreement or annually thereafter, as the case may be, by the Directors or by a
vote of the shareholders, and in either case by a majority of the Directors
who are not parties to the Advisory Agreement or interested persons of any
such party, by vote cast in person at a meeting called for the purpose of
voting on such approval.
The Advisory Agreement is terminable without penalty by SC-ERF on sixty
days' written notice when authorized either by majority vote of its
outstanding voting securities or by a vote of a majority of its Directors, or
by SC Investment Research on sixty days' written notice, and will
automatically terminate in the event of its assignment. The Advisory Agreement
provides that in the absence of willful misfeasance, bad faith or gross
negligence on the part of SC Investment Research, or of reckless disregard of
its obligations thereunder, SC Investment Research shall not be liable for any
action or failure to act in accordance with its duties thereunder.
ADMINISTRATOR AND SUB-ADMINISTRATOR
SC-ERF has also entered into a fund administration and servicing agreement
with SC Investment Research (the "Administration Agreement") under which SC
Investment Research performs certain administrative functions for SC-ERF,
including (i) providing office space, telephone, office equipment and supplies
for the Fund; (ii) paying compensation of SC-ERF's officers for services
rendered as such; (iii) authorizing expenditures and approving bills for
payment on behalf of SC-ERF; (iv) supervising preparation of the periodic
updating of SC-ERF's Prospectus and Statement of Additional Information; (v)
supervising preparation of quarterly reports to SC-ERF's shareholders, notices
of dividends, capital gains distributions and tax credits, and attending to
routine correspondence and other communications with individual shareholders;
(vi) supervising the daily pricing of SC-ERF's investment portfolio and the
publication of the net asset value of SC-ERF's shares, earnings reports and
other financial data; (vii) monitoring relationships with organizations
providing services to SC-ERF, including SC-ERF's custodian (the "Custodian"),
transfer agent (the "Transfer Agent") and printers; (viii) providing trading
desk facilities for SC-ERF; (ix) maintaining books and records for SC-ERF
(other than those maintained by the Custodian and Transfer Agent) and
preparing and filing of tax reports other than SC-ERF's income tax returns;
and (x) providing executive, clerical and secretarial help needed to carry out
these responsibilities.
In accordance with the terms of the Administration Agreement and with the
approval of SC-ERF's Board of Directors, SC Investment Research has caused SC-
ERF to retain Firstar Trust Company (the "Sub-Administrator") as sub-
administrator under a fund administration and servicing agreement (the "Sub-
Administration Agreement").
Under the Sub-Administration Agreement, the Sub-Administrator has assumed
responsibility for performing certain of the foregoing administrative
functions, including determining SC-ERF's net asset value and preparing such
figures for publication, maintaining certain of SC-ERF's books and records
that are not maintained by the Adviser, Custodian or Transfer Agent, preparing
financial information for SC-ERF's income tax returns, proxy statements,
quarterly and annual shareholders reports, and SEC filings, and responding to
shareholder inquiries. Under the terms of the Sub-Administration Agreement,
SC-ERF pays the Sub-Administrator a monthly administration fee at the annual
rate of .06% of the first $200 million of SC-ERF's average daily net assets,
and at lower rates on SC-ERF's average daily net assets in excess of that
amount, subject to an annual minimum fee of $30,000. The Sub-Administrator
also serves as the Custodian and Transfer Agent. See "Custodian and Transfer
and Dividend Disbursing Agent."
7
<PAGE>
Under the Administration Agreement, SC Investment Research remains
responsible for monitoring and overseeing the performance by the Sub-
Administrator of its obligations to SC-ERF under the Sub-Administration
Agreement, subject to the overall authority of SC-ERF's Board of Directors. For
its services under the Administration Agreement, SC Investment Research
receives a monthly fee from SC-ERF at the annual rate of .02% of SC-ERF's
average daily net assets.
The Administration Agreement is terminable by either party on sixty days'
written notice to the other. The Administration Agreement provides that in the
absence of willful misfeasance, bad faith or gross negligence on the part of SC
Investment Research, or of reckless disregard of its obligations thereunder, SC
Investment Research shall not be liable for any action or failure to act in
accordance with its duties thereunder.
DETERMINATION OF NET ASSET VALUE
Net asset value per share will be determined by SC-ERF on each day the New
York Stock Exchange is open for trading, and on any other day during which
there is a sufficient degree of trading in the investments of SC-ERF to affect
materially the Fund's net asset value. The New York Stock Exchange is closed on
Saturdays, Sundays, and on New Year's Day, Presidents' Day (the third Monday in
February), Good Friday, Memorial Day (the last Monday in May), Independence
Day, Labor Day (the first Monday in September), Thanksgiving Day and Christmas
Day (collectively, the "Holidays"). When any Holiday falls on a Saturday, the
Exchange is closed the preceding Friday, and when any holiday falls on a
Sunday, the Exchange is closed the following Monday. No redemptions will be
made on Martin Luther King Day (the third Monday in January), Columbus Day (the
second Monday in October) and Veteran's Day, nor on any of the Holidays.
For purposes of determining SC-ERF's net asset value per share, all assets
and liabilities initially expressed in foreign currencies will be converted
into U.S. dollars at the mean of the bid and asked prices of such currencies
against the U.S. dollar last quoted by a major bank which is a regular
participant in the institutional foreign exchange markets or on the basis of a
pricing service which takes into account the quotes provided by a number of
such major banks.
REDEMPTION OF SHARES
Payment of the redemption price for shares redeemed may be made either in
cash or in portfolio securities (selected in the discretion of SC-ERF's Board
of Directors and taken at their value used in determining SC-ERF's net asset
value per share as described in the Prospectus under "Determination of Net
Asset Value"), or partly in cash and partly in portfolio securities. However,
payments will be made wholly in cash unless SC-ERF's Board of Directors
believes that economic conditions exist which would make such a practice
detrimental to the best interests of SC-ERF. If payment for shares redeemed is
made wholly or partly in portfolio securities, brokerage costs may be incurred
by the investor in converting the securities to cash. SC-ERF will not
distribute in kind portfolio securities that are not readily marketable.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to the supervision of the Directors, decisions to buy and sell
securities for SC-ERF and negotiation of its brokerage commission rates are
made by SC Investment Research. Transactions on U.S. stock exchanges involve
the payment by SC-ERF of negotiated brokerage commissions. There is generally
no stated commission in the case of securities traded in the over-the-counter
market but the price paid by SC-ERF usually includes an undisclosed dealer
commission or mark-up. In certain instances, SC-ERF may make purchases of
underwritten issues at prices which include underwriting fees.
In selecting a broker to execute each particular transaction, SC Investment
Research will take the following into consideration: the best net price
available; the reliability, integrity and financial condition of the broker;
the
8
<PAGE>
size and difficulty in executing the order; and the value of the expected
contribution of the broker to the investment performance of SC-ERF on a
continuing basis. Accordingly, the cost of the brokerage commissions to SC-ERF
in any transaction may be greater than that available from other brokers if the
difference is reasonably justified by other aspects of the portfolio execution
services offered. Subject to such policies and procedures as the Directors may
determine, SC Investment Research shall not be deemed to have acted unlawfully
or to have breached any duty solely by reason of it having caused SC-ERF to pay
a broker that provides research services to SC Investment Research an amount of
commission for effecting a portfolio investment transaction in excess of the
amount of commission another broker would have charged for effecting that
transaction, if SC Investment Research determines in good faith that such
amount of commission was reasonable in relation to the value of the research
service provided by such broker viewed in terms of either that particular
transaction or SC Investment Research's ongoing responsibilities with respect
to SC-ERF. Research and investment information is provided by these and other
brokers at no cost to SC Investment Research and is available for the benefit
of other accounts advised by SC Investment Research and its affiliates, and not
all of the information will be used in connection with SC-ERF. While this
information may be useful in varying degrees and may tend to reduce SC
Investment Research's expenses, it is not possible to estimate its value and in
the opinion of SC Investment Research it does not reduce SC Investment
Research's expenses in a determinable amount. The extent to which SC Investment
Research makes use of statistical, research and other services furnished by
brokers is considered by SC Investment Research in the allocation of brokerage
business but there is no formula by which such business is allocated. SC
Investment Research does so in accordance with its judgment of the best
interests of SC-ERF and its shareholders. SC Investment Research may also take
into account payments made by brokers effecting transactions for SC-ERF to
other persons on behalf of SC-ERF for services provided to it for which it
would be obligated to pay (such as custodial and professional fees). In
addition, consistent with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., and subject to seeking best price and
execution, SC Investment Research may consider sales of shares of SC-ERF as a
factor in the selection of brokers and dealers to enter into portfolio
transactions with SC-ERF.
TAXATION
TAXATION OF SC-ERF
SC-ERF intends to qualify annually and to elect to be treated as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code").
To qualify as a regulated investment company, SC-ERF must, among other
things: (a) derive in each taxable year at least 90% of its gross income from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of stock, securities or foreign currencies or
other income derived with respect to its business of investing in such stock,
securities or currencies; (b) derive less than 30% of its gross income from the
sale or other disposition of certain assets (namely, (i) stock or securities,
(ii) options, futures, and forward contracts (other than those on foreign
currencies), and (iii) foreign currencies (including options, futures, and
forward contracts on such currencies) not directly related to SC-ERF's
principal business of investing in stock or securities (or options and futures
with respect to stocks or securities)) held less than 3 months; (c) diversify
its holdings so that, at the end of each quarter of the taxable year, (i) at
least 50% of the market value of SC-ERF's assets is represented by cash and
cash items (including receivables), U.S. Government securities, the securities
of other regulated investment companies and other securities, with such other
securities of any one issuer limited for the purposes of this calculation to an
amount not greater than 5% of the value of SC-ERF's total assets and not
greater than 10% of the outstanding voting securities of such issuer, and (ii)
not more than 25% of the value of its total assets is invested in the
securities of any one issuer (other than U.S. Government securities or the
securities of other regulated investment companies); and (d) distribute at
least 90% of its investment company taxable income (which includes, among other
items, dividends, interest and net short-term capital gains in excess of net
long-term capital losses) each taxable year.
9
<PAGE>
As a regulated investment company, SC-ERF generally will not be subject to
U.S. federal income tax on its investment company taxable income and net
capital gains (the excess of net long-term capital gains over net short-term
capital losses), if any, that it distributes to shareholders. SC-ERF intends to
distribute to its shareholders, at least annually, substantially all of its
investment company taxable income and net capital gains. Amounts not
distributed on a timely basis in accordance with a calendar year distribution
requirement are subject to a nondeductible 4% excise tax. To prevent imposition
of the excise tax, SC-ERF must distribute during each calendar year an amount
equal to the sum of (1) at least 98% of its ordinary income (not taking into
account any capital gains or losses) for the calendar year, (2) at least 98% of
its capital gains in excess of its capital losses (adjusted for certain
ordinary losses) for the one-year period ending on October 31 of the calendar
year, and (3) any ordinary income and capital gains for previous years that was
not distributed during those years. A distribution will be treated as paid on
December 31 of the current calendar year if it is declared by SC-ERF in
October, November or December with a record date in such a month and paid by
SC-ERF during January of the following calendar year. Such distributions will
be taxable to shareholders in the calendar year in which the distributions are
declared, rather than the calendar year in which the distributions are
received. To prevent application of the excise tax, SC-ERF intends to make its
distributions in accordance with the calendar year distribution requirement.
DISTRIBUTIONS
Dividends paid out of SC-ERF's investment company taxable income will be
taxable to a U.S. shareholder as ordinary income. Because a portion of SC-ERF's
income may consist of dividends paid by U.S. corporations, a portion of the
dividends paid by SC-ERF may be eligible for the corporate dividends-received
deduction. Dividends paid by SC-ERF attributable to dividends received by SC-
ERF from REITs or corporations exempt from federal income tax under Section 501
of the Code, however, are not eligible for such deduction. Distributions of net
capital gains, if any, designated as capital gain dividends are taxable as
long-term capital gains, regardless of how long the shareholder has held SC-
ERF's shares, and are not eligible for the dividends-received deduction.
Shareholders receiving distributions in the form of additional shares, rather
than cash, generally will have taxable income from the receipt of, and a cost
basis in, each such share equal to the net asset value of a share of SC-ERF on
the reinvestment date. Shareholders will be notified annually as to the U.S.
federal tax status of distributions, and shareholders receiving distributions
in the form of additional shares will receive a report as to the net asset
value of those shares.
The portion of a SC-ERF distribution classified as a return of capital
generally is not taxable to SC-ERF shareholders, but it will reduce their tax
basis in their shares, which in turn would effect the amount of gain or loss
shareholders would realize on the sale or redemption of their shares. If a
return of capital distribution exceeds a shareholder's tax basis in his shares,
the excess is generally taxed as capital gain to the shareholder assuming the
shares are a capital asset.
REITs do not provide complete information about the taxability of their
distributions (i.e., how much of their distributions represent a return of
capital) until after the calendar year ends. As a result, SC-ERF may not be
able to determine how much of SC-ERF's annual distributions for a particular
year are taxable to shareholders until after the traditional January 31
deadline for issuing Form 1099-DIV ("Form 1099"). SC-ERF in such circumstance
may send to shareholders amended Form 1099s after January 31 or may request
permission from the Internal Revenue Service for an extension permitting SC-ERF
to send the Form 1099 in February.
SALE OF SHARES
Upon the sale or other disposition of shares of SC-ERF, a shareholder may
realize a capital gain or loss which will be long-term or short-term, generally
depending upon the shareholder's holding period for the shares. Any loss
realized on a sale or exchange will be disallowed to the extent the shares
disposed of are replaced within a period of 61 days beginning 30 days before
and ending 30 days after disposition of the shares. In such a case, the basis
of the shares acquired will be adjusted to reflect the disallowed loss. Any
loss realized by a shareholder
10
<PAGE>
on a disposition of SC-ERF shares held by the shareholder for six months or
less will be treated as a long-term capital loss to the extent of any
distributions of net capital gains received by the shareholder with respect to
such shares.
INVESTMENTS IN REAL ESTATE INVESTMENT TRUSTS
SC-ERF may invest in real estate investment trusts ("REITs") that hold
residual interests in real estate mortgage investment conduits ("REMICs").
Under Treasury regulations that have not yet been issued, but may apply
retroactively, a portion of SC-ERF's income from a REIT that is attributable
to the REIT's residual interest in a REMIC (referred to in the Code as an
"excess inclusion") will be subject to federal income tax in all events. These
regulations are also expected to provide that excess inclusion income of a
regulated investment company, such as SC-ERF, will be allocated to
shareholders of the regulated investment company in proportion to the
dividends received by such shareholders, with the same consequences as if the
shareholders held the related REMIC residual interest directly. In general,
excess inclusion income allocated to shareholders (i) cannot be offset by net
operating losses (subject to a limited exception for certain thrift
institutions), (ii) will constitute unrelated business taxable income to
entities (including a qualified pension plan, an individual retirement
account, a 401(k) plan, a Keogh plan or other tax-exempt entity) subject to
tax on unrelated business income, thereby potentially requiring such an entity
that is allocated excess inclusion income, and otherwise might not be required
to file a tax return, to file a tax return and pay tax on such income, and
(iii) in the case of a foreign shareholder, will not qualify for any reduction
in U.S. federal withholding tax. In addition, if at any time during any
taxable year a "disqualified organization" (as defined in the Code) is a
record holder of a share in a regulated investment company, then the regulated
investment company will be subject to a tax equal to that portion of its
excess inclusion income for the taxable year that is allocable to the
disqualified organization, multiplied by the highest federal income tax rate
imposed on corporations. SC Investment Research does not intend on behalf of
SC-ERF to invest in REITs, a substantial portion of the assets of which
consists of residual interests in REMICs.
BACKUP WITHHOLDING
Except as described below, SC-ERF is required to withhold U.S. federal
income tax at the rate of 31% of all taxable distributions payable to
shareholders who fail to provide SC-ERF with their correct taxpayer
identification number or to make required certifications, or who have been
notified by the IRS that they are subject to backup withholding. Corporate
shareholders and certain other shareholders specified in the Code generally
are exempt from such backup withholding. Backup withholding is not an
additional tax. Any amounts withheld may be credited against the shareholder's
U.S. federal income tax liability.
FOREIGN SHAREHOLDERS
U.S. taxation of a shareholder who, as to the United States, is a
nonresident alien individual, a foreign trust or estate, a foreign corporation
or foreign partnership ("foreign shareholder") depends on whether the income
of SC-ERF is "effectively connected" with a U.S. trade or business carried on
by the shareholder.
Income Not Effectively Connected. If the income from SC-ERF is not
"effectively connected" with a U.S. trade or business carried on by the
foreign shareholder, distributions of investment company taxable income will
be subject to a U.S. tax of 30% (or lower treaty rate, except in the case of
any excess inclusion income allocated to the shareholder (see "Taxation--
Investments in Real Estate Investment Trusts," above)), which tax is generally
withheld from such distributions.
Distributions of capital gain dividends and any amounts retained by SC-ERF
which are designated as undistributed capital gains will not be subject to
U.S. tax at the rate of 30% (or lower treaty rate) unless the foreign
shareholder is a nonresident alien individual and is physically present in the
United States for more than 182 days during the taxable year and meets certain
other requirements. However, this 30% tax on capital gains of nonresident
alien individuals who are physically present in the United States for more
than the 182-day period
11
<PAGE>
only applies in exceptional cases because any individual present in the United
States for more than 182 days during the taxable year is generally treated as a
resident for U.S. income tax purposes; in that case, he or she would be subject
to U.S. income tax on his or her worldwide income at the graduated rates
applicable to U.S. citizens, rather than the 30% U.S. tax. In the case of a
foreign shareholder who is a nonresident alien individual, SC-ERF may be
required to withhold U.S. income tax at a rate of 31% of distributions of net
capital gains unless the foreign shareholder certifies his or her non-U.S.
status under penalties of perjury or otherwise establishes an exemption. See
"Taxation--Backup Withholding," above. If a foreign shareholder is a
nonresident alien individual, any gain such shareholder realizes upon the sale
or exchange of such shareholder's shares of SC-ERF in the United States will
ordinarily be exempt from U.S. tax unless (i) the gain is U.S. source income
and such shareholder is physically present in the United States for more than
182 days during the taxable year and meets certain other requirements, or is
otherwise considered to be a resident alien of the United States, or (ii) at
any time during the shorter of the period during which the foreign shareholder
held shares of SC-ERF and the five year period ending on the date of the
disposition of those shares, SC-ERF was a "U.S. real property holding
corporation" (and, if the shares of SC-ERF are regularly traded on an
established securities market, the foreign shareholder held more than 5% of the
shares of SC-ERF), in which event the gain would be taxed in the same manner as
for a U.S. shareholder as discussed above and a 10% U.S. withholding tax would
be imposed on the amount realized on the disposition of such shares to be
credited against the foreign shareholder's U.S. income tax liability on such
disposition. A corporation is a "U.S. real property holding corporation" if the
fair market value of its U.S. real property interests equals or exceeds 50% of
the fair market value of such interests plus its interests in real property
located outside the United States plus any other assets used or held for use in
a business. In the case of SC-ERF, U.S. real property interests include
interests in stock in U.S. real property holding corporations (other than stock
of a REIT controlled by U.S. persons and holdings of 5% or less in the stock of
publicly traded U.S. real property holding corporations) and certain
participating debt securities.
Income Effectively Connected. If the income from SC-ERF is "effectively
connected" with a U.S. trade or business carried on by a foreign shareholder,
then distributions of investment company taxable income and capital gain
dividends, any amounts retained by SC-ERF which are designated as undistributed
capital gains and any gains realized upon the sale or exchange of shares of SC-
ERF will be subject to U.S. income tax at the graduated rates applicable to
U.S. citizens, residents and domestic corporations. Foreign corporate
shareholders may also be subject to the branch profits tax imposed by the Code.
The tax consequences to a foreign shareholder entitled to claim the benefits
of an applicable tax treaty may differ from those described herein. Foreign
shareholders are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in SC-ERF.
OTHER TAXATION
SC-ERF shareholders may be subject to state, local and foreign taxes on their
SC-ERF distributions. Shareholders are advised to consult their own tax
advisers with respect to the particular tax consequences to them of an
investment in SC-ERF.
ORGANIZATION AND DESCRIPTION OF CAPITAL STOCK
SC-ERF was incorporated on January 23, 1997 as a Maryland corporation and is
authorized to issue 50,000,000 shares of common stock, $.01 par value per share
(the "Common Stock"). SC-ERF's shares have no preemptive, conversion, exchange
or redemption rights. Each share has equal voting, dividend, distribution and
liquidation rights. All shares of SC-ERF, when duly issued, will be fully paid
and nonassessable. Shareholders are entitled to one vote per share. All voting
rights for the election of Directors are noncumulative, which means that the
holders of more than 50% of the shares can elect 100% of the Directors then
nominated
12
<PAGE>
for election if they choose to do so and, in such event, the holders of the
remaining shares will not be able to elect any Directors. The foregoing
description is subject to the provisions contained in SC-ERF's Articles of
Incorporation and By-Laws which have been filed with the SEC as exhibits to the
registration statement of which this Statement of Additional Information is a
part.
The Board of Directors is authorized to reclassify and issue any unissued
shares of SC-ERF without shareholder approval. Accordingly, in the future, the
Directors may create additional series of shares with different investment
objectives, policies or restrictions. Any issuance of shares of another class
would be governed by Maryland law.
At January 27, 1997, there were 5,098,090 shares of Common Stock outstanding.
At such date the Directors and officers as a group beneficially owned, directly
or indirectly, including the power to vote or to dispose of, less than 1% of
the outstanding shares of SC-ERF. Also as of that date, the following persons
owned of record 5% or more of SC-ERF's shares:
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
NAME OF SHAREHOLDER SHARES OWNED SHARES OWNED
------------------- ------------ -------------
<S> <C> <C>
SCERF Incorporated
(a Maryland corporation)
3753 Howard Hughes Parkway
Las Vegas, Nevada 89109........................ 5,098,090 100%
</TABLE>
DISTRIBUTOR
Security Capital Markets Group Incorporated, an affiliate of SC Investment
Research, serves without charge as the Distributor of shares of SC-ERF.
Security Capital Markets Group Incorporated is not obligated to sell any
specific amount of shares and will sell shares, as agent for SC-ERF, on a best
efforts continuous basis only against orders to purchase shares.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
Firstar Trust Company which has its principal business at 615 East Michigan
Street, Milwaukee, Wisconsin 53202 has been retained to act as Custodian of SC-
ERF's investments and as SC-ERF's transfer and dividend disbursing agent.
Firstar Trust Company does not determine the investment policies of SC-ERF or
decide which securities SC-ERF will buy or sell.
PERFORMANCE INFORMATION
From time to time, SC-ERF may quote SC-ERF's total return in advertisements
or in reports and other communications to shareholders. SC-ERF's performance
will vary from time to time depending upon market conditions, the composition
of its portfolio and its operating expenses. Consequently, any given
performance quotation should not be considered representative of SC-ERF's
performance for any specified period in the future. In addition, because
performance will fluctuate, it may not provide a basis for comparing an
investment in SC-ERF with certain bank deposits or other investments that pay a
fixed yield for a stated period of time. Investors comparing SC-ERF's
performance with that of other mutual funds should give consideration to the
quality and maturity of the respective investment companies' portfolio
securities.
13
<PAGE>
AVERAGE ANNUAL TOTAL RETURN
SC-ERF's "average annual total return" figures described in the Prospectus
are computed according to a formula. The formula can be expressed as follows:
P(1 + T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV
= Ending Redeemable Value of a hypothetical $1,000 investment made
at the beginning of a 1-, 5-, or 10-year period at the end of a 1-
, 5-, or 10-year period (or fractional portion thereof), assuming
reinvestment of all dividends and distributions.
AGGREGATE TOTAL RETURNS
SC-ERF's aggregate total return figures described in the Prospectus represent
the cumulative change in the value of an investment in SC-ERF for the specified
period and are computed by the following formula.
ERV-P
Aggregate Total -----
Return = P
Where:
P = a hypothetical initial payment of $1,000.
ERV
= Ending Redeemable Value of a hypothetical $1,000 investment made
at the beginning of the 1-, 5- or 10-year period at the end of the
1-, 5- or 10-year period (or fractional portion thereof), assuming
reinvestment of all dividends and distributions.
YIELD
Quotations of yield for SC-ERF will be based on all investment income per
share earned during a particular 30-day period (including dividends and
interest), less expenses accrued during the period ("net investment income")
and are computed by dividing net investment income by the maximum offering
price per share on the last day of the period, according to the following
formula:
a-b
Yield = 2[( + 1)/6/-1]
cd
Where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends
d = the maximum offering price per share on the last day of the
period.
In reports or other communications to shareholders of SC-ERF or in
advertising materials, SC-ERF may compare its performance with that of (i)
other mutual funds listed in the rankings prepared by Lipper Analytical
Services, Inc., publications such as Barron's, Business Week, Forbes, Fortune,
Institutional Investor, Kiplinger's Personal Finance, Money, Morningstar Mutual
Fund Values, The New York Times, The Wall Street Journal and USA Today or other
industry or financial publications or (ii) the Standard and Poor's Index of 500
Stocks, the Dow Jones Industrial Average and other relevant indices and
industry publications. SC-ERF may also compare the historical volatility of its
portfolio to the volatility of such indices during the same time periods.
(Volatility is a generally accepted barometer of the market risk associated
with a portfolio of securities and is generally measured in comparison to the
stock market as a whole--the beta--or in absolute terms--the standard
deviation.)
14
<PAGE>
COUNSEL AND INDEPENDENT ACCOUNTANTS
Legal matters in connection with the issuance of the shares of SC-ERF offered
hereby will be passed upon by Mayer, Brown & Platt, 190 South LaSalle Street,
Chicago, Illinois 60603.
Arthur Andersen LLP have been appointed as independent accountants for SC-
ERF.
15
<PAGE>
FINANCIAL STATEMENTS
TO BE FILED BY AMENDMENT.
16
<PAGE>
SECURITY CAPITAL EMPLOYEE REIT FUND INCORPORATED
Form N-1A
Part C -- Other Information
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a)Financial Statements.
To be filed by amendment.
(b)Exhibits:
Exhibits filed pursuant to Form N-1A:
(1)Articles of Incorporation filed herewith.
(2)By-Laws filed herewith.
(3)Voting Trust Agreement -- None.
(4)All Instruments Defining the Rights of Holders -- None.
(5)Investment Advisory Contract -- (To be filed by Amendment.)
(6)Distribution Agreement -- (To be filed by Amendment.)
(7)Bonus, Profit Sharing, Pension or Other Similar Contracts -- None.
(8)Custodian Agreement -- (To be filed by Amendment.)
(9)(a) Transfer Agent Services Agreement -- (To be filed by Amendment.)
(b)Administration and Servicing Agreement -- (To be filed by
Amendment.)
(c)Accounting Services Agreement -- (To be filed by Amendment.)
(10)(a) Opinion and Consent of Mayer, Brown & Platt regarding the
legality of the securities being issued -- (To be filed by Amendment.)
(11)Consent of Independent Auditors -- (To be filed by Amendment.)
(12)Financial Statements Omitted from Item 23. -- None.
(13)Agreements or Understandings Made in Consideration for Providing
the Initial Capital -- None.
(14)Model Plan -- None.
(15)Plan of Distribution pursuant to Rule 12b-1 -- None.
(16)Schedule for Computation of Performance Quotations -- None.
(17)Financial Data Schedule.
(18)Plan of Distribution pursuant to Rule 18f-3 with respect to
Multiple Class Shares -- None.
(19)Directors' Powers of Attorney -- None.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
To be filed by amendment.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of January 29, 1997, there was one holder of record of SC-ERF's common
stock, $.01 par value per share.
C-1
<PAGE>
ITEM 27. INDEMNIFICATION.
Reference is made to Article Eighth of the Registrant's Articles of
Incorporation (filed herewith as Exhibit 1.)
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant by the Registrant pursuant to its Articles of Incorporation, its
By-Laws or otherwise, the Registrant is aware that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and, therefore, is unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by directors, officers
or controlling persons of the Registrant in connection with the successful
defense of any act, suit or proceeding) is asserted by such directors,
officers or controlling persons in connection with shares being registered,
the Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issues.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Security Capital Investment Research Group Incorporated ("SC Investment
Research"), 11 South LaSalle Street, Chicago, Illinois 60603, provides
investment advisory services to institutional investors. As of December 31,
1996, SC Investment Research's only client was the Registrant.
For information as to any other business, vocation or employment of a
substantial nature in which each Director or officer of the Registrant's
investment adviser has been engaged for his own account or in the capacity of
Director, officer, employee, partner or trustee, reference is made to
Prospectus and Statement of Additional Information contained in this
registration statement.
ITEM 29. PRINCIPAL UNDERWRITER.
(a) Security Capital Markets Group Incorporated ("SCMG"), the principal
distributor for the Registrant's securities, does not currently act as
principal underwriter or distributor for any other investment company.
(b) The table below sets forth certain information as to SCMG's Directors,
Officers and Control Persons:
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT
- ------------------------ --------------------------------------------- ---------------------
<S> <C> <C>
K. Scott Cannon......... Director and President None
Jeffrey A. Klopf........ Director, Secretary and Senior Vice President None
James H. Polk, III...... Director and Managing Director None
James J. Evans, Jr...... Senior Vice President None
Gerard de Gunzburg...... Senior Vice President None
Donald E. Suter......... Senior Vice President None
Robert H. Fippinger..... Vice President None
Alison C. Hefele........ Vice President None
Garett C. House......... Vice President None
Bradford W. Howe........ Vice President None
Lucinda G. Marker....... Assistant Secretary None
Gerald R. Morgan, Jr.... Assistant Controller None
Jayson C. Cyr........... Assistant Controller None
</TABLE>
(c) Not Applicable.
C-2
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All records described in Section 31(a) of the 1940 Act and the Rules 17 CFR
270.31a-1 to 31a-3 promulgated thereunder, are maintained by SC-ERF's
Investment Adviser and Administrator, Security Capital Investment Research
Group Incorporated, 11 S. LaSalle Street, Chicago, Illinois 60603.
ITEM 31. MANAGEMENT SERVICES.
There are no management-related service contracts not discussed in Part A or
Part B.
ITEM 32. UNDERTAKINGS.
(a) Registrant hereby undertakes to file an amendment to this Registration
Statement with certified financial statements showing the initial capital
received before accepting subscriptions from any person in excess of 25 if
Registrant proposes to raise its initial capital pursuant to Section 14(a)(3)
of the 1940 Act.
(b) Registrant hereby undertakes to file a post-effective amendment with
four to six months from the effective date of this Registration Statement
under the Securities Act of 1933. Registrant understands that such post-
effective amendment will contain reasonably current financial statements which
need not be certified by independent public accountants.
(c) Registrant hereby undertakes to furnish each person to whom a prospectus
is delivered with a copy of the Registrant's latest Annual Report to
Shareholders upon request and without charge.
(d) The Registrant hereby undertakes to promptly call a meeting of
shareholders for the purpose of voting upon the question of removal of any
director or directors when requested in writing to do so by the record holders
of not less than 10 percent of the Registrant's outstanding shares and to
assist its shareholders in accordance with the requirements of Section 16(c)
of the Investment Company Act of 1940 relating to shareholder communications.
C-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE INVESTMENT
COMPANY ACT OF 1940, THE REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT
TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN
THE CITY OF CHICAGO, AND STATE OF ILLINOIS ON THE 27TH DAY OF JANUARY, 1997.
Security Capital Employee REIT Fund
Incorporated
/s/ Anthony R. Manno, Jr.
By __________________________________
Anthony R. Manno, Jr.
Director and President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT OF SECURITY CAPITAL EMPLOYEE REIT FUND INCORPORATED HAS BEEN SIGNED
BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE 27TH DAY OF
JANUARY, 1997.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<S> <C>
/s/ Anthony R. Manno, Jr. Director and President
___________________________________________
Anthony R. Manno, Jr.
/s/ Daniel F. Miranda Executive Vice President, Secretary and
___________________________________________ Treasurer
Daniel F. Miranda
</TABLE>
C-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- ---------------------------------------------------------------------
<C> <S>
1 Articles of Incorporation.
2 By-Laws.
5 Investment Advisory Contract -- (To be filed by Amendment.)
6 Distribution Agreement -- (To be filed by Amendment.)
8 Custodian Agreement -- (To be filed by Amendment.)
9(a) Transfer Agent Services Agreement -- (To be filed by Amendment.)
9(b) Administration and Servicing Agreement -- (To be filed by Amendment.)
9(c) Accounting Services Agreement -- (To be filed by Amendment.)
10(a) Opinion and Consent of Mayer, Brown & Platt regarding the legality of
the securities being issued-- (To be filed by Amendment.)
11 Consent of Independent Auditors -- (To be filed by Amendment.)
17 Financial Data Schedule -- (To be filed by Amendment.)
</TABLE>
C-5
<PAGE>
EXHIBIT 1
ARTICLES OF INCORPORATION
OF
SECURITY CAPITAL EMPLOYEE REIT FUND INCORPORATED
FIRST: (1) The name of the incorporator is Carrie Richards.
(2) The incorporator's post office address is Mayer, Brown &
Platt, 190 South LaSalle Street, Chicago, Illinois 60603.
(3) The incorporator is over eighteen years of age.
(4) The incorporator is forming the corporation named in these
Articles of Incorporation under the general laws of the State of Maryland.
SECOND: The name of the corporation (hereinafter called the "Corporation")
is Security Capital Employee REIT Fund Incorporated.
THIRD: (1) The purposes for which the Corporation is formed are as
follows:
(a) To engage in business as an open-end management investment
company registered with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended (together with the rules and
regulations promulgated thereunder, the "1940 Act") and, in connection
therewith, to hold, invest or reinvest its funds, and in connection therewith to
hold part or all of its funds in cash, and to purchase or otherwise acquire,
hold for investment or otherwise, sell, sell short, assign, negotiate, transfer,
exchange or otherwise dispose of or turn to account or realize upon, securities
(which term "securities" shall for the purposes of these Articles of
Incorporation, without
<PAGE>
limitation of the generality thereof, be deemed to include any stocks, shares,
bonds, financial futures contracts, indexes, debentures, structured notes,
mortgages or other obligations, and any certificates, receipts, warrants or
other instruments representing rights to receive, purchase or subscribe for the
same, or evidencing or representing any other rights or interests therein, or in
any property or assets) created or issued by any issuer (which term "issuer"
shall for the purposes of the charter of the Corporation, without limitation of
the generality thereof be deemed to include any persons, firms, associations,
corporations, syndicates, business trusts, partnerships, investment companies,
combinations, organizations, governments, or subdivisions thereof) and in
financial instruments (whether they are considered as securities or
commodities); and to exercise, as owner or holder of any securities or financial
instruments, all rights, powers and privileges in respect thereof; and to do any
and all acts and things for the preservation, protection, improvement and
enhancement in value of any or all such securities or financial instruments.
(b) To issue and sell its Shares, as hereinafter defined, in such
series and classes, such amounts and on such terms and conditions, for such
purposes and for such amount or kind of consideration (including, without
limitation thereto, securities) now or hereafter permitted by the laws of the
State of Maryland and by the charter as the Board of Directors may determine.
(c) To purchase or otherwise acquire, hold, dispose of, resell,
transfer, reissue, redeem or cancel its shares, or to classify or reclassify any
unissued shares or any shares previously issued and reacquired of any series or
class into one or more series or classes that may have been established and
designated from time to time, all without the
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vote or consent of the shareholders of the Corporation, in any manner and to the
extent now or hereafter permitted by the charter.
(d) To do any and all such further acts and things and to
exercise any and all such further powers as may be necessary, incidental,
relative, conducive, appropriate or desirable for the accomplishment, carrying
out or attainment of all or any of the foregoing purposes or objects.
(2) The Corporation may engage in any other business and shall
have all powers conferred upon or permitted to corporations by the Maryland
General Corporation Law. Each purpose set forth in Section (1) of this Article
THIRD shall also be a power of the Corporation.
FOURTH: The post office address of the principal office of the Corporation
within the State of Maryland is c/o The Prentice-Hall Corporation System,
Maryland, 11 East Chase Street, Baltimore, Maryland 21202; and the resident
agent of the Corporation in the State of Maryland is The Prentice-Hall
Corporation System, Maryland, 11 East Chase Street, Baltimore, Maryland 21202.
FIFTH: Section A. Authorized Capital Stock. (a) The total number of shares
of all classes of stock which the Corporation shall have authority to issue is
50,000,000, all of which shall be common shares, $.01 par value per share
(individually, a "Share" and collectively, the "Shares"). The Corporation may
issue and sell any of its Shares in fractional denominations to the same extent
as its whole Shares, and Shares and fractional denominations shall have, in
proportion to the relative fractions represented thereby, all the rights of
whole Shares, including, without limitation, the right to vote, the
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right to receive dividends and distributions, and the right to participate upon
liquidation of the Corporation. The aggregate par value of all authorized shares
is $500,000.
(b) The Board of Directors may reclassify any unissued Shares from time to
time in one or more classes or series of stock. Prior to issuance of
reclassified shares of any class or series, the Board of Directors by resolution
shall: (i) designate that class or series to distinguish it from all other
classes and series of stock of the Corporation; (ii) specify the number of
shares to be included in the class or series; (iii) set or change, subject to
the express terms of any class or series of stock of the Corporation outstanding
at the time, the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends or other distributions, qualifications
and terms and conditions of redemption for each class or series; and (iv) cause
the Corporation to file articles supplementary with the State Department of
Assessments and Taxation of Maryland ("SDAT"). Any of the terms of any class or
series of stock set or changed pursuant to clause (iii) of this paragraph (b)
may be made dependent upon facts or events ascertainable outside the charter
(including determinations by the Board of Directors or other facts or events
within the control of the Corporation) and may vary among holders thereof,
provided that the manner in which such facts, events or variations shall operate
upon the terms of such class or series of stock is clearly and expressly set
forth in the articles supplementary filed with the SDAT.
The Shares of each class may be subject to such charges and expenses
(including by way of example, but not by way of limitation, redemption fees,
administration plans, service plans, or other plans or arrangements, however
designated) as may be adopted from time to time by the Board of Directors in
accordance, to the extent applicable, with the 1940 Act,
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which charges and expenses may differ from those applicable to another class,
and all of the charges and expenses to which a class is subject shall be borne
by such class and shall be appropriately reflected (in the manner determined by
the Board of Directors in the resolution or resolutions providing for the issue
of such class) in determining the net asset value and the amounts payable with
respect to dividends and distributions on and redemptions or liquidations of,
such class. Subject to compliance with the requirements of the 1940 Act, the
Board of Directors shall have the authority to provide that Shares of any class
shall be convertible (automatically, optionally or otherwise) into Shares of one
or more other classes in accordance with such requirements and procedures as may
be established by the Board of Directors.
Section B. Common Stock. The holders of the Shares shall have the
following respective rights:
1. Voting.
a. The holders of each class of common Shares shall be entitled to
one vote per share on all matters to be voted upon by stockholders of the
Corporation.
b. All holders of each class of common Shares shall vote as a
single class except with respect to any matter which affects only one or more
classes of Shares, in which case only the holders of the Shares of the class or
classes affected shall be entitled to vote.
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c. None of the holders of any Class of common Shares shall have
cumulative voting rights.
2. Dividends and Distributions.
(i) The holders of each Class of common Shares shall be entitled
to dividends if, as and when authorized by the Board of Directors.
(ii) No dividend, distribution, subdivision, combination or
reclassification of any class of common Shares shall occur unless a like
dividend, distribution, subdivision, combination or reclassification is made
with respect to all other classes of common Shares. The limitation on dividends,
distributions, subdivisions, combinations and reclassification set forth in this
Section B.2 of Article FIFTH shall apply at any time during which Shares of two
or more classes are outstanding.
3. Liquidation. On dissolution and liquidation of the Corporation,
whether voluntary or involuntary, the holders of each class of common Shares
shall be entitled to receive, pro rata, any remaining assets of the Corporation.
The Board of Directors may distribute in kind to the holders of the Shares of
such remaining assets of the Corporation or may sell, transfer or otherwise
dispose of all or any part of such remaining assets to any other corporation,
trust or entity and receive payment therefor in cash, stock or obligations of
such other corporation, trust or entity or any combination thereof, and may
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sell all or any part of the consideration so received, and may distribute the
consideration received or any balance or proceeds thereof to holders of the
Shares in accordance with Section B.2 of this Article FIFTH. The voluntary sale,
conveyance, lease, exchange or transfer of all or substantially all the property
or assets of the Corporation (unless in connection therewith the dissolution or
liquidation of the Corporation is specifically approved), or the merger or
consolidation of the Corporation into or with any other corporation, or the
merger of any other corporation into the Corporation, or any purchase or
redemption of shares of stock of the Corporation of any class, shall not be
deemed to be a dissolution or liquidation of the Corporation for the purpose of
this Section 3 of Article FIFTH.
4. Redemption.
(a) Each holder of the Shares may require the Corporation to
redeem all or any Shares owned by that holder, upon request to the Corporation
or its designated agent, at the net asset value of the shares of Common Stock
next determined following receipt of the request in a form approved by the
Corporation and accompanied by surrender of the certificate or certificates for
the shares, if any. The Board of Directors may establish procedures for
redemption of Common Stock. The right of a holder of Common Stock redeemed by
the Corporation to receive dividends thereon and all other rights with respect
to the shares shall terminate at the time as of which the redemption price has
been determined, except the right to receive the redemption price and any
dividend or distribution
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to which that holder had become entitled as the record stockholder on the record
date for that dividend.
(b) Except as provided in the next sentence of this paragraph (b),
Shares of any class hereafter issued which are redeemed, exchanged, or otherwise
acquired by the Corporation shall return to the status of authorized and
unissued Shares of such class. Upon the redemption, exchange, or other
acquisition by the Corporation of all outstanding Shares of any class hereafter
issued, such Shares shall return to the status of authorized and unissued shares
without designation as to class and all provisions of the charter relating to
such class (including, without limitation, any articles supplementary or other
provision of the charter establishing or fixing the rights and preferences of
such class), shall cease to be of further effect and shall cease to be a part of
the charter.
(c) The determination as to any of the following matters made by
or pursuant to the direction of the Board of Directors consistent with the
charter and in the absence of willful misfeasance, bad faith, gross negligence
or reckless disregard of duties, shall be final and conclusive and shall be
binding upon the Corporation and every holder of Shares of its stock. The amount
of the obligations, liabilities and expenses of each class of the Corporation;
the amount of the net income of each class of the Corporation for any period and
the amount of assets at any time legally available for the payment of dividends
or other distributions on each class; the amount of paid-in surplus, other
surplus, annual or other net profits, or net assets in excess of capital or
undivided profits of each class; the amount, purpose, time of creation, increase
or decrease, alteration or cancellation of any
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reserves or charges and the propriety thereof (whether or not any obligation or
liability for which such reserves or charges shall have been created shall have
been paid or discharged); the market value, or any sale, bid or asked price to
be applied in determining the market value, of any security owned or held by the
Corporation; the fair value of any other asset owned by the Corporation; the
number of Shares of each class of the Corporation issued or issuable; any matter
relating to the acquisition, holding and disposition of securities and other
assets by the Corporation; and any question as to whether any transaction
constitutes a purchase of securities on margin, a short sale of securities, or
an underwriting of the sale of, or participation in any underwriting or selling
group in connection with the public distribution of any securities.
(d) Payment for Shares redeemed by the Corporation shall be made
by the Corporation within seven business days of such surrender out of the funds
legally available therefor, provided that the Corporation may suspend the right
of the stockholders to redeem shares of Common Stock and may postpone the right
of those holders to receive payment for any shares when permitted or required to
do so by applicable statutes or regulations. Payment of the aggregate price of
shares surrendered for redemption may be made in cash or, at the option of the
Corporation, wholly or partly in such portfolio securities of the Corporation as
the Corporation shall select.
5. No stockholder shall be entitled to any preemptive right other
than as the Board of Directors may specifically establish.
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SIXTH: The number of directors of the Corporation shall be one. The
number of directors of the Corporation may be changed pursuant to the Bylaws of
the Corporation. The name of the initial director who shall serve until the
first annual meeting or until his successor is duly chosen and qualifies is
Anthony R. Manno, Jr.
SEVENTH: The following provisions are inserted for the purpose of
defining, limiting and regulating the powers of the Corporation and of the Board
of Directors and stockholders.
(a) In addition to its other powers explicitly or implicitly granted
under the charter, by law or otherwise, the Board of Directors of the
Corporation:
(i) is expressly authorized to make, alter, amend or repeal the
Bylaws of the Corporation;
(ii) may from time to time determine whether, or what extent, at
what times and places, and under what conditions and regulations the accounts
and books of the Corporation, or any of them, shall be open to the inspection of
the stockholders, and no stockholder shall have any right to inspect any
account, book or document of the Corporation except as specifically conferred by
statute or as specifically authorized in writing by the Board of Directors of
the Corporation;
(iii) is empowered to authorize, without stockholder approval,
the issuance and sale from time to time of Shares whether now or hereafter
authorized;
(iv) is authorized to adopt procedures for determination of the
net asset value of shares of any class of the Corporation's stock; and
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(v) may authorize dividends or other distributions out of funds
legally available therefor on Shares, payable in such amounts and at such times
as it determines, including authorizing by means of a formula or similar method
and including dividends or other distributions authorized or payable more
frequently than meetings of the Board of Directors.
(b) Notwithstanding any provision of the Maryland General Corporation
Law permitting or requiring any action to be taken or authorized by the
affirmative vote of the holders of a designated proportion greater than a
majority of the Shares or the votes entitled to be cast, any such action shall
be effective if taken or authorized upon the affirmative vote of a majority of
all the Shares entitled to be cast thereon.
(c) The presence in person or by proxy of the holders of Shares
entitled to cast one-third of the votes entitled to be cast shall constitute a
quorum at any meeting of the stockholders, except with respect to any matter
which, under applicable statutes or regulatory requirements, requires approval
by a separate vote of one or more classes of stock, in which case the presence
in person by proxy of the holders of shares entitled to cast one-third of the
votes entitled to be cast on the matter shall constitute a quorum.
(d) Any determination made in good faith by or pursuant to the
direction of the Board of Directors, as to the amount of the assets, debts,
obligations, or liabilities of the Corporation, as to the amount of any reserves
or charges set up and the
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propriety thereof, as to the time of or purpose for creating such reserves or
charges, as to the use, alteration or cancellation of any reserves or charges
(whether or not any debt, obligation, or liability for which such reserves or
charges shall have been created shall be then or thereafter required to be paid
or discharged), as to the value of or the method of valuing any investment owned
or held by the Corporation, as to market value or fair value of any investment
or fair value of any other asset of the Corporation, as to the allocation of any
asset of the Corporation to a particular class or classes of the Corporation's
stock, as to the charging of any liability of the Corporation to a particular
class or classes of the Corporation's stock, as to the number of Shares of the
Corporation outstanding, as to the estimated expense to the Corporation in
connection with purchases of its Shares, as to the ability to liquidate
investments in orderly fashion, or as to any other matters relating to the
issue, sale, redemption or other acquisition or disposition of investments or
Shares of the Corporation, shall be final and conclusive and shall be binding
upon the Corporation and all holders of its Shares, past, present and future,
and Shares of the Corporation are issued and sold on the condition and
understanding that any and all such determinations shall be binding as
aforesaid.
EIGHTH: (1) The Corporation shall have the power, to the maximum extent
permitted by Maryland law in effect from time to time, to obligate itself to
indemnify and to pay or reimburse reasonable expenses in advance of final
disposition of a proceeding to (a) any individual who is a present or former
director or officer of the Corporation or (b) any individual who, while a
director or officer of the Corporation and at the request of the Corporation,
serves or has served as a director, officer, partner or trustee of another
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corporation, partnership, joint venture, trust, employee benefit plan or any
other enterprise from and against any claim or liability to which such person
may become subject or which such person may incur by reason of his or her status
as a present or former director or officer of the Corporation. The Corporation
shall have the power, with the approval of the Board of Directors, to provide
such indemnification and advancement of expenses to a person who served a
predecessor of the Corporation in any of the capacities described in (a) or (b)
above and to any employee or agent of the Corporation or a predecessor of the
Corporation.
(2) To the maximum extent that Maryland law in effect from time to
time permits limitation of the liability of directors and officers of a Maryland
corporation, no director or officer of the Corporation shall be liable to the
Corporation or its stockholders for money damages. Neither the amendment nor
repeal of this Article EIGHTH, nor the adoption or amendment of any other
provision of the charter or Bylaws of the Corporation inconsistent with this
Article EIGHTH, shall apply to or affect in any respect the applicability of the
preceding sentence with respect to any act or failure to act which occurred
prior to such amendment, repeal or adoption.
NINTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in the charter in the manner now or hereafter
prescribed by the laws of the State of Maryland, including any amendment which
alters the contract rights, as expressly set forth in the charter, of any
outstanding stock, and all rights conferred upon stockholders herein are granted
subject to this reservation.
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IN WITNESS WHEREOF, the undersigned, being the incorporator of the
Corporation, has adopted and signed these Articles of Incorporation and does
hereby acknowledge that the adoption and signing are her act.
Dated: January 22, 1997
/s/ Carrie Richards
------------------------------------
Carrie Richards
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EXHIBIT 2
BY-LAWS
OF
SECURITY CAPITAL EMPLOYEE REIT FUND INCORPORATED
_______________________
ARTICLE I
Offices
Section 1. Principal Office in Illinois. The Corporation shall have
a principal office in the City of Chicago, State of Illinois.
Section 2. Other Offices. The Corporation may have offices also at
such other places within and without the State of Illinois as the Board of
Directors may from time to time determine or as the business of the Corporation
may require.
ARTICLE II
Meetings of Stockholders
Section 1. Place of Meeting. Meetings of stockholders shall be held
at such place, either within the State of Illinois or at such other place within
the United States, as shall be fixed from time to time by the Board of
Directors.
Section 2. Annual Meetings. The Corporation shall not be required to
hold an annual meeting of stockholders in any year in which the election of
directors is not required to be acted on by stockholders under the Investment
Company Act of 1940. If the Corporation is required to hold a meeting of
stockholders to elect directors, the meeting shall be designated as the annual
meeting of stockholders for that year and shall be held no later than 120 days
after the occurrence of the event requiring the meeting. Any business may be
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considered at an annual meeting of stockholders without the purpose of the
meeting having been specified in the notice.
Section 3. Notice of Annual Meeting. Written or printed notice of
the annual meeting, stating the place, date and hour thereof, shall be given to
each stockholder entitled to vote thereat and each other shareholder entitled to
notice thereof not less than ten nor more than ninety days before the date of
the meeting.
Section 4. Special Meetings. Special meetings of stockholders may be
called by the chairman, the president or by the Board of Directors and shall be
called by the secretary upon the written request of holders of shares entitled
to cast not less than ten percent of all the votes entitled to be cast at such
meeting. Such request shall state the purpose or purposes of such meeting and
the matters proposed to be acted on thereat. In the case of such request for a
special meeting, upon payment by such stockholders to the Corporation of the
estimated reasonable cost of preparing and mailing a notice of such meeting, the
secretary shall give the notice of such meeting. The secretary shall not be
required to call a special meeting to consider any matter which is substantially
the same as a matter acted upon at any special meeting of stockholders held
within the preceding twelve months, other than the question of removal of any
director or directors of the Corporation, unless requested to do so by holders
of shares entitled to cast not less than a majority of all votes entitled to be
cast at such meeting.
Section 5. Notice of Special Meeting. Written or printed notice of a
special meeting of stockholders, stating the place, date, hour and purpose
thereof, shall be given by the secretary to each stockholder entitled to vote
thereat and each other shareholder
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entitled to notice thereof not less than ten nor more than ninety days before
the date fixed for the meeting.
Section 6. Business of Special Meetings. Business transacted at any
special meeting of stockholders shall be limited to the purposes stated in the
notice thereof.
Section 7. Quorum. The holders of shares entitled to cast one-third
of the votes entitled to be cast thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business, except with respect to any matter which, under
applicable statutes or regulatory requirements or the Corporation's charter,
requires approval by a separate vote of one or more classes of stock, in which
case the presence in person or by proxy of the holders of shares entitled to
cast one-third of the votes entitled to be cast on the matter shall constitute a
quorum. A meeting of stockholders convened on the date for which it is called
may be adjourned from time to time without further notice to a date not more
than 120 days after the record date.
Section 8. Voting. When a quorum is present at any meeting, the
affirmative vote of a majority of the votes cast by stockholders entitled to
vote on the matter, shall decide any question brought before such meeting
(except that directors may be elected by the affirmative vote of a plurality of
the votes cast), unless the question is one upon which by express provision of
the Investment Company Act of 1940, as from time to time in effect, or other
statutes or rules or orders of the Securities and Exchange Commission or any
successor thereto or of the Articles of Incorporation a different vote is
required, in which case such express provision shall govern and control the
decision of such question.
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Section 9. Proxies. Each stockholder shall at every meeting of
stockholders be entitled to vote in person or by written proxy signed by the
stockholder or by his duly authorized attorney-in-fact. No proxy shall be voted
after eleven months from its date, unless otherwise provided in the proxy.
Section 10. Record Date. In order that the Corporation may determine
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, to express consent to corporate action in writing
without a meeting, or to receive payment of any dividend or other distribution
or allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date which shall be
not more than ninety days and, in the case of a meeting of stockholders, not
less than ten days prior to the date on which the particular action requiring
such determination of stockholders is to be taken. In lieu of fixing a record
date, the Board of Directors may provide that the stock transfer books shall be
closed for a stated period, but not to exceed, in any case, twenty days. If the
stock transfer books are closed for the purpose of determining stockholders
entitled to notice of or to vote at a meeting of stockholders, such books shall
be closed for at least ten days immediately preceding such meeting. If no
record date is fixed and the stock transfer books are not closed for the
determination of stockholders: (1) The record date for the determination of
stockholders entitled to notice of, or to vote at, a meeting of stockholders
shall be at the close of business on the day on which notice of the meeting of
stockholders is mailed or the day thirty days before the meeting, whichever is
the closer date to the meeting; and (2) The record date for
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the determination of stockholders entitled to receive payment of a dividend or
an allotment of any rights shall be at the close of business on the day on which
the resolution of the Board of Directors, declaring the dividend or allotment of
rights, is adopted, provided that the payment or allotment date shall not be
more than sixty days after the date of the adoption of such resolution. If a
record date has been fixed for the determination of stockholders entitled to
vote at a meeting, only the stockholders of record on the record date shall be
entitled to vote at the meeting and such stockholders shall be entitled to vote
at the meeting notwithstanding the subsequent transfer or redemption of the
shares owned of record on such date.
Section 11. Inspectors of Election. The directors, in advance of any
meeting, may, but need not, appoint one or more inspectors to act at the meeting
or any adjournment thereof. If an inspector or inspectors are not appointed,
the person presiding at the meeting may, but need not, appoint one or more
inspectors. In case any person who may be appointed as an inspector fails to
appear or act, the vacancy may be filled by appointment made by the directors in
advance of the meeting or at the meeting by the person presiding thereat. Each
inspector, if any, before entering upon the discharge of his duties, may be
required to take and sign an oath faithfully to execute the duties of inspector
at such meeting with strict impartiality and according to the best of his
ability. The inspectors, if any, shall determine the number of shares
outstanding and the voting power of each, the shares represented at the meeting,
the existence of a quorum, the validity and effect of proxies, and shall receive
votes, ballots or consents, hear and determine all challenges and questions
arising in connection with the right to vote, count and tabulate all votes,
ballots or consents,
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determine the result, and do such acts as are proper to conduct the election or
vote with fairness to all stockholders. On request of the person presiding at
the meeting or any stockholder, the inspector or inspectors, if any, shall make
a report in writing of any challenge, question or matter determined by him or
them and execute a certificate of any fact found by him or them.
Section 12. Informal Action by Stockholders. Except to the extent
prohibited by the Investment Company Act of 1940, as from time to time in
effect, or rules or orders of the Securities and Exchange Commission or any
successor thereto, any action required or permitted to be taken at any meeting
of stockholders may be taken without a meeting if a consent in writing, setting
forth such action, is signed by all the stockholders entitled to vote on the
subject matter thereof and any other stockholders entitled to notice of a
meeting of stockholders (but not to vote thereat) have waived in writing any
rights which they may have to dissent from such action, and such consent and
waiver are filed with the records of the Corporation.
ARTICLE III
Board of Directors
Section 1. Number of Directors. The number of directors constituting
the entire Board of Directors (which initially was fixed at one in the
Corporation's Articles of Incorporation) may be increased or decreased from time
to time by the vote of a majority of the entire Board of Directors within the
limits permitted by law but at no time may be more than twenty, but the tenure
of office of a director in office at the time of any decrease in the number of
directors shall not be affected as a result thereof. The directors shall be
elected to
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hold offices at the annual meeting of stockholders and each director shall hold
office until the next annual meeting of stockholders or until his successor is
elected and qualifies. Any director may resign at any time upon written notice
to the Corporation. Any director may be removed, either with or without cause,
at any meeting of stockholders duly called and at which a quorum is present by
the affirmative vote of the majority of the votes entitled to be cast thereon,
and the vacancy in the Board of Directors caused by such removal may be filled
by the stockholders at the time of such removal. Directors need not be
stockholders.
Section 2. Vacancies and Newly-Created Directorships. Any vacancy
occurring in the Board of Directors for any cause other than by reason of an
increase in the number of directors may be filled by a majority of the remaining
members of the Board of Directors although such majority is less than a quorum.
Any vacancy occurring by reason of an increase in the number of directors may be
filled by a majority of the entire Board of Directors. A director elected by
the Board of Directors to fill a vacancy shall be elected to hold office until
the next annual meeting of stockholders or until his successor is elected and
qualifies.
Section 3. Powers. The business and affairs of the Corporation shall
be managed by or under the direction of the Board of Directors which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Articles of Incorporation or by these By-
Laws conferred upon or reserved to the stockholders.
Section 4. Meetings. The Board of Directors of the Corporation or
any committee thereof may hold meetings, both regular and special, either within
or without the
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State of Maryland. Regular meetings of the Board of Directors may be held
without notice at such time and at such place as shall from time to time be
determined by the Board of Directors. Special meetings of the Board of
Directors may be called by the chairman, the president or by two or more
directors. Notice of special meetings of the Board of Directors shall be given
by the secretary to each director at least three days before the meeting if by
mail or at least 24 hours before the meeting if given in person or by telephone
or by telegraph. The notice need not specify the business to be transacted.
Section 5. Quorum and Voting. During such times when the Board of
Directors shall consist of more than one director, a quorum for the transaction
of business at meetings of the Board of Directors shall consist of one-third of
the entire Board of Directors, but in no event less than two directors. The
action of a majority of the directors present at a meeting at which a quorum is
present shall be the action of the Board of Directors. If a quorum shall not be
present at any meeting of the Board of Directors, the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 6. Committees. The Board of Directors may appoint from among
its members an executive committee and other committees of the Board of
Directors, each committee to be composed of two or more of the directors of the
Corporation. The Board of Directors may delegate to such committees any of the
powers of the Board of Directors except those which may not by law be delegated
to a committee. Such committee or committees shall have the name or names as
may be determined from time to time by resolution adopted by the Board of
Directors. Unless the Board of Directors designates one
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or more directors as alternate members of any committee, who may replace an
absent or disqualified member at any meeting of the committee, the members of
any such committee present at any meeting and not disqualified from voting may,
whether or not they constitute a quorum, appoint another member of the Board of
Directors to act at the meeting in the place of any absent or disqualified
member of such committee. At meetings of any such committee, a majority of the
members or alternate members of such committee shall constitute a quorum for the
transaction of business and the act of a majority of the members or alternate
members present at any meeting at which a quorum is present shall be the act of
the committee.
Section 7. Minutes of Committee Meetings. The committees shall keep
regular minutes of their proceedings.
Section 8. Informal Action by Board of Directors and Committees. Any
action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting if a
written consent thereto is signed by all members of the Board of Directors or of
such committee, as the case may be, and such written consent is filed with the
minutes of proceedings of the Board of Directors or committee, provided,
however, that such written consent shall not constitute approval of any matter
which pursuant to the Investment Company Act of 1940 and the rules thereunder
requires the approval of directors by vote cast in person at a meeting.
Section 9. Meetings by Conference Telephone. The members of the
Board of Directors or any committee thereof may participate in a meeting of the
Board of Directors or committee by means of a conference telephone or similar
communications equipment by
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means of which all persons participating in the meeting can hear each other at
the same time and such participation shall constitute presence in person at such
meeting, provided, however, that such participation shall not constitute
presence in person with respect to matters which pursuant to the Investment
Company Act of 1940 and the rules thereunder require the approval of directors
by vote cast in person at a meeting.
Section 10. Fees and Expenses. Directors who are not "Interested
Persons," as defined in the Investment Company Act of 1940, may be paid their
expenses of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors, a stated
salary as director or such other compensation as the Board of Directors may
approve. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like reimbursement and
compensation for attending committee meetings.
ARTICLE IV
Notices
Section 1. General. Notices to directors and stockholders mailed to
them at their post office addresses appearing on the books of the Corporation
shall be deemed to be given at the time when deposited in the United States
mail.
Section 2. Waiver of Notice. Whenever any notice is required to be
given under the provisions of the statutes, of the Articles of Incorporation or
of these By-Laws, each person entitled to said notice waives notice if, before
or after the meeting he signs a written waiver of notice and such waiver is
filed with the records of the meeting.
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Attendance of a person at a meeting shall constitute a waiver of notice of such
meeting except when the person attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened.
ARTICLE V
Officers
Section 1. General. The officers of the Corporation shall be chosen
by the Board of Directors and shall be a chairman of the Board of Directors, a
president, a secretary and a treasurer. The Board of Directors may choose also
such vice presidents and additional officers or assistant officers as it may
deem advisable. Any number of offices, except the offices of president and vice
president and chairman and vice president, may be held by the same person. No
officer shall execute, acknowledge or verify any instrument in more than one
capacity if such instrument is required by law to be executed, acknowledged or
verified by two or more officers.
Section 2. Other Officers and Agents. The Board of Directors may
appoint such other officers and agents as it desires who shall hold their
offices for such terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the Board of Directors.
Section 3. Tenure of Officers. The officers of the Corporation shall
hold office at the pleasure of the Board of Directors. Each officer shall hold
his office until his successor is elected and qualifies or until his earlier
resignation or removal. Any officer may
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resign at any time upon written notice to the Corporation. Any officer elected
or appointed by the Board of Directors may be removed at any time by the Board
of Directors when, in its judgment, the best interests of the Corporation will
be served thereby. Any vacancy occurring in any office of the Corporation by
death, resignation, removal or otherwise shall be filled by the Board of
Directors.
Section 4. Chairman of the Board of Directors. The chairman of the
Board of Directors shall preside at all meetings of the stockholders and of the
Board of Directors. Unless otherwise determined by the Board of Directors, he
shall be the chief executive officer and shall have general and active
management of the business of the Corporation and shall see that all orders and
resolutions of the Board of Directors are carried into effect. He shall be ex
officio a member of all committees designated by the Board of Directors except
as otherwise determined by the Board of Directors. He shall have authority to
execute instruments and contracts on behalf of the Corporation except where
required by law to be otherwise signed and executed and except where the signing
and execution thereof shall be expressly delegated by the Board of Directors to
some other officer or agent of the Corporation.
Section 5. President. The president shall act under the direction of
the chairman and in the absence or disability of the chairman shall perform the
duties and exercise the powers of the chairman. Unless otherwise determined by
the Board of Directors, he shall be the chief operating officer and shall
perform such other duties and have such other powers as the chairman or the
Board of Directors may from time to time prescribe. He shall have authority to
execute instruments and contracts on behalf of the
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Corporation except where required by law to be otherwise signed and except where
the signing and execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the Corporation.
Section 6. Vice Presidents. The vice presidents shall act under
the direction of the chairman and the president and in the absence or disability
of the president shall perform the duties and exercise the powers of the
president. They shall perform such other duties and have such other powers as
the chairman, the president or the Board of Directors may from time to time
prescribe. The Board of Directors may designate one or more executive vice
presidents or may otherwise specify the order of seniority of the vice
presidents and, in that event, the duties and powers of the president shall
descend to the vice presidents in the specified order of seniority.
Section 7. Secretary. The secretary shall act under the direction of
the chairman and the president. Subject to the direction of the chairman and
the president he shall attend all meetings of the Board of Directors and all
meetings of stockholders and record the proceedings in a book to be kept for
that purpose and shall perform like duties for the committees designated by the
Board of Directors when required. He shall give, or cause to be given, notice
of all meetings of stockholders and special meetings of the Board of Directors,
and shall perform such other duties as may be prescribed by the chairman or the
Board of Directors. He shall keep in safe custody the seal of the Corporation
and shall affix the seal or cause it to be affixed to any instrument requiring
it.
Section 8. Assistant Secretaries. The assistant secretaries in the
order of their seniority, unless otherwise determined by the chairman, the
president or the Board of
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Directors, shall, in the absence or disability of the secretary, perform the
duties and exercise the powers of the secretary. They shall perform such other
duties and have such other powers as the chairman, the president or the Board of
Directors may from time to time prescribe.
Section 9. Treasurer. The treasurer shall act under the direction of
the chairman and the president. Subject to the direction of the chairman and
the president he shall have the custody of the corporate funds and securities
and shall keep full and accurate accounts of receipts and disbursements in books
belonging to the Corporation and shall deposit all moneys and other valuable
effects in the name and to the credit of the Corporation in such depositories as
may be designated by the Board of Directors. He shall disburse the funds of the
Corporation as may be ordered by the chairman, the president or the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the chairman, the president and the Board of Directors, at its regular meetings,
or when the Board of Directors so requires, an account of all his transactions
as treasurer and of the financial condition of the Corporation.
Section 10. Assistant Treasurers. The assistant treasurers in the
order of their seniority, unless otherwise determined by the chairman, the
president or the Board of Directors, shall, in the absence or disability of the
treasurer, perform the duties and exercise the powers of the treasurer. They
shall perform such other duties and have such other powers as the chairman, the
president or the Board of Directors may from time to time prescribe.
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ARTICLE VI
Certificates of Stock
Section 1. General. Every holder of stock of the Corporation who has
made full payment of the consideration for such stock shall be entitled upon
request to have a certificate, signed by, or in the name of the Corporation by,
the chairman, the president or a vice president and countersigned by the
treasurer or an assistant treasurer or the secretary or an assistant secretary
of the Corporation, certifying the number of whole shares of each class of stock
owned by him in the Corporation.
Section 2. Fractional Share Interests. The Corporation may issue
fractions of a share of stock. Fractional shares of stock shall have
proportionately to the respective fractions represented thereby all the rights
of whole shares, including the right to vote, the right to receive dividends and
distributions and the right to participate upon liquidation of the Corporation,
excluding, however, the right to receive a stock certificate representing such
fractional shares.
Section 3. Signatures on Certificates. Any of or all the signatures
on a certificate may be a facsimile. In case any officer who has signed or
whose facsimile signature has been placed upon a certificate shall cease to be
such officer before such certificate is issued, it may be issued with the same
effect as if he were such officer at the date of issue. The seal of the
Corporation or a facsimile thereof may, but need not, be affixed to certificates
of stock.
Section 4. Lost, Stolen or Destroyed Certificates. The Board of
Directors may direct a new certificate or certificates to be issued in place of
any certificate or
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certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of any affidavit of that fact by the person
claiming the certificate or certificates to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to give the Corporation a bond in
such sum as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate or certificates alleged
to have been lost, stolen or destroyed.
Section 5. Transfer of Shares. Upon request by the registered owner
of shares, and if a certificate has been issued to represent such shares upon
surrender to the Corporation or a transfer agent of the Corporation of a
certificate for shares of stock duly endorsed or accompanied by proper evidence
of succession, assignment or authority to transfer, it shall be the duty of the
Corporation, if it is satisfied that all provisions of the Articles of
Incorporation, of the By-Laws and of the law regarding the transfer of shares
have been duly complied with, to record the transaction upon its books, issue a
new certificate to the person entitled thereto upon request for such
certificate, and cancel the old certificate, if any.
Section 6. Registered Owners. The Corporation shall be entitled to
recognize the person registered on its books as the owner of shares to be the
exclusive owner for all purposes including voting and dividends, and the
Corporation shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part or
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any other person, whether or not it shall have express or other notice thereof,
except as otherwise provided by the laws of Maryland.
ARTICLE VII
Miscellaneous
Section 1. Reserves. There may be set aside out of any funds of the
Corporation available for dividends such sum or sums as the Board of Directors
from time to time, in their absolute discretion, think proper as a reserve or
reserves to meet contingencies, or for such other purpose as the Board of
Directors shall think conducive to the interest of the Corporation, and the
Board of Directors may modify or abolish any such reserve.
Section 2. Dividends. Dividends upon the stock of the Corporation
may, subject to the provisions of the Articles of Incorporation and of
applicable law, be declared by the Board of Directors at any time. Dividends
may be paid in cash, in property or in shares of the Corporation's stock,
subject to the provisions of the Articles of Incorporation and of applicable
law.
Section 3. Capital Gains Distributions. The amount and number of
capital gains distributions paid to the stockholders during each fiscal year
shall be determined by the Board of Directors. Each such payment shall be
accompanied by a statement as to the source of such payment, to the extent
required by law.
Section 4. Checks. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
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Section 5. Fiscal Year. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
Section 6. Seal. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its organization and the words "Corporate
Seal, Maryland." The seal may be used by causing it or a facsimile thereof to
be impressed or affixed or in another manner reproduced or by placing the word
"(seal)" adjacent to the signature of the person authorized to sign the document
on behalf of the Corporation.
ARTICLE VIII
Indemnification
Section 1. Indemnification of Directors and Officers. The
Corporation shall indemnify its directors to the fullest extent that
indemnification of directors is permitted by the Maryland General Corporation
Law. The Corporation shall indemnify its officers to the same extent as its
directors and to such further extent as is consistent with law. The Corporation
shall indemnify its directors and officers who while serving as directors or
officers also serve at the request of the Corporation as a director, officer,
partner, trustee, employee, agent or fiduciary of another corporation,
partnership, joint venture, trust, other enterprise or employee benefit plan to
the fullest extent consistent with law. The indemnification and other rights
provided by this Article shall continue as to a person who has ceased to be a
director or officer and shall inure to the benefit of the heirs, executors and
administrators of such a person. This Article shall not protect any such person
against any liability to the Corporation or any stockholder thereof to which
such person would otherwise
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be subject by reason of willful misfeasance, bad faith gross negligence or
reckless disregard of the duties involved in the conduct of his office
("disabling conduct").
Section 2. Advances. Any current or former director or officer of
the Corporation seeking indemnification within the scope of this Article shall
be entitled to advances from the Corporation for payment of the reasonable
expenses incurred by him in connection with the matter as to which he is seeking
indemnification without requiring a preliminary determination of ultimate
entitlement to indemnification except as provided below, to the fullest extent
permissible under the Maryland General Corporation Law. The person seeking
indemnification shall provide to the Corporation a written affirmation of his
good faith belief that the standard of conduct necessary for indemnification by
the Corporation has been met and a written undertaking to repay any such advance
if it should ultimately be determined that the standard of conduct has not been
met. In addition, at least one of the following additional conditions shall be
met: (a) the person seeking indemnification shall provide a security in form and
amount acceptable to the Corporation for his undertaking; (b) the Corporation is
insured against losses arising by reason of the advance; or (c) a majority of a
quorum of directors of the Corporation who are neither "interested persons" as
defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended,
nor parties to the proceeding ("disinterested non-party directors"), or
independent legal counsel, in a written opinion, shall have determined, based on
a review of facts readily available to the Corporation at the time the advance
is proposed to be made, that there is reason to believe that the person seeking
indemnification will ultimately be found to be entitled to indemnification.
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Section 3. Procedure. At the request of any person claiming
indemnification under this Article, the Board of Directors shall determine, or
cause to be determined, in a manner consistent with the Maryland General
Corporation Law, whether the standards required by this Article have been met.
Indemnification shall be made only following: (a) a final decision on the merits
by a court or other body before whom the proceeding was brought that the person
to be Indemnified was not liable by reason of disabling conduct; or (b) in the
absence of such a decision, a reasonable determination, based upon a review of
the facts, that the person to be indemnified was not liable by reason of
disabling conduct by (i) the vote of a majority of a quorum of disinterested
non-party directors or (ii) an independent legal counsel in a written opinion.
Section 4. Indemnification of Employees and Agents. Employees and
agents who are not officers or directors of the Corporation may be indemnified,
and reasonable expenses may be advanced to such employees or agents, as may be
provided by action of the Board of Directors or by contract, subject to any
limitations imposed by the [Investment Company Act of 1940].
Section 5. Other Rights. The Board of Directors may make further
provision consistent with law for indemnification and advance of expenses to
directors, officers, employees and agents by resolution, agreement or otherwise.
The indemnification provided by this Article shall not be deemed exclusive of
any other right, with respect to indemnification or otherwise, to which those
seeking indemnification may be entitled under any insurance or other agreement
or resolution of stockholders or disinterested directors or otherwise. The
rights provided to any person by this Article shall be enforceable against the
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Corporation by such person who shall be presumed to have relied upon it in
serving or continuing to serve as a director, officer, employee, or agent as
provided above.
Section 6. Amendments. References in this Article are to the
Maryland General Corporation Law and to the Investment Company Act of 1940 as
from time to time amended. No amendment of these By-laws shall effect any right
of any person under this Article based on any event, omission or proceeding
prior to the amendment.
ARTICLE IX
Amendments
The Board of Directors shall have the power to make, alter and repeal
by-laws of the Corporation.
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