<PAGE>
As filed with the Securities and Exchange Commission on July 8, 1999
REGISTRATION NO. 811-08920
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
AMENDMENT NO. 1
------------------------
CLARION CMBS VALUE FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
------------------------
335 Madison Avenue
New York, New York 10017
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 883-2500
------------------------
Daniel Heflin
Clarion Capital, LLC
335 Madison Avenue
New York, New York 10017
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------
Copy To:
Paul S. Schreiber, Esq.
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
-------------------
- --------------------------------------------------------------------------------
<PAGE>
Clarion CMBS Value Fund, Inc. hereby adopts in its entirety the Registration
Statement (file no. 811-08920) of 13A Commercial Mortgage Securities Fund, Inc.,
formerly known as AEW Commercial Mortgage Securities Fund, Inc. which filed a
Registration Statement on Form N-2 under the Investment Company Act of 1940 on
or about December 20, 1994.
<PAGE>
PROSPECTUS
CLARION CMBS VALUE FUND, INC.
July 8, 1999
Like all investment companies, these securities have not been approved or
disapproved by the Securities and Exchange Commission nor has the SEC passed on
the accuracy of this prospectus. It is a criminal offense to claim otherwise.
The Fund has not and does not intend to engage in a public offering of its
securities. The securities have not been registered under the Securities Act of
1933, as amended (the "1933 Act"), in reliance upon the exemption provided by
Section 4(2) of the 1933 Act. The securities have not been registered under any
state securities laws in reliance upon various exemptions provided by those
laws. The securities have not been approved or disapproved by any regulatory
authority nor has any regulatory authority passed on the merits of this offering
or the accuracy or adequacy of this Prospectus. Any representation to the
contrary is a criminal offense. The securities are being offered to qualified
persons who will purchase the securities for their own accounts. The minimum
initial investment is $3 million. The securities may not be transferred or
resold except as permitted under the 1933 Act and the securities laws of the
states in which the securities are sold pursuant to registration under the 1933
Act or such laws or exemptions therefrom. No public market for the securities
now exists or is anticipated to develop. These securities are redeemable through
the issuer.
The Fund was a closed-end fund and the shareholders of the Fund have approved a
proposal to open-end the fund and reorganize the fund as an open-end fund. The
conversion of the Fund to an open-end investment company occurred on the date of
the filing of this prospectus. This prospectus pertains to the Fund as an
open-end investment company.
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
CLARION CMBS VALUE FUND, INC..............................................................................................3
What is the primary investment objective of the Fund?..................................................................3
What are the principal risks of an investment in the Fund?.............................................................4
How has the Fund performed?............................................................................................5
What fees and expenses are charged to investors in the Fund?...........................................................7
What are the investment objective and policies of the Fund?............................................................7
Who manages the Fund?..................................................................................................9
Investment Advisory Agreement.......................................................................................9
INVESTMENTS IN THE FUND..................................................................................................10
Risk Factors..........................................................................................................10
How to Purchase Shares................................................................................................12
Automatic Investment Plan.............................................................................................13
Redeeming Your Shares.................................................................................................13
INFORMATION ON DIVIDENDS, DISTRIBUTIONS AND TAXES........................................................................14
FINANCIAL HIGHLIGHTS.....................................................................................................14
Reorganization...........................................................................................................16
Additional Shareholder Information.......................................................................................16
</TABLE>
2
<PAGE>
CLARION CMBS VALUE FUND, INC.
The Clarion CMBS Value Fund, Inc. (the "Fund") was formed in December
1994 as a non-diversified, closed-end management investment company. The primary
investment objective of the Fund is to provide high current income by actively
managing a portfolio of investments comprised primarily of commercial
mortgage-backed securities ("CMBS"). On June 9, 1999, the shareholders of the
Fund approved the reorganization of the Fund as an open-end management
investment company.
As of May 31, 1999, the Fund held a portfolio of 34 CMBS with a market
value of $100.9 million. The portfolio had an average credit rating of BB+ and
an average yield to maturity of 10.54%. While the Fund is classified as a
"non-diversified fund" under the Investment Company Act of 1940, its portfolio
is diversified geographically and by property type, as shown in the following
table:
DISTRIBUTION OF LOANS UNDERLYING THE CMBS INVESTMENTS BY THE FUND
BY PROPERTY TYPE AND GEOGRAPHIC DISTRIBUTION AS OF MAY 31, 1999
<TABLE>
<CAPTION>
Distribution by Property Type Distribution by State
- --------------------------------------------- ------------------------------------------
<S> <C> <C> <C>
Multifamily 43.2% CA 16.5%
Retail 19.0 TX 10.9
Hotel 13.3 FL 7.6
Office 9.7 NY 6.6
Industrial 3.4 All others(1) 58.4
Other 11.4
</TABLE>
WHAT IS THE PRIMARY INVESTMENT OBJECTIVE OF THE FUND?
The primary investment objective of the Fund is to provide high current
income by actively managing a portfolio of investments comprised primarily of
CMBS. The portfolio is managed to achieve high total return, including some
possibility of capital appreciation. No assurances can be given that the
investment objective of the Fund can be achieved.
The Fund intends to invest 95% or more of its assets in CMBS. The
majority of the CMBS in which the Fund will invest are expected to be rated BBB+
or below with maturities of 2 - 20 years. However, for temporary defensive
purposes, the Fund may invest up to 20% of its total assets in high-quality
taxable and tax-exempt investments.
In support of the investment objective and to mitigate the risks
associated with an investment in the Fund, a number of investment restrictions
have been placed on the activities of the Fund. These investment restrictions
include among others:
The weighted average credit rating of the Fund's portfolio will be BB-
(Ba3) or better at all times;
Securities with ratings below B- may not exceed 20% of the Fund's total
asset value;
No more than 20% of the total assets of the Fund may be invested in U.S.
Treasury securities and securities issued by agencies or instrumentalities
of the U.S. Government that are not mortgage securities; and
- ------------------------------
(1) No other state comprises more than 4% of the total.
3
<PAGE>
The Fund may not make any short sale of securities nor invest in leveraged
derivatives.
In addition, the Fund has adopted a number of fundamental investment
restrictions which may not be changed without shareholder approval. The
Statement of Additional Information (the "SAI") lists these restrictions in
full.
WHAT ARE THE PRINCIPAL RISKS OF AN INVESTMENT IN THE FUND?
As a mutual fund investing in CMBS, the Fund is subject primarily to
interest rate risk, spread risk and credit risk. Interest rate risk is the
potential for the value of the Fund's assets to fall due to rising interest
rates. In general, fixed-income securities lose value when interest rates rise,
and gain value when interest rates fall.
The Fund is also exposed to spread risk, which is the potential for the
value of the Fund's assets to fall due to the widening of the spreads used to
value the assets. The price of a fixed income security is generally determined
by adding an interest rate spread to a benchmark interest rate, such as the U.S.
Treasury rate. As the spread on a security widens (or increases), the price (or
value) of the security falls. Spread widening in the market for CMBS may occur
as a result of market concerns over the stability of the commercial real estate
market, excess supply of CMBS, or general credit concerns in other markets among
other reasons.
In addition to interest rate and spread risk, the Fund is also exposed
to credit risk (or default risk). Credit risk is the possibility that the
obligors under commercial mortgages may be unable to make payments of interest
and principal, increasing the risk of default on a related CMBS. In such a case,
the Fund may suffer from a loss of interest income or may lose some or all
principal invested in a CMBS.
Investors should carefully assess the risks associated with an
investment in the Fund before purchasing shares. The Fund is designed as a
mid-term to long-term investment and not for short-term investment purposes, and
should not be considered a complete investment program. The loss of money is a
risk of investing in the Fund. For a more complete discussion of the risks
associated with an investment in the Fund, see "Investments in the Fund - Risk
Factors".
4
<PAGE>
HOW HAS THE FUND PERFORMED?
The value of the Fund's assets and, to a lesser degree, the income that
they generate will vary from month to month, reflecting changes in interest
rates, market conditions and other economic and political conditions. The
following charts illustrate over time the value of $1000 invested in the Fund
and the Lehman Brother Aggregate Intermediate Index at inception and the annual
performance of the Fund and the index for the past four years:
<TABLE>
<S> <C>
VALUE OF $1000 INVESTED IN THE ANNUAL TOTAL RETURNS FOR THE FUND(2) AND THE
FUND AND THE LEHMAN BROTHERS AGGREGATE LEHMAN BROTHERS AGGREGATE INTERMEDIATE INDEX(3)
INTERMEDIATE INDEX AT INCEPTION 1995 - 1999
[GRAPH] [GRAPH]
</TABLE>
<TABLE>
<CAPTION>
Value of $1000 - Fund Value of $1000 - LB Index
<S> <C> <C>
Dec-94 1,003 1,000
Jan-95 1,020 1,022
Feb-95 1,046 1,050
Mar-95 1,054 1,057
Apr-95 1,069 1,073
May-95 1,112 1,113
Jun-95 1,123 1,121
Jul-95 1,120 1,122
Aug-95 1,132 1,135
Sep-95 1,151 1,145
Oct-95 1,178 1,159
Nov-95 1,202 1,176
Dec-95 1,218 1,192
Jan-96 1,229 1,203
Feb-96 1,211 1,189
Mar-96 1,216 1,182
Apr-96 1,214 1,178
May-96 1,218 1,176
Jun-96 1,239 1,192
Jul-96 1,246 1,196
Aug-96 1,255 1,197
Sep-96 1,279 1,218
Oct-96 1,318 1,245
Nov-96 1,352 1,264
Dec-96 1,349 1,256
Jan-97 1,352 1,263
Feb-97 1,376 1,267
Mar-97 1,371 1,255
Apr-97 1,407 1,275
May-97 1,449 1,288
Jun-97 1,481 1,303
Jul-97 1,455 1,333
Aug-97 1,457 1,327
Sep-97 1,493 1,345
Oct-97 1,518 1,362
Nov-97 1,518 1,366
Dec-97 1,519 1,380
Jan-98 1,551 1,399
Feb-98 1,552 1,399
Mar-98 1,565 1,405
Apr-98 1,557 1,414
May-98 1,573 1,425
Jun-98 1,587 1,435
Jul-98 1,589 1,441
Aug-98 1,600 1,463
Sep-98 1,614 1,496
Oct-98 1,542 1,494
Nov-98 1,521 1,498
Dec-98 1,538 1,505
Jan-99 1,551 1,515
Feb-99 1,534 1,498
Mar-99 1,546 1,510
Apr-99 1,557 1,516
May-99 1,570 1,504
</TABLE>
Annual Returns
<TABLE>
<CAPTION>
The Fund LB Index
-------- --------
<S> <C> <C>
1995 21.5% 19.2%
1996 10.7% 5.3%
1997 12.6% 9.9%
1998 1.3% 9.1%
</TABLE>
Net investment income generated by the Fund's portfolio (generally,
portfolio interest earned less Fund expenses) is distributed to shareholders on
a monthly basis, either in the form of cash or reinvested in shares of the Fund.
The following table presents the ratio of net investment income to average net
assets for the past three fiscal years and the six months ended April 30, 1999:
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS
<TABLE>
<CAPTION>
Six months ended December 21, 1994(4) to
April 30, 1999 Year ended Year ended Year ended October 31, 1995
(annualized) October 31, 1998 October 31, 1997 October 31, 1996 (annualized)
- ------------------------ ---------------------- ---------------------- ---------------------- -------------------------
<S> <C> <C> <C> <C>
8.10% 7.42% 8.56% 9.03% 8.30%
</TABLE>
- ------------------------------
(2) Total returns presented would have been lower had the Adviser not
waived certain fees and expenses.
(3) Unlike the returns of the Fund, the total returns of the Lehman
Brothers Aggregate Intermediate Index do not include the effect of
shareholder transaction and annual fund operating expenses.
(4) Commencement of operations.
5
<PAGE>
Since inception, the Fund has experienced two quarters with negative
returns. In the first quarter of 1996, the Fund return was -0.2% and following
the dislocation in fixed-income markets in the fourth quarter of 1998, the Fund
had a return of -4.7%. The following chart shows the quarterly returns for the
life of the Fund:
QUARTERLY TOTAL RETURNS FOR THE FUND
1995-1999
[GRAPH]
<TABLE>
<CAPTION>
Quarter ending returns
<S> <C>
Dec-94
Mar-95 5.12%
Jun-95 6.53%
Sep-95 2.45%
Dec-95 5.87%
Mar-96 -0.19%
Jun-96 1.87%
Sep-96 3.27%
Dec-96 5.43%
Mar-97 1.67%
Jun-97 7.31%
Sep-97 0.81%
Dec-97 1.70%
Mar-98 3.05%
Jun-98 1.42%
Sep-98 1.70%
Dec-98 -4.74%
</TABLE>
<TABLE>
<CAPTION>
PERIOD RETURN
---------------------------------------------
<S> <C> <C>
Highest quarterly return 4/1/97 - 6/30/97 7.3%
Lowest quarterly return 10/1/98 - 12/31/98 -4.7
</TABLE>
The following table shows the average annual returns for the past
calendar year and for the past four calendar years(5) for the Fund, as well as
the average annual returns for the Lehman Brothers Aggregate Intermediate Index.
Unlike the returns of the Fund, the returns of the Lehman Brothers
Aggregate Intermediate Index do not include the effect of shareholder
transaction and annual fund operating expenses.
<TABLE>
<CAPTION>
12 MONTHS ENDED 48 MONTHS ENDED
DECEMBER 31, 1998 DECEMBER 31, 1998
--------------------------------------------------
<S> <C> <C>
Clarion CMBS Value Fund 1.3% 11.3%
Lehman Brothers Aggregate Intermediate Index 9.1 10.8
</TABLE>
Both the bar chart and the table assume reinvestment of dividends and
distributions. As with all mutual funds, past performance is not an indication
of future performance.
- --------------------
(5) The Fund commenced operations on December 21, 1994.
6
<PAGE>
WHAT FEES AND EXPENSES ARE CHARGED TO INVESTORS IN THE FUND?
Shareholder transaction expenses are fees that are charged to investors
upon the purchase, sale or exchange of shares of a fund. The following table
describes the shareholder transaction expenses that an investor in the Fund
would pay:
<TABLE>
<S> <C>
Sales charge imposed on purchases None
Sales charge imposed on reinvested dividends and distributions None
Redemption fee (for shares redeemed within six months of purchase) 1.0%
</TABLE>
Annual fund operating expenses are paid out of the assets of a fund,
rather than charged directly to a shareholder's account. The Fund will pay
annual fund operating expenses such as a management fee to the Adviser of the
Fund, as well as certain legal, administrative, transfer agent, custodial and
other expenses. The expenses in the table below are based on figures from the
fiscal year ended on October 31, 1998.
<TABLE>
<CAPTION>
(Percentage of net
assets of the Fund)
----------------------------------
<S> <C>
Management fees 0.65%
Distribution (12b-1) fees None
Other expenses 0.28%
Total annual fund operating expenses 0.93%
</TABLE>
Example:
This example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. This hypothetical
example shows what your expenses would be if you invested $10,000 over the time
periods indicated. We assume that you reinvest all distributions, that the
average annual return is 5%, that operating expenses remain the same and you
redeem your Shares at the end of those periods. The example does not represent
the Fund's actual past or future expenses and returns. Although your actual
costs may be higher or lower, based on these assumptions, your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
--------------------------------------------------------
<S> <C> <C> <C>
$95 $296 $515 $1,143
</TABLE>
The Fund does not impose a sales charge on share purchases or the
reinvestment of dividends and distributions. A redemption fee of 1.0% is charged
on shares redeemed within six months of purchase date.
WHAT ARE THE INVESTMENT OBJECTIVE AND POLICIES OF THE FUND?
The primary investment objective of the Fund is to provide high current
income by managing a portfolio of investments comprised primarily of CMBS. Under
current market conditions, approximately 95% of the Fund's assets will be
invested in CMBS and is expected to consist of intermediate term securities with
maturities ranging from 2 to 20 years. No assurance can be given that the
investment objective of the Fund will be achieved.
7
<PAGE>
In determining the CMBS that the Fund will acquire, the Adviser may
consider, among other factors, the following: the characteristics of the
underlying mortgage loans, including loan-to-value and debt service coverage
ratios, loan seasoning and risks of refinancing; characteristics of the
underlying properties, including diversity of the loan pool, occupancy and
leasing rates and competitiveness in the pertinent market; economic,
environmental and local considerations; deal structure, including historical
performance of the originator, subordination percentages and reserve fund
balances; and structural participants such as administrators and servicers.
The Fund will diversify its holdings so as not to be overly affected by
a downturn in any specific region of the country, industry or property type. In
that regard, with respect to the total collateral underlying the securities of
the Fund: (1) no more than 33% shall be in any single state; (2) no single
property type shall constitute more than 75% of the collateral, provided,
however, that office properties shall constitute no more than 50% of the
collateral and hotel properties shall constitute no more than 50% of the
collateral; (3) no more than 50% of the Fund's assets at the time of purchase
may be securities backed by single properties; (4) agricultural mortgage
securities and non-agency single-family/residential mortgage-backed securities
are limited to a maximum of 5% of the Fund's assets at all times. The Fund will
not invest in interest only or principal only mortgage-backed securities.
There are limited restrictions on the credit quality of the Fund's
investments. The weighted average credit quality of the Fund will be BB- (Ba3)
or better at all times based on ratings from the nationally recognized credit
rating agencies, subject to the following: (i) securities rated below B- may not
exceed 20% of the Fund's total asset value; and (ii) all split rated securities
will be accounted for at the lower rating. If the Fund's asset composition in
any of the foregoing categories subsequently exceeds 110% of the related
percentage limitation for any reason, the Fund will take such action as may be
necessary so that within sixty days after the occurrence of such excess, the
relevant percentage limitation is again satisfied.
The Fund may invest up to 20% of its total assets in U.S. Treasury
securities and securities issued or guaranteed by agencies or instrumentalities
of the U.S. Government that are not mortgage securities. The Fund may invest in
investment grade money market instruments rated "A-2" or better by S&P or "P-2"
or better by Moody's. Included in the money market securities in which the Fund
may invest are commercial paper, certificates of deposit and banker's
acceptances. Under normal circumstances, temporary cash balances will be
invested directly in such investment grade money market instruments or in
commingled, short-term money market funds, which invest in comparably rated
securities.
The Fund is authorized to borrow for temporary purposes such as the
payment of dividends. The Fund will only borrow when the Adviser believes that
such borrowings will benefit the Fund after taking into account considerations
such as interest expense and possible gains and losses upon liquidation.
The Fund may also invest temporarily in repurchase agreements (with a
term no greater than ninety days), in which securities are acquired by the Fund
from a third party with the understanding that they will be repurchased by the
seller at a fixed price on an agreed date. These agreements may be made with
respect to the portfolio securities in which the Fund is authorized to invest.
The Fund must have collateral of at least 102% of the repurchase price,
including the portion representing the Fund's yield under such agreements which
is marked to market on a daily basis. Repurchase agreements may be characterized
as loans secured by the underlying securities and will be entered into in
accordance with the requirements of the SEC. The Fund will not engage in reverse
repurchase transactions.
8
<PAGE>
The Fund has adopted a number of fundamental investment restrictions
which may not be changed without the approval of the lesser of: (1) at least
66 2/3% of the voting securities present at a meeting at which at least 50% of
the outstanding securities of the Fund are present in person or by proxy, or (2)
more than 50% of the outstanding securities of the Fund. The fundamental
investment restrictions adopted by the Fund include:
The Fund will not make any short sale of securities;
The Fund will not invest in leveraged derivatives;
The investment policies described in this prospectus and in the SAI,
which are not specified as fundamental, may be changed by the Board of Directors
without shareholder approval. The Fund will give notice to shareholders sixty
days in advance of a change in a non-fundamental investment policy.
WHO MANAGES THE FUND?
The co-portfolio managers of the Fund are Mr. Frank L. Sullivan, Jr.
and Mr. Daniel Heflin. Mr. Sullivan has over 25 years of real estate investment
experience and has been an adjunct professor of finance at New York University's
Graduate School of Business for 18 years. Mr. Heflin has over 12 years of fixed
income investment experience and has supervised the acquisition and/or
structuring of more than $2 billion of mortgages and debt securities. Mr. Heflin
is a Certified Public Accountant in the State of New York.
Mr. Sullivan and Mr. Heflin are Chairman of the Board and President,
respectively, of Clarion Capital, LLC (the "Adviser"). The Adviser is based in
New York and is registered with the SEC as an investment adviser. With a staff
of eight fixed income and real estate professionals, the Adviser currently
manages over $350 million in CMBS investments on behalf of its clients.
Through an affiliation with Clarion Partners, an investment advisor
registered with the SEC, the Adviser has access to over 350 employees in offices
in 20 cities nationwide. Clarion Partners is a leading real estate investment
adviser and rated special servicer with $7 billion in assets under management.
State Street Bank and Trust Company currently serves as the Fund's
administrator. The custodian and transfer agent of the Fund are currently
Investors Fiduciary Trust Company and Boston EquiServe, respectively.
Investment Advisory Agreement
Pursuant to an investment advisory agreement (the "Advisory
Agreement"), dated as of June 24, 1999, the Adviser, subject to the control and
supervision of the Fund's Board of Directors and in conformance with the stated
investment objective and policies of the Fund, manages the investment and
reinvestment of the assets of the Fund. In this regard, it is the responsibility
of the Adviser to make investment decisions for the Fund and to place purchase
and sale orders for the Fund investments. The officers of the Fund and the
Adviser manage the day to day operations of the Fund. The officers of the Fund
are directly responsible to the Fund's Board of Directors which sets broad
policies for the Fund and chooses its officers.
The Advisory Agreement provides, among other things, that the Adviser
will bear all expenses of its employees and overhead incurred in connection with
its duties under the Advisory Agreement, and will pay all fees and salaries of
the Fund's officers or employees, if any, who are employees of the Adviser. The
Adviser may retain outside consultants and will be reimbursed by the Fund for
any expenses incurred therewith. The Advisory
9
<PAGE>
Agreement provides that the Fund shall pay a fee to the Adviser quarterly for
its services computed monthly at the annual rate of 0.65% of the Fund's average
net asset value.
The Adviser intends to devote such time and effort to the business of
the Fund as is reasonably necessary to perform its duties to the Fund. The
services of the Adviser are not exclusive and the Adviser may provide similar
services to other clients and may engage in other activities. In addition, the
Adviser may enter into an arrangement, at the Fund's expense, with one or more
firms with particular expertise in the real estate markets to perform specific
due diligence on certain real estate properties underlying securities in which
the Fund may invest.
The Advisory Agreement also provides that in the absence of willful
misfeasance, bad faith, negligence or reckless disregard of its obligations
thereunder, the Adviser is not liable to the Fund or any of the Fund's
shareholders for any act or omission by the Adviser in the supervision or
management of its respective investment activities or for any loss sustained by
the Fund or the Fund's shareholders.
INVESTMENTS IN THE FUND
RISK FACTORS
Commercial Mortgage-Backed Securities. Investments in CMBS involve the
credit risk of delinquency and default. Delinquency refers to interruptions in
the payment of interest and principal. Default refers to the potential for
unrecoverable principal loss from the sale of foreclosed property. These risks
include the risks inherent in the commercial mortgage loans which support such
CMBS and the risks associated with direct ownership of real estate. This may be
especially true in the case of CMBS secured by, or evidencing an interest in, a
relatively small or less diverse pool of commercial mortgage loans. The factors
contributing to these risks include the effects of general and local economic
conditions on real estate values, the conditions of specific industry segments,
the ability of tenants to make lease payments and the ability of a property to
attract and retain tenants, which in turn may be affected by local conditions
such as oversupply of space or a reduction of available space, the ability of
the owner to provide adequate maintenance and insurance, energy costs,
government regulations with respect to environmental, zoning, rent control and
other matters, and real estate and other taxes.
While the credit quality of the securities in which the Fund invests
will reflect the perceived appropriateness of future cash flows to meet
operating expenses, the underlying commercial properties may not be able to
continue to generate income to meet their operating expenses (mainly debt
services, lease payments, capital expenditures and tenant improvements) as a
result of any of the factors mentioned above. Consequently, the obligors under
commercial mortgages may be unable to make payments of interest in a timely
fashion, increasing the risk of default on a related CMBS. In addition, the
repayment of the commercial mortgage loans underlying CMBS will typically depend
upon the future availability of financing and the stability of real estate
property values.
Most commercial mortgage loans are nonrecourse obligations of the
borrower, meaning that the sole remedy of the lender in the event of a default
is to foreclose upon the collateral. As a result, in the event of default by a
borrower, recourse may be had only against the specific property pledged to
secure the loan and not against the borrower's other assets. If borrowers are
not able or willing to refinance or dispose of the property to pay the principal
balance due at maturity, payments on the subordinated classes of the related
CMBS are likely to
10
<PAGE>
be adversely affected. The ultimate extent of the loss, if any, to the
subordinated classes may only be determined after a foreclosure of the mortgage
encumbering the property and, if the mortgagee takes title to the property, upon
liquidation of the property. Factors such as the title to the property, its
physical condition and financial performance, as well as governmental disclosure
requirements with respect to the condition of the property, may make a third
party unwilling to purchase the property at a foreclosure sale or for a price
sufficient to satisfy the obligations with respect to the related CMBS. The
condition of a property may deteriorate during foreclosure proceedings. Certain
obligors on underlying mortgages may become subject to bankruptcy proceedings,
in which case the amount and timing of amounts due under the related CMBS may be
materially adversely affected.
In general, any losses on a given property, the lien on which is
included in a CMBS, will be absorbed first by the equity holder of the property,
then by a cash reserve fund or letter of credit, if any, and then by the "first
loss" subordinated security holder to the extent of its principal balance.
Because the Fund intends to invest in subordinated classes of CMBS, there can be
no assurances that in the event of default and the exhaustion of equity support,
the reserve fund and any debt classes junior to those in which the Fund invests,
the Fund will be able to recover all of its investments in the securities it
purchases. In addition, if the underlying mortgage portfolio has been overvalued
by the originator, or if the values subsequently decline, the Fund may
effectively hold the "first loss" position in certain CMBS, ahead of the more
senior debt holders, which may result in significant losses.
Investing in Lower Credit Quality Securities. Investors should
recognize that the lower-rated or unrated CMBS in which the Fund will invest
have speculative characteristics. The prices of lower credit quality securities
have been found to be less sensitive to interest rate changes than more highly
rated investments, but more sensitive to adverse economic downturns or
individual issuer developments. A projection of an economic downturn or of a
period of rising interest rates, for example, could cause a decline in the price
of lower credit quality securities because the advent of a recession could
lessen the ability of obligors of mortgages underlying CMBS to make principal
and interest payments. In such event, existing credit supports may be
insufficient to protect against loss of principal.
Larger Shareholders. Since the Fund's minimum initial investment is $3
million, the Fund is offered to large institutional holders. If a large holder
were to redeem a significant portion of their shares, it could have a negative
effect on the Fund's expense ratio and the Fund's portfolio, potentially causing
the Fund to no longer be viable. As of April 30, 1999, Ameritech Pension Trust
owned approximately 99% of the Fund's securities.
Non-diversified Status Under Federal Securities Laws. The Fund has
registered with the Securities and Exchange Commission as a "non-diversified"
investment company which enables it to invest more than 5% of its assets in the
obligations of any single issuer. As a result of its ability to concentrate its
investments in the obligations of a smaller number of issuers, the Fund may be
more susceptible than a more widely diversified fund to any single economic,
political or regulatory occurrence. As a matter of fundamental policy, the Fund
will generally not invest more than 25% of its assets in the securities of any
one industry (CMBS and other securities issued or guaranteed by the U.S.
Government or any agency or instrumentality thereof are not treated as an
industry).
Illiquid Securities. The Fund may invest in securities that lack an
established secondary trading market or are otherwise considered illiquid.
Liquidity of a security refers to the ability to easily dispose of securities
and the price to be obtained, and does not necessarily relate to the credit risk
or likelihood of receipt of cash at maturity. Illiquid securities may trade at a
discount from comparable, more liquid investments and at times there may be no
market at all. The CMBS which the Fund intends to acquire may be less marketable
or in some instances illiquid
11
<PAGE>
because of the absence of registration under the federal securities laws,
contractual restrictions on transfer and the small size of the issue (relative
to the issues of comparable interests).
Other Investment Management Techniques. The Fund may use various other
investment management techniques that also involve special considerations
including engaging in hedging transactions, selling listed and over-the-counter
covered call options, making forward commitments, entering into repurchase
agreements, and investing in Eurodollar instruments.
Market Value of Assets. The market values of the Fund's assets will
generally fluctuate inversely with changes in prevailing interest rates and
spreads and directly with the perceived credit quality of such assets. To the
extent the various hedging techniques and active portfolio management employed
by the Fund do not offset these changes, the net asset value of the Fund's
shares will also fluctuate in relation to these changes. The various investment
techniques employed by the Fund and the different characteristics of particular
securities in which the Fund may invest make it very difficult to predict
precisely the impact of interest rate and credit quality changes on the net
asset value of the shares. Market value may also be impaired by actual principal
losses resulting from collateral foreclosures and sales.
Purchases and Redemptions. As an open-end fund, the Fund is required to
redeem its securities if so requested by shareholders. To the extent the Fund is
required to sell appreciated securities to pay redemptions, the Fund will
realize capital gains which must be distributed to shareholders each year. Such
distributions will be taxable to shareholders. If there are significant
redemptions as a result of its conversion to an open-end fund, the Fund may
realize significant capital gains.
Year 2000 Disclosure. Many computer systems were designed using only
two digits to designate years. As such, these systems may not recognize "00" as
being the year 2000 and may read it as 1900. The Fund could be adversely
affected if the computer systems used by the Adviser and its service providers,
primarily the Fund's transfer agent and custodian, do not address this problem
before January 1, 2000. The Fund's investment adviser, transfer agent and
custodian expect to have addressed this problem before then, although the Fund's
management will continue to monitor the situation as the year 2000 approaches.
If the problem has not been fully addressed, the Fund could be negatively
affected. The year 2000 problem could also have a negative impact on the
securities in which the Fund invests, which could hurt the Fund's investment
returns.
HOW TO PURCHASE SHARES
Institutional investors on a private placement basis can make an
investment in the Fund on any Business Day at the next calculated net asset
value, subject to the Fund's ability to reject or limit certain investments. A
Business Day is any weekday the New York Stock Exchange (NYSE) is open for
trading. Incomplete orders and orders that are not paid for in a timely manner
will be returned. All investments in the Fund are subject to a minimum initial
subscription of $3 million.
Net asset value for each share class is determined as of 4pm (EST) on
any Business Day other than a day during which no such security was tendered for
redemption and no order to purchase or sell such security was received. The net
asset value will also be calculated at the end of every month. Net asset value
equals the Fund's total assets less any liabilities divided by its outstanding
shares.
12
<PAGE>
The Fund has two classes of shares, class A and class X shares. Class A
shares are offered on a private placement basis to institutional investors only.
Class X shares are owned by investors who acquired their interest in the Fund at
the time the Fund was a closed-end fund.
AUTOMATIC INVESTMENT PLAN
Pursuant to the Fund's Automatic Dividend Reinvestment Plan (the
"Plan"), all distributions will be automatically reinvested by the Fund's
transfer agent (the "Plan Agent") in the same class of shares of the Fund's
common stock pursuant to the Plan. Shareholders may elect to have all
distributions paid in cash by check in U.S. dollars mailed directly to the
shareholder by the Plan Agent, as dividend paying agent.
The Plan Agent serves as agent for the shareholders in administering
the Plan. When the Board of Directors of the Fund declares a dividend,
participants in the Plan will receive the equivalent in the same class of shares
of common stock in the Fund valued at net asset value determined at the time of
purchase, the payable date of the dividend.
The Plan Agent maintains all shareholder accounts in the Plan and
furnishes written confirmations of all transactions in the account, including
information needed by shareholders for personal and tax records. Shares in the
account of each Plan participant are held by the Plan Agent in non-certificated
form.
There is no charge to participants for reinvesting dividends or capital
gains distributions. The Plan Agent's fees for the handling of reinvestment of
dividends and distributions will be paid by the Fund. The automatic reinvestment
of dividends and distributions will not relieve participants of any U.S. tax
that may be payable on such dividends or distributions.
The Plan may be amended or terminated by the Fund or the Plan Agent by
at least 90 days' written notice to all shareholders of the Fund.
REDEEMING YOUR SHARES
You can redeem your investment on any Business Day. Requests for
redemption must be submitted in writing to the Fund at the offices of the
Adviser (Clarion Capital, LLC, 335 Madison Avenue, New York, New York, 10017).
Shares are redeemed after a redemption request has been received at the next
determined net asset value.
Due to the nature of the Fund's portfolio instruments, redemption
requests will be processed pursuant to the Fund's "redemption-in-kind" policy as
described below. In order to avoid receiving redemption proceeds in securities,
a shareholder may notify the Fund's investment adviser in advance of the
shareholder's intent to submit a redemption request, so that securities may be
sold in advance of the redemption request, and then redemption proceeds could be
paid in cash rather than "in-kind". Shareholders are advised to contact the
Fund's investment adviser regarding redemptions as early as possible.
Redemptions-in-Kind. The Fund has adopted the following redemption
policy in conformity with Rule 18f-1 under the 1940 Act. It is the Fund's policy
to redeem its shares, with respect to any one shareholder during any 90 day
period, solely in cash up to the lesser of $250,000 or 1% of the net asset value
of the Fund at the beginning of the period. As an operating policy, the Fund may
satisfy redemption requests in excess of such amount by distributing portfolio
securities in lieu of cash. Any shareholder who owns more than 5% of the
13
<PAGE>
outstanding shares of the Fund, upon requesting a redemption that the Fund
elects to pay "in kind", will receive a pro-rata distribution of the Fund's
portfolio of securities, in accordance with Fund's procedures. This policy may
be modified or terminated at any time by the Board of Directors of the Fund.
Any securities distributed in-kind would be valued in accordance with
the Fund's policies used to determine net asset value. The redeeming shareholder
will bear the risk of fluctuation in value of the in-kind redemption proceeds
after the trade date for the redemption. For a further description of redemption
in-kind procedures and requirements, see "Redemption or Repurchase of Shares" in
the SAI.
Redemption Fee. The Fund has adopted the policy that if shareholders
redeem their shares within 6 months of purchase, the Fund will deduct a 1%
redemption fee at the time of such redemption.
INFORMATION ON DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund's dividends from net investment income are declared and paid
monthly. Any distributions from net realized securities profits will be
distributed once a year. Both dividends and distributions, if any, are
automatically reinvested in shares of Common Stock pursuant to the Fund's
Automatic Dividend Reinvestment Plan, unless a holder of Common Stock elects
otherwise. Any check in payment of dividends or other distributions which cannot
be delivered by the Post Office or which remains uncashed for a period of more
than one year may be reinvested for the shareholder pursuant to the Plan and the
dividend option may be changed from cash to reinvest. See "Automatic Dividend
Reinvestment Plan." Information as to the tax status of distributions will be
provided annually.
Tax issues can be complicated. Please consult your tax adviser about
federal, state, or local tax consequences or with any other tax questions you
may have. The Funds may make both dividend and capital gains distributions. Both
dividends and short-term capital gains distributions are taxed as ordinary
income and are subject to a maximum federal rate of 39.6% for individual
shareholders. Long-term capital gains distributions are taxed at a maximum rate
of 20%. Dividends and distributions are generally taxable whether they are taken
in cash or reinvested. Any dividends and distributions declared in November or
December and paid in January are taxable as though they were paid on December
31st. By January 31st of each year, you will be mailed a statement showing the
tax status of your dividends and distributions for the prior year. Please see
the SAI for more information.
Federal tax laws require us to withhold up to 31% of ordinary income
dividends, capital gains dividends, and sales proceeds from shareholders who do
not furnish their tax identification numbers on IRS form W-9 or form W-8 for
non-U.S. investors.
FINANCIAL HIGHLIGHTS
The following tables are intended to help you understand the Fund's
financial performance for the past four years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned or lost on an investment
in the Fund assuming reinvestment of all dividends and distributions. The
information below appears in the Semi-Annual Report dated April 30, 1999. The
Fund's auditor is McGladrey & Pullen LLP. This information should be read in
conjunction with the Statement of Additional Information (SAI).
14
<PAGE>
<TABLE>
<CAPTION>
Six Months December 21,
Ended Year ended Year ended Year ended 1994 (2) to
(per share data except for percentages April 30, 1999 October 31, October 31, October 31, October 31,
and where indicated) (Unaudited) 1998 1997 (1) 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period
$8.58 $9.66 $9.25 $10.82 $10.00
Income from Investment Operations
- ---------------------------------
Net Investment Income 0.34 0.68 0.81 0.93 0.75
Net Realized and Unrealized Gain (Loss) (0.26) (0.52) 0.40 0.06 0.78
- -------------------------------------------------------------------------------------------------------------------------------
Total From Investment Operations 0.08 0.16 1.21 0.99 1.53
- -------------------------------------------------------------------------------------------------------------------------------
Less Distributions from:
- ------------------------
Net Investment Income (0.33) (0.68) (0.80) (0.98) (0.71)
In Excess of Net Investment Income - - - (0.06) -
Net Realized Gain - (0.27) - (0.48) -
Return of Capital - (0.29) - (1.04) -
- -------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.33) (1.24) (0.80) (2.56) (0.71)
- -------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $8.33 $8.58 $9.66 $9.25 $10.82
Total Investment Return
Net Asset Value (3) (4) 0.99%(5) 1.55% 13.65% 10.26% 15.69%(5)
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Ratios and Supplemental Data
- ----------------------------
Net Assets, End of Period ($000) $100,752 $103,743 $112,614 $107,833 $115,796
Ratio of Net Expenses to Average Net
Assets 0.80% (6) 0.80% 0.79% 0.80% 0.80% (6)
Ratio of Net Investment Income to
Average Net Assets 8.10% (6) 7.42% 8.56% 9.03% 8.30% (6)
Ratio of Voluntary Waived Fees
and Expenses assumed by the
Adviser to Average Net Assets 0.15% (6) 0.13% 0.10% 0.08% 0.05%
Portfolio Turnover Rate 17%(5) 6% 42% 25% 72%
</TABLE>
(1) Effective July 21, 1997, Clarion Capital, LLC became the investment adviser
to the Fund.
(2) Commencement of Operations.
(3) Total investment return based on per share net asset value reflects the
effects of changes in net asset value on the performance of the Fund during
the period, and assumes dividends and distributions, if any, were
reinvested at net asset value. The Fund's shares were issued in private
placement and are not traded, therefore market value total investment
return is not calculated.
(4) Total return would have been lower had certain fees not been waived during
the periods.
(5) Not annualized.
(6) Annualized.
15
<PAGE>
REORGANIZATION
The Fund commenced investment operations on December 21, 1994 as a
closed-end management investment company organized as a Maryland corporation. At
a meeting of the shareholders of the Fund held on June 9, 1999, the shareholders
voted to approve the conversion of the Fund to an open-end investment company.
The conversion to an open-end investment company became effective on the date of
this prospectus.
ADDITIONAL SHAREHOLDER INFORMATION
Once you become a shareholder, you will be sent copies of the Fund's Annual and
Semiannual Reports. The Annual Report contains a discussion of the market
conditions and investment strategies that significantly affected the Fund's
performance during the last fiscal year. It also contains audited financial
statements by the Fund's independent accountants. These reports will be sent to
you at the address we have on record.
The Statement of Additional Information (SAI), which is referenced in this
prospectus and dated July 8th, 1999, is available to you without charge. You may
visit the SEC's website (http://www.sec.gov) to view the SAI and other
information. Also, you can obtain copies of the SAI and other information by
sending your request and fee to the SEC's Public Reference Section, Washington,
D.C. 20549-6009. You also may review and copy information about the Fund,
including the SAI, at the SEC's Public Reference Room in Washington, D.C. To
find out more about the public reference room, call the SEC at 1-800-SEC-0330.
You can also send your request for the SAI or any shareholder reports to the
Fund at:
335 Madison Avenue
New York, New York 10017
INVESTMENT ADVISER
Clarion Capital, LLC
335 Madison Avenue
New York, New York 10017
16
<PAGE>
CLARION CMBS VALUE FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
DATED July 8th, 1999
CLARION CMBS VALUE FUND, INC. (the "Fund") located at 335 Madison Avenue,
New York, New York 10017, and its telephone number is (212) 883-2500. Clarion
Capital, LLC (the "Adviser") serves as the investment adviser for the Fund.
The Fund was recently reorganized as a non-diversified, open-end
management investment company. The Fund's primary investment objective is to
provide high current income by actively managing a portfolio consisting
primarily of commercial mortgage-backed securities ("CMBS").
The majority of the CMBS in which the Fund will invest are expected to be
subordinated classes having a credit quality of BBB+ or less, including
securities considered to be below investment grade. Such securities are
considered to be speculative and may be subject to special risks, including a
greater risk of loss of principal and non-payment of interest. There is no
assurance that the Fund will achieve its investment objective. Investors should
carefully assess the risks associated with an investment in the Fund. Investment
in the Fund involves a high degree of risk and is suitable only for persons of
substantial financial resources who have no need for liquidity in their
investment and who can bear the risk of losing their investment.
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Fund's Prospectus, dated July 8th, 1999, a copy of
which may be obtained from the Fund.
The Annual Report of the Fund for the fiscal year ended October 31, 1998 which
is incorporated by reference herein has been previously filed with other
shareholder reports which are available, without charge, upon request from the
Fund's Adviser at (212) 883-2500.
S-1
<PAGE>
Table of Contents
<TABLE>
<S> <C>
Organization, History and Description of Shares.................................S-3
Investment Restrictions.........................................................S-3
Other Investment Practices......................................................S-4
Adviser.........................................................................S-7
Directors, Officers and Principal Stockholders..................................S-7
Expenses of the Fund............................................................S-10
Portfolio Transactions and Brokerage............................................S-10
Net Asset Value.................................................................S-11
Redemption or Repurchase of Shares..............................................S-11
Distributions and Taxes.........................................................S-12
Tax Treatment of Certain Transactions...........................................S-15
Administrator, Custodian and Transfer Agent.....................................S-16
Independent Auditors............................................................S-16
PART C - OTHER INFORMATION .....................................................S-17
</TABLE>
S-2
<PAGE>
ORGANIZATION, HISTORY AND DESCRIPTION OF SHARES
The Fund, which was incorporated in Maryland on December 15, 1994 and
reorganized and converted from a closed-end fund into an open-end investment
company effective with the date of this prospectus. The Fund is authorized to
issue 250,000,000 shares of capital stock, par value $0.01 per share, all of
which shares are initially classified as common stock. The Board of Directors is
authorized, however, to classify or reclassify any unissued shares of capital
stock by setting or changing the preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications or terms or
conditions of redemption.
Shares of common stock, when issued and outstanding, are fully paid and
non-assessable. All shares of common stock are equal as to dividends,
distributions, and voting privileges and the Fund's common stock has no
preemptive, conversion, exchange or redemption rights. Stockholders are entitled
to a pro rata share in the net assets of the Fund available for distribution to
stockholders upon liquidation of the Fund. Stockholders are entitled to one vote
for each share held.
The Fund has two classes of shares, Class A and Class X. Class A shares
are offered on a private placement basis only. Class X shares are owned by
investors who acquired their interest in the Fund at the time the Fund was a
closed-end fund. Class X shares are subject to an expense limit which originated
at a time when the Fund was closed-end. Except for the expense limitation, Class
A and Class X shares are the same.
INVESTMENT RESTRICTIONS
The Fund's investment objective and the following investment restrictions
are fundamental and cannot be changed without the approval of the holders of a
majority of the Fund's outstanding voting securities (defined in the 1940 Act as
the lesser of (a) more than 50% of the outstanding shares or (b) 66 2/3% or more
of the shares represented at a meeting at which more than 50% of the outstanding
shares are represented). All other investment policies or practices are
considered by the Fund not to be fundamental and accordingly may be changed
without shareholder approval. If a percentage restriction on an investment or
use of assets set forth below is adhered to at the time a transaction is
effected, later changes in percentages resulting from changing market values
will not be considered a deviation from policy. The Fund may not:
(1) invest 25% or more of the value of its total assets in any one
industry (mortgage-backed securities and other securities
issued or guaranteed by the U.S. government or any agency or
instrumentality thereof are not treated as industries);
provided, however, that the Fund will, except for temporary
defensive purposes, invest at least 25% of the value of its
total assets in securities which represent interests in
mortgages or liens on real property.
(2) issue senior securities except that the Fund may borrow up to
5% of its total assets for temporary purposes; pledge its
assets other than to secure such issuances or in connection
with hedging transactions, when-issued and forward commitment
transactions and similar investment strategies. The Fund's
obligations under interest rate swaps are not treated as
senior securities; the Fund may not utilize leverage as an
investment technique.
(3) make loans of money or property to any person, except through
the purchase of fixed income securities consistent with the
Fund's investment objective and policies or the acquisition of
securities subject to repurchase agreements.
S-3
<PAGE>
(4) underwrite the securities of other issuers, except to the
extent that in connection with the disposition of portfolio
securities or the sale of its own shares the Fund may be
deemed to be an underwriter.
(5) invest for the purpose of exercising control over management
of any company other than issuers of collateralized mortgage
obligations.
(6) purchase real estate or interests therein other than CMBS and
similar instruments or accept distribution of real property
without appropriate environmental review.
(7) purchase or sell commodities or commodity contracts for any
purposes except as, and to the extent, permitted by applicable
law without the Fund becoming subject to registration with the
Commodity Futures Trading Commission as a commodity pool.
(8) make any short sale of securities.
(9) invest in leveraged derivatives; leveraged derivatives are
defined as a derivative (1) whose value is typically computed
based on a multiple of the change in the price or value of an
asset or the amount of an index and (2) whose related assets
or index is inconsistent with the Fund's investment objectives
and policies.
(10) offer additional shares of Common Stock without the approval
of a majority of the outstanding shares of the Fund (except by
reinvestment of dividends or distributions in shares of Common
Stock).
(11) engage in transactions with counterparties which do not meet
the following minimum risk ratings: minimum counterparty
rating for counterparties with respect to OTC Derivatives is a
Moody's "A3" Derivatives Counterparty Rating for any OTC
derivative while it has a maturity of six months or less and
Moody's "AA3" Derivatives Counterparty Rating for any OTC
derivative while it has a maturity greater than six months. If
a counterparty is not rated by Moody's on a derivatives
counterparty basis, then either the Moody's or S&P long term
rating ("A3/A-" for six months, or less and "AA3/AA-" for
greater than six months) can be used as a substitute.
Additionally, all counterparties must have a minimum short
term rating of "A-1/P-1" by both S&P and Moody's.
The Fund has adopted the following non-fundamental restriction: the Fund
may not invest in inverse floaters; dollar rolls; reverse repurchase agreements
or interest only or principal only mortgage-backed securities.
The Fund will give notice to shareholders sixty days in advance of a
change in a non-fundamental investment policy.
OTHER INVESTMENT PRACTICES
Interest Rate Transactions. The Fund may enter into interest rate swaps
and the purchase or sale of interest rate caps and floors. The Fund expects to
enter into these transactions primarily to preserve a return or spread on
S-4
<PAGE>
a particular investment or portion of its portfolio as a duration management
technique or to protect against any increase in the price of securities the Fund
anticipates purchasing at a later date. The Fund will use these transactions as
a hedge or for duration or risk management. The Fund will not sell interest rate
caps or floors that it does not own. Interest rate swaps involve the exchange by
the Fund with another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating rate payments for fixed rate payments
with respect to a notional amount of principal. The purchase of an interest rate
cap entitles the purchaser, to the extent that a specified index exceeds a
pre-determinated interest rate, to receive payments of interest on a notional
principal amount from the party selling such interest rate cap. The purchase of
an interest rate floor entitles the purchaser, to the extent that a specified
index falls below a predetermined interest rate, to receive payments of interest
on a notional principal amount from the party selling such interest rate floor.
The Fund may enter into interest rate swaps, caps and floors on either an
asset-based or liability-based basis, and will usually enter into interest rate
swaps on a net basis, i.e., the two payment streams are netted out, with the
Fund receiving or paying, as the case may be, only the net amount of two
payments on the payment dates. The Fund will accrue the net amount of the
excess, if any, of the Fund's obligations over its entitlements with respect to
each interest rate swap on a daily basis and will segregate with a custodian an
amount of cash or liquid high grade securities having an aggregate net asset
value at all times at least equal to the accrued excess. The Fund will not enter
into any interest rate swap, cap or floor transaction unless the unsecured
senior debt or the claims-paying ability of the other party thereto is rated in
the highest rating category of at least one nationally recognized statistical
rating organization at the time of entering into such transaction. If there is a
default by the other party to such a transaction, the Fund will have contractual
remedies pursuant to the agreements related to the transactions.
Futures Contracts and Options on Futures Contracts. The Fund may also
enter into contracts for the purchase or sale for future delivery ("futures
contracts") of debt securities, aggregates of debt securities or indices or
prices thereof, other financial indices and U.S. government debt securities or
options on the above. The Fund will engage in such transactions only for bona
fide hedging, and risk management (including duration management). However, the
Fund may also enter into such transactions to enhance income or gain, in
accordance with the rules and regulations of the CFTC, which currently provide
that no such transaction may be entered into for non-bona fide hedging purposes
if at such time more than 5% of the Fund's net assets would be posted as initial
margin or premiums with respect to such non-bona fide transactions.
Calls on Securities, Indices and Futures Contracts. The Fund may sell or
purchase call options ("calls") on U.S. Treasury securities, corporate debt
securities, mortgage-backed securities, asset-backed securities, zero coupon
securities, other debt securities, indices, Eurodollar instruments that are
traded on U.S. and foreign securities exchanges and in the over-the-counter
markets and futures contracts. A call gives the purchaser of the option the
right to buy, and obligates the seller to sell, the underlying security, futures
contract or index at the exercise price at any time or at a specified time
during the option period. All such calls sold by the Fund must be "covered" as
long as the call is outstanding (i.e., the Fund must own the securities or
futures contract subject to the call or other securities acceptable for
applicable escrow requirements). A call sold by the Fund exposes the Fund during
the term of the option to possible loss of opportunity to realize appreciation
in the market price of the underlying security, index or futures contract and
may require the Fund to hold a security of futures contract which it might
otherwise have sold. The purchase of a call gives the Fund the right to buy a
security, futures contract or index at a fixed price. Calls on futures on U.S.
Treasury securities, mortgage-backed securities, other debt securities and
Eurodollar instruments must also be covered by deliverable securities of the
futures contract or by liquid high grade debt securities segregated to satisfy
the Fund's obligations pursuant to such instruments.
S-5
<PAGE>
Puts on Securities, Indices and Futures Contracts. The Fund may purchase
put options ("puts") that relate to U.S. Treasury securities, mortgage-backed
securities, other debt securities and Eurodollar instruments (whether or not it
holds such securities in its portfolio), indices or futures contracts. The Fund
may also sell puts on U.S. Treasury securities, mortgage-backed securities,
other debt securities, Eurodollar instruments, indices or futures contracts on
such securities if the Fund's contingent obligations on such puts are secured by
segregated assets consisting of cash or liquid high grade debt securities having
a value not less than the exercise price. The Fund will not sell puts if, as a
result, more than 50% of the Fund's assets would be required to cover its
potential obligations under its hedging and other investment transactions. In
selling puts, there is a risk that the Fund may be required to buy the
underlying instrument at a price higher than the current market price.
Eurodollar Instruments. The Fund may make investments in Eurodollar
instruments. Eurodollar instruments are essentially U.S. dollar denominated
futures contracts or options thereon which are linked to the London Interbank
Offered Rate ("LIBOR"). Eurodollar futures contracts enable purchasers to obtain
a fixed rate for the lending of funds and sellers to obtain a fixed rate for
borrowings. Ordinarily, the Fund intends to use Eurodollar futures contracts and
options thereon to hedge against changes in LIBOR, to which many interest rate
swaps are linked, although it may utilize such investment to enhance income or
gain.
When-Issued and Forward Commitment Securities. The Fund may also purchase
securities on a "when-issued" basis and may purchase or sell securities on a
"forward commitment" basis. When such transactions are negotiated, the price,
which is generally expressed in yield terms, is fixed at the time the commitment
is made, but delivery and payment for the securities takes place at a later
date. When-issued securities and forward commitments may be sold prior to the
settlement date, but the Fund will enter into when-issued and forward
commitments only with the intention of actually receiving or delivering the
securities, as the case may be. If the Fund disposes of the right to acquire a
when-issued security prior to its acquisition or disposes of its right to
deliver or receive against a forward commitment, it can incur a gain or loss. At
the time the Fund enters into a transaction on a when-issued or forward
commitment basis, it will segregate with its custodian cash or other liquid high
grade debt securities with a value not less than the value of the when-issued or
forward commitment securities. The value of these assets will be monitored daily
to ensure that their marked to market value will at all times equal or exceed
the corresponding obligations of the Fund. There is always a risk that the
securities may not be delivered and that the Fund may incur a loss. Settlements
in the ordinary course, which typically occur monthly for mortgage-backed
securities, are not treated by the Fund as when-issued or forward commitment
transactions and accordingly are not subject to the foregoing restrictions.
Repurchase Agreements. The Fund may invest temporarily, in repurchase
agreements, which are agreements pursuant to which securities are acquired by
the Fund from a third party with the understanding that they will be repurchased
by the seller at a fixed price on an agreed date. These agreements may be made
with respect to any of the portfolio securities in which the Fund is authorized
to invest (U.S. government and mortgage securities). Repurchase agreements may
be characterized as loans secured by the underlying securities and will be
entered into in accordance with the requirements of the SEC. The Fund may enter
into repurchase agreements with (i) member banks of the Federal Reserve System
having total assets in excess of $500 million and (ii) securities dealers,
provided that such banks or dealers meet the creditworthiness standards
established by the Fund's board of Directors ("Qualified Institutions"). The
Adviser will monitor the continued creditworthiness of Qualified Institutions,
subject to the supervision of the Fund's board of Directors. The resale price
reflects the purchase price plus an agreed upon market rate of interest which is
unrelated to the coupon rate or date of maturity of the purchased security. The
collateral is marked to market daily. Such agreements permit the Fund to keep
all its assets earning interest while retaining "overnight" flexibility in
pursuit of investments of a longer-term nature.
S-6
<PAGE>
The use of repurchase agreements involves certain risks. For example, if
the seller of securities under the repurchase agreement defaults on its
obligation to repurchase the underlying securities, as a result of its
bankruptcy or otherwise, the Fund will seek to dispose of such securities, which
action could involve costs or delays. If the seller becomes insolvent and
subject to liquidation or reorganization under applicable bankruptcy or other
laws, the Fund's ability to dispose of the underlying securities may be
restricted. Finally, it is possible that the Fund may not be able to
substantiate its interest in the underlying securities. To minimize this risk,
the securities underlying the repurchase agreement will be held by the custodian
at all times in an amount at least equal to the repurchase price, including
accrued interest. If the seller fails to repurchase the securities, the Fund may
suffer a loss to the extent proceeds from the sale of the underlying securities
are less than the repurchase price.
Restricted and Illiquid Securities. The Fund may purchase certain
restricted securities ("Rule 144A securities") eligible for sale to qualified
institutional buyers as contemplated by Rule 144A under the Securities Act of
1933. Rule 144A provides an exemption from the registration requirements of the
Securities Act of 1933 for the resale of certain restricted securities to
qualified institutional buyers. One effect of Rule 144A is that certain
restricted securities may now be liquid, though no assurance can be given that a
liquid market for Rule 144A securities will develop or be maintained. The Fund's
holdings of Rule 144A securities which are liquid securities will not be subject
to its limitation on investment in illiquid securities. The Fund's board of
directors has adopted policies and procedures for the purpose of determining
whether securities that are eligible for resale under Rule 144A are liquid or
illiquid. The board of directors will periodically review the Fund's purchases
and sales of Rule 144A securities. The Fund may also purchase restricted
securities eligible for sale to institutional accredited investors under
Regulation D under the Securities Act of 1933.
ADVISER
The Adviser, Clarion Capital, LLC, provides investment advisory services
as the investment adviser of the Fund. For its services, the Adviser receives,
pursuant to an Investment Advisory Agreement between the Fund and the Adviser
(the "Advisory Agreement"), an annual advisory fee of 0.65% of the average daily
net assets of the Fund. These fees, described in the Prospectus under "Our
Management Team--the Adviser," are accrued monthly and paid quarterly. For the
fiscal years ended October 31, 1998, 1997 and 1996, the Fund paid advisory fees
of $578,609, $617,968 and $662,265 respectively.
The Advisory Agreement will continue in effect for a period of more than two
years from the date of execution only so long as such continuance is
specifically approved at least annually in conformity with the Investment
Company Act. The Advisory Agreement provides that the Adviser will not be liable
for any error of judgment or for any loss suffered by the Fund in connection
with the matters to which the Advisory Agreement relates, except a loss
resulting from willful misfeasance, bad faith, gross negligence or reckless
disregard of duty. The Advisory Agreement provides that it will terminate
automatically if assigned, within the meaning of the Investment Company Act, and
that it may be terminated without penalty by either party upon not more than 60
days nor less than 30 days written notice.
DIRECTORS, OFFICERS AND PRINCIPAL STOCKHOLDERS
The officers of the Fund manage its day-to-day operations and are
responsible to the Fund's Board of Directors. The Directors set broad policies
for the Fund and elect its officers. The following is a list of the Directors
and officers of the Fund and a brief statement of their present positions and
principal occupations during the past five years.
S-7
<PAGE>
<TABLE>
<CAPTION>
Name and Address(1) Position with the Fund Principal Occupation for the Past 5 Years
- -------------------- ---------------------- -----------------------------------------
<S> <C> <C>
Frank L. Sullivan, Jr.* Chairman of the Board Mr. Sullivan serves as Co-Portfolio Manager
and Director of the Fund and Chairman of the
Board of the Adviser. From January 1988
to the present, Mr. Sullivan has served as
Managing Director of Clarion Partners.
Mr. Sullivan is an adjunct professor of
Finance at New York University's Graduate
School of Business.
Daniel Heflin* President, CEO and Director Mr. Heflin serves as Co-Portfolio Manager to
the Fund and since October 1997, as President
and CEO of the Adviser. From May 1995 to
December 1997, he served as a director and
Portfolio Manager to Clarion Partners. From
May 1993 to April 1995, he was a Vice President
at Ocwen Financial Corp. in West Palm Beach,
Florida. Mr. Heflin is a CPA in the State of
New York.
Joanne M. Vitale* Secretary and Director Since January 1998, Ms. Vitale served as Senior
Vice-President of the Adviser. From February 1996
to December 1997, Ms. Vitale served as a Vice
President of Clarion Partners. From January 1991
to January 1996, she was a Manager of Real Estate
Consulting at Coopers & Lybrand.
Candace Cox Director From 1998 to the present, Ms. Cox has been a
principal of Emerald Capital Advisors, LLC. From
1992 to 1998, she served as President and Chief
Investment Officer of Bell Atlantic (formerly
NYNEX) Asset Management Company.
E. Robert Roskind Director Since its formation in October 1993, Mr. Roskind
has served as Chairman and CEO of Lexington
Corporate Properties Trust. In 1973, Mr. Roskind
founded the LCP Group, LP, a real estate investment
firm, and he currently serves as the Managing Partner.
Fredrick D. Arenstein* Treasurer and From March 1999 to present, Mr.Arenstein
Compliance Officer has served as Compliance Officer, Vice President and
Controller of the Adviser. From 1988 to 1998, he served
as Chief Financial Officer of United States Land
Resources, L.P. in Morristown, New Jersey.
</TABLE>
S-8
<PAGE>
<TABLE>
<S> <C> <C>
Robert S. Kopchains* Vice President From July 1998 to present, Mr. Kopchains
has served as Senior Vice President of the
Advisor. From 1996 to 1998, Mr. Kopchains
was a consultant. From 1991 to 1996, Mr.
Kopchains was with American Express TRS
Company, Inc.
Paul S. Schreiber* Assistant Secretary Partner, Shearman & Sterling
599 Lexington Avenue
New York, NY 10022
</TABLE>
* These people are deemed to be "interested persons" of the Fund as that term is
defined in the 1940 Act.
(1) Unless otherwise noted, the address for each Director and Officer is the
address of the Fund.
The two independent directors, Ms. Cox and Mr. Roskind will serve on the
Fund's Audit Committee.
Directors of the Fund who are not affiliated persons of the Adviser or
State Street Bank and Trust Company will be compensated by the Fund by payment
of an annual retainer of $1,500 each, plus the Fund will pay an attendance fee
to each Director of $250 per meeting plus out-of-pocket expenses. The following
table shows compensation paid to current Directors during the fiscal year ended
October 31, 1998.
<TABLE>
<CAPTION>
Director Compensation
-------- ------------
<S> <C>
Daniel Heflin $0
E. Robert Roskind $2,500
Frank L. Sullivan, Jr. $0
Joanne M. Vitale $0
Candace Cox $0
</TABLE>
As of May 5, 1999, the Directors and officers of the Fund, as a group,
beneficially owned less than 0.1% of the outstanding common stock of the Fund.
As of April 30, 1999, Ameritech Pension Trust owned approximately 99.9% of the
Fund's securities.
Directors and employees of the Fund and the Adviser are permitted to
engage in personal securities transactions subject to the restrictions and
procedures contained in the Fund's Code of Ethics, which was approved by the
Board of Directors of the Fund.
S-9
<PAGE>
EXPENSES OF THE FUND
The Fund will pay all of its expenses, including fees of the directors not
affiliated with the Adviser and board meeting expenses; fees of the Adviser and
the Administrator; out of pocket due diligence and other expenses incurred by
the Adviser in managing the Fund's investments; interest charges; taxes;
organization expenses; charges and expenses of the Fund's legal counsel,
independent accountants and real estate consultants, and of the transfer agent,
registrar and dividend disbursing agent of the Fund; expenses of repurchasing
shares; expenses of printing and mailing share certificates, shareholder
reports, notices, proxy statements and reports to governmental offices;
brokerage and other expenses connected with the execution, recording and
settlement of portfolio security transactions; expenses connected with
negotiating, effecting purchase or sale, or registering privately issued
securities; custodial fees and expenses for all services to the Fund, including
safekeeping of funds and securities and maintaining required books and accounts;
expenses of calculating and publishing the net asset value of the Fund's shares;
expenses of membership in investment company associations; expenses of fidelity
bonding and other insurance expenses including insurance premiums; expenses of
stockholders' meetings; Commission and state registration fees.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser is responsible for decisions to buy and sell securities for
the Fund, the selection of brokers and dealers to effect the transactions and
the negotiation of prices and any brokerage commissions. The securities in which
the Fund invests are traded principally in the over-the-counter market. In the
over-the-counter market, securities are generally traded on a "net" basis with
dealers acting as principal for their own accounts without a stated commission,
although the price of the security usually includes a mark-up to the dealer.
Securities purchased in underwritten offerings generally include, in the price,
a fixed amount of compensation for the manager(s), underwriter(s) and dealer(s).
The Fund may also purchase certain securities directly from an issuer, in which
case no commissions or discounts are paid. Purchases and sales of bonds on a
stock exchange are effected through brokers who charge a commission for their
services.
The Adviser is responsible for effecting securities transactions of the
Fund and will do so in a manner deemed fair and reasonable to stockholders of
the Fund and not according to any formula. The Adviser's primary considerations
in selecting the manner of executing securities transactions for the Fund will
be prompt execution of orders, the size and breadth of the market for the
security, the reliability, integrity and financial condition and execution
capability of the firm, the size of and difficulty in executing the order, and
the best net price. There are many instances when, in the judgment of the
Adviser, more than one firm can offer comparable execution services. In
selecting among such firms, consideration is given to those firms which supply
research and other services in addition to execution services. However, it is
not the policy of the Adviser, absent special circumstances, to pay higher
commissions to a firm because it has supplied such services.
The Adviser is able to fulfill its obligations to furnish a continuous
investment program to the Fund without receiving such information from brokers;
however, it considers access to such information to be an important element of
financial management. Although such information is considered useful, its value
is not determinable, as it must be reviewed and assimilated by the Adviser, and
does not reduce the Adviser's normal research activities in rendering investment
advice under the Advisory Agreement. It is possible that the Adviser's expenses
could be materially increased if it attempted to purchase this type of
information or generate it through its own staff.
S-10
<PAGE>
One or more of the other investment companies or accounts which the
Adviser manages may own from time to time the same investments as the Fund.
Investment decisions for the Fund are made independently from those of such
other investment companies or accounts; however, from time to time, the same
investment decision may be made for more than one company or account. When two
or more companies or accounts seek to purchase or sell the same securities, the
securities actually purchased or sold will be allocated among the companies and
accounts on a good faith equitable basis by the Adviser in its discretion in
accordance with the accounts various investment objectives. In some cases, this
system may adversely affect the price or size of the position obtainable for the
Fund. In other cases, however, the ability of the Fund to participate in volume
transactions may produce better execution for the Fund. It is the opinion of the
Fund's board of directors that this advantage, when combined with the other
benefits available due to the Adviser's organization, outweighs any
disadvantages that may be said to exist from exposure to simultaneous
transactions.
Although the Advisory Agreement contains no restrictions on portfolio
turnover, it is not the Fund's policy to engage in transactions with the
objective of seeking profits from short-term trading. It is expected that the
annual portfolio turnover rate of the Fund will not exceed 400% excluding
securities having a maturity of one year or less. Because it is difficult to
predict accurately portfolio turnover rates, actual turnover may be higher or
lower. The Adviser will monitor the Fund's tax status under the Internal Revenue
Code, as amended (the "Code"). Higher portfolio turnover results in increased
Fund expenses, including brokerage commissions, dealer mark-ups and other
transaction costs on the sale of securities and on the reinvestment in other
securities.
NET ASSET VALUE
The net asset value of shares will be computed based upon the value of the
Fund's portfolio securities and other assets. Net asset value per share will be
determined as of 4pm EST on any weekday that the New York Stock Exchange is open
for trading, other than a day during which no such security was tendered for
redemption and no order to purchase or sell such security was received. The net
asset value will also be calculated at the end of each month. The Fund
calculates net asset value per share by subtracting the Fund's liabilities
(including accrued expenses and dividends payable) from the Fund's total assets
(the value of the securities the Fund holds plus cash or other assets, including
interest accrued but not yet received) and dividing the result by the total
number of shares outstanding.
The Fund values CMBS and other debt securities using methodologies
approved by the Fund's Board of Directors on the basis of valuations provided by
dealers and other market participants or by a pricing service, which uses
information with respect to transactions in such securities, quotations from
dealers, market transactions in comparable securities, various relationships
between securities and yield to maturity in determining value. Debt securities
having a remaining maturity of sixty days or less when purchased and debt
securities originally purchased with maturities in excess of sixty days but
which currently have maturities of sixty days or less are valued at cost
adjusted for amortization of premiums and accretion of discounts. Any securities
or other assets for which current market quotations are not readily available
are valued at their fair value as determined in good faith under procedures
established by and under the general supervision and responsibility of the
Fund's Board of Directors.
REDEMPTION OR REPURCHASE OF SHARES
Any shareholder may request the redemption of shares by sending a written
request to the Fund at the offices of the Adviser. Redemption requests must be
endorsed by the account holder with signatures guaranteed by a
S-11
<PAGE>
commercial bank, trust company, savings and loan association, federal savings
bank, member firm or a national securities exchange or other eligible financial
institution. The redemption request must be signed exactly as the account is
registered including any special capacity of the registered owner. Additional
documentation may be requested, and a signature guarantee is normally required,
from institutional and fiduciary account holders, such as corporations,
custodians, executors, administrators, trustees or guardians.
The Fund has adopted a policy under Rule 18f-1 under the Investment
Company Act of 1948. Any shareholder requesting that the Fund redeem shares with
an aggregate value in excess of the lesser of $250,000 or 1% of the net asset
value of the Fund during any 90 day period will be required to provide the Fund
with details of valid custodial arrangements in the U.S., in addition to other
important information, in order for the redemption request to be deemed in good
order. Failure to provide required information will result in the rejection of
the redemption request as being invalid.
The redemption price for shares will be the net asset value per share of
the Fund next determined following receipt by the Fund of a properly executed
request with any required documents as described above. Except with respect to
redemptions effected in-kind pursuant to the Fund's redemption policy, payment
for shares redeemed will be made in cash as promptly as practicable but in no
event later than seven days after receipt of a properly executed request
accompanied by any outstanding share certificates in proper form for transfer.
When the Fund is asked to redeem shares for which it may not have yet received
good payment it may delay transmittal of redemption proceeds until it has
determined that collected funds have been received for the purchase of such
shares, which will be up to 10 days from receipt by the Fund of the purchase
amount. In the case of the redemption or exchange of any shares held less than
six months, a fee of 1.0% of the current net asset value of the shares will be
assessed and retained by the Fund for the benefit of the remaining shareholders.
Shareholders who receive portfolio securities in redemption of Fund shares
will be required to make arrangements for the transfer of custody of such
securities to their account and must communicate relevant custody information to
the Fund prior to the effectiveness of a redemption request. Redemption requests
subject to the Fund's redemption in-kind policy will not be considered in good
order and effected until such information is provided. As discussed below, a
redeeming shareholder will bear all costs associated with the in-kind
distribution of portfolio securities. Shareholders receiving securities in-kind
may, when selling them, receive less than the redemption value of such
securities and would also incur certain transaction costs. Such a redemption
would not be as liquid as a redemption entirely in cash.
Redeeming shareholders will bear any costs of delivery and transfer of the
portfolio securities received in an in-kind redemption (generally, certain
transfer taxes and custodial expenses), and such costs will be deducted from
their redemption proceeds. Redeeming shareholders will also bear the costs of
re-registering the securities, as the securities delivered will be registered in
the Fund's name or the nominee names of the Fund's custodian. The actual per
share expenses for redeeming shareholders of effecting an in-kind redemption and
of any subsequent liquidation by the shareholder of the portfolio securities
received will depend on a number of factors, including the number of shares
redeemed, the Fund's portfolio composition at the time and market conditions
prevailing during the liquidation process. These expenses are in addition to any
applicable redemption fee, as described above.
DISTRIBUTIONS AND TAXES
Various factors will affect the level of the Fund's income, including the
asset mix, and the Fund's use of hedging. Shareholders will have all dividends
and distributions reinvested in Shares of the Fund purchased
S-12
<PAGE>
pursuant to the Automatic Dividend Reinvestment Plan. Shareholders who elect to
not participate in such Plan will receive their dividends and distributions in
cash unless the Board of Directors elects to pay such distribution in shares of
the Fund's Common Stock. See "Automatic Reinvestment Plan". Quarterly notices
will be provided in accordance with Section 19(a) of the 1940 Act.
The following summary reflects the existing provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), and other relevant federal income
tax authorities as of the date of this Prospectus. The federal income tax
consequences described below are merely statements of general tax principles.
The discussion does not deal with the federal income tax consequences applicable
to all categories of investors, some of whom may be subject to special rules. A
shareholder in the Fund should consult his or her own tax adviser concerning
these matters.
Federal Tax Treatment of the Fund
The Fund intends to qualify annually to be taxed as a regulated investment
company ("RIC") under subchapter M of the Code. To so qualify, the Fund must,
among other, things: (a) derive at least 90% of its annual gross income from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of stock or securities, foreign currencies or
other income (including gains from options, futures or forward contracts)
derived with respect to its business of investing in such stock, securities or
currencies; and (b) diversify its holdings so that, at the end of each fiscal
quarter of the Fund, (i) at least 50% of the market value of the Fund's total
assets is represented by cash, cash items, U.S. Government securities,
securities of other RICs and other securities with such other securities
limited, in respect of any one issuer, to an amount not greater than 5% of the
value of the Fund's total assets, and not greater than 10% of the outstanding
voting securities of such issuer; and (ii) not more than 25% of the market value
of the Fund's total assets are invested in the securities of any one issuer
(other than U.S. Government securities or securities of other RICs) or two or
more issuers which are controlled by the Fund and are determined, pursuant to
Department of Treasury regulations, to be in the same, similar or related trades
or businesses. In meeting these requirements, the Fund may be restricted in
selling portfolio securities held for less than three months and in the
utilization of certain of the investment techniques described under "Other
Investment Practices."
As a RIC, the Fund will not be subject to federal income tax on the part
of its net investment income and net realized capital gains, if any, that it
distributes to its shareholders, provided the Fund distributes at least 90% of
its "investment company taxable income" (as that term is defined in the Code
determined without regard to the deduction for dividends paid) for its taxable
year to Fund shareholders. The Fund intends to distribute all or substantially
all of its net investment income and net realized capital gains. If in any year
the Fund should fail to qualify under Subchapter M for tax treatment as a RIC,
the Fund would incur a regular federal corporate income tax upon its taxable
income for that year and distributions to its shareholders would not be
deductible by the Fund in computing its taxable income. Furthermore,
distributions in such case would be taxable to such shareholders as ordinary
income to the extent of earnings and profits of the Fund.
The Fund will be subject to a non-deductible 4% excise tax to the extent
that the Fund does not distribute by the end of each calendar year an amount
equal to the sum of (a) 98% of the Fund's ordinary income for such calendar
year; (b) 98% of the capital gain net income for the one-year period ending on
October 31 of each year; and (c) the undistributed income and gains, if any,
from the previous years.
S-13
<PAGE>
Federal Tax Treatment of Shareholders
Distributions. Dividends from net investment income and net realized
short-term capital gain will be taxable to shareholders as ordinary income,
whether received in cash or reinvested in additional Fund shares. No portion of
the Fund's distributions will be eligible for the corporate dividends-received
deduction.
Distributions of net realized long-term capital gains that the Fund
designates as "capital gain dividends" in a notice to its shareholders, if any,
will be taxable to shareholders as long-term capital gain, whether received in
cash or reinvested in additional shares, regardless of the length of time the
shareholder has owned Fund shares. The Fund does not seek to realize any
particular amount of capital gains during a year; rather, realized gains are a
by-product of fund management activities. Consequently, capital gains
distributions may be expected to vary considerably from year to year.
Although dividends generally will be treated as distributed when paid,
dividends declared by the Fund in October, November or December payable to
shareholders of record on a specified date in one of those months and paid
during the following January will be treated as having been distributed by the
Fund (and received by the shareholders) on December 31 of the year declared.
Shareholders will be notified not later than 60 days after the close of the
Fund's taxable year as to the federal tax status of dividends and distributions
from the Fund.
Sale of Shares. A shareholder may realize a taxable gain or loss on the
sale of shares in the Fund depending on the shareholder's basis in the shares
for federal income tax purposes. If the shares are capital assets in the
shareholder's hands the gain or loss will be treated as a capital gain or loss
and will be long-term or short-term, depending on the shareholder's holding
period for the shares. As a general rule, a shareholder's gain or loss will be a
long-term capital gain or loss if the shares have been held for more than one
year and a short-term capital gain or loss if the shares have been held one year
or less. Any loss incurred on sale or exchange of the Fund's shares, held for
six months or less, will be treated as a long-term capital loss to the extent of
any distributions or deemed distributions of long-term capital gains received by
the shareholder with respect to such shares. Any loss realized on a sale or
exchange will also be disallowed to the extent the shares disposed of are
replaced, including a replacement pursuant to the Fund's Automatic Dividend
Reinvestment Plan, within a period of 61 days beginning 30 days before and
ending 30 days after the disposition of the shares. In such case, the basis of
the shares acquired will be increased to reflect the disallowed loss.
Offers to Purchase Shares. A shareholder who, pursuant to a tender offer,
tenders all shares owned or considered owned by such shareholder will realize a
taxable gain or loss depending upon the shareholder's basis in the shares. Such
gain or loss will be treated as capital gain or loss if the shares are capital
assets in the shareholder's hands and will be long-term or short-term depending
upon the shareholder's holding period for the shares. If a tendering shareholder
tenders less than all shares owned by and attributed to such shareholder (or if
the Fund purchases only some of the shares tendered by a shareholder), and if
the distribution to such shareholder does not otherwise qualify as an exchange,
the proceeds received will be treated as a dividend, return of capital or
capital gain depending on the Fund's earnings and profits and the shareholder's
basis in the tendered shares. Unless the Fund has received a favorable ruling
from the Internal Revenue Service, there is a risk that shareholders may be
considered to have received a deemed distribution as a result of the purchase by
the Fund of tendered shares and that such distribution may be taxable as a
dividend in whole or in part.
Foreign Shareholders. Dividends paid by the Fund from net investment
income and net realized short-term capital gains to a shareholder who, as to the
United States, is a nonresident alien individual, a foreign trust or estate, a
foreign corporation or a foreign partnership (a "foreign shareholder") will be
subject to U.S. withholding
S-14
<PAGE>
tax at a rate of 30% unless a reduced rate of withholding or a withholding
exemption is provided under applicable treaty law. Foreign shareholders are
urged to consult their own tax advisers concerning the applicability of the U.S.
withholding tax and any foreign taxes.
Back-up Withholding. Under certain provisions of the Code, some
shareholders may be subject to a 31% "back-up withholding" on reportable
dividends, capital gains distributions and redemption payments. Generally,
shareholders subject to back-up withholding will be those for whom a taxpayer
identification number is not on file with the Fund or who, to the Fund's
knowledge, have furnished an incorrect number. When establishing an account, an
investor must certify under penalty of perjury that such number is correct and
that he or she is not otherwise subject to back-up withholding. An individual's
taxpayer identification number is his or her Social Security number.
Back-up withholding is not an additional tax and may be credited against a
taxpayer's federal income tax provided the shareholder provides the necessary
information.
Other Taxation. Dividends and capital gains distributions may also be
subject to state, local and foreign taxes.
Shareholders are urged to consult their own tax advisers regarding
specific questions as to federal, state, local or foreign taxes.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations thereunder presently in effect.
These provisions are subject to differing interpretations and to change by
legislative or administrative action, and any such changes may be effective
either prospectively or retroactively. Shareholders are advised to consult with
their own tax advisers for more detailed information concerning federal, state,
local and foreign income tax matters.
TAX TREATMENT OF CERTAIN TRANSACTIONS
Hedging Transactions. The Fund may engage in various hedging transactions.
Under various provisions of the Code, the result of such transactions may be to
change the character of recognized gains and losses, accelerate the recognition
of certain gains and losses, and defer the recognition of certain losses. The
amount of the Fund's income that must be distributed each year to avoid
corporate income tax and excise tax, and the amount and timing of the
recognition by the shareholders or ordinary income and long-term capital gain,
may be affected by these provisions.
Discount Obligations. The Fund may make investments that produce income
that is not matched by a corresponding cash distribution to the Fund, such as
investments in obligations having original issue discount (i.e., an amount equal
to the excess of the stated redemption price of the security at maturity over
its issue price), or market discount (i.e., an amount equal to the excess of the
stated redemption price of the security at maturity over its basis immediately
after it was acquired) if the Fund elects to accrue market discount on a current
basis. In addition, income may continue to accrue for federal income tax
purposes with respect to a non-performing investment. Any of the foregoing
income would be treated as income earned by the Fund and therefore would be
subject to the distribution requirements of the Code. Because such income may
not be matched by a corresponding cash distribution to the Fund, the Fund may be
required to dispose of other securities to be able to make distributions to its
investors.
S-15
<PAGE>
Options. Certain listed options are considered "section 1256 contracts"
for federal income tax purposes. Section 1256 contracts held by the Fund at the
end of each taxable year will be "marked to market" and treated for federal
income tax purposes as though sold for fair market value on the last business
day of such taxable year. Gain or loss realized by the Fund on section 1256
contracts generally will be considered 60% long-term 40% short-term capital gain
or loss.
With respect to equity options, over-the-counter options or options traded
on certain foreign exchanges, gain or loss realized by the Fund upon the lapse
or sale of such options held by the Fund will be either long-term or short-term
capital gain or loss depending upon the Fund's holding period with respect to
such option. However, gain or loss realized upon the lapse or closing out of
such options that are written by the Fund will be traded as short-term capital
gain or loss. In general, if the Fund exercises an option, or an option that the
Fund has written is exercised, gain or loss on the option will not be separately
recognized but the premium received or paid will be included in the calculation
of gain or loss upon disposition of the property underlying the option.
Other Securities. Interest income from non-U.S. securities may be subject
to withholding taxes imposed by the country in which the issuer is located and
the Fund will not be able to pass through to its stockholders foreign tax
credits or deductions with respect to these taxes.
The Fund's taxable income will in most cases by determined on the basis of
reports made to the Fund by the issuers of the securities in which the Fund
invests. The tax treatment of certain securities in which the Fund may invest is
not free from doubt and it is possible that an IRS examination of the issuers of
such securities or of the Fund could result in adjustments to the income of the
Fund.
The foregoing discussion is a summary of certain of the current federal
income tax laws relating to the Fund and investors in the Shares, and does not
deal with all of the federal income tax consequences applicable to the Fund, or
to all categories of investors, some of which may be subject to special rules.
Prospective investors should consult their own tax advisors regarding the
federal, state, local, foreign and other tax consequences to them of investments
in the Fund, including the effects of any changes, including proposed changes,
in the tax law.
ADMINISTRATOR, CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company currently serves as the Fund's
Administrator pursuant to the Services Agreement dated as of September 15, 1997.
Investors Fiduciary Trust Company currently serves as the Fund's Custodian
pursuant to the Custodian and Investment Accounting Agreement dated as of
September 15, 1997, as amended on March 1, 1998. Boston EquiServe, a subsidiary
of State Street Bank and Trust Company, currently serves as the Fund's transfer
agent pursuant to the Transfer Agency and Stock Transfer Services Agreement
dated as of September 15, 1997.
INDEPENDENT AUDITORS
McGladrey & Pullen, LLP serves as the Fund's independent auditors and
in that capacity audits and reports on the Fund's annual financial statements
and financial highlights.
The annual report of the Fund for the fiscal year ended October 31,
1998 and the unaudited semi-annual report of the Fund for the six months ended
April 30, 1999 are incorporated herein by reference.
S-16
<PAGE>
CLARION CMBS VALUE FUND, INC.
PART C
OTHER INFORMATION
July 8, 1999
ITEM 22. Financial Statements - The financial statements of the Fund appear in
the Annual Report of the Fund for the fiscal year ended October 31, 1998, filed
on December 30, 1998 on Form N-30D and the unaudited Semi-Annual Report of the
Fund for the six months ended April 30, 1999, filed on June 29, 1999 and are
incorporated herein by reference.
Clarion CMBS Value Fund, Inc.
<TABLE>
<S> <C>
1. Portfolio of Investments dated October 31, 1998 and the six months
April 30, 1999 (unaudited).
2. Statement of Assets and Liabilities dated October 31, 1998 and the six
months ended April 30, 1999 (unaudited).
3. Statement of Operations for the year ended October 31, 1998 and the six
months ended April 30, 1999 (unaudited).
4. Statement of Changes in Net Assets for the years ended October 31, 1998
and 1997 and the six months ended April 30, 1999 (unaudited).
5. Statement of Cash Flows for year ended October 31, 1998 and the six
months ended April 30, 1999 (unaudited).
6. Financial highlights.
7. Notes to Financial Statements.
8. Independent Auditors' Report -- McGladrey & Pullen, LLP dated November
19, 1998.
</TABLE>
ITEM 23. Exhibits
<TABLE>
<S> <C>
A. Amended and Restated Articles of Incorporation of the Registrant.
B. By-laws of the Registrant.
D. Investment Advisory Agreement between the Registrant and Clarion Capital, LLC.
G. Custody and Investment Accounting Agreement between the Registrant and Investors
Fiduciary Trust Company.
H. (a) Transfer Agency Agreement with State Street Bank and Trust Company (parent of
Boston EquiServe).
(b) Service Agreement with State Street Bank and Trust Company.
J. Consent of Independent Certified Public Accountants
O. Rule 18f-3 Plan.
</TABLE>
ITEM 24. Persons Controlled by or under Common Control with Registrant
No persons are controlled by or under common control with the
Registrant.
ITEM 25. Indemnification
<PAGE>
The Registrant shall indemnify directors, officers, employees and
agents of the Registrant against judgments, fines, penalties, settlements and
expenses to the fullest extent authorized, and in the manner permitted, by
applicable federal and state law.
ITEM 26. Business and Other Connections of Investment Adviser
Clarion Capital, LLC (the "Adviser") has a substantial amount of assets
under management in the form of individual and fund accounts. The business and
other connections of the Adviser's directors and officers are as follows:
<TABLE>
<CAPTION>
Name Position with the Adviser Business and Other Connections
- ---- --------------------------- ------------------------------
<S> <C> <C>
Daniel Heflin.................... President and Chief Executive President, Chief Executive Officer and
Officer Director of the Fund
Frank L. Sullivan, Jr............ Chairman Chairman and Director of the Fund;
Executive Vice President of Clarion
Partners
Joanne Vitale.................... Senior Vice President Secretary and Director of the Fund
Robert Kopchains................. Senior Vice President Vice President
Fredrick D. Arenstein............ Vice President and Controller Treasurer and Compliance Officer of the
Fund
</TABLE>
ITEM 27. Principal Underwriter
Not Applicable.
ITEM 28. Location of Accounts and Records
The Registrant's accounts and records will be maintained at 335 Madison
Avenue, New York, NY 10017. Records of shareholders' accounts will be maintained
at [Investors Fiduciary Trust Company, 127 West Tenth Street, Kansas City, MO
64105].
ITEM 29. Management Services
The Registrant is not a party to any management-related service
contract not discussed in the Prospectus or Statement of Additional Information
of this Registration Statement.
<PAGE>
ITEM 30. Undertakings
Not Applicable.
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York
and State of New York, as of the 6th day of July, 1999.
CLARION CMBS VALUE FUND, INC.
By: /s/ Daniel Heflin
----------------------------------------
Daniel Heflin,
President, Chief Executive Officer and Director
<PAGE>
EXHIBIT A
AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF
CLARION CMBS VALUE FUND, INC.
FIRST: The undersigned, Audrey C. Talley, whose post office address is
2600 One Commerce Square, Philadelphia, Pennsylvania 19103, and being at least
eighteen years of age, does hereby cause to be filed these Articles of
Incorporation for the purpose of forming a corporation under the Maryland
General Corporation Law.
SECOND: The name of the corporation is Clarion CMBS Value Fund, Inc.
THIRD: The purpose for which the corporation is formed is to operate as
an investment company and to exercise all of the powers and to do any and all of
the things as fully and to the same extent as any other corporation incorporated
under the laws of the State of Maryland, now or hereafter in force, including,
without limitation, the following:
1. To purchase, hold, invest and reinvest in, sell, exchange, transfer,
mortgage, and otherwise acquire and dispose of securities of every kind,
character and description.
2. To exercise all rights, powers and privileges with reference to or
incident to ownership, use and enjoyment of any of such securities, including,
but without limitation, the right, power and privilege to own, vote, hold,
purchase, sell, negotiate, assign, exchange, transfer, mortgage, pledge or
otherwise deal with, dispose of, use, exercise or enjoy any rights, title,
interest, powers or privileges under or with reference to any of such
securities; and to do any and all acts and things for the preservation,
protection, improvement and enhancement in value of any of such securities.
3. To purchase or otherwise acquire, own, hold, sell, exchange, assign,
transfer, mortgage, pledge or otherwise dispose of, property of all kinds.
4. To buy, sell, mortgage, encumber, hold, own, exchange, rent or
otherwise acquire and dispose of, and to develop, improve, manage, subdivide,
and generally to deal and trade in real property, improved and unimproved, and
wheresoever situated; and to build, erect, construct, alter and maintain
buildings, structures, and other improvements on real property.
5. To borrow or raise moneys for any of the purposes of the
corporation, and to mortgage or pledge the whole or any part of the property and
franchises of the corporation, real, personal, and mixed, tangible or
intangible, and wheresoever situated.
6. To enter into, make and perform contracts and undertakings of every
kind for any lawful purpose, without limit as to amount.
<PAGE>
7. To issue, purchase, sell and transfer, reacquire, hold, trade and
deal in, to the extent permitted under the Maryland General Corporation Law,
capital stock, bonds, debentures and other securities of the corporation, from
time to time, to such extent as the Board of Directors shall, consistent with
the provisions of these Articles of Incorporation, determine; and to repurchase,
re-acquire and redeem, to the extent permitted under the Maryland General
Corporation Law, from time to time, the shares of its own capital stock, bonds,
debentures and other securities.
The foregoing clauses shall each be construed as purposes, objects and
powers, and it is hereby expressly provided that the foregoing enumeration of
specific purposes, objects and powers shall not be held to limit or restrict in
any manner the powers of the corporation, and that they are in furtherance of,
and in addition to, and not in limitation of, the general powers conferred upon
the corporation by the laws of the State of Maryland or otherwise; nor shall the
enumeration of one thing be deemed to exclude another, although it be of like
nature, not expressed.
FOURTH: The post office address of the principal office of the
corporation in the State of Maryland is:
c/o The Corporation Trust, Incorporated
32 South Street
Baltimore, Maryland 21202
The name and post office address of the initial resident agent of the
corporation in the State of Maryland is:
The Corporation Trust, Incorporated
32 South Street
Baltimore, Maryland 21202
FIFTH: The total number of shares of capital stock which the
corporation shall have authority to issue is Two Hundred Fifty Million
(250,000,000) shares, with a par value of One Cent ($0.01) per share, all to be
known and designated as Common Stock, of which Fifteen Million (15,000,000)
shares including all shares issued and outstanding at the date of this Amendment
shall be initially classified as Class X shares and of which Fifty Million
(50,000,000) shares shall be initially classified as Class A shares, such shares
of Common Stock having an aggregate par value of Two Million Five Hundred
Thousand Dollars ($2,500,000).
The Board of Directors may classify and reclassify any unissued shares
of capital stock into one or more additional or other classes or series as may
be established from time to time by setting or changing in any one or more
respects the designations, preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications or terms or
conditions of redemption of such shares of stock and pursuant to such
classification or reclassification to increase or decrease the number of
authorized shares of any existing class or series.
<PAGE>
Subject to the provisions of these Articles of Incorporation, the Board
of Directors shall have the power to issue shares of capital stock of the
corporation from time to time for such consideration in such form as may be
fixed from time to time pursuant to the direction of the Board of Directors.
Unless otherwise expressly provided in these Articles of Incorporation
or in any Articles Supplementary creating any class or series of capital stock,
including, without limitation, any class or series of preferred stock, the
holder of each share of capital stock of the corporation shall be entitled to
one vote for each full share, and a fractional vote for each fractional share of
stock then standing in his or her name in the books of the corporation. On any
matter submitted to a vote of shareholders, all shares of the corporation then
issued and outstanding and entitled to vote, irrespective of the class or series
of capital stock of the corporation, shall be voted in the aggregate and not by
series or class except (1) when otherwise expressly required by the Maryland
General Corporation Law; (2) when required by the Investment Company Act of
1940, as amended (the "1940 Act"), shares shall be voted by individual series or
class; and (3) when the matter does not affect any interest of the particular
series or class, then only shareholders of the affected series or class shall be
entitled to vote thereon unless otherwise expressly provided in any Articles
Supplementary creating any class or series of capital stock. Holders of shares
of stock of the corporation shall not be entitled to cumulative voting in the
election of directors or any other matter unless otherwise expressly provided in
any Articles Supplementary creating any class or series of capital stock.
Unless otherwise expressly provided in these Articles of Incorporation
or in any Articles Supplementary creating any class or series of capital stock,
including, without limitation, any class or series of preferred stock, each
class or series of stock of the corporation shall have the following powers,
preferences and participating, voting, or other special rights and the
qualifications, restrictions, and limitations thereof shall be as follows:
1. The Board of Directors may from time to time declare and pay
dividends or distributions, in stock or in cash, on its capital stock; provided,
such dividends or distributions on shares of its capital stock shall be paid
only out of earnings, surplus, or other lawfully available assets.
2. The Board of Directors shall have the power in its discretion to
distribute to the shareholders of the corporation in any fiscal year as
dividends, including dividends designated in whole or in part as capital gain
distributions, amounts sufficient, in the opinion of the Board of Directors, to
enable the corporation to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended, or any successor or comparable
statute thereof, and regulations promulgated thereunder (collectively, the
"IRC"), and to avoid liability of the corporation for Federal income tax in
respect of that year and to make other appropriate adjustments in connection
therewith.
3. The Board of Directors shall have the power, in its discretion, to
make such elections as to the tax status of the corporation as may be permitted
or required under the IRC as presently in effect or as amended, without the vote
of shareholders of the corporation.
<PAGE>
4. Subject to the rights of any class or series of preferred stock
hereafter created by Articles Supplementary, in the event of the liquidation or
dissolution of the corporation, the holders of all classes and series of capital
stock of the corporation shall be entitled to share ratably in the assets of the
corporation available for distribution to shareholders.
5. The holders of the shares of capital stock or other securities of
the corporation shall have no preemptive rights to subscribe to new or
additional shares of its capital stock or other securities.
SIXTH: The Board of Directors consisted initially of seven directors.
The names of the initial directors who acted as such until successors were duly
chosen and qualified were: John T. Bennet, Jr., J. Edward Day, Philip D.
English, William A. Humenuk, Norton H. Reamer, Robert B. Russell, II, and Peter
M. Whitman, Jr. The number of directors of the corporation may be increased or
decreased from time to time to such number as may be fixed by the By-Laws of the
corporation or pursuant to authorization contained in such By-Laws to not less
than the number required by the Maryland General Corporation Law.
SEVENTH: The following provisions are inserted for the management of
the business and for the conduct of the affairs of the corporation:
Notwithstanding anything in these Articles of Incorporation to the
contrary, the Board of Directors shall have power to establish in its absolute
discretion the basis or method for determining the value of the assets belonging
to any class or series, and the net asset value of each share of any class or
series of the corporation for purposes of sales, repurchases of shares or
otherwise.
The net asset value of the property and assets of the corporation shall
be determined in accordance with the 1940 Act and with generally accepted
accounting principles, and at such times as the Board of Directors may direct,
by deducting from the total market or appraised value of all of the property and
assets of the corporation, all debts, obligations and liabilities of the
corporation (including, but without limitation of the generality of any of the
foregoing, any or all debts, obligations, liabilities or claims of any and every
kind and nature, whether fixed, accrued, or unmatured, and any reserves or
charges, determined in accordance with generally accepted accounting principles,
for any or all thereof, whether for taxes, including estimated taxes or
unrealized book profits, expenses, contingencies or otherwise).
The net asset value per share of the Common Stock of the corporation
shall be determined by adding the total market or appraised value of the
property and assets of the corporation, subtracting the liabilities of the
corporation, allocating and dividing the net result by the total number of
shares of its Common Stock then issued and outstanding, including any shares
sold by the corporation up to and including the date as of which such net asset
value is to be determined whether or not certificates therefor have actually
been issued. The net asset value per share of Common Stock will also reflect
adjustments for any other classes and series of capital stock then outstanding
in accordance with applicable law. In case the net asset value of each share so
determined shall include a fraction of one cent, such net asset value of each
share shall be adjusted to the nearest full cent.
<PAGE>
EIGHTH: (a) To the fullest extent that limitations on the liability of
directors and officers are permitted by the Maryland General Corporation Law, no
director or officer of the corporation shall have any liability to the
corporation or its stockholders for damages. This limitation on liability
applies to events occurring at the time a person serves as a director or officer
of the corporation whether or not such person is a director or officer at the
time of any proceeding in which liability is asserted.
(b) No provision of this Article shall be effective to protect
or purport to protect any director or officer of the corporation against any
liability to the corporation or its security holders to which he or she would
otherwise be subject by reason or willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office.
(c) References to the Maryland General Corporation Law in this
Article are to the law as from time to time amended. No amendment to the
Articles of Incorporation of the corporation shall affect any right of any
person under this Article based on any event, omission or proceeding prior to
such amendment.
NINTH: The shareholders of the corporation shall have the power by the
affirmative vote of at least sixty-six and two-thirds percent (66 2/3%) of the
aggregate number of votes entitled to be cast thereon to approve, adopt or
authorize any of the following actions:
(i) the dissolution of the corporation,
(ii) a merger or consolidation of the corporation (in
which the corporation is not the surviving
corporation), or
(iii) the sale, lease, exchange or other disposal of all or
substantially all the property and assets of the
corporation to any person (as such term is defined in
the 1940 Act)
unless such action has been previously approved, adopted or authorized by the
affirmative vote of two-thirds of the total number of directors fixed in
accordance with the By-Laws of the corporation, in which case the affirmative
vote of a majority of the corporation's outstanding shares of stock entitled to
vote thereon shall be required.
Notwithstanding any provision of law requiring any action (which does
not directly or indirectly accomplish the foregoing) to be taken or authorized
by the affirmative vote of the holders of a greater proportion of the votes
entitled to be cast thereon, such action shall be effective and valid if taken
or authorized by the affirmative vote of a majority of the total number of votes
entitled to be cast hereon, except as otherwise provided in the charter of the
corporation.
TENTH: (a) The corporation expressly reserves the right to amend,
alter, change or repeal any provision contained in the charter of the
corporation, including any amendment that alters the contract rights as
expressly set forth in the charter of any outstanding shares of capital stock,
and all rights, contract and otherwise, conferred herein upon the stockholders
are granted subject to such reservation.
(b) Any of the provisions of these Articles of Incorporation
may be amended, altered or repealed upon the vote of the holders of a majority
of the votes entitled to be cast; except
<PAGE>
that Articles NINTH and this Article TENTH (b) with respect to Article NINTH may
be amended, altered or repealed only in the manner set forth in the following
two sentences of this Article TENTH (b). The provisions of Article NINTH (a) and
this sentence of this Article TENTH (b) may be amended, altered or repealed only
upon the affirmative vote of at least sixty-six and two-thirds percent (66-2/3%)
of the votes entitled to be cast by stockholders. The provisions of Article
NINTH (b) and this sentence of Article TENTH (b) may be amended, altered or
repealed only upon the affirmative votes of the directors and stockholders
required by Article NINTH (b) to make any class or series of the corporation's
stock a "redeemable security" (as that term is defined in Section 2(a)(32) of
the 1940 Act).
IN WITNESS WHEREOF, Audrey C. Talley, the incorporator of AEW
Commercial Mortgage Securities Fund, Inc., now known as Clarion CMBS Value Fund,
Inc., executed the original Articles of Incorporation, on the 14th day of
December, 1994.
IN WITNESS WHEREOF, the undersigned Secretary of Clarion CMBS
Value Fund, Inc., who executed this Amended and Restated Articles of
Incorporation, hereby acknowledges the same reflects amendments to the original
Articles of Incorporation as approved by the Board Directors and by the
stockholders of the Corporation.
Dated the 24th day of June, 1999
/s/ Joanne M. Vitale
----------------------------
Joanne M. Vitale, Secretary
<PAGE>
EXHIBIT B
AEW COMMERCIAL MORTGAGE SECURITIES FUND, INC.
BY-LAWS
ARTICLE I
OFFICES
Section 1. The principal office of AEW Commercial Mortgage Securities
Fund, Inc. (the "Corporation") shall be in the City of Baltimore, State of
Maryland. The Corporation shall also have offices at such other places as the
Board of Directors may from time to time determine or the business of the
Corporation may require.
ARTICLE II
STOCKHOLDERS AND STOCK CERTIFICATES
Section 1. Every stockholder of record shall be entitled to a stock
certificate representing the shares owned by him. Stock certificates shall be in
such form as may be required by law and as the Board of Directors shall
prescribe. Every stock certificate shall be signed by the Chairman or the
President or a Vice President and by the Treasurer or an Assistant Treasurer, or
the Secretary or an Assistant Secretary, and sealed with the corporate seal,
which may be a facsimile, either engraved or printed. Stock certificates may
bear the facsimile signatures of the officers authorized to sign such
certificates.
Section 2. Shares of the capital stock of the Corporation shall be
transferable only on the books of the Corporation by the person in whose name
such shares are registered, or by his duly authorized attorney or
representative. In all cases of transfer by an attorney-in-fact, the original
power of attorney, or an official copy thereof duly certified, shall be
deposited and remain with the Corporation or its duly authorized transfer agent.
In case of transfers by executors, administrators, guardians or other legal
representatives, duly authenticated evidence of their authority shall be
produced, and may be required to be deposited and remain with the Corporation or
its duly authorized transfer agent. No transfer shall be made unless and until
the certificate issued to the transferor, if any, shall be delivered to the
Corporation or its duly authorized transfer agent, properly endorsed.
Section 3. Any person desiring a certificate for shares of the capital
stock of the Corporation to be issued in lieu of one lost or destroyed shall
make an affidavit or affirmation setting forth the loss or destruction of such
stock certificate, and shall advertise such loss or destruction in
<PAGE>
such manner as the Board of Directors may require, and shall, if the Board of
Directors shall so require, give the Corporation a bond or indemnity, in such
form and with such security as may be satisfactory to the Board, indemnifying
the Corporation against any loss that may result upon the issuance of a new
stock certificate. Upon receipt of such affidavit and proof of publication of
the advertisement of such loss or destruction, and the bond, if any, required by
the Board of Directors, a new stock certificate may be issued of the same tenor
and for the number of shares as the one alleged to have been lost or destroyed.
Section 4. The Corporation shall be entitled to treat the holder of
record of any share or shares of its capital stock as the owner thereof and,
accordingly, shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
the Corporation shall have express or other notice thereof.
ARTICLE III
MEETINGS OF STOCKHOLDERS
Section 1. An Annual Meeting of Stockholders for the election of
directors and the transaction of such other business as may properly come before
the meeting shall be held at such place and time as the Board of Directors may
by resolution establish. The Corporation is not required to hold an Annual
Meeting in any year in which the election of Directors is not required to be
acted upon under the Investment Company Act of 1940. In the absence of any
specific resolution, Annual Meetings of Stockholders shall be held at the
Corporation's principal office, or at such other place within or without the
State of Maryland as the Board of Directors may from time to time prescribe.
Meetings of stockholders for any other purpose may be held at such place and
time as shall be fixed by resolution of the Board of Directors and stated in the
Notice of the Meeting, or in a duly executed Waiver of Notice thereof.
Section 2. Special meetings of the stockholders may be called at any
time by the Chairman, President or a majority of the members of the Board of
Directors and shall be called by the Secretary upon the written request of the
holders of at least ten percent of the shares of the capital stock of the
Corporation issued and outstanding and entitled to vote at such meeting. Upon
receipt of a written request from such holders entitled to call a special
meeting, which shall state the purpose of the meeting and the matter proposed to
be acted on at it, the Secretary shall issue notice of such meeting. The cost of
preparing and mailing the notice of a special meeting of stockholders shall be
borne by the Corporation. Special meetings of the stockholders shall be held at
the principal office of the Corporation, or at such other place within or
without the State of Maryland as the Board of Directors may from time to time
direct, or at such place within or without the State of Maryland as shall be
specified in the notice of such meeting.
<PAGE>
Section 3. Notice of the time and place of the annual or any special
meeting of the stockholders shall be given to each stockholder entitled to
notice of such meeting not less than ten days nor more than ninety days prior to
the date of such meeting. In the case of special meetings of the stockholders,
the notice shall specify the object or objects of such meeting, and no business
shall be transacted at such meeting other than that mentioned in the notice.
Section 4. The Board of Directors may close the stock transfer books of
the Corporation for a period not exceeding twenty days preceding the date of any
meeting of stockholders, or the date for payment of any dividend, or the date
for the allotment of rights, or the date when any change or conversion or
exchange of capital stock shall go into effect, or for a period of not exceeding
twenty days in connection with the obtaining of the consent of stockholders for
any purpose; provided, however, that in lieu of closing the stock transfer books
as aforesaid, the Board of Directors may fix in advance a date, not exceeding
ninety days preceding the date of any meeting of stockholders, or the date for
payment of any dividend, or the date for the allotment of rights, or the date
when any change or conversion or exchange of capital stock shall go into effect,
or a date in connection with obtaining such consent, as a record date for the
determination of the stockholders entitled to notice of, and to vote at any such
meeting and any adjournment thereof, or entitled to receive payment of any such
dividend, or to any such allotment of rights, or to exercise the rights in
respect of any such change, conversion or exchange of capital stock or to give
such consent, and in such case such stockholders and only such stockholders as
shall be stockholders of record on the date so fixed shall be entitled to such
notice of, and to vote at, such meeting and any adjournment thereof, or to
receive payment of such dividend or to receive such allotment of rights or to
exercise such rights, or to give such consent, as the case may be,
notwithstanding any transfer of any stock on the books of the Corporation after
any such record date fixed as aforesaid.
Section 5. At all meetings of the stockholders a quorum shall consist
of the holders of a majority of the outstanding shares of the capital stock of
the Corporation entitled to vote at such meeting. In the absence of a quorum no
business shall be transacted except that the stockholders present in person or
by proxy and entitled to vote at such meeting shall have power to adjourn the
meeting from time to time to a date not more than one hundred twenty days after
the original record date without further notice other than announcement at the
meeting. At any such adjourned meeting at which a quorum shall be present any
business may be transacted which might have been transacted at the meeting on
the date specified in the original notice. If a quorum is present at any
meeting, a majority of votes cast is sufficient to approve any matter properly
before the meeting, except as otherwise required in the Investment Company Act
of 1940, and also except a plurality of all votes cast at a meeting at which a
quorum is present shall be sufficient for the election of a director. The
holders of a majority of the shares of capital stock of the Corporation issued
and outstanding and entitled to vote at the meeting who shall be present in
person or by proxy at such meeting shall have power to adjourn the meeting to
any specific time or times, and no notice of any such adjourned meeting need be
given to stockholders absent or otherwise.
Section 6. At all meetings of the stockholders the following order of
business shall be substantially observed, as far as it is consistent with the
purpose of the meeting:
<PAGE>
Election of Directors;
Ratification of Selection of Independent Auditors; and
New business.
Section 7. At any meeting of the stockholders of the Corporation every
stockholder having the right to vote shall be entitled, in person or by proxy
appointed by an instrument in writing subscribed by such stockholder or by his
duly authorized attorney-in-fact and bearing a date not more than eleven months
prior to said meeting unless such instrument provides for a longer period, to
one vote for each share of stock having voting power registered in his name on
the books of the Corporation.
ARTICLE IV
DIRECTORS
Section 1. The Board of Directors shall consist of not less than two
nor more than twelve members; provided that if there are fewer than three
stockholders, then the number of Directors may be the same number as the number
of stockholders, but not less than one. The Board of Directors may by a vote of
the entire board increase or decrease the number of directors without a vote of
the stockholders; provided that any such decrease shall not affect the tenure of
office of any director. Directors need not hold any shares of the capital stock
of the Corporation.
Section 2. The directors shall be elected by the stockholders of the
Corporation at an annual meeting or at a special meeting called for such
purpose, and shall hold office until their successors shall be duly elected and
shall qualify.
Section 3. The Board of Directors shall have the control and management
of the business of the Corporation, and in addition to the powers and authority
by these By-Laws expressly conferred upon them, may exercise, subject to the
provisions of the laws of the State of Maryland and of the Articles of
Incorporation of the Corporation, all such powers of the Corporation and do all
such acts and things as are not required by law or by the Articles of
Incorporation to be exercised or done by the stockholders.
Section 4. The Board of Directors shall have power to fill vacancies
occurring on the Board, whether by death, resignation or otherwise. A vacancy on
the Board of Directors resulting from any cause except an increase in the number
of directors may be filled by a vote of the majority of the remaining members of
the Board, though less than a quorum. A vacancy on the Board of Directors
resulting from an increase in the number of directors may be filled by a
majority of the Board of Directors then in office. A director elected by the
Board of Directors to fill a vacancy shall
<PAGE>
serve until the next annual meeting, whenever held, or special meeting called
for that purpose, and until his successor is elected and qualifies.
Section 5. The Board of Directors shall have power to appoint, and at
its discretion to remove or suspend, any officers, managers, superintendents,
subordinates, assistants, clerks, agents and employees, permanently or
temporarily, as the Board may think fit, and to determine their duties and to
fix, and from time to time to change, their salaries or emoluments, and to
require security in such instances and in such amounts as it may deem proper.
Section 6. In case of the absence of an officer of the Corporation, or
for any other reason which may seem sufficient to the Board of Directors, the
Board may delegate his or her powers and duties for the time being to any other
officer of the Corporation or to any director.
Section 7. The Board of Directors may, by resolution or resolutions
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of two or more of the directors of the Corporation which,
to the extent provided in such resolution or resolutions and by applicable law,
shall have and may exercise the powers of the Board of Directors in the
management of the business and affairs of the Corporation. Such committee or
committees shall have such name or names as may be determined from time to time
by resolution adopted by the Board of Directors. Any such committee shall keep
regular minutes of its proceedings, and shall report the same to the Board when
required.
Section 8. The Board of Directors may hold their meetings and keep the
books of the Corporation outside of the State of Maryland, at such place or
places as it may from time to time determine.
Section 9. The Board of Directors shall have power to fix, and from
time to time to change the compensation, if any, of the directors of the
Corporation.
Section 10. Upon retirement of a Director, the Board may elect him or
her to the position of Director Emeritus. Said Director Emeritus shall serve for
one year and may be re-elected by the Board from year to year thereafter. Said
Director Emeritus shall not vote at meetings of Directors and shall not be held
responsible for actions of the Board but shall receive fees paid to Board
members for serving as such.
<PAGE>
ARTICLE V
DIRECTORS MEETINGS
Section 1. The first regular meeting of the Board of Directors shall be
held each year within seven business days following the annual meeting of
stockholders at which the Directors are elected. Regular meetings of the Board
of Directors shall also be held without notice at such times and places as may
be from time to time prescribed by the Board.
Section 2. Special meetings of the Board of Directors may be called at
any time by the Chairman, and shall be called by the Chairman upon the written
request of a majority of the members of the Board of Directors. Unless notice is
waived by all the members of the Board of Directors, notice of any special
meeting shall be given to each director at least twenty-four hours prior to the
date of such meeting, and such notice shall provide the time and place of such
special meeting.
Section 3. One-third of the entire Board of Directors shall constitute
a quorum for the transaction of business at any meeting; except that if the
number of directors on the Board is less than six, two members shall constitute
a quorum for the transaction of business at any meeting. The act of a majority
of the directors present at any meeting where there is a quorum shall be the act
of the Board of Directors except as may be otherwise required by Maryland law or
the Investment Company Act of 1940.
Section 4. The order of business at meetings of the Board of Directors
shall be prescribed from time to time by the Board.
ARTICLE VI
OFFICERS AND AGENTS
Section 1. At the first meeting of the Board of Directors after the
election of Directors in each year, the Board shall elect a Chairman, a
President and Chief Executive Officer, one or more Vice Presidents, a Secretary
and a Treasurer and may elect or appoint one or more Assistant Secretaries, one
or more Assistant Treasurers, and such other officers and agents as the Board
may deem necessary and as the business of the Corporation may require.
Section 2. The Chairman of the Board shall be elected from the
membership of the Board of Directors, but other officers need not be members of
the Board of Directors. Any two or more offices may be held by the same person
except the offices of President and Vice President. All officers of the
Corporation shall serve for one year and until their successors shall have been
duly
<PAGE>
elected and shall have qualified; provided, however, that any officer may
be removed at any time, either with or without cause, by action by the Board of
Directors.
ARTICLE VII
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 1. The Corporation shall indemnify each officer and director
made party to a proceeding, by reason of service in such capacity, to the
fullest extent, and in the manner provided, under Section 2-418 of the Maryland
General Corporation Law: (i) unless it is proved that the person seeking
indemnification did not meet the standard of conduct set forth in subsection
(b)(1) of such section; and (ii) provided, that the Corporation shall not
indemnify any officer or director for any liability to the Corporation or its
security holders arising from the wilful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of such
person's office.
Section 2. The provisions of clause (i) of Section 1 of this Article
VII notwithstanding, the Corporation shall indemnify each officer and director
against reasonable expenses incurred in connection with the successful defense
of any proceeding to which each such officer or director is a party by reason of
service in such capacity.
Section 3. The Corporation, in the manner and to the extent provided by
applicable law, shall advance to each officer and director who is made party to
a proceeding by reason of service in such capacity the reasonable expenses
incurred by such person in connection therewith.
ARTICLE VIII
DUTIES OF OFFICERS
CHAIRMAN OF THE BOARD
Section 1. The Chairman of the Board shall preside at all meetings of
the stockholders and the Board of Directors and shall be a member ex officio of
all standing committees. He shall have those duties and responsibilities as
shall be assigned to him by the Board of Directors. In the absence, resignation,
disability or death of the President, the Chairman shall exercise all the powers
and perform all the duties of the President until his return, or until such
disability shall be removed or until a new President shall have been elected.
<PAGE>
PRESIDENT
Section 2. The President shall be the Chief Executive Officer and head
of the Corporation, and in the recess of the Board of Directors shall have the
general control and management of its business and affairs, subject, however, to
the regulations of the Board of Directors.
The President shall, in the absence of the Chairman, preside at all
meetings of the stockholders and the Board of Directors. In the event of the
absence, resignation, disability or death of the Chairman, the President shall
exercise all powers and perform all duties of the Chairman until his return, or
until such disability shall have been removed or until a new Chairman shall have
been elected.
VICE PRESIDENTS
Section 3. The Executive Vice President, and the Vice Presidents, shall
have those duties and responsibilities as shall be assigned to them by the
Chairman or the President. In the event of the absence, resignation, disability
or death of the Chairman and President, the Executive Vice President shall
exercise all the powers and perform all the duties of the President until his
return, or until such disability shall be removed or until a new President shall
have been elected.
THE SECRETARY AND ASSISTANT SECRETARIES
Section 4. The Secretary shall attend all meetings of the stockholders
and shall record all the proceedings thereof in a book to be kept for that
purpose, and he shall be the custodian of the corporate seal of the Corporation.
In the absence of the Secretary, an Assistant Secretary or any other person
appointed or elected by the Board of Directors, as is elsewhere in these By-Laws
provided, may exercise the rights and perform the duties of the Secretary.
Section 5. The Assistant Secretary, or, if there be more than one
Assistant Secretary, then the Assistant Secretaries in the order of their
seniority, shall, in the absence or disability of the Secretary, perform the
duties and exercise the powers of the Secretary. Any Assistant Secretary elected
by the Board shall also perform such other duties and exercise such other powers
as the Board of Directors shall from time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 6. The Treasurer shall keep full and correct accounts of the
receipts and expenditures of the Corporation in books belonging to the
Corporation, and shall deposit all monies and valuable effects in the name and
to the credit of the Corporation and in such depositories as may
<PAGE>
be designated by the Board of Directors, and shall, if the Board shall so
direct, give bond with sufficient security and in such amount as may be required
by the Board of Directors for the faithful performance of his duties.
He shall disburse funds of the Corporation as may be ordered by the
Board of Directors, taking proper vouchers for such disbursements, and shall
render to the President and Board of Directors at the regular meetings of the
Board, or whenever they may require it, an account of all his transactions on
behalf of the Corporation and of the financial condition of the Corporation, and
shall present each year before the annual meeting of the stockholders a full
financial report of the preceding fiscal year.
Section 7. The Assistant Treasurer, or, if there be more than one
Assistant Treasurer, then the Assistant Treasurers in the order of their
seniority, shall, in the absence or disability of the Treasurer, perform the
duties and exercise the powers of the Treasurer. Any Assistant Treasurer elected
by the Board shall also perform such duties and exercise such powers as the
Board of Directors shall from time to time prescribe.
ARTICLE IX
CHECKS, DRAFTS, NOTES, ETC.
Section 1. All checks shall bear the signature of such person or
persons as the Board of Directors may from time to time direct.
Section 2. All notes and other similar obligations and acceptances of
drafts by the Corporation shall be signed by such person or persons as the Board
of Directors may from time to time direct.
Section 3. Any officer of the Corporation or any other employee, as the
Board of Directors may from time to time direct, shall have full power to
endorse for deposit all checks and all negotiable paper drawn payable to his or
their order or to the order of the Corporation.
ARTICLE X
CORPORATE SEAL
Section 1. The corporate seal of the Corporation shall have inscribed
thereon the name of the Corporation, the year of its organization, and the words
"Corporate Seal, Maryland." Such seal may be used by causing it or a facsimile
thereof to be impressed or affixed or otherwise reproduced.
<PAGE>
ARTICLE XI
DIVIDENDS
Section 1. Dividends upon the shares of the capital stock of the
Corporation may, subject to the provisions of the Articles of Incorporation of
the Corporation, if any, be declared by the Board of Directors at any regular or
special meeting, pursuant to law. Dividends may be paid in cash, in property, or
in shares of the capital stock of the Corporation.
Section 2. Before payment of any dividend there may be set aside out of
any funds of the Corporation available for dividends such sum or sums as the
Board of Directors may, from time to time, in its absolute discretion, think
proper as a reserve fund to meet contingencies, or for equalizing dividends, or
for repairing or maintaining any property of the Corporation, or for such other
purpose as the Board of Directors shall deem to be for the best interests of the
Corporation, and the Board of Directors may abolish any such reserve in the
manner in which it was created.
ARTICLE XII
FISCAL YEAR
Section 1. The fiscal year of the Corporation shall end on the last day
in October of each year.
ARTICLE XIII
NOTICES
Section 1. Whenever under the provisions of these By-Laws notice is
required to be given to any director or stockholder, such notice is deemed given
when it is personally delivered, left at the residence or usual place of
business of the director or stockholder, or mailed to such director or
stockholder at such address as shall appear on the books of the Corporation and
such notice, if mailed, shall be deemed to be given at the time it shall be so
deposited in the United States mail postage prepaid. In the case of directors,
such notice may also be given orally by telephone or by telegraph or cable.
Section 2. Any notice required to be given under these By-Laws may be
waived in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein.
<PAGE>
ARTICLE XIV
AMENDMENTS
Section 1. These By-Laws may be amended, altered or repealed by the
affirmative vote of the holders of a majority of the shares of capital stock of
the Corporation issued and outstanding and entitled to vote thereon, or by a
majority of the Board of Directors, as the case may be.
<PAGE>
EXHIBIT D
INVESTMENT ADVISORY AGREEMENT
AGREEMENT dated as of June 24, 1999, by and among Clarion CMBS Value
Fund, Inc., a Maryland corporation (the "Fund"), and Clarion Capital, LLC, a
registered investment adviser organized as a limited liability company under the
laws of the State of New York (the "Adviser").
1. DUTIES OF ADVISER. The Fund hereby appoints the Adviser to act as
discretionary investment adviser to the Fund for the period and on such terms as
set forth in this Agreement. The Fund employs the Adviser to (a) manage the
investment and reinvestment of the assets, hedges and liabilities of the Fund in
accordance with the Fund's investment objectives detailed in the offering
memorandum, (b) continuously review, supervise and administer the investment
program of the Fund, (c) determine the investments to be purchased or sold and
the portion of the Fund's assets to be held uninvested, (d) provide the Fund
with records concerning the Adviser's activities which the Fund is required to
maintain, (e) take all other actions advisable or appropriate relating to the
investments and other assets of the Fund, and (f) render regular reports to the
Fund's officers and Board of Directors concerning the Adviser's discharge of the
foregoing responsibilities.
The Adviser shall discharge the foregoing responsibilities
subject to the control of the officers and the Board of Directors of the Fund,
and in compliance with the objectives, policies and limitations set forth in the
Fund's prospectus and any investment guidelines from time to time furnished to
the Adviser by the Board of Directors of the Fund and applicable laws and
regulations. The Adviser accepts as a part of its responsibilities, the duty to
manage the Fund consistent with the Fund's intent to qualify annually to be
taxed as a regulated investment company under subchapter M of the Internal
Revenue Code of 1986, as amended. The Adviser accepts such employment and agrees
to render the services and to provide, at its own expense, the office space,
furnishings and equipment and the personnel required by it to perform the
services on the terms and for the compensation provided herein. The Adviser will
only be reimbursed for out of pocket due diligence and other expenses incurred
in managing the Fund's investments.
2. FUND TRANSACTIONS. The Adviser is authorized to select the brokers
or dealers that will execute the purchases and sales of investments of the Fund
and is directed to use its best efforts to obtain the best available price and
most favorable execution, provided, however, that, subject to policies
established from time to time by the Board of Directors of the Fund, the Adviser
may effect securities transactions at commission rates (or "mark-up" to dealers)
in excess of the minimum commission rates (or "mark-up" to dealers) available,
if the Adviser determines in good faith that such amount of commission (or
"mark-up" to dealers) is reasonable in relation to the value of the brokerage,
research or other services provided by such broker or dealer, viewed in terms of
either that particular transaction or the Adviser's overall responsibilities
with respect to the Fund. The execution of such transactions shall not be deemed
to represent an unlawful act or breach of any duty created by this Agreement or
otherwise. The Adviser will promptly communicate to the officers and
<PAGE>
Directors of the Fund such information relating to portfolio transactions as
they may reasonably request.
The Adviser is authorized to execute all transactions and form
all affiliates and strategic relationships necessary to achieve objectives of
the Fund, as detailed in the offering memorandum.
3. COMPENSATION OF THE ADVISER. For the services to be rendered by the
Adviser as provided in Section 1 of this Agreement, the Fund shall pay to the
Adviser in quarterly installments an advisory fee calculated by applying the
following annual percentage rate to the Fund's average monthly net assets for
the month: 0.65%.
4. OTHER SERVICES. At the request of the independent directors of the
Fund, the Adviser may make available to the Fund office facilities, equipment,
personnel and other services not contemplated in the ordinary course of managing
the Fund at the Fund's expense. Such office facilities, equipment, personnel and
services shall be provided or rendered by the Adviser and billed to the Fund at
the Adviser's cost.
5. REPORTS. The Fund and the Adviser agree to furnish to each other
current prospectuses, proxy statements, reports to shareholders, certified
copies of their financial statements, and such other information with regard to
their affairs as each may reasonably request.
6. STATUS OF ADVISER. The Adviser has represented to the Fund that it
is a registered investment adviser under the Investment Advisers Act of 1940.
The Fund acknowledges receipt from the Adviser, at least 48 hours prior to
entering into this Agreement, of Part II of the Adviser's Form ADV as filed with
the Securities and Exchange Commission. The services of the Adviser to the Fund
are not to be deemed exclusive, and the Adviser shall be free to render similar
services to others so long as its services to the Fund are not impaired in any
material respect thereby.
7. LIABILITY OF ADVISER. In the absence of (i) willful misfeasance, bad
faith or gross negligence on the part of the Adviser in performance of its
obligations and duties hereunder, (ii) reckless disregard by the Adviser of its
obligations and duties hereunder, or (iii) a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services (in
which case any award of damages shall be limited to the period and the amount
set forth in Section 36(b)(3) of the Investment Company Act of 1940 ("1940
Act")), the Adviser shall not be subject to any liability whatsoever to the
Fund, or to any shareholder of the Fund, for any error of judgment, mistake of
law or any other act or omission in the course of, or connected with, rendering
services hereunder including, without limitation, for any losses that may be
sustained in connection with the purchase, holding, redemption or sale of any
security on behalf of the portfolio. The Adviser shall be protected with respect
to actions which it takes or forbears from taking in reliance on advice of
unaffiliated agents or counsel prudently selected. The foregoing shall not
constitute a waiver or limitation on any right of any person under Federal or
state securities laws.
<PAGE>
8. PERMISSIBLE INTEREST. Subject to and in accordance with the Articles
of Incorporation of the Fund and the LLC Agreement of the Adviser, Directors,
officers, agents and shareholders of the Fund are or may be interested in the
Adviser (or any successor thereof) as members, officers, agents, investors or
otherwise; and members, officers, agents, investors or otherwise of the Adviser
(or any successor) are or may be interested in the Fund as shareholders or
otherwise. The effect of any such interrelationships shall be governed by said
Articles of Incorporations and LLC Agreement and the provisions of the 1940 Act.
9. DURATION AND TERMINATION. This Agreement, unless sooner terminated
as provided herein, shall continue for periods of one year so long as such
continuance is specifically approved at least annually (a) by the vote of a
majority of those members of the Board of Directors of the Fund who are not
parties to this Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval, and (b)
by the Board of Directors of the Fund or (c) by vote of a majority of the
outstanding voting securities of the Fund; however, if the Shareholders of the
Fund fail to approve the Agreement as provided herein, the Adviser may continue
to serve in such capacity in the manner and to the extent permitted by the 1940
Act and rules thereunder. This Agreement may be terminated by the Fund at any
time, without the payment of any penalty, by vote of a majority of the entire
Board of Directors of the Fund or by vote of a majority of the outstanding
voting securities of the Fund on 60 days' written notice to the Adviser. This
Agreement may be terminated by the Adviser at any time, without the payment of
any penalty, upon 90 days' written notice to the Fund. This Agreement will
automatically and immediately terminate in the event of its assignment. Any
notice under this Agreement shall be given in writing, addressed and delivered
or mailed postpaid, to the other party at the principal office of such party.
As used in this Section 9, the terms "assignment", "interested
persons" and "a vote of a majority of the outstanding voting securities" shall
have the respective meanings set forth in Section 2(a)(4), Section 2(a)(19) and
Section 2(a)(42) of the 1940 Act.
10. AMENDMENT OF AGREEMENT. This Agreement may be amended by mutual
consent, but the consent of the Fund must be approved (a) by vote of a majority
of those members of the Board of Directors of the Fund who are not parties to
this Agreement or interested persons of any such party, cast in person at a
meeting called for the purpose of voting on such amendment, and (b) by vote of a
majority of the outstanding voting securities of the Fund.
11. SEVERABILITY. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby.
12. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of New York, subject to the supremacy of the federal securities laws
governing the terms of this Agreement.
<PAGE>
13. Notices. Notices to the Fund shall be delivered to:
Frank L. Sullivan, Jr.
Chairman of the Board
Clarion CMBS Value Fund, Inc.
c/o Clarion Capital, LLC
335 Madison Avenue, 7th Floor
New York, NY 10017
Notices to the Adviser shall be sent to:
Daniel Heflin
President and Chief Executive Officer
Clarion Capital, LLC
335 Madison Avenue, 7th Floor
New York, NY 10017
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the first date set forth above.
CLARION CMBS VALUE FUND, INC. CLARION CAPITAL, LLC
By: ______________________________ By: _____________________________
Name: Frank L. Sullivan, Jr. Name: Daniel Heflin
Title: Chairman of the Board Title: President and Chief Executive Officer
<PAGE>
EXHIBIT G
FIRST AMENDMENT
TO CUSTODY AND INVESTMENT ACCOUNTING AGREEMENT
THIS FIRST AMENDMENT TO CUSTODY AND INVESTMENT ACCOUNTING AGREEMENT (the
"Amendment") is made and entered into as of March 1, 1998 by and among 13A
COMMERCIAL MORTGAGE SECURITIES FUND, INC. ("Client"), a New York corporation,
and INVESTORS FIDUCIARY TRUST COMPANY, a Missouri trust company ("IFTC").
WITNESSETH:
WHEREAS, Client and IFTC are parties to that certain Custody and Investment
Accounting Agreement dated as of September 15, 1997 (the "Agreement"); and
WHEREAS, Client and IFTC desire to amend and supplement the Agreement upon
the following terms and conditions.
NOW THEREFORE, for and in consideration of the mutual promises contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Client and IFTC hereby agree that the Agreement
is amended and supplemented as follows:
1. The Security Procedures Selection Form attached to the Agreement shall be
replaced in its entirety by the Security Procedures Selection Form dated
March 1, 1998 attached hereto and incorporated herein by this reference.
2. General Provisions. This Amendment is made in the State of Missouri, and
will at all times and in all respects be construed, interpreted, and
governed by the laws of the State of Missouri, without giving effect to the
conflict of laws provisions thereof. This Amendment may be executed in any
number of counterparts, each constituting an original and all considered
one and the same agreement. This Amendment is intended to modify and amend
the Agreement and the terms of this Amendment and the Agreement are to be
construed to be cumulative and not exclusive of each other. Except as
provided herein, the Agreement is hereby ratified and confirmed and remains
in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
by their duly authorized officers to be effective as of the date first above
written.
INVESTORS FIDUCIARY TRUST COMPANY
By: /s/ Stephen R. Hilliard
---------------------------------------------
Stephen R. Hilliard, Executive Vice President
13A COMMERCIAL MORTGAGE SECURITIES
FUND, INC.
By: /s/ Joanne Vitale
------------------------
Joanne Vitale, Secretary
<PAGE>
SECURITY PROCEDURES SELECTION FORM March 1, 1998
Please select one or more of the funds transfer security procedures indicated
below.
[] SWIFT SWIFT (Society for Worldwide Interbank Financial Telecommunication)
is a cooperative society owned and operated by member financial
institutions that provides telecommunication services for its membership.
Participation is limited to securities brokers and dealers, clearing and
depository institutions, recognized exchanges for securities, and
investment management institutions. SWIFT provides a number of security
features through encryption and authentication to protect against
unauthorized access, loss or wrong delivery of messages, transmission
errors, loss of confidentiality and fraudulent changes to messages.
Selection of this security procedure would be most appropriate for existing
SWIFT members.
[] REMOTE BATCH TRANSMISSION Wire transfer instructions are delivered via
Computer-to-Computer (CPU-CPU) data communications between the Client
and/or its agent and IFTC and/or its agent. Security procedures include
encryption and/or the use of a test key by those individuals authorized as
Automated Batch Verifiers or a callback procedure to those individuals.
Clients selecting this option should have an existing facility for
completing CPU-CPU transmissions. This delivery mechanism is typically used
for high-volume business such as shareholder redemptions and dividend
payments.
[X] TELEPHONE CONFIRMATION (CALL BACK) This procedure requires Clients to
designate individuals as authorized initiators and authorized verifiers.
IFTC will verify that the instruction contains the signature of an
authorized person and prior to execution of the payment order, will contact
someone other than the originator at the Client's location to authenticate
the instruction. Selection of this alternative is appropriate for Clients
who do not have the capability to use other security procedures.
[] TEST KEY Test Key confirmation will be used to verify all non-repetitive
funds transfer instructions received via facsimile or phone. IFTC will
provide test keys if this option is chosen. IFTC will verify that the
instruction contains the signature of an authorized person and prior to
execution of the payment order, will authenticate the test key provided
with the corresponding test key at IFTC. Selection of this alternative is
appropriate for Clients who do not have the capability to use other
security procedures.
[X] REPETITIVE WIRES For situations where funds are transferred periodically
from an existing authorized account to the same payee (destination bank and
account number) and only the date and currency amount are variable, a
repetitive wire may be implemented. Repetitive wires will be subject to a
$10 million limit. If the payment order exceeds the $10 million limit, the
instruction will be confirmed by telephone or test key prior to execution.
Repetitive wire instructions must be reconfirmed annually. Clients may
establish Repetitive Wires by following the agreed upon security procedures
as described by Telephone
<PAGE>
Confirmation (Call Back) or Test Key. This alternative is recommended whenever
funds are frequently transferred between the same two accounts.
[] STANDING INSTRUCTIONS Funds are transferred by IFTC to a counter party on
the Client's established list of authorized counter parties. Only the date
and the dollar amount are variable. Clients may establish Standby
Instructions by following the agreed upon security procedures as described
by Telephone Confirmation (Call Back) or Test Key. This option is used for
transactions that include but are not limited to Foreign Exchange
Contracts, Time Deposits and Tri-Party Repurchase Agreements.
[] AUTOMATED CLEARING HOUSE (ACH) IFTC or its agent receives an automated
transmission from a Client for the initiation of payment (credit) or
collection (debit) transactions through the ACH network. The transactions
contained on each transmission or tape must be authenticated by the Client.
The transmission is sent from the Client's or its agent's system to IFTC's
or its agent's system with encryption.
KEY CONTACT INFORMATION
Whom shall we contact to implement your selection(s)?
<TABLE>
<CAPTION>
CLIENT OPERATIONS CONTACT ALTERNATE CONTACT
<S> <C>
Joanne Vitale Julian Vulliez
- ------------------------- -------------------------
Name Name
335 Madison Avenue Same
- ------------------------- -------------------------
Address Address
New York, NY 10017
- ------------------------- -------------------------
City/State/Zip Code City/State/Zip Code
212-883-2536 212-883-2640
- ------------------------- -------------------------
Telephone Number Telephone Number
212-883-2836
- -------------------------
Facsimile Number
- -------------------------
SWIFT Number
</TABLE>
<PAGE>
CUSTODY AND INVESTMENT ACCOUNTING AGREEMENT
THIS AGREEMENT is made effective the 15th day of September, 1997, by and
between INVESTORS FIDUCIARY TRUST COMPANY, a trust company chartered under the
laws of the state of Missouri, having its trust office located at 127 West 10th
Street, Kansas City, Missouri 64105 ("IFTC"), and 13A COMMERCIAL MORTGAGE
SECURITIES FUND, INC., a New York corporation, having its principal office and
place of business at 335 Madison Avenue, New York, New York ("Fund").
WITNESSETH:
WHEREAS, Fund desires to appoint IFTC as custodian of the assets of the
Fund's investment portfolio or portfolios (each a "Portfolio", and collectively
the "Portfolios") and as its agent to perform certain investment accounting and
recordkeeping functions; and
WHEREAS, IFTC is willing to accept such appointment on the terms and
conditions hereinafter set forth;
NOW THEREFORE, for and in consideration of the mutual promises contained
herein, the parties hereto, intending to be legally bound, mutually covenant and
agree as follows:
1. APPOINTMENT OF CUSTODIAN AND AGENT. Fund hereby constitutes and appoints
IFTC as:
A. Custodian of the investment securities, interests in loans and other
non-cash investment property, and monies at any time owned by each of
the Portfolios and delivered to IFTC as custodian hereunder
("Assets"); and
B. Agent to perform certain accounting and recordkeeping functions
relating to portfolio transactions required of a duly registered
investment company under Rule 31a of the Investment Company Act of
1940, as amended (the "1940 Act"), and to calculate the net asset
value of the Portfolios.
2. REPRESENTATIONS AND WARRANTIES.
A. Fund hereby represents, warrants and acknowledges to IFTC:
1. That it is a corporation duly organized and existing and in good
standing under the laws of its state of organization, and that it
is registered under the 1940 Act; and
2. That it has the requisite power and authority under applicable
law, its articles of incorporation and its bylaws to enter into
this Agreement; that it has taken
<PAGE>
all requisite action necessary to appoint IFTC as custodian and
investment accounting and recordkeeping agent; that this
Agreement has been duly executed and delivered by Fund; and that
this Agreement constitutes a legal, valid and binding obligation
of Fund, enforceable in accordance with its terms.
B. IFTC hereby represents, warrants and acknowledges to Fund:
1. That it is a trust company duly organized and existing and in
good standing under the laws of the State of Missouri; and
2. That it has the requisite power and authority under applicable
law, its charter and its bylaws to enter into and perform this
Agreement; that this Agreement has been duly executed and
delivered by IFTC; and that this Agreement constitutes a legal,
valid and binding obligation of IFTC, enforceable in accordance
with its terms.
3. DUTIES AND RESPONSIBILITIES OF THE PARTIES.
A. Delivery of Assets. Except as permitted by the 1940 Act, Fund will
deliver or cause to be delivered to IFTC on the effective date hereof,
or as soon thereafter as practicable, and from time to time
thereafter, all Assets acquired by, owned by or from time to time
coming into the possession of each of the Portfolios during the term
hereof, including all documentation required by Fund to be delivered
to IFTC relating to or evidencing any interests in loans. IFTC has no
responsibility or liability whatsoever for or on account of assets not
so delivered.
B. Delivery of Accounts and Records. Fund will turn over or cause to be
turned over to IFTC all accounts and records needed by IFTC to fully
and properly perform its duties and responsibilities hereunder. IFTC
may rely conclusively on the completeness and correctness of such
accounts and records.
C. Delivery of Assets to Third Parties. IFTC will receive delivery of and
keep safely the Assets of each Portfolio segregated in a separate
account. IFTC will not deliver, assign, pledge or hypothecate any such
Assets to any person except as permitted by the provisions hereof or
any agreement executed according to the terms of Section 3.P hereof.
Upon delivery of any such Assets to a subcustodian appointed pursuant
hereto (hereinafter referred to as "Subcustodian"), IFTC will create
and maintain records identifying such Assets as belonging to the
applicable Portfolio. IFTC is responsible for the safekeeping of the
Assets only until they have been transmitted to and received by other
persons as permitted under the terms hereof, except for Assets
transmitted to Subcustodians, for which IFTC remains responsible to
the extent provided herein. IFTC may participate directly or
indirectly through a
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subcustodian in the Depository Trust Company (DTC), Treasury/Federal
Reserve Book Entry System (Fed System), Participant Trust Company
(PTC) or other depository approved by Fund (as such entities are
defined at 17 CFR Section 270.17f-4(b)) (each a "Depository" and
collectively the "Depositories"). IFTC will be responsible to Fund for
any loss, damage or expense suffered or incurred by Fund resulting
from the actions or omissions of any Depository only to the same
extent such Depository is responsible to IFTC.
D. Registration. IFTC will at all times hold registered Assets in the
name of IFTC as custodian, the applicable Portfolio, or a nominee of
either of them, unless specifically directed by Instructions, as
hereinafter defined, to hold such registered Assets in so-called
"street name;" provided that, in any event, IFTC will hold all such
Assets in an account of IFTC as custodian containing only Assets of
the applicable Portfolio, or only assets held by IFTC as a fiduciary
or custodian for customers; and provided further, IFTC's records will
at all times indicate the Portfolio or other customer for which such
Assets are held and the respective interests therein. If, however,
Fund directs IFTC to maintain Assets in "street name", notwithstanding
anything contained herein to the contrary, IFTC will be obligated only
to utilize its best efforts to timely collect income due the Portfolio
on such Assets and to notify the Portfolio of relevant information,
such as maturities and pendency of calls, and corporate actions
including, without limitation, calls for redemption, tender or
exchange offers, declaration, record and payment dates and amounts of
any dividends or income, reorganization, recapitalization, merger,
consolidation, split-up of shares, change of par value, or conversion
("Corporate Actions"). All Assets and the ownership thereof by
Portfolio will at all times be identifiable on the records of IFTC.
Fund agrees to hold IFTC and its nominee harmless for any liability as
a shareholder of record of securities held in custody.
E. Exchange. Upon receipt of Instructions, IFTC will exchange, or cause
to be exchanged, Assets held for the account of a Portfolio for other
Assets issued or paid in connection with any Corporate Action or
otherwise, and will deposit any such Assets in accordance with the
terms of any such Corporate Action. Without Instructions, IFTC is
authorized to exchange Assets in temporary form for Assets in
definitive form, to effect an exchange of shares when the par value of
stock is changed, and, upon receiving payment therefor, to surrender
bonds or other Assets at maturity or when advised of earlier call for
redemption, except that IFTC will receive Instruction prior to
surrendering any convertible security.
F. Purchases of Investments -- Other than Options and Futures. On each
business day on which a Portfolio makes a purchase of Assets other
than options and futures, Fund will deliver to IFTC Instructions
specifying with respect to each such purchase:
1. If applicable, the name of the Portfolio making such purchase;
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2. The name of the issuer and description of the Asset;
3. The number of shares and the principal amount purchased, and
accrued interest, if any;
4. The trade date;
5. The settlement date;
6. The purchase price per unit and the brokerage commission, taxes
and other expenses payable in connection with the purchase;
7. The total amount payable upon such purchase;
8. The name of the person from whom or the broker or dealer through
whom the purchase was made; and
9. Whether the Asset is to be received in certificated form or via a
specified Depository.
In accordance with such Instructions, IFTC will pay for out of monies
held for the purchasing Portfolio, but only insofar as such monies are
available for such purpose, and receive the Assets so purchased by or
for the account of such Portfolio, except that IFTC, or a
Subcustodian, may in its sole discretion advance funds to such
Portfolio which may result in an overdraft because the monies held on
behalf of such Portfolio are insufficient to pay the total amount
payable upon such purchase. Except as otherwise instructed by Fund,
IFTC will make such payment only upon receipt of Assets: (a) by IFTC;
(b) by a clearing corporation of a national exchange of which IFTC is
a member; or (c) by a Depository. Notwithstanding the foregoing, (i)
IFTC may release funds to a Depository prior to the receipt of advice
from the Depository that the Assets underlying a repurchase agreement
have been transferred by book-entry into the account maintained with
such Depository by IFTC on behalf of its customers; provided that
IFTC's instructions to the Depository require that the Depository make
payment of such funds only upon transfer by book-entry of the Assets
underlying the repurchase agreement in such account; (ii) IFTC may
make payment for time deposits, call account deposits, currency
deposits and other deposits, foreign exchange transactions, futures
contracts or options, before receipt of an advice or confirmation
evidencing said deposit or entry into such transaction; (iii) IFTC may
make, or cause a Subcustodian to make, payment for the purchase of
Assets the settlement of which occurs outside of the United States of
America in accordance with generally accepted local custom and market
practice; and (iv) in the case of interests in loans, IFTC shall make
payment therefor and additional advances relating thereto at such
times and to such parties as instructed by Fund without regard to the
time of delivery to IFTC of documentation evidencing the Fund's
interest in the loan or the additional advance, as applicable.
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G. Sales and Deliveries of Investments -- Other Than Options and Futures.
On each business day on which a Portfolio makes a sale of Assets other
than options and futures, Fund will deliver to IFTC Instructions
specifying with respect to each such sale:
1. If applicable, the name of the Portfolio making such sale;
2. The name of the issuer and description of the Asset;
3. The number of shares and principal amount sold, and accrued
interest, if any;
4. The date on which the Assets sold were purchased or other
information identifying the Assets sold and to be delivered;
5. The trade date;
6. The settlement date;
7. The sale price per unit and the brokerage commission, taxes or
other expenses payable in connection with such sale;
8. The total amount to be received by the Portfolio upon such sale;
and
9. The name and address of the broker or dealer through whom or
person to whom the sale was made.
IFTC will deliver or cause to be delivered the Assets thus designated
as sold for the account of the selling Portfolio as specified in the
Instructions. Except as otherwise instructed by Fund, IFTC will make
such delivery upon receipt of: (a) payment therefor in such form as is
satisfactory to IFTC; (b) credit to the account of IFTC with a
clearing corporation of a national securities exchange of which IFTC
is a member; or (c) credit to the account maintained by IFTC on behalf
of its customers with a Depository. Notwithstanding the foregoing: (i)
IFTC will deliver Assets held in physical form in accordance with
"street delivery custom" to a broker or its clearing agent; (ii) IFTC
may make, or cause a Subcustodian to make, delivery of Assets the
settlement of which occurs outside of the United States of America
upon payment therefor in accordance with generally accepted local
custom and market practice; and (iii) in the case of the sale of an
interest in a loan, IFTC will receive the purchase price for the
account of Fund and deliver the loan documents relating to the
interest sold as instructed by Fund.
H. Purchases or Sales of Options and Futures. On each business day on
which a Portfolio makes a purchase or sale of the options and/or
futures listed below, Fund will deliver to IFTC Instructions
specifying with respect to each such purchase or sale:
1. If applicable, the name of the Portfolio making such purchase or
sale;
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2. In the case of security options:
a. The underlying security;
b. The price at which purchased or sold;
c. The expiration date;
d. The number of contracts;
e. The exercise price;
f. Whether the transaction is an opening, exercising, expiring
or closing transaction;
g. Whether the transaction involves a put or call;
h. Whether the option is written or purchased;
i. Market on which option traded; and
j. Name and address of the broker or dealer through whom the
sale or purchase was made.
3. In the case of options on indices:
a. The index;
b. The price at which purchased or sold;
c. The exercise price;
d. The premium;
e. The multiple;
f. The expiration date;
g. Whether the transaction is an opening, exercising, expiring
or closing transaction;
h. Whether the transaction involves a put or call;
i. Whether the option is written or purchased; and
j. The name and address of the broker or dealer through whom
the sale or purchase was made, or other applicable
settlement instructions.
4. In the case of security index futures contracts:
a. The last trading date specified in the contract and, when
available, the closing level, thereof;
b. The index level on the date the contract is entered into;
c. The multiple;
d. Any margin requirements;
e. The need for a segregated margin account (in addition to
Instructions, and if not already in the possession of IFTC,
Fund will deliver a substantially complete and executed
custodial safekeeping account and procedural agreement,
incorporated herein by this reference); and
f. The name and address of the futures commission merchant
through whom the sale or purchase was made, or other
applicable settlement instructions.
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5. In the case of options on index future contracts:
a. The underlying index future contract;
b. The premium;
c. The expiration date;
d. The number of options;
e. The exercise price;
f. Whether the transaction involves an opening, exercising,
expiring or closing transaction;
g. Whether the transaction involves a put or call;
h. Whether the option is written or purchased; and
i. The market on which the option is traded.
I. Assets Pledged or Loaned. If specifically allowed for in the
prospectus of a Portfolio, and subject to such additional terms and
conditions as IFTC may require:
1. Upon receipt of Instructions, IFTC will release or cause to be
released Assets to the designated pledgee by way of pledge or
hypothecation to secure any loan incurred by a Portfolio;
provided, however, that IFTC will release Assets only upon
payment to IFTC of the monies borrowed, except that in cases
where additional collateral is required to secure a borrowing
already made, further Assets may be released or caused to be
released for that purpose. Upon receipt of Instructions, IFTC
will pay, but only from funds available for such purpose, any
such loan upon redelivery to it of the Assets pledged or
hypothecated therefor and upon surrender of the note or notes
evidencing such loan.
2. Upon receipt of Instructions, IFTC will release Assets to the
designated borrower; provided, however, that the Assets will be
released only upon deposit with IFTC of full cash collateral as
specified in such Instructions, and that the lending Portfolio
will retain the right to any dividends, interest or distribution
on such loaned Assets. Upon receipt of Instructions and the
loaned Assets, IFTC will release the cash collateral to the
borrower.
J. Routine Matters. IFTC will, in general, attend to all routine and
mechanical matters in connection with the sale, exchange,
substitution, purchase, transfer, or other dealings with the Assets
except as may be otherwise provided herein or upon Instruction from
Fund.
K. Deposit Accounts. IFTC will open and maintain one or more special
purpose deposit accounts for each Portfolio in the name of IFTC in
such banks or trust companies (including, without limitation,
affiliates of IFTC) as may be designated by it or Fund in writing
("Accounts"), subject only to draft or order by IFTC upon receipt of
Instructions. IFTC will deposit all monies received by IFTC from or
for the account
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of a Portfolio in an Account maintained for such Portfolio. Subject to
Section 5.K hereof, IFTC agrees:
1. To make Fed Funds available to the applicable Portfolio at 9:00
a.m., Kansas City time, on the second business day after deposit
of any check into an Account, in the amount of the check;
2. To make funds available immediately upon a deposit made by
Federal Reserve wire; and
3. To make funds available on the next business day after deposit of
ACH wires.
L. Income and Other Payments. IFTC will:
1. Collect, claim and receive and deposit for the account of the
applicable Portfolio all income (including income from the
Accounts) and other payments which become due and payable on or
after the effective date hereof with respect to the Assets, and
credit the account of such Portfolio in accordance with the
schedule attached hereto as Exhibit A. If, for any reason, a
Portfolio is credited with income that is not subsequently
collected, IFTC may reverse that credited amount. If monies are
collected after such reversal, IFTC will credit the Portfolio in
that amount;
2. Execute ownership and other certificates and affidavits for all
federal, state and local tax purposes in connection with the
collection of bond and note coupons; and
3. Take such other action as may be necessary or proper in
connection with (a) the collection, receipt and deposit of such
income and other payments, including but not limited to the
presentation for payment of all coupons and other income items
requiring presentation; and all other Assets which may mature or
be called, redeemed, retired or otherwise become payable and
regarding which IFTC has actual knowledge, or should reasonably
be expected to have knowledge; and (b) the endorsement for
collection, in the name of Fund or a Portfolio, of all checks,
drafts or other negotiable instruments.
IFTC, however, will not be required to institute suit or take other
extraordinary action to enforce collection except upon receipt of
Instructions and upon being indemnified to its satisfaction against
the costs and expenses of such suit or other actions. IFTC will
receive, claim and collect all stock dividends, rights and other
similar items and will deal with the same pursuant to Instructions.
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M. Proxies and Notices. IFTC will promptly deliver or mail or have
delivered or mailed to Fund all proxies properly signed, all notices
of meetings, all proxy statements and other notices, requests or
announcements affecting or relating to Assets and will, upon receipt
of Instructions, execute and deliver or mail (or cause its nominee to
execute and deliver or mail) such proxies or other authorizations as
may be required. Except as provided herein or pursuant to Instructions
hereafter received by IFTC, neither it nor its nominee will exercise
any power inherent in any such Assets, including any power to vote the
same, or execute any proxy, power of attorney, or other similar
instrument voting any of such Assets, or give any consent, approval or
waiver with respect thereto, or take any other similar action.
N. Disbursements. IFTC will pay or cause to be paid, insofar as funds are
available for the purpose, bills, statements and other obligations of
each Portfolio (including but not limited to obligations in connection
with the conversion, exchange or surrender of Assets, interest
charges, dividend disbursements, taxes, management fees, custodian
fees, legal fees, auditors' fees, transfer agents' fees, brokerage
commissions, compensation to personnel, and other operating expenses
of such Portfolio) pursuant to Instructions setting forth the name of
the person to whom payment is to be made, and the amount and purpose
of the payment.
O. Daily Statement of Accounts. IFTC will, within a reasonable time,
render to Fund a detailed statement of the amounts received or paid
and of Assets received or delivered for the account of each Portfolio
during each business day. IFTC will maintain such books and records as
are necessary to enable it to render, from time to time upon request
by Fund, a detailed statement of the Assets. IFTC will permit, and
upon Instruction will cause any Subcustodian to permit, such persons
as are authorized by Fund, including Fund's independent public
accountants, reasonable access to such records or will provide
reasonable confirmation of the contents of such records, and if
demanded, IFTC will permit, and will cause any Subcustodian to permit,
federal and state regulatory agencies to examine the Assets, books and
records of the Portfolio.
P. Appointment of Subcustodians. Notwithstanding any other provisions
hereof:
1. All or any of the Assets may be held in IFTC's own custody or in
the custody of one or more other banks or trust companies
(including, without limitation, affiliates of IFTC) acting as
Subcustodians as may be selected by IFTC. Any such Subcustodian
selected by IFTC must have the qualifications required for a
custodian under the 1940 Act. IFTC will be responsible to the
applicable Portfolio for any loss, damage or expense suffered or
incurred by such Portfolio resulting from the actions or
omissions of any Subcustodians selected and appointed by IFTC
(except Subcustodians appointed at the request of Fund and as
provided in Subsections 2 or 3 below) to the same
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extent IFTC would be responsible to Fund hereunder if it
committed the act or omission itself.
2. Upon request of Fund, IFTC will contract with other Subcustodians
reasonably acceptable to IFTC for purposes of (a) effecting
third-party repurchase transactions with banks, brokers, dealers,
or other entities through the use of a common custodian or
subcustodian, or (b) providing depository and clearing agency
services with respect to certain variable rate demand note
securities, or (c) for other reasonable purposes specified by
Fund; provided, however, that IFTC will be responsible to Fund
for any loss, damage or expense suffered or incurred by Fund
resulting from the actions or omissions of any such Subcustodian
only to the same extent such Subcustodian is responsible to IFTC.
Fund may review IFTC's contracts with such Subcustodians.
3. Each Portfolio's foreign securities (as defined in Rule
17f-5(c)(1) under the 1940 Act) and cash or cash equivalents, in
amounts deemed by Fund to be reasonably necessary to effect such
Portfolio's foreign securities transactions, may be held in the
custody of one or more banks or trust companies acting as
Subcustodians ("Global Subcustodian"), and thereafter, pursuant
to a written contract or contracts as approved by Fund, may be
transferred to accounts maintained by any such Global
Subcustodian with eligible foreign custodians, as defined in Rule
17f-5(c)(2) ("Eligible Foreign Custodian"). IFTC will be
responsible to Fund for any loss, damage or expense suffered or
incurred by Fund resulting from the actions or omissions of any
Eligible Foreign Custodian only to the same extent such
subcustodian is liable to the Global Subcustodian.
Q. Accounts and Records. IFTC will prepare and maintain, with the
direction and as interpreted by Fund, Fund's or Portfolio's
accountants and/or other advisors, in complete, accurate and current
form all accounts and records: (1) required to be maintained by Fund
with respect to portfolio transactions under Rule 3la of the 1940 Act;
(2) required to be maintained as a basis for calculation of each
Portfolio's net asset value; and (3) as otherwise agreed upon by the
parties. Fund will advise IFTC in writing of all applicable record
retention requirements, other than those set forth in the 1940 Act.
IFTC will preserve such accounts and records in the manner and for the
periods prescribed in the 1940 Act or for such longer period as is
agreed upon by the parties. Fund will furnish, in writing or its
electronic or digital equivalent, accurate and timely information
needed by IFTC to complete such accounts and records, including
Corporate Actions, when such information is not readily available from
generally accepted securities industry services or publications.
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R. Accounts and Records Property of Fund. IFTC acknowledges that all of
the accounts and records maintained by IFTC pursuant hereto are the
property of Fund, and will be made available to Fund for inspection or
reproduction within a reasonable period of time, upon demand. IFTC
will assist Fund's independent auditors, or upon approval of Fund, or
upon demand, any regulatory body, in any requested review of Fund's
accounts and records but Fund will reimburse IFTC for all expenses and
employee time invested in any such review outside of routine and
normal periodic reviews. Upon receipt from Fund of the necessary
information or instructions, IFTC will supply information from the
books and records it maintains for Fund that Fund needs for tax
returns, questionnaires, periodic reports to shareholders and such
other reports and information requests as Fund and IFTC agree upon
from time to time.
S. Adoption of Procedures. IFTC and Fund hereby adopt the Funds Transfer
Operating Guidelines attached hereto as Exhibit B. IFTC and Fund may
from time to time adopt such additional procedures as they agree upon,
and IFTC may conclusively assume that no procedure approved or
directed by Fund, Fund's or Portfolio's accountants or other advisors
conflicts with or violates any requirements of the prospectus,
articles of incorporation, bylaws, any applicable law, rule or
regulation, or any order, decree or agreement by which Fund may be
bound. Fund will be responsible to notify IFTC of any changes in
statutes, regulations, rules, requirements or policies which might
necessitate changes in IFTC's responsibilities or procedures.
T. Calculation of Net Asset Value. Fund will give Instructions to IFTC
specifying the outside pricing sources to be utilized as sources of
Asset prices ("Pricing Sources"). In the event that Fund specifies
Reuters America, Inc., it will enter into the Agreement attached
hereto as Exhibit C. IFTC will calculate each Portfolio's net asset
value, in accordance with the Portfolio's prospectus. IFTC will price
the Assets, including foreign currency holdings and loans and
interests in loans, of each Portfolio for which market quotations are
available from the Pricing Sources; all other Assets, will be priced
in accordance with Fund's Instructions.
U. Advances. Fund will pay on demand any advance of cash or securities
made by IFTC or any Subcustodian, in its sole discretion, for any
purpose (including but not limited to loan advances, securities
settlements, purchase or sale of foreign exchange or foreign exchange
contracts and assumed settlement) for the benefit of any Portfolio.
Any such cash advance will be subject to an overdraft charge at the
rate set forth in the then-current fee schedule from the date advanced
until the date repaid. As security for each such advance, Fund hereby
grants IFTC and such Subcustodian a lien on and security interest in
all Assets at any time held for the account of the applicable
Portfolio, including without limitation all Assets acquired with the
amount advanced. Should Fund fail to promptly repay the advance, IFTC
and such Subcustodian may utilize available cash and to dispose of
such Portfolio's Assets
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pursuant to applicable law to the extent necessary to obtain
reimbursement of the amount advanced and any related overdraft
charges.
V. Exercise of Rights; Tender Offers. Upon receipt of Instructions, IFTC
will: (1) deliver warrants, puts, calls, rights or similar securities
to the issuer or trustee thereof, or to the agent of such issuer or
trustee, for the purpose of exercise or sale, provided that the new
Assets, if any, are to be delivered to IFTC; and (2) deposit
securities upon invitations for tenders thereof, provided that the
consideration for such securities is to be paid or delivered to IFTC
or the tendered securities are to be returned to IFTC.
W. Fund Shares.
1. Fund will deliver to IFTC Instructions with respect to the
declaration and payment of any dividend or other distribution on
the shares of capital stock of a Portfolio ("Fund Shares") by a
Portfolio. On the date specified in such Instruction, IFTC will
pay out of the monies held for the account of the Portfolio,
insofar as it is available for such purposes, and credit to the
account of the Dividend Disbursing Agent for the Portfolio, the
amount specified in such Instructions.
2. Whenever Fund Shares are repurchased or redeemed by a Portfolio,
Portfolio or its agent will give IFTC Instructions regarding the
aggregate dollar amount to be paid for such shares. Upon receipt
of such Instruction, IFTC will charge such aggregate dollar
amount to the account of the Portfolio and either deposit the
same in the account maintained for the purpose of paying for the
repurchase or redemption of Fund Shares or deliver the same in
accordance with such Instruction. IFTC has no duty or
responsibility to determine that Fund Shares have been removed
from the proper shareholder accounts or that the proper number of
Fund Shares have been canceled and removed from the shareholder
records.
3. Whenever Fund Shares are purchased from Fund, Fund will deposit
or cause to be deposited with IFTC the amount received for such
shares. IFTC has no duty or responsibility to determine that Fund
Shares purchased from Fund have been added to the proper
shareholder account or that the proper number of such shares have
been added to the shareholder records.
4. INSTRUCTIONS.
A. The term "Instructions", as used herein, means written (including
telecopied, telexed, or electronically transmitted) or oral
instructions which IFTC reasonably believes were given by a designated
representative of Fund. Fund will deliver to IFTC, prior
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to delivery of any Assets to IFTC and thereafter from time to time as
changes therein are necessary, written Instructions naming one or more
designated representatives to give Instructions in the name and on
behalf of Fund, which Instructions may be received and accepted by
IFTC as conclusive evidence of the authority of any designated
representative to act for Fund and may be considered to be in full
force and effect until receipt by IFTC of notice to the contrary.
Unless such written Instructions delegating authority to any person to
give Instructions specifically limit such authority to specific
matters or require that the approval of anyone else will first have
been obtained, IFTC will be under no obligation to inquire into the
right of such person, acting alone, to give any Instructions
whatsoever. If Fund fails to provide IFTC any such Instructions naming
designated representatives, any Instructions received by IFTC from a
person reasonably believed to be an appropriate representative of Fund
will constitute valid and proper Instructions hereunder. "Designated
representatives" may include Fund's or a Portfolio's employees and
agents, including investment managers and their employees.
B. No later than the next business day immediately following each oral
Instruction, Fund will send IFTC written confirmation of such oral
Instruction.
C. Fund will provide, upon IFTC's request, a certificate signed by an
officer or designated representative of Fund, as conclusive proof of
any fact or matter required to be ascertained from Fund hereunder.
Fund will also provide IFTC Instructions with respect to any matter
concerning this Agreement requested by IFTC. If IFTC reasonably
believes that it could not prudently act according to the
Instructions, or the instruction or advice of Fund's or a Portfolio's
accountants or counsel, it may in its discretion, with notice to Fund,
not act according to such Instructions.
5. LIMITATION OF LIABILITY OF IFTC. IFTC is not responsible or liable for, and
Fund will indemnify and hold IFTC harmless from and against, any and all
costs, expenses, losses, damages, charges, counsel fees, payments and
liabilities which may be asserted against or incurred by IFTC or for which
IFTC may be held to be liable, arising out of or attributable to:
A. IFTC's action or omission to act pursuant hereto; provided that IFTC
has acted in good faith and with due diligence and reasonable care;
and provided further, that IFTC is not liable for consequential,
special, or punitive damages in any event.
B. IFTC's payment of money as requested by Fund, or the taking of any
action which might make it or its nominee liable for payment of monies
or in any other way; provided, however, that nothing herein obligates
IFTC to take any such action or expend its own moneys except in its
sole discretion.
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C. IFTC's action or omission to act hereunder upon any Instructions,
advice, notice, request, consent, certificate or other instrument or
paper appearing to it to be genuine and to have been properly
executed, including any Instructions, communications, data or other
information received by IFTC by means of the Systems, as hereinafter
defined, or any electronic system of communication.
D. IFTC's action or omission to act in good faith reliance on the advice
or opinion of counsel for Fund or of its own counsel with respect to
questions or matters of law, which advice or opinion may be obtained
by IFTC at the expense of Fund, or on the Instructions, advice or
statements of any officer or employee of Fund, or Fund's accountants
or other authorized individuals, and other persons believed by it in
good faith to be expert in matters upon which they are consulted.
E. The purchase or sale of any securities or foreign currency positions.
Without limiting the generality of the foregoing, IFTC is under no
duty or obligation to inquire into:
1. The validity of the issue of any securities purchased by or for
any Portfolio, or the legality of the purchase thereof or of
foreign currency positions, the validity, completeness,
correctness or sufficiency of any loan documents, the evidence of
ownership required by Fund to be received by IFTC, or the
propriety of the decision to purchase or the amount paid
therefor;
2. The legality of the sale of any securities or foreign currency
positions by or for any Portfolio, or the propriety of the amount
for which the same are sold; or
3. The legality of the issue or sale of any Fund Shares, or the
sufficiency of the amount to be received therefor, the legality
of the repurchase or redemption of any Fund Shares, or the
propriety of the amount to be paid therefor, or the legality of
the declaration of any dividend by Fund, or the legality of the
issue of any Fund Shares in payment of any stock dividend.
F. Any error, omission, inaccuracy or other deficiency in any Portfolio's
accounts and records or other information provided by or on behalf of
a Portfolio to IFTC, including the accuracy of the prices quoted by
the Pricing Sources or for the information supplied by Fund to price
the Assets, or the failure of Fund to provide, or provide in a timely
manner, any accounts, records, or information needed by IFTC to
perform hereunder.
G. Fund's refusal or failure to comply with the terms hereof (including
without limitation Fund's failure to pay or reimburse IFTC under
Section 5 hereof), Fund's negligence or willful misconduct, or the
failure of any representation or warranty of Fund hereunder to be and
remain true and correct in all respects at all times.
14
<PAGE>
H. The use or misuse, whether authorized or unauthorized, of the Systems
or any electronic system of communication used hereunder, by Fund or
by any person who acquires access to the Systems or such other systems
through the terminal device, passwords, access instructions or other
means of access to such Systems or such other system which are
utilized by, assigned to or otherwise made available to Fund, except
to the extent attributable to any negligence or willful misconduct by
IFTC.
I. Any money represented by any check, draft, wire transfer,
clearinghouse funds, uncollected funds, or instrument for the payment
of money to be received by IFTC on behalf of a Portfolio until
actually received; provided, however, that IFTC will advise Fund
promptly if it fails to receive any such money in the ordinary course
of business and will cooperate with Fund toward the end that such
money is received.
J. Except as provided in Section 3.P hereof, loss occasioned by the acts,
neglects, defaults or insolvency of any broker, bank, trust company,
or any other person with whom IFTC may deal.
K. The failure or delay in performance of its obligations hereunder, or
those of any entity for which it is responsible hereunder, arising out
of or caused, directly or indirectly, by circumstances beyond the
affected entity's reasonable control, including, without limitation:
any interruption, loss or malfunction of any utility, transportation,
computer (hardware or software) or communication service; inability to
obtain labor, material, equipment or transportation, or a delay in
mails; governmental or exchange action, statute, ordinance, rulings,
regulations or direction; war, strike, riot, emergency, civil
disturbance, terrorism, vandalism, explosions, labor disputes,
freezes, floods, fires, tornados, acts of God or public enemy,
revolutions, or insurrection.
6. COMPENSATION. In consideration for its services hereunder, Fund will pay to
IFTC the compensation set forth in a separate fee schedule, incorporated
herein by this reference, to be agreed to by Fund and IFTC from time to
time, and reimbursement for IFTC's cash disbursements and reasonable
out-of-pocket costs and expenses, including attomey's fees, incurred by
IFTC in connection with the performance of services hereunder, on demand.
IFTC may charge such compensation against monies held by it for the account
of the Portfolios. IFTC will also be entitled to charge against any monies
held by it for the account of the Portfolios the amount of any loss,
damage, liability, advance, overdraft or expense for which it is entitled
to reimbursement from Fund, including but not limited to fees and expenses
due to IFTC for other services provided to Fund by IFTC. IFTC will be
entitled to reimbursement by Fund for the losses, damages, liabilities,
advances, overdrafts and expenses of Subcustodians only to the extent that
(a) IFTC would have been entitled to reimbursement hereunder if it had
incurred the same itself directly, and (b) IFTC is obligated to reimburse
the Subcustodian therefor.
15
<PAGE>
7. TERM AND TERMINATION. The initial term of this Agreement is for a period of
one (1) year. Thereafter, Fund or IFTC may terminate the same by notice in
writing, delivered or mailed, postage prepaid, to the other party and
received not less than ninety (90) days prior to the date upon which such
termination will take effect. Upon termination hereof:
A. Fund will pay IFTC its fees and compensation due hereunder and its
reimbursable disbursements, costs and expenses paid or incurred to
such date; and
B. Fund will designate a successor investment accounting and
recordkeeping agent (which may be Fund) by Instruction to IFTC; and
C. Fund will designate a successor custodian by Instruction to IFTC. In
the event no such Instruction has been delivered to IFTC on or before
the date when such termination becomes effective, then IFTC may, at
its option, (i) choose as successor custodian a bank or trust company
meeting the qualifications for custodian set forth in the 1940 Act and
having not less than Two Million Dollars ($2,000,000) aggregate
capital, surplus and undivided profits, as shown by its last published
report, or (ii) apply to a court of competent jurisdiction for the
appointment of a successor or other proper relief, or take any other
lawful action under the circumstances; provided, however, that Fund
will reimburse IFTC for its costs and expenses, including reasonable
attorney's fees, incurred in connection therewith; and
D. IFTC will, upon payment of all sums due to IFTC from Fund hereunder or
otherwise, deliver at IFTC's office (i) all (i) accounts and records
to the successor investment accounting and recordkeeping agent or, if
none, to Fund; and (ii) all Assets, duly endorsed and in form for
transfer, to the successor custodian, or as specified by the court.
IFTC will co-operate in effecting changes in book-entries at all
Depositories. Upon delivery to a successor or as specified by the
court, IFTC will have no further obligations or liabilities hereunder.
Thereafter such successor will be the successor hereunder and will be
entitled to reasonable compensation for its services.
In the event that accounts, records or Assets remain in the possession of
IFTC after the date of termination hereof for any reason other than IFTC's
failure to deliver the same, IFTC is entitled to compensation as provided
in the then-current fee schedule for its services during such period, and
the provisions hereof relating to the duties and obligations of IFTC will
remain in full force and effect.
8. NOTICES. Notices, requests, instructions and other writings addressed to
Fund at the address set forth above, or at such other address as Fund may
have designated to IFTC in writing, will be deemed to have been properly
given to Fund hereunder. Notices, requests, Instructions and other writings
addressed to IFTC at the address set forth above, Attention: Custody
Department, or to such other address as it may have designated to Fund in
writing, will be deemed to have been properly given to IFTC hereunder.
16
<PAGE>
9. THE SYSTEMS; CONFIDENTIALITY.
A. If IFTC provides Fund direct access to the computerized investment
portfolio custody, recordkeeping and accounting systems used by IFTC
("Systems") or if IFTC and Fund agree to utilize any electronic system
of communication, Fund agrees to implement and enforce appropriate
security policies and procedures to prevent unauthorized or improper
access to or use of the Systems or such other system.
B. Fund will preserve the confidentiality of the Systems and the tapes,
books, reference manuals, instructions, records, programs,
documentation and information of, and other materials relevant to, the
Systems and the business of IFTC ("Confidential Information"). Fund
agrees that it will not voluntarily disclose any such Confidential
Information to any other person other than its own employees who
reasonably have a need to know such information pursuant hereto. Fund
will return all such Confidential Information to IFTC upon termination
or expiration hereof.
C. Fund has been informed that the Systems are licensed for use by IFTC
from one or more third parties ("Licensors"), and Fund acknowledges
that IFTC and Licensors have proprietary rights in and to the Systems
and all other IFTC or Licensor programs, code, techniques, know-how,
data bases, supporting documentation, data formats, and procedures,
including without limitation any changes or modifications made at the
request or expense or both of Fund (collectively, the "Protected
Information"). Fund acknowledges that the Protected Information
constitutes confidential material and trade secrets of IFTC and
Licensors. Fund will preserve the confidentiality of the Protected
Information, and Fund hereby acknowledges that any unauthorized use,
misuse, disclosure or taking of Protected Information, residing or
existing internal or external to a computer, computer system, or
computer network, or the knowing and unauthorized accessing or causing
to be accessed of any computer, computer system, or computer network,
may be subject to civil liabilities and criminal penalties under
applicable law. Fund will so inform employees and agents who have
access to the Protected Information or to any computer equipment
capable of accessing the same. Licensors are intended to be and are
third party beneficiaries of Fund's obligations and undertakings
contained in this Section.
D. Fund hereby represents and warrants to IFTC that it has determined to
its satisfaction that the Systems are appropriate and suitable for its
use. THE SYSTEMS ARE PROVIDED ON AN AS IS, AS AVAILABLE BASIS. IFTC
EXPRESSLY DISCLAIMS ALL WARRANTIES EXCEPT THOSE EXPRESSLY STATED
HEREIN INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS OF A PARTICULAR PURPOSE.
17
<PAGE>
10. MULTIPLE PORTFOLIOS. If Fund is comprised of more than one Portfolio:
A. Each Portfolio will be regarded for all purposes hereunder as a
separate party apart from each other Portfolio. Unless the context
otherwise requires, with respect to every transaction covered hereby,
every reference herein to Fund is deemed to relate solely to the
particular Portfolio to which such transaction relates. Under no
circumstances will the rights, obligations or remedies with respect to
a particular Portfolio constitute a right, obligation or remedy
applicable to any other Portfolio. The use of this single document to
memorialize the separate agreement of each Portfolio is understood to
be for clerical convenience only and will not constitute any basis for
joining the Portfolios for any reason.
B. Fund may appoint IFTC as its custodian and investment accounting and
recordkeeping agent for additional Portfolios from time to time by
written notice, provided that IFTC consents to such addition. Rates or
charges for each additional Portfolio will be as agreed upon by IFTC
and Fund in writing.
11. MISCELLANEOUS.
A. This Agreement will be construed according to, and the rights and
liabilities of the parties hereto will be governed by, the laws of the
State of Mssouri, without reference to the choice of laws principles
thereof.
B. All terms and provisions hereof will be binding upon, inure to the
benefit of and be enforceable by the parties hereto and their
respective successors and permitted assigns.
C. The representations and warranties, the indemnifications extended
hereunder, and the provisions of Section 9 hereof are intended to and
will continue after and survive the expiration, termination or
cancellation hereof.
D. No provisions hereof may be amended or modified in any manner except
by a written agreement properly authorized and executed by each party
hereto.
E. The failure of either party to insist upon the performance of any
terms or conditions hereof or to enforce any rights resulting from any
breach of any of the terms or conditions hereof, including the payment
of damages, will not be construed as a continuing or permanent waiver
of any such terms, conditions, rights or privileges, but the same will
continue and remain in full force and effect as if no such forbearance
or waiver had occurred. No waiver, release or discharge of any party's
rights hereunder will be effective unless contained in a written
instrument signed by the party sought to be charged.
18
<PAGE>
F. The captions herein are included for convenience of reference only,
and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
G. This Agreement may be executed in two or more counterparts, each of
which is deemed an original but all of which together constitute one
and the same instrument.
H. If any provision hereof is determined to be invalid, illegal, in
conflict with any law or otherwise unenforceable, the remaining
provisions hereof will be considered severable and will not be
affected thereby, and every remaining provision hereof will remain in
full force and effect and will remain enforceable to the fullest
extent permitted by applicable law.
I. This Agreement may not be assigned by either party hereto without the
prior written consent of the other party.
J. Neither the execution nor performance hereof will be deemed to create
a partnership or joint venture by and between IFTC and Fund or any
Portfolio.
K. Except as specifically provided herein, this Agreement does not in any
way affect any other agreements entered into among the parties hereto
and any actions taken or omitted by either party hereunder will not
affect any rights or obligations of the other party hereunder.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective duly authorized officers.
<TABLE>
<CAPTION>
INVESTORS FIDUCIARY TRUST 13A COMMERCIAL MORTGAGE
COMPANY SECURITIES FUND, INC.
<S> <C>
By: By: /s/ Joanne Vitale
---------------------------- -----------------------
Title: Executive Vice President Title: Secretary
------------------------- --------------------
</TABLE>
19
<PAGE>
EXHIBIT A -- INCOME AVAILABILITY SCHEDULE
Foreign--Income will be credited contractually on pay day in the markets
noted with Contractual Income Policy. The markets noted with Actual income
policy will be credited income when it is received.
<TABLE>
<CAPTION>
Market Income Policy Market Income Policy Market Income Policy
- ------------------ ------------------ ----------------- ------------------ --------------- ------------------
<S> <C> <C> <C> <C> <C>
Argentina Actual Hong Kong Contractual Poland Actual
Australia Contractual Hungary Actual Portugal Contractual
Austria Contractual India Actual Russia Actual
Bahrain Actual Indonesia Actual Singapore Contractual
Bangladesh Actual Ireland Actual Slovak Republic Actual
Belgium Contractual Israel Actual South Africa Actual
Bermuda Actual Italy Contractual South Korea Actual
* Bolivia Actual Ivory Coast Actual Spain Contractual
Botswana Actual * Jamaica Actual Sri Lanka Actual
Brazil Actual Japan Contractual Swaziland Actual
Canada Contractual Jordan Actual Sweden Contractual
Chile Actual Kenya Actual Switzerland Contractual
China Actual Lebanon Actual Taiwan Actual
Colombia Actual Luxembourg Actual Thailand Actual
Cyprus Actual Malaysia Actual * Trinidad & Tobago Actual
Czech Republic Actual Mauritius Actual * Tunisia Actual
Denmark Contractual Mexico Actual Turkey Actual
Ecuador Actual Morocco Actual United Kingdom Contractual
Egypt Actual Namibia Actual United States See Attached
**Euroclear Contractual/ Actual Netherlands Contractual Uruguay Actual
Euro CDs Actual New Zealand Contractual Venezuela Actual
Finland Contractual Norway Contractual Zambia Actual
France Contractual Oman Actual Zimbabwe Actual
Germany Contractual Pakistan Actual
Ghana Actual Peru Actual
Greece Actual Philippines Actual
</TABLE>
* Market is not 17F-5 eligible.
** For Euroclear, contractual income paid only in markets listed with
Income Policy of Contractual.
20
<PAGE>
United States--
<TABLE>
<CAPTION>
Income Type DTC FED PTC Physical
- ---------------------- ------------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Dividends Contractual N/A N/A Actual
Fixed Rate Interest Contractual Contractual N/A Actual
Variable Rate Interest Contractual Contractual N/A Actual
GNMA I N/A N/A Contractual PD+1 N/A
GNMA II N/A N/A Contractual PD *** N/A
Mortgages Actual Contractual Contractual Actual
Maturities Actual Contractual N/A Actual
</TABLE>
Exceptions to the above Contractual Income Policy include securities that
are:
Involved in a trade whose settlement either failed, or is pending over
the record date (excluding the Unites States);
On loan under a self directed securities lending program other than
IFTC's own vendor lending program;
Known to be in a condition of default, or suspected to present a risk
of default or payment delay;
In the asset categories, without limitation, of Private Placements,
Derivatives, Options, Futures, CMOs, and Zero Coupon Bonds.
Securities whose amount of income and redemption cannot be calculated
in advance of payable date, or determined in advance of actual
collection, examples include ADRs;
Payments received as the result of a corporate action, not limited to,
bond calls, mandatory or optional puts, and tender offers.
*** For GNMA II securities, if the 19th day of the month is a business day,
Payable/Distribution Date is the next business day. If the 19th is not a
business day, but the 20th is a business day, Payable/Distribution Date is
the first business day after the 20th. If both the 19th and 20th are not
business days, Payable/distribution will be the next business day
thereafter.
21
<PAGE>
EXHIBIT B -- FUNDS TRANSFER OPERATING GUIDELINES
1. OBLIGATION OF THE SENDER: IFTC is authorized to promptly debit Fund's
("Client's") account(s) upon the receipt of a payment order in compliance with
any of the Security Procedures chosen by the Client, from those offered on the
attached selection form (and any updated selection forms hereafter executed by
the Client), for funds transfers and in the amount of money that IFTC has been
instructed to transfer. IFTC is hereby instructed to accept funds transfer
instructions only via the delivery methods and Security Procedures indicated on
the attached selection form (and any updated executed by the Client). The Client
agrees that the Security Procedures are reasonable and adequate for its wire
transfer transactions and agrees to be bound by any payment orders, amendments
and cancellations, whether or not authorized, issued in its name and accepted by
IFTC after being confirmed by any of the selected Security Procedures. The
Client also agrees to be bound by any other valid and authorized payment order
accepted by IFTC. IFTC shall execute payment orders in compliance with the
selected Security Procedures and with the Client's/Investment Manager's
instructions on the execution date provided that such payment order is received
by the customary deadline for processing such a request, unless the payment
order specifies a later time. IFTC will use reasonable efforts to execute on the
execution date payment orders received after the customary deadline, but if it
is unable to execute any such payment order on the execution date, such payment
order will be deemed to have been received on the next business day.
2. SECURITY PROCEDURES: The Client acknowledges that the selected Security
Procedures were selected by the Client from Security Procedures offered by IFTC.
The Client shall restrict access to confidential information relating to the
Security Procedures to authorized persons as communicated in writing to IFTC.
The Client must notify IFTC immediately if it has reason to believe unauthorized
persons may have obtained access to such information or of any change in the
Client's authorized personnel. IFTC shall verify the authenticity of all
instructions according to the selected Security Procedures.
3. ACCOUNT NUMBERS: IFTC shall process all payment orders on the basis of the
account number contained in the payment order. In the event of a discrepancy
between any name indicated on the payment order and the account number, the
account number shall take precedence and govern. Financial institutions that
receive payment orders initiated by IFTC at the instruction of the Client may
also process payment orders on the basis of account numbers, regardless of any
name included in the payment order. IFTC will also rely on any financial
institution identification numbers included in any payment order, regardless of
any financial institution name included in the payment order.
4. REJECTION: IFTC reserves the right to decline to process or delay the
processing of a payment order which (a) is in excess of the collected balance in
the account to be charged at the time of IFTC's receipt of such payment order;
(b) if initiating such payment order would cause IFTC, in IFTC's sole judgment,
to exceed any applicable volume, aggregate dollar, network, time, credit or
22
<PAGE>
similar limits upon wire transfers; or (c) if IFTC, in good faith, is unable to
satisfy itself that the transaction has been properly authorized.
5. CANCELLATION OR AMENDMENT: IFTC shall use reasonable efforts to act on all
authorized requests to cancel or amend payment orders received in compliance
with the selected Security Procedures provided that such requests are received
in sufficient time to afford IFTC a reasonable opportunity to act prior to
executing the payment order. However, IFTC assumes no liability if the request
for amendment or cancellation cannot be satisfied by IFTC's reasonable efforts.
6. ERRORS: IFTC shall assume no responsibility for failure to detect any
erroneous payment order provided that IFTC complies with the payment order
instructions as received and IFTC complies with the selected Security
Procedures. The Security Procedures are established for the purpose of
authenticating payment orders only and not for the detection of errors in
payment orders.
7. INTEREST AND LIABILITY LIMITS: IFTC shall assume no responsibility for lost
interest with respect to the refundable amount of any unauthorized payment
order, unless IFTC is notified of the unauthorized payment order within (30)
days of notification by IFTC of the acceptance of such payment order. In no
event (including but not limited to failure to execute a payment order) shall
IFTC be liable for special, indirect or consequential damages, even if advised
of the possibility of such damages.
8. AUTOMATED CLEARING HOUSE ("ACH") CREDIT ENTRIES/PROVISIONAL PAYMENTS: When
the Client initiates or receives ACH credit and debit entries pursuant to these
Guidelines and the rules of the National Automated Clearing House Association
and the Mid-America Payment Exchange or other similar body, IFTC or its agent
will act as an Originating Depository Financial Institution and/or Receiving
Depository Financial Institution, as the case may be, with respect to such
entries. Credits given with respect to an ACH credit entry are provisional until
final settlement for such entry is received from the Federal Reserve Bank. If
such final settlement is not received, the Client agrees to promptly refund the
amount credited to the Client in connection with such entry, and the party
making payment to the Client via such entry shall not be deemed to have paid the
amount of the entry.
9. CONFIRMATIONS: Confirmation of IFTC's execution of payment orders shall
ordinarily be provided within 24 hours. Notice may be delivered through IFTC's
account statements, advices, information systems, or by facsimile or callback.
The Client must report any objections to the execution of a payment order within
30 days.
10. MISCELLANEOUS: IFTC may use the Federal Reserve System Fedwire to execute
payment orders, and any payment order carried in whole or in part through
Fedwire will be subject to applicable Federal Reserve Board rules and
regulations. IFTC and the Client agree to cooperate to attempt to recover any
funds erroneously paid to wrong parties, regardless of any fault of IFTC or the
Client, but the party responsible for the erroneous payment shall bear all costs
and expenses
23
<PAGE>
incurred in trying to effect such recovery. These Guidelines may not be amended
except by a written agreement signed by the parties.
24
<PAGE>
SECURITY PROCEDURES SELECTION FORM
Please select one or more of the funds transfer security procedures indicated
below.
[ ] SWIFT SWIFT (Society for Worldwide Interbank Financial Telecommunication)
is a cooperative society owned and operated by member financial
institutions that provides telecommunication services for its membership.
Participation is limited to securities brokers and dealers, clearing and
depository institutions, recognized exchanges for securities, and
investment management institutions. SWIFT provides a number of security
features through encryption and authentication to protect against
unauthorized access, loss or wrong delivery of messages, transmission
errors, loss of confidentiality and fraudulent changes to messages.
Selection of this security procedure would be most appropriate for existing
SWIFT members.
[ ] REMOTE BATCH TRANSMISSION Wire transfer instructions are delivered via
Computer-to-Computer (CPU-CPU) data communications between the Client
and/or its agent and IFTC and/or its agent. Security procedures include
encryption and/or the use of a test key by those individuals authorized as
Automated Batch Verifiers or a callback procedure to those individuals.
Clients selecting this option should have an existing facility for
completing CPU-CPU transmissions. This delivery mechanism is typically used
for high-volume business such as shareholder redemptions and dividend
payments.
[ ] TELEPHONE CONFIRMATION (CALL BACK) This procedure requires Clients to
designate individuals as authorized initiators and authorized verifiers.
IFTC will verify that the instruction contains the signature of an
authorized person and prior to execution of the payment order, will contact
someone other than the originator at the Client's location to authenticate
the instruction. Non-repetitive wire transfers with the original signatures
of 2 authorized persons are acceptable and do not require a call back.
Selection of this alternative is appropriate for Clients who do not have
the capability to use other security procedures.
[ ] TEST KEY Test Key confirmation will be used to verify all non-repetitive
funds transfer instructions received via facsimile or phone. IFTC will
provide test keys if this option is chosen. IFTC will verify that the
instruction contains the signature of an authorized person and prior to
execution of the payment order, will authenticate the test key provided
with the corresponding test key at IFTC. Non-repetitive wire transfers with
the original signatures of 2 authorized persons are acceptable and do not
require a test key. Selection of this alternative is appropriate for
Clients who do not have the capability to use other security procedures.
[ ] REPETITIVE WIRES For situations where funds are transferred periodically
from an existing authorized account to the same payee (destination bank and
account number) and only the date and currency amount are variable, a
repetitive wire may be implemented. Repetitive wires will be subject to a
$10 million limit. If the payment order exceeds the $10 million limit, the
instruction will be confirmed by telephone or test key prior to
25
<PAGE>
execution. Repetitive wire instructions must be reconfirmed annually.
Clients may establish Repetitive Wires by following the agreed upon
security procedures for Non-Repetitive Wire Transfers as described by
Telephone Confirmation (Call Back) or Test Key. This alternative is
recommended whenever funds are frequently transferred between the same two
accounts.
[ ] STANDING INSTRUCTIONS Funds are transferred by IFTC to a counter party on
the Client's established list of authorized counter parties. Only the date
and the dollar amount are variable. Clients may establish Standby
Instructions by following the agreed upon security procedures for
Non-Repetitive Wire Transfers as described by Telephone Confirmation (Call
Back) or Test Key. This option is used for transactions that include but
are not limited to Foreign Exchange Contracts, Time Deposits and Tri-Party
Repurchase Agreements.
[ ] AUTOMATED CLEARING HOUSE (ACH) IFTC or its agent receives an automated
transmission from a Client for the initiation of payment (credit) or
collection (debit) transactions through the ACH network. The transactions
contained on each transmission or tape must be authenticated by the Client.
The transmission is sent from the Client's or its agent's system to IFTC's
or its agent's system with encryption.
26
<PAGE>
KEY CONTACT INFORMATION
Whom shall we contact to implement your selection(s)?
<TABLE>
<CAPTION>
CLIENT OPERATIONS CONTACT ALTERNATE CONTACT
<S> <C>
Uwe Schreiner William Stasinlads
- ----------------------------- -----------------------------
Name Name
335 Madison Avenue, 7th Floor 335 Madison Avenue, 7th Floor
- ----------------------------- -----------------------------
Address Address
New York, NY 10017 New York, NY 10017
- ----------------------------- -----------------------------
City/State/Zip Code City/State/Zip Code
212-883-2552 212-883-2543
- ----------------------------- -----------------------------
Telephone Number Telephone Number
212-883-2832
- -----------------------------
Facsimile Number
- -----------------------------
SWIFT Number
13A COMMERCIAL MORTGAGE
SECURITIES FUND, INC.
By: /s/ Joanne Vitale
-----------------------------
Title: Secretary
-----------------------------
Date: September 15, 1997
-----------------------------
</TABLE>
27
<PAGE>
EXHIBIT C--REUTERS DATA SERVICE AGREEMENT
The undersigned acknowledges and agrees that some of the data being provided in
the service by IFTC to Fund contains information supplied to IFTC by Reuters
America Inc. ("Reuters") (the "Data"). Fund agrees that:
(i) although Reuters makes every effort to ensure the accuracy and
reliability of the Data, Fund acknowledges that Reuters, its
employees, agents, contractors, subcontractors, contributors and third
party providers will not be liable for any loss, cost or damage
suffered or incurred by Fund arising out of any fault, interruption or
delays in the Data or out of any inaccuracies, errors or omission in
the Data however such faults, interruptions, delays, inaccuracies,
errors or omissions arise, unless due to the gross negligence or
willful misconduct of Reuters;
(ii) it will not transfer, transmit, recirculate by digital or
analogue means, republish or resell all or part of the Data; and
(iii) certain parts of the Data are proprietary and unique to Reuters.
The undersigned further agrees that the benefit of this clause will inure to the
benefit of Reuters.
13A COMMERCIAL MORTGAGE
SECURITIES FUND, INC.
By: /s/ Joanne Vitale
- -----------------------------
Title: Secretary
-----------------------------
Date: September 15, 1997
-----------------------------
28
<PAGE>
EXHIBIT H(a)
AGREEMENT
for
STOCK TRANSFER AGENT SERVICES
between
13A COMMERCIAL MORTGAGE SECURITIES FUND, INC.
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Section 1. Appointment of Agent............................................................................1
Section 2. Standard Services...............................................................................2
Section 3. Fees and Expenses...............................................................................2
Section 4. Representations and Warranties of the Bank......................................................4
Section 5. Representations and Warranties of the Company...................................................4
Section 6. Indemnification.................................................................................5
Section 7. Standard of Care................................................................................6
Section 8. Responsibilities of the Bank....................................................................6
Section 9. Covenants of the Company and the Bank...........................................................7
Section 10. Data Access and Proprietary Information.........................................................8
Section 11. Termination of Agreement........................................................................9
Section 12. Assignment......................................................................................9
Section 13. Subcontractors.................................................................................10
Section 14. Notices........................................................................................10
Section 15. Successors.....................................................................................10
Section 16. Amendment......................................................................................10
Section 17. Severability...................................................................................11
Section 18. Governing Law..................................................................................11
Section 19. Force Majeure..................................................................................11
Section 20. Consequential Damages..........................................................................11
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
Section 21. Descriptive Headings...........................................................................11
Section 22. Third Party Beneficiaries......................................................................11
Section 23. Survival.......................................................................................11
Section 24. Merger of Agreement............................................................................12
Section 25. Counterparts...................................................................................12
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TRANSFER AGENCY AND STOCK TRANSFER SERVICES AGREEMENT
This Transfer Agency and Stock Transfer Services Agreement (the
"Agreement"), dated as of September 15, 1997 is between 13A Commercial Mortgage
Securities Fund, Inc. a Maryland corporation (the "Company") and State Street
Bank and Trust Company, a national banking association (the "Bank").
WHEREAS, the Board of Directors of the Company has approved and
authorized the appointment of the Bank as transfer agent and registrar and
exchange agent.
WHEREAS, the Bank desires to accept such appointment and perform the
services related to such appointment;
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereby agree as follows:
SECTION 1. APPOINTMENT OF AGENT
1.01 The Company hereby appoints the Bank to act as sole transfer agent
and registrar for the common stock of the Company (the "Shares") in accordance
with the terms and conditions hereof, and the Bank hereby accepts such
appointment.
1.02 In connection with the appointment of the Bank as transfer agent
and registrar for the Company, the Company will file the following documents
with the Bank:
(a) Copies of Registration Statements and amendments thereto,
filed with the Securities and Exchange Commission;
(b) Specimens of the signatures of the officers of the Company
authorized to sign stock certificates and individuals authorized to
sign written instructions and requests; and
(c) An opinion of counsel for the Company with respect to:
(i) The Company's organization and existence
under the laws of its state of organization;
(ii) That all issued shares are, and all unissued
shares will be, when issued, validly issued,
fully paid and nonassessable.
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SECTION 2. STANDARD SERVICES
2.01 The Bank will perform the following services:
In accordance with the procedures established from time to time by
agreement between the Company and the Bank, the Bank shall:
(a) issue and record the appropriate number of Shares as
authorized and hold such shares in the appropriate shareholder
("Shareholder") account;
(b) effect transfers of Shares by the registered owners
thereof upon receipt of appropriate documentation;
(c) prepare and transmit payments for dividends and
distributions declared by the Company, provided good funds for said
dividends or distributions are received by the Bank prior to the
scheduled mailing date for said dividends or distributions;
(d) act as agent for Shareholders pursuant to the dividend
reinvestment plan, and other investment programs as amended from time
to time in accordance with the terms of the agreements relating thereto
to which the Bank is or will be a party; and
2.02 The Bank shall perform all the customary services of a transfer
agent, dividend disbursing agent, agent of dividend reinvestment plan, and other
investment programs as described in Section 2.01 consistent with those
requirements in effect as of the date of this Agreement. The detailed services
and definition, frequency, limitations and associated costs (if any) are set out
in the attached fee and service schedule ("Fee and Service Schedule").
2.03 The Bank may provide such additional services to or on behalf of
the Company (e.g., escheatment services) as may be agreed upon in writing
between the Company and the Bank.
SECTION 3. FEES AND EXPENSES
3.01 Fees.
The Company agrees to pay the Bank fees for the services performed
pursuant to this Agreement as set forth in the Fee and Service Schedule attached
hereto. Such fees, and the out-of-pocket expenses and advances identified under
Section 3.02 below, may be changed from time to time by written agreement
between the Bank and the Company.
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3.02 OUT OF POCKET EXPENSES.
(a) In addition to the fees paid under Section 3.01 above, the Company
agrees to reimburse the Bank for out-of-pocket expenses, including, but not
limited to, check stock, stationery, envelopes, confirmation production,
postage, forms, insurance, telephone usage, facsimile charges, microfilm,
microfiche, printing of proxies, expenses incurred attending annual meeting,
records storage or advances incurred by the Bank for the items set out in the
Fee and Service Schedule attached hereto. In addition, any other expenses
incurred by the Bank at the request or with the consent of the Company will be
reimbursed by the Company.
(b) All out-of-pocket expenses described in Section 3.02(a) above, will
be billed as incurred subject to Section 3.03(b), provided, however, that
payment for postage expenses in excess of $5,000 must be received by the Bank in
collected funds by 12:00 p.m. Eastern time on the scheduled mailing date.
(c) The Bank reserves the right to receive compensation from vendors
for services rendered to vendors which relate to services to be provided under
this Agreement, to the extent such services rendered reduce the overall costs of
the services.
3.03 PAYMENT OF FEES AND EXPENSES.
(a) The Company agrees to pay all fees and reimbursable expenses within
thirty (30) days following the receipt of the respective billing notice.
Interest charges will accrue on unpaid balances outstanding for more than
forty-five (45) days.
(b) The Bank hereby reserves the right, in its sole discretion, to
require payment of its fees and expenses in advance.
3.04 SERVICES REQUIRED BY LEGISLATION.
Services required by legislation or regulatory mandate that become
effective after the effective date of this Agreement shall not be part of the
standard services, and shall be billed by appraisal.
3.05 OVERTIME CHARGES.
Overtime charges will be assessed in the event of a late delivery to
the Bank of Company material for mailings to shareholders unless the mail date
is rescheduled. Such material includes, but is not limited to, proxy statements,
quarterly and annual reports, dividend enclosures and news releases.
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SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE BANK
The Bank represents and warrants to the Company that:
4.01 It is a national banking association duly organized and existing
and in good standing under the laws of the United States of America;
4.02 It is duly qualified to carry on its business in The Commonwealth
of Massachusetts;
4.03 It is empowered under applicable laws and by its Articles of
Association and By-Laws to enter into and perform this Agreement;
4.04 All requisite corporate proceedings have been taken to authorize
it to enter into and perform this Agreement; and
4.05 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Bank that:
5.01 It is a corporation duly organized and existing and in good
standing under the laws of Maryland;
5.02 It is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this Agreement;
5.03 All corporate proceedings required by said Articles of
Incorporation, By-Laws and applicable law have been taken to authorize it to
enter into and perform this Agreement; and
5.04 It is a closed-end non-diversified investment company registered
under the Investment Company Act of 1940, as amended.
5.05 To the extent required by federal securities laws, a registration
statement under the Securities Act of 1933, as amended (the "1933 Act") has been
filed and is currently effective, or will be effective prior to the sale of any
Shares, and will remain so effective, and all appropriate state securities law
filings have been made with respect to all the Shares of the Company being
offered for sale except for any Shares which are offered in a transaction or
series of transactions which are exempt from the registration requirements of
the 1933 Act and state securities laws; information to the contrary will result
in immediate notification to the Bank.
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SECTION 6. INDEMNIFICATION
6.01 The Bank shall not be responsible for, and the Company shall
indemnify and hold the Bank harmless from and against, any and all losses,
damages, costs, charges, counsel fees and expenses, payments, expenses and
liability arising out of or attributable to:
(a) All actions of the Bank or its agents or
subcontractors required to be taken pursuant to this
Agreement, provided such actions are taken in good faith and
without negligence or willful misconduct;
(b) The Company's lack of good faith, negligence or
willful misconduct or the breach of any representation or
warranty of the Company hereunder;
(c) The reliance or use by the Bank or its agents or
subcontractors of information, records and documents which (i)
are received by the Bank or its agents or subcontractors and
furnished to it by or on behalf of the Company, and (ii) have
been prepared and/or maintained by the Company or any other
person or firm on behalf of the Company. Such other person or
firm shall include any former transfer agent or former
registrar, or co-transfer agent or co-registrar or any current
registrar where the Bank is not the current registrar;
(d) The reliance on, or the carrying out by the Bank
or its agents or subcontractors of any instructions or
requests of the Company's representatives; and
(e) The offer or sale of Shares in violation of any
federal or state securities laws or in violation of any stop
order or other determination or ruling by any federal or state
agency with respect to the offer or sale of such Shares in
such state
(f) The negotiations and processing of checks made
payable to prospective or existing Shareholders which are
tendered to the Bank for the purchase of Shares (commonly
known as "third party checks").
6.02 At any time the Bank may apply to any officer of the Company for
instructions, and may consult with legal counsel with respect to any matter
arising in connection with the services to be performed by the Bank under this
Agreement, and the Bank and its agents and subcontractors shall not be liable
and shall be indemnified by the Company for any action taken or omitted by it in
reliance upon such instructions or upon the advice or opinion of such counsel.
The Bank, its agents and subcontractors shall be protected and indemnified in
acting upon any paper or document reasonably believed to be genuine and to have
been signed by the proper person or persons, or upon any instruction,
information, data, records or documents provided the Bank or its agents or
subcontractors by telephone, in person, machine readable input, telex, CRT data
entry or similar means authorized by the Company, and shall not be held to have
notice of any change of authority
5
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of any person, until receipt of written notice thereof from the Company. The
Bank, its agents and subcontractors shall also be protected and indemnified in
recognizing stock certificates which are reasonably believed to bear the proper
manual or facsimile signatures of officers of the Company, and the proper
countersignature of any former transfer agent or former registrar, or of a
co-transfer agent or co-registrar.
6.03 In order that the indemnification provisions contained in this
Section 6 shall apply, upon the assertion of a claim for which the Company may
be required to indemnify the Bank, the Bank shall promptly notify the Company of
such assertion, and shall keep the Company advised with respect to all
developments concerning such claim. The Company shall have the option to
participate with the Bank in the defense of such claim or to defend against said
claim in its own name or the name of the Bank. The Bank shall in no case confess
any claim or make any compromise in any case in which the Company may be
required to indemnify it except with the Company's prior written consent.
SECTION 7. STANDARD OF CARE
The Bank shall at all times act in good faith and agrees to use its
best efforts within reasonable time limits to insure the accuracy of all
services performed under this Agreement, but assumes no responsibility and shall
not be liable for loss or damage due to errors unless said errors are caused by
its negligence, bad faith or willful misconduct or that of its employees.
SECTION 8. RESPONSIBILITIES OF THE BANK
The Bank undertakes the duties and obligations imposed by this
Agreement upon the following terms and conditions, by all of which the Company,
by its acceptance hereof, shall be bound:
8.01 Whenever in the performance of its duties hereunder the Bank shall
deem it necessary or desirable that any fact or matter be proved or established
by the Company prior to taking or suffering any action hereunder, such fact or
matter may be deemed to be conclusively proved and established by a certificate
signed by the Chairman of the Board, the President, any Vice President, the
Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary of
the Company and delivered to the Bank. Such certificate shall be full
authorization to the Bank for any action taken or suffered in good faith by it
under the provisions of this Agreement in reliance upon such certificate.
8.02 The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Bank for the carrying out or performing by the Bank of the provisions of
this Agreement.
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8.03 The Bank, any of its affiliates or subsidiaries, and any
stockholder, director, officer or employee of the Bank may buy, sell or deal in
the securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or lend
money to the Company or otherwise act as fully and freely as though it were not
appointed as agent under this Agreement. Nothing herein shall preclude the Bank
from acting in any other capacity for the Company or for any other legal entity.
8.04 No provision of this Agreement shall require the Bank to expend or
risk its own funds or otherwise incur any financial liability in the performance
of any of its duties hereunder or in the exercise of its rights it shall believe
in good faith that repayment of such funds or adequate indemnification against
such risk or liability is not reasonably assured to it.
SECTION 9. COVENANTS OF THE COMPANY AND THE BANK
9.01 The Company shall furnish to the Bank the following:
(a) A copy of the Articles of Incorporation and By-Laws of the
Company;
(b) Copies of all material amendments to its Articles of
Incorporation or Bylaws made after the date of this Agreement, promptly
after such amendments are made; and
(c) A certificate of the Company as to the Shares authorized,
issued and outstanding, as well as a description of all reserves of
unissued Shares relating to the exercise of options, warrants or a
conversion of debentures or otherwise.
9.02 The Bank hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Company for the safekeeping of stock
certificates, check forms and facsimile signature imprinting devices, if any,
and for the preparation, use, and recordkeeping of such certificates, forms and
devices.
9.03 The Bank shall keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable. The Bank
agrees that all such records prepared or maintained by it relating to the
services performed hereunder are the property of the Company and will be
preserved, maintained and made available in accordance with the requirements of
law, and will be surrendered promptly to the Company on and in accordance with
its request.
9.04 The Bank and the Company agree that all books, records,
information and data pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential, and shall not be voluntarily disclosed to
any other person, except as may be required by law.
9.05 In the event that any requests or demands are made for the
inspection of the Shareholder records of the Company, the Bank will endeavor to
notify the Company and to secure
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instructions from an authorized officer of the Company as to such inspection.
The Bank expressly reserves the right, however, to exhibit the Shareholder
records to any person whenever it is advised by counsel that it may be held
liable for the failure to exhibit the Shareholder records to such person.
SECTION 10. DATA ACCESS AND PROPRIETARY INFORMATION
10.01 The Company acknowledges that the data bases, computer programs,
screen formats, report formats, interactive design techniques, and documentation
manuals furnished to the Company by the Bank as part of the Company's ability to
access certain Company related data ("Customer Data") maintained by the Bank on
data bases under the control and ownership of the Bank or other third party
("Data Access Services") constitute copyrighted, trade secret, or other
proprietary information (collectively, "Proprietary Information") of substantial
value to the Bank or other third party. In no event shall Proprietary
Information be deemed Customer Data. The Company agrees to treat all Proprietary
Information as proprietary to the Bank and further agrees that it shall not
divulge any Proprietary Information to any person or organization except as may
be provided hereunder. Without limiting the foregoing, the Company agrees for
itself and its employees and agents:
(a) to access Customer Data solely from locations as may be
designated in writing by the Bank and solely in accordance with the
Bank's applicable user documentation;
(b) to refrain from copying or duplicating in any way the
Proprietary Information;
(c) to refrain from obtaining unauthorized access to any
portion of the Proprietary Information, and if such access is
inadvertently obtained, to inform the Bank in a timely manner of such
fact and dispose of such information in accordance with the Bank's
instructions;
(d) to refrain from causing or allowing the data acquired
hereunder from being retransmitted to any other computer facility or
other location, except with the prior written consent of the Bank;
(e) that the Company shall have access only to those
authorized transactions agreed upon by the parties; and
(f) to honor all reasonable written requests made by the Bank
to protect at the Bank's expense the rights of the Bank in Proprietary
Information at common law, under federal copyright law and under other
federal or state law.
Each party shall take reasonable efforts to advise its employees of their
obligations pursuant to this Section 10.
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10.02 If the Company notifies the Bank that any of the Data Access
Services do not operate in material compliance with the most recently issued
user documentation for such services, the Bank shall make its best effort in a
timely manner to correct such failure.
10.03 If the transactions available to the Company include the ability
to originate electronic instructions to the Bank in order to (i) effect the
transfer or movement of cash or Shares or (ii) transmit Shareholder information
or other information, then in such event the Bank shall be entitled to rely on
the validity and authenticity of such instructions without undertaking any
further inquiry as long as such instructions are undertaken in conformity with
security procedures established by the Bank from time to time.
SECTION 11. TERMINATION OF AGREEMENT
11.01 Either party may terminate this Agreement after written notice to
the other if one party has materially breached its obligation under this
Agreement, and the breaching party has failed to cure such material breach
within thirty (30) calendar days of receipt of such notice.
11.02 Should the Company exercise its right to terminate this Agreement
for reasons other than a material breach by the Bank as provided in Section
11.01 above, the Company shall pay the Bank for all out-of-pocket expenses
associated with the movement of records and material, will cover the
coordination of the Bank's termination process and the cost of transferring the
Company's records to a successor Transfer Agent or to the Company, as directed
by the Company, and the Bank will perform its services in assisting with the
transfer of records in a diligent and professional manner.
11.03 This Agreement may be terminated by either party upon ninety (90)
days written notice to the other.
SECTION 12. ASSIGNMENT
12.01 Except as provided in Section 12.03 below, neither this Agreement
nor any rights or obligations hereunder may be assigned by either party without
the written consent of the other party.
12.02 This Agreement shall inure to the benefit of and be binding upon
the parties and their respective permitted successors and assigns.
12.03 The Bank may, without further consent on the part of the Company,
(i) subcontract for the performance hereof with Boston EquiServe Limited
Partnership, a Delaware limited partnership which is duly registered as a
transfer agent pursuant to Section 17A(c)(2) of the Securities Exchange Act of
1934, as amended, or (ii) subcontract with other subcontractors for telephone
and mailing services as may be required from time to time; provided, however,
that the Bank shall be as fully responsible to the Company for the acts and
omissions of any subcontractor as it is for its own acts and omissions.
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SECTION 13. SUBCONTRACTORS
Nothing herein shall impose any duty upon the Bank in connection with
or make the Bank liable for the actions or omissions to act of unaffiliated
third parties such as, by way of example and not limitation, Airborne Services,
the U.S. mails and telecommunication companies, provided, if the Bank selected
such company, the Bank shall have exercised due care in selecting the same.
SECTION 14. NOTICES
Any notice or communication by the Bank or the Company to the other is
duly given if in writing and delivered in person or mailed by first class mail,
postage prepaid, telex, telecopier or overnight air courier guaranteeing next
day delivery, to the other's address:
If to the Company:
13A Commercial Mortgage Securities Fund
c/o Jones Lang Wootton Realty Advisors
5 335 Madison Avenue
New York, NY 10017
If to the Bank:
State Street Bank and Trust Company
c/o Boston EquiServe Limited Partnership
150 Royall Street
Canton, MA 02021
Telecopy No.: (617) 575-2549
Attn: President
The Bank and the Company may, by notice to the other, designate
additional or different addresses for subsequent notices or communications.
SECTION 15. SUCCESSORS
All the covenants and provisions of this Agreement by or for the
benefit of the Company or the Bank shall bind and inure to the benefit of their
respective successors and assigns hereunder.
SECTION 16. AMENDMENT
This Agreement may be amended or modified by a written amendment
executed by both parties hereto and authorized or approved by a resolution of
the Board of Directors of the Company.
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SECTION 17. SEVERABILITY
If any term, provision, covenant or restriction of this Agreement is
held by a court of competent jurisdiction or other authority to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
SECTION 18. GOVERNING LAW
This Agreement shall be governed by the laws of The Commonwealth of
Massachusetts.
SECTION 19. FORCE MAJEURE
In the event either party is unable to perform its obligations under
the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable for damages to the
other party resulting from such failure to perform or otherwise from such
causes.
SECTION 20. CONSEQUENTIAL DAMAGES
Neither party to this Agreement shall be liable to the other party for
consequential damages under any provision of this Agreement or any consequential
damages arising out of any act or failure to act hereunder.
SECTION 21. DESCRIPTIVE HEADINGS
Descriptive headings of the several sections of this Agreement are
inserted for convenience only and shall not control or affect the meaning or
construction of any of the provisions hereof.
SECTION 22. THIRD PARTY BENEFICIARIES
The provisions of this Agreement are intended to benefit only the Bank
and the Company and their respective permitted successors and assigns. No rights
shall be granted to any other person by virtue of this Agreement, and there are
no third party beneficiaries hereof.
SECTION 23. SURVIVAL
All provisions regarding indemnification, warranty, liability and
limits thereon, and confidentiality and protection of proprietary rights and
trade secrets shall survive the termination of this Agreement.
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SECTION 24. MERGER OF AGREEMENT
This agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject matter
hereof, whether oral or written.
SECTION 25. COUNTERPARTS
This Agreement may be executed in any number of counterparts and each
of such counterparts shall for all purposes be deemed to be an original, and all
such counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, each of the parties thereto has caused this
Agreement to be executed by one of its officers thereunto duly authorized, all
as of the date first written above.
13A COMMERCIAL MORTGAGE SECURITIES FUND, INC.
By: /s/ Joanne Vitale
-----------------------------------
Name: Joanne Vitale
---------------------------------
Title: Secretary
--------------------------------
STATE STREET BANK AND TRUST COMPANY
By:
------------------------------------
Name:
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Title: Vice President
---------------------------------
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STATE STREET BANK AND TRUST COMPANY
TRANSFER AGENT and REGISTRAR SERVICES
CLOSED-END FUND FEE SCHEDULE
for
13A COMMERCIAL MORTGAGE SECURITIES FUND, INC.
ONE-TIME SET UP AND CONVERSION FEES
$2,500. set-up charge, includes conversion of shareholder records and
coordination with investment advisor and prior agents, and management of
issuance of shares.
ONGOING TRANSFER AGENT FEES
$7.00 per shareholder account per annum. Minimum annual fee of $15,000 (billable
at $1,250.00 per month). Includes the issuance and registration of the first
1,500 credit certificates in a calendar year. Excess credits beyond 1,500 to be
billed at $1.25 each within a calendar year.
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For each dividend reinvestment per participant $.75
For each optional cash infusion $.75
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ACCOUNT MAINTENANCE SERVICES
Establishing new accounts
Preparation and mailing of W-9 solicitation to new accounts without
T.I.N.'s
Address changes
Processing T.I.N. changes
Processing routine and non-routine transfers of ownership
Issuance of credit certificates (see limits)
Posting debit and credit transactions
Providing a daily transfer journal of ownership changes
Responding to written shareholder communications
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Responding to shareholder telephone inquiries; toll-free number
Placing and releasing stop transfers
Replacing lost certificates
Registration of credit certificates (see limits)
DIVIDEND DISBURSEMENT SERVICES
Generate and mail four dividend checks per annum with one enclosure
Replace lost dividend checks
Processing of backup withholding and remittance
Processing of non-resident alien withholding and remittance
Preparation and filing of Federal Tax Forms 1099 and 1042
Preparation and filing of State Tax information as directed
DIVIDEND REINVESTMENT SERVICES PROVIDED
Processing optional cash investments and acknowledging same
The reinvestment of dividend proceeds for participants
Participant withdrawal or sell requests
Preparation, mailing and filing of Federal Tax Form 1099B for sales
Preparation and mailing of quarterly reinvestment statements
ANNUAL MEETING SERVICES
Coordination of mailing of proxies, proxy statement, annual report and
business reply envelope (all out-of-pocket expenses, including printing
of proxy cards, postage, and envelope costs will be billed as incurred)
Providing one set of labels of banks, brokers and nominees for broker
search
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Providing an Annual Meeting Record Date list
Tabulation of returned proxies
Daily reporting of tabulation results
Interface support during solicitation effort
Providing one Inspector of Election at Annual Meeting (out-of-pocket
travel expenses billed at cost as incurred)
Providing an Annual Meeting Final Voted list
ADDRESSING AND MAILING SERVICES
Preparation for the mailing of three (3) quarterly reports
Addressing and mailing dividend reinvestment brochures to new
shareholders on a monthly basis, or as agreed
INFORMATIONAL SERVICES PROVIDED
One complete statistical report per calendar year
- Shareholders by state
- Shareholders by classification code
- Shareholders by share grouping
TERMS OF FEE AGREEMENT
"This agreement shall be self renewing, and providing that service mix
and volumes remain constant, the final year's fees listed under the
Fees for Standard Services section shall be increased by the
accumulated change in the National Employment Cost Index for Service
Producing Industries (Finance, Insurance, Real Estate) for the
preceding years of the contract, as published by the Bureau of Labor
Statistics of the United States Department of Labor. Fees will be
increased on this basis on each successive anniversary thereafter."
MISCELLANEOUS
All out-of-pocket expenses such as postage, stationery, etc. will be
billed as incurred.
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ADDITIONAL SERVICES
Services over and above this Fee Schedule will be invoiced in
accordance with our current Schedule of Services or priced by
appraisal.
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EXHIBIT H(b)
SERVICE AGREEMENT
Agreement dated as of September 15, 1997 by and between State
Street Bank and Trust Company, a Massachusetts trust company (the "Bank"), and
13A Commercial Mortgage Securities Fund, Inc. (the "Fund").
WHEREAS, the Fund is registered as a closed-end, management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Fund desires to retain the Bank to furnish
certain administrative services to the Fund, and the Bank is willing to furnish
such services, on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, the parties hereto agree as follows:
1. APPOINTMENT OF BANK
The Fund hereby appoints the Bank to provide certain
administrative services for the period and on the terms set forth in this
Agreement. The Bank accepts such appointment and agrees to render the services
stated herein.
The Fund will initially consist of the portfolio(s) and/or
class(es) of shares (each an "Investment Fund") listed in Schedule A to this
Agreement. In the event that the Fund establishes one or more additional
Investment Funds with respect to which it wishes to retain the Bank hereunder,
the Fund shall notify the Bank in writing. Upon written acceptance by the Bank,
such Investment Fund shall become subject to the provisions of this Agreement to
the same extent as the existing Investment Funds, except to the extent that such
provisions (including those relating to the compensation and expenses payable by
the Fund and its Investment Funds) may be modified with respect to each
additional Investment Fund in writing by the Fund and the Bank at the time of
the addition of the Investment Fund.
2. DELIVERY OF DOCUMENTS
The Fund will promptly deliver to the Bank copies of each of
the following documents and all future amendments and supplements, if any:
a. The Fund's charter document and by-laws;
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b. The Fund's currently effective registration statement
under the 1940 Act and the Fund's Prospectus(es) and
Statement(s) of Additional Information relating to
all Investment Funds and all amendments and
supplements thereto as in effect from time to time;
c. Certified copies of the resolutions of the Board of
Directors of the Fund authorizing (1) the Fund to
enter into this Agreement and (2) certain individuals
on behalf of the Fund to give instructions to the
Bank pursuant to this Agreement;
d. A copy of the investment advisory agreement between
the Fund and its investment adviser; and
e. Such other certificates, documents or opinions which
the Bank may, in its reasonable discretion, deem
necessary or appropriate in the proper performance of
its duties.
3. REPRESENTATION AND WARRANTIES OF THE BANK
The Bank represents and warrants to the Fund that:
a. It is a Massachusetts trust company, duly organized,
existing and in good standing under the laws of The
Commonwealth of Massachusetts;
b. It has the corporate power and authority to carry on
its business in The Commonwealth of Massachusetts;
c. All requisite corporate proceedings have been taken
to authorize it to enter into and perform this
Agreement;
d. No legal or administrative proceedings have been
instituted or threatened which would impair the
Bank's ability to perform its duties and obligations
under this Agreement; and
e. Its entrance into this Agreement shall not cause a
material breach or be in material conflict with any
other agreement or obligation of the Bank or any law
or regulation applicable to it.
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4. REPRESENTATIONS AND WARRANTIES OF THE FUND
The Fund represents and warrants to the Bank that:
a. It is a corporation, duly organized and existing and
in good standing under the laws of Maryland;
b. It has the corporate power and authority under
applicable laws and by its charter and by-laws to
enter into and perform this Agreement;
c. All requisite proceedings have been taken to
authorize it to enter into and perform this
Agreement;
d. It is an investment company properly registered under
the 1940 Act;
e. A registration statement under the 1940 Act has been
filed and will be effective and remain effective
during the term of this Agreement. The Fund also
warrants to the Bank that all necessary filings under
the securities laws of the states in which the Fund
offers or sells its shares will have been made and
will be current during the term of this Agreement;
f. No legal or administrative proceedings have been
instituted or threatened which would impair the
Fund's ability to perform its duties and obligations
under this Agreement;
g. Its entrance into this Agreement shall not cause a
material breach or be in material conflict with any
other agreement or obligation of the Fund or any law
or regulation applicable to it; and
h. As of the close of business on the date of this
Agreement, the Fund is authorized to issue shares of
capital stock, and it will initially offer shares, in
the authorized amounts as set forth in Schedule A to
this Agreement.
5. ADMINISTRATION SERVICES
The Bank shall provide the following services, in each case,
subject to the control, supervision and direction of the Fund and the review and
comment by the Fund's auditors and legal counsel and in accordance with
procedures which may be established from time to time between the Fund and the
Bank:
3
<PAGE>
a. Prepare for review and approval by officers of the
Fund financial information for the Fund's quarterly,
semi-annual and annual reports, proxy statements and
other communications required or otherwise to be sent
to Fund shareholders, and arrange for the printing
and dissemination of such reports and communications
to shareholders;
b. Prepare for review by an officer of and legal counsel
for the Fund the Fund's periodic financial reports
required to be filed with the Securities and Exchange
Commission on Form N-SAR and financial information
required by Form N-2 and such other reports, forms or
filings as may be mutually agreed upon;
c. Assist in the coordination of and oversee the audit
process and prepare audit workpapers;
d. Calculate the total return;
e. Prepare expense budgets and process expense payments;
and
f. Oversee the determination and publication of the
Fund's net asset value in accordance with the Fund's
policy as adopted from time to time by the Board.
The Bank shall provide the office facilities and the personnel required by it to
perform the services contemplated herein.
6. FEES; EXPENSES; EXPENSE REIMBURSEMENT
The Bank shall receive from the Fund such compensation for the
services provided pursuant to this Agreement as may be agreed to from time to
time in a written fee schedule approved by the parties and initially set forth
in Schedule B to this Agreement. The fees are accrued and billed monthly and
shall be due and payable upon receipt of the invoice. Upon the termination of
this Agreement before the end of any month, the fee for the part of the month
before such termination shall be prorated according to the proportion which such
part bears to the full monthly period and shall be payable upon the date of
termination of this Agreement.
The Fund agrees promptly to reimburse the Bank for any
equipment and supplies specially ordered by or for the Fund through the Bank and
for any other expenses not contemplated by this Agreement that the Bank may
incur on the Fund's behalf at the Fund's request or with the Fund's consent.
4
<PAGE>
The Fund will bear all expenses that are incurred in its
operation and not specifically assumed by the Bank. Expenses to be borne by the
Fund, include, but are not limited to: organizational expenses; cost of services
of independent accountants and outside legal and tax counsel (including such
counsel's review of the Fund's registration statement, proxy materials, federal
and state tax qualification as a regulated investment company and other reports
and materials prepared by the Bank under this Agreement); cost of any services
contracted for by the Fund directly from parties other than the Bank; cost of
trading operations and brokerage fees, commissions and transfer taxes in
connection with the purchase and sale of securities for the Fund; investment
advisory fees; taxes, insurance premiums and other fees and expenses applicable
to its operation; costs incidental to any meetings of shareholders including,
but not limited to, legal and accounting fees, proxy filing fees and the costs
of preparation, printing and mailing of any proxy materials; costs incidental to
Board meetings, including fees and expenses of Board members; the salary and
expenses of any officer, director or employee of the Fund; costs incidental to
the preparation, printing and distribution of the Fund's registration statements
and any amendments thereto and shareholder reports; cost of typesetting and
printing of prospectuses; cost of preparation and filing of the Fund's tax
returns, Form N-2 and Form N-SAR, and all notices, registrations and amendments
associated with applicable federal and state tax and securities laws; all
applicable registration fees and filing fees required under federal and state
securities laws; fidelity bond and directors' and officers' liability insurance;
and cost of independent pricing services used in computing the Fund's net asset
value.
The Bank is authorized to and may employ or associate with
such person or persons as the Bank may deem desirable to assist it in performing
its duties under this Agreement; provided, however, that the compensation of
such person or persons shall be paid by the Bank and that the Bank shall be as
fully responsible to the Fund for the acts and omissions of any such person or
persons as it is for its own acts and omissions.
7. INSTRUCTIONS AND ADVICE
At any time, the Bank may apply to any officer of the Fund for
instructions and, with the prior approval of the Fund, may consult with its own
legal counsel or outside counsel for the Fund or the independent accountants for
the Fund at the expense of the Fund, with respect to any matter arising in
connection with the services to be performed by the Bank under this Agreement.
The Bank shall not be liable, and shall be indemnified by the Fund, for any
action taken or omitted by it in good faith in reliance upon any such
instructions or advice or upon any paper or document believed by it to be
genuine and to have been signed by the proper person or persons. The Bank shall
not be held to have notice of any change of authority of any person until
receipt of written notice thereof from the Fund. Nothing in this paragraph shall
be construed as imposing upon the Bank any obligation to seek such instructions
or advice, or to act in accordance with such advice when received.
5
<PAGE>
8. LIMITATION OF LIABILITY AND INDEMNIFICATION
The Bank shall be responsible for the performance of only such
duties as are set forth in this Agreement and, except as otherwise provided
under Section 6, shall have no responsibility for the actions or activities of
any other party, including other service providers. The Bank shall have no
liability for any error of judgment or mistake of law or for any loss or damage
resulting from the performance or nonperformance of its duties hereunder unless
solely caused by or resulting from the gross negligence or willful misconduct of
the Bank, its officers or employees. The Bank shall not be liable for any
special, indirect, incidental, or consequential damages of any kind whatsoever
(including, without limitation, attorneys' fees) under any provision of this
Agreement or for any such damages arising out of any act or failure to act
hereunder. In any event, the Bank's liability under this Agreement shall be
limited to two times the Bank's total annual fees earned hereunder during the
preceding twelve months or $200,000, whichever is greater, for any liability or
loss suffered by the Fund including, but not limited to, any liability relating
to qualification of the Fund as a regulated investment company or any liability
relating to the Fund's compliance with any federal or state tax or securities
statute, regulation or ruling.
The Bank shall not be responsible or liable for any failure or
delay in performance of its obligations under this Agreement arising out of or
caused, directly or indirectly, by circumstances beyond its control, including
without limitation, work stoppage, power or other mechanical failure, computer
virus, natural disaster, governmental action or communication disruption, nor
shall any such failure or delay give the Fund the right to terminate this
Agreement.
The Fund shall indemnify and hold the Bank harmless from all
loss, cost, damage and expense, including reasonable fees and expenses for
counsel, incurred by the Bank resulting from any claim, demand, action or suit
in connection with the Bank's acceptance of this Agreement, any action or
omission by it in the performance of its duties hereunder, or as a result of
acting upon any instructions reasonably believed by it to have been duly
authorized by the Fund, provided that this indemnification shall not apply to
actions or omissions of the Bank, its officers or employees in cases of its or
their own gross negligence or willful misconduct.
The Fund will be entitled to participate at its own expense in
the defense, or, if it so elects, to assume the defense of any suit brought to
enforce any liability subject to the indemnification provided above. In the
event the Fund elects to assume the defense of any such suit and retain counsel,
the Bank or any of its affiliated persons, named as defendant or defendants in
the suit, may retain additional counsel but shall bear the fees and expenses of
such counsel unless (i) the Fund shall have specifically authorized the
retaining of such counsel or (ii) the Bank shall have determined in good faith
that the retention of such counsel is required as a result of a conflict of
interest.
The indemnification contained herein shall survive the
termination of this Agreement.
6
<PAGE>
9. CONFIDENTIALITY
The Bank agrees that, except as otherwise required by law or
in connection with any required disclosure to a banking or other regulatory
authority, it will keep confidential all records and information in its
possession relating to the Fund or its shareholders or shareholder accounts and
will not disclose the same to any person except at the request or with the
written consent of the Fund.
10. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS; RECORDS
The Fund assumes full responsibility for complying with all
securities, tax, commodities and other laws, rules and regulations applicable to
it.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the date first written above.
13A COMMERCIAL MORTGAGE SECURITIES FUND, INC.
By: /s/ Joanne Vitale
_____________________________
Name: Joanne Vitale
_____________________________
Title: Secretary
_____________________________
STATE STREET BANK AND TRUST COMPANY
By: /s/ Kathleen C. Cuocolo
_____________________________
Name: Kathleen C. Cuocolo
_____________________________
Title: Senior Vice President
_____________________________
8
<PAGE>
SERVICE AGREEMENT
13A Commercial Mortgage Securities Fund, Inc.
SCHEDULE A
Listing of Investment Funds and Authorized Shares
<TABLE>
<CAPTION>
Investment Fund Authorized Shares
- --------------- -----------------
<S> <C>
13A Commercial Mortgage Securities Fund, Inc.
</TABLE>
9
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
- --------------------------------------------------------------------------------
Schedule B
FUND ADMINISTRATION FEE SCHEDULE
FOR
13A COMMERCIAL MORTGAGE SECURITIES FUND, INC.
- --------------------------------------------------------------------------------
I. FUND ADMINISTRATION SERVICES
The following fee schedule is for the 13A Commercial Mortgage
Securities Fund, Inc. The proposed level of service includes: Financial
Reporting, N-SAR preparation and filing, expense budgeting and fund
accounting oversight.
Fees for Fund Administration Services
<TABLE>
<CAPTION>
Annual Fee
Average Assets Expressed in Basis Points: 1/100 of 1%
-------------- --------------------------------------
<S> <C>
First $150 Million / Fund 5.00
Next $150 Million / Fund 3.00
Thereafter 1.00
Minimum / Fund $60,000
</TABLE>
Fund Fees:
Total net assets of the Fund will be used to calculate the fee by
multiplying the net assets of the Fund by the basis point fees in the
above schedule. The greater of the basis point fee or the minimum will
be accrued to the Fund.
II. LEVERAGE FEE:
An additional fee of $2,500 per year will be charged to 13A Commercial
Mortgage Securities Fund, Inc. for additional financial statement
preparation required to the extent that the fund utilizes leveraging.
III. OUT OF POCKET EXPENSES INCLUDE, BUT MAY NOT BE LIMITED TO:
Legal fees, audit fees and other professional fees
Postage
Supplies related to Fund records
Travel and lodging for Board and Operations meetings
IV. SPECIAL ARRANGEMENTS
Fees for activities of a non-recurring nature such as reorganizations,
and/or preparation of special reports, and consulting will be subject
to negotiation. Fees for a change in fund structure (i.e., Core and
Feeder) are subject to negotiation.
10
<PAGE>
V. TERM OF THE CONTRACT
The parties agree that this fee schedule shall remain in effect until
December 31, 1998 and from year to year thereafter until it is revised
as a result of negotiations initiated by either party.
<TABLE>
<S> <C>
13A Commercial Mortgage Securities Fund, Inc. Street Bank and Trust Company
By: /s/ Joanne Vitale By: /s/ Kathleen C. Cuocolo
_________________ _______________________
Title: Secretary Title: Senior Vice President
_________ _____________________
Date: 11/24/97 Date: 11/20/97
________ ________
</TABLE>
11
<PAGE>
EXHIBIT J
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use of our report dated November 19, 1998 on the financial
statements of Clarion CMBS Value Fund, Inc. (formerly 13A Commercial Mortgage
Securities Fund, Inc.) referred to therein, in Amendment No. 1 to the
Registration Statement on Form N-1A, file No. 811-08920, as filed with the
Securities and Exchange Commission.
We also consent to the reference to our Firm in the Prospectus under the caption
Financial Highlights and in the Statement of Additional Information under the
caption Independent Auditors.
McGladrey & Pullen, LLP
New York, New York
July 6, 1999
<PAGE>
EXHIBIT O
13A COMMERCIAL MORTGAGE SECURITIES FUND, INC.
RULE 18f-3 MULTI-CLASS PLAN
I. Introduction.
In accordance with Rule 18f-3 under the Investment Company Act
of 1940 (the "1940 Act"), the following Multiple Class Plan (the "Plan")
specifies the differences among each individual class of shares of 13A
Commercial Mortgage Securities Fund, Inc. (the "Fund") and sets forth the
separate arrangements for allocating expenses among each class of shares that
may be issued under the Fund's multiple class distribution system. The Fund is
an open-end investment company registered under the 1940 Act.
As of the date hereof, the Fund hereby elects to offer
multiple classes of shares pursuant to the provisions of Rule 18f-3 and this
Plan. Each share will represent an equal pro rata interest in the underlying
assets of the Fund.
The Fund has two classes of shares: "class x" is owned by
investors that became shareholders during the period when the Fund was a
closed-end fund and "class 1" is issued to investors that become shareholders
after the Fund became an open-end fund.
II. Allocation of Expenses.
Pursuant to Rule 18f-3 under the 1940 Act, the Fund shall
allocate to each class of shares in a Fund any fees and expenses incurred by the
Fund. In addition, pursuant to Rule 18f-3, the investment adviser to the Fund
has agreed to waive its management fee so as to limit the total annual expenses
of the Fund to 0.80% for the class x shares.
III. Net Asset Value.
Under the Plan, all expenses incurred by the Fund will
continue to be allocated among the various classes of shares based upon the net
assets of the Fund attributable to each class, except that shares of a
particular class will continue to bear the class expenses incurred by such
class. Consequently, the net income of, and the dividends payable with respect
to, each particular class would generally differ from the net income of, and the
dividends payable with respect to, the other classes of shares of the Fund.
Therefore,
<PAGE>
the net asset value per share of the classes will differ at times. Expenses
allocated to a class of shares will continue to be borne on a pro rata basis by
each outstanding share of that class.
IV. Accountants' Procedures.
The methodology and procedures for calculating the net asset
value, dividends and distributions of the classes of shares and the proper
allocation of income and expenses shall be in accordance with Rule 18f-3 under
the Investment Company Act of 1940, as amended.
V. Conflicts of Interest.
The Fund does not believe that the implementation of the Plan
will give rise to any conflicts of interest. The Board of Directors will
continue to monitor, on an ongoing basis, the Fund for the existence of any
material conflicts among the interests of the holders of the various classes of
shares and will take any action reasonably necessary to eliminate any such
conflicts that may develop. The Fund also believes that the interests of the
various classes of shares as to the investment advisory fees of the Fund are the
same and not in conflict. These fees are used to compensate the Fund's
investment adviser for providing investment advisory services that are common to
all investors, regardless of the class of shares.
VI. Board Review.
The Board of Directors of the Fund shall review this Plan as
frequently as it deems necessary. Prior to any material amendment(s) to this
Plan, the Fund's Board of Directors, including a majority of the Directors that
are not interested persons of the Fund, shall find that the Plan, as proposed to
be amended (including any proposed amendments to the method of allocating class
and/or Fund expenses), is in the best interest of each class of shares of any
Series individually and the Fund as a whole. In considering whether to approve
any proposed amendment(s) to the Plan, the Directors shall request and evaluate
such information as they consider reasonably necessary to evaluate the proposed
amendment(s) to the Plan. Such information shall address, among other issues,
the issue of whether any waivers or reimbursements of advisory or administrative
fees could be considered a cross-subsidization of one class by another.
<PAGE>
In making its initial determination to approve this Plan, the
Board has focused on, among other things, the relationship between or among the
classes and has examined potential conflicts of interest among classes
(including those potentially involving a cross-subsidization between classes)
regarding the allocation of fees, services, waivers and reimbursements of
expenses, and voting rights. The Board has evaluated the level of services
provided to each class and the cost of those services to ensure that the
services are appropriate and the allocation of expenses is reasonable. In
approving any subsequent amendments to this Plan, the Board shall focus on and
evaluate such factors as well as any others deemed necessary by the Board.
* * *
This Plan is hereby approved by a majority of the Directors of
the Fund, including a majority of the Directors who are not interested persons
of the Fund (collectively, the "Directors"). The Directors have found that this
Plan, including the expense allocation, is in the best interests of each class
individually and the Fund as a whole. The Directors have made this determination
after requesting and evaluating such information as may be reasonably necessary
to evaluate this Plan.
This Plan is intended to conform to Rule 18f-3 and Rule 6c-10
under the 1940 Act and any inconsistencies shall be read to conform with such
Rules.
Dated: June 1, 1999
