<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 7, 1997
REGISTRATION NOS. 333-20649
811-8033
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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. 1 [X]
Post-Effective Amendment No. [_]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 [X]
Amendment No. 1 [X]
(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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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 APRIL 7, 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 April , 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.
April , 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) SC-ERF's administrator charges a service fee of $12.00 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 at least 65% 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 may invest in securities issued by real estate
companies that are controlled by Security Capital Group or 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. If SC-ERF invests in securities issued by a
real estate company that is controlled by Security Capital Group or any of its
affiliates, such securities will be treated as illiquid securities. 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 the National Association of
Securities Dealers, Inc. Automated Quotation System ("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 $81.6 million (at fair market value, as of March 27, 1997) that
invests primarily in publicly traded REITs in the United States. USREALTY
Special Opportunity is advised by 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(3) BONDS(4) 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>
- --------
* The rates of returns for the indices shown in the table reflect past
performance and are not necessarily indicative of future results of such
indices or individual stocks contained therein, nor are such past returns
necessarily indicative of the returns that shareholders should expect to
receive from SC-ERF.
5
<PAGE>
(1) National Association of Real Estate Investment Trusts.
(2) National Counsel of Real Estate Investment Fiduciaries; Index began in
1982, data as of September 30, 1996.
(3) Assumes the reinvestment of all dividends in additional shares of stock.
(4) Merrill Lynch Government/Corporate Bond Index (Master).
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. REITs also generate expenses that are separate and apart from
those charged by SC-ERF and therefore, shareholders will indirectly pay the
fees charged by the REITs in which SC-ERF invests. 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. Make loans except through the purchase of debt obligations in
accordance with its investment objective and policies;
2. 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;
3. 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;
4. 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
5. 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.
Stephen F. Kasbeer...... Director of SC-ERF; retired Senior Vice President
for Administration and Treasurer of Loyola Uni-
versity Chicago.
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.......
Managing Director, Secretary and Treasurer of SC-
ERF; Managing Director, Secretary and Treasurer
of SC Investment Research; and a Managing Direc-
tor of Security Capital Investment Research In-
corporated.
8
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Jeffrey C. Nellessen.... Assistant Secretary of SC-ERF; Vice President of
SC Investment Research.
Kenneth D. Statz........
Vice President of SC-ERF and Senior Vice Presi-
dent of Security Capital Investment Research In-
corporated.
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 and Daniel F. Miranda, Managing Director,
Secretary and Treasurer. 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 real estate research,
investment and management company.
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 and other subjective factors 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 an 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 1-800-699-4594 (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 1-800-699-4594 (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 1-800-699-4594
(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 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
redemptions. 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
April , 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 APRIL , 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.............................................. 4
Management of SC-ERF................................................. 4
Determination of Net Asset Value..................................... 9
Redemption of Shares................................................. 9
Portfolio Transactions and Brokerage................................. 9
Taxation............................................................. 10
Organization and Description of Capital Stock........................ 13
Distributor.......................................................... 14
Custodian and Transfer and Dividend Disbursing Agent................. 14
Performance Information.............................................. 14
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.
If SC-ERF invests in securities issued by a real estate company that is
controlled by Security Capital Group Incorporated ("Security Capital Group")
or any of its affiliates (a "Security Capital controlled real estate
company"), SC-ERF may be considered an affiliate of the issuer of such
securities and therefore an underwriter as such term is defined in the
Securities Act. SC-ERF's ability to resell such securities without
registration may, therefore, be limited. In addition, because SC-ERF is an
affiliate of Security Capital Group, SC-ERF's purchases and sales of
securities issued by a Security Capital controlled real estate company may be
netted against sales and purchases by Security Capital and any of its other
affiliates of securities of the same issuer during the six months preceding or
following SC-ERF's "opposite way" transactions for purposes of Section 16 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). If such
netting results in a profit to Security Capital Group or any of its affiliates
(including SC-ERF), Security Capital or its affiliates, as the case may be,
will be required to disgorge such "profits" to the issuer of such securities.
Depending upon the timing of purchases and sales of securities of such an
issuer by Security Capital Group and its affiliates, in order to avoid
Security Capital Group or its affiliates (including SC-ERF) having to disgorge
"profits" to the issuer of such securities, SC-ERF may not be able to purchase
or sell securities of a Security Capital controlled real estate company, even
when it might otherwise be advantageous for SC-ERF to do so. As a result, SC-
ERF will treat such securities as illiquid securities.
In recent years, 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.
2
<PAGE>
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 the
National Association of Securities Dealers, Inc. Automated Quotation System.
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. 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.
3
<PAGE>
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
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>
Stephen F. Kasbeer............ Director Retired; Senior Vice President for
8 Bonanza Trail Administration and Treasurer of
Santa Fe, New Mexico 87505 Loyola University Chicago from 1981
to July 1994, where he was
responsible for administration, real
estate and treasurer functions,
served as Chief Investment Officer,
was Chairman of the Operations
Committee, was a member of the
Investment and Finance Committees of
the Board of Trustees and was
President and a Director of the
Loyola Management Company.
Anthony R. Manno, Jr.......... Director and Mr. Manno has served as President of
11 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
</TABLE>
4
<PAGE>
<TABLE>
<S> <C> <C>
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....... Managing Director, Mr. Miranda has served as Managing
11 South LaSalle Street Secretary and Treasurer Director, President, Secretary and
Chicago, Illinois 60603 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
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.
Jeffrey C. Nellessen.... Assistant Secretary Mr. Nellessen has served as a Vice
11 South LaSalle Street President of SC Investment Research
Chicago, Illinois 60603 since March 1997, where he is
responsible for compliance,
financial control and accounting
</TABLE>
5
<PAGE>
<TABLE>
<S> <C> <C>
coordination for public securities
activities. Previously, Mr.
Nellessen was associated with Strong
Capital Management. During his
eight-year tenure at Strong Capital,
Mr. Nellessen served as controller,
manager of client administration for
various mutual funds, hedge funds
and separate accounts and compliance
officer. Prior to joining Strong
Capital, Mr. Nellessen was a senior
auditor at Arthur Andersen LLP. Mr.
Nellessen is a Certified Public
Accountant, Certified Management
Accountant and Certified Financial
Planner. He received his B.A. from
the University of Wisconsin,
Madison.
Kenneth D. Statz............ Vice President Mr. Statz has served as Senior Vice
11 South LaSalle Street President of Security Capital
Chicago, Illinois 60603 Investment Research Incorporated
since July 1996 (Vice President from
March 1995 to June 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.
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>
6
<PAGE>
- --------
**"Interested person," as defined in the Investment Company Act of 1940, of
SC-ERF.
(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.
SC Investment Research's advice to SC-ERF with respect to purchases or sales
of securities issued by a Security Capital controlled real estate company may
be affected by sales or purchases by Security Capital Group or its affiliates
of securities issued by the same issuer. Because SC-ERF is an affiliate of
Security Capital Group, SC-ERF's purchases and sales of securities issued by
such an issuer may be netted against sales and purchases by Security Capital
Group and any of its other affiliates of securities of such issuer during the
six months preceding or following SC-ERF's "opposite way" transactions for
purposes of Section 16 of the Exchange Act. If such netting results in a
profit to Security Capital Group or any of is affiliates (including SC-ERF),
Security Capital Group or its affiliates, as the case may be, will be required
to disgorge such "profits" to the issuer of such securities. As a result, SC
Investment Research's recommendations to SC-ERF may be affected by SC
Investment Research's desire to avoid SC-ERF or Security Capital Group or any
of its other affiliates having to disgorge profits to such issuer.
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 performed by third parties, and the
management of SC-ERF intends to do so whenever it appears advantageous to SC-
ERF.
7
<PAGE>
The Advisory Agreement was approved on April , 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 April , 1997. The Advisory Agreement
continues in effect until April , 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."
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.
8
<PAGE>
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 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
9
<PAGE>
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.
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
10
<PAGE>
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 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
11
<PAGE>
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 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
12
<PAGE>
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 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.
13
<PAGE>
At March 28, 1997, there were 6,695,506 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........................ 6,695,506 100%
</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.
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.
14
<PAGE>
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.)
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>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Unitholders and Board of Directors of
Security Capital Employee REIT Fund Incorporated:
We have audited the accompanying balance sheet of Security Capital Employee
REIT Fund Incorporated (a Maryland business trust), including the schedule of
investments, as of February 28, 1997, and the related statements of operations
and changes in net assets and the financial highlights for the period from
December 20, 1996 (inception date), to February 28, 1997. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of February 28, 1997, by correspondence with brokers. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Security Capital Employee REIT Fund Incorporated as of February 28, 1997, the
results of its operations, the changes in its net assets and its financial
highlights for the period from December 20, 1996 (inception date), to February
28, 1997, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Chicago, Illinois,
March 20, 1997
16
<PAGE>
SECURITY CAPITAL EMPLOYEE REIT FUND INCORPORATED
SCHEDULE OF INVESTMENTS
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
NUMBER OF
INVESTMENT IN SECURITIES (99.7%) COMMON SHARES MARKET VALUE
- -------------------------------- ------------- ------------
<S> <C> <C>
REAL ESTATE INVESTMENT TRUSTS (99.7%)
Beacon Properties Corp............................. 277,400 $ 9,847,700
Public Storage Inc................................. 288,500 7,753,438
Spieker Properties Inc............................. 165,500 6,020,063
Prentiss Properties Trust SBI...................... 173,500 4,684,500
Apartment Investment & Management Co. Class A...... 154,067 4,467,943
Essex Property Trust Inc........................... 123,700 3,711,000
Wellsford Residential Property Trust SBI........... 126,300 3,694,275
Macerich Co........................................ 133,000 3,674,125
Charles E. Smith Residential Realty Inc............ 114,100 3,223,325
Pacific Gulf Properties Inc........................ 140,700 3,200,925
Kimco Realty Corp.................................. 87,000 2,925,375
Weingarten Realty Investors SBI.................... 67,500 2,894,063
Urban Shopping Centers Inc......................... 90,200 2,830,025
Western Investment Real Estate Trust............... 199,600 2,569,850
RFS Hotel Investors Inc............................ 139,000 2,363,000
Koger Equity Inc................................... 125,000 2,234,375
Taubman Centers Inc................................ 127,100 1,668,188
Associated Estates Realty Corp..................... 65,700 1,543,950
AMLI Residential Properties Trust SBI.............. 44,200 1,049,748
-----------
TOTAL INVESTMENT IN SECURITIES (99.7%)
(Cost $69,136,574) (a).......................... 70,355,868
-----------
OTHER ASSETS LESS LIABILITIES (0.3%)............. 776,632
-----------
Net Assets (100.0%)............................ $71,132,500
===========
</TABLE>
- --------
(a) At February 28, 1997, the net unrealized gain on investments based on cost
of $1,219,294 was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized gain for all investments for
which there is an excess of market value over cost........ $2,126,418
Aggregate gross unrealized loss for all investments for
which there is an excess of cost over market value........ (907,124)
----------
Net unrealized gain on investments......................... $1,219,294
==========
</TABLE>
Purchases and sales of securities for the period from December 20, 1996
(inception date), to February 28, 1997, other than short-term securities,
aggregated $69,864,454 and $727,880 respectively.
The accompanying notes are an integral part of these financial statements.
17
<PAGE>
SECURITY CAPITAL EMPLOYEE REIT FUND INCORPORATED
BALANCE SHEET
FEBRUARY 28, 1997
<TABLE>
<S> <C>
ASSETS
Investment in securities, at market value (cost $69,136,574; see
Schedule of Investments and Note 1)............................. $70,355,868
Cash............................................................. 662,224
Receivable for fund units sold................................... 1,523,197
Dividends receivable............................................. 114,408
Organizational expenses.......................................... 100,000
-----------
TOTAL ASSETS................................................... 72,755,697
===========
LIABILITIES AND CAPITAL
Payable for investments purchased................................ 1,523,197
Payable to investment advisor.................................... 100,000
-----------
TOTAL LIABILITIES.............................................. 1,623,197
-----------
Paid-in capital (Note 1)......................................... 69,499,133
Accumulated undistributed net investment income.................. 366,658
Accumulated undistributed net realized gain on investments....... 47,415
Net unrealized gain on investments............................... 1,219,294
-----------
TOTAL CAPITAL (equivalent to $10.54 per share based on
6,748,899 units outstanding--50,000,000 units authorized)..... 71,132,500
-----------
TOTAL LIABILITIES AND CAPITAL.................................. $72,755,697
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
SECURITY CAPITAL EMPLOYEE REIT FUND INCORPORATED
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM DECEMBER 20, 1996 (INCEPTION DATE), TO FEBRUARY 28, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends......................................................... $ 366,658
----------
Total investment income......................................... 366,658
----------
Total expenses (Note 2)......................................... --
----------
Net investment income........................................... 366,658
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments.................................. 47,415
Change in net unrealized gain on investments...................... 1,219,294
----------
NET GAIN ON INVESTMENTS......................................... 1,266,709
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................ $1,633,367
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
SECURITY CAPITAL EMPLOYEE REIT FUND INCORPORATED
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM DECEMBER 20, 1996 (INCEPTION DATE), TO FEBRUARY 28, 1997
<TABLE>
<S> <C>
FROM OPERATIONS
Net investment income............................................ $ 366,658
Net realized gain on investments................................. 47,415
Change in net unrealized gain on investments..................... 1,219,294
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........... 1,633,367
-----------
FROM UNIT TRANSACTIONS
Proceeds from units sold......................................... 69,499,133
-----------
INCREASE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS....... 69,499,133
-----------
NET INCREASE IN NET ASSETS..................................... 71,132,500
NET ASSETS
Beginning of period.............................................. --
-----------
End of period.................................................... $71,132,500
===========
ANALYSIS OF CHANGES IN UNITS OF BENEFICIAL INTEREST
Units sold....................................................... 6,748,899
-----------
NET INCREASE IN FUND UNITS OUTSTANDING......................... 6,748,899
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
SECURITY CAPITAL EMPLOYEE REIT FUND INCORPORATED
FINANCIAL HIGHLIGHTS
FOR THE PERIOD FROM DECEMBER 20, 1996 (INCEPTION DATE), TO FEBRUARY 28, 1997
<TABLE>
<S> <C>
NET ASSET VALUE, SHARES SOLD AT INCEPTION DATE..................... $ 10.00
-----------
INCREASE FROM INVESTMENT OPERATIONS
Net investment income............................................ 0.05
Net realized and unrealized gains on investments................. 0.49
-----------
TOTAL INCREASE FROM INVESTMENT OPERATIONS...................... 0.54
-----------
NET ASSET VALUE, END OF PERIOD..................................... $ 10.54
===========
Ratio of net operating expenses to average net assets* (Note 2).... 0.00%
Ratio of net investment income to average net assets*.............. 3.58%
Average Commission Rate Paid....................................... $ 0.06
Portfolio Turnover Rate*........................................... 1.35%
Net assets, end of period.......................................... $71,132,500
</TABLE>
- --------
*Annualized
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
SECURITY CAPITAL EMPLOYEE REIT FUND INCORPORATED
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1997
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Security Capital Employee REIT Fund Incorporated (the "Fund") is a Maryland
business trust, originally formed on December 20, 1996, as SCERF Incorporated
(SCERF), a Maryland business trust. On January 23, 1997, all of the assets and
liabilities of SCERF were transferred to the Fund in a reorganization (the
"Reorganization") accounted for as a pooling of interests. The Reorganization
was a taxable event to SCERF and a capital gain of approximately $1 million
was realized for tax purposes. As a result, at January 23, 1997, the tax basis
of securities held was approximately $1 million higher than their basis for
financial reporting purposes. This capital gain will be included in the
consolidated income tax return of the sole shareholder of SCERF and will not
affect the Fund's tax status for 1997. This will result in a lower required
capital gain distribution for the Fund for calendar year 1997.
The Fund intends to register under the Investment Company Act of 1940 (the
"1940 Act") as a no-load, non-diversified, open-end management investment
company. The investment objective of the Fund is to provide unitholders with
above-average total returns, including current income and capital
appreciation, primarily through investments in real estate securities in the
United States. The Fund has selected December 31 as its year end for both
financial reporting and federal income tax purposes.
The Fund's financial statements have been prepared in conformity with
generally accepted accounting principles that require the Fund, among other
things, to make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
The following is a summary of significant accounting policies consistently
followed by the Fund, which are in conformity with those generally accepted in
the investment company industry.
A. Security Valuation--Security transactions are recorded on trade date.
Each day, securities are valued at the last sale price from the principal
exchange on which they are traded. Securities that have not traded on the
date of valuation, or securities for which sale prices are not generally
reported, are valued at the mean between the last bid and asked prices.
Securities for which market quotations are not readily available are valued
at their fair values as determined by, or under the direction of, the Board
of Directors (the "Directors"). Temporary cash investments are valued at
cost plus accrued interest, which approximates fair value. Dividend income
is recorded on the ex-dividend date and interest income is recorded on the
accrual basis.
Because the Fund may invest a substantial portion of its assets in Real
Estate Investment Trusts ("REITs"), the Fund may be subject to certain
risks associated with direct investments in REITs. REITs may be affected by
changes in the value of their underlying properties and by defaults by
borrowers and tenants. REITs depend generally on their ability to generate
cash flow to make distributions to unitholders, and certain REITs have
self-liquidation provisions by which mortgages held may be paid in full and
distributions of capital returns may be made at any time. In addition, the
performance of a REIT may be affected by its failure to qualify for tax-
free pass-through of income under the Internal Revenue Code or its failure
to maintain exemption from registration under the Investment Company Act of
1940.
B. Gains and Losses--Gains and losses from sales of investments are
calculated using the specific identification method for both financial
reporting and federal income tax purposes. It is the Fund's practice to
first select for sale those securities that have the highest cost and also
qualify for long-term capital gain or loss treatment for tax purposes.
C. Federal Income Taxes--It is the policy of the Fund to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income and net
realized capital gains, if any, to its unitholders. Therefore, no federal
income tax provision is required.
22
<PAGE>
The characterization of distributions to unitholders for financial
reporting purposes is determined in accordance with income tax rules.
Therefore, the source of the Fund's distributions may be shown in the
accompanying financial statements as either from or in excess of net
investment income or net realized gain on investment transactions, or from
paid-in capital, depending on the type of book/tax differences that may
exist.
A portion of the dividend income recorded by the Fund is from
distributions by publicly traded REITs and such distributions for tax
purposes may consist of capital gains and return of capital. The actual
return of capital and capital gains portions of such distributions will be
determined by formal notifications from the REITs subsequent to the
calendar year-end. Distributions received from the REITs that are
determined to be a return of capital are recorded by the Fund as reduction
of the cost basis of the securities held. The character of such
distributions, for tax purposes, is determined by the Fund based on
estimates and information received by the Fund from the REITs. The effect
of return of capital distributions for dividends earned in 1996 was
immaterial.
D. Fund Units--The Fund records sales and repurchases of its fund units
at net asset value on the trade date. Security Capital Markets Group
Incorporated, a wholly owned subsidiary of Security Capital Group
Incorporated, acts as distributor for the Fund. The Fund pays no fee for
this service. Dividends and distributions to unitholders are recorded as of
the ex-dividend date. There were no dividends or distributions to
unitholders during the period covered by these financial statements.
NOTE 2. INVESTMENT ADVISER
Security Capital Investment Research Group Incorporated ("SCIRG"), the
Fund's investment adviser, manages the Fund's portfolio and is a wholly owned
subsidiary of Security Capital Group Incorporated. SCIRG intends to charge the
Fund a management fee once its registration under the 1940 act becomes
effective. No management fee will be charged prior to that time. Management
fees will be calculated daily at the annual rate of .85 of 1% of the Fund's
average daily net assets.
SCIRG also serves as the Fund's administrator. SCIRG intends to charge the
Fund an administration fee once its registration under the 1940 act becomes
effective. No administration fee will be charged prior to that time.
Administration fees will be calculated daily at the annual rate of .02 of 1%
of average daily net assets.
SCIRG has agreed not to impose a portion of its management fee and to assume
other operating expenses for the Fund to the extent necessary to limit the
Fund's expenses to 1.20% of average daily net assets.
In addition, under the management agreement, certain other services and
costs, including transfer agent and unitholder services, custody, accounting,
regulatory reporting, insurance premiums and sub-administration, are to be
paid by the Fund. Once the Fund's filing under the 1940 Act becomes effective,
Firstar Trust Company ("Firstar") will serve as transfer agent, custodian and
sub-administrator of the Fund and charge the fund a fee for providing those
services. Sub-administration fees will be calculated daily at the annual rate
of .06 of 1% of the first $200 million of the Fund's average daily net assets.
Custodian and transfer agent fees will be charged by Firstar according to
contractual fee schedules agreed to by the Fund. All such expenses incurred as
of the dates covered by these financial statements have been paid by SCIR
which does not intend to seek reimbursement from the Fund.
During the period December 20, 1996 (inception date), to February 28, 1997,
SCIR paid organizational expenses on behalf of the Fund of approximately
$100,000 and intends to seek reimbursement from the Fund for these expenses.
The Fund intends to amortize these expenses over a period of 60 months. The
Adviser, at its discretion, may reimburse the Fund for such expenses in the
future.
All but one of the officers and directors of the Fund are also officers of
the Adviser. No fees or expenses were paid by the Fund to the nonaffiliated
director during the period covered by these financial statements.
NOTE 3. FUND UNITS
Units of the Fund are currently being offered only to SC Realty
Incorporated, a subsidiary of Security Capital Group Incorporated. The Fund,
when its registration under the 1940 Act becomes effective, intends to offer
its units to directors and employees of Security Capital Group Incorporated
and its affiliates. The Fund intends to offer its units to the general public
at some undetermined point in the future.
23
<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:
A list of exhibits filed herewith is contained on the Exhibit Index
which immediately preceeds such exhibits and is incorporated herein by
reference.
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 March 28, 1997, there was one holder of record of SC-ERF's common
stock, $.01 par value per share.
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.
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.
C-1
<PAGE>
(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 Vice President None
Jeffrey A. Klopf........ Director, Secretary and Senior Vice President None
James H. Polk, III...... Director and 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
Lucinda G. Marker....... Assistant Secretary None
Gerald R. Morgan, Jr.... Assistant Controller None
Jayson C. Cyr........... Assistant Controller None
</TABLE>
(c) Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
Certain of the 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. The
remainder of such records are maintained by Firstar Trust Company, SC-ERF's
Sub-Administrator, 615 East Michigan Street, Milwaukee, Wisconsin 53202.
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-2
<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 AMENDED 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 7TH DAY OF
APRIL, 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 AMENDED
REGISTRATION STATEMENT OF SECURITY CAPITAL EMPLOYEE REIT FUND INCORPORATED HAS
BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE 7TH DAY
OF APRIL, 1997.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<S> <C>
/s/ Anthony R. Manno, Jr. Director and President
___________________________________________
Anthony R. Manno, Jr.
/s/ Stephen F. Kasbeer Director
___________________________________________
Stephen F. Kasbeer
/s/ Daniel F. Miranda Managing Director, Secretary and Treasurer
___________________________________________
Daniel F. Miranda
</TABLE>
C-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- ---------------------------------------------------------------------
<C> <S>
1* Articles of Incorporation.
2* By-Laws.
5 Investment Advisory Contract.
6 Distribution Agreement -- (To be filed by Amendment).
8 Custodian Agreement.
9(a) Transfer Agent Services Agreement.
9(b) Administration and Servicing Agreement.
9(c) Accounting Services Agreement.
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>
- --------
* Previously filed.
C-4
<PAGE>
EXHIBIT 5
INVESTMENT ADVISORY AGREEMENT
Security Capital Employee REIT Fund Incorporated
April __, 1997
Security Capital Investment Research Group Incorporated
11 South LaSalle Street, Second Floor
Chicago, Illinois 60603
Dear Sirs:
We, the undersigned Security Capital Employee REIT Fund Incorporated,
herewith confirm our agreement with you as follows:
1. We are an open-end, non-diversified management investment company. We
are currently authorized to issue 50,000,000 shares of common stock and our
Directors are authorized to reclassify and issue any unissued shares [to any
number of additional classes or series (portfolios) each having its own
investment objective, policies and restrictions,] without shareholder approval,
all as more fully described in the prospectus and the statement of additional
information. We propose to engage in the business of investing and reinvesting
our assets in securities of the type and in accordance with the limitations
specified in our Articles of Incorporation, By-Laws and any representations made
in our prospectus and statement of additional information, all in such manner
and to such extent as may from time to time be authorized by our Board of
Directors.
<PAGE>
We enclose copies of the documents listed above and will from time to time
furnish you with any amendments thereof.
2. (a) We hereby employ you to manage the investment and reinvestment of
our assets as above specified and, without limiting the generality of the
foregoing, to provide management and other services specified below.
(b) You will make decisions with respect to all purchases and sales of
our portfolio securities. To carry out such decisions, you are hereby
authorized, as our agent and attorney-in-fact, for our account and at our risk
and in our name, to place orders for the investment and reinvestment of our
assets. In all purchases, sales and other transactions in our portfolio
securities you are authorized to exercise full discretion and act for us in the
same manner and with the same force and effect as we might or could do with
respect to such purchases, sales or other transactions, as well as with respect
to all other things necessary or incidental to the furtherance or conduct of
such purchases, sales or other transactions.
(c) You will report to our Board of Directors at each meeting thereof
all changes in our portfolio since the prior report, and will also keep us in
touch with important developments affecting our portfolio and on your own
initiative will furnish us from time to time with such information as you may
believe appropriate for this purpose, whether concerning the individual issuers
whose securities are included in our portfolio, the industries in which they
engage, or the conditions
-2-
<PAGE>
prevailing in the economy generally. You will also furnish us with such
statistical and analytical information with respect to our portfolio securities
as you may believe appropriate or as we reasonably may request. In making such
purchases and sales of our portfolio securities, you will bear in mind the
policies set from time to time by our Board of Directors as well as the
limitations imposed by our Articles of Incorporation, the Investment Company Act
of 1940 (the "Act") and the Securities Act of 1933, and of the Internal Revenue
Code of 1986, as amended, in respect of regulated investment companies.
(d) It is understood that you will from time to time employ or
associate with yourselves such persons as you believe to be particularly fitted
to assist you in the execution of your duties hereunder, the cost of performance
of such duties to be borne and paid by you. No obligation may be incurred on our
behalf in any such respect. During the continuance of this agreement at our
request you will provide us persons satisfactory to our Board of Directors to
serve as our officers.
3. We propose to retain the services of an administrator, which shall be a
firm acceptable to you, to administer all aspects of our operations except those
which are your responsibility pursuant to this agreement. We will bear the cost
of and pay the fee of the administrator. Our initial administrator will be
Security Capital Investment Research Group Incorporated.
-3-
<PAGE>
4. It is further agreed that you shall be responsible for the portion of
our net expenses (except interest, taxes, brokerage, expenditures which are
capitalized in accordance with generally accepted accounting principles and
extraordinary expenses, all to the extent permitted by applicable state law and
regulation) incurred by us during each of our fiscal years or portion thereof
that this agreement is in effect between us which, in any such year exceeds the
limits applicable to us under the laws or regulations of any state in which our
shares are qualified for sale (reduced pro rata for any portion of less than a
year). We hereby confirm that, subject to the foregoing, we shall be responsible
and hereby assume the obligation for payment of all our other expenses,
including: (a) payment of the fee payable to you under paragraph 6 hereof; (b)
charges and expenses of our administrator, custodian, transfer, and dividend
disbursing agent; (c) fees of directors who are not your affiliated persons; (d)
legal and auditing expenses; (e) compensation of our officers, Directors and
employees who do not devote any part of their time to your affairs or the
affairs of your affiliates other than us; (f) costs of printing our prospectuses
and stockholder reports; (g) costs of proxy solicitation; (h) cost of
maintenance of corporate existence; (i) interest charges, taxes, brokerage fees
and commissions; (j) costs of stationery and supplies; (k) expenses and fees
related to registration and filing with the Securities and Exchange Commission
and with state regulatory authorities; and (l) upon
-4-
<PAGE>
the approval of the Board of Directors, costs of your personnel or your
affiliates rendering clerical, accounting and other office services.
5. We shall expect of you, and you will give us the benefit of, your best
judgment and efforts in rendering these services to us, and we agree as an
inducement to your undertaking these services that you shall not be liable
hereunder for any mistake of judgment or in any event whatsoever, except for
lack of good faith, provided that nothing herein shall be deemed to protect, or
purport to protect, you against any liability to us or to our security holders
to which you would otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence in the performance of your duties hereunder, or by
reason of your reckless disregard of your obligations and duties hereunder.
6. In consideration of the foregoing we will pay you a monthly fee at an
annualized rate of .85 of 1% of our average daily net assets. Such fee shall be
payable in arrears on the last day of each calendar month for services performed
hereunder during such month. If this agreement terminates prior to the end of a
month, such fee shall be prorated according to the proportion which such portion
of the month bears to the full month.
7. You shall hereby commit to waive any fees, payable by us to you, in
connection with paragraph 6 above, to the extent that any such fees exceed 1.20%
of the average daily net assets
-5-
<PAGE>
of the Fund; provided, however, that such fee limitation shall expire upon the
first anniversary of this Agreement.
8. This agreement shall become effective on the date on which the first
meeting of our shareholders takes place and, if approved by the vote of a
majority of the outstanding voting securities, as defined in the Act, at such
meeting, continue in effect until the second anniversary of the date hereof and
may be continued for successive twelve-month periods (computed from each January
1) with respect to each portfolio provided that such continuance is specifically
approved at least annually by the Board of Directors or by majority vote of the
holders of the outstanding voting securities of such portfolio (as defined in
the Act), and, in either case, by a majority of the Board of Directors who are
not interested persons, as defined in the Act, of any party to this agreement
(other than as Directors of our corporation), provided further, however, that if
the continuation of this agreement is not approved, you may continue to render
the services described herein in the manner and to the extent permitted by the
Act and the rules and regulations thereunder. Upon the effectiveness of this
agreement, it shall supersede all previous agreements between us covering the
subject matter hereof. This agreement may be terminated at any time, without the
payment of any penalty, by vote of a majority of the outstanding voting
securities (as so defined) or by a vote of a majority of the Board of Directors
on 60 days' written notice to you, or by you on 60 days' written notice to us.
-6-
<PAGE>
9. This agreement may not be transferred, assigned, sold or in any manner
hypothecated or pledged by you and this agreement shall terminate automatically
in the event of any such transfer, assignment, sale, hypothecation or pledge by
you. The terms "transfer", "assignment" and "sale" as used in this paragraph
shall have the meanings ascribed thereto by governing law and any interpretation
thereof contained in rules or regulations promulgated by the Securities and
Exchange Commission thereunder.
10. Except to the extent necessary to perform your obligations hereunder,
nothing herein shall be deemed to limit or restrict your right, or the right of
any of your officers, directors or employees, who may also be a Director,
officer or employee of ours, or persons otherwise affiliated with us (within the
meaning of the Act) to engage in any other business or to devote time and
attention to the management or other aspects of any other business, whether of a
similar or dissimilar nature, or to render services of any kind to any other
trust, corporation, form, individual or association.
11. This agreement shall be construed in accordance with the laws of the
State of Illinois, provided, however, that nothing herein shall be construed as
being inconsistent with the Act.
-7-
<PAGE>
If the foregoing is in accordance with your understanding, will you kindly
so indicate by signing and returning to us the enclosed copy hereof.
Very truly yours,
Security Capital Employee REIT Fund
Incorporated
By:
-------------------------------
Anthony R. Manno, Jr.
President
Agreed to and accepted
as of the date first set forth above
By:
--------------------------------
President
-8-
<PAGE>
EXHIBIT 8
CUSTODIAN AGREEMENT
THIS AGREEMENT made on _______________________, 1997 between Security
Capital Employee REIT Fund Incorporated; a Maryland Corporation (hereinafter
called the ("Fund"), and FIRSTAR TRUST COMPANY, a corporation organized under
the laws of the State of Wisconsin (hereinafter called the"Custodian"),
WHEREAS, the Fund desires that its securities and cash shall be
hereafter held and administered by the Custodian pursuant to the terms of this
Agreement;
NOW, THEREFORE, in consideration of the mutual agreements herein made,
the Fund and Custodian agree as follows:
1. Definitions
The word "securities" as used herein includes stocks, shares, bonds,
debentures, 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.
The words "officers' certificate" shall mean a request or direction or
certification in writing signed in the name of the Fund by any two of the
President, a Vice President, the Secretary and the Treasurer of the Fund, or any
other persons duly authorized to sign by the Board of Directors of the Fund.
The word "Board" shall mean Board of Directors of the Fund.
2. Names, Titles, and Signatures of the Fund's Officers
An officer of the Fund will certify to the Custodian the names and
signatures of those persons authorized to sign the officers' certificates
described in Section 1 hereof, and the names of the members of the Board of
Directors of the Fund, together with any changes which may occur from time to
time.
3. Additional Classes
The Fund is authorized to issue separate classes of shares of stock
representing interests in separate investment portfolios. The parties intend
that each portfolio established by the Fund, now or in the future, be covered by
the terms and conditions of this Agreement.
4. Receipt and Disbursement of Money
A. The Custodian shall open and maintain a separate account or accounts
in the name of the Fund, subject only to draft or order by the Custodian acting
pursuant to the terms of this
<PAGE>
Agreement. Custodian shall hold in such account or accounts, subject to the
provisions hereof, all cash received by it from or for the account of the Fund.
Custodian shall make payments of cash to, or for the account of, the Fund from
such cash only:
(a) for the purchase of securities for the portfolio of the Fund upon
the delivery of such securities to the Custodian, registered in
the name of the Funds or of the nominee of Custodian referred to
in Section 7 or in proper form for transfer;
(b) for the purchase or redemption of shares of the common stock of
the Fund upon delivery thereof to the Custodian, or upon proper
instructions from the Fund;
(c) for the payment of interest, dividends, taxes, investment
adviser's fees or operating expenses (including, without
limitation thereto, fees for legal, accounting, auditing and
custodian services and expenses for printing and postage);
(d) for payments in connection with the conversion, exchange or
surrender of securities owned or subscribed to by the Fund held
by or to be delivered to the Custodian; or
(e) for other proper corporate purposes certified by resolution of
the Board of Directors of the Funds.
Before making any such payment, the Custodian shall receive (and may
rely upon) an officers' certificate requesting such payment and stating that it
is for a purpose permitted under the terms of items (a), (b), (c), or (d) of
this Subsection A, and also, in respect of item (e), upon receipt of an
officers' certificate specifying the amount of such payment, setting forth the
purpose for which such payment is to be made, declaring such purpose to be a
proper corporate purpose, and naming the person or persons to whom such payment
is to be made, provided, however, that an officers' certificate need not precede
the disbursement of cash for the purpose of purchasing a money market
instrument, or any other security with same or next-day settlement, if the
President, a Vice President, the Secretary or the Treasurer of the Fund issues
appropriate oral or facsimile instructions to the Custodian and an appropriate
officers' certificate is received by the Custodian within two business days
thereafter.
B. The Custodian is hereby authorized to endorse and collect all checks,
drafts or other orders for the payment of money received by Custodian for the
account of the Fund.
C. The Custodian shall, upon receipt of proper instructions, make
federal funds available to the Fund as of specified times agreed upon from time
to time by the Fund and the Custodian in the amount of checks received in
payment for shares of the Fund which are deposited into the Fund's account.
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<PAGE>
5. Segregated Accounts
Upon receipt of proper instructions, the Custodian shall establish and
maintain segregated account for and on behalf of the portfolio, into which
account may be transferred cash and/or securities.
6. Transfer, Exchange, Redelivery, etc. of Securities
The Custodian shall have sole power to release or deliver any securities
of the Fund held by it pursuant to this Agreement. The Custodian agrees to
transfer, exchange or deliver securities held by it hereunder only:
(a) for sales of such securities for the account of the Fund upon
receipt by the Custodian of payment therefor;
(b) when such securities are called, redeemed or retired or otherwise
become payable;
(c) for examination by any broker selling any such securities in
accordance with "street delivery" custom;
(d) in exchange for, or upon conversion into, other securities alone or
other securities and cash whether pursuant to any plan of merger,
consolidation, reorganization, recapitalization or readjustment, or
otherwise;
(e) upon conversion of such securities pursuant to their terms into
other securities;
(f) upon exercise of subscription, purchase or other similar rights
represented by such securities;
(g) for the purpose of exchanging interim receipts or temporary
securities for definitive securities;
(h) for the purpose of redeeming in kind shares of common stock of the
Fund upon delivery thereof to the Custodian; or
(i) for other proper corporate purposes.
As to any deliveries made by the Custodian pursuant to items (a), (b),
(d), (e), (f), and (g), securities or cash receivable in exchange therefor shall
be deliverable to the Custodian.
Before making any such transfer, exchange or delivery, the Custodian
shall receive (and may rely upon) an officers' certificate requesting such
transfer, exchange or delivery, and stating that it is for a purpose permitted
under the terms of items (a), (b), (c), (d), (e), (f), (g), or (h) of this
Section 6 and also, in respect of item (i), upon receipt of an officers'
certificate specifying the securities to be delivered, setting forth the purpose
for which such delivery is to be made,
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<PAGE>
declaring such purpose to be a proper corporate purpose, and naming the person
or persons to whom delivery of such securities shall be made, provided, however,
that an officers' certificate need not precede any such transfer, exchange or
delivery of a money market instrument, or any other security with same or next-
day settlement, if the President, a Vice President, the Secretary or the
Treasurer of the Fund issues appropriate oral or facsimile instructions to the
Custodian and an appropriate officers' certificate is received by the Custodian
within two business days thereafter.
7. Custodian's Acts Without Instructions
Unless and until the Custodian receives an officers' certificate to the
contrary, the Custodian shall: (a) present for payment all coupons and other
income items held by it for the account of the Fund which call for payment upon
presentation and hold the cash received by it upon such payment for the account
of the Fund; (b) collect interest and cash dividends received, with notice to
the Fund, for the account of the Fund; (c) hold for the account of the Fund
hereunder all stock dividends, rights and similar securities issued with respect
to any securities held by it hereunder; and (d) execute, as agent on behalf of
the Fund, all necessary ownership certificates required by the Internal Revenue
Code of 1986, as amended ( the "Internal Revenue Code") or the regulations of
the United States Treasury Department issued thereunder or under the laws of any
state now or hereafter in effect, inserting the Fund name on such certificates
as the owner of the securities covered thereby, to the extent it may lawfully do
so.
8. Registration of Securities
Except as otherwise directed by an officers' certificate, the Custodian
shall register all securities, except such as are in bearer form, in the name of
a registered nominee of the Custodian as defined in the Internal Revenue Code
and any Regulations of the Treasury Department issued thereunder or in any
provision of any subsequent federal tax law exempting such transaction from
liability for stock transfer taxes, and shall execute and deliver all such
certificates in connection therewith as may be required by such laws or
regulations or under the laws of any state. The Custodian shall use its best
efforts to the end that the specific securities held by it hereunder shall be at
all times identifiable in its records.
The Fund shall from time to time furnish to the Custodian appropriate
instruments to enable the Custodian to hold or deliver in proper form for
transfer, or to register in the name of its registered nominee, any securities
which it may hold for the account of the Fund and which may from time to time be
registered in the name of the Fund.
9. Voting and Other Action
Neither the Custodian nor any nominee of the Custodian shall vote any of
the securities held hereunder by or for the account of the Fund, except in
accordance with the instructions contained in an officers' certificate. The
Custodian shall deliver, or cause to be executed and delivered, to the Fund all
notices, proxies and proxy soliciting materials with relation to such
securities, such proxies to be executed by the registered holder of such
securities (if
4
<PAGE>
registered otherwise than in the name of the Fund), but without indicating the
manner in which such proxies are to be voted.
10. Transfer Tax and Other Disbursements
The Fund shall pay or reimburse the Custodian from time to time for any
transfer taxes payable upon transfers of securities made hereunder, and for all
other reasonable, necessary and proper disbursements and expenses made or
incurred by the Custodian in the performance of this Agreement.
The Custodian shall execute and deliver such certificates in connection
with securities delivered to it or by it under this Agreement as may be required
under the provisions of the Internal Revenue Code and any regulations of the
Treasury Department issued thereunder, or under the laws of any state, to exempt
from taxation any exemptable transfers and/or deliveries of any such securities.
11. Concerning the Custodian
The Custodian shall be paid as compensation for its services pursuant to
this Agreement such compensation as may from time to time be agreed upon in
writing between the two parties. Until modified in writing, such compensation
shall be as set forth in Exhibit A attached hereto.
The Custodian shall not be liable for any action taken in good faith
upon any certificate herein described or certified copy of any resolution of the
Fund's Board of Directors, and may rely on the genuineness of any such document
which it may in good faith believe to have been validly executed.
The Fund agrees to indemnify and hold harmless the Custodian and its
nominee from all taxes, charges, expenses, assessments, claims and liabilities
(including reasonable counsel fees) incurred or assessed against it or by its
nominee in connection with the performance of this Agreement, except such as may
arise from its or its nominee's own negligent action, negligent failure to act,
bad faith or willful misconduct. The Custodian is authorized to charge any
account of the Fund for such items.
In the event of any advance of cash for any purpose made by the Custodian
resulting from orders or instructions of the Fund, or in the event that the
Custodian or its nominee shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in connection with the performance
of this Agreement, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct, any property
at any time held for the account of the Fund shall be security therefore.
The Custodian agrees to indemnify and hold harmless the Fund from all charges,
expenses, assessments, and claims/liabilities (including reasonable counsel
fees) incurred or assessed against it in connection with the performance of this
Agreement, except such as may arise from the Fund's own negligent action,
negligent failure to act, or willful misconduct.
5
<PAGE>
12. Subcustodians
The Custodian is hereby authorized to engage another bank or trust
company as (a" Subcustodian") for all or any part of the Fund's assets, so long
as any such bank or trust company is a bank or trust company organized under the
laws of any state of the United States, having an aggregate capital, surplus and
undivided profit, as shown by its last published report, of not less than Two
Million Dollars ($2,000,000) and provided further that, if the Custodian
utilizes the services of a Subcustodian, the Custodian shall remain fully liable
and responsible for any losses caused to the Fund by the Subcustodian as fully
as if the Custodian was directly responsible for any such losses under the terms
of this Agreement.
Notwithstanding anything contained herein, if the Fund requires the
Custodian to engage specific Subcustodians for the safekeeping and/or clearing
of assets, the Fund agrees to indemnify and hold harmless the Custodian from all
claims, expenses and liabilities incurred or assessed against it in connection
with the use of such Subcustodians in regard to the Fund's assets, except as may
arise from its own negligent action, negligent failure to act, bad faith or
willful misconduct.
13. Reports by the Custodian
The Custodian shall furnish the Fund periodically as agreed upon with a
statement summarizing all transactions and entries for the account of the Fund.
The Custodian shall furnish to the Fund, at the end of every month, a list of
the portfolio securities showing the aggregate cost of each issue. The books and
records of the Custodian pertaining to its actions under this Agreement shall be
open to inspection and audit at reasonable times by officers of, and of auditors
employed by, the Fund.
14. Termination or Assignment
This Agreement may be terminated by the Fund, or by the Custodian, on
sixty (60) days notice, given in writing and sent by registered mail to
Custodian at P.O. Box 2054, Milwaukee, Wisconsin 53201, or to the Fund at 11
South LaSalle Street, Chicago, Illinois 60603 as the case may be. Upon any
termination of this Agreement, pending appointment of a successor to the
Custodian or a vote of the shareholders of the Fund to dissolve or to function
without a custodian of its cash, securities and other property, the Custodian
shall not deliver cash, securities or other property of the Fund to the Fund,
but may deliver them to a bank or trust company of its own selection, having an
aggregate capital, surplus and undivided profits, as shown by its last published
report of not less than Two Million Dollars ($2,000,000) as a custodian for the
Fund to be held under terms similar to those of this Agreement, provided,
however, that Custodian shall not be required to make any such delivery or
payment until full payment shall have been made by the Fund of all liabilities
constituting a charge on or against the properties then held by the Custodian or
on or against the Custodian, and until full payment shall have been made to the
Custodian of all
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<PAGE>
its fees, compensation, costs and expenses, subject to the provisions of Section
10 of this Agreement.
This Agreement may not be assigned by the Custodian without the consent
of the Fund, authorized or approved by a resolution of its Board of Directors.
15. Deposits of Securities in Securities Depositories
No provision of this Agreement shall be deemed to prevent the use by the
Custodian of a central securities clearing agency or securities depository,
provided, however, that the Custodian and the central securities clearing agency
or securities depository meet all applicable federal and state laws and
regulations, and the Board of Directors of the Fund approves by resolution the
use of such central securities clearing agency or securities depository.
16. Records
To the extent that the Custodian in any capacity prepares or maintains
any records required to be maintained and preserved by the Fund pursuant to the
provisions of the 1940 Act or the rules and regulations promulgated thereunder,
the Custodian agrees to make any such records available to the Fund upon request
and to preserve such records for the periods prescribed in Rule 31a-2 under the
1940 Act.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above-written by their respective officers
thereunto duly authorized.
Executed in several counterparts, each of which is an original.
Security Capital Employee Firstar Trust Company
REIT Fund Incorporated
By: By:
--------------------- ---------------------
Vice President
Attest:
By:
---------------------
Assistant Secretary
8
<PAGE>
EXHIBIT 9(a)
TRANSFER AGENT AGREEMENT
THIS AGREEMENT is made and entered into on this ______ day of ____________,
1997, by and between Security Capital Employee REIT Fund Incorporated
(hereinafter referred to as the "Fund") and Firstar Trust Company, a corporation
organized under the laws of the State of Wisconsin (hereinafter referred to as
the "Agent").
WHEREAS, the Fund, is an open-ended management investment company which is
registered under the Investment Company Act of 1940; as amended (the "Investment
Company Act"); and
WHEREAS, the Agent is a trust company and, among other things, is in the
business of administering transfer and dividend disbursing agent functions for
the benefit of its customers;
NOW, THEREFORE, the Fund and the Agent do mutually promise and agree as
follows:
1. Terms of Appointment; Duties of the Agent
Subject to the terms and conditions set forth in this Agreement, the Fund
hereby employs and appoints the Agent to act as transfer agent and dividend
disbursing agent for the Fund and Agent agrees to render such services and to be
compensated therefor as herein provided.
The Agent shall perform all of the customary services of a transfer agent
and dividend disbursing agent, and as relevant, agent in connection with
accumulation, open account or similar plans (including without limitation any
periodic investment plan or periodic withdrawal program), including but not
limited to:
A. Receive orders for the purchase of shares, with prompt delivery, where
appropriate, of payment and supporting documentation to the Fund's
custodian;
B. Process purchase orders and issue the appropriate number of certificated
or uncertificated shares with such uncertificated shares being held in
the appropriate shareholder account;
C. Process redemption requests received in good order and, where relevant,
deliver appropriate documentation to the Fund's custodian;
D. Pay monies upon receipt from the Fund's custodian, where relevant in
accordance with the instructions of redeeming shareholders;
E. Process transfers of shares in accordance with the shareowner's
instructions;
F. Process exchanges between funds within the same family of funds, if any;
G. Issue and/or cancel certificates as instructed; replace lost, stolen or
destroyed certificates upon receipt of satisfactory indemnification or
surety bond;
<PAGE>
H. Prepare and transmit payments for dividends and distributions declared
by the Fund;
I. Make changes to shareholder records, including, but not limited to,
address changes in plans (i.e., systematic withdrawal, automatic
investment, dividend reinvestment, etc.);
J. Record the issuance of shares of the Fund and maintain, pursuant to the
Securities Exchange Act of 1934, as amended ( the " Exchange Act") ,
Rule 17ad-10(e), a record of the total number of shares of the Fund that
are authorized, issued and outstanding;
K. Prepare shareholder meeting lists and, if applicable, mail, receive and
tabulate proxies;
L. Mail shareholder reports and prospectuses to current shareholders;
M. Prepare and file U.S. Treasury Department forms 1099 and other
appropriate information returns required with respect to dividends and
distributions for all shareholders;
N. Provide shareholder account information upon request and prepare and
mail confirmations and statements of account to shareholders for all
purchases, redemptions and other confirmable transactions as agreed upon
with the Fund; and
O. Provide a Blue Sky System which will enable the Fund to monitor the
total number of shares sold in each state.
2. Compensation
The Fund agrees to pay the Agent for performance of the duties listed in
this Agreement; the fees set forth in Schedule A and reasonable out-of-pocket
expenses including but are not limited to the following: printing, postage,
forms, stationery, record retention, mailing, insertion, programming, labels,
shareholder lists and proxy expenses.
These fees and reimbursable expenses may be changed from time to time
subject to mutual written agreement between the Fund and the Agent.
The Fund agrees to pay all fees and reimbursable expenses within thirty (30)
business days following the mailing of the billing notice.
3. Representations of Agent
The Agent represents and warrants to the Fund that:
A. It is a trust company duly organized, existing and in good standing
under the laws of Wisconsin;
B. It is a registered transfer agent under the Exchange Act ; Transfer
Agent shall provide a copy of the TA-1 Report to the Fund on an annual
basis.
C. It is duly qualified to carry on its business in the state of Wisconsin;
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<PAGE>
D. It is empowered under applicable laws and by its charter and bylaws to
enter into and perform this Agreement;
E. All requisite corporate proceedings have been taken to authorize it to
enter and perform this Agreement;
F. It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.; and
G. It will comply with all applicable requirements of the Securities Act of
1933 and the Exchange Act,, the Investment Company Act, as amended ( the
"Security Act") and any laws, rules, and regulations of governmental
authorities having jurisdiction.
4. Representations of the Fund
The Fund represents and warrants to the Agent that:
A. The Fund is an open-ended investment company under the Investment
Company Act;
B. The Fund is a corporation organized, existing, and in good standing
under the laws of the State of Maryland;
C. The Fund is empowered under applicable laws and by its by-laws to enter
into and perform this Agreement;
D. All necessary proceedings required by the Fund's Articles of
Incorporation have been taken to authorize it to enter into and perform
this Agreement;
E. The Fund will comply with all applicable requirements of the Securities
Act and the Exchange Act, the Investment Company Act and any laws, rules
and regulations of governmental authorities having jurisdiction; and
F. A registration statement under the Securities Act is currently effective
and will remain effective with respect to all shares of the Fund being
offered for sale.
5. Covenants of Funds and Agent
The Fund shall furnish the Agent a certified copy of the resolution of the
Board of Directors of the Fund authorizing the appointment of the Agent and the
execution of this Agreement. The Fund shall provide to the Agent a copy of the
Fund's Articles of Incorporation, by-laws of the Fund, and all amendments
thereto.
6. Indemnification; Remedies Upon Breach
The Agent shall act in good faith and exercise reasonable care in the
performance of its duties under this Agreement. The Agent shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the Fund
in connection with matters to which this Agreement relates, including losses
resulting from mechanical breakdowns or the failure of communication or power
supplies beyond the Agent's control, except a loss resulting from the Agent's
refusal or failure to comply with the terms of
3
<PAGE>
this Agreement or from bad faith, negligence, or willful misconduct on its part
in the performance of its duties under this Agreement. Notwithstanding any other
provision of this Agreement, the Fund shall indemnify and hold harmless the
Agent from and against any and all claims, demands, losses, expenses, and
liabilities (whether with or without basis in fact or law) of any and every
nature (including reasonable attorneys' fees) which the Agent may sustain or
incur or which may be asserted against the Agent by any person arising out of
any action taken or omitted to be taken by it in performing the services
hereunder (i) in accordance with the foregoing standards, or (ii) in reliance
upon any written or oral instruction provided to the Agent by any duly
authorized officer of the Fund, such duly authorized officer to be included in a
list of authorized officers furnished to the Agent and as amended from time to
time in writing by resolution of the Board of Directors of the Fund.
Further, the Fund will indemnify and hold the Agent harmless against any and
all losses, claims, damages, liabilities or expenses (including reasonable
counsel fees and expenses) resulting from any claim, demand, action, or suit as
a result of the negligence of the Fund or the principal underwriter (unless
contributed to by the Agent's breach of this Agreement or other agreements
between the Fund and the Agent, or the Agent's own negligence or bad faith); or
as a result of the Agent acting upon telephone instructions relating to the
exchange or redemption of shares received by the Agent and reasonably believed
by the Agent under a standard of care customarily used in the industry to have
originated from the record owner of the subject shares; or as a result of acting
in reliance upon any genuine instrument or stock certificate signed,
countersigned, or executed by any person or persons authorized to sign,
countersign, or execute the same.
In the event of a mechanical breakdown or failure of communication or power
supplies beyond its control, the Agent shall take all reasonable steps to
minimize service interruptions for any period that such interruption continues
beyond the Agent's control. The Agent will make every reasonable effort to
restore any lost or damaged data and correct any errors resulting from such a
breakdown at the expense of the Agent. The Agent agrees that it shall, at all
times, have reasonable contingency plans with appropriate parties, making
reasonable provision for emergency use of electrical data processing equipment
to the extent appropriate equipment is available. Representatives of the Fund
shall be entitled to inspect the Agent's premises and operating capabilities at
any time during regular business hours of the Agent, upon reasonable notice to
the Agent.
Regardless of the above, the Agent reserves the right to reprocess and
correct administrative errors at its own expense.
In order that the indemnification provisions contained in this section shall
apply, it is understood that if in any case the Fund may be asked to indemnify
or hold the Agent harmless, the Fund shall be fully and promptly advised of all
pertinent facts concerning the situation in question, and it is further
understood that the Agent will use all reasonable care to notify the Fund
promptly concerning any situation which presents or appears likely to present
the probability of such a claim for indemnification against the Fund. The Fund
shall have the option to defend the Agent against any claim which may be the
subject of this indemnification. In the event that the Fund so elects, it will
so notify the Agent and thereupon the Fund shall take over complete defense of
the claim, and the Agent shall in such situation initiate no further legal or
other expenses for which it shall seek indemnification under this section. The
Agent shall in no case confess any claim or make any compromise in any case in
which the Fund will be asked to indemnify the Agent except with the Fund's prior
written consent.
The Agent shall indemnify and hold the Fund harmless from and against any
and all claims, demands, losses, expenses, and liabilities (whether with or
without basis in fact or law) of any and every
4
<PAGE>
nature (including reasonable attorneys' fees) which may be incurred by or
asserted against the Fund arising out of any action taken or omitted to be taken
by the Agent as a result of the Agent's refusal or failure to comply with the
terms of this Agreement, its bad faith, negligence, or willful misconduct.
7. Confidentiality
The Agent agrees on behalf of itself and its employees to treat
confidentially all records and other information relative to the Fund and its
shareholders and shall not disclose such records and information to any other
party, except after prior notification to and approval in writing by the Fund,
which approval shall not be unreasonably withheld and may not be withheld where
the Agent may be exposed to civil or criminal contempt proceedings for failure
to comply after being requested to divulge such information by duly constituted
authorities.
8. Additional Classes
The Fund is authorized to issue separate classes of shares representing
interests in separate investment portfolios. The parties intend that each
portfolio established by the Fund, be covered by the terms and conditions of
this Agreement.
9. Records
The Agent shall keep records relating to the services to be performed
hereunder, in the form and manner, and for such period as it may deem advisable
and is agreeable to the Fund but not inconsistent with the rules and regulations
of appropriate government authorities, in particular, Section 31 of The
Investment Company Act, and the rules thereunder. The Agent agrees that all such
records prepared or maintained by the Agent relating to the services to be
performed by the Agent hereunder are the property of the Fund and will be
preserved, maintained, and made available in accordance with such section and
rules of the Investment Company Act and will be promptly surrendered to the Fund
on and in accordance with its request.
10. Wisconsin Law to Apply
This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with the laws of the state of Wisconsin.
11. Amendment, Assignment, Termination and Notice
A. This Agreement may be amended by the mutual written consent of the
parties.
B. This Agreement may be terminated upon sixty (60) day's written notice
given by one party to the other.
C. This Agreement and any right or obligation hereunder may not be assigned
by either party without the signed, written consent of the other party.
D. Any notice required to be given by the parties to each other under the
terms of this Agreement shall be in writing, addressed and delivered, or
mailed to the principal place of business of the other party. If to the
Agent, such notice should to be sent to Firstar
5
<PAGE>
Trust Company, 615 East Michigan Street, Milwaukee, Wisconsin 53202. If
to the Funds, such notice should be sent to Daniel F. Miranda, Security
Capital Employee REIT Fund Incorporated, 11 South La Salle St., Chicago,
Illinois 60603.
E. In the event that the Fund gives to the Agent its written intention to
terminate and appoint a successor transfer agent, the Agent agrees to
cooperate in the transfer of its duties and responsibilities to the
successor, including any and all relevant books, records and other data
established or maintained by the Agent under this Agreement.
F. Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be
paid by the Fund.
Security Capital Employee REIT Firstar Trust Company
Fund Incorporated
By: By
-------------------------- --------------------------
Vice President
Attest:
---------------------
Assistant Secretary
6
<PAGE>
EXHIBIT 9(b)
FUND ACCOUNTING AND ADMINISTRATION AGREEMENT
THIS AGREEMENT made as of March__, 1997 by and between Security
Capital Employee REIT Fund Incorporated, a Maryland corporation (the "Fund"),
and Security Capital Investment Research Group Incorporated, a Delaware
corporation (the "Administrator").
W I T N E S S E T H:
WHEREAS, the Fund is an open-end, management investment company; and
WHEREAS, the Fund wishes to retain the Administrator to provide
certain fund accounting and administration services with respect to the Fund and
the Administrator is willing to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints the Administrator to
provide fund accounting and administration services to the Fund, subject to the
supervision of the Board of Directors of the Fund (the "Board of Directors"),
for the period and on the terms set forth in this Agreement. The Administrator
accepts such appointment and agrees to furnish the services herein set forth in
return for the compensation as provided in Paragraph 4 of this Agreement. In
the event that the Fund establishes one or more additional portfolios with
respect to which it decides to retain the Administrator to act as administrator
hereunder, the Fund shall notify the Administrator in writing. If the
Administrator is willing to render such services to a new portfolio, they shall
so notify the Fund in writing whereupon such portfolio shall become a Fund
hereunder and shall be subject to the provisions of this Agreement to the
<PAGE>
same extent as the Fund, except to the extent that said provisions (including
those relating to the compensation payable by the Fund) may be modified with
respect to such portfolio in writing by the Fund and the Administrator at the
time of the addition of such new portfolio.
2. Delivery of Documents. The Fund has furnished the Administrator
with copies, properly certified or authenticated, of each of the following:
(a) Resolutions of the Fund's Board of Directors authorizing the
appointment of the Administrator to provide certain fund accounting and
administration services to the Fund and approving this Agreement;
(b) The Fund's Articles of Incorporation ("Charter");
(c) The Fund's Bylaws ("Bylaws");
(d) The most recent draft of the Fund's Registration Statement on Form
N-1A and when completed, the Fund will provide its most recent Prospectus and
Statement of Additional Information and all amendments and supplements thereto
(such Prospectus and Statement of Additional Information and supplements
thereto, as presently in effect and as from time to time hereafter amended and
supplemented, herein called the "Prospectus").
The Fund will timely furnish the Administrator from time to time with
copies, properly certified or authenticated, of all amendments of or supplements
to the foregoing, if any.
3. Services and Duties. Subject to the supervision and control of the
Fund's Board of Directors, the Administrator agrees to assist in supervising
aspects of the Fund's administrative operations, including but not limited to
the performance of the following specific services for the Fund:
(a) Provide office facilities (which may be in the offices of the
Administrator or a corporate affiliate of them, but shall be in such location as
the Fund shall reasonably
-2-
<PAGE>
approve) and the services of a principal financial officer to be appointed by
the Fund;
(b) Furnish statistical and research data, clerical services, and
stationery and office supplies;
(c) Keep and maintain all financial accounts and records (other than
those required to be maintained by the Fund's Custodian and Transfer Agent)
including without limit those required under Section 31 (a) and Rule 31a-1 under
the Investment Company Act of 1940 (the "1940 Act");
(d) Compute, and transmit to the NASD service for the publication of
fund prices, the Fund's net asset value, net income and net capital gain (loss)
in accordance with the Fund's Prospectus and resolutions of its Board of
Directors;
(e) Compile data for, and prepare required reports and notices to
shareholders of record including, without limitation, proxy statements,
Semiannual and Annual Reports to shareholders;
(f) Compile data for, prepare for execution and file all reports or
other documents, including tax returns, required by Federal, state and other
applicable laws and regulations, including those required by applicable Federal
and state tax laws (other than those required to be filed by the Fund's
Custodian or Transfer Agent);
(g) Assist in developing and monitoring compliance procedures for the
Fund and any class or series thereof, including, without limitation, procedures
to monitor compliance with applicable law and regulations, the Fund's investment
objectives, policies and restrictions, its continued qualification as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code");
(h) Determine, together with the Fund's Board of Directors, the
jurisdictions in which the Fund's shares shall be registered or qualified for
sale and, in connection therewith, the Administrator shall be responsible for
the registration for
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<PAGE>
sale and maintenance of the registrations of shares for sale under the
securities laws of any state. Payment of share registration fees for qualifying
or continuing the qualification of Fund shares or the Fund as a dealer or
broker, if applicable, shall be made by the Fund;
(i) Provide financial data requested by the Fund and its outside
counsel;
(j) Perform such other duties related to the administration of the
Fund's operations as reasonably requested by the Board of Directors, from time
to time;
(k) Assist in the monitoring of regulatory and legislative
developments which may affect the Fund and, in response to such developments,
counsel and assist the Fund in routine regulatory examinations or investigations
of the Fund, and work with outside counsel to the Fund in connection with
regulatory matters or litigation.
In performing its duties as administrator of the Fund, the
Administrator (a) will act in accordance with the Fund's Charter, Bylaws,
Prospectus, Statement of Additional Information and the instructions and
directions of the Fund's Board of Directors and will conform to, and comply
with, the requirements of the 1940 Act and all other applicable Federal or state
laws and regulations, and (b) will consult with outside legal counsel to the
Fund, as necessary or appropriate.
The Administrator will preserve for the periods prescribed by Rule
31a-2 under the 1940 Act the records required to be maintained by Rule 31a-1
under said Act in connection with the services required to be performed
hereunder. The Administrator further agrees that all such records which it
maintains for the Fund are the property of the Fund and further agrees to
surrender promptly to the Fund any of such records upon the Fund's request.
4. Fees; Expenses; Expense Reimbursement. For the services rendered
pursuant to this Agreement for the Fund, the
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<PAGE>
Administrator shall be entitled to a fee based on the average net assets of the
Fund determined at the annual rate outlined in Exhibit A and applied to the
average daily net assets of the Fund. Such fees are to be computed daily and
paid monthly on the first business day of the following month. Upon any
termination of this Agreement before the end of any month, the fee for such part
of the month shall be prorated according to the proportion which such period
bears to the full monthly period and shall be payable upon the date of
termination of this Agreement.
For the purpose of determining fees payable to the Administrator, the value
of the Fund's net assets shall be computed as required by its Prospectus,
generally accepted accounting principles and resolutions of the Fund's Board of
Directors.
The Administrator will from time to time employ or associate with
themselves such person or persons as they may believe to be fitted to assist
them in the performance of this Agreement. Such person or persons may be
officers and employees who are employed by both the Administrator and the Fund.
The compensation of such person or persons for such employment shall be paid by
the Administrator and no obligation may be incurred on behalf of the Fund in
such respect.
The Administrator will bear all expenses in connection with the performance
of its services under this Agreement except as otherwise expressly provided
herein. Other expenses to be incurred in the operation of the Fund, including
taxes, interest, brokerage fees and commissions, if any, salaries and fees of
officers and directors who are not officers, directors shareholders or employees
of the Administrator, or the Fund's investment advisor or distributor for the
Fund, Securities and Exchange Commission fees and state Blue Sky qualification
fees, advisory and administration fees, charges of custodians, transfer and
divided disbursing agents' fees, certain insurance premiums including fidelity
bond premiums, outside auditing and legal
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<PAGE>
expenses, costs of maintenance of corporate existence, typesetting and printing
of prospectuses for regulatory purposes and for distribution to current
shareholders of the Fund, costs of shareholders' reports and corporate meetings
and any extraordinary expenses, will be borne by the Fund, provided, however,
that, except as provided in any distribution plan adopted by the Fund, the Fund
will not bear, directly or indirectly, the cost of any activity which is
primarily intended to result in the distribution of shares of the Fund, and
further provided that the Administrator may utilize one or more independent
pricing services, approved from time to time by the Board of Directors of the
Fund, to obtain securities prices in connection with determining the net asset
value of the Fund and that the Fund will reimburse the Administrator for its
share of the cost of such services based upon its actual use of the services.
If in any fiscal year the Fund's aggregate expenses (as defined under the
securities regulations of any state having jurisdiction over the Fund) exceed
the expense limitations of any such state, the Administrator agrees to reimburse
the Fund for a portion of any such excess expense in an amount equal to the
proportion that the fee otherwise payable to the Administrator bear to the total
amount of investment advisory and administration fees otherwise payable by the
Fund. The expense reimbursement obligation of the Administrator is limited to
the amount of its fees hereunder for such fiscal year, provided, however, that
notwithstanding the foregoing, the Administrator shall reimburse the Fund for a
portion of any such excess expenses in an amount equal to the proportion that
the fees otherwise payable to the Administrator bear to the total amount of
investment advisory and administration fees otherwise payable by the Fund
regardless of the amount of fees paid to the Administrator during such fiscal
year to the extent that the securities regulations of any state having
jurisdiction over the
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<PAGE>
Fund so require. Such expense reimbursement, if any, will be estimated on a
daily basis, reconciled and paid on a monthly basis.
5. Proprietary and Confidential Information. The Administrator agrees on
behalf of itself and its employees to treat confidentially and as proprietary
information of the Fund all records and other information relative to the Fund's
prior, present or potential shareholders, and not to use such records and
information for any purpose other than performance of their responsibilities and
duties hereunder, except after prior notification to and approval in writing by
the Fund, which approval shall not be unreasonably withheld and may not be
withheld where the Administrator may be exposed to Civil or Criminal contempt
proceedings for failure to comply, when requested to divulge such information by
duly constituted authorities, or when so requested by the Fund.
6. Limitation of Liability. The Administrator shall not be liable for any
error of judgement or mistake of law or for any loss or expense suffered by the
Fund, in connection with the matters to which this Agreement relates, except for
a loss or expense resulting from willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement. Any person,
even though also an officer, director, partner, employee or agent of the
Administrator, who may be or become an officer, director, employee or agent of
the Fund, shall be deemed when rendering services to the Fund or acting on any
business of the Fund (other than services or business in connection with the
Administrator's duties hereunder) to be rendering such services to or acting
solely for the Fund and not as an officer, director, partner, employee or agent
or one under the control or direction of the Administrator even though paid by
them.
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<PAGE>
7. Terms. This Agreement shall become effective on the date first
hereinabove written and, unless sooner terminated as provided herein, shall
continue in effect from year to year thereafter, provided such continuance is
specifically approved at least annually (i) by the Fund's Board of Directors or
(ii) by a vote of a majority (as defined in the 1940 Act) of the outstanding
voting securities of the Fund, provided that in either event the continuance is
also approved by the majority of the Fund's Board of Directors who are not
interested persons (as defined in the 1940 Act) of any party to this Agreement,
by vote cast in person at a meeting called for the purpose of voting on such
approval. This Agreement is terminable, without penalty, by the Fund's Board of
Directors, by vote of a majority (as defined in the 1940 Act) of the outstanding
voting securities of such Fund, or by the Administrator, on not less than sixty
days' notice. This agreement shall automatically terminate upon its assignment
by the Administrator without the prior written consent of the Fund, provided,
however, that no such assignment shall release the Administrator from its
obligations under this Agreement.
8. Governing Law. This Agreement shall be governed by Illinois law.
9. Amendments. No provision of this Agreement may be changed, discharged,
or terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, discharge or termination is sought.
10. Miscellaneous. The parties to this Agreement acknowledge and agree that
all liabilities arising, directly or indirectly, under this Agreement, of any
and every nature whatsoever, including without limitation, liabilities arising
in connection with any agreement of the Fund set forth herein to indemnify any
party to this Agreement or any other person, shall be satisfied out of the
assets of the Fund and that no director,
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<PAGE>
officer or shareholder of the Fund shall be personally liable for any of the
foregoing liabilities.
If a change or discharge is sought against the Fund, the instrument must be
signed by the Administrator.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the date indicated below.
SECURITY CAPITAL EMPLOYEE REIT
FUND INCORPORATED
ATTEST: By:
-------------------------- --------------------------
(Title)
SECURITY CAPITAL INVESTMENT
RESEARCH GROUP INCORPORATED
ATTEST: By:
-------------------------- --------------------------
(Title)
EFFECTIVE AS OF:
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<PAGE>
EXHIBIT A
FUND ACCOUNTING AND FUND ADMINISTRATION
FEE SCHEDULE
FOR
SECURITY CAPITAL EMPLOYEE REIT FUND INCORPORATED
Annual Rate: .15% (15 basis points) of the average daily net assets
of the Fund billed monthly.
Note:
1. The annual rate is subject to a monthly minimum of
$5,000.00.
2. Out-of-pocket expenses will be billed to the Fund separately.
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<PAGE>
EXHIBIT 9(c)
FUND ACCOUNTING SERVICING AGREEMENT
This contract between Security Capital Employee REIT Fund Incorporated, a
Maryland corporation hereinafter called the "Fund" and Firstar Trust Company, a
Wisconsin corporation, hereinafter called "FTC," is entered into on this
____________ day of _________________1997
WHEREAS, the Fund is an open-ended management investment company registered
under the Investment Company Act of 1940; and
WHEREAS, ("FTC") is in the business of providing, among other things, mutual
fund accounting services to investment companies;
NOW, THEREFORE, the parties do mutually promise and agree as follows:
1. Services. FTC agrees to provide the following mutual fund accounting
services to the Fund:
A. Portfolio Accounting Services:
(1) Maintain portfolio records on a trade date +1 basis using
security trade information communicated from the investment manager on a
timely basis.
(2) For each valuation date, obtain prices from a pricing source
approved by the Board of Directors and apply those prices to the
portfolio positions in a manner consistent with the Fund's Prospectus
and Statement of Additional Information (Collectively, the "Prospectus")
as may be amended from time to time. For those securities where market
quotations are not readily available, the Board of Directors shall
approve, in good faith, the method for determining the fair value for
such securities.
(3) Identify interest and dividend accrual balances as of each
valuation date and calculate gross earnings on investments for the
accounting period.
(4) Determine gain/loss on security sales and identify them as to
short-short, short- or long-term status; account for periodic
distributions of gains or losses to shareholders and maintain
undistributed gain or loss balances as of each valuation date.
B. Expense Accrual and Payment Services:
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<PAGE>
(1) For each valuation date, calculate the expense accrual amounts
as directed by the Fund as to methodology, rate or dollar amount.
(2) Record payments for Fund expenses upon receipt of written
authorization from the Fund.
(3) Account for fund expenditures and maintain expense accrual
balances at the level of accounting detail, as agreed upon by FTC and
the Fund.
(4) Provide expense accrual and payment reporting.
C. Fund Valuation and Financial Reporting Services:
(1) Account for fund share purchases, sales, exchanges, transfers,
dividend reinvestments, and other fund share activity as reported by the
transfer agent on a timely basis.
(2) Apply equalization accounting as directed by the Fund.
(3) Determine net investment income (earnings) for the Fund as of
each valuation date. Account for periodic distributions of earnings to
shareholders and maintain undistributed net investment income balances
as of each valuation date.
(4) Maintain a general ledger for the Fund in the form as agreed
upon.
(5) Determine the net asset value of the Fund according to the
pricing, valuation and accounting policies and procedures set forth in
the Prospectus.
(6) Calculate per share net asset value, per share net earnings,
and other per share amounts reflective of fund operation at such time as
required by the nature and characteristics of the Fund.
(7) Communicate, at an agreed upon time, the per share price for
each valuation date to parties as agreed upon from time to time.
(8) Prepare monthly reports which document the adequacy of
accounting detail to support month-end ledger balances.
D. Tax Accounting Services:
(1) Maintain accounting records for the investment portfolio of
the Fund to support the tax reporting required for IRS-defined regulated
investment companies.
(2) Maintain tax lot detail for the investment portfolio.
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<PAGE>
(3) Calculate taxable gain/loss on security sales using the tax lot
relief method designated by the Fund.
(4) Provide the necessary financial information to support the
taxable components of income and capital gains distributions to the
transfer agent to support tax reporting to the shareholders.
E. Compliance Control Services:
(1) Support reporting to regulatory bodies and support financial
statement preparation by making the fund accounting records available to
the Securities and Exchange Commission, and the outside auditors.
(2) Maintain accounting records according to the Investment Company
Act of 1940 and regulations provided thereunder.
2. Pricing of Securities. For each valuation date, obtain prices from a
pricing source selected by FTC but approved by the Fund's Board of Directors and
apply those prices to the portfolio position in a manner consistent with the
Prospectus. For those securities where market quotations are not readily
available, the Fund's Board of Directors shall approve, in good faith, the
method for determining the fair value for such securities.
If the Fund desires to provide a price which varies from the pricing
source, the Fund shall promptly notify and supply FTC with the valuation of any
such security on each valuation date. All pricing changes made by the Fund will
be in writing and must specifically identify the securities to be changed by
CUSIP, name of security, new price or rate to be applied, and, if applicable,
the time period for which the new prices are effective.
3. Changes in Accounting Procedures. Any resolution passed by the Board of
Directors. that affects accounting practices and procedures under this agreement
shall be effective upon written receipt and acceptance by the FTC.
4. Changes in Equipment, Systems, Service, Etc. FTC reserves the right to
make changes from time to time, as it deems advisable, relating to its services,
systems, programs, rules, operating schedules and equipment, so long as such
changes do not adversely affect the service provided to the Fund under this
Agreement and provided notice is given to the Fund describing such changes.
5. Compensation. FTC shall be compensated for providing the services set
forth in this Agreement in accordance with the Fee Schedule attached hereto as
Exhibit A and as mutually agreed upon and amended from time to time.
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<PAGE>
6. Performance of Service.
A. FTC shall exercise reasonable care in the performance of its
duties under this Agreement. FTC shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in
connection with matters to which this Agreement relates, including
losses resulting from mechanical breakdowns or the failure of
communication or power supplies beyond FTC's control, except a loss
resulting from FTC's refusal or failure to comply with the terms of this
Agreement or from bad faith, negligence, or willful misconduct on its
part in the performance of its duties under this Agreement.
Notwithstanding any other provision of this Agreement, the Fund shall
indemnify and hold harmless FTC from and against any and all claims,
demands, losses, expenses, and liabilities (whether with or without
basis in fact or law) of any and every nature (including reasonable
attorneys' fees) which FTC may sustain or incur or which may be asserted
against FTC by any person arising out of any action taken or omitted to
be taken by it in performing the services hereunder (i) in accordance
with the foregoing standards, or (ii) in reliance upon any written or
oral instruction provided to FTC by any duly authorized officer of the
Fund, such duly authorized officer to be included in a list of
authorized officers furnished to FTC and as amended from time to time in
writing by resolution of the Fund's Board of Directors.
In the event of a mechanical breakdown or failure of communication or
power supplies beyond its control, FTC shall take all reasonable steps
to minimize service interruptions for any period that such interruption
continues beyond FTC's control. FTC will make every reasonable effort to
restore any lost or damaged data and correct any errors resulting from
such a breakdown at the expense of FTC. FTC agrees that it shall, at all
times, have reasonable contingency plans with appropriate parties,
making reasonable provision for emergency use of electrical data
processing equipment to the extent appropriate equipment is available.
Representatives of the Fund shall be entitled to inspect FTC's premises
and operating capabilities at any time during regular business hours of
FTC, upon reasonable notice to FTC.
Regardless of the above, FTC reserves the right to reprocess and
correct administrative errors at its own expense.
B. In order that the indemnification provisions contained in this
section shall apply, it is understood that if in any case the Fund may
be asked to indemnify or hold FTC harmless, the Fund shall be fully and
promptly advised of all pertinent facts concerning the situation in
question, and it is further understood that FTC will use all reasonable
care to notify the Fund promptly concerning any situation which presents
or appears likely to present the probability of such a claim for
indemnification against the Fund. The Fund shall have the option to
defend FTC against any claim which may be the subject of this
indemnification. In the event that the Fund so elects, it will so notify
FTC and thereupon the Fund shall take over complete defense of the
claim, and FTC shall in such situation initiate no further
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<PAGE>
legal or other expenses for which it shall seek indemnification under
this section. FTC shall in no case confess any claim or make any
compromise in any case in which the Fund will be asked to indemnify FTC
except with the Fund's prior written consent.
C. FTC shall indemnify and hold the Fund harmless from and against
any and all claims, demands, losses, expenses, and liabilities (whether
with or without basis in fact or law) of any and every nature (including
reasonable attorneys' fees) which may be asserted against the Fund by
any person arising out of any action taken or omitted to be taken by FTC
as a result of FTC's refusal or failure to comply with the terms of this
Agreement, its bad faith, negligence, or willful misconduct.
7. Records. FTC shall keep records relating to the services to be
performed hereunder, in the form and manner, and for such period as it may deem
advisable and is agreeable to the Fund but not inconsistent with the rules and
regulations of appropriate government authorities, in particular, Section 31 of
The Investment Company Act and the rules thereunder. FTC agrees that all such
records prepared or maintained by FTC relating to the services to be performed
by FTC hereunder are the property of the Fund and will be preserved, maintained,
and made available with such section and rules of the Investment Company Act and
will be promptly surrendered to the Fund on and in accordance with its request.
8. Confidentiality. FTC shall handle in confidence all information
relating to the Fund's business, which is received by FTC during the course of
rendering any service hereunder.
9. Data Necessary to Perform Services. The Fund or its agent, which may be
FTC, shall furnish to FTC the data necessary to perform the services described
herein at times and in such form as mutually agreed upon.
10. Notification of Error. The Fund will use its best efforts to notify FTC
of any balancing or control error caused by FTC within three (3) business days
after receipt of any reports rendered by FTC to the Funds, or within three (3)
business days after discovery of any error or omission not covered in the
balancing or control procedure, or within three (3) business days of receiving
notice from any shareholder.
11. Additional Classes. In the event that the Fund establishes one or more
classes of shares with respect to which it desires to have FTC render accounting
services, under the terms hereof, it shall so notify FTC in writing, and if FTC
agrees in writing to provide such services, such services will be subject to the
terms and conditions of this agreement, and shall be maintained and accounted
for by FTC on a discrete basis. The Fund currently has one class of
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<PAGE>
common stock issued, which is intended to be covered by this Agreement.
12. Term of Agreement. This Agreement may be terminated by either party
upon giving sixty (60) days prior written notice to the other party or such
shorter period as is mutually agreed upon by the parties. However, this
Agreement may be replaced or modified by a subsequent agreement between the
parties.
13. Duties in the Event of Termination. In the event that in connection
with termination a successor to any of FTC's duties or responsibilities
hereunder is designated by the Fund by written notice to FTC, FTC will promptly,
upon such termination and at the expense of the Fund, transfer to such successor
all relevant books, records, correspondence and other data established or
maintained by FTC under this Agreement in a form reasonably acceptable to the
Fund (if such form differs from the form in which FTC has maintained the same,
the Fund shall pay any expenses associated with transferring the same to such
form), and will cooperate in the transfer of such duties and responsibilities,
including provision for assistance from FTC's personnel in the establishment of
books, records and other data by such successor.
14. Notices. Notices of any kind to be given by either party to the other
party shall be in writing and shall be duly given if mailed or delivered as
follows: Notice to FTC shall be sent to Firstar Trust Company, 615 East Michigan
Street, Milwaukee, Wisconsin 53202, and notice to the Fund shall be sent to
Daniel F. Miranda, Security Capital Employee REIT Fund Incorporated, 11 South
LaSalle Street, Chicago, IL 60603.
15. Choice of Law. This Agreement shall be construed in accordance with the
laws of the State of Wisconsin.
IN WITNESS WHEREOF, the due execution hereof on the date first above
written.
Security Capital Employee REIT Fund Firstar Trust Company
Incorporated
___________________________________ By ____________________________________
Vice President
Attest:
By ____________________________________
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