SECURITY CAPITAL U S REALTY, F-1, 1999-06-30

SECURITY CAPITAL U S REALTY
F-1, 1999-06-30
REAL ESTATE INVESTMENT TRUSTS

Previous: KEY BANK USA NATIONAL ASSOCIATION, 8-K, 1999-06-30

Next: KOGAN ERIC D, 3, 1999-06-30

<PAGE>

As filed with the Securities and Exchange Commission on June 30, 1999
Registration No. 333-_______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM F-1

REGISTRATION STATEMENT UNDER
SECURITIES ACT OF 1933

SECURITY CAPITAL U.S. REALTY
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
Grand Duchy of Luxembourg 6719 N/A
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organisation) Classification Code Number) Identification No.)

25b, boulevard Royal Christopher W. House III
L-2449 Luxembourg 25b, boulevard Royal
011-352-463-7561 L-2449 Luxembourg
(Address, including zip code, and 011-352-463-7561
telephone number, including area code, (Name, address, including zip code, and telephone
of registrant's principal executive offices) number, including area code, of agent for service)
</TABLE>

Copies to:
Edward J. Schneidman
Michael L. Hermsen
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
(312) 782-0600

Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.

If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering.[_]

If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- -----------------------------------------------------------------------------------------
Title of each
class of
securities to be Amount to be Amount of
registered registered registration fee(1)
- -----------------------------------------------------------------------------------------
<S> <C> <C>
2% Senior Unsecured Convertible Notes due 2003... $450,000,000 $125,100
- -----------------------------------------------------------------------------------------
Shares, par value $4.00 per share................ 11,875,928(2) (2)
- -----------------------------------------------------------------------------------------
</TABLE>

(1) Estimated solely for the purpose of determining the registration fee.
(2) Represents the Shares into which the Convertible Notes may be converted for
which no additional filing fee is being paid.

The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

================================================================================

<PAGE>

SUBJECT TO COMPLETION, DATED JUNE 30, 1999

================================================================================

SECURITY CAPITAL U.S. REALTY

(Incorporated in Luxembourg as a Societe d'Investissement a Capital Fixe)

================================================================================

2% Senior Unsecured Convertible Notes due 2003
Shares

The holders identified in this prospectus of certain securities of Security
Capital U.S. Realty may offer and sell the 2% Senior Unsecured Convertible Notes
due 2003 of Security Capital U.S. Realty owned by them, or the shares into which
they may be converted. You may exchange your shares for American Depositary
Shares at your option. The 2% Senior Unsecured Convertible Notes due 2003 were
issued by the Company in May of 1998 in a private, unregistered transaction.

Any selling holder may offer these securities through public or private
transactions, on or off the New York Stock Exchange or the AEX Stock Exchange,
at prevailing market prices, or at privately negotiated prices.

The American Depositary Shares are listed on the New York Stock Exchange
under the symbol "RTY". On __ June 1999, the closing price of an American
Depositary Share was $_____. Our shares are listed on the AEX Stock Exchange in
Amsterdam under ISIN-Code LU0060100673. On __ June 1999, the closing price of a
share was $_____. The Convertible Notes are not listed for trading on either
exchange.

You should carefully review "Risk Factors" beginning on page 8 of this
prospectus for a discussion of risks relating to the ownership of our
securities.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offence.

___________________

The date of this Prospectus is _______ __, 1999.

<PAGE>

___________________

PRESENTATION OF CERTAIN INFORMATION

In this prospectus, references to "U.S. Dollars" or "$" are to United
States dollars and references to "Luxembourg francs" or "LUF" are to Luxembourg
francs, the legal currency of Luxembourg. Figures in this prospectus may not sum
due to rounding.

Certain statements made in this prospectus are based upon the law and
practice currently in force in Luxembourg and there can be no assurance that
such law and practice will not change.

We completed a one-for-two reverse stock split effective on 18 June 1999.
We have restated all of our share volumes and per share amounts to take into
account this reverse stock split. Please read "Description of Shares--Recent
Events Concerning the Shares" for more information on the reverse stock split.

___________________

ENFORCEABILITY OF CIVIL LIABILITIES

Security Capital U. S. Realty is incorporated under the laws of Luxembourg.
Certain of our directors and officers are non-residents of the United States and
substantially all of the assets of such persons may be located outside the
United States. As a result, it may not be possible for U.S. investors to effect
service of process upon such directors or officers within the United States, or
to enforce against them judgments of U.S. courts predicated upon the civil
liability provisions of the federal or state securities laws of the United
States. Although we have irrevocably designated CT Corporation System, New
York, New York, as our authorised agent for service for process with respect to
any legal suit, action or proceeding arising out of or based upon the indenture
under which the Convertible Notes were issued in any U.S. federal or state court
in the Borough of Manhattan, the City of New York, and have irrevocably
submitted to the non-exclusive jurisdiction of those courts in these matters, it
is unlikely that an action brought solely for violations of the federal or state
securities laws would be considered to be an action arising out of the indenture
relating to the Convertible Notes. Our Luxembourg counsel, Arendt & Medernach,
has advised us that as regards the enforcement in Luxembourg of a judgment
rendered by a foreign court, such as a U.S. court in civil matters, such
enforcement would make it necessary to commence recognition and enforcement
proceedings before the Luxembourg courts and the foreign judgment would be
evidence of liability, subject to satisfaction of the criteria set out in
Articles 546 et seq. of the Luxembourg Code of Civil Procedure and in
particular:

(1) the foreign court must properly have had jurisdiction to hear and determine
the matter;

(2) the decision of the foreign court must be final and enforceable in the
country in which it was rendered;

(3) the foreign court must have applied the proper law to the matter submitted
to it;

(4) the decision of the foreign court must not have been obtained by fraud, but
in compliance with the rights of the defendant; and

(5) the decision of the foreign court must not be contrary to Luxembourg public
policy or have been given in proceedings of a penal nature.

Criminal penalties imposed by the federal or state securities laws of the
United States would not be enforceable in Luxembourg and it is unclear if the
extradition treaty now in effect between the United States and Luxembourg would
subject these directors and officers to effective enforcement of the criminal
penalties of the federal and state securities laws of the United States. In
addition, we have been advised by our Luxembourg counsel that there is doubt as
to the enforceability in Luxembourg, in original actions, of civil liabilities
predicated solely upon the U.S. federal securities laws.

___________________

FORWARD-LOOKING STATEMENTS

The statements contained in this prospectus that are not historical facts
are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. These forward-looking statements relate to our future
performance, plans and objectives and our strategic investment positions and our
special opportunity positions. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors, including the risks,
uncertainties and other factors

-2-
<PAGE>

discussed in "Risk Factors", which may cause our actual results, performance or
achievements, our strategic investment positions or our special opportunity
positions, or the U.S. real estate industry's results, to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. You should be aware that actual
outcomes and results may differ materially from what is expressed or forecasted
in such forward-looking statements.

___________________

-3-
<PAGE>

TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY................................................................................................ 6
RISK FACTORS........................................................................................... 8
We rely on the dividends we receive from the companies in which we invest.............................. 8
The Convertible Notes are unsecured obligations........................................................ 8
We have debt outstanding and will continue to have debt outstanding.................................... 8
We may experience additional risks in connection with our borrowing of funds........................... 8
We may be subject to conflicts of interest in connection with operating our business................... 9
We rely heavily on the advice of our Operating Advisor................................................. 10
Security Capital Group has a substantial influence over our management and investment decisions........ 10
We depend significantly on the efforts and abilities of our directors and officers..................... 10
We have had a limited operating history................................................................ 10
Through our investments we are affected by the following real estate investment risks.................. 11
We face environmental regulations applicable to our businesses......................................... 12
Many of our businesses are in highly competitive segments.............................................. 12
There is currently no public market for the Convertible Notes nor may one form......................... 13
Future changes in the tax laws may adversely affect our returns........................................ 13
Strategic changes by our investees may not be successfully implemented................................. 13
We would be materially adversely affected if we were required to register as an investment
company in the United States........................................................................... 13
THE COMPANY............................................................................................ 14
OPERATING ADVISOR...................................................................................... 14
RELATIONSHIP WITH SECURITY CAPITAL GROUP............................................................... 15
USE OF PROCEEDS........................................................................................ 16
SELECTED FINANCIAL DATA................................................................................ 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................. 18
Introduction........................................................................................... 18
Operating Results...................................................................................... 20
Liquidity and Capital Resources........................................................................ 25
Capital Deployment Activities.......................................................................... 26
Impact of Year 2000 and the Euro....................................................................... 26
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............................................. 27
Sensitivity Analysis................................................................................... 28
BUSINESS............................................................................................... 29
Overview and Company Objective......................................................................... 29
Our Research-Based Capital Deployment Strategy......................................................... 29
Our Investment Criteria................................................................................ 30
Our Operating Strategy................................................................................. 32
Real Estate Acquisitions............................................................................... 34
The Future............................................................................................. 34
Competition............................................................................................ 34
Overview of Strategic Investment Positions............................................................. 34
Description of Property................................................................................ 50
Legal Proceedings...................................................................................... 50
AGREEMENTS BETWEEN SC-U.S. REALTY AND ITS STRATEGIC INVESTEES.......................................... 50
CarrAmerica............................................................................................ 50
Storage USA............................................................................................ 51
Regency................................................................................................ 52
City Center Retail..................................................................................... 53
CWS Communities........................................................................................ 54
Urban Growth Property.................................................................................. 54
VALUATION AND INVESTMENT RESTRICTIONS.................................................................. 55
Valuation.............................................................................................. 55
Investment Restrictions................................................................................ 55
PRINCIPAL SHAREHOLDERS................................................................................. 57
NATURE OF TRADING MARKET............................................................................... 58
Market Prices.......................................................................................... 58
DIRECTORS AND MANAGERS................................................................................. 59
Security Capital U.S. Realty........................................................................... 60
Compensation of Directors and Officers................................................................. 63
Charges and Expenses................................................................................... 64
Interests of Directors in Certain Transactions......................................................... 65
Interests of the Operating Advisor in Certain Transactions............................................. 66
Operating Advisor Affiliates........................................................................... 66
DESCRIPTION OF CONVERTIBLE NOTES....................................................................... 68
General................................................................................................ 68
Conversion of Notes.................................................................................... 68
Optional Redemption by SC-U.S. Realty.................................................................. 71
Ranking of the Convertible Notes....................................................................... 72
Repurchase at Option of Holders upon Change in Control................................................. 72
Merger or Consolidation................................................................................ 74
Events of Default and Remedies......................................................................... 74
Certain Limitations on Incurrence of Indebtedness...................................................... 75
Modifications of the Indenture......................................................................... 75
Book Entry, Delivery and Form.......................................................................... 76
Defeasance............................................................................................. 79
Listing on the NYSE; Registration of Notes and Underlying Shares and American Depositary Shares........ 79
Provision of Financial Information to Holders of Convertible Notes..................................... 80
Transfer and Exchange.................................................................................. 81
Purchase and Cancellation.............................................................................. 81
</TABLE>

-4-
<PAGE>

<TABLE>
<S> <C>
Title.................................................................................................. 81
Notices................................................................................................ 81
Replacement of Convertible Notes....................................................................... 81
Payment of Stamp and Other Taxes....................................................................... 81
Governing Law.......................................................................................... 82
Consent to Service..................................................................................... 82
Concerning the Trustee................................................................................. 82
DESCRIPTION OF AMERICAN DEPOSITARY SHARES.............................................................. 82
Deposited Securities................................................................................... 82
Record Dates........................................................................................... 84
Voting of the Underlying Deposited Securities.......................................................... 85
Reports................................................................................................ 85
Amendment and Termination of the Deposit Agreement..................................................... 85
Charges of Depositary.................................................................................. 86
Liability of Holder for Taxes.......................................................................... 86
General................................................................................................ 87
Rule 144A American Depositary Receipt Facility......................................................... 87
DESCRIPTION OF SHARES.................................................................................. 88
General................................................................................................ 88
Recent Events Concerning the Shares.................................................................... 88
Future Share Issuances................................................................................. 88
Trading through ASAS................................................................................... 89
Clearing and Settlement through Euroclear and Cedel.................................................... 90
Share Ownership Limitations............................................................................ 90
Redemption of Shares................................................................................... 90
Pro Rata Redemptions................................................................................... 90
Special ERISA Redemptions.............................................................................. 90
Redemption Price....................................................................................... 91
Effect of Redemption................................................................................... 91
Distribution Policy.................................................................................... 92
Meetings of and Reports to Shareholders................................................................ 92
TAXATION............................................................................................... 94
United States Federal Income Taxation of Noteholders................................................... 94
United States Federal Income Taxation of Securityholders............................................... 97
U.S. Federal Information Reporting and Withholding..................................................... 100
U.S. Federal Information Requirements.................................................................. 102
U.S. Federal Income Taxation of SC-U.S. Realty......................................................... 102
Luxembourg Taxation of SC-U.S. Realty and its Subsidiaries............................................. 106
United Kingdom Taxation of SC-U.S. Realty and its Subsidiaries......................................... 107
General................................................................................................ 107
Taxation of Non-United States Holders.................................................................. 107
SELLING HOLDERS........................................................................................ 108
PLAN OF DISTRIBUTION................................................................................... 110
EXPERTS................................................................................................ 110
LEGAL MATTERS.......................................................................................... 110
WHERE YOU CAN FIND MORE INFORMATION.................................................................... 110
INDEX TO FINANCIAL STATEMENTS.......................................................................... 112
INDEX TO EXHIBITS...................................................................................... 137
</TABLE>

-5-
<PAGE>

SUMMARY

The following summary is qualified in its entirety by the detailed information
and Consolidated Financial Statements contained elsewhere in this prospectus.
You as a prospective investor should carefully consider the information
presented in this prospectus, particularly the matters set forth under "Risk
Factors" beginning on page 8.

SECURITY CAPITAL U. S. REALTY

We are a research-driven, growth-orientated real estate company focused on
taking significant strategic investment positions in value-added real estate
operating companies based in the United States. For a description of our
strategic investment positions, please read "Business--SC-U.S. Realty's
Operating Strategy--Strategic Investment Positions" and for a more detailed
description of our operating strategy, including how our operating strategy adds
value to real estate operating companies, you should read "Business--SC-U.S.
Realty's Operating Strategy". Our primary capital deployment objective is to
take a pro-active ownership role in businesses that we believe can potentially
generate above-average rates of return. We believe there are significant value
creation opportunities in the multi-trillion dollar U.S. real estate industry,
as investors shift from traditional, direct, private forms of ownership to
indirect ownership through real estate investment trusts or REITs whose
securities are traded on major stock exchanges. As of 31 March 1999 our
strategic investments had a combined market capitalisation of approximately
$8.3 billion.

Our offices are located at 25b, boulevard Royal, L-2449 Luxembourg, and our
telephone number in Luxembourg is 011 (352) (4637561). Unless otherwise
indicated or the context in this prospectus otherwise requires, the terms "we",
"us", "our", or "SC-U.S. Realty" means or refers to Security Capital U.S. Realty
and its subsidiaries.

Strategy

We seek to maximise our shareholders' returns primarily by acquiring and
managing significant strategic investment positions in real estate operating
companies based in the United States. We seek to identify potential strategic
investment positions by focusing rigorous fundamental research on the U.S. real
estate industry, business niches and specific companies. By investing
substantial capital and obtaining a combination of various board and board
committee representation, consultation rights, approval rights and other rights,
we seek to influence and oversee the development and implementation of a long-
term focused operating strategy and value-added operating system for each of our
strategic investment positions. We also own non-strategic investment positions,
or special opportunity positions, primarily in publicly-traded U.S. real estate
operating companies where our research identifies attractive intermediate-term
investment opportunities. Our objective is to have 85%-90% of our assets
invested in strategic investment positions and 10%-15% of our assets invested in
special opportunity positions.

Strategic Investment Positions and Other Investments

We currently hold strategic investment positions in six U.S. real estate
operating companies, of which three are private start-up companies and three are
publicly-traded on the NYSE:

. City Center Retail, a private start-up company focused on serving top U.S.
and international retailers in attractive downtown and urban infill markets
for retail throughout the United States;

. CWS Communities, a private start-up company focused on acquiring, developing
and owning manufactured housing communities in selected target markets
throughout the U.S.;

. Urban Growth Property, a private start-up company focused on acquiring,
developing and owning strategically located income-producing land (primarily
parking or car parks) in key urban infill locations in selected target markets
throughout the U.S.;

. CarrAmerica (NYSE:CRE), a national company focused on providing office space
to leading companies;

. Storage USA (NYSE:SUS), a national company focused on self-storage; and

. Regency (NYSE:REG), a national company focused on grocery-anchored
neighbourhood infill shopping centres which, on 28 February 1999, merged with
Pacific Retail Trust. Please read "Business--Overview of

-6-
<PAGE>

Strategic Investment Positions--Grocery-Anchored Neighbourhood Infill Shopping
Centres: Regency Retail Corporation" for more information concerning this
merger.

Description of Securities

For a brief description of the securities that may be offered by the selling
holders, you should read "Description of Convertible Notes," "Description of
American Depositary Shares" and "Description of Shares" later in this
prospectus.

-7-
<PAGE>

RISK FACTORS

We rely on the dividends we receive from the companies in which we invest

We rely on dividends from the companies in which we invest to meet our
operating expense requirements and to pay debt service, including interest,
including borrowings under our line of credit and our outstanding Convertible
Notes. The ability of the companies in which we invest to pay dividends depends
on the economic performance of those companies, the prior claims of creditors or
holders of preferred stock of those companies and their compliance with United
States federal tax laws. Repayment of our entire indebtedness could require the
sale of a portion of our special opportunity and other positions if other
sources of funds were not available.

The Convertible Notes are unsecured obligations

The Convertible Notes rank equally in right of payment with all of our
existing and future unsecured indebtedness. In addition, the Convertible Notes
will be effectively subordinated to all of our future secured indebtedness, to
the extent of the value of the collateral securing such indebtedness, and are
and will be effectively subordinated to all of the existing and future
indebtedness and other liabilities of our wholly-owned subsidiaries and our
strategic investees. The indenture governing the Convertible Notes does not
limit the amount of additional indebtedness which our strategic investees can
create, incur, assume or guarantee. For more information concerning the ranking
of the Convertible Notes, please read "Description of Convertible Notes--Ranking
of the Convertible Notes".

We have debt outstanding and will continue to have debt outstanding

As of 31 December 1998, we had approximately $632 million of outstanding long-
term indebtedness on a consolidated basis. This indebtedness does not include
the indebtedness of any of the investees. Our total debt as a percentage of our
total assets at that date was approximately 22%. We do not guarantee the debt of
any of our strategic investees. In addition, at 31 December 1998 our strategic
investees had an aggregate of approximately $3.5 billion of indebtedness
outstanding and, in certain cases, have issued preferred stock to third parties.

Based on our current level of operations and anticipated growth, we expect
that cash flow from operations and funds available under our line of credit will
be sufficient to enable us to satisfy our anticipated cash requirements for
operating and investing activities for existing businesses for the next 12
months. We intend to finance our long-term business activities, including
investments in new business initiatives, through borrowings under our line of
credit. In addition, we anticipate that our strategic investees will separately
finance their activities through cash flow from operations, sales of equity and
debt securities and the incurrence of mortgage debt or line of credit
borrowings. The degree to which we are leveraged and to which we are able to
meet our financial obligations could affect our ability to obtain additional
financing in the future for refinancing indebtedness, working capital, capital
expenditures, acquisitions, investments in new businesses, general corporate or
other purposes.

On a historical basis, the ratios of earnings to fixed charges for us and our
consolidated subsidiaries for the years ended 31 December 1998, 1997 and 1996
and for the period from 7 July 1995 to 31 December 1995 were 4.5:1, 6.0:1, 3.6:1
and 1.5:1, respectively. For this purpose, earnings consist of dividends and
interest and other income decreased by operating expenses. Fixed charges
consist of interest expense and the amortisation of debt issuance costs.

We may experience additional risks in connection with our borrowing of funds

To the extent we or one of our strategic investees or other companies in which
we invest incurs debt, that company will be subject to the risks associated with
debt financing. These risks include:

(1) that cash flow from operations will be insufficient to meet required
payments of principal and interest,

(2) that we or the company in which we invest will be unable to refinance any
lines of credit or any other current or future indebtedness,

-8-
<PAGE>

(3) that the terms of any refinancing will not be as favourable as the terms
of existing indebtedness,

(4) that we will be unable to make necessary investments in new business
initiatives due to lack of available funds, and

(5) that, due to a lack of funds, the companies in which we invest may be
unable to make necessary capital expenditures for purposes such as
renovations or re-leasing of properties. If, in the future, the securities
of the companies in which we invest are used to secure our indebtedness
and we are unable to make required payments on that indebtedness, the
securities could be transferred to the lender or sold with the consequent
loss of income and asset value to us.

Our Articles of Incorporation provide that the aggregate of all our borrowings
may not exceed on average 50% of the aggregate valuation of the sum of our debt
and equity interest in our real estate companies and direct properties and
property rights. Our long-term targeted maximum debt percentage is 30% to 40%.
If a property owned by one of our investees is mortgaged to secure indebtedness
and the investee is unable to make its required payments on that indebtedness,
the property could be transferred to the mortgagee with a consequent loss of
income and asset value to the investee. These events could adversely affect our
cash flow and the value of our investments.

Increases in interest rates could increase our interest expense

Increases in interest rates could increase our interest expense, which would
adversely affect our net earnings and cash available for payment of obligations.
At 31 December 1998, we had $263 million of variable interest rate debt
outstanding, all of which was under our line of credit. We have made a number
of short-term borrowings under our line of credit. Each borrowing currently
bears interest based on the LIBOR rate at the time of borrowing. Each borrowing
is for a fixed time period and at a fixed interest rate payable during that time
period. If a borrowing is renewed, a new short-term time period is established
and a new interest rate is established for that new period. Although we
currently have no borrowings based on the prime rate, to the extent our short-
term borrowings are based on that rate, the interest rate will be reset daily.

We may be subject to conflicts of interest in connection with operating our
business

Certain of our directors and officers also have interests in our strategic
investees

Several of our directors and officers are directors or trustees of our
strategic investees and own our shares and shares of our strategic investees.
As of 31 March 1999, our directors and executive officers as a group
beneficially owned 344,663 of our shares, representing approximately 0.2% of our
shares.

William D. Sanders is our Non-Executive Chairman, and is also a director of
each of CarrAmerica and Storage USA and an advisory director of Regency.
Jeffrey A Cozad is our Managing Director and a director of Regency.

Each of Messrs. Sanders and Cozad hold their directorships or trusteeships in
certain of our strategic investees as our nominees under agreements between us
or our subsidiaries and the respective strategic investee.

From time to time, there may be transactions between us and our strategic
investees, or among our strategic investees. The interests of the persons named
in this section may differ from the interests of our shareholders as a result of
their positions in the strategic investees or their ownership of securities of
the strategic investees and, as a result, those persons may have an incentive to
place the interests of the strategic investees or themselves over those of our
shareholders. However, our Articles of Incorporation provide that if any of the
persons named in this section

-9-
<PAGE>

has an interest in any of these transactions which is different from ours, that
person is required to inform the Board of Directors of such differing interest
and is not to consider or vote on the proposed transaction. In addition, the
transaction and the person's differing interest must be reported at the next
general meeting of shareholders.

We rely heavily on the advice of our Operating Advisor

Security Capital U.S. Realty Management S.A., a Luxembourg corporation and a
wholly-owned subsidiary of Security Capital Group acts as our Operating Advisor.
The Operating Advisor provides us with advice on all investment and operating
matters. The Operating Advisor is not under our control and we cannot assure
that this advice will continue to be provided on the same terms as it is
currently being provided. Although Security Capital Group Incorporated and
Security Capital Group Incorporated's current investment in us ($722.7 million,
at cost, at 31 December 1998) is substantial, we cannot assure that the
Operating Advisor's and Security Capital Group's economic interests will
continue to be aligned with ours. The Operating Advisor currently advises only
us and does not provide services for any other entity. There can be no
assurance that this will continue in the future.

Security Capital Group has a substantial influence over our management and
investment decisions

Security Capital Group is our largest shareholder and the sole shareholder of
the Operating Advisor. For more information on Security Capital Group, please
read "Relationship with Security Capital Group." We cannot assure that Security
Capital Group will continue to maintain a substantial ownership position in
either the Operating Advisor or us or that, if such position is maintained, that
it will exert its influence in a manner that is in the best interests of our
shareholders other than Security Capital Group.

Security Capital Group is also a strategic investor in other real estate
companies. In this regard, Security Capital Group has stated that long-term
strategic investment opportunities in equity REITs located in the United States,
which are not engaged in operating property types in which Security Capital
Group currently owns a strategic investment position, generally will be
allocated to us, although there can be no assurance that Security Capital Group
will continue to maintain such policy in the future.

We depend significantly on the efforts and abilities of our directors and
officers

The loss of the services of our directors or officers could have a material
adverse effect on us. Certain of these persons also are officers and directors
of the Operating Advisor or other affiliates of Security Capital Group, which
may create competing demands with respect to the time of these persons. The
directors are appointed by the shareholders in a general meeting; however,
shareholders have no right to participate in our management and must rely on our
directors and officers, since we have no employees, together with the services
of the Operating Advisor, to accomplish our business objectives.

We have had a limited operating history

We have been operating for nearly four years. We cannot assure that our
existing investments will provide acceptable returns or that we will be able to
identify and acquire additional strategic investment positions. Security
Capital Group's past experience and our experience in acquiring strategic
investment positions in successful REITs is not necessarily indicative of our
prospects for the future.

-10-
<PAGE>

Through our investments we are affected by the following real estate investment
risks

The return which we achieve from the companies in which we invest is
dependent on the performance of the real property investments held by those
companies, which are subject to varying degrees of risk

Although we own no real estate directly, the companies in which we invest own
real estate. A number of factors which affect real estate cash flows and values
include changes in the general economic climate, local, regional or national
conditions, such as an oversupply of properties or a reduction in rental demand
in a specific area, the quality and philosophy of management, competition from
other available properties and the ability to provide adequate maintenance and
insurance and to control operating costs. Real estate cash flows and values are
also affected by such factors as government regulations, including zoning, usage
and tax laws, interest rate levels, the availability of financing, the
possibility of bankruptcies of tenants and potential liability under, and
changes in, environmental and other laws. Since a significant portion of the
income from our investments is derived from rental income and other payments
from real property, our investee's respective income and distributable cash
flow, and our own respective income and distributable cash flow would be
adversely affected if a significant number of tenants were unable to meet their
obligations, or if those strategic investees were unable to lease properties on
economically favourable terms.

Real estate development by our investees involves significant risks in
addition to those risks involved in the ownership and operation of
developed properties which could adversely affect our investment in the
investee

Certain strategic investees and other companies in which we invest have
developed or have begun developing properties, such as neighbourhood infill
shopping centres, city centre retail facilities, parking facilities, corporate
office space, self-storage facilities and manufactured housing communities, and
expect to develop additional properties in the future. These risks include:

(1) that financing, if needed, may not be available on favourable terms for
development projects,

(2) that construction may not be completed on schedule, resulting in increased
debt service expense and construction costs,

(3) that estimates of the costs of construction may prove to be inaccurate, and

(4) that properties may not be leased or rented on profitable terms and
therefore may fail to perform in accordance with expectations.

Timely construction may be affected by local weather conditions, local or
national strikes and by local or national shortages in materials, insulation,
building supplies and energy and fuel or equipment. These events could
adversely affect our cash flow and the value of our investments in those
companies.

Renewal of leases and re-leasing of space by our investees may, if
available, be less favourable than on current terms

Certain strategic investees and other companies in which we invest are subject
to the risks that leases may be not be renewed, space may not be re-leased or
the terms of the renewal or re-leasing may be less favourable than current lease
terms. If those companies were unable to promptly renew leases or re-lease
space or if the rental rates upon the renewal or re-lease were significantly
lower than expected, their cash flow, and accordingly our cash flow and our
investment in those companies, may be adversely affected.

Direct investment in real estate by our investees is relatively illiquid

Equity real estate investments are relatively illiquid and therefore may tend
to limit the ability of the strategic investees and other companies in which we
invest to react promptly to changes in economic or other conditions. In
addition, certain significant expenditures associated with equity investments,
such as mortgage payments, real estate taxes and operating and maintenance
costs, are generally not reduced when circumstances cause a reduction in income
from the investments. Further, the REITs in which we invest must comply with
various rules which enable a REIT to avoid corporate taxation. Thus, the
ability of the REITs to sell assets to change their asset base is restricted

-11-
<PAGE>

by U.S. tax rules which impose holding periods for assets and potential
disqualification as a REIT upon certain asset sales.

Regulations may be issued which could have the effect of restricting or
curtailing certain uses of existing structures or requiring that the
structures be renovated or altered in some fashion

Governmental authorities at the federal, state and local levels are actively
involved in the issuance and enforcement of regulations relating to land use,
zoning and other restrictions. The issuance of any such regulations could
increase expenses and lower profitability of any property. These events could
adversely affect our cash flow and the value of our investments in companies
with such properties.

Changes in laws may adversely affect us

Increased costs resulting from increases in real estate, income or transfer
taxes or other governmental requirements generally may not be passed through
directly to residents, tenants or lessees, inhibiting the ability of our
strategic investees to recover those costs. Substantial increases in rents, as
a result of those increased costs, may affect the ability of a resident, tenant
or lessee to pay rent, causing increased vacancy. Changes in laws which
increase potential liability for environmental conditions or which increase the
restrictions on discharges or other conditions may result in significant
unanticipated expenditures. No assurance can be given that new legislation,
regulations, administrative interpretations or court decisions will not
significantly change the laws with respect to the qualification of certain of
our investees as REITs or the federal income tax consequences of that
qualification to those investees.

We may be subject to losses which are uninsured

The strategic investees carry comprehensive liability, fire, flood,
earthquake, extended coverage and rental loss insurance with respect to their
properties with policy specifications and insured limits customarily carried for
similar properties and which the strategic investees believe are appropriate
under the circumstances. There are, however, certain types of losses, such as
from wars, which may be uninsurable or not economically insurable. Should an
uninsured loss or a loss in excess of insured limits occur, the strategic
investee could lose both its capital invested in and anticipated profits from
one or more properties.

We face environmental regulations applicable to our businesses

Through our investees, we are subject to environmental and health and safety
laws and regulations related to the ownership, operation, development and
acquisition of real estate. Under those laws and regulations, we may be liable
for, among other things, the costs of removal or remediation of certain
hazardous substances, including asbestos-related liability. Those laws and
regulations often impose liability without regard to fault.

Although our strategic investees generally conduct Phase I environmental
assessments on their respective properties prior to their acquisition, there can
be no assurance that those assessments reveal all potential environmental
liabilities. We are not aware of any environmental condition on any of our
strategic investees' properties which is likely to have a material adverse
effect on our financial position or results of operations; however, there can be
no assurance that any such condition does not exist or may not arise in the
future.

Many of our businesses are in highly competitive segments

There are numerous commercial developers, real estate companies and other
owners of real estate, including those that operate in the regions in which the
properties of our investees are located, which compete with the companies in
which we invest in seeking land for development, properties for acquisition and
disposition and tenants for properties. The companies in which we invest
compete on a regional and national basis.

The properties of the strategic investees are located in developed areas which
include other similar properties. The number of competitive properties in a
particular area could have a material adverse effect on the strategic investees'
ability to lease properties and on the rents charged. In addition, other forms
of properties provide alternatives to tenants of the strategic investees'
properties.

-12-
<PAGE>

There is currently no public market for the Convertible Notes nor may one form

There can be no assurance as to the development or liquidity of any market
that may develop for the Convertible Notes, the ability of the holders of the
Convertible Notes to sell their Convertible Notes or the price at which such
holders would be able to sell their Convertible Notes. If such a market were to
exist, the Convertible Notes could trade at prices that may be lower than the
initial offering price or accreted value of the Convertible Notes. This depends
on many factors, including prevailing interest rates and the market for similar
securities, general economic conditions and the financial condition and
performance of and prospects for us and the companies in which we invest. We do
not expect to apply for listing of the Convertible Notes on any securities
exchange or for quotation of the Convertible Notes on any automated dealer
quotation system.

Future changes in the tax laws may adversely affect our returns

The after-tax results of our operations and the after-tax returns to holders
of our securities depend, in part, on the application to us, to our strategic
investees and to holders of our securities of relevant tax laws and regulations
and tax treaties, as well as the qualification and continued qualification of
our strategic investees as "domestically-controlled" REITs under the U.S.
Internal Revenue Code of 1986, as amended. Such results of operations and
returns could be adversely affected by any future changes in such tax laws and
regulations and such tax treaties, as well as the failure of a strategic
investee to qualify as a "domestically-controlled" REIT.

Strategic changes by our investees may not be successfully implemented

As described in detail in this prospectus, we expect to influence the
strategies of our strategic investees. For more information, please read the
detailed description under "Business." This will from time to time result in
new strategies being attempted by such strategic investees, including
significant geographic expansions of their target markets. No assurance can be
given that such strategic investees will successfully implement these
strategies.

We would be materially adversely affected if we were required to register as an
investment company in the United States

We are not registered as an investment company under the U.S. Investment
Company Act of 1940, as amended. We have relied on an exemption provided by Rule
3a-1 promulgated under the Investment Company Act of 1940. We are not required
to register as an investment company because we are principally engaged in the
real estate business through companies that we primarily control through our
equity ownership, investor agreements, board representation or other control
rights, which allows us to exert significant influence over the operations of
each of our strategic investees. We currently intend to exert similar influence
over any other strategic investees through which we invest in the future.
However, to the extent we do not elect to participate in future equity offerings
by our strategic investees, our ownership interest in and control over such
companies could diminish and we could potentially be required to register as an
investment company under the Investment Company Act of 1940. We would be
materially adversely affected if we were required to register as an investment
company under the Investment Company Act of 1940.

-13-
<PAGE>

THE COMPANY

SC-U.S. Realty was established on 7 July 1995 in Luxembourg. We are
constituted as a Societe d'Investissement a Capital Fixe or SICAF. Our main
object as stated in Article 4 of our Articles of Incorporation is to invest in
real estate directly, through one or several subsidiaries or through direct or
indirect shareholdings in, and convertible and other debt of, real estate
companies with the purpose of spreading investment risks and affording
shareholders the results of the management of its assets. We are registered with
the Register de Commerce et des Societes du Tribunal d'Arrondissement de et a
Luxembourg under number B51654. We are closed-ended as to redemptions. We are
governed by Part II of the Luxembourg Law of 30 March 1988 on Undertakings for
Collective Investment.

We are subject to regulation in Luxembourg as a real estate investment
company. Our operational supervision is exercised in the first instance in
Luxembourg. The Dutch Central Bank (De Nederlandsche Bank NV) has granted us
authorisation under the Investment Institution Supervision Act (Wet toezicht
beleggingsinstellingenplain). Regulation by the Dutch Central Bank enables us to
offer our shares in the Netherlands. Being subject to regulation does not mean
that any regulatory authority has confirmed the contents of this document.

The shareholders of a SICAF have limited liability, having at risk only the
amount contributed by them to the SICAF in exchange for their shares.

A SICAF is required to publish an annual report, containing audited financial
statements, and a semi-annual report. All accounting information provided in the
annual report must be audited by an authorised independent auditor.

We own our assets directly or indirectly through one or more wholly-owned
subsidiaries.

OPERATING ADVISOR

Our Operating Advisor, Security Capital U.S. Realty Management S.A., is a
Luxembourg corporation, headquartered in Europe, and is a wholly-owned
subsidiary of Security Capital Group. Our Operating Advisor advises us on
strategy, investments, finance and certain other administrative matters
affecting us. In order to achieve the optimal U.S.-based coverage of real
estate opportunities, our Operating Advisor sub-contracts for certain services
through its Sub-Advisor, Security Capital Investment Research Incorporated, a
wholly-owned subsidiary of Security Capital Group. The services provided by the
Sub-Advisor include fundamental research, investment identification, investment
due diligence and investment monitoring. The Sub-Advisor has access to all of
the market information, demographic research and operating strategies of
Security Capital Group and its affiliates. We pay an advisory fee to the
Operating Advisor, which is responsible for paying all fees of the Sub-Advisor
and any other Security Capital Group advisory affiliates. The advisory fee is
calculated on the basis of 1.25% each year of the average monthly value of funds
invested by us in any calendar year, excluding funds placed by us in liquid,
short-term investments pending further investment or in investments in Security
Capital Group securities and is described in greater detail later in this
prospectus under the caption "Directors and Managers--Charges and Expenses". We
pay our own third-party operating and administrative expenses and transaction
costs, however, the fee we pay to the Operating Advisor is reduced by the amount
that such third-party operating and administrative expenses exceed 0.25% each
year of the average monthly value of funds invested by us in any calendar year.
For the year ended 31 December 1998 these excess expenses were approximately
0.09% each year of the average monthly value of funds invested by us excluding
funds that we placed in liquid, short-term investments pending further
investment or in investments in Security Capital Group securities.

-14-
<PAGE>

[CHART APPEARS HERE]

RELATIONSHIP WITH SECURITY CAPITAL GROUP

Security Capital Group is a publicly traded U.S. real estate research,
investment and operating management company with fully converted shareholders'
equity, based on fair value, assuming conversion of all convertible securities
and common stock equivalents, of $3.38 billion as of 31 December 1998. At 31
December 1998 Security Capital Group had direct and indirect strategic
investments in 17 private and public real estate operating companies with a
combined total market capitalisation of $24.0 billion. Security Capital Group's
strategy is to create the optimal organisation to lead and profit from global
real estate securitisation.

Security Capital Group is the sole shareholder of the Operating Advisor and
the Sub-Advisor. We therefore have access, through the Operating Advisor and the
Sub-Advisor, to the extensive proprietary research generated by Security Capital
Group and its direct and indirect subsidiaries. In accordance with our Articles
of Incorporation, all transactions with the Operating Advisor and Security
Capital Group, including purchases of Security Capital Group securities, within
the limit set by management of up to 10% of our assets, and renewals of the
advisory agreement with the Operating Advisor must be approved by a majority of
our independent directors as well as a majority of the directors. Management
believes that the total cash investment of Security Capital Group in us, $722.7
million at cost as of 31 December 1998, substantially aligns the Operating
Advisor's and Security Capital Group's economic interests with those of our
independent shareholders. Conflicts of interest could nevertheless occur.

Security Capital Group has direct and indirect subsidiaries which provide
capital markets, advisory, acquisition and proprietary research services to
affiliates of Security Capital Group. At times, our strategic investees may
engage such Security Capital Group affiliates for specific projects. Any such
engagement would be subject to the

-15-
<PAGE>

approval of the unaffiliated directors of such strategic investee, which
generally will constitute a majority of such strategic investee's board of
directors, and be on arm's-length terms. The purpose of any such engagement
would be to enable the strategic investee to take advantage of the specialised
capabilities of Security Capital Group, without being required to invest the
time and capital, or undertake the risks, necessary to develop such specialised
capabilities internally.

We have acquired shares of common stock and convertible debentures of Security
Capital Group at an aggregate cost of $165 million. We made all of these
acquisitions at arm's length prices and on the same terms as other investors who
subscribed for such securities. The purpose of these investments in Security
Capital Group was to provide us with the benefit of exposure to specific niches
within the multifamily and industrial real estate sectors, as well as the
diversification benefits of real estate management and advisory fee income
through Security Capital Group's real estate services and advisory activities.
Security Capital Group augments its operating company returns with revenues
received for advising and managing real estate companies, including us.

Security Capital Group purchases our shares from time to time , and may
purchase our indebtedness for investment purposes. Future purchases of our
shares by Security Capital Group will either be arm's-length purchases from
unaffiliated third parties, purchases in the open market or purchases in our
offerings and, in the last case, Security Capital Group will invest on no more
favourable terms, including as to price, than unaffiliated investors.

Security Capital Group has stated that long-term strategic investment
opportunities in equity REITs located in the United States, which are not
engaged in operating property types in which Security Capital Group currently
owns a strategic position, generally will be allocated to us, although there can
be no assurance that Security Capital Group will continue to maintain such
policy in the future.

USE OF PROCEEDS

All net proceeds from the sale of the securities will go to the selling
holders who offer and sell their securities. We will not receive any cash
proceeds from the sale of the securities sold pursuant to this prospectus.

-16-
<PAGE>

SELECTED FINANCIAL DATA

The following consolidated financial data, insofar as it relates to each of
the years ended 31 December 1998, 1997 and 1996 and for the period from 7 July
1995, our date of incorporation, through 31 December 1995, set forth below have
been derived from our consolidated financial statements audited by Price
Waterhouse SARL, independent accountants, including the audited Consolidated
Financial Statements and notes included at the end of this prospectus.

The Consolidated Financial Statements are presented in accordance with United
States generally accepted accounting principles or GAAP. The financial data
reflect past operating results and are not necessarily indicative of future
results.

SECURITY CAPITAL U.S. REALTY
(in thousands $, except ratios)
<TABLE>
<CAPTION>
7 July
(date)
incorporated)
through
-------------------------------------- 31 December
1998 1997 1996 1995
------------ ----------- ----------- -------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total Revenues(1).......................................... $ 156,825 $ 102,917 $ 34,836 $ 588
Total Expenses............................................. (78,926) (42,608) (21,897) (512)
Net Realised Gains on Special Opportunity Positions........ 32,878 41,073 3,480 --
Net (Decrease)/Increase in Appreciation on Strategic
Investment Positions and Special Opportunity
Positions(2)............................................. (642,372) 264,974 252,294 126
---------- ---------- ---------- --------
(Decrease)/Increase in Net Assets Resulting from
Operations................................................. $ (531,595) $ 366,356 $ 268,713 $ 202
========== ========== ========== ========
STATEMENT OF NET ASSETS DATA:
Total Assets(2)............................................ $2,873,628 $2,901,820 $1,494,257 $ 63,400
Total Liabilities.......................................... (647,243) (143,400) (175,158) (252)
---------- ---------- ---------- --------
Total Net Assets (Shareholders' Equity).................... $2,226,385 $2,758,420 $1,319,099 $ 63,148
========== ========== ========== ========
Net Asset Value per Share 25.72 31.87
OTHER DATA:
Net operating income per share 0.90 0.74 0.24 0.01
Net change in movement in unrealised appreciation
and realised gain on strategic investment and special
opportunity positions in the year......................... (7.05 3.79 7.04 0.02
Ratio of Earnings to Fixed Charges(3)..................... 4.5x 6.0x 3.6x 1.5x
</TABLE>

- -----------------------------

(1) Revenues include dividends from strategic investment and special opportunity
positions (net of withholding tax) and interest and other income. Due to the
timing of investment dates and dividend record dates, dividends received on
investments for a period of less than one year are not necessarily
indicative of dividends to be received for an entire year.
(2) Investments are reflected at value, as described in Note 2A to the
Consolidated Financial Statements included at the end of this prospectus.
(3) For this purpose, earnings consist of net earnings (loss) from operations
plus the amortisation of convertible notes deferred costs, the line of
credit arrangement and legal fees, the commitment fee, interest on the line
of credit, interest on the convertible notes, accreted interest on the
convertible notes and interest expense. Fixed charges consist of the
commitment fee, interest on the line of credit, interest on the convertible
notes, accreted interest on the convertible notes and interest expense.

-17-

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read this section in conjunction with the information contained
in "Selected Financial Data" and the Consolidated Financial Statements.
Historical results and percentage relationships set forth below and in "Selected
Financial Data" and the Consolidated Financial Statements are not necessarily
indicative of our future operations.

Introduction

We are a research-driven, growth-orientated real estate company focused on
taking significant strategic investment positions in value-added real estate
operating companies based in the United States. Our primary capital deployment
objective is to take a proactive ownership role in businesses that we believe
can potentially generate above-average rates of return.

We were incorporated in July 1995 and completed a $509.5 million initial
private offering in October 1995. We have since funded the following strategic
investment positions:

<TABLE>
<CAPTION>
Initial Total Cost as at Total Value as at
Initial Funding Commitment 31 December 1998 31 December 1998
Company Date (in Millions)(1) (in Millions) (in Millions)
------- --------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
CarrAmerica...................... April 1996 $ 250 $ 700 $ 686(2)
City Center Retail............... April 1997 $ 150 $ 304 $ 304(3)
CWS Communities.................. December $ 300 $ 154 $ 154(3)
1997
Pacific Retail................... October 1995 $ 200 $ 524 $ 502(3)
Regency.......................... July 1996 $ 132 $ 236 $ 261(2)
Storage USA...................... March 1996 $ 220 $ 394 $ 380(2)
Urban Growth Property............ April 1997 $ 150 $ 181 $ 181(3)
------ ------
Total......................... $2,493 $2,468
====== ======
</TABLE>

_______________________

(1) Please read "--Capital Deployment Activities" below for additional
information regarding commitments.
(2) Based on the closing price on the New York Stock Exchange or NYSE of common
shares held on such date.
(3) Private REIT or real estate operating company. Please read Note 2A to the
Consolidated Financial Statements for the methodology utilised to assess
the value of investments in private entities. On 24 September 1998 it was
announced that Regency agreed to merge with Pacific Retail. Pursuant to the
terms of the merger agreement, a holder of Pacific Retail common shares
received 0.48 shares of Regency common stock for each common share of
Pacific Retail. The merger occurred on 28 February 1999. Since the merger
had not occurred at 31 December 1998, but the exchange rate was agreed to
prior to such date, Pacific Retail is valued based on the exchange ratio
and the closing stock price of Regency on the NYSE on that date.

In addition to our strategic investment positions, we also invest 10%-15%
of our assets through special opportunity positions primarily in publicly traded
REITs and other publicly traded U.S. real estate companies.

Changes in the price of real estate company equity securities have impacted
and will impact our results of operations. As described in greater detail in
Note 2A to the Consolidated Financial Statements, we account for our investments
at market value or estimated fair value in accordance with GAAP, depending on
whether the investment is publicly traded, and reflect changes in such values in
our Consolidated Statements of Operations pursuant to fair value accounting
principles. During the last half of 1998, prices of real estate company equity
securities generally declined, which adversely affected our results of
operations. This trend continued during the first quarter of 1999 and, as a
result, our results of operations for the first quarter of 1999 continued to be
adversely affected by the continued decline in prices of real estate company
equity securities. However, this decline has begun to reverse itself during the
second quarter of 1999. If this trend were to continue, our results of
operations for such periods could be positively impacted. At this time,
however, we are not able to predict whether this positive trend will continue,
and therefore, whether or not it will have any effect, positive or negative, on
our results of operations.

-18-
<PAGE>

As of 31 December 1998 the approximate value of our special opportunity
positions of $262.5 million represented approximately 9.1% of our total assets.
We have also invested in the common shares and subordinated debentures of
Security Capital Group, which in aggregate accounted for approximately 4.0% of
our total assets as of 31 December 1998.

As of 31 December 1997 we had committed an aggregate of $2.8 billion to
both our strategic investment and special opportunity positions, of which $2.4
billion had been funded, as compared to an aggregate commitment of $3.2 billion
as of 31 December 1998, of which $3.0 billion had been funded.

-19-
<PAGE>

Operating Results

Years ended 31 December 1998 and 1997

Net operating income increased by $17.6 million, or 29.2%, to $77.9 million
for the year ended 31 December 1998 as compared to $60.3 million for the year
ended 31 December 1997. We attribute this increase mainly to an increase in
dividends derived from a higher level of fundings to strategic investees. Gross
dividends from strategic investment positions increased $48.6 million, or 49.1%,
to $147.5 million for the year ended 31 December 1998 as compared to $98.9
million for the year ended 31 December 1997. Fundings to strategic investees
increased by $564.6 million at cost, or 29.3%, to $2.5 billion as of 31 December
1998 as compared to $1.9 billion as of 31 December 1997.

Net Operating Income

Net operating income represents the difference between total revenues and
total expenses.

The following table sets forth information regarding SC-U.S. Realty's net
operating income during the years ended 31 December 1998 and 1997:

<TABLE>
<CAPTION>
Year ended 31 December
---------------------------------
1998 1997
--------------- ---------------
Amount % Amount %
-------- ---- -------- -----
(in thousands $, except %)
<S> <C> <C> <C> <C>
Total Revenues.............. $156,825 100% $102,917 100%
Total Expenses.............. 78,926 50% 42,608 41%
-------- --- -------- ----
Net Operating Income........ $ 77,899 50% $ 60,309 59%
======== === ======== ====
</TABLE>

The net operating income margin decreased to 50% in 1998 from 59% in 1997.
This is due to a higher interest expense resulting from increased levels of
borrowing on the $700 million secured line of credit of Security Capital
Holdings S.A. ("Holdings") that we guaranteed and our $400 million unsecured
line of credit which Holdings guaranteed, which replaced the Holdings line of
credit in December 1998, as well as interest expense on the Convertible Notes
issued in May 1998. These increases were partially offset by lower interest
rates on the Holdings line of credit and our line of credit.

-20-
<PAGE>

Total Revenues. The following table sets forth information regarding our
total revenues during the years ended 31 December 1998 and 1997:

<TABLE>
<CAPTION>
Year ended 31 December
------------------------------------
1998 1997
----------------- -----------------
Amount % Amount %
-------- ------ -------- ------
(in thousands $, except %)
<S> <C> <C> <C> <C>
Gross dividends from strategic investment positions
CarrAmerica...................................... $ 51,999 33.2% $ 41,412 40.2%
CWS Communities.................................. 4,783 3.0 -- --
Pacific Retail................................... 36,178 23.1 21,576 21.0
Regency.......................................... 20,244 12.9 11,441 11.1
Storage USA...................................... 29,934 19.1 24,497 23.8
Urban Growth Property............................ 4,338 2.8 -- --
-------- ----- -------- -----
Subtotal.................................... $147,476 94.1% $ 98,926 96.1%
Gross dividends from special opportunity positions.... 20,908 13.3 17,594 17.1
-------- ----- -------- -----
Total Gross Dividends....................... $168,384 107.4% $116,520 113.2%
Interest income from affiliate........................ 3,575 2.3 2,896 2.8
Interest income from non-affiliate and other income... 1,132 0.7 805 0.8
-------- ----- -------- -----
Total Gross Revenues........................ $173,091 110.4% $120,221 116.8%
Withholding tax on dividends received................. (16,266) (10.4) (17,304) (16.8)
-------- ----- -------- -----
Total Revenues.............................. $156,825 100.0% $102,917 100.0%
======== ===== ======== =====
</TABLE>

As the table indicates, most of our total revenues during 1998 and 1997
were derived from dividends from our strategic investment positions. We
attribute the increase mainly to an increase in dividends derived from a higher
level of average fundings to strategic investees as well as increased REIT
dividend requirements from improved operating results at the strategic
investees.

"Interest income from affiliate" represents interest earned on our $55
million aggregate principal investment in 6.5% convertible subordinated
debentures due 2016 issued by Security Capital Group. The debentures were
purchased by us in April 1996, $11 million aggregate principal amount, and in
March 1997, $44 million aggregate principal amount, and are currently
convertible into shares of Class A common stock of Security Capital Group, at
the option of Holdings. Please read Note 3(b) to the Consolidated Financial
Statements for more information.

"Interest income from non-affiliate and other income" consists of interest
earned on cash balances and convertible debt. The increase in this item between
the year ended 31 December 1997 and the corresponding year in 1998 is
attributable to interest on convertible debt held by us during the second half
of 1997 and in 1998.

In assessing our performance management also considers realised gains on
investment positions to be an important component of its total gross revenues.
During the year ended 31 December 1998, total gross revenues totaled $206.0
million inclusive of net realised gains of $32.9 million. During the year ended
31 December 1997, total gross revenues totaled $161.3 million inclusive of net
realised gains of $41.1 million, as we discuss later in this section.

Total Expenses. For the year ended 31 December 1998, total expenses
amounted to $78.9 million, of which $35.2 million, or 44.6%, represented fees
paid to the Operating Advisor and $35.9 million, or 45.5%, represented:

. interest on the Convertible Notes,
. interest on the Holdings line of credit,
. interest on our line of credit, and
. related expenses.

During the year, general and administrative expenses were approximately $4.4
million, or 5.6% of total expenses, taxes were $2.4 million, or 3.0% of total
expenses, and amortisation of the Convertible Notes deferred costs were $1.0
million, or 1.3% of total expenses.

-21-
<PAGE>

For the year ended 31 December 1997, total expenses amounted to $42.6
million, of which $24.6 million, or 57.8%, were accounted for by fees paid to
the Operating Advisor and $13.6 million, or 31.9%, were accounted for by
interest on the Holdings line of credit and related expenses. During the year,
general and administrative expenses were $2.5 million, or 5.9% of total
expenses, and taxes were $1.9 million, or 4.4% of total expenses.

The increase in fees paid to the Operating Advisor over the prior year is
primarily a result of the increased level and value of fundings to strategic
investees. Interest expense increased as a result of new borrowings under the
Convertible Notes and an increased average balance on the Holdings line of
credit and our line of credit, the proceeds of which were utilised to fund a
portion of the new investments. These increases in interest expense were
partially offset by a decline in the average interest rates on the Holdings line
of credit and our line of credit.

Net Realised Gains on Special Opportunity Positions

Special opportunity positions, other than investments in Security Capital
Group, are primarily investments in publicly traded REITs, which we generally
hold for an intermediate term of 12 to 18 months. Sale of such positions may
occur sooner or later, depending on market or business conditions and on whether
the return objectives have been realised. The objective of these special
opportunity positions is to realise attractive total returns through dividends
and share price appreciation and to provide us with an efficient method of
maintaining a portion of our assets in relatively liquid investments. These
assets may be redeployed on short notice.

During the years ended 31 December 1998 and 1997, net realised gains on
special opportunity positions were $32.9 million and $41.1 million,
respectively. In both cases, these gains were derived exclusively from the
disposition of certain publicly traded special opportunity positions.

Decrease/Increase in Appreciation on Strategic Investment and Special
Opportunity Positions

During the years ended 31 December 1998 and 1997, the principal factor
behind the movement in net assets resulting from operations was the change in
the unrealised appreciation of our strategic investment and special opportunity
positions.

During the year ended 31 December 1998, the largest part of the decrease of
$642 million in the unrealised appreciation was attributable to the decrease in
the appreciation of our investment in CarrAmerica, $215 million, or 33.5% of the
total decrease, followed by the special opportunity positions, $170 million, or
26.5%, Pacific Retail, $110 million, or 17.1%, Storage USA, $88 million, or
13.7% and Regency, $62 million, or 9.7%. This decrease in the unrealised
appreciation of the strategic investment and special opportunity positions is
the result of a decrease in the stock prices of the investments principally due
to the general decline in the REIT market.

During the year ended 31 December 1997, the main factor behind the increase
of $265 million in the unrealised appreciation of our strategic investment and
special opportunity positions was the increase in the appreciation in our
investment in Pacific Retail, $89 million, or 33.4% of the total increase,
followed by CarrAmerica, $76 million, or 28.6%, Regency, $55 million, or 20.7%,
Storage USA, $24 million, or 9.1%, and the special opportunity positions, $24
million, or 9.1%.

Although the reduction in stock prices of our strategic investment and
special opportunity positions for the year ended 31 December 1998 does not
affect our net operating income, it does adversely impact our net assets
resulting from operations on our Consolidated Statement of Operations. We cannot
predict the future stock prices of our strategic investment and special
opportunity positions. Additional reductions in such stock prices would continue
to reduce net assets resulting from operations and, as a result, could have a
materially adverse impact on our Consolidated Statement of Operations.

Years ended 31 December 1997 and 1996

Net operating income increased by $47.4 million to $60.3 million for the
year ended 31 December 1997 as compared to $12.9 million for the year ended 31
December 1996. The increase is mainly attributable to an increase in dividends
derived from a higher level of fundings to strategic investees as well as
increased REIT dividend requirements from improved operating results at the
strategic investees.

-22-
<PAGE>

Net Operating Income

Net operating income represents the difference between total revenues and
total expenses.

The following table sets forth information regarding SC-U.S. Realty's net
operating income during the years ended 31 December 1997 and 1996:

<TABLE>
<CAPTION>
Year Ended 31 December
------------------------------
1997 1996
-------------- --------------
Amount % Amount %
-------- ---- -------- ----
(in thousands $, except %)
<S> <C> <C> <C> <C>
Total Revenues........... $102,917 100% $34,836 100%
Total Expenses........... 42,608 41 21,897 63
-------- --- ------- ----
Net Operating Income..... $ 60,309 59% $12,939 37%
======== === ======= ====
</TABLE>

As the table indicates, the net operating income margin rose from 37% for
the year ended 31 December 1996 to 59% for 1997 principally due to an increase
in dividends derived from a higher level of fundings to strategic investees.

Total Revenues. The following table sets forth information regarding our
total revenues during the years ended 31 December 1997 and 1996:

<TABLE>
<CAPTION>
Year ended 31 December
-----------------------------------
1997 1996
-----------------------------------
Amount % Amount %
-------- ------ -------- ------
(in thousands $, except %)
<S> <C> <C> <C> <C>
Gross dividends from strategic investment positions
CarrAmerica................................... $ 41,412 40.2% $13,567 38.9%
CWS Communities............................... -- -- -- --
Pacific Retail................................ 21,576 21.0 9,482 27.2
Regency....................................... 11,441 11.1 773 2.2
Storage USA................................... 24,497 23.8 8,700 25.0
Urban Growth Property......................... -- -- -- --
-------- ----- ------- -----
Subtotal................................. $ 98,926 96.1% $32,522 93.3%
Gross dividends from special opportunity positions...... 17,594 17.1 5,192 14.9
-------- ----- ------- -----
Total Gross Dividends.................... $116,520 113.2% $37,714 108.2%
Interest income from affiliate.......................... 2,896 2.8 504 1.4
Interest and other income............................... 805 0.8 2,169 6.2
-------- ----- ------- -----
Total Gross Revenues..................... $120,221 116.8% $40,387 115.8%
Withholding tax on dividends received................... (17,304) (16.8) (5,551) (15.8)
-------- ----- ------- -----
Total Revenues........................... $102,917 100.0% $34,836 100.0%
======== ===== ======= =====
</TABLE>

As the table indicates, most of our total revenues during the years
indicated were derived from dividends from our strategic investment positions.
The increase is mainly attributable to an increase in dividends derived from a
higher level of average fundings to strategic investees as well as increased
REIT dividend requirements from improved operating results at the strategic
investees.

-23-
<PAGE>

principal amount, and are currently convertible into shares of Class A common
stock of Security Capital Group, at the option of Holdings.

"Interest and other income" consists of interest earned on cash balances.
The decrease in this item between the year ended 31 December 1996 and the
corresponding period in 1997 is attributable to lower cash balances, resulting
from our increased capital deployment.

In assessing our performance, management also considers realised gains on
investment positions to be an important component of its total gross revenues.
During the year ended 31 December 1997, total gross revenues totaled $161.3
million inclusive of net realised gains of $41.1 million, as we discuss later in
this section. During the year ended 31 December 1996, total gross revenues
totaled $43.9 million inclusive of net realised gains of $3.5 million, as we
discuss later in this section.

Total Expenses. For the year ended 31 December 1997, total expenses
amounted to $42.6 million, of which $24.6 million, or 57.8%, were accounted for
by fees paid to the Operating Advisor and $13.6 million, or 31.9%, were
accounted for by interest on the Holdings line of credit and related expenses.
During the year, general and administrative expenses were $2.5 million, or 5.9%
of total expenses, and taxes were $1.9 million, or 4.4% of total expenses.

During the year ended 31 December 1996, total expenses amounted to $21.9
million, of which $8.0 million, or 36.7%, were primarily accounted for by fees
paid to the Operating Advisor and $9.2 million, or 41.8%, were accounted for by
interest on the Holdings line of credit and related expenses. During the year,
general and administrative expenses were $2.2 million, or 10.2% of total
expenses, and taxes were $0.6 million, or 2.9% of total expenses.

The increase in fees paid to the Operating Advisor over fiscal 1996 is
primarily a result of the increased level and value of fundings to strategic
investees. Interest expense increased as a result of an increased average
balance on the Holdings line of credit, the proceeds of which were utilised to
fund a portion of the new investments, and an increase in average interest rates
on the Holdings line of credit.

Net Realised Gains on Special Opportunity Positions

During the years ended 31 December 1997 and 1996, net realised gains on
special opportunity positions were $41.1 million and $3.5 million, respectively.
In both cases, we derived these gains by disposing of certain publicly traded
special opportunity positions. The lower gains realised during 1996 were due to
the fact that we had very few sales because we had only begun to accumulate our
special opportunity positions.

Increase in Appreciation on Strategic Investment and Special Opportunity
Positions

During the years ended 31 December 1997 and 1996, the principal factor
behind the increase in net assets resulting from operations was the increase in
the unrealised appreciation of our strategic investment and special opportunity
positions, contributing $265 million, or 72.3%, and $252 million, or 93.9%, of
the total increase in net assets in the years ended 31 December 1997 and 1996,
respectively.

During the year ended 31 December 1997, the largest part of the increase in
the unrealised appreciation was attributable to the increase in the appreciation
of our investment in Pacific Retail ($89 million, or 33.4% of the total
increase), followed by CarrAmerica, $76 million, or 28.6%, Regency, $55 million,
or 20.7%, Storage USA, $24 million, or 9.1% and special opportunity positions,
$24 million, or 9.1%.

During the year ended 31 December 1996, the main factor behind the increase
in the unrealised appreciation of our strategic investment and special
opportunity positions was the increase in the appreciation in our investment in
CarrAmerica, $126 million, or 50.0%, of the total increase. The balance of the
increase was attributable to Storage USA, $50 million, or 19.8%, special
opportunity positions, $46 million, or 18.1% and Regency, $32 million, or 12.6%.

-24-
<PAGE>

Liquidity and Capital Resources

Our total indebtedness as of 31 December 1998 was approximately $632
million. The value of our total assets was $2.9 billion and our closing share
price on the AEX was $19.80 as of 31 December 1998. We expect our principal
sources of liquidity to be from its receipt of dividends from strategic
investment and special opportunity positions, fundings from our line of credit
and proceeds from potential sales of our liquid special opportunity positions.
We expect that these sources will enable us to meet both our short-term and
long-term cash requirements for our funding commitments, working capital and
debt repayment for the next 12 months.

In an effort to secure investment-grade credit ratings, on 8 December 1998
we converted the Holdings line of credit into our line of credit. We received
investment-grade ratings from each of Moody's Investors Service (Baa3), Standard
& Poor's Ratings Services (BBB-) and Duff & Phelps Credit Rating Co. (BBB-).

The lenders under our line of credit are Commerzbank Aktiengesellschaft and
a consortium of European and international banks. As of 31 December 1998, $262.5
million was drawn and outstanding under our line of credit. The earliest date on
which our line of credit will expire is 8 December 2000, but we have the right
on 8 December 1999 to convert the then outstanding borrowings into a term loan
with quarterly amortisation payments to be made over a four-year period, which
would effectively extend the final loan payment to 8 December 2003. Borrowings
under our line of credit, and the four-year term loan, if applicable, bear
interest at:

. the sum of (x) the greater of the federal funds rate plus 0.5% or the
United States prime rate and (y) a margin of 0% to 0.625% per annum,
based on our current senior unsecured long-term debt ratings; or

. at our option, LIBOR plus a margin of 0.85% to 1.625% per annum, also
based on our current senior unsecured long-term debt rating.

Additionally, there is a commitment fee of 0.15% to 0.25% per annum, based on
the amount of the line which remains undrawn. All borrowings under our line of
credit are subject to covenants that we must maintain at all times, including:

. unsecured liabilities may not exceed 40% of the market value of a
borrowing base of owned securities,

. shareholders' equity must exceed the sum of 75% of shareholders'
equity as of 8 December 1998 and 75% of the net proceeds of sales of
equity securities thereafter,

. a ratio of total liabilities to net worth of not more than 1:1,

. a fixed charge coverage ratio of not less than 1.5:1,

. an interest coverage ratio of not less than 2:1, and

. secured debt may not exceed 10% of consolidated market net worth.

As of 31 December 1998, we were in compliance with these covenants.

Average daily borrowings under the Holdings line of credit and our line of
credit for the year ended 31 December 1998 were $274.4 million, at a weighted
average interest rate of 6.67% per annum.

Through offerings of our shares, we received gross equity proceeds
aggregating $2.1 billion in the period between 1 January 1996 and 31 December
1997, of which $1.1 billion was received in 1997 and $1.0 billion in 1996. In
addition, during May 1998, we issued $450 million, aggregate principal amount at
maturity, of Convertible Notes. The Convertible Notes were issued at a discount
to their aggregate principal amount at maturity. We used the net proceeds of
approximately $352.7 million to repay borrowings under the Holdings line of
credit which were incurred principally for the purpose of funding commitments
both to existing and new strategic investment positions. Under the terms of the
Convertible Notes, we are not permitted to incur senior indebtedness, as that
term is defined in the indenture dated as of 22 May 1998, between SC-U.S. Realty
and State Street Bank and Trust Company, as trustee, as amended or supplemented
(the "Indenture"), that is not subordinated to the same extent as the
Convertible Notes or to incur secured indebtedness, as defined in the Indenture,
that is by its terms senior in right of payment to

-25-
<PAGE>

the Convertible Notes, except that we may guarantee, on a secured and/or senior
unsubordinated basis, the obligations of any wholly owned subsidiary with
respect to any permitted indebtedness, as defined in the Indenture. As of and
for the period ended 31 December 1998, we were in compliance with these
covenants. The Convertible Notes are convertible into our shares at the option
of the holder at any time prior to maturity, unless previously redeemed, at a
conversion rate equal to 26.39095 shares per $1,000 aggregate principal amount
at maturity. The Convertible Notes may be redeemed, in whole or in part, at our
option on or after 23 May 2001 at the accreted value thereof, together with
accrued and unpaid interest. Upon a change in control of each holder of the
Convertible Notes has the right, at the holder's option, to require us to
repurchase their Convertible Notes, in whole or in part, at a purchase price
equal to the accreted value thereof, together with accrued and unpaid interest
through the repurchase date. Effective 1 January 1999, the interest rate payable
on the Convertible Notes increased from 2.0% to 2.5% per annum. The 2.5%
interest rate will be in effect until we list certain equity securities on the
NYSE and register the Convertible Notes and related equity securities for
resale.

Capital Deployment Activities

During the year ended 31 December 1998, we deployed a total of $595.9
million, $564.6 million in strategic investment positions and $31.3 million, net
of dispositions, in special opportunity positions. As of 31 December 1998, we
had outstanding contractual obligations of $192.9 million, $46.1 million to City
Center Retail and $146.8 million to CWS Communities.

Our existing and committed fundings at cost as of 31 December 1998 were as
follows:

<TABLE>
<CAPTION>
Total Total Cost
Amount (Amount Amount To
Committed Funded)(1) be Funded(1)
---------- ------------ ------------
(in thousands $)
<S> <C> <C> <C>
CarrAmerica (NYSE:CRE).............. $ 699,851 $ 699,851 $ --
City Center Retail (Private)(2)..... 350,135 304,035 46,100(3)
CWS Communities (Private)........... 300,329 153,563 146,766(3)
Pacific Retail (Private)(4)......... 524,038 524,038 --
Regency (NYSE:REG)(4)............... 235,750 235,750 --
Storage USA (NYSE:SUS).............. 394,272 394,272 --
Urban Growth Property (Private)..... 181,082 181,082 --
Special opportunity positions(5).... 479,031 479,031 --
---------- ---------- --------
Total............................ $3,164,488 $2,971,622 $192,866
========== ========== ========
</TABLE>

_______________________

(1) Included in Total Amount Committed.
(2) In January 1999 the contractual obligation in respect of City Center Retail
was increased by up to $25 million.
(3) Represents a contractual obligation.
(4) On 28 February 1999 Regency merged with Pacific Retail. For more
information, you should read Note 3A and Note 13 to the Consolidated
Financial Statements.
(5) Includes an aggregate of $165 million invested in shares of common stock
and convertible subordinated debentures of Security Capital Group.

We will generally initially fund capital deployed to additional strategic
investment positions, as well as further funding to existing strategic investees
by borrowing under our line of credit. These borrowings are expected to be
reduced by internally generated free cash flow and the proceeds of future
issuances of debt or equity securities.

Impact of Year 2000 and the Euro

The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Certain computer
programs that have time-sensitive software may recognise a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage

-26-
<PAGE>

in similar business activities. It could also result in various mechanical
malfunctions occurring in our strategic investees' property operations.

We have reviewed the impact of the Year 2000 issue on our operations,
accounting and financial reporting by interviewing Banque Internationale a
Luxembourg or BIL, which provides all custodial duties for us, such as custody
of cash, securities deposits and financial transactions, as well as certain
administrative duties, such as bookkeeping and the calculation of NAV. In
addition, the Operating Advisor uses BIL for its accounting and financial
reporting. BIL has informed us that its core system, on which all custodial
services are reliant, is Euro compliant with effect from 1 January 1999 and will
be Year 2000 compliant by 30 June 1999. BIL is in the process of carrying out
detailed checks to ensure that the system is and will function as designed. BIL
has a separate accounting system called "MULTIFONDS" which BIL confirmed is
fully Year 2000 compliant. BIL installed an updated version of "MULTIFONDS" in
October 1998 in order to meet Euro compliance requirements. BIL's
communications system, BCS2000, is also Euro and Year 2000 compliant. We do not
expect to incur any significant Year 2000 project costs.

We have reviewed the Year 2000 issue with each of our strategic investees
and have determined that there will be minimal, if any, financial impact on us.
We have initiated formal communications with all of our significant suppliers to
determine the extent to which our interface systems are vulnerable to those
third parties' failure to remedy their own Year 2000 issues, but we are not
currently in a position to determine what, if any, the ultimate effect of the
suppliers' failure to adequately address the Year 2000 issue will be on us.
However, each of the significant suppliers has responded in writing that it is,
or will be, Year 2000 compliant by the end of 1999.

Our strategic investees have been reviewing, and continue to review, the
operations of their individual properties in order to determine whether such
operations are Year 2000 compliant. In the worst case scenarios, either a
computer program or software could malfunction, or a strategic investee's
mechanical operations, such as elevators, electronic locking or entry systems
and HVAC systems, could malfunction. We believe that each of these problems can
be temporarily corrected manually, and repaired permanently in a short period of
time. We have not developed any specific contingency plans to address a worst
case scenario, since the occurrence of such a scenario is not expected to have a
material adverse effect on us. We and each of our strategic investees are
continuing to monitor our systems for Year 2000 compliance, as well as for the
possibility of a development of a worst case scenario. In the unexpected event
that it looks likely that a worst case scenario will develop and that such could
have a material adverse impact on us, we will promptly develop a contingency
plan to address such a scenario.

We have reviewed the impact of the Euro and have determined that it is
limited to Euro denominated transactions with third parties, generally limited
to administrative expenses since our investments are U.S. dollar denominated.
These Euro denominated transactions are expected to be minimal and adequately
dealt with as discussed above.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the exposure to loss resulting from changes in interest
rates, foreign currency exchange rates, commodity prices and equity prices. In
the course of our operations, we are exposed to interest rate risk, equity price
risk and, to a limited extent, currency exchange risk, all as described below.
While we are not precluded from doing so, we have not had any involvement with
derivative financial instruments. To the extent we choose to do so in the
future, we would use derivative financial instruments to hedge specific risks or
exposures and not for speculative or trading purposes.

The following discussion only addresses the market risk we face. However,
we are dependent on the cash flow created by the dividends and distributions
paid by its strategic investment and special opportunity positions. Each of
these entities is subject to its own specific market risks that could impact its
ability to pay dividends or distributions to us. As a result, we could
indirectly be impacted by the market risk facing the strategic investment and
special opportunity positions in the future.

-27-
<PAGE>

Sensitivity Analysis

Interest Rate Risk

We are exposed to interest rate changes primarily as a result of unsecured
credit facilities used to finance our investment activity and maintain financial
liquidity. Our interest rate risk management objective is to limit the impact
of interest rate changes on earnings and cash flows and to lower its overall
borrowing costs. To achieve our objectives, we borrow primarily at variable
rates. In future transactions, we may utilise derivative financial instruments
as hedges in anticipation of debt transactions to manage well-defined interest
rate risk or to minimise exposure to variable rate debt.

During 1998, we had weighted average outstanding borrowings of $274.4
million at an average interest rate of 6.67% on our line of credit and our
predecessor line of credit. If interest rates had been 10% higher on average
during 1998, interest expense on our line of credit, and our predecessor line of
credit, would have increased $1.8 million to $20.3 million which would have
resulted in a reduction in our Net Operating Income in our Consolidated
Statement of Operations for the year ended 31 December 1998 and in our Net Cash
Provided by Operating Activities in our Consolidated Statement of Cash Flows for
the year ended 31 December 1998 by an equivalent amount of $1.8 million. If
interest rates had been 10% lower on average during 1998, interest expense on
our line of credit, and our predecessor line of credit, would have decreased
$1.8 million to $16.6 million which would have resulted in an increase in our
Net Operating Income in our Consolidated Statement of Operations for the year
ended 31 December 1998 and in our Net Cash Provided by Operating Activities in
our Consolidated Statement of Cash Flows for the year ended 31 December 1998 by
an equivalent amount of $1.8 million. The amounts discussed above apply for each
10% change in the interest rate. There would have been no effect on the fair
value of our line of credit in our Consolidated Statement of Net Assets. Because
at any point in time, we have a number of short-term borrowings outstanding
under our line of credit with differing interest rates and maturities, we have
chosen a 10% change in the average interest rate for all borrowings during 1998
as the best method to convey our exposure for an entire calendar year to
interest rate changes. All borrowings under our line of credit at 31 December
1998 have been repriced in 1999 and bear interest based on the LIBOR rate at the
time of the borrowing. The preceding information is of limited predictive value.
As a result, our ultimate realised gain or loss with respect to interest rate
fluctuations will depend on the exposures that arise during a future period,
hedging strategies at the time, and prevailing interest rates.

Equity Price Risk

We are exposed to equity price changes primarily as a result our strategic
investment positions for non-trading purposes and special opportunity positions
for intermediate term trading purposes. We account for our investments at fair
value in accordance with the United States specialised industry accounting rules
prescribed by the American Institute of Certified Public Accountants Audit and
Accounting Guide for Investment Companies.

A change in the equity price, determined by market quotations for public
company investments and other appropriate indicators of fair market value for
private company investments, of any of the investments in the asset category
above will impact our Consolidated Statement of Net Assets by an equivalent
amount as well as our Consolidated Statement of Operations and the Consolidated
Statement of Cash Flows by the amounts of the change plus its increasing or
decreasing effect on the operating advisor fees. At 31 December 1998, the fair
market value of our strategic investment positions was $2.5 billion. A
hypothetical 10% reduction in equity prices would amount to a reduction in the
recorded fair value of these investments as of 31 December 1998 of $246.8
million and would result in a reduction in the amount of our (Decrease) Increase
in Net Assets Resulting from Operations in our Consolidated Statement of
Operations for the year ended 31 December 1998 of $243.7 million. Furthermore,
it would also result in a reduction by the equivalent amount of $243.7 million
in our Net Cash Provided by Operating Activities in our Consolidated Statement
of Cash Flows for the year ended 31 December 1998. The $243.7 million amount
results from the reduction in the fair market value of the assets, $246.8
million, partially offset by the reduction in operating advisor fees payable by
us as a result of owning a lower value of assets on 31 December 1998, $3.1
million. A hypothetical 10% increase in equity prices would amount to an
increase in the recorded fair value of these investments as of 31 December 1998
of $246.8 million and would result in an increase in the amount of our
(Decrease) Increase in Net Assets Resulting From Operations in its Consolidated
Statement of Operations for the year ended 31 December 1998 of $243.7 million.
Furthermore, it would also result in an increase by the equivalent amount of
$243.7 million in our Net Cash Provided by Operating Activities in our
Consolidated Statement of Cash Flows for the year ended 31 December 1998. The
$243.7 million amount results from the increase in the fair market value of the
assets, $246.8 million, partially offset by the increase in operating advisor
fees payable by us as a result

-28-
<PAGE>

of owning a higher value of assets on 31 December 1998, $3.1 million. Because
our strategic investments are already recorded at their fair market value on 31
December 1998, we have chosen a 10% average change in the equity prices on that
reporting date as the best method to convey the exposure of our strategic
investments to equity price changes.

At 31 December 1998, the fair market value of our special opportunity
positions was $378.7 million. A hypothetical 10% reduction in equity prices
would amount to a reduction in the recorded value of these investments as of 31
December 1998 of $37.9 million and would result in a reduction in the amount of
our (Decrease) Increase in Net Assets Resulting from Operations in our
Consolidated Statement of Operations of for the year ended 31 December 1998 of
$37.4 million. Furthermore, it would also result in a reduction by the
equivalent amount of $37.4 million in our Net Cash Provided by Operating
Activities in our Consolidated Statement of Cash Flows for the year ended 31
December 1998. The $37.4 million amount results from the reduction in the fair
market value of the assets, $37.9 million, partially offset by the reduction in
operating advisor fees payable by us as a result of owning a lower value of
assets on 31 December 1998, $473,406. A hypothetical 10% increase in equity
prices would amount to an increase in the recorded fair value of these
investments as of 31 December 1998 of $37.9 million and would result in an
increase in the amount of our (Decrease) Increase in Net Assets Resulting From
Operations in its Consolidated Statement of Operations for the year ended 31
December 1998 of $37.4 million. Furthermore, it would also result in an increase
by the equivalent amount of $37.4 million in our Net Cash Provided by Operating
Activities in our Consolidated Statement of Cash Flows for the year ended 31
December 1998. The $37.4 million amount results from the increase in the fair
market value of the assets, $37.9 million, partially offset by the increase in
operating advisor fees payable by us as a result of owning a higher value of
assets on 31 December 1998, $473,406. Because our special opportunity
investments are already recorded at their fair market value on 31 December 1998,
we have chosen a 10% average change in the equity prices on that reporting date
as the best method to convey the exposure of our special opportunity investments
to equity price changes.

The amounts discussed above apply for each 10% change in equity prices. The
preceding information is of limited predictive value. As a result, the impact on
us of equity price changes is dependent upon equity prices of our investments
and upon our quoted equity price in effect during future periods.

Currency Exchange Risk

We are exposed to currency exchange changes primarily as a result of
certain administrative expenses and tax liabilities payable in our country of
organisation, Luxembourg, since our functional currency is the U.S. Dollar. To
date, the amount of administrative expenses and taxes paid in Luxembourg have
not been material and, as a result, we have not taken steps to minimise our
exposure to currency exchange fluctuations. In the future, our ultimate realised
gain or loss resulting from currency exchange fluctuations will depend on the
change in currency exchange rates between the U.S. Dollar and the Luxembourg
Franc that arise.

BUSINESS

Overview and Company Objective

We are a research-driven growth orientated real estate company focused on
the U.S. real estate industry as it continues to move towards greater
securitisation. Our research-driven operating strategy is to take significant
strategic investment positions, with board representation, consultation and
other rights, in value-added real estate operating companies which are based in
the United States. We were established as a Luxembourg real estate company on 7
July 1995.

Our Research-Based Capital Deployment Strategy

Security Capital Group carries out rigorous fundamental research on the
real estate industry, business niches and on specific companies. Fundamental
real estate research entails comprehensive evaluations of real estate supply and
demand factors, such as population and economic trends, consumer and industry
needs, capital flows and building permit and construction data, on a market and
submarket basis and by real estate product type. Fundamental company research
involves meetings with company management, visits to properties and detailed
analysis of financial statements and operations.

-29-
<PAGE>

Security Capital Group utilises its fundamental real estate and business
niche research to identify attractive company investments which have, or
potentially have, some or all of the following characteristics:

. Presence in geographic submarkets and property niches which are
reasonably protected by barriers to entry and generally are not
targeted by institutional capital sources.

. Presence in property sectors in which ownership is fragmented, where
managerial competition is generally not strong and equity capital is
less readily available.

. Improved cash flow through innovations in how the business is
organised through value-added operating systems.

. Predictable cash flow growth.

Our Investment Criteria

Our performance is directly related to the ability of the companies in
which we invest to increase cash flow per share and maximise returns to
shareholders. We use the following criteria to identify opportunities to
implement our strategy.

Superior Management Teams

We believe that the business of successfully owning and operating real
estate does not differ significantly from the successful operation of a company
in any other industry. We seek to identify companies which are, or have the
potential to be, managed in accordance with effective business disciplines
designed to create shareholder value.

Strategic Focus

We seek strategic investment positions in companies that have the potential
to combine a strategically focused asset base with value-added operating
systems, but which do not have the management expertise, direction and/or
capital to be preeminent in their target markets. In this way, we seek to
identify investments to which we can add value by

(1) applying our capital,

(2) achieving substantial representation on a company's board of directors
and key committees which provides opportunities to influence a
company's strategic focus, investment activities, risk
diversification, financial discipline, management development and
succession planning and

(3) obtaining approval rights by contract over significant matters such as
the annual operating budget, certain acquisitions, dispositions or
developments of assets, certain sales of securities, major financings,
certain agreements for the management of properties, appointments and
dismissals of executive officers, the amendment or granting of
exemptions to the share ownership limitations set forth in a company's
organisational documents, and business combination proposals.

Underserved Markets

Appropriate property type and market selection are critical factors to the
success of any real estate operating company. With this in mind, we seek to
identify, through fundamental research, markets which are characterised by
strong job and population growth trends, and markets and sectors characterised
by generally strong supply and demand fundamentals for the targeted product
type.

-30-
<PAGE>

Substantial Market Capitalisation

We do not deploy capital into a real estate operating company unless we
believe that the business opportunity is economically attractive enough for such
company to achieve a public equity market capitalisation of at least $1.5
billion within five to ten years. Capitalisation levels of this magnitude should
provide sufficient stock market liquidity and should support management teams
with in-depth experience in each of the disciplines required to run focused real
estate operating companies.

We believe that a well-managed, fully integrated real estate operating
company should have the following objectives:

. Commitment of capital to industry-leading research and development to
identify protected real estate niches, products which can more
effectively meet customer needs and operating and service systems
which can enhance returns on assets.

. Development of fully integrated value-added operating systems.

. Intensive focus on specialised market niches in which the operating
company can achieve critical mass and be preeminent in its target
markets.

. Disciplined capital deployment based on economic value-added
methodology.

. Development of superior management teams with depth and experience,
succession planning and strong corporate cultures.

. Investment grade long-term debt ratings.

. Alignment of shareholder and employee interests.

We seek to influence each strategic investee to become a preeminent
acquirer, developer, operator and long-term owner of a particular property type
nationally or within a defined geographic region. Equally important, we seek to
influence each such strategic investee to incorporate value-added service and
marketing strategies to maximise cash flow.

We believe that a well-managed, fully integrated real estate operating
company should realise greater economic benefits from its assets than owners of
passively managed property portfolios. A fully integrated company should have
the ability to:

. Acquire a critical mass of properties in several target markets and
thereby achieve greater influence with customers, tenant
representatives, lease brokers and suppliers in those markets.

. More effectively service customers by permitting them to move between
the company's buildings and markets as their space needs grow and
change, meeting their needs in numerous markets with a single point of
contact and developing new space when needed. This higher service
component provides greater flexibility and efficiencies for customers
and should result in significant customer loyalty, strong property
occupancy and higher cash flow.

. Afford a marketing and leasing group dedicated solely to the company's
properties, which is advantageous when competing for customers. Owners
of passively managed real estate portfolios must generally rely on
third-party leasing agents, who represent numerous property owners.

. Co-ordinate services on behalf of large customer groups, such as
tenant groups, to maximise the customers' leverage with third parties
and create economies of scale in such areas as research, marketing and
direct mail customer contacts, which benefits the customers and makes
the relationship with the real estate company more valuable to them.

-31-
<PAGE>

. Undertake extensive, focused market research as well as research and
development of new product types, product improvements and operating
methods to meet market needs, control expenses and enhance operating
income.

. Achieve economies of scale and employ sophisticated financial controls
and management information systems, leading to more effective property
management.

Our Operating Strategy

We deploy our capital in two principal ways: strategic investment positions
and special opportunity positions. Our primary operating strategy is to acquire
and manage strategic investment positions, which we believe is superior to
passive real estate ownership and passive stock ownership.

Strategic Investment Positions

We define strategic investment position as an investment which results in
us being the largest shareholder of a particular REIT, or a real estate
operating company which is expected in due course to become a REIT, achieving
substantial representation on the REIT's board of directors and key board
committees and providing opportunities to influence the REIT's strategic focus,
investment activities, financing discipline, management development and
succession planning.

At any one time, we aim to have 85%-90% of our assets deployed in strategic
investment positions in REITs. As of 31 December 1998 we had approximately 85.6%
of our assets deployed in strategic investment positions. We intend these to be
long-term investments.

Our objective is to take significant, friendly strategic investment
positions in real estate operating companies. These positions will either be in
private real estate operating companies, with initial ownership as close to 100%
as possible, or in public real estate operating companies, with ownership of a
minimum of 25% of the common equity. We seek to influence each strategic
investee to generate sustainable increases in cash flow per share in order to
achieve an increase in shareholder value. We expect to benefit from market
appreciation when we take private real estate companies public, depending on
overall equity market conditions, and to create short-term and long-term market
appreciation when we align ourselves with existing public real estate companies
that will benefit from our influence and oversight regarding areas of management
expertise, strategic direction and/or access to capital. To the extent that we
would determine that a strategic investee could not be expected to generate
attractive returns over the long term, we would consider selling any such
investment and redeploying capital in an existing or new strategic investment
position.

We will seek to maximise our shareholders' returns by investing significant
capital in each strategic investee and by obtaining substantial board and board
committee representation, consultation rights and other rights to influence the
research, development and implementation of a long-term, focused operating
strategy and value-added operating systems. We will not take a strategic
investment position in a company unless we believe that our involvement has the
potential ultimately to result in the company being a leader in its business
niche.

Our strategic investment positions generally fall into two categories:

. Start-up/Private Company Value Creation: We identify and assist in
assembling management teams which will pursue highly focused business
strategies in privately formed companies which are capitalised
initially by us. As these companies grow, and ultimately become
publicly-traded depending on overall equity market conditions, we
expect to be well-positioned to take advantage of the market value
appreciation which founders of publicly traded real estate companies
have frequently experienced in the past when floating their companies.
To date, we have formed four private start-up companies. Three of
these companies, City Center Retail, CWS Communities and Urban Growth
Property, are still in the early phases of acquiring a critical mass
of ownership, assembling their respective management teams and
developing their respective value-added operating systems. The fourth
private company, Pacific Retail, merged with Regency on 28 February
1999. For information regarding the merger, please read "--Overview of
Strategic Investment Positions--Grocery-Anchored Neighbourhood Infill
Shopping Centres: Regency Retail Corporation" below.

-32-
<PAGE>

. Public Company Value Creation: We believe we can influence a publicly
traded REIT's strategic focus, operating effectiveness and
capitalisation to achieve improvements in operating results and market
valuation of the REIT. We focus on influencing these companies
strategically.

In the long term, the substantial majority of our strategic investment
positions will be in REITs which are, or are expected to be, publicly traded on
a major U.S. stock exchange. These strategic positions will therefore be valued
on a daily basis by the stock market, which we believe is an inherently more
accurate and up-to-date valuation basis than the real estate appraisals
traditionally used by passive real estate investors. Furthermore, our strategic
investment positions should benefit from increased liquidity and expected
broader access to capital in the public markets.

We intend to influence each company in which we strategically invest to
emulate the characteristics of successful businesses outside the real estate
industry by making such company:

. Highly Focused: Each strategic investee should focus on a specific
property type in well-defined target markets.

. Fully Integrated Operating Companies: Each strategic investee should
have the internal capability to conduct substantially all operating
components of its business with strong professional management and
systems, operating and investment discipline and continuous research
and innovation.

. Companies with Value-Added Operating Systems: Each strategic investee
should seek to assemble a critical mass of assets in its target
markets, which creates opportunities to translate real estate
ownership into a service business that meets the special needs of
broad customer groups, providing increased occupancies, acquisition
and development opportunities and other revenue opportunities.

We intend that, each strategic investee will seek to be a leader in the
markets in which it operates, through application of these business principles,
and that its primary objective will be to increase cash flow per share on a
sustainable basis in order to achieve increases in shareholder value. We seek
to emulate a number of U.S. corporations which have generated attractive returns
by focusing on creating shareholder value through the strict application of core
business principles and disciplines.

We primarily take strategic positions in real estate operating companies
organised as equity REITs. Equity REITs are tax-advantaged organisations which
own real estate directly or indirectly and generally do not pay U.S. income tax
to the extent they distribute their earnings currently. To obtain this tax-
advantaged treatment, REITs are required to distribute 95% of their taxable
income to shareholders and satisfy certain other requirements.

For more information concerning our rights, obligations and restrictions
with respect to our strategic investees, you should read the descriptions of our
agreements with each of our strategic investees in "--Agreements Between SC-U.S.
Realty and its Strategic Investees" below.

Special Opportunity Positions

As a result of Security Capital Group's ongoing research, we have
identified a number of publicly traded companies which provide attractive
investment opportunities and which we refer to as special opportunity positions.
We may acquire up to 10%, but generally less than 5%, of the shares of such
companies. We generally hold such positions for an intermediate term of 12 to 18
months as "publicly traded positions", although sale of such a position may
occur sooner or later, depending on market or business conditions and on whether
the return objectives have been realised. Our objective is to realise attractive
total returns through dividends and share price appreciation and to provide an
efficient method of maintaining a portion of our assets in liquid investments,
which assets may be redeployed on short notice. Our objective is to have 10%-15%
of our assets invested in such special opportunity positions. As of 31 December
1998 we had $262 million in approximate market value of special opportunity
positions, excluding our investment in Security Capital Group, which represented
approximately 9.1% of our total assets. From time to time, if we deem
appropriate according to our criteria, we may seek to turn a publicly traded
special opportunity position into a strategic investment position. In
exceptional circumstances, and to a very limited extent, we may take special
opportunity positions in companies which are not publicly traded. Typically,
such a position would be in a company which does not at the time of investment
fulfill the criteria for a strategic investment position, but in which we may
take a strategic investment position in the future.

-33-
<PAGE>

As of 31 December 1998, our special opportunity positions represented
investments in 24 publicly traded companies and in three non-publicly traded
companies. None of such investments, on an individual basis, is material to us.
As of 31 December 1998, we beneficially owned approximately 6.1% of the
outstanding common stock of Urban Shopping Centers, Inc. and 6.9% of the
outstanding common stock of InterParking Incorporated. In addition, we have the
right to acquire up to 38.4% on a fully diluted basis of the common stock of
InterParking Incorporated. Urban Shopping Centers, Inc. is a self-administered
and self-managed REIT traded on the NYSE focused on owning, managing, leasing,
acquiring, developing and redeveloping a portfolio of super-regional and
regional malls located throughout the United States, particularly high-quality
regional malls. InterParking Incorporated is a non-public company focused on
becoming the preferred provider of management services for top parking facility
owners in the United States. These two investments represent the only special
opportunity positions in which we beneficially own more than 5% of the
outstanding securities of a single entity.

In 1996 we committed $110 million of capital to Security Capital Group's
securities, $55 million in shares of common stock and $55 million in aggregate
principal amount of convertible debentures, all of which has been called and
funded. In September 1997 we invested an additional $55 million in Security
Capital Group's initial public offering of common stock, bringing our total
investment in Security Capital Group to $165 million at cost, with a fair value
of approximately $116.2 million as of 31 December 1998, representing 4.0% of our
total assets at fair value as of such date. Our Board of Directors has
established a policy not to invest more than 10% of our assets in securities of
Security Capital Group and it expects that, in the long term, less than 5% of
our assets will be invested in securities of Security Capital Group. Our
purpose behind investing in Security Capital Group is to provide us with the
benefit of exposure to specific niches within the multifamily and industrial
real estate sectors, as well as the diversification benefits of real estate
management and advisory fee income through Security Capital Group's real estate
services and advisory activities. Security Capital Group augments its operating
company returns with revenues received for managing and advising real estate
companies, including us.

We have acquired Security Capital Group's securities at arm's-length
prices. We currently have no intention to acquire additional securities of
Security Capital Group. The advisory fee which we pay to the Operating Advisor,
which is calculated on the basis of the net asset value of our investments, does
not reflect any assets invested in Security Capital Group.

Real Estate Acquisitions

We may from time to time acquire direct interests in U.S. real estate
although we do not have a current intention to acquire any real estate directly.
We would acquire any such interests with the intention of contributing them to a
real estate company in exchange for equity at fair value which is at least as
liquid as the real estate interests. We intend not to hold direct interests in
real estate in the long term.

The Future

Our primary focus will be on achieving growth for our existing strategic
investment positions and identifying other real estate operating companies in
well-researched business niches which would be suitable strategic investment
positions for us. Security Capital Group continues to research and evaluate
other business niches which it believes may provide opportunities to form start-
up REITs.

Competition

There are numerous developers, operators, real estate companies and other
owners of real estate that compete with our strategic investees. Our strategic
investees compete on a regional and national basis with no individual market
being material to us as a whole. All of the properties of our strategic
investees are located in developed areas where there are a number of
competitors. The number of competitive properties could have a material adverse
effect on one or more of our strategic investees and therefore on the rents
charged by them. Our strategic investees may be competing with other entities
that have greater resources and whose officers and directors have more
experience than the officers, directors and trustees of our strategic investees.

Overview of Strategic Investment Positions

In accordance with our investment strategy, as of 31 December 1998 we have
funded a total of $2.5 billion at cost of equity capital to seven U.S. real
estate operating companies, representing approximately 92.8% of the total

-34-
<PAGE>

amount we committed to strategic investment positions. This capital has been, or
we expect it to be, deployed by these companies primarily in the acquisition of
assets consistent with their highly focused operating strategies. On 28 February
1999 Regency and Pacific Retail merged. Please read "Overview of Strategic
Investment Positions--Grocery-Anchored Neighbourhood Infill Shopping Centres:
Regency Retail Corporation" below for more information.

The following table reflects our funded investments as of 31 December 1998
in each of our seven strategic investment positions:

As of 31 December 1998
(in thousands $, except for %)

<TABLE>
<CAPTION>
Percentage of
SC-U.S. Realty's Percentage of
Total Assets Strategic Investee's
Strategic Investment Positions(1) Cost Value by Value Common Equity(2)
- --------------------------------- ---------- ---------- ----------------- -----------------------
<S> <C> <C> <C> <C>
CarrAmerica.................................. $ 699,851 $ 686,482(3) 23.9% 39.9%
City Center Retail........................... 304,035 304,035(4) 10.6 99.9
CWS Communities.............................. 153,563 153,563(4) 5.3 96.0
Pacific Retail............................... 524,038 501,805(4) 17.5 74.2
Regency...................................... 235,750 260,775(3) 9.1 46.0
Storage USA.................................. 394,272 380,178(3) 13.2 42.4
Urban Growth Property........................ 181,082 181,082(4) 6.3 98.7
---------- ---------- ----
Total strategic investment positions......... $2,492,591 $2,467,920 85.9%
========== ========== ====
</TABLE>

__________________________

(1) All strategic investment positions are of common stock or common shares.

(2) On a percentage of outstanding common shares or common stock basis. On a
fully diluted basis, the percentage interest of each strategic investee's
common equity was 32.8%, 99.9%, 96.0%, 68.1%, 37.6%, 37.4% and 98.7%,
respectively. After the completion of merger of Pacific Retail and Regency,
the percentage interest in Regency's common equity was 61.3% and 55.4% on
an outstanding and fully diluted basis, respectively.

(3) Value for this publicly traded investment has been derived using its
closing stock price on the NYSE.

(4) As more fully described in Note 2A to the Consolidated Financial Statements
and "--Valuation and Investment Restrictions" below, value for this private
company investment has been reflected on the basis of the probable net
realisation value estimated in good faith by our Board of Directors. Except
for Pacific Retail, all of our private company investments have been
reflected at cost as an approximation of fair value for these recent
investments. On 28 February 1999 Regency merged with Pacific Retail. Please
read "--Grocery-Anchored Neighbourhood Infill Shopping Centres: Regency
Retail Corporation" below for more information. Therefore, because of the
pending merger transaction at 31 December 1998, Pacific Retail was valued
based on the exchange ratio and the closing stock price of Regency on the
NYSE.

The business niches and operating companies in which we have taken
strategic investment positions are described below.

Office: CarrAmerica Realty Corporation

CarrAmerica is a self-administered and self-managed, publicly traded REIT
which owns, develops, acquires and operates office properties. CarrAmerica's
office properties are located primarily in 15 suburban markets across the United
States. CarrAmerica has created and developed a national operating system that
provides corporate users of office space with a mix of products and services to
meet their workplace needs at both the national and local level.

-35-
<PAGE>

In the early 1990s, Security Capital Group's strategic research in the
office sector identified a dramatic shift in future demands for office space as
many U.S. companies began to seek alternatives to expensive "trophy" buildings.
These companies began migrating to office locations that offered attractive
incentives such as lower operating costs and a higher quality of life. These
companies sought flexible space that could accommodate expansion, consolidation
and relocation. They also sought a more efficient means by which to out-source
their office space needs. In short, these companies were looking for a new
workplace to meet their changing needs.

On the supply side, Security Capital Group's research revealed highly
fragmented ownership within the office sector, where a large percentage of
office buildings were owned by local developers and institutions that passively
managed a small "pool" of local assets. Security Capital Group's research
indicated that the absence of any critical mass of national office ownership was
reflected in the lack of operating efficiencies and expertise among the existing
suppliers of office space.

Security Capital Group identified an opportunity to create a national
operating company to provide office space to many of America's leading
companies. In November 1995, after extensive research into the best investment
alternative for carrying out this business plan, which included reviewing a
considerable number of potential transactions, we committed $250 million to
CarrAmerica, then called Carr Realty Corporation.

From our initial commitment in November 1995 to invest $250 million at
$21.47 per share of common stock, our investment at cost in CarrAmerica as of 31
December 1998 had increased to $699.9 million, at an average price per share of
$24.47, as a result of additional investments. As of 31 December 1998 we owned
39.9% of CarrAmerica's outstanding common stock. On ___________ CarrAmerica's
common stock closed at $_____ on the NYSE.

The following table shows the high and low closing prices of CarrAmerica's
common stock on the NYSE during each quarter, or portion of a quarter, since the
quarter preceding our initial commitment:

<TABLE>
<CAPTION>
High Low
Closing Price Closing Price
------------- -------------
<S> <C> <C>
1995
Third Quarter................................ $19.75 $17.25
Fourth Quarter (1)........................... 24.50 18.63
1996
First Quarter................................ 24.75 23.88
Second Quarter............................... 25.25 23.75
Third Quarter................................ 25.75 22.00
Fourth Quarter............................... 29.25 25.00
1997
First Quarter................................ 32.13 28.25
Second Quarter............................... 29.88 26.38
Third Quarter................................ 32.00 28.25
Fourth Quarter............................... 32.88 28.56
1998
First Quarter................................ 31.44 28.50
Second Quarter............................... 30.06 26.75
Third Quarter................................ 30.13 19.63
Fourth Quarter............................... 24.81 19.13
1999
First Quarter................................ 24.38 20.94
Second Quarter (through 1999).......
</TABLE>
________________________

(1) Our initial commitment to invest in CarrAmerica was announced on 6 November
1995.

-36-
<PAGE>

At the time of our initial commitment, CarrAmerica was one of the largest
owners and operators of office space in the Washington D.C. metropolitan area
and had, together with its predecessors, a 30-year track record. We believed
that CarrAmerica had a solid core management team and significant development
expertise, but lacked the resources to expand nationally. In April 1996
CarrAmerica changed its name from Carr Realty Corporation to its current name to
reflect its national strategy.

As part of our proactive ownership role, we have encouraged CarrAmerica's
management team to develop the CarrAmerica "National Operating System" as the
platform for CarrAmerica's new national strategy. The three components of
CarrAmerica's "National Operating System" are the National Services Group, the
Market Officer Group and the National Development Group. The National Services
Group is responsible for marketing CarrAmerica's properties, build-to-suit
capabilities and the national scope of CarrAmerica's operations to a targeted
list of major corporate users of office space. The local market officers of the
Market Officer Group are cognisant of and responsive to customers' relocation or
expansion needs and have extensive knowledge of local conditions in their
respective markets as a result of Security Capital's proprietary market research
and their meeting with CarrAmerica's customers on a regular basis. These
officers are thus also well-positioned to assist the National Services Group in
identifying customers with new build-to-suit and multi-market requirements. The
National Development Group is responsible for developing suburban office
properties, build-to-suit facilities and business parks. By integrating the
components of the "National Operating System", we believe that CarrAmerica is
well-positioned to meet the dynamic and continually evolving range of space and
location requirements demanded by growth-orientated corporate users of office
space. CarrAmerica's National Operating System is designed to provide corporate
users of office space with a mix of products and services to meet their
workplace needs at both the national and local levels. CarrAmerica believes
that, through its existing portfolio of operating properties, property
development opportunities and land acquired and currently held for future
development, CarrAmerica can generate incremental demand through the relocation
and expansion needs of many of its customers, both within a single target market
and in multiple target markets.

We have helped CarrAmerica's Board of Directors and Investment Committee to
implement a research-driven, disciplined approach to capital deployment. This
enabled CarrAmerica to acquire more than $1 billion of office assets in 1996,
more than $900 million of office assets in 1997, and more than $600 million of
office assets in 1998. We believe that CarrAmerica has achieved a critical mass
of ownership in substantially all of its target markets and that CarrAmerica's
research-driven investment strategy enabled it to acquire these properties at
favourable yields. Between 31 December 1995 and 31 October 1998 CarrAmerica
acquired 302 operating properties containing approximately 20.3 million square
feet of office space, resulting in more than a 550% increase in the total square
footage of operating properties in which CarrAmerica has a majority interest.

CarrAmerica's primary business objectives are to achieve long-term
sustainable per share cash flow growth and to maximise stockholder value through
a strategy of:

(1) acquiring, developing, owning and operating office properties
primarily in markets throughout the United States that exhibit strong,
long-term growth characteristics and

(2) maintaining and enhancing a national operating system that provides
corporate users of office space with a mix of products and services to
meet their workplace needs at both the national and local level.

As of 15 March 1999, reflecting recent sales of non-strategic properties,
CarrAmerica owned interests in 286 operating properties containing approximately
22.0 million square feet of office space located in 15 markets, 45 properties
under construction that can contain approximately 3.8 million square feet of
office space at an expected cost at completion of approximately $564.0 million,
and land and options to acquire land that can support the development of up to
5.6 million square feet of office space. As of 31 December 1998 the operating
properties owned by CarrAmerica were 96.7% leased and the average rent per
leased square foot was $18.29. None of such properties, on an individual basis,
is materially important to CarrAmerica or to us. CarrAmerica serves over 2,400
different customers.

-37-
<PAGE>

The following table provides an overview of CarrAmerica's portfolio by
market as of 31 December 1998:

<TABLE>
<CAPTION>
Number Square % of Total
of Footage of Portfolio
Operating Operating Square
Market Properties Properties Footage(1)
------ ---------- ---------- -----------
<S> <C> <C> <C>
Washington, D.C.
Downtown.................. 9 2,134,000 9.5%
Suburban.................. 7 1,272,000 5.7%
Atlanta...................... 39 1,854,000 8.3%
Boca Raton, Florida.......... 2 442,000 2.0%
Orange County/Los Angeles.... 37 1,654,000 7.4%
San Diego.................... 12 588,000 2.6%
San Francisco Bay............ 87 6,115,000 27.3%
Sacramento................... 8 316,000 1.4%
Portland, Oregon............. 29 1,461,000 6.5%
Austin, Texas................ 13 1,048,000 4.7%
Chicago...................... 10 1,577,000 7.0%
Dallas....................... 11 1,240,000 5.5%
Denver....................... 10 1,001,000 4.5%
Phoenix...................... 10 1,224,000 5.5%
Salt Lake City............... 8 463,000 2.1%
--- ---------- -----
Total..................... 292 22,389,000 100.0%
=== ========== =====
</TABLE>

In August 1997 OmniOffices, Inc., an affiliate of CarrAmerica, acquired
substantially all of the assets of OmniOffices Group, Inc. and its subsidiaries
for an aggregate purchase price of approximately $50 million in cash. These
assets included 28 executive office suite centres containing approximately 1,650
office suites located in 14 markets across the United States. As of 15 March
1999 OmniOffices operated over 106 executive office suite centres containing
approximately 6,950 office suites located in 29 major U.S. markets and in
London. As of that date, OmniOffices also had 34 executive office suite centres
under development. CarrAmerica believes that the executive office suites
business has significant potential for growth because the demand for executive
office suites is likely to increase as companies seek greater flexibility and
alternative workplace solutions for their staffing and business plan
requirements. CarrAmerica believes that its position as the only national office
property owner and operator providing both traditional, long-term office space
and, through OmniOffices, flexible, short-term workplace options provides it
with a competitive advantage in meeting the evolving needs of growing companies.
In conformance with limitations under the tax laws relating to REITs,
OmniOffices is structured as a taxable "C" corporation in which CarrAmerica owns
95% of the economic interest, but none of the voting stock. The voting stock is
owned 17% by The Oliver Carr Company, 35% by SC-U.S. Realty and 48% by an entity
owned by CarrAmerica's six current executive officers. The holders of the voting
common stock control the ability to elect the directors of OmniOffices and thus
the power to direct OmniOffices' affairs.

In May 1999 CarrAmerica announced that, subject to market conditions and
approval by OmniOffices' board of directors, OmniOffices is planning an initial
public offering of its common stock, which is expected to be completed by the
end of 1999. As part of this public offering, CarrAmerica expects that its
interest in the executive office suites business would be reduced, and that its
percentage equity interest in OmniOffices would be reduced to approximately 40-
60% of the total equity capital of the company.

CarrAmerica believes that, as a result of its National Operating System,
market research capabilities, access to capital, and experience as an owner,
operator and developer of real estate, it will continue to be able to identify
and consummate acquisition opportunities and to operate its portfolio more
effectively than competitors without such capabilities. CarrAmerica, however,
competes in many of its target markets with other real estate operators, some of
whom may have been active in such markets for a longer period than CarrAmerica.
In CarrAmerica's major markets of Washington, D.C. and Northern California,
rental rates for office buildings have increased and vacancy rates have
decreased over the last five years (Source: CB Commercial/Torto Wheaton
Research).

-38-
<PAGE>

CarrAmerica has received investment grade ratings for its long-term debt
securities from Moody's, Standard & Poor's and Duff & Phelps and has reduced its
ratio of long-term debt to undepreciated book capitalisation from 58.1% prior to
SC-U.S. Realty's initial investment to 40.2% as of 31 December 1998. As of 31
December 1998 CarrAmerica had outstanding four series of preferred stock with an
aggregate liquidation preference of $417.0 million. As of 31 December 1998
CarrAmerica's total indebtedness was $1.7 billion. CarrAmerica has achieved a
significant increase in per share cash flow and we believe that it is continuing
to build a solid foundation for future growth.

CarrAmerica's experienced staff of over 1,900 employees, including
approximately 500 on-site building and approximately 1,000 executive suites
employees, provides a broad range of real estate services. CarrAmerica continues
to recruit key personnel to further develop its National Operating System.

CarrAmerica is a publicly traded company and information concerning
CarrAmerica can be obtained from the Securities and Exchange Commission at the
following address: Public Reference Room, 450 Fifth Street, N.W., Washington,
D.C. 20549. For information concerning certain agreements between CarrAmerica
and us which relate to, among other things, our rights to nominate directors of
CarrAmerica, participate in future equity issuances by CarrAmerica and consult
with CarrAmerica about certain significant matters, please read "--Agreements
Between SC-U.S. Realty and its Strategic Investees" below.

Self-storage: Storage USA, Inc.

Storage USA was formed in 1985 to acquire, develop, construct, franchise,
own and operate self-storage facilities throughout the United States. Storage
USA is the second largest owner and operator of self-storage space in the United
States.

Based on Security Capital Group's strategic research, we believe that the
self-storage industry in the United States offers attractive long-term growth
potential with compelling supply and demand fundamentals and the capacity to
generate significant free cash flow. From an ownership perspective, the industry
is fragmented, undercapitalised and has traditionally been considered an
unglamourous, non-institutional business niche. Storage USA believes that there
are approximately 27,500 self-storage facilities in the United States. We
believe that self-storage facilities are generally not professionally or
efficiently managed and customers are underserved because owners generally lack
a critical mass of ownership.

Demand from both consumers and commercial users, for self-storage continues
to grow and we believe that self-storage continues to present an attractive
capital deployment opportunity. There has been a recent increase in consumer
demand in the self-storage market. The U.S. is an extremely mobile society. This
creates a frequent need for short-term and long-term storage space during
periods of transition, such as moving to new homes or transferring to new jobs.
In addition, many Americans are purchasing smaller homes or renting apartments
where storage space is very limited. This trend is particularly strong among the
elderly as they move from large suburban homes with ample storage space to
smaller apartments or assisted-living units. We expect that demand from
consumers will continue to grow as market awareness increases.

There has also been a recent increase in commercial demand. The
restructuring of corporate America has forced companies, both large and small,
across a range of industries to downsize and to become more efficient. Many
small business owners and entrepreneurs depend on self-storage facilities to
house their inventories and equipment in a flexible and cost-effective manner.

In 1996 we decided to invest in Storage USA because we believed that
Storage USA had the opportunity to become the preeminent national owner,
operator, manager, developer and franchiser of self-storage facilities in the
United States. In short, we believed that Storage USA had the potential to
become the "brand leader" of the self-storage industry.

From our initial commitment in February 1996 to invest $220 million at
$31.30 per share of common stock, our investment at cost in Storage USA as of 31
December 1998 had increased to $394.3 million, at an average price per share of
$33.51, as a result of additional investments. As of 31 December 1998 we owned
42.4% of Storage USA's outstanding common stock. On ______ 1999, Storage USA's
common stock closed at $ _____ on the NYSE.

-39-
<PAGE>

The following table shows the high and low closing prices of Storage USA's
common stock on the NYSE during each quarter, or portion thereof, since the
quarter preceding our initial commitment:

<TABLE>
<CAPTION>
High Low
Closing Price Closing Price
------------- -------------
<S> <C> <C>
1995
Fourth Quarter........................ $32.75 $28.75
1996
First Quarter (1)..................... 34.75 30.50
Second Quarter........................ 34.38 32.25
Third Quarter......................... 34.00 32.00
Fourth Quarter........................ 38.63 33.13
1997
First Quarter......................... 38.88 36.63
Second Quarter........................ 40.25 35.63
Third Quarter......................... 41.75 38.25
Fourth Quarter........................ 40.94 37.13
1998
First Quarter......................... 41.06 37.50
Second Quarter........................ 39.00 34.31
Third Quarter......................... 38.06 29.88
Fourth Quarter........................ 33.75 28.56
1999
First Quarter......................... 32.44 27.75
Second Quarter (through 1999).....
</TABLE>

- -----------------------------

(1) Our initial commitment to invest in Storage USA was announced on 1 March
1996.

At the time of our investment in Storage USA, we believed that Storage USA
had the potential to become one of the leading national operators of storage
facilities due to the quality of its management team, its systems and its focus
on training, especially at the property level. Storage USA believed that we
could help create a strategic organisational plan which would provide the
executive leadership necessary for growth and focus on developing growth
opportunities. Through representation on the board of directors of Storage USA,
we have assisted Storage USA on a series of research initiatives relating to
Storage USA's capital deployment strategy.

Storage USA's primary business objective is to maximise shareholder value.
Storage USA plans to achieve this objective through a four-part strategy:
internal growth through continued improvement in operating results at owned
properties, external growth through acquisitions, current investment for
enhanced long-term returns through development, and the franchising of Storage
USA's self-storage concept.

The four components of Storage USA's internal growth strategy are
aggressive leasing, regularly scheduled rent increases, trained facility
managers and integrated management information systems. Through aggressive
leasing, Storage USA seeks to increase its revenues by improving the occupancy
in its facilities. In particular, Storage USA uses sales and marketing programs
that are customised for each location by facility and district managers who have
substantial authority and effective incentives. By regularly scheduling rent
increases, Storage USA has historically increased rents in all of its facilities
at least once a year regardless of the occupancy level. As a facility nears 100%
occupancy, Storage USA typically increases rents more frequently. Storage USA
carefully selects and thoroughly trains managers of its self-storage facilities.
Through integrated management information systems, Storage USA maintains
appropriate controls and enhances operational efficiencies. Storage USA has
installed computer systems at each facility which are equipped with
comprehensive facilities management software. Weekly operating results are
transmitted electronically from each of these facilities to Storage USA's
headquarters. These systems allow Storage USA to closely monitor manager
performance and market response to Storage USA's rental structure.

Storage USA acquired over $300 million of existing self-storage facilities
in 1996, $353 million in 1997 and $279 million in 1998, expanding its target
markets to locations in 31 states and the District of Columbia. Storage USA's
strategy is to acquire properties that are under-managed and under-rented in
markets with positive

-40-
<PAGE>

fundamentals for self-storage. Storage USA repositions these properties in their
respective markets through state-of-the-art renovation and management training
programmes. As of 31 December 1998 Storage USA had 32 facilities under
construction or in planning, totaling approximately 2.5 million square feet, at
an estimated cost of $144 million. As of 31 December 1998 the average physical
occupancy of the 421 facilities owned by Storage USA was 83%.

At 31 December 1998 Storage USA owned 421 facilities containing 27.8
million net rentable square feet and managed for others 64 facilities containing
an additional 4.1 million net rentable square feet in 31 states and the District
of Columbia. None of such properties, on an individual basis, is materially
important to Storage USA or us. As of 31 December 1998 Storage USA employed
approximately 1,700 employees, of whom approximately 320 were employed part time
at fewer than 30 hours per week on a regular basis.

-41-
<PAGE>

The following table provides an overview of Storage USA's portfolio by market
as of 31 December 1998:

Storage USA, Inc.
Market Analysis of All Properties
as of 31 December 1998

<TABLE>
<CAPTION>
Number of Available
State Properties Square Feet
----- ---------- -----------
<S> <C> <C>
Alabama............... 2 110,690
Arizona............... 20 1,135,065
California............ 81 5,966,215
Colorado.............. 2 156,194
Connecticut........... 8 594,174
Delaware.............. 1 71,695
District of Columbia.. 1 105,830
Florida............... 31 2,379,251
Georgia............... 6 434,512
Illinois.............. 1 76,341
Indiana............... 20 960,184
Kansas................ 4 200,805
Kentucky.............. 6 279,960
Maryland.............. 17 1,219,187
Massachusetts......... 14 869,435
Michigan.............. 14 909,870
Missouri.............. 2 104,905
Nevada................ 11 765,278
New Jersey............ 16 1,073,630
New Mexico............ 11 606,134
New York.............. 18 1,251,699
North Carolina........ 7 460,981
Ohio.................. 28 1,559,200
Oklahoma.............. 15 944,896
Oregon................ 3 203,040
Pennsylvania.......... 10 658,080
Tennessee............. 34 2,149,429
Texas................. 22 1,587,797
Utah.................. 3 196,635
Virginia.............. 12 732,545
Washington............ 1 62,500
--- ----------
Total.............. 421 27,826,157
=== ==========
</TABLE>

Competition from other self-storage facilities exists in every market in
which Storage USA's facilities are located. Storage USA principally faces
competitors who seek to attract tenants primarily on the basis of lower prices.
However, Storage USA usually does not seek to be the lowest-priced competitor.
Rather, based on the quality of its facilities and its customer service-oriented
managers and amenities, Storage USA's strategy is to lead particular markets in
terms of prices.

Storage USA monitors the development of self-storage facilities in its
markets. They have facilities in several markets where they believe
overbuilding has occurred, including: Atlanta GA, Las Vegas NV, Albuquerque NM,
Nashville TN, Portland OR and Dallas TX. In these markets, Storage USA may
experience a minimal reduction in physical occupancy and less growth in rental
rates than other markets. As a result of the geographic diversity of its

-42-
<PAGE>

portfolio, Storage USA does not expect the excess supply in these markets to
have a significant impact on its financial condition or results of operations.

Storage USA reports that it is the second largest owner and operator of
self-storage space in the United States as of March 22, 1999. There are four
other publicly traded REITs and numerous private and regional operators. These
other companies may be able to accept risk than Storage USA can prudently
manage. This competition may reduce the number of suitable acquisition
opportunities offered to Storage USA and increase the price required to acquire
particular facilities. Further, Storage USA believes that competition could
increase from companies organised with similar objectives. Nevertheless, Storage
USA believes that the operations, development, and financial experience of its
executive officers and directors along with its customer-oriented approach to
management of self-storage facilities should enable it to compete effectively.

Storage USA is a publicly traded company and information concerning Storage
USA can be obtained from the Securities and Exchange Commission at the addresses
listed under "--Overview of Strategic Investment Positions--Office: CarrAmerica
Realty Corporation" above. For information concerning certain agreements
between Storage USA and us which relate to, among other things, our rights to
nominate directors of Storage USA, participate in future shares issuances by
Storage USA and consult with Storage USA about certain significant matters, you
should read "--Agreements Between SC-U.S. Realty and its Strategic Investees"
below.

Grocery-Anchored Neighbourhood Infill Shopping Centres: Regency Realty
Corporation

Security Capital Group's strategic research in the retail sector revealed
that the U.S. is generally considered to be "over-retailed" and, consequently,
the entire retail sector has been in a state of flux for several years. However,
after considerable research and demographic analysis, Security Capital Group
concluded that, although much of the retail sector would provide low future
growth, a few retail niches had been unfairly tainted by this view, creating
inefficiencies in the marketplace and, thus, value-creation opportunities.
Security Capital Group's extensive research over nearly two years showed
protected grocery-anchored neighbourhood infill shopping centres to be an
attractive retail niche.

Infill centres are located in high-density residential areas where there is
little or no land available for competing retail construction. These physical
barriers to entry make this type of property one of the more protected retail
niches. In addition, Security Capital Group's research showed that changing
demographics were affecting shopping patterns and that, as a result, Americans
increasingly value convenience, location and service. The grocery anchors of
these centres meet those needs by providing essential goods and personal and
entertainment services such as beauty salons, dry cleaners and video rentals.

Security Capital Group's research indicated that ownership of neighbourhood
infill shopping centres was highly fragmented, with few companies operating on a
regional basis. In addition, Security Capital Group's research indicated that
ownership was typically local, with weak re-merchandising capabilities due to a
lack of research, capital, vision and, importantly, relationships with strong,
high-growth retailers. We believe that without a critical mass of ownership,
local owners will continue to be at a severe disadvantage and will not be able
to afford to develop value-added operating systems. Moreover, institutional
owners have generally been absent due to the management-intensive nature of this
sector and the relatively small size of single-asset transactions.

In 1995 Security Capital Group recognised the opportunity to form Pacific
Retail, a private start-up company that focused on becoming the leading owner,
operator and developer of grocery-anchored neighbourhood infill shopping centres
in selected high-growth markets of the western United States. Shortly
thereafter, Security Capital Group identified Regency, a NYSE-listed company
headquartered in Jacksonville, Florida, as an attractive operating platform to
focus on becoming the leading owner, operator and developer of grocery-anchored
neighbourhood infill shopping centres in selected high-growth markets of the
eastern United States.

On 28 February 1999 Regency merged with Pacific Retail in a tax-free
transaction. Pursuant to the terms of the merger agreement, a holder of Pacific
Retail common shares received 0.48 shares of Regency common stock for each
common share of Pacific Retail. In addition, Regency assumed all of the
outstanding indebtedness of Pacific Retail. Regency will continue to maintain
its current dividend and dividend policy. Regency has a 13-person board of
directors, including four independent directors named by Regency, three
directors named by Pacific Retail, three directors named by SC-U.S. Realty and
three members of management.

-43-
<PAGE>

The merger resulted in Regency having total assets of approximately $2.4
billion, comprising 200 retail centres in 20 states containing 23.0 million
square feet. Since Pacific Retail and Regency were separate companies at 31
December 1998 the following discussion provides information separately for the
two companies. Once Regency has presented results on a combined basis, it is
our intention to combine the following discussion.

Pacific Retail

Pacific Retail had been implementing a business strategy that was designed
to make it the leading owner, operator and developer of grocery-anchored
neighbourhood infill shopping centres in selected high-growth markets of the
western United States.

Since our initial commitment of $200 million in October 1995, Pacific
Retail had closed on over $1 billion of acquisitions and had expanded its
management team in California and the Pacific Northwest. Acquisitions in 1997
totaled $453.7 million. As of 31 December 1998 Pacific Retail owned 66
neighbourhood infill shopping centres containing approximately 7.6 million
square feet. Its target markets include 21 high-growth markets in the western
half of the United States. As of 31 December 1998 the operating properties owned
by Pacific Retail were 96.4% leased. None of such properties, on an individual
basis, was materially important to Pacific Retail or us. As of 31 December 1998
Pacific Retail employed approximately 128 people.

The following table provides an overview of Pacific Retail's portfolio by
market as of 31 December 1998:

<TABLE>
<CAPTION>
21/12/98 Number
-----------------
Square % Of Total Current % % of
Market Feet Square Feet Investment Leased Occupied Properties
- ----- --------- ----------- -------------- ------ -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Sacramento Area..................... 236,329 3.1% $ 25,519,078 94.7% 91.3% 2
San Francisco Bay Area.............. 1,023,576 13.5 167,714,682 97.8 95.1 11
Los Angeles County Area............. 669,079 8.8 83,096,152 96.4 96.1 7
Orange County Area.................. 642,058 8.5 94,476,368 96.8 94.5 5
San Diego County Area............... 610,356 8.0 107,669,774 99.0 98.5 4
Seattle Area........................ 762,560 10.0 103,727,442 97.3 97.2 8
Portland Area....................... 583,704 7.7 81,642,557 91.4 91.3 6
Dallas/Ft. Worth Area............... 1,949,023 25.6 223,318,666 94.2 92.9 14
Houston Area........................ 114,416 1.5 11,170,514 97.0 97.0 1
Austin Area......................... 266,763 3.5 34,740,829 99.6 98.0 2
Denver Area......................... 417,862 5.5 44,203,060 99.2 99.2 4
Phoenix Area........................ 326,984 4.3 40,689,217 99.5 96.0 2
--------- ----- -------------- ---- ---- --
Total Operating Portfolio........... 7,602,710 100.0% $1,017,968,339 96.4% 95.1% 66
========= ===== ============== ==== ==== ==
</TABLE>

__________________________

Note: A significant portion, 73.9%, of Pacific Retail's portfolio is considered
prestabilised. Prestabilised properties are those which have been owned less
than one year or, if owned more than one year, have not reached 93% occupancy.
This schedule does not include properties under development.

Regency

Regency is focused on becoming the leading owner, operator and developer of
grocery-anchored neighbourhood infill shopping centres in selected high-growth
markets in the United States. Regency has been utilising the equity from our
investment to take advantage of attractive acquisition and development
opportunities in its target markets.

From our initial commitment in June 1996 to invest $132.2 million at
$17.625 per share of common stock, our investment at cost in Regency has
increased to $235.8 million as of 31 December 1998 at an average price per share
of $20.11, as a result of additional investments. As of 31 December 1998 we
owned 46.0% of Regency's outstanding common stock. After the completion of the
merger with Pacific Retail, we owned 61.3% of Regency's outstanding common
stock. On ______ 1999, Regency's common stock closed at $_____ on the NYSE.

-44-
<PAGE>

The following table shows the high and low closing prices of Regency's
common stock on the NYSE during each quarter, or portion thereof, since the
quarter preceding our initial commitment:

<TABLE>
<CAPTION>
High Low
Closing Price Closing Price
------------- -------------
<S> <C> <C>
1996
First Quarter.............................. $17.38 $16.00
Second Quarter(1).......................... 21.00 16.63
Third Quarter.............................. 22.38 19.38
Fourth Quarter............................. 26.25 21.63
1997
First Quarter.............................. 28.00 25.00
Second Quarter............................. 28.13 25.00
Third Quarter.............................. 28.25 25.13
Fourth Quarter............................. 28.00 24.63
1998
First Quarter.............................. 27.75 24.88
Second Quarter............................. 26.56 24.13
Third Quarter.............................. 26.44 20.56
Fourth Quarter............................. 23.38 20.50
1999
First Quarter.............................. 22.94 18.75
Second Quarter (through 1999)........
</TABLE>

_______________________

(1) Our initial commitment to invest in Regency was announced on 12 June 1996.

At the time of our investment in Regency, we believed that Regency had a
strong management team with significant experience as an owner and operator of
grocery-anchored neighbourhood infill shopping centres in Florida, but lacked
the resources and capital to execute an expanded business plan on a regional
level.

Regency's primary business objectives are

(1) to generate superior shareholder returns by sustaining above-average
annual increases in funds from operations and long-term growth in free
cash flow,

(2) to create the largest real estate portfolio of quality grocery-
anchored neighbourhood shopping centres in targeted infill markets in
the United States,

(3) to build the strongest possible capital structure through conservative
financial management that will cost-effectively provide the capital to
fund Regency's growth strategy, and

(4) to put in place the people and processes necessary to enable Regency
to implement its Retail Operating System, a system which incorporates
research-based investment strategies and value-added leasing and
management systems.

During 1996 Regency acquired 13 grocery-anchored shopping centres
representing 1.4 million square feet for $107.1 million. On 7 March 1997 Regency
acquired through its operating partnership, Regency Retail Partnership, L.P.,
substantially all of the assets of Branch Properties, L.P., a privately held
real estate firm based in Atlanta, Georgia, for $232.4 million. During 1997, in
addition to the Branch properties, Regency acquired 13 grocery-anchored shopping
centres representing 1.9 million square feet, for $163.3 million, two of which
are partially operating while undergoing redevelopment.

In March 1998 Regency acquired the real estate assets of entities
comprising the Midland Group, which consisted of 21 shopping centres plus a
development pipeline of 11 shopping centres. Regency paid approximately $230.4
million to acquire these assets. Subsequent to 1998, Regency expects to pay
approximately $12.7 million to

-45-
<PAGE>

acquire equity interests in the development pipeline as the properties reach
stabilisation. Regency may also be required to make payments aggregating $10.5
million through 2000, contingent upon increases in net income from existing
properties, the development pipeline and new properties developed or acquired in
accordance with the contribution agreement.

Regency's portfolio as of 31 December 1998 comprised 129 neighbourhood
infill shopping centres, 14.7 million square feet, in its target markets.
Regency is building a critical mass of properties and developing its management
team and value-added retail operating system. As of 31 December 1998 the real
estate portfolio was 92.9% leased and had average annualised rents of $9.12 per
square foot. None of such properties, on an individual basis, is materially
important to Regency or us. As of 31 December 1998 Regency employed
approximately 240 people.

The following table provides an overview of Regency's portfolio by market
as of 31 December 1998:

<TABLE>
<CAPTION>
Company-owned
Number of Gross Leasable %
Location Properties Area (Sq. Ft.) Leased
-------- ---------- --------------- ------
<S> <C> <C> <C>
Florida................ 46 5,728,347 91.4%
Georgia................ 27 2,737,590 93.1
Ohio................... 13 1,786,521 93.4
North Carolina......... 12 1,239,783 98.3
Alabama................ 5 516,060 99.0
Texas.................. 5 479,900 84.7
Colorado............... 5 447,569 89.4
Tennessee.............. 4 295,179 96.8
Virginia............... 2 197,324 97.7
Mississippi............ 2 185,061 97.6
Michigan............... 2 177,929 81.5
South Carolina......... 2 162,056 100.0
Delaware............... 1 232,752 94.8
Kentucky............... 1 205,060 95.6
Illinois............... 1 178,600 86.9
Missouri............... 1 82,498 99.8
--- ---------- -----
Total............... 129 14,652,229 92.9%
=== ========== =====
</TABLE>

There are numerous shopping centre developers, real estate companies and
other owners of real estate that compete with Regency in seeking retail tenants
to occupy vacant space, for the acquisition of shopping centres and for the
development of new shopping centres. However, ownership of neighbourhood infill
centres historically has been highly fragmented, with local ownership, as
institutional capital has generally avoided the relatively small size of the
centres and their management-intensive nature. In addition, such centres
targeted by Regency are generally located within densely populated
neighbourhoods where little or no land is available for development of competing
centres.

Regency performs renovations and/or improvements to its properties in
accordance with tenant lease terms and when considered necessary due to market
conditions. As of 31 December 1998 Regency had 12 centres which are either in
the process of being completed or are undergoing development or redevelopment
with an anticipated total cost of approximately $189 million on a completed cost
basis.

Regency is a publicly traded company and information concerning Regency can
be obtained from the Securities and Exchange Commission at the address listed
under "--Overview of Strategic Investment Positions--Office: CarrAmerica Realty
Corporation" above. For information concerning certain agreements between
Regency and us which relate to, among other things, our rights to nominate
directors of Regency, participate in future share issuances by Regency and
consult with Regency about certain significant matters, you should read "--
Agreements Between SC-U.S. Realty and its Strategic Investees" below.

-46-
<PAGE>

Urban Infill Retail: City Center Retail Trust

In the second quarter of 1997, we established City Center Retail, a private
start-up real estate operating company which is taxed as a REIT. City Center
Retail was created to provide high quality customer service on a national basis
to top U.S. and international retailers in attractive downtown and urban infill
markets for retail throughout the United States. City Center Retail plans,
subject to market and other conditions, to become a public company after it
reaches critical mass in its key growth markets. City Center Retail is focused
on becoming the premier company in the acquisition, development, operation and
ownership of well-designed and well-managed urban retail properties in
attractive U.S. markets for premier U.S. and international retailers by
providing attractive urban retail locations.

Security Capital Group's strategic research in the retail sector uncovered
several key trends in the United States which Security Capital Group believes
result in an attractive opportunity in the urban infill retail property niche to
create the first national company focused on developing, acquiring, operating
and owning real estate in downtown markets. Security Capital Group's research
indicated that a number of high-growth national and regional retailers in the
United States are focusing their growth away from suburban shopping malls in
favour of high-density urban infill locations. These locations have a
competitive advantage in the form of physical barriers to entry provided by the
surrounding buildings. They are also well-positioned to attract significant foot
traffic from surrounding workplaces and neighbourhoods, as well as that of
conference attendees and tourists, and typically offer large, open floor space
that many retailers find attractive for promotional, retail and entertainment
centres. Security Capital Group believes that there is an increasing recognition
by top retailers of the strong and sustainable viability of urban retail space
in leading U.S. cities. In addition, Security Capital Group's research
indicates that there is a move to revitalise urban and downtown centres, with a
focus on retailing, and an evolution in urban design that combines retail, food
and entertainment uses, along with other uses such as office or hotel, in a
multi-story urban redevelopment. Historically, top retailers have generally
been required to deal with different real estate entities in each market in
which they have a presence. City Center Retail was established by us with the
objective of becoming the premier national company in the acquisition,
development, operation and ownership of well-designed and well-managed urban
retail properties in attractive U.S. markets for premier U.S. and international
retailers.

As of 31 December 1998 we had committed to invest $350 million at $10 per
common share in City Center Retail, of which approximately $304 million had been
funded. As of such date, we owned 99.9% of City Center Retail's equity capital.
In January 1999 we committed to invest up to an additional $25 million in City
Center Retail.

City Center Retail has four properties which are materially important, on
an individual basis to its operations, although none of such properties, on an
individual basis, is materially important to us. These properties are located in
Miami, Chicago, suburban Chicago and Washington, D.C. These properties are all
retail shopping centres with one being an office complex with retail tenants on
the first floor. The anchor tenants include large retail department stores,
sporting goods retailers, restaurants, movie theatres and one university leasing
office space. The occupancy rates of these properties are 93%, 91%, 32%
redevelopment (56% leased), and 69% redevelopment (81% leased), with lease
maturities for the material tenants coming due from 2004 to 2013. The average
rents for square foot range from $16.00 to almost $32.00.

City Center Retail intends to help retailers meet their expansion goals
more quickly by minimising the administrative time involved in property
acquisition, development, leasing and management. Consistent with this strategy,
City Center Retail intends to develop and redevelop urban properties for premier
retailers. In addition, City Center Retail intends to work with private,
institutional and municipal property owners to maximise the value of their
properties.

City Center Retail is building the organisational and financial resources
to acquire and redevelop national property portfolios as well as individual
properties. City Center Retail's target markets will include "twenty-four hour
cities" such as Boston, Chicago, New York, San Francisco and Washington, D.C. In
addition to its primary focus on downtown markets and infill locations, where
retail demand is strong and property supply is constrained, City Center Retail
also targets "main street markets" in smaller communities where City Center
Retail customers desire to be located. Critical factors in identifying
attractive markets include substantial population density, high median household
income, strong employment levels, significant convention and tourism traffic and
limited property available for competing developments nearby. The properties
selected are typically street-accessed and mixed-use,

-47-
<PAGE>

multi-storey properties which combine retail, restaurant and entertainment uses,
with the possibility of office, hotel and residential uses, depending on
changing market conditions.

As a result of our ownership, City Center Retail's management team has
obtained access to Security Capital's management, operating expertise and
proprietary strategic research, including the following, in order to provide
retail customers with a high level of service:

. Research-driven selection of target markets to identify attractive
locations for retailers.

. A value-added retail operating system to deliver a uniform level of
service to every retail customer.

. A strong capital base through our funding.

City Center Retail's markets are typically pedestrian-orientated shopping
districts in or near the downtown areas of major metropolitan cities. Such areas
typically have substantial residential, business and tourist bases, with high
population density and high income demographics. The real estate supply in these
high-density districts is typically constrained, resulting in generally high
occupancy levels and a relatively reduced risk of competition from new
construction.

As of 31 December 1998 City Center Retail had made investments in 29
projects for an aggregate cost of $461 million at full funding containing
approximately 2.2 million square feet. As of such date, City Center Retail had 6
projects under development and/or redevelopment with an expected total cost at
completion of approximately $192 million.

City Center Retail is still in the early stages of assembling its
management team, acquiring a critical mass of properties and developing a value-
added operating system. Above all, City Center Retail works closely with
municipalities, tenants and property owners to help to ensure that all parties
to a transaction are well-served. This long-term perspective also promotes high
quality construction standards, as well as allowing City Center Retail to build
and continually strengthen relationships with its customers. In the long term,
City Center Retail's goal is to become the preferred single-source provider of
urban retail space in meeting the national real estate needs of these customers.
For information concerning agreements between City Center Retail and us which
relate to, among other things, our rights to nominate trustees of City Center
Retail and consult with City Center Retail about certain significant matters,
you should read "--Agreements Between SC-U.S. Realty and its Strategic
Investees" below.

Manufactured Housing Communities: CWS Communities Trust

In December 1997 we established CWS Communities Trust, a private start-up
real estate operating company which expects to elect to be taxed as a REIT for
its taxable year ending 31 December 1998. CWS Communities acquires, develops and
owns manufactured housing communities in selected target markets throughout the
U.S. Our objective is to focus CWS Communities on becoming the leading national
developer, owner and operator of manufactured housing communities in the United
States.

Based on Security Capital Group's strategic research, we believe that
underlying demand, supply and growth fundamentals for manufactured housing
communities in the United States are strong. Demand is being driven by first-
time home buyers, as well as aging baby boomers, attracted to the relative
affordability, improved product quality and enhanced amenities of new
manufactured housing communities compared to traditional site-built homes. We
believe that supply is constrained due to the difficulty of identifying
attractive sites and receiving zoning approval by municipalities for new
development.

In December 1997 we committed to invest $300 million in common shares of
CWS Communities at $10.00 per common share. As of 31 December 1998 we had funded
$153 million of our commitment and owned 96.0% of CWS Communities' equity
capital. We expect that we will own approximately 80% of CWS Communities upon
full funding of our commitment.

CWS Communities is one of the largest private owners, operators and
developers of manufactured housing communities in the United States. As of 31
December 1998 CWS Communities owned and operated or had under contract to
acquire or develop a total of 47 communities with over 16,540 spaces in nine
states for a total estimated

-48-
<PAGE>

cost of approximately $404 million. None of such properties, on an individual
basis, is materially important to CWS Communities or to us.

All property titles are held by CWS Communities L.P., or in wholly owned
subsidiaries, in fee simple. All properties are either currently operating or
are to be developed into manufactured housing communities. CWS Communities will
from time to time purchase manufactured homes for resale. The homes may be
leased out on a temporary basis. CWS Communities' primary business is to lease
the space/pad where a manufactured home is located. Most leases are one-year
leases. CWS Communities has some leases that are as short as month-to-month and
as long as five years. Generally, it is expected that substantially all of CWS
Communities' leases will expire and renew annually.

The operating properties may at times require certain capital expenditures.
These are considered by CWS Communities to be immaterial in proportion to the
current investment. The development, capital expenditures and acquisition of
remaining communities under contract are expected to be financed by working
capital or our remaining $147 million unfunded commitment. As of 31 December
1998 CWS Communities was developing a new community and expanding two existing
communities which have a total expected investment of approximately $8 million.

There are numerous commercial developers, real estate companies and other
owners of real estate that compete with CWS Communities in seeking land for
development, communities for acquisition, and residents for communities. All of
CWS Communities' properties are located in developed areas that include other
communities. The number of competitive manufactured housing communities in a
particular area could have a material adverse effect on CWS Communities' ability
to lease spaces and on the rents charged. In addition, other forms of single
family and multifamily residential communities provide housing alternatives to
residents and potential residents of CWS Communities' manufactured housing
communities.

CWS Communities is continuing to assemble its management team and is still
in the early stages of obtaining a critical mass of properties and implementing
a value-added operating system. Although currently privately owned, CWS
Communities is expected to conduct an initial public offering within three to
five years, after it has acquired a critical mass of ownership and further
developed its management team and operating system, subject to market and other
conditions. For information concerning certain agreements between CWS
Communities and us which relate to, among other things, our right to nominate
trustees of CWS Communities and consult with CWS Communities about significant
matters, you should read "--Agreements Between SC-U.S. Realty and its Strategic
Investees" below.

Urban Infill Parking: Urban Growth Property Trust

In April 1997, we established Urban Growth Property, a private start-up
real estate operating company which is taxed as a REIT. Urban Growth Property is
focused on acquiring, developing and owning strategically located income-
producing land, primarily parking or car parks, in key urban infill locations in
selected target markets throughout the U.S.

Based on Security Capital Group's strategic research, we believe that a
company focused on acquiring, developing and owning strategically located
income-producing land in key urban infill and certain suburban locations in
selected target markets throughout the U.S. can generate attractive returns.
Security Capital Group's research also indicates that the underlying demand,
supply and growth fundamentals for parking lots and car parks in urban infill
and certain suburban locations in selected target markets in the U.S. is strong.
Growth is a function of increased demand driven by new developments at such
locations and the absence of adequate supply.

The available supply of parking lots and car parks is limited in many of
these high-density areas, where the supply of land suitable for development has
decreased, thereby improving the market for such properties. Urban Growth
Property believes that the 22 properties it owned as of 31 December 1998 are
generally in these high-density areas and some offer a higher level of service
or amenities than competing properties. As of that date, there were two
properties at which planned renovations were being made, which are expected to
cost approximately $3.4 million. None of such properties, on an individual
basis, is materially important to Urban Growth Property or to us.

As of 31 December 1998 we had funded $181.1 million and owned 98.7% of
Urban Growth Property's equity capital.

-49-
<PAGE>

Urban Growth Property is in the process of obtaining a critical mass of
properties and implementing a value-added operating system. Although currently
privately owned, Urban Growth Property is expected to conduct an initial public
offering once it has acquired a critical mass of properties and further
developed its management team and operating system, subject to market and other
conditions. For information concerning certain agreements between Urban Growth
Property and us which relate to, among other things, our rights to nominate
trustees of Urban Growth Property and consult with Urban Growth Property about
certain significant matters, you should read "--Agreements Between SC-U.S.
Realty and its Strategic Investees" below.

Description of Property

We do not hold any direct interests in real estate.

Legal Proceedings

We and our wholly-owned subsidiaries currently are not parties to any legal
proceedings.

AGREEMENTS BETWEEN SC-U.S. REALTY AND ITS STRATEGIC INVESTEES

CarrAmerica

As long as we own at least 25%, by value, of CarrAmerica's outstanding
shares of common stock on a fully diluted basis as a "25% Owner", we are
generally entitled to nominate for election by stockholders that number of
directors to CarrAmerica's board of directors that corresponds to our percentage
ownership of the outstanding shares of common stock, but in no case more than
40% of the directors. CarrAmerica's board of directors currently consists of
eight directors, three of which are our nominees.

As long as we are a 25% Owner, we are entitled, subject to certain
exceptions, to a participation right to purchase or subscribe for up to 30%, or
up to 35% if necessary for us to maintain at least 25% ownership on a fully
diluted basis, of the total of any additional shares of capital stock issued or
sold by CarrAmerica or its major subsidiaries. We have the right to purchase or
subscribe for such additional shares at the same price and on the same terms as
other purchasers or subscribers.

As long as we are a 25% Owner, CarrAmerica is required to consult with us
before approving, among other things, any acquisition or disposition of assets
having a value in excess of $25 million, any financing in excess of $25 million,
any operating budgets, any new material agreements or arrangements with
executive officers or any issuance of equity.

As part of our commitment to assist CarrAmerica to become the leading
owner, operator and developer of office properties in the United States, we have
committed, subject to certain limitations and exceptions, that while we are a
25% Owner, we will not invest in other companies in a similar industry to
CarrAmerica or in the types of properties owned by CarrAmerica.

We are subject to a standstill agreement which prohibits us from, among
other things, acquiring more than 45% of CarrAmerica's outstanding shares of
common stock, or more than 40% on a fully diluted basis, soliciting business
combination transactions with respect to CarrAmerica, selling, pledging or
disposing of shares of common stock in CarrAmerica except in accordance with
certain specified limitations, soliciting proxies for an election contest,
calling a special meeting of stockholders or making stockholder proposals,
acting in concert with third parties to acquire over 5% of any class of voting
capital stock of CarrAmerica, making certain transfers of our capital stock, or
seeking representation on CarrAmerica's board of directors or a change in the
size or composition of CarrAmerica's board of directors other than with respect
to our nomination rights discussed above. The standstill expires in April 2001,
and will be automatically extended for one-year periods unless we elect to
terminate the standstill, but the standstill terminates earlier if, among other
things,

(1) any person other than us acquires 15% or more of the outstanding
shares of common stock of CarrAmerica on a fully diluted basis or
obtains the right to elect a number of directors equal to or greater
than the number of directors to which we are entitled,

(2) CarrAmerica's board of directors authorises the solicitation of
proposals for certain business combinations, or CarrAmerica receives a
written submission, not rejected by its board, proposing any such
transaction, or CarrAmerica's board of directors removes any anti-
takeover provisions in connection with any transaction,

(3) certain events of default occur under debt arrangements of CarrAmerica
or its subsidiaries, or

-50-
<PAGE>

(4) CarrAmerica violates certain operating and financial covenants
relating to indebtedness limitations, retention of third-party
property managers, investment in non-office properties, termination of
REIT status, and limitations on issuance of preferred stock and units
of Carr Realty, L.P.

CarrAmerica's charter generally prohibits any one stockholder or group of
affiliated stockholders from holding more than 5% of CarrAmerica's outstanding
shares of common stock and/or more than 5% of any class or series of
CarrAmerica's preferred stock. However, we are generally permitted by the
charter to acquire up to 45% of the outstanding shares of common stock and/or up
to 45% of any class or series of preferred stock.

CarrAmerica's organisational documents contain provisions generally
preventing foreign investors, other than us and our affiliates, from acquiring
additional shares of CarrAmerica's capital stock if, as a result of such
acquisition, foreign investors, including us, would hold, directly or
indirectly, 50% or more of the fair market value of such capital stock, for
these purposes, we are assumed to own 45% of such capital stock. Because we
owned 39.9% of CarrAmerica's outstanding common stock as of 31 December 1998,
these provisions would effectively limit significant further investment in
CarrAmerica by non-U.S. investors.

Storage USA

As long as we own 20% or more of Storage USA's outstanding shares of common
stock as a "20% Owner", we are generally entitled to nominate for election to
Storage USA's board of directors such number of directors as corresponds to our
percentage ownership of the outstanding shares of common stock. Storage USA's
board currently consists of nine directors, of which three are our nominees.
Storage USA's charter requires that a majority of the directors on its board be
independent.

As long as we own 15% or more of Storage USA's outstanding shares of common
stock, we are entitled, subject to certain exceptions, to a participation right
to purchase or subscribe for up to that number of additional shares of capital
stock sold or issued by Storage USA or its major subsidiaries which corresponds
to our percentage ownership of the outstanding shares of common stock in Storage
USA prior to such sale or issue, up to a maximum of 35% of such securities so
issued or sold. We have the right to purchase or subscribe for such additional
shares at the same price and on the same terms as the other purchasers or
subscribers.

As long as we are a 20% Owner, Storage USA is required to consult with us
before approving, among other things, any acquisition of assets having a value
in excess of $25 million, any disposition of assets having a value in excess of
$25 million, any business combination proposal, any financing in excess of $150
million, any operating budget, any material change in executive management, any
new material agreement or arrangement with executive officers or any issuance of
equity in excess of $150 million.

As part of our commitment to assist Storage USA to become the pre-eminent
national owner, operator and developer of self-storage facilities in the United
States, we have committed, subject to certain limitations and exceptions, that
while we are a 20% Owner, we will not invest in other companies in a similar
industry to Storage USA.

We are subject to a standstill agreement which prohibits us from, among
other things, acquiring more than 42.5% of Storage USA's outstanding shares of
common stock, soliciting business combination transactions with respect to
Storage USA, pledging or disposing of stock in Storage USA except in limited
circumstances, soliciting proxies for an election contest, or calling a special
meeting of stockholders or making stockholder proposals, acting in concert with
third parties to acquire over 5% of any class of voting capital stock of Storage
USA, making certain transfers of our capital stock, or seeking representation on
Storage USA's board of directors other than with respect to our nomination
rights summarised above. The standstill expires in 2003, and will be
automatically extended for one-year periods unless we elect to terminate the
standstill, but the standstill terminates earlier if, among other things,

(1) any person other than SC-U.S. Realty acquires more than 9.8% of the
outstanding shares of common stock of Storage USA on a fully diluted
basis or obtains the right to elect a number of directors equal to or
greater than the number of directors to which we are entitled,

-51-
<PAGE>

(2) Storage USA's board authorises the solicitation of proposals for
certain business combination transactions, or Storage USA receives a
written submission, not rejected by the board, proposing any such
transaction, or Storage USA's board removes certain anti-takeover
provisions in connection with any such transaction,

(3) certain events of default occur under debt arrangements of Storage USA
or its subsidiaries, or

(4) Storage USA violates certain operating and financial covenants
relating to indebtedness limitations, termination of REIT status,
restrictions on securities investments, assets held other than
directly by Storage USA, loans to subsidiaries, assets under third-
party management, investments in properties unrelated to self-storage
facilities, and limitations on ownership of partnership interests.

Storage USA's charter generally prohibits any one stockholder from holding
more than 9.8% of its outstanding shares of common stock. However, we are
generally permitted to acquire up to 42.5% of the outstanding shares of common
stock. We have been advised by the board of directors of Storage USA that an
amendment to the charter will be proposed at the next opportunity to take
account of the recent increase in the percentage of Storage USA's shares of
common stock which we can acquire under the standstill agreement referred to
above.

Storage USA's organisational documents contain provisions generally
preventing foreign investors, other than us and our affiliates, from acquiring
additional shares of Storage USA's capital stock if, as a result of such
acquisition, foreign investors, including us, would hold, directly or
indirectly, 50% or more of the fair value of such capital stock.

Regency

As long as we own 20% or more of Regency's outstanding shares of common
stock as a "20% Regency Owner", we are generally entitled to nominate for
election to Regency's board of directors that number of directors which is the
greater of three directors, and that number of directors as corresponds to our
percentage ownership of the common stock then outstanding, but in no case more
than 49% of the directors. Regency's board currently consists of 13 directors,
of which two are our nominees.

As long as we own 15% or more of Regency's outstanding shares of common
stock as a "15% Owner", we are entitled, subject to certain exceptions, to a
participation right to purchase or subscribe for up to that number of additional
shares of capital stock sold or issued by Regency or its subsidiaries which
corresponds to our percentage ownership of shares of capital stock in Regency
prior to such sale or issuance up to a maximum of 49% of such securities so
issued or sold. We have the right to purchase or subscribe for such additional
shares at substantially the same price and on the same terms as other purchasers
or subscribers.

As long as we are a 20% Regency Owner, Regency will be required to consult
with us before approving, among other things, any acquisitions of assets with a
value in excess of $10 million, any dispositions of assets with a value in
excess of $20 million, any financing in excess of $20 million, any operating
budgets, any material change in executive management, any new material
agreements or arrangements with executive officers or any issuances of equity.

As part of our commitment to assist Regency to become the leading owner,
operator and developer of grocery-anchored neighborhood infill shopping centres
in the eastern United States, we have committed, subject to certain limitations
and exceptions, while we are a 20% Regency Owner, not to invest in other
companies in a similar industry to Regency, or in the types of properties owned
by Regency within a certain geographic region.

Regency's charter generally prohibits any one shareholder from holding more
than 7% of its outstanding shares of common stock. Regency's charter permits us
to acquire up to

(1) 60% of the outstanding shares of Regency common stock on a fully
diluted basis so long as we own 45% or more of the outstanding shares
of Regency common stock on a fully diluted basis, and

(2) 49% of the outstanding shares of Regency common stock on a fully
diluted basis at any time after we own less than 45% of the
outstanding shares of Regency common stock on a fully diluted basis
for a continuous period of 180 days.

-52-
<PAGE>

We have agreed with Regency that with regard to certain amendments of
Regency's charter or bylaws and with regard to certain extraordinary
transactions which require the affirmative vote of a majority of stockholders,
we will vote our shares in excess of 49% of the outstanding shares of Regency
common stock entitled to vote on the proposal in one of the two following
manners, at our option:

(1) in accordance with the recommendation of the Regency board of
directors, or

(2) proportionately in accordance with the votes of the other holders of
Regency common stock.

With regard to certain extraordinary transactions submitted to a vote of
stockholders which requires the affirmative vote of the holders of two-thirds of
the shares of Regency's common stock, we will vote our shares of Regency common
stock in excess of 32% of the outstanding shares of Regency common stock
entitled to vote on the proposal in one of the two following manners, at our
option:

(1) in accordance with the recommendation of the Regency board of
directors, or

(2) proportionately in accordance with the votes of the other holders of
Regency common stock.

We are subject to a standstill agreement which prohibits us from, among
other things, acquiring more than 60% of Regency's outstanding shares of common
stock on a fully diluted basis, soliciting business combination transactions
with respect to Regency, pledging or disposing of shares in Regency except in
limited circumstances, soliciting proxies for an election contest, calling a
special meeting of stockholders or making stockholder proposals, acting in
concert with third parties to acquire over 5% of any class of voting capital
stock of Regency, making certain transfers of our capital stock, or seeking
representation on Regency's board of directors or a change in the size or
composition of Regency's board of directors other than with respect to our
nomination rights discussed above. The standstill expires in July 2001, and will
be automatically extended for one-year periods unless we elect to terminate the
standstill, but the standstill terminates earlier if, among other things,

(1) any person other than us acquires more than 9.8% of the outstanding
shares of common stock of Regency on a fully diluted basis or obtains
the right to elect a number of directors equal to or greater than the
number of directors to which we are entitled,

(2) Regency's board authorises the solicitation of proposals for certain
business combinations, or Regency receives a written submission, not
rejected by the board, proposing any such transaction, or Regency's
board removes any anti-takeover provisions in connection with any such
transaction,

(3) certain events of default occur under debt arrangements of Regency or
its subsidiaries, or

(4) Regency violates certain operating and financial covenants relating to
indebtedness limitations, termination of REIT status, restrictions on
securities investments, assets held other than directly by Regency,
loans to subsidiaries, assets under third-party management, investment
in properties unrelated to shopping centers, and limitations on
ownership of partnership interests.

Regency's organisational documents contain provisions generally preventing
foreign investors, other than us and our affiliates, from acquiring additional
shares of Regency's capital stock if, as a result of such acquisition, foreign
investors, including us, would hold directly or indirectly 50% or more of the
fair market value of such capital stock, or if, as a result of such acquisition,
foreign investors, not including us, would hold, directly or indirectly, 5% or
more of the fair market value of such capital stock. Notwithstanding the fact
that as of 31 December 1998 we owned 37.6% of Regency's shares of common stock
on a fully funded and fully diluted basis, these provisions would effectively
limit further investment in Regency by non-U.S. investors.

City Center Retail

As long as we own 10% or more of City Center Retail's outstanding common
shares, we are entitled to nominate for election to City Center Retail's board
of trustees such number of trustees as corresponds to our percentage ownership
of the outstanding common shares.

-53-
<PAGE>

As long as we own 50% or more of City Center Retail's outstanding common
shares, we have consultation rights, and as long as we own less than 50% but at
least 20% of the outstanding common shares, City Center Retail is required to
obtain our approval of any annual operating budget, certain acquisitions,
dispositions or developments of assets, certain sales of shares or convertible
securities, major financings, certain agreements for the management of
properties, as long as we own at least 15% of the outstanding common shares,
appointments and dismissals of executive officers, acquisitions by any person of
more than 9.8% of the common shares, the amendment or granting of exemptions to
the share ownership limitations in City Center Retail's charter, business
combination proposals, and the investment of more than 10% of City Center
Retail's assets in other property types.

City Center Retail's charter prohibits any one shareholder, other than SC-
U.S. Realty, from holding more than 9.8% of its outstanding shares.

CWS Communities

As long as we own 10% or more of CWS Communities' outstanding common
shares, we are entitled to nominate for election three persons, out of the
current board size of five members, to CWS Communities' board of trustees, and
in the event the board is subsequently expanded, we will be entitled to nominate
for election to CWS Communities' board of trustees such number of trustees as
corresponds to our percentage ownership of the outstanding shares.

As long as we own 50% or more of CWS Communities' outstanding common
shares, we have consultation rights, and as long as we own less than 50% but at
least 20% of the outstanding common shares, CWS Communities is required to
obtain our approval of its annual operating budget; major acquisitions,
dispositions or developments of assets; certain sales of shares or convertible
securities; major financings; certain agreements for the management of
properties, as long as we own at least 15% of the outstanding common shares;
appointments and dismissals of executive officers; acquisitions by any person of
more than 9.8% of the common shares; the amendment or granting of exemptions to
the share ownership limitations in CWS Communities' charter; business
combination proposals; or the investment of more than 10% of CWS Communities'
assets in other property types.

CWS Communities' charter prohibits any one shareholder, other than SC-U.S.
Realty, from holding more than 9.8% of its outstanding common shares. In
addition, the board of trustees of CWS Communities has granted a waiver to
certain shareholders allowing ownership of up to certain specified levels, which
levels decrease as CWS Communities issues common shares.

Urban Growth Property

As long as we own 10% or more of Urban Growth Property's outstanding common
shares, we are entitled to nominate for election to Urban Growth Property's
board of trustees such number of trustees as corresponds to our percentage
ownership of the outstanding shares.

As long as we own 50% or more of Urban Growth Property's outstanding common
shares, we have consultation rights, and as long as we own less than 50% but at
least 20% of the outstanding common shares, Urban Growth Property is required to
obtain our approval of its annual operating budget; major acquisitions,
dispositions or developments of assets; certain sales of shares or convertible
securities; major financings; certain agreements for the management of
properties, as long as we own at least 15% of the outstanding common shares;
appointments and dismissals of executive officers; acquisitions by any person of
more than 9.8% of the common shares; the amendment or granting of exemptions to
the share ownership limitations in Urban Growth Property's charter; business
combination proposals; or the investment of more than 10% of Urban Growth
Property's assets in other property types.

Urban Growth Property's charter prohibits any one shareholder, other than
SC-U.S. Realty, from holding more than 9.8% of its outstanding common shares.

-54-
<PAGE>

VALUATION AND INVESTMENT RESTRICTIONS

Valuation

Pursuant to our Articles of Incorporation, we are required to report our
net asset value or NAV annually. We intend to calculate our NAV and report it to
major news services for international publication on a quarterly basis. In order
to determine our NAV, we subtract total liabilities from total asset value, then
divide by the number of Shares outstanding as of each valuation day.

Total asset value will be based primarily upon the NYSE market price of our
publicly traded strategic investment positions and publicly traded special
opportunity positions, these two categories of assets being intended to
constitute, over the long term, the substantial majority of our assets.

Private company investments are valued on the basis of the probable net
realisation value estimated with prudence and in good faith by our Board of
Directors. For private company investments in which we have an ownership
interest, we will, whenever our Board of Directors believes significant
developments have occurred affecting the value of an investment and on at least
an annual basis, utilise valuation evidence and methodologies appropriate to the
nature of the investment to derive fair value. These will include external
valuations, cash flow valuation techniques and valuation information derived
through placements of private companies' securities as well as review by
management for other specific indicators of changes in value relating to
property performance and/or significant changes in local or general market
conditions. Our Board of Directors, in its discretion, may permit some other
method of valuation to be used, if it determines that such valuation better
reflects the fair value of any of our assets. Once a privately held company has
completed its initial public offering of shares of common stock and such shares
are traded on an established market, we will use the market price of such shares
for NAV purposes. We expect the shares of all of our strategic investees
ultimately to be traded in established trading markets, primarily the NYSE.

The value of any cash on hand or on deposit, bills and demand notes and
similar items will, in accordance with our Articles of Incorporation, be deemed
to be the full amount. Other than as described above, all other securities and
other assets, including debt and restricted securities, are valued on the basis
of dealer supplied quotations, or by a pricing service approved by the Board of
Directors or, to the extent such prices are not deemed to be representative of
market values, such securities and other assets will be valued at fair value as
determined in good faith pursuant to procedures established by the Board of
Directors.

The Board of Directors, in its discretion, may permit some other method of
valuation to be used, if it considers that such valuation better reflects the
fair value of any of our assets.

The foregoing is a summary of the key elements of the calculation of our
NAV.

Investment Restrictions

The Board of Directors have established the following investment
restrictions:

. We will invest in real estate generally through shareholdings in, and
convertible and other debt of, United States real estate companies
whose exclusive object is the acquisition, development, promotion,
sale and lease of properties (a "real estate company"), provided that
these holdings must be determined by the Directors to be at least as
liquid as the properties or property rights held directly by us. We
may also invest up to 10% of our assets in securities of Security
Capital Group, although our directors expect that in the long term
less than 5% of our assets will be invested in securities of Security
Capital Group. We will also be permitted to invest directly in
properties or property rights, subject to certain restrictions agreed
upon with certain strategic investees, as described in greater detail
in "--Agreements between SC-U.S. Realty and its Strategic Investees"
above.

. In order to achieve a minimum spread of investment risks, we are not
permitted to, except during an initial period which expires on 30
October 1999, invest more than 20% of our net assets, directly or
through a strategic investee, in a single real estate property. A real
estate property whose economic viability is linked to another real
estate property is not considered a separate item of property for this
purpose. In addition, we may not, except during an initial period
which expires on 30 October 1999, invest more than 20% of our net

-55-
<PAGE>

assets in a single real estate company that is not a strategic
investee. As of 31 December 1998 we were in compliance with each of
these tests and expects to continue to be in compliance with these
tests in the future.

. Under Luxembourg law and our Articles of Incorporation, the aggregate
of all our borrowings may not exceed on average 50% of the aggregate
valuation of the sum of our debt and equity interest in our real
estate companies and direct properties and property rights. The long-
term targeted maximum debt percentage is 30% to 40%.

-56-
<PAGE>

PRINCIPAL SHAREHOLDERS

The following table sets forth, as of 31 March 1999, the ownership of
shares of SC-U. S. Realty for each person known to us to be the owner of more
than 10% of the shares and the officers and Directors as a group. No American
Depositary Receipts or ADRs being registered hereby were outstanding on that
date. As described in greater detail below under "Description of American
Depositary Shares--Rule 144 American Depositary Receipt Facility", we have a
Rule 144A ADR facility which we currently plan to terminate shortly.

<TABLE>
<CAPTION>
Percent of
Amount Outstanding
Name of Owner Owned Shares
------------- ------ -----------
<S> <C> <C>
SC Realty Shares Limited 30,286,358(1) 35.0
All officers and directors as a group 172,331 0.2
</TABLE>

__________________

(1) SC Realty Shares Limited, a Bermuda company, is an indirectly wholly-owned
subsidiary of Security Capital Group. Excludes 30,000 shares owned of
record by the Operating Advisor.

-57-
<PAGE>

NATURE OF TRADING MARKET

Market Prices

Our shares have traded on the AEX Stock Exchange in Amsterdam since 27 June
1996. On 1999 the closing price per share on the AEX, as quoted by
Bloomberg Financial Markets, was $ . The following table shows the high and
low closing prices of the shares on the AEX during the periods since trading
began:

<TABLE>
<CAPTION>
High Low
Closing Price Closing Price
------------- -------------
<S> <C> <C>
1996
Third Quarter.......................... $23.00 $20.80
Fourth Quarter......................... 25.60 21.60
1997
First Quarter.......................... 29.00 25.40
Second Quarter......................... 32.00 26.80
Third Quarter.......................... 30.60 28.00
Fourth Quarter......................... 31.00 27.00
1998
First Quarter.......................... 32.00 26.20
Second Quarter......................... 28.00 24.40
Third Quarter.......................... 26.00 19.80
Fourth Quarter......................... 21.20 16.00
1999
First Quarter.......................... 19.60 15.40
Second Quarter (through __ June 1999)..
</TABLE>

_____________________

(1) All prices prior to 18 June 1999 have been revised to reflect the one-
for-two reverse stock split effective on that date.

Source: Bloomberg Financial Markets.

The shares are also listed on the LSE, but no substantial trading of shares
has occurred on the LSE.

Our American Depositary Shares or ADSs have traded on the NYSE since 24 June
1999. The following table shows the high and low closing prices of the American
Depositary Shares on the NYSE during the periods since trading began:

<TABLE>
<CAPTION>
High Low
Closing Price Closing Price
------------- -------------
<S> <C> <C>
1999
Second Quarter (through __ June 1999)
</TABLE>

There has been no market for the Convertible Notes.

-58-
<PAGE>

DIRECTORS AND MANAGERS

The board of directors of SC-U.S. Realty and the board of directors of
Holdings have the broadest powers to act in any circumstances on our behalf,
subject to the powers expressly assigned by applicable law to the general
meetings of shareholders.

The boards of directors are responsible for our overall investments and
administration and for the adoption and implementation of our policies.

The directors must review and, if appropriate, approve, among other
matters:

. our overall investment strategy and annual strategic plans and
budgets;

. the appointment of the Operating Advisor, the custodian, paying agent,
the corporate agent, the domiciliary and service agent and our
registrar and transfer agent, and our officers;

. all our issuances of shares and our borrowings, as well as the
engagement of any underwriters, placement agents or bankers;

. the proposed directors to be appointed to the board of directors of
Holdings;

. any loans to or equity investments in Holdings or other companies;
and, in cases where we have rights to nominate directors or trustees
of strategic investees and approve or consult on management or
investment matters of strategic investees, the exercise of such
rights.

The directors have appointed Jeffrey A. Cozad as our Managing Director, in
which capacity he is responsible for our day-to-day investment and operating
oversight. Mr. Cozad is also Managing Director of the Operating Advisor.

The board of directors of Security Capital Holdings S.A., all of whom are
directors of SC-U.S. Realty, are responsible for reviewing and, if appropriate,
approving, among other matters:

. all investments and dispositions;

. annual budgets;

. the appointment of the Operating Advisor, the custodian, paying agent,
the corporate agent, the domiciliary and service agent and the
registrar and transfer agent as well as of the auditors and officers;

. all borrowings or stock issuances; and all voting of shares and other
exercises of normal shareholder rights with respect to strategic
positions.

Holdings' board of directors has appointed Mr. Cozad as Managing Director,
in which capacity he is responsible for day-to-day investment and operating
oversight.

We believe that directors should have financial interests closely aligned
with shareholders. To help to assure this alignment, we granted share option
equivalents to our independent directors at the time of our initial private
equity offering in October 1995 and at certain later dates, as described below.
Each director in office at the time of the initial private equity offering
received a share option equivalent of 25,000 shares, $500,000 at the initial
private offering price of $20 per share. The share option equivalent does not
represent a right to purchase 25,000 shares at $20 per share; rather, it
represents the right to receive a restricted cash payment equal to the excess,
if any, of the NAV of 25,000 shares on the day of exercise over $500,000. The
restricted cash payment must be applied by the director to the purchase of the
relevant number of shares to be issued at the NAV as of the date of exercise of
the share option equivalent. Directors were granted a vested right to exercise
one-half of their share option equivalents at the completion of the initial
equity offering, but have no right to exercise the other one-half of their share
option equivalents until the fourth anniversary of such completion, and a
director will forfeit all rights to the second half if he resigns or is removed
as a director prior to such fourth anniversary unless such director is appointed
as an advisory director. The right to exercise any share option equivalent will
expire on the fifth anniversary of the

-59-
<PAGE>

completion of the initial private equity offering. Dr. Jay O. Light, who was
originally appointed by the general meeting of shareholders of 26 June 1996, has
received share option equivalents similar to the share option equivalents
described above. These share option equivalents, of $547,500, were priced at the
NAV at which the shares were sold in the June 1996 offering, $21.90 per share.
Mr. Didier J. Cherpitel, currently an advisory director, who was appointed as a
director by the general meeting of shareholders of 25 June 1997, has received
share option equivalents similar to the share option equivalents described
above. These share option equivalents, of $722,000, were priced at the NAV on 30
June 1997, $28.88 per share. Dr. Erich Coenen and Francois Moes, who were
appointed as directors on 16 October 1998 when Didier J. Cherpitel and Alfred
Knor retired as directors, received share option equivalents, of $430,000, that
were priced at the closing stock price on the AEX on 16 October 1998, $17.20 per
share. Claude Kremer, who was appointed as a director on 6 January 1999,
received share option equivalents, of $490,000, that were priced at the closing
stock price on the AEX on 6 January 1999, $19.60 per share. Mr. Knor has
exercised share option equivalents representing a restricted cash payment of
$47,750, 12,500 shares multiplied by the difference in NAV on the date he
received the share option equivalent and 31 December 1998, pursuant to which he
received 1,856 shares. The share option equivalents granted to Messrs. Coenen,
Moes and Kremer are similar to the share option equivalents described above
except that the pricing and exercise thereof is based on the closing stock price
of the shares rather than NAV. We intend to base future grants of share option
equivalents, and the exercise of such share option equivalents, on the closing
stock price of the shares, rather than NAV.

We do not have any employees. Our custodial and administrative activities
are handled by BIL, except for certain domiciliary agent and service agent
services that are handled by an affiliate of the Operating Advisor, and our
operating advisory activities are handled by the Operating Advisor and the Sub-
Advisor. Our directors and officers and those of the Sub-Advisor are listed
below. Each director is elected annually at the general meeting of shareholders
and serves for a term of one year. Our officers work under the supervision of
the Managing Director and do not themselves make policy decisions on our behalf.

Security Capital U.S. Realty

Directors

Erich Coenen (57) has been a director of SC-U.S. Realty since October 1998.
Dr. Coenen has been a Member of the Board of Managing Directors of Commerzbank
AG based in Frankfurt am Main since 1982. Dr. Coenen received a doctorate in
law, having studied at the Universities of Munich, Bonn and Cologne.

Jeffrey A. Cozad (34) has been a director of SC-U.S. Realty since June 1996
and of Security Capital Holdings S.A. since April 1997. Mr. Cozad has been the
Managing Director of the Company and Security Capital Holdings S.A. since June
1996, where he is responsible for the day-to-day investment and operating
oversight. Previously, he was Senior Vice President of Security Capital Markets
Group Incorporated in its New York office from June 1995 to June 1996, where he
was head of capital markets activities and from December 1991 to June 1995 he
was Vice President, where he provided capital markets services for affiliates of
Security Capital Group. Prior to joining Security Capital Group, Mr. Cozad was
with LaSalle Partners Incorporated, where he provided corporate real estate
services to major institutions. Mr. Cozad received his M.B.A. from the
University of Chicago Graduate School of Business and his B.A. in Economics and
Management from DePauw University. Mr. Cozad is a member of the board of
directors of Regency. Mr. Cozad and his family own 20,000 of our shares.

Claude Kremer (42) has been a director of SC-U.S. Realty since January
1999. Mr. Kremer has been a partner with the law firm of Arendt & Medernach in
Luxembourg and Brussels since 1982, where he practices corporate, investment
fund and securities law. Mr. Kremer received his Masters degrees in Law and
History from the University of Grenoble (France) and in Accounting and Finance
from the London School of Economics and Political Science.

Jay O. Light (57) has been a director of SC-U.S. Realty and Security
Capital Holdings S.A. since June 1996. Dr. Light is a Professor of Business
Administration at Harvard University, Graduate School of Business Administration
since 1970, where his teaching and research concentration is investment
management and capital markets. Dr. Light previously served as director of
Investment and Financial Policies at the Ford Foundation from 1977 to 1979, and
is currently a trustee or director of the following organisations: Teachers'
Insurance and Annuity Association/The College Retirement Equity Fund, Harvard
Management Company, the Baupost Fund, the GMO

-60-
<PAGE>

Trust, Jeffrey Company, Brigham & Women's Hospital and United Asset Management.
Dr. Light also serves as a consultant to various investment management firms,
endowments and pension plan sponsors.

Francois Moes (51) has been a director of SC-U.S. Realty since October 1998
and of Security Capital Holdings S.A. since January 1999. Mr. Moes has been a
member of the executive board of BIL since October 1990, where his
responsibilities include credit policy and risk management, planning, budgeting
and human resources. Mr. Moes is a board member of Banque Internationale a
Luxembourg BIL Asia Ltd. Singapore. Prior to 1990, he was responsible for the
international and corporate lending department of BIL. Mr. Moes is a Graduate of
Ecole des Hautes Etudes Commerciales (HEC), Paris and of the Institut Europeen
d'Administration des Affaires (INSEAD) in Fontainebleau, France and attended the
Advanced Management Program of the Harvard Business School.

William D. Sanders (57) has been Non-Executive Chairman of SC-U.S. Realty
since July 1995. He is the founder and Chairman of Security Capital Group. Mr.
Sanders retired on 1 January 1990 as Chief Executive Officer of LaSalle
Partners Incorporated, a firm he founded in 1968. Mr. Sanders is a director of
R.R. Donnelley & Sons Company and was formerly a director of Continental Bank
Corporation, Continental Bank, N.A., King Ranch, Inc., LaSalle Partners
Incorporated and certain of its affiliates and Lone Star Technologies, Inc. Mr.
Sanders is a former trustee and member of the executive committee of the
University of Chicago and a former trustee fellow of Cornell University. Mr.
Sanders received his B.S. from Cornell University. Mr. Sanders is a member of
the boards of directors of CarrAmerica and Storage USA and is an advisory
director of Regency.

Executive Officers

Eleanor Evans (33) has been a Vice President of SC-U.S. Realty since May
1997 where she is responsible for legal, regulatory and operational matters.
Prior to joining the Company, Ms. Evans was an assistant solicitor with the law
firm of Norton Rose and practised corporate and financial law in both London and
Hong Kong from September 1988 to May 1997. Ms. Evans received her law degree
from the University of London and is admitted as a solicitor in both England and
Wales, and Hong Kong.

Christopher Fell (43) has been Treasurer of SC-U.S. Realty and Security
Capital Holdings S.A. since January 1999, where he is responsible for treasury
and cash management functions. Mr. Fell joined us in September 1997 with cash
management responsibilities. Prior to joining us, from 1992 to September 1997,
Mr. Fell was an interim manager providing corporate treasury services to major
corporations in the United Kingdom. Mr. Fell is a member of the Association of
Corporate Treasurers.

W. Scott Hartman (34) has been a Senior Vice President of SC-U.S. Realty
since April 1999, and with the Operating Advisor since November 1998, where he
is responsible for corporate finance initiatives. Prior thereto, Mr. Hartman was
Vice President of Security Capital Global Capital Management Group Incorporated
from March 1998 to November 1998, Vice President of Security Capital Atlantic
Incorporated from September 1996 to March 1998, an associate with Security
Capital Atlantic Incorporated from May 1995 to September 1996, in Security
Capital's Management Development Program from July 1994 to May 1995 and a
research analyst with AMB Institutional Realty Advisors from May 1993 to May
1994. Mr. Hartman received his M.B.A. from the Haas School of Business at the
University of California, a J.D. from Hastings College of Law at the University
of California and a B.A. from Stanford University.

Susan Liow (36) has been a Vice President--Finance of SC-U.S. Realty since
March 1996. Prior to joining us, Ms. Liow was the U.K. Financial Controller for
Arthur Andersen Corporate Financial Services practice from April 1994 to March
1996. Prior to joining Arthur Andersen, Ms. Liow was a manager in Deloitte &
Touche where she was responsible for the U.K. Partnership's profit plans and
treasury functions from February 1992 to March 1994. Ms. Liow trained as an
auditor with Deloitte & Touche and Neville Russell and received her accountancy
qualifications from the Institute of Chartered Accountants in England and Wales.
She worked for more than two years in the Loans and Securities division of
Public Bank Berhad, Malaysia, before obtaining her BSc in Economics with an
award and honours from the University of Surrey, U.K.

Gerald R. Morgan, Jr. (36) has been a Senior Vice President of SC-U.S.
Realty since December 1997, where he has financial and operating
responsibilities. Mr. Morgan was Vice President of Security Capital Group from
March 1995 until December 1997. Prior thereto he was in Security Capital's
Management Development Program since July 1993. Mr. Morgan received an M.B.A.
from Stanford University Graduate School of Business and a B.S. with distinction
from Stanford University.

-61-
<PAGE>

SUB-ADVISOR

Thomas B. Allin (49) has been Managing Director of Security Capital Global
Strategic Group Incorporated since December 1998. From April 1998 to December
1998, Mr. Allin was President and Chief Operating Officer for Strategic Hotel
Capital Incorporated. From April 1996 to December 1997, Mr. Allin was President
and Chief Executive Officer for Gordon Biersch. From 1973 to April 1996, Mr.
Allin was affiliated with McDonald's Corp., most recently as Senior Vice
President and Zone Manager. Mr. Allin received his B.S. from Duke University.
Mr. Allin is a member of the board of directors of Regency.

C. Ronald Blankenship (49) has been Vice Chairman and Chief Operating Officer
of Security Capital Group since June 1998. He was Managing Director of Security
Capital Group from March 1991 to June 1998 and Non-Executive Chairman of
Archstone Communities Trust (formerly Security Capital Pacific Trust) from June
1997 to June 1998 and Chairman of Archstone Communities Trust from June 1991 to
June 1997. He is also Co-Head of Security Capital Global Strategic Group
Incorporated. Mr. Blankenship received his B.B.A. from the University of Texas
at Austin. Mr. Blankenship is a member of the board of directors of Security
Capital Group and Storage USA and the board of trustees of City Center Retail.

Jeff A. Jacobson (37) has been a Managing Director of Security Capital Global
Strategic Group Incorporated since June 1998, where he is responsible for
researching strategic investment opportunities in the U.S. and abroad and
providing investment oversight to certain real estate operating companies and
from September 1997 to June 1998, Mr. Jacobson was Senior Vice President. Prior
thereto, from September 1990 to May 1997, Mr. Jacobson was with LaSalle Partners
Limited where his most recent position was Managing Director of LaSalle Advisors
Limited.

Anthony R. Manno Jr. (47) has been a Managing Director of Security Capital
Global Capital Management Group Incorporated since January 1995, where he is
responsible for overseeing all investment and capital allocation recommendations
for passive public market securities activities, company and industry analysis,
market strategy, trading and reporting. Mr. Manno was a member of Security
Capital Group's investment committee from March 1994 to June 1996. Prior to
joining Security Capital Group, Mr. Manno was a managing director of LaSalle
Partners Incorporated from March 1980 to March 1994. Mr. Manno received his
M.B.A., with a concentration in Finance, from the University of Chicago Graduate
School of Business and his M.A. and B.A. in Economics from Northwestern
University. Mr. Manno is also a certified public accountant.

Caroline S. Mcbride (45) has been a Managing Director of Security Capital
Global Strategic Group Incorporated since March 1997 and is responsible for
investment oversight of strategic investment positions in public and private
U.S. real estate operating companies. Prior to joining Security Capital Group in
June 1996, Ms. McBride was the director of private market investments for the
IBM Retirement Fund, where she was responsible for a $3.7 billion real estate
and private equity portfolio. Prior to that, Ms. McBride was director of
Finance, Investments and Asset Management for IBM's corporate real estate
division. Ms. McBride was with IBM from July 1978 to May 1996. Ms. McBride
received a B.A. from Middlebury College and an M.B.A. in Finance from New York
University School of Business Administration. Ms. McBride is a member of the
board of directors of the Pension Real Estate Association (PREA) and the Real
Estate Research Institution. Ms. McBride is a member of the boards of directors
of CarrAmerica and Storage USA and the board of trustees of CWS Communities.

Daniel F. Miranda (45) has been a Managing Director of Security Capital Global
Capital Management Group Incorporated since September 1996, where he is
responsible for operating oversight of various investments relating to public
and private U.S. real estate operating companies. Prior to joining Security
Capital Group, Mr. Miranda was a managing director of GE Capital Finance from
September 1991 to September 1996, where he was responsible for national real
estate services, and prior thereto for a $1.2 billion real estate portfolio in
the fourteen-state Midwest region. Previously, Mr. Miranda developed commercial
real estate as president of First Columbia Corporation, a firm which he founded,
served as vice president and general counsel of the Westport Company, a publicly
traded REIT, and practised law with the firm of Sonnenschein Nath & Rosenthal in
Chicago. Mr. Miranda received his law degree from Columbia University Law School
and his undergraduate degree from the University of California, Berkeley.

Constance B. Moore (43) has been a Managing Director of Security Capital
Global Strategic Group Incorporated since January 1999. From July 1998 to
December 1998, Ms. Moore was Co-Chairman, Chief Operating Officer and Trustee of
Archstone Communities Trust. From January 1996 to July 1998, Ms. Moore was Co-
Chairman, Chief Operating Officer and Director of Security Capital Atlantic
Incorporated, and from May 1994 to December 1995, she was Managing Director of
Archstone Communities Trust. From March 1993 to April 1994,

-62-
<PAGE>

Ms. Moore was Senior Vice President of Security Capital Group. Ms. Moore
received her M.B.A. from the University of California at Berkeley and her B.S.
in Real Estate Finance, with honours, from San Jose State University.

A. Richard Moore, Jr. (52) has been a Managing Director of Security Capital
Global Strategic Group Incorporated since May 1998. Prior thereto, from March
1990 to May 1998, Mr. Moore was a Vice President with Goldman, Sachs & Co.,
where his most recent position was in the Equity Research Department.

Charles I. Stannard (55) has been a Senior Vice President and head of Security
Capital Real Estate Research Group Incorporated in the United States since
November 1997. Prior to joining Security Capital Group, Mr. Stannard was Senior
Vice President and Director of Research with D'Arcy Masius Benton and Bowles, an
advertising agency in Detroit, Michigan, from April 1993 to November 1997, where
he was actively involved in D'Arcy's General Motors account and new business.
Prior thereto Mr. Stannard worked in Chicago for Leo Burnett as a member of its
research department. Mr. Stannard received his Ph.D. in Sociology from
Northwestern University, his M.B.A. from Cornell University and his B.A. in
Sociology from Colgate University.

Kenneth D. Statz (40) has been a Managing Director of Security Capital Global
Capital Management Group Incorporated since December 1997, where he is
responsible for researching corporate and portfolio acquisitions. From July 1996
to December 1997 he was Senior Vice President of such entity. Prior to joining
Security Capital Group, from February 1993 to January 1995, Mr. Statz was a Vice
President in the investment research department of Goldman, Sachs & Co.,
concentrating on research and underwriting for the REIT industry. Prior thereto,
Mr. Statz was a real estate stock portfolio manager and a managing director of
Chancellor Capital Management. Mr. Statz received his M.B.A. and B.B.A. in
Finance from the University of Wisconsin.

Paul E. Szurek (38) has been Managing Director of SCGroup Incorporated and
Chief Financial Officer of Security Capital Group since July 1997. From January
1996 through June 1997, he was a Managing Director of the Company and HOLDINGS
where he was responsible for operations, corporate finance and mergers and
acquisitions. Prior thereto, from June 1993 to January 1996, Mr. Szurek was a
Senior Vice President of Security Capital Group, where he supervised corporate
finance and corporate acquisitions and oversaw legal services for affiliates of
the firm. Prior to joining Security Capital Group, Mr. Szurek was a shareholder
and attorney in the law firm of Kemp, Smith, Duncan & Hammond in El Paso, Texas,
where he practised securities and mergers and acquisitions law. Mr. Szurek
received his law degree from the Harvard University Law School and his B.A. in
Government from the University of Texas at Austin.

Robert S. Underhill (43) has been Managing Director of Security Capital Global
Strategic Group Incorporated since August 1997, where he is responsible for
researching corporate and portfolio acquisitions. Prior thereto, from March 1997
to August 1997, he was Senior Vice President of such entity. Mr. Underhill was a
consultant for affiliates of Security Capital Group from November 1994 to
February 1997. Prior to joining Security Capital Group, from September 1984 to
October 1994, Mr. Underhill was a Senior Vice President of LaSalle Partners
Incorporated, where he was responsible for the investment management of a $3.5
billion portfolio of office and retail properties. Prior thereto, Mr. Underhill
was responsible for directing LaSalle Partners Corporate Services' activity in
Europe. Mr. Underhill received his M.B.A. from Northwestern University and his
B.A. from Colby College.

Thomas G. Wattles (47) has been a Managing Director of Security Capital Group
since March 1991 and trustee of ProLogis Trust (formerly Security Capital
Industrial Trust) since January 1993. Mr. Wattles is also Co-Head of Security
Capital Global Strategic Group Incorporated. Mr. Wattles was Non-Executive
Chairman of ProLogis Trust from March 1997 to May 1998 and Co-Chairman and Chief
Investment Officer of ProLogis Trust from November 1993 to March 1997. Prior
thereto, he was Managing Director of ProLogis Trust from January 1993 to
November 1993. He received his M.B.A. from Stanford University Graduate School
of Business and his B.A. (with distinction) from Stanford University. Mr.
Wattles is a member of the board of trustees of CWS Communities and Urban Growth
Property.

Compensation Of Directors And Officers

Information concerning compensation of directors is set forth below under "--
Charges and Expenses--Director Compensation" and information concerning the
share option equivalents granted to directors is set forth under "Directors and
Managers" above. We do not separately compensate our officers and therefore no
information has been provided. Information concerning compensation paid to the
Operating Advisor is also provided below.

-63-
<PAGE>

Charges And Expenses

General

As more fully described below, SC-U.S. Realty, will pay out of their assets
all expenses which shall include, but not be limited to,

(1) the fees and expenses payable or reimbursable to the Operating Advisor and
expenses payable to the Sub-Advisor;

(2) fees payable to the custodian and its correspondents, the paying agent,
corporate agent, domiciliary and service agent, the registrar and transfer
agent, and any other agent employed by us;

(3) any fees and expenses involved in registering and maintaining our
registration with any governmental agency or stock exchange in Luxembourg,
the United States and in any other country;

(4) fees for legal, accounting and auditing services, reporting and publishing
expenses, including the costs of preparing, printing and distributing
prospectuses, explanatory memoranda, other promotional material, including
advertisements in newspapers and journals, periodic reports or
registration statements, and the costs of any reports to our shareholders;

(5) all taxes, duties, governmental and similar charges; and

(6) all other operating expenses, as more fully described below, including all
costs of buying and selling assets or raising capital, interest, bank
charges and brokerage, postage, telephone and telex.

We may calculate administrative and other expenses of a regular or recurring
nature on an estimated figure for yearly or other periods in advance, and may
accrue the same in equal proportions over any such period.

We shall pay, the following operating and administrative expenses or
investment and financing costs, regardless of whether such expenses or costs are
capitalised or expensed under GAAP, and, if the Operating Advisor advances money
for any of such expenses or costs, it shall be entitled to reimbursement by us
for the following:

(1) travel and other out-of-pocket expenses incurred by the directors,
officers and employees of the Operating Advisor or its subcontractors in
connection with securing financing, including debt and equity, for the use
or evaluating, investigating, negotiating or closing the purchase,
financing, refinancing or sale of our investments;

(2) all other costs and expenses relating to our operations, including,
without limitation, travel, appraisal, reporting, accounting, auditing and
legal fees and financing and capital raising costs, including, without
limitation, sales commissions payable in connection with the issuance of
our shares;

(3) expenses in connection with payments of distributions in cash or any other
form made or caused to be made by our board of directors to or on account
of holders of our shares;

(4) expenses connected with communications to holders of our shares and the
investment community in general, including meetings between affiliates of
the Operating Advisor and investors or securities analysts, and other
bookkeeping and clerical work necessary in maintaining relations with
holders of shares and in complying with the continuous reporting and other
requirements of governmental bodies or agencies, including the cost of
printing and mailing certificates for shares and proxy solicitation
materials and reports to holders of our shares;

(5) the fees of the custodian, paying agent, corporate agent, domiciliary and
service agent, as well as the fees of the Registrar and transfer agent,
which are payable quarterly and are computed, in accordance with customary
banking practice in Luxembourg, as a percentage based on our gross assets.
In addition, the custodian, paying agent, corporate agent, domiciliary and
service agent, as well as the registrar and transfer agent, are entitled
to be reimbursed for their reasonable out-of-pocket expenses and
disbursements and for the charges of any correspondents; and

-64-
<PAGE>

(6) expenses relating to any office or office facilities maintained for us
separate from the office or offices of the Operating Advisor.

Director Compensation

We will pay each of the directors a remuneration at such rate as may from time
to time be determined by a resolution of the shareholders to be adopted during a
general meeting, currently $15,000 per year, plus an additional fee of $1,000
per meeting, $5,000 per meeting for directors not resident in Europe, for in-
person attendance at each quarterly board meeting. The directors may also be
repaid all reasonable out-of-pocket expenses, insurance coverage, travel, hotel
and other expenses properly incurred by them in attending our meetings. We paid
a total of $103,000 as compensation to all directors as a group during 1998. We
have no employees and therefore we do not compensate any officers.

Operating Advisor Fees

The Operating Advisor will receive for the services it provides a fee of 1.25%
per annum payable quarterly in arrears, pursuant to the Advisory Agreement of
the average monthly value of funds invested by us, other than funds placed in
liquid, short-term investments pending further investment, or investments in
Security Capital Group securities, for the immediately preceding month. Half of
this fee shall be payable by SC-U.S. Realty and half by Holdings. The Operating
Advisor has received fees for these services for the periods from 7 July 1995,
the date of our incorporation, to 31 December 1995, from 1 January 1996 to 31
December 1996, from 1 January 1997 to 31 December 1997 and from 1 January 1998
to 31 December 1998 of $99,000, $8,041,000, $24,632,000 and $35,220,000,
respectively.

We will pay or reimburse the Operating Advisor, as appropriate, for the
operating and administrative expenses or costs described above in U.S. Dollars.
However, we do not pay or reimburse the Operating Advisor for any operating and
administrative expenses in any calendar year, other than expenses related to
specific investment, financing or share issuance transactions which are
appropriately capitalised, expensed as interest or other general debt costs or
included in the investment cost of an asset under GAAP, to the extent that such
operating and administrative expenses exceed 0.25% per annum of the average
monthly value of funds invested by us, other than funds placed in liquid, short-
term investments pending further investment, or investments in Security Capital
Group securities, for such calendar year, as calculated in respect of each
calendar month of such calendar year. To the extent that we incur any of these
operating and administrative expenses, other than expenses relating to specific
investment, financing or share issuance transactions which are appropriately
capitalised, expensed as interest or other general debt costs or included in the
investment cost of an asset under GAAP, in any calendar year in excess of the
aforementioned amount, the Operating Advisor shall reduce its fee described
above in relation to such calendar year in the amount of the excess of these
expenses, in order that the Operating Advisor thereby effectively pays such
additional operating and administrative expenses up to the amount of the
Operating Advisor's fee. Other than the expenses payable to the Operating
Advisor, our other costs are not expected to exceed 0.25% per annum of the
average monthly value of funds invested by us, other than funds placed in
liquid, short-term investments pending further investment, or investments in
Security Capital Group securities, in any calendar year.

Options to Purchase Securities

We have no outstanding options to purchase securities.

Interests Of Directors In Certain Transactions

Erich Coenen has been our director since October 1998 and has been a member of
board of managing directors of Commerzbank AG since 1982. Commerzbank AG is the
arranger and administrative agent for our line of credit and acted in a similar
capacity with regard to the Holdings line of credit.

Claude Kremer has been our director since January 1999 and has been a partner
with the law firm of Arendt & Medernach since 1982. Arendt & Medernach has
provided legal services to us since its formation.

Francois Moes has been our director since October 1998 and has been a member
of the executive board of BIL since 1990. BIL provides all custodial duties for
us, such as custody of cash, securities deposits and financial

-65-
<PAGE>

transactions, as well as certain administrative duties, such as bookkeeping and
the calculation of NAV. In addition, BIL performs accounting and financial
reporting.

None of Messrs. Coenen, Kremer or Moes had or has a direct or indirect
material interest in any of the respective transactions described above.

Interests Of The Operating Advisor In Certain Transactions

The Operating Advisor provides us with advice with respect to strategy,
investments, financing and certain other administrative matters affecting us.
The Operating Advisor advises only SC-U.S. Realty.

The Operating Advisor and its U.S. affiliates have identified many tangible
investment opportunities with the potential to generate significant returns by
deploying capital into U.S. real estate companies. The Operating Advisor and its
affiliates have committed significant resources to researching and developing
our strategy, and the Operating Advisor advises on the management of our
operations to execute this strategy.

The Operating Advisor analyses potential opportunities for us to deploy
capital in strategic investment positions in U.S. real estate companies,
including privately held REITs, and publicly traded positions in REITs. The
Operating Advisor seeks to identify geographic and/or product type niches which
offer the most attractive opportunities for us to deploy our capital. The
Operating Advisor believes that there are a number of specific additional
opportunities in which we could generate significant returns by strategically
deploying our capital.

Within a given niche, the Operating Advisor evaluates companies' competitive
positions, management expertise, strategic direction, financial strength and,
most importantly, their prospects for long-term, sustainable per share cash flow
growth. We believe that growth in long-term, sustainable cash flow is a function
of a company's ability to be a leader in its market niche with the best service,
marketing and product and should be reflected in long-term dividend growth and
stock appreciation. Meetings between the Operating Advisor and a company's
senior management are an integral part of the Operating Advisor's preliminary
analysis.

The Operating Advisor advises us on obtaining board and committee
representation and other management rights with respect to strategic investment
positions to impact the research, development and implementation of long-term,
focused operating strategies consistent with our investment criteria.

The Operating Advisor provides services to us under an agreement dated 1 July
1997. The term of this agreement is two years from the date of its signature.
The agreement is automatically renewed for successive periods of two years,
unless we and Holdings, acting together, give written notice that the agreement
will not be renewed; however, at any time after the first anniversary date of
the agreement both we and Holdings, acting together, may terminate the agreement
on not less than sixty days' prior written notice to the Operating Advisor.

The Operating Advisor is a public limited holding company, societe anonyme,
incorporated under the laws of Luxembourg on 26 June 1997 for an unlimited
period of time.

Its registered office is located at 25b, boulevard Royal, L-2449 Luxembourg.
Its current directors are Jeffrey A. Cozad, Christopher W. House and William D.
Sanders.

Subject to the prior approval of our board of directors, the Operating Advisor
may subcontract part or all of its duties, functions, powers or privileges to
other persons or entities on terms and conditions as the Operating Advisor
determines. In all cases, however, the Operating Advisor shall be responsible
for the performance of such duties and responsibilities.

Please read "Operating Advisor" and "Relationship with Security Capital Group"
for more information concerning our relationship with the Operating Advisor and
Security Capital Group.

Operating Advisor Affiliates

The Operating Advisor has stated that it currently intends to continue to
contract with the Sub-Advisor and other real estate and business consulting
services to assist in the research, identification and evaluation of strategic
investment positions. The Sub-Advisor is a resource for us, which conducts
strategic real estate market research,

-66-
<PAGE>

investment research and due diligence. The Operating Advisor uses this
information to evaluate potential strategic investment positions in U.S. real
estate companies and publicly traded positions in REITs.

We have appointed Security Capital European Services S.A. as our agent (the
"Domiciliary Agent") and service agent (the "Service Agent") responsible for our
domiciliation and the performance of certain of the administrative duties not
performed by the Corporate Agent.

The rights and duties of Security Capital European Services S.A., as
Domiciliary and Service Agent, are governed by an agreement for an unlimited
period of time which may be terminated by us or Security Capital European
Services S.A. by giving not less than 90 days' prior written notice.

Security Capital European Services S.A. is a public limited company, societe
anonyme, incorporated under the laws of the Grand Duchy of Luxembourg on 18
March 1997. It presently exists for an unlimited period of time. Its
registered office is at 25b, boulevard Royal, L-2449 Luxembourg. Its share
capital amounted to $50,000 as of 31 December 1998.

Also see "Charges and Expenses" above for more information concerning the
affiliates of the Operating Advisor.

-67-
<PAGE>

DESCRIPTION OF CONVERTIBLE NOTES

The Convertible Notes were issued under the Indenture dated as of 22 May 1998
between SC-U.S. Realty and State Street Bank and Trust Company, as Trustee. The
following description is subject to, and is qualified in its entirety by
reference to, all of the provisions of the Convertible Notes, the Indenture and
the related registration rights agreement between SC-U.S. Realty and the initial
purchasers of the Convertible Notes (the "Registration Rights Agreement").

General

The Convertible Notes represent our senior unsecured general obligations, and
are convertible into our shares which the holder may convert into American
Depositary Shares. The Convertible Notes are the only series of debt securities
that have been issued under the Indenture. The Convertible Notes rank equally
with all of our existing and future senior unsecured indebtedness. The
Convertible Notes mature at their aggregate principal amount at maturity on 22
May 2003, unless the holder has previously converted them or unless we have
redeemed them.

Except as described in "--Certain Limitations on Incurrence of Indebtedness"
below, the Indenture does not contain any financial covenants or restrictions on
the incurrence of indebtedness, the payment of dividends or the issuance or
repurchase of our securities. Financial covenants or restrictions on any future
series of debt securities which may be issued under the Indenture will not,
unless otherwise provided at that time, apply to the Convertible Notes. In
addition, the Indenture contains no covenants or other provisions to afford
protection to holders of Convertible Notes in the event of a highly leveraged
transaction, although holders of Convertible Notes have certain rights upon a
change in control. Please read "--Repurchase at Option of Holders Upon Change in
Control".

We pay interest on the Convertible Notes semi-annually at the rate of 2% per
annum in cash in arrears on 8 May and 22 November of each year to holders of
record at the close of business on the preceding 8 May and 8 November,
respectively. Since 1 January 1999, we have paid interest on the Convertible
Notes semi-annually at the rate of 2 1/2% per annum, although this amount will
revert back to 2% upon the effectiveness of the registration statement which
contains this prospectus. The interest paid by us on the Convertible Notes has
been computed on the basis of a 360-day year comprised of twelve 30-day months.
The Convertible Notes have borne interest from 22 May 1998. The Convertible
Notes were sold at a discount to their aggregate principal amount at maturity.
The rate of interest and accrual of original issue discount represents a yield
to maturity of 6 3/4% per annum, computed on a semi-annual bond equivalent
basis.

Principal, premium, if any, and accrued and unpaid interest, including
liquidated damages, if any, on the Convertible Notes is paid, and the
Convertible Notes may be presented for conversion, registration of transfer and
exchange, without service charge, at the offices of the Trustee, security
registrar, paying agent and conversion agent maintained for such purpose in
Boston, Massachusetts and in Luxembourg. In connection with any conversion,
registration or transfer and exchange, we may require payment by a holder of a
sum sufficient to cover any tax, assessment or other governmental charge payable
in connection with such charge.

Conversion of Notes

The holders of Convertible Notes are entitled at any time through the close of
business on 22 May 2003, subject to prior redemption, to convert any Convertible
Notes or a portion of the Convertible Notes, in denominations of $1,000 of
aggregate principal amount at maturity, into our shares, at the conversion rate
set forth below, subject to adjustment as described below. We will not make any
adjustment on conversion of any Convertible Notes for interest accrued on the
Convertible Notes or for dividends on any shares issued. Our delivery to the
holder of the shares into which the Convertible Note is converted, together with
the cash payment, if any, in lieu of a fractional share, will be deemed to
satisfy our obligation to pay the principal amount of the Convertible Note and
accrued but unpaid interest, including liquidated damages, if any. In the case
we call some or all of the Convertible Notes for redemption, conversion rights
will expire at the close of business on the date fixed for redemption unless we
default in payment of the redemption price.

The Convertible Notes are convertible into shares at a conversion rate of
26.39095 shares per $1,000 aggregate principal amount at maturity of Convertible
Notes on a post reverse stock split basis. To the extent permitted by our

-68-
<PAGE>

Articles of Incorporation, this rate is subject to adjustment, under formulae
established pursuant to the Indenture, in certain events, including:

(1) the issuance of shares as a dividend or distribution on shares;

(2) certain subdivisions and combinations of the shares;

(3) the issuance to all holders of shares of certain rights, options or
warrants to purchase shares at a price less than 94% of the closing market
price of the shares on the primary exchange on which the shares are listed
at the time of pricing;

(4) the issuance or sale of securities convertible into shares where the
conversion price per share is less than 94% of the closing market price of
the shares on the primary exchange on which the shares are listed at the
time of pricing of the convertible securities;

(5) the distribution to all holders of securities of SC-U.S. Realty, other
than shares, or evidences of our indebtedness or assets, including
securities, but excluding those rights, options, warrants, dividends and
distributions referred to in (3) above or paid in cash; and

(6) distributions consisting of cash, other than in connection with the
liquidation or dissolution of or in connection with any dividend or
distribution paid exclusively in cash out of our retained earnings, to
holders of shares, or of a class or series of capital stock convertible
into or exchangeable or exercisable for shares.

To the extent adjustments for the events specified in the immediately preceding
sentence are not permitted by our Articles of Incorporation, we have agreed not
to effect any such event. No adjustment need be made if holders of Convertible
Notes may participate in the transaction or in certain other cases. In the event
of a distribution to all holders of shares of certain rights, options or
warrants to subscribe for additional shares as provided in clause (3) above, we
may, instead of making any adjustment in the conversion rate and to the extent
permitted by our Articles of Incorporation, make proper provision so that each
holder of a Convertible Note who converts their Convertible Note after the
record date for this distribution and prior to the expiration or redemption of
these rights, options or warrants will be entitled to receive upon a conversion,
in addition to shares, a number of other rights, options or warrants determined
in accordance with a formula established pursuant to the Indenture. Notice of
any adjustment of the conversion rate will be given to holders of Convertible
Notes by publication in a daily newspaper of general circulation in the United
States and in a daily newspaper of general circulation in Luxembourg or, if
publication in Luxembourg is not practical, elsewhere in Western Europe.

The following table shows the initial offering price for the Convertible
Notes, accrued original issue discount, accreted value and deemed conversion
price of the Convertible Notes at six-month intervals from issuance of the
Convertible Notes through 22 May 2003. If the Convertible Notes are converted
between any two such dates, the actual accreted value would include an
additional amount reflecting the additional original issue discount accrued from
the previous date in the table, and the deemed conversion price would need to be
adjusted accordingly.

<TABLE>
<CAPTION>
Accrued
Original Deemed
Offering Issue Accreted Conversion
Date Price Discount Value Price
---- -------- -------- --------- ----------
<S> <C> <C> <C> <C>
22 November 1998.. $801.23 $ 17.04 $ 818.27 $31.00
22 May 1999....... 801.23 34.66 835.89 31.68
22 November 1999.. 801.23 52.87 854.10 32.36
22 May 2000....... 801.23 71.70 872.93 33.08
22 November 2000.. 801.23 91.16 892.39 33.82
22 May 2001....... 801.23 111.27 912.50 34.58
22 November 2001.. 801.23 132.07 933.30 35.36
22 May 2002....... 801.23 153.57 954.80 36.18
22 November 2002.. 801.23 175.80 977.03 37.02
22 May 2003....... 801.23 198.77 1,000.00 37.90
</TABLE>

-69-
<PAGE>

Accreted value means, as of any date of determination, the sum of (a) the
initial offering price of each Convertible Note and (b) the portion of the
excess of (1) the aggregate principal amount of each Convertible Note over (2)
the initial offering price that has been amortised through the date of
determination. This amount is amortised on a daily basis and compounded semi-
annually on each 22 May and 22 November through the date of determination to
achieve, during this period, an annual rate of return on the aggregate principal
amount at maturity of each Convertible Note equal to 6 3/4%, assuming the rate
of interest payable on the Convertible Notes is 2% per annum on the aggregate
principal amount at maturity of each Convertible Note.

In addition, the Indenture provides that if we implement a shareholder rights
plan, such rights plan must provide that upon conversion of the Convertible
Notes the holders will receive, in addition to the shares issuable upon
conversion, the rights issued under such plan, notwithstanding the occurrence of
an event causing such rights to separate from the shares at or prior to the time
of conversion.

Beneficial owners of interests in the Convertible Notes may exercise their
right of conversion by delivering to DTC, Euroclear or Cedel, as appropriate,
the appropriate instruction form for conversion pursuant to the appropriate
entity's conversion program or normal operating procedures. To convert a
Convertible Note held in certificated form, a holder must

(1) complete and manually sign the conversion notice on the back of a
Convertible Note, or complete and manually sign a facsimile of the
Convertible Note, and deliver such notice to the Trustee in Boston,
Massachusetts or to one of the paying agents in Boston, Massachusetts and
in Luxembourg;

(2) surrender the Convertible Note to the Trustee in Boston, Massachusetts or
the paying agents in Boston, Massachusetts and in Luxembourg, as the case
may be;

(3) if required, furnish appropriate endorsements and transfer documents;

(4) if required, pay all transfer or similar taxes; and

(5) if required, pay funds equal to interest payable on the next succeeding
interest payment date.

Pursuant to the Indenture, the date on which all of the above requirements have
been satisfied is the date of surrender for conversion. Such notice of
conversion can be obtained from the Trustee at its corporate trust office or the
office of any paying agent. As promptly as practicable on or after the
conversion date, we will issue and deliver to the Trustee a certificate or
certificates for the number of full shares issuable upon conversion, together
with payment in lieu of any fractional share. This certificate will be sent by
the Trustee to the appropriate paying agent for delivery to the holder entitled
for the certificate. The shares we issue upon conversion of the Converted Notes
will be fully paid and nonassessable. Please read "Description of Shares" for
more information concerning the shares, including the trading of shares.

Any Convertible Note surrendered for conversion during the period from the
close of business on any regular record date to the opening of business on the
next succeeding interest payment date must be accompanied by payment of an
amount equal to the interest payable on the interest payment date on the
aggregate principal amount of the Convertible Notes being surrendered for
conversion. In the case of any Convertible Note which has been converted after
any regular record date, but on or before the next interest payment date,
interest due on that interest payment date shall be payable on the interest
payment date notwithstanding the conversion. We will pay interest to the holder
of the Convertible Note on the regular record date. As a result, a holder that
surrenders Convertible Notes for conversion on a date that is not an interest
payment date will not receive any interest for the period from the interest
payment date next preceding the date of conversion to the date of conversion or
for any later period, even if the Convertible Notes are surrendered after a
notice of redemption. No other payment or adjustment for interest, or for any
dividends in respect of shares, will be made upon conversion. Holders of shares
issued upon conversion will not be entitled to receive any dividends payable to
holders of shares as of any record time before the close of business on the
conversion date. We will not issue fractional shares upon conversion but will
pay the equivalent amount in cash based on the NAV on the valuation date
immediately preceding the conversion date.

The paying agent will forward Convertible Notes held in certificated form
surrendered for conversion, in whole or in part, promptly by the paying agent to
the Trustee for cancellation. We shall execute and the Trustee shall

-70-
<PAGE>

authenticate and deliver a new Convertible Note or Notes in principal amount at
maturity equal to the unconverted portion of Convertible Notes so surrendered,
if any. The Trustee will deliver promptly to the paying agent in Boston,
Massachusetts or Luxembourg, as applicable, all funds collected representing
interest payable on a Convertible Note converted between a regular record date
and the next succeeding interest payment date.

A holder delivering a Convertible Note for conversion will not be required to
pay any documentary, stamp or similar duties in respect of the issue or delivery
of shares on conversion but will be required to pay any tax or duty which may be
payable in respect of any transfer involved in the issue and delivery of the
shares in a name other than that of the holder of a Convertible Note.
Certificates representing shares will not be issued or delivered unless all
taxes and duties, if any, payable by the holder have been paid.

If the repurchase right upon a change in control, as described below, is
available but is not elected by a holder, then in the case of any
reclassification of the shares, or any consolidation, merger or combination
involving us, other than a consolidation, merger or combination that does not
result in any reclassification, conversion, exchange or cancellation of shares,
any sale or other transfer or distribution of our assets as an entirety or
substantially as an entirety or any compulsory share exchange where the shares
are converted into other securities, cash or property, the holders of the
Convertible Notes then outstanding will be entitled afterwards, during the
period the Convertible Notes are convertible as specified above, to convert the
Convertible Notes into the kind and amount of shares of stock, other securities
or other property or assets, including cash, which they would have owned or been
entitled to receive upon such reclassification, change, consolidation, merger,
combination, sale, disposition or share exchange had the Convertible Notes been
converted into shares immediately prior to such reclassification, change,
consolidation, merger, combination, sale, disposition or share exchange assuming
that a holder of Convertible Notes would not have exercised any rights of
election as to the stock, other securities or other property or assets
receivable in the transaction.

We may from time to time, increase the conversion rate by any amount to the
extent permitted by law and by our Articles of Incorporation. If we do, the
period in which to convert at such increased rate must be at least 20 days and
the increased rate must be irrevocable during this period. In addition, holders
must receive at least 15 days' notice of any such increase. In order to increase
the conversion rate, the Board of Directors must make a determination that such
increase is in our best interests, which determination shall be conclusive.

We may also make such increases in the conversion rate, in addition to those
set forth above, as the Board of Directors deems advisable, to avoid or diminish
any income tax to holders of shares resulting from any dividend or distribution
of stock, or rights to acquire stock, or resulting from any dividend or
distribution of shares or issuance of rights, options or warrants to purchase or
subscribe for shares, or from any event treated as such for income tax purposes.

No adjustment in the conversion rate will be required unless such adjustment
would require a change of at least 1% in the conversion rate then in effect;
provided that any adjustment that would otherwise be required to be made shall
be carried forward and taken into account in any subsequent adjustment. Except
as stated above, the conversion rate will not be adjusted for the issuance of
shares or any securities convertible into or exchangeable for shares or carrying
the right to purchase any of the foregoing.

The holder of a Convertible Note may, at its option, elect to receive American
Depositary Shares, rather than shares, upon conversion of the Convertible Notes,
upon the terms and conditions described elsewhere in this prospectus.

Optional Redemption by SC-U.S. Realty

The Convertible Notes are not entitled to any sinking fund. At any time on or
after 16 May 2001, we may redeem the Convertible Notes at our option on at least
30 days' notice in whole or in part, from time to time, at the accreted value,
together with accrued and unpaid interest, including liquidated damages, if any;
provided that any semi-annual payment of interest becoming due on the date fixed
for redemption shall be payable to the holders of record on the relevant record
date of the Convertible Notes being redeemed.

If fewer than all the Convertible Notes are to be redeemed, the Trustee will
select the Convertible Notes to be redeemed on a pro rata basis. If any
Convertible Note is to be redeemed in part only, a new Convertible Note or Notes
in an aggregate principal amount equal to the unredeemed principal portion
thereof will be issued. If a portion

-71-
<PAGE>

of a holder's Convertible Notes is selected for partial redemption and the
holder converts a portion of its Convertible Notes, the converted portion shall
be deemed to be taken from the portion selected for redemption and, accordingly,
such portion shall be converted instead of redeemed.

Ranking of the Convertible Notes

The Convertible Notes are our senior unsecured obligations and will rank
equally in right of payment with all of our existing and future senior unsecured
indebtedness. The Convertible Notes are our obligations exclusively and not of
any of our subsidiaries or strategic investees. The Convertible Notes are
effectively subordinated to all existing and future secured indebtedness, to the
extent of the value of the collateral securing such indebtedness, and are
effectively subordinated to all indebtedness and other liabilities and
commitments of our subsidiaries and strategic investees. As a result, the cash
flow and our consequent ability to service debt, including the Convertible
Notes, may be dependent upon the earnings of our subsidiaries and strategic
investees and the distribution of those earnings, or upon loans or other
payments of funds by those subsidiaries and strategic investees, to us. All
future subsidiaries and strategic investees will be separate and distinct legal
entities and have no obligation, contingent or otherwise, to pay any amounts due
pursuant to the Convertible Notes or to make any funds available, whether by
dividends, distributions, loans or other payments. In addition, the payment of
dividends or distributions and the making of loans and advances to us by our
subsidiaries and strategic investees could be subject to statutory or
contractual restrictions, are contingent upon the earnings of those subsidiaries
and strategic investees and are subject to various business considerations.

Any right we have to receive any assets of any of our subsidiaries or
strategic investees upon their liquidation or reorganisation, and the consequent
right of the holders of the Convertible Notes to participate in those assets,
will be effectively subordinated to the claims of that subsidiary's or strategic
investee's creditors, including trade creditors, except to the extent that we
are recognised as a creditor of such subsidiary or strategic investee, in which
case our claims would still be subordinate to any security interest in the
assets of such subsidiary or strategic investee and any indebtedness of such
subsidiary or strategic investee senior to that held by us.

At 31 December 1998 our aggregate indebtedness on a consolidated basis was
approximately $632 million, and the aggregate indebtedness of our strategic
investees was approximately $3.5 billion. We do not guarantee the debt of our
strategic investees. The Indenture does not limit the amount of additional
indebtedness which we or any subsidiary, except in certain limited
circumstances, or any strategic investee can create, incur, assume or guarantee.

We are obligated to pay reasonable compensation to the Trustee and to
indemnify the Trustee against any losses, liabilities or expenses it incurs in
connection with its duties relating to the Convertible Notes. The Trustee's
claims for such payments will be senior to those of holders of the Convertible
Notes in respect of all funds collected or held by the Trustee.

Repurchase at Option of Holders upon Change in Control

The Indenture provides that if a change in control occurs, each holder of
Convertible Notes has the right to require us to repurchase all of such holder's
Convertible Notes, or any portion of the principal amount that is an integral
multiple of $1,000 in aggregate principal amount at maturity, on the date (the
"Repurchase Date") that is 30 days after the date of mailing of the Company
Notice, as described below, for cash at a price equal to the accreted value
thereof (the "Repurchase Price") together with accrued and unpaid interest,
including liquidated damages, if any, to, but excluding, the Repurchase Date;
provided that any semi-annual payment of interest becoming due on the Repurchase
Date shall be payable to the holders of record on the relevant record date of
the Convertible Notes being repurchased.

Procedures for Offers

Within 30 days following any change in control, subject to the provisions of
the Indenture, we shall give notice (the "Company Notice") to each holder of
Convertible Notes in the form described below under "--Notices" stating:

. that an offer ("Offer") is being made pursuant to a change in control, the
length of time the Offer shall remain open and the Repurchase Date;

-72-
<PAGE>

. the Repurchase Price, the amount of accrued and unpaid interest, including
liquidated damages, if any, at the Repurchase Date; and

. such other information required by the Indenture and applicable law and
regulations.

On any Repurchase Date, we will, to the extent lawful and required by the
Indenture and such Offer:

(1) accept for payment all Convertible Notes or portions of the Convertible
Notes tendered pursuant to such Offer;

(2) deposit with the Trustee the aggregate Repurchase Price of all Convertible
Notes or portions of the Convertible Notes accepted for payment together
with any accrued and unpaid interest, including liquidated damages, if
any, to the Repurchase Date; and

(3) deliver or cause to be delivered to the Trustee the Notes so accepted
together with an officer's certificate stating the aggregate principal
amount at maturity of the Convertible Notes or portions of the Convertible
Notes tendered to us.

The Trustee shall promptly mail to each holder of Convertible Notes so accepted,
payment in an amount equal to the Repurchase Price for those Convertible Notes
together with any accrued and unpaid interest, including liquidated damages, if
any, to the Repurchase Date, and the Trustee shall promptly authenticate and
mail, or cause to be transferred by book-entry, to a holder a new Convertible
Note equal in aggregate principal amount at maturity to any unpurchased portion
of the Convertible Notes surrendered, provided that each new Convertible Note
will be in denominations of a principal amount of $1,000 aggregate principal
amount at maturity. We will publicly announce the results of the Offer on or as
soon as practicable after the Repurchase Date.

A change in control will be deemed to have occurred at any time after the
original issuance of the Convertible Notes as:

(1) any "person" or "group" (as such items are used under Section 13(d) and
14(d) of the Exchange Act), other than us, one of our subsidiaries,
Security Capital Group or any affiliate of Security Capital Group or any
of our employee benefit plan of the Company or any such subsidiary, is or
becomes the beneficial owner, directly or indirectly, through a purchase
or other acquisition transaction or series of transactions, other than a
merger or consolidation involving us, of shares entitling such person or
group to exercise in excess of 50% of the total voting power of SC-U.S.
Realty entitled to vote generally in the election of directors; or

(2) there occurs any consolidation of us with, or merger of us into, any other
person, any merger of another person into us, or any sale or transfer of
all or substantially all of our assets to another person, other than (a)
any transaction pursuant to which the holders of the shares immediately
prior to such transaction have, directly or indirectly, shares of capital
stock of the continuing or surviving corporation immediately after the
transaction which entitle them to exercise in excess of 50% of the total
voting power of all shares of capital stock of the continuing or surviving
corporation entitled to vote generally in the election of directors or (b)
any merger (i) which does not result in any reclassification, conversion,
exchange or cancellation of outstanding Shares or (ii) which is effected
solely to change our jurisdiction of incorporation and results in a
reclassification, conversion or exchange of outstanding shares solely into
shares of common stock.

The definition of change in control in the Indenture includes a phrase
relating to the sale, lease, transfer, conveyance or other disposition of "all
or substantially all" of our assets as determined in accordance with the laws
of The State of New York. Although there is a developing body of case law
interpreting the phrase "substantially all", there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
holder of Convertible Notes to require us to repurchase their Convertible Notes
as a result of a sale, lease, transfer, conveyance or other disposition of less
than all of our assets and our subsidiaries to another person may be uncertain.

To the extent applicable, we will comply with the provisions of Rule 14e-1,
Rule 13e-4 or any other tender offer rules under the Exchange Act and/or the
applicable laws and regulations of any country other than the United States, and
will file a Schedule 13E-4 or any other schedule required under such rules, in
connection with any offer by us to repurchase Convertible Notes at the option of
the holders thereof upon a change in control.

-73-
<PAGE>

The change in control feature of the Convertible Notes may in certain
circumstances make it more difficult or discourage a takeover of us and, thus,
the removal of incumbent management.

The foregoing provisions would not necessarily afford holders of the
Convertible Notes protection in the event of a highly leveraged transaction,
certain changes in control of us or other transactions involving us that may
adversely affect holders.

Our ability to repurchase Convertible Notes upon the occurrence of a change in
control is subject to limitations. If a change in control were to occur, there
can be no assurance that we would have sufficient financial resources, or would
be able to arrange financing, to pay the Repurchase Price plus accrued and
unpaid interest and liquidated damages, if any, for all Convertible Notes
tendered by holders. In addition, the terms of our line of credit identify
certain events that would constitute a change in control, as well as certain
other events with respect to us, which would constitute an event of default
under such agreement. If we do not obtain a consent or repay borrowings or
otherwise terminate those agreements, we may remain prohibited from repurchasing
Convertible Notes. Any failure by us to repurchase the Convertible Notes when
required following a change in control would result in an event of default under
the Indenture.

Merger or Consolidation

The Indenture provides that we shall not consolidate or merge with or into, or
sell, lease, convey or otherwise dispose of all or substantially all of its
assets to, any person, any such consolidation, merger or sale being a
"Disposition", unless:

(1) either we are the continuing entity or the successor entity of such
Disposition or the person to which such Disposition shall have been made
is a corporation or entity organised or existing under the laws of the
Grand Duchy of Luxembourg;

(2) the successor entity of such Disposition or the person to which such
Disposition shall have been made, if applicable, expressly assumes our
obligations, pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee, under such Indenture and the related
Convertible Notes; and

(3) immediately after such Disposition, no default or event of default shall
exist.

Events of Default and Remedies

An Event of Default is defined in the Indenture as being:

. a default in payment of the principal of or premium, if any, on the
Convertible Notes;

. a default for 30 days in payment of any instalment of interest, including
liquidated damages, if any, on the Convertible Notes;

. a failure by us to perform any conversion of Convertible Notes required
under the Indenture and continuance of such failure for 30 days;

. default by us for 60 days after notice in the observance or performance,
in any material respect, of any other covenants in the Indenture;

. default in the payment of an aggregate principal amount exceeding
$10,000,000 of any evidence of recourse indebtedness of us or any mortgage,
indenture or other instrument under which such indebtedness is issued or by
which such indebtedness is secured, such default having occurred after the
expiration of any applicable grace period and having resulted in the
acceleration of the maturity of such indebtedness, but only if such
indebtedness is not discharged or such acceleration is not rescinded or
annulled, such default having continued for a period of 10 days after
written notice as provided pursuant to the Indenture;

. a violation on the limitation on incurrence of indebtedness described
below; or

-74-
<PAGE>

. certain events involving bankruptcy, insolvency or reorganisation, orders
or resolutions for our winding up or dissolution or other similar events
relating to us.

The Trustee shall give notice to holders of Convertible Notes of any
continuing Default known to the Trustee within 90 days after the occurrence of a
Default; provided that the Trustee may withhold notice to the holders of
Convertible Notes of any default, except in payment of principal, premium, if
any, interest, including liquidated damages, if any, with respect to the
Convertible Notes, if the Trustee considers it in the interest of the holders of
the Convertible Notes to do so.

The Indenture provides that if an event of Default occurs and is continuing,
the Trustee or the holders of not less than 25% in aggregate principal amount at
maturity of the Convertible Notes then outstanding may declare the accreted
value of and accrued interest, including liquidated damages, if any, on the
Convertible Notes to be due and payable immediately. However, if we shall cure
all defaults, except the nonpayment of accreted principal of, premium, if any,
interest, including liquidated damages, if any, on any of the Convertible Notes
which shall have become due by acceleration, and certain other conditions are
met, such declaration may be annulled and past defaults may be waived by the
holders of a majority of the principal amount of the Convertible Notes then
outstanding. In the case of certain events of bankruptcy or insolvency, the
accreted value of and accrued interest on the Convertible Notes shall
automatically become immediately due and payable.

The holders of a majority in principal amount at maturity of the Convertible
Notes then outstanding shall have the right to direct the time, method and place
of conducting any proceedings for any remedy available to the Trustee, subject
to certain limitations specified in the Indenture.

We are required to furnish to the Trustee annually a statement as to our
performance of certain of our obligations under the Indenture and as to any
default in such performance.

Certain Limitations on Incurrence of Indebtedness

Under the Indenture, we are not permitted to incur

. senior indebtedness that is not subordinated to the same extent as the
Convertible Notes or

. secured indebtedness that is by its terms senior in right of payment to the
Convertible Notes,

except that we are permitted to guarantee, on a secured and/or senior
unsubordinated basis, the obligations of any wholly-owned subsidiary, with
respect to any permitted indebtedness of such wholly-owned subsidiary. In
addition, under the Indenture, no wholly-owned subsidiary is permitted to incur

. any indebtedness that is by its terms subordinated in right of payment to
any permitted indebtedness of such wholly-owned subsidiary,

. any secured indebtedness if such wholly-owned subsidiary is an obligor
under any unsecured permitted indebtedness, or

. any unsecured indebtedness if such wholly-owned subsidiary is an obligor
under any secured indebtedness which is permitted indebtedness.

Modifications of the Indenture

The Indenture contains provisions permitting us and the Trustee, with the
consent of the holders of not less than a majority in aggregate principal amount
at maturity of the Convertible Notes at the time outstanding, to modify the
Indenture or any supplemental indenture or the rights of the holders of the
Convertible Notes, except that no such modification shall

(1) extend the fixed maturity of any Convertible Note, reduce the rate or
extend the time for payment of interest and liquidated damages, if any,
reduce the principal amount or premium, if any, thereon, reduce any
amount payable upon redemption, change the currency in which the
Convertible Notes are payable or impair the

-75-
<PAGE>

right to convert the Convertible Notes into shares subject to the terms
set forth in the Indenture, without the consent of each holder of a
Convertible Note so affected or

(2) reduce the percentage of Convertible Notes the holders of which are
required to consent to any such modifications, without the consent of the
holders of all of the Convertible Notes then outstanding.

The Indenture may also be modified or amended without the consent of the
holder of the Convertible Notes for certain specified purposes, including, among
other things, curing ambiguities, defects or inconsistencies, qualifying or
maintaining the qualifications of the Indenture under the U.S. Trust Indenture
Act of 1939, as amended, or making any change that does not adversely affect the
rights of any noteholder.

Book Entry, Delivery and Form

The Convertible Notes were issued in the form of one or more global notes in
fully registered form (the "Global Notes") and were deposited on behalf of DTC
and registered in the name of DTC's nominee. Except as set forth below, the
Global Notes may be transferred, in whole and not in part, only to DTC.
Investors may hold their beneficial interests in the Global Notes directly
through DTC if they are participants in such system, indirectly through
organisations which are participants in such system, or Cedel or Euroclear on
behalf of their participants through their respective depositaries, which in
turn will hold such beneficial interests in the Global Notes in participants'
securities accounts in the depositaries' names on the books of DTC.

Transfers between participants in Euroclear and Cedel are effected in the
ordinary way in accordance with their respective rules and operating procedures.

The interests in the Global Notes will trade in DTC's Same-Day Funds
Settlement System until maturity, and secondary market trading activity in the
Convertible Notes will therefore settle in immediately available funds. Any
cross-market transfer of any beneficial interest in the Global Notes will be
effected in DTC on behalf of Euroclear or Cedel in accordance with the rules of
DTC. However, such cross-market transactions will require delivery of
instructions to Euroclear or Cedel, as the case may be, by the counterparty in
such system in accordance with its rules and procedures and within its
established deadlines. Euroclear or Cedel, as the case may be, will, if the
transaction meets its settlement requirements, deliver instructions to its
respective depositary to take action to effect final settlement on its behalf by
delivering or receiving beneficial interests in DTC, and making or receiving
payment in accordance with normal procedures for same-day funds settlement
applicable to DTC. Euroclear participants and Cedel participants may not deliver
instructions directly to the depositaries for Euroclear or Cedel.

Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a Global Note from an institution
that has an account with DTC (a "Participant") will be credited during the
securities settlement processing day, which must be a business day for Euroclear
or Cedel, immediately following the DTC settlement date. Credit of such
transactions in a Global Note settled during such processing day will be
reported to the relevant Euroclear or Cedel participant on that day. Cash
received in Euroclear or Cedel as a result of sales of interests in a Global
Note by or through a Euroclear or Cedel participant to a Participant will be
received with value on the DTC settlement date but will be available in the
relevant Euroclear or Cedel cash account only as of the business day following
settlement in DTC.

Ownership of beneficial interests in Global Notes is limited to Participants
or persons that may hold interests through Participants. Ownership of beneficial
interests in the Global Notes will be shown on, and the transfer of those
ownership interests will be effected only through, records maintained by DTC,
with respect to Participants' interests, and such Participants, with respect to
the owners of beneficial interests in the Global Notes other than Participants.
The laws of some jurisdictions may require that certain purchasers of securities
take physical delivery of such securities in definitive form. Such limits and
laws may impair the ability to transfer or pledge beneficial ownership in the
Global Notes.

Persons who are not Participants may beneficially own interests in the Global
Notes held by DTC only through Participants, including Euroclear and Cedel, or
certain banks, brokers, dealers, trust companies and other parties that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly ("Indirect Participants"). So long as DTC, or its nominee, is the
registered holder and owner of the Global Notes, DTC or such nominee, as the
case may be, will be considered the sole owner and holder of the related
Convertible Notes for all purposes of such Convertible Notes. Except as set
forth below, owners of beneficial interests in the Global Notes

-76-
<PAGE>

will not be entitled to have the Convertible Notes represented by such Global
Notes registered in their names, will not receive or be entitled to receive
physical delivery of certificated Convertible Notes in definitive form and will
not be considered to be the owners or holders of any Convertible Notes under the
Global Notes. Accordingly, each person owning a beneficial interest in the
Global Notes must rely on the procedures of DTC and, if such person is not a
Participant, on the procedures of the Participant through which such person owns
its interests, to exercise any right of a holder of Convertible Notes under the
Global Notes. We understand that under existing industry practice, in the event
an owner of a beneficial interest in the Global Notes desires to take any action
that DTC, as the holder of the Global Notes, is entitled to take, DTC would
authorise the Participants to take such actions, and that the Participants would
authorise beneficial owners owning through such Participants to take such action
or would otherwise act upon the instructions of beneficial owners owning through
them.

Payments of principal of and interest on the Convertible Notes represented by
the Global Notes registered in the name and held by DTC or its nominee will be
made to DTC or its nominee, as the case may be, as the registered owner and
holder of the Global Notes, by wire transfer of immediately available funds on
each relevant payment date. Neither we, the Trustee nor any paying agent will
have any responsibility or liability for any aspect of the records relating to
or payments made on account of beneficial ownership interests in the Global
Notes or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests or for any other aspect of the relationship
between DTC and its Participants or the relationship between such Participants
and the owners of the beneficial interests in the Global Notes owned through
such Participants.

We have been informed by DTC that with respect to any payment of principal or
interest in respect of a Global Note, DTC's practice is to credit Participants'
accounts on the payment date therefor with payments in amounts proportionate to
their respective beneficial interests in the principal amount of such Global
Note as shown on the records of DTC or its nominee, adjusted as necessary so
that such payments are made with respect to whole Convertible Notes only, unless
DTC or its nominee has reason to believe that it will not receive payment on
such payment date. Payments by Participants to owners of beneficial interests in
such Global Notes held through such Participants will be governed by standing
instructions and customary practices and will be the responsibility of such
Participants, as is now the case with securities held for the accounts of
customers registered in "street name".

Because DTC can only act on behalf of Participants, who in turn act on behalf
of Indirect Participants and certain banks, the ability of a person having a
beneficial interest in Convertible Notes represented by a Global Note to pledge
such interest to persons or entities that do not participate in the DTC system,
or otherwise take actions in respect of such interest, may be affected by the
lack of a physical certificate evidencing such interest.

Neither we nor the Trustee, nor any registrar, paying agent or conversion
agent under the Indenture, will have any responsibility for the performance by
DTC or its Participants or Indirect Participants of their respective obligations
under the rules and procedures governing their operations. DTC has advised us
that it will take any action permitted to be taken by a holder of Convertible
Notes, including, without limitation, the presentation of Convertible Notes for
exchange, as described below, only at the direction of one or more Participants
to whose account with DTC interests in a Global Note are credited and only in
respect of the aggregate principal amount at maturity of the Notes represented
by a Global Note as to which such Participant or Participants has or have given
such direction.

Unless and until they are exchanged in whole or in part for certificated
Convertible Notes in definitive form, the Global Notes may not be transferred
except as a whole by DTC to a nominee of DTC or by a nominee of DTC to DTC or
another nominee of DTC.

Although DTC, Euroclear and Cedel have agreed to the foregoing procedures in
order to facilitate transfers of interests in the Global Notes among
participants of DTC, Euroclear and Cedel, they are under no obligation to
perform or continue to perform such procedures, and such procedures may be
discontinued at any time. Neither the Trustee nor we will have any
responsibility for the performance by DTC, Euroclear or Cedel or their
respective participants or indirect participants of the respective obligations
under the rules and procedures governing their operations.

DTC has advised us as follows: DTC is a limited-purpose trust company
organised under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "clearing agency" registered pursuant to the provisions
of Section 17A of the Exchange Act. DTC was created to hold securities of
Participants and to facilitate the clearance and settlement of securities

-77-
<PAGE>

transactions among its Participants in such securities through electronic book-
entry changes in accounts of its Participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organisations, some of whom, and/or their representatives, own DTC. Access to
DTC's book-entry system is also available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly. DTC agrees with
and represents to its Participants that it will administer its book-entry system
in accordance with its rules and by-laws and requirements of law.

Euroclear and Cedel have requested that the following two paragraphs be
included in this prospectus.

Euroclear eligible securities are freely transferable in Euroclear. Morgan
Guaranty Trust Company of New York, Brussels office, as Operator of the
Euroclear System (the "Operator"), is holding securities on behalf of
participants of Euroclear. All participants in Euroclear are banks, broker-
dealers and other financial institutions. The Operator has information about the
positions held by the various participants; however, it has no knowledge of, or
information on, the beneficial holders or owners of the securities in question.
Under general principles of Belgian Banking Secrecy, the Operator may not
disclose any information about a participant's account or positions in such
account without having first obtained such participant's prior written
authorisation. Euroclear participants are not likely to authorise disclosure of
such information. Therefore, no ownership nor any transfer restrictions will be
monitored by the Operator.

Cedel eligible securities are freely transferable in Cedel. Cedel is holding
securities on behalf of customers of Cedel. All customers of Cedel are banks,
broker-dealers and other financial institutions. Cedel has information about the
positions held by the various customers; however, it has no knowledge of, or
information on, the beneficial holders or owners of the securities in question.
Under general principles of Luxembourg Banking Secrecy Law, Cedel may not
disclose any information about a customer's account or positions in such account
without having first obtained such customer's prior written authorisation. Cedel
customers are not likely to authorise disclosure of such information. Therefore,
no ownership nor any transfer restrictions will be monitored by Cedel.

The information in this section concerning DTC and DTC's book-entry system has
been obtained from sources that we believe to be reliable, but we take no
responsibility for its accuracy.

Certificated Convertible Notes

The Convertible Notes represented by the Global Notes are exchangeable for
certificated Convertible Notes in definitive form if

(1) no successor depositary is appointed by us as set forth above, or if at
any time DTC ceases to be a clearing agent registered under the Securities
Exchange Act of 1934,

(2) at any time we determine not to have Convertible Notes represented by the
Global Notes or

(3) a default entitling the holders of the Convertible Notes to accelerate the
maturity of the Convertible Notes has occurred and is continuing.

Any Convertible Note that is exchangeable pursuant to the preceding sentence is
exchangeable for certificated Convertible Notes issuable in authorised
denominations and registered in such names as DTC shall direct. Subject to the
foregoing, the Global Notes are not exchangeable, except for a Global Note or
Global Notes of the same aggregate denominations to be registered in the name of
DTC or its nominees. Upon issuance of the Convertible Notes in definitive form,
the Trustee is required to register the Convertible Notes in the name of, and
cause the Convertible Notes to be delivered to, the person or persons, or the
nominee thereof, identified as the beneficial owner as DTC shall direct. The
transfer of Convertible Notes issued in definitive form will be registrable, at
the offices of the paying agents in Boston, Massachusetts and Luxembourg. In
addition, a transfer will not be recognised until it is recorded on our security
register. Payments on certificated Convertible Notes will be made at the
offices of the paying agents in Boston, Massachusetts and Luxembourg. No
service charge will be made for any registration of transfer or exchange of
certificated Convertible Notes, but we or the Trustee will require payment of a
sum sufficient to cover any tax or governmental charge payable in connection
with such transfer or exchange. In case of a partial transfer, conversion or
redemption, new certificates may be obtained from the paying agents in Boston,
Massachusetts and Luxembourg.

-78-
<PAGE>

Defeasance

We may terminate our obligations under the Convertible Notes, except
obligations relating to registration, replacement, conversion and payment, upon
the deposit with the Trustee of money or U.S. governmental obligations that,
through the payment of principal and interest in accordance with their terms,
will provide money in an amount sufficient to pay the principal of and the
interest on the scheduled due dates. In the case of defeasance, holders will be
entitled to receive payments in respect of such Convertible Notes solely from
that trust. Such a trust may be established only if no event of default relating
to our bankruptcy, insolvency or reorganisation exists or is continuing during
91 days following the deposit and if we have delivered to the Trustee an opinion
of counsel, as specified in the Indenture, to the effect that holders will not
recognise income, gain or loss for United States federal income tax purposes as
a result of the defeasance and will be subject to United States federal income
tax on the same amounts, in the same manner and at the same times as would have
been the case if such defeasance had not occurred.

Listing on the NYSE; Registration of Notes and Underlying Shares and American
Depositary Shares

Our shares are listed for trading on the AEX Stock Exchange in Amsterdam and
our American Depositary Shares are listed for trading on the New York Stock
Exchange.

We have agreed to use our best efforts to file with the Securities and
Exchange Commission three registration statements (each, a ''Registration
Statement'') with respect to the resale of the Convertible Notes and the
securities issuable upon their conversion (''Registrable Securities''). We
agreed to use our best efforts to file an initial Registration Statement by 31
December 1998 and use our best efforts to have it declared effective by 1 March
1999. We were unable to have the first Registration Statement filed and
effective within its specified time periods and therefore have been paying
liquidated damages as described below. We agreed to use our best efforts to
have a second Registration Statement declared effective by 31 July 1999. We
agreed to keep each such Registration Statement effective for a period of 30
consecutive days from the effective date of the respective Registration
Statement, except in the circumstances described below. We also agreed to use
our best efforts to have a third Registration Statement (a shelf Registration
Statement) declared effective by 1 March 2000. We agreed to use our best
efforts to keep the third Registration Statement effective until the earliest to
occur of

(1) 14 May 2000,

(2) the time when there are no outstanding Registrable Securities or

(3) the time when all outstanding Registrable Securities may be resold
without registration under the Securities Act pursuant to Rule 144(k)
(collectively, the "Effectiveness Period").

We are permitted to suspend the filing or effectiveness of a Registration
Statement or the use of the prospectus which is a part of a Registration
Statement for a period not to exceed 45 days in any three-month period or two
periods not to exceed an aggregate of 90 days in any twelve-month period in
circumstances relating to pending corporate developments, public filings with
the Commission or other regulatory bodies, and similar events.

A holder who sells Registrable Securities pursuant to a Registration Statement
generally will be required to be named as a selling securityholder in the
related prospectus, deliver a prospectus to purchasers and be bound by those
provisions of the Registration Rights Agreement which are applicable to such
holder, including indemnification provisions. We will pay all expenses of the
Registration Statements, provide to each registered holder requesting to sell
Registrable Securities copies of the prospectus, notify each such registered
holder when a Registration Statement has become effective and take certain other
actions as are required to permit, subject to the foregoing, unrestricted
resales of the Registrable Securities. Prior to effecting a sale pursuant to a
Registration Statement, a holder must provide at least three days', but no more
than 30 days', notice to us, confirm that no suspension of the use of the
prospectus which is a part of a Registration Statement is in effect and provide
certain information with respect to such holder for inclusion in the prospectus,
to the extent not already included or previously included but required to be
updated. There can be no assurance that the prospectus will be available to
effect resales at the time any such notice is given by a holder.

-79-
<PAGE>

Liquidated Damages

Pursuant to the terms of the Registration Rights Agreement, we are obligated
to pay liquidated damages in the event that any of the following five
circumstances (each being an "Illiquidity Event") occur:

(1) the shares were not listed on the NYSE by 31 December 1998,

(2) the initial Registration Statement was not filed with the Securities and
Exchange Commission by 31 December 1998,

(3) the initial Registration Statement was not declared effective by the
Securities and Exchange Commission by 1 March 1999 or was not kept
effective for 30 consecutive days, except as described above,

(4) the second Registration Statement is not declared effective by the
Securities and Exchange Commission by 31 July 1999 or is not kept
effective for 30 consecutive days, except as described above, or

(5) the third Registration Statement (a shelf registration statement) is not
declared effective by the Securities and Exchange Commission by 1 March
2000),

In the event any of the above five circumstances occurs, then, in each case,
additional interest (''Liquidated Damages'') at a rate per annum equal to 0.25%
above the interest rate currently payable will accrue on the Convertible Notes,
subject to the limitation described below, from and including the day following
the inception of an Illiquidity Event to, but excluding, the day on which such
Illiquidity Event has been cured. In the event an Illiquidity Event occurs and
is continuing for more than 90 days, additional Liquidated Damages at a rate per
annum equal to an additional 0.25% above the interest rate currently payable
will accrue on the Convertible Notes, subject to the limitation described below,
from and including the 91st day following the inception of an Illiquidity Event
to but excluding the day on which such Illiquidity Event has been cured.
Liquidated Damages will be paid in cash semi-annually in arrears, with the first
semi-annual payment due on the first interest payment date following the date on
which such Liquidated Damages begin to accrue. Because two Illiquidity Events
have been occurring since 31 December 1998, we have been paying Liquidated
Damages since that time. Since the American Depositary Shares are now listed on
the NYSE, upon effectiveness of the registration statement of which this
prospectus is a part, we will immediately cease paying Liquidated Damages.

Notwithstanding any suspensions permitted by the Registration Rights
Agreement, in the event that the third Registration Statement ceases to be
effective during the Effectiveness Period or we suspend the use of this
prospectus for more than 90 days, whether or not consecutive, during any twelve-
month period, then the interest rate borne by the Convertible Notes will
increase by an additional 0.50% per annum, subject to the limitation described
below, from the 91st day of the applicable twelve-month period the third
Registration Statement ceases to be effective or we suspend the use of this
prospectus, as the case may be, until such time as

(1) the third Registration Statement (a shelf Registration Statement) again
becomes effective,

(2) the use of a prospectus ceases to be suspended or

(3) the Effectiveness Period expires.

The increase in the interest rate on the Convertible Notes as Liquidated Damages
will be reflected in an increase in the interest rate currently payable on the
Convertible Notes and not in the rate at which additional interest accretes on
the Convertible Notes from their original discount. Upon the effectiveness of
the third Registration Statement, a shelf Registration Statement, all
Illiquidity Events shall be deemed cured. Under no circumstances will the
interest rate be increased to a rate in excess of 2 1/2% per annum.

We will provide notice to holders of any change in the interest rate payable
on the Convertible Notes.

Provision of Financial Information to Holders of Convertible Notes

So long as the Convertible Notes are outstanding, we will provide to all
holders of Convertible Notes and file with the Trustee copies of such annual
reports, interim reports and other documents it is required to furnish to

-80-
<PAGE>

shareholders generally. In addition, we have agreed that, for so long as any
Convertible Notes remain outstanding, we will furnish to the holders and to
securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act if, at any time, we are neither subject to Section 13 or 15(d) of
the Exchange Act, nor exempt from reporting pursuant to Rule 12g3-2(b) under the
Securities Exchange Act of 1934.

Transfer and Exchange

We have appointed the Trustee as a security registrar and paying agent in
Boston, Massachusetts and State Street Bank Luxembourg, S.A. as security
registrar and paying agent in Luxembourg. We reserve the right to vary or
terminate the appointment of the security registrar or any paying agent or to
appoint additional or other conversion agents or to approve any change in the
office through which any security registrar or any paying agent acts, provided
that there will at all times be a security registrar and paying and transfer
agent in Luxembourg.

Purchase and Cancellation

We may at any time and from time to time purchase Convertible Notes in the
open market or otherwise at any price, subject to applicable securities laws.

All Convertible Notes that are surrendered for payment, redemption,
repurchase, registration of transfer or exchange or conversion will forthwith be
cancelled and may not be reissued or resold.

Title

Prior to the registration of transfer of any Convertible Note, we and the
Trustee may treat the registered owner, as reflected in the security register,
of such Convertible Note as its absolute owner, whether or not the Convertible
Note is overdue, for the purpose of making payment and for all other purposes.

Notices

Notice to holders of Convertible Notes will be given by mail to the addresses
of such holders as they appear on the security register. Such notices will be
deemed to have been given on the date of such mailing or on the date of the
first such publication, as the case may be.

Notices to holders of the Convertible Notes will be given by publication in a
daily newspaper of general circulation in The City of New York and in Luxembourg
or, if publication in Luxembourg is not practical, in Western Europe. Such
notices will be deemed to have been given on the date of such publication or, if
published in such newspapers on different dates, on the date of the first such
publication.

Notices of a redemption of Convertible Notes will be given at least once not
less than 30 nor more than 60 days prior to the Redemption Date, which shall be
published in accordance with the procedures described in the preceding
paragraphs, and will be irrevocable and will specify the Redemption Date.

Replacement of Convertible Notes

Convertible Notes held in certificated form that become mutilated, destroyed,
stolen or lost will be replaced by us at the expense of the holder of the
Convertible Notes upon delivery to the Trustee or to a paying agent outside the
United States, or us in the case of lost, stolen or destroyed certificates, of
the mutilated Convertible Notes or evidence of the loss, theft or destruction of
a Certificate satisfactory to us or the Trustee or such paying agent, as the
case may be. In the case of a lost, stolen or destroyed Convertible Note,
security or indemnity satisfactory to the Trustee and us and such paying agent
may be required from the holder of such Convertible Note before a replacement
Convertible Note will be issued.

Payment of Stamp and Other Taxes

We shall pay all stamp and other similar duties, if any, which may be imposed
by the United States or any political subdivision of the U.S. or taxing
authority thereof or therein with respect to the issuance of the shares upon any
conversion of Convertible Notes. Except as described in the preceding sentence,
we will not be required to make

-81-
<PAGE>

any payment with respect to any other tax, assessment or governmental charge
imposed by any government or any political subdivision or taxing authority.

Governing Law

The Indenture and the Convertible Notes and the rights and duties of the
Trustee are governed by and construed in accordance with the laws of the State
of New York without giving effect to applicable principles of conflicts of laws,
except that matters relating to authorisation and execution by us of the
Indenture and the Convertible Notes are governed by the laws of the Grand Duchy
of Luxembourg.

Consent to Service

Pursuant to the Indenture, we have irrevocably designated an authorised agent
for service of process in any legal action or proceeding arising out of or
relating to the Indenture or the Convertible Notes brought in any U.S. federal
or state court in the Borough of Manhattan, The City of New York, which agent
currently is the office of the paying agent in Boston, Massachusetts, and we
have irrevocably submitted to the nonexclusive jurisdiction of those courts.

Concerning the Trustee

State Street Bank and Trust Company, as Trustee under the Indenture, has been
appointed by us as the paying agent, conversion agent, registrar and custodian
with regard to the Convertible Notes. The Trustee or its affiliates may from
time to time in the future provide banking and other services to us or our
affiliates in the ordinary course of its business.

In the case an event of default of which the Trustee has actual knowledge
shall occur and be continuing, the Trustee will be required in the exercise of
its powers to use the degree of care of a prudent person in the conduct of his
own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any of the holders of the Convertible Notes, unless they shall have
offered to the Trustee reasonable security or indemnity.

DESCRIPTION OF AMERICAN DEPOSITARY SHARES

The following is a description of the material provisions of the Deposit
Agreement (the "Deposit Agreement"), dated as of 18 June 1999, among SC-U. S.
Realty, The Bank of New York, as depositary and the holders from time to time of
registered American Depositary Receipts or ADRs. This summary is not complete.
For full information, you should read the Deposit Agreement. The Deposit
Agreement is governed by the laws of the State of New York. The corporate trust
office of the Depositary is 101 Barclay Street, New York, New York 10286 and the
principal executive office is located at One Wall Street, New York, New York
10286. Terms used in this section and not otherwise defined shall have the
respective meanings set forth in the Deposit Agreement.

The Depository may issue American Depositary Shares or ADSs pursuant to the
Deposit Agreement. Each ADR evidences a specified number of ADSs and each ADS
represents one share, or evidence of a right to receive such share, deposited
with the Depositary or the Depositary's custodian (the "Custodian"). An ADR may
represent any number of ADSs. On 24 June 1999 the American Depositary Shares
began trading on the NYSE.

Deposited Securities

As used in this section, "Deposited Securities" as of any time means our
shares at such time deposited, or deemed to be deposited, under the Deposit
Agreement and any cash, securities or other property received by the Depositary
or the Custodian.

Deposit and Withdrawal of Deposited Securities

The Depositary has agreed that, upon deposit with the Custodian of shares, or
evidence of rights to receive shares, accompanied by an appropriate instrument
of transfer or endorsement, and subject to the terms of the Deposit Agreement,
it will, upon payment of the fees, charges and taxes provided in the Deposit
Agreement, execute and deliver at the Corporate Trust Office of the Depositary,
to or upon the order of the person or persons specified by the

-82-
<PAGE>

depositor, an ADR or ADRs registered in the name of such person or persons and
evidencing the number of ADSs relating to such deposit. Each person depositing
shares and each certificate therefore are deemed to represent and warrant that

(1) the shares are validly issued and subscribed for, fully paid and non-
assessable and therefore are deemed free of any preemptive rights,

(2) such person is duly authorised to deposit shares and

(3) such shares are not, and the ADRs issuable upon deposit will not be,
restricted securities under the Securities Act of 1933.

The Depositary may issue ADRs against the rights to receive shares from us or
any agent of recording share ownership. The Depositary will not issue ADRs
against any other rights to receive shares unless

(1) the ADRs are fully collateralised, marked to market daily, with cash or
other collateral as the Depositary deems appropriate,

(2) the applicant for the ADRs represents in writing that it or its customer
owns the shares before the issuance of the ADRs,

(3) the issuance is terminable by the Depositary on not more than five
Business Days' notice and

(4) subject to any further indemnities and credit regulations as the
Depositary deems appropriate.

Additionally, the Depositary will limit the ADRs so issued to 30% of the ADSs
outstanding, without giving effect to ADSs evidenced by outstanding pre-released
ADRs, provided, however, the Depositary reserves the right to disregard such
limit from time to time as it deems appropriate.

Upon surrender of ADRs at the Corporate Trust Office of the Depositary, and
upon payment of the charges provided in the Depositary Agreement and subject to
its terms and of our Articles of Incorporation and the Deposited Securities, ADR
holders are entitled to delivery at the office of the Custodian of documents of
title representing the Deposited Securities and, at the Corporate Trust Office
of the Depositary, any other property, including cash, represented by the ADSs
evidenced by the ADRs so surrendered. The forwarding of documents of title and
other property, including cash for delivery at the Corporate Trust Office of the
Depositary is at the request, risk and expense of the ADR holder.

Dividends, Other Distributions, Rights and Changes Affecting Deposited
Securities

Dividends on the ADSs will be paid in U.S. dollars. Whenever the Depositary
receives from us or the Custodian any cash dividends or other cash distributions
denominated in a currency other than U.S. dollars, it shall, to the extent that
in its judgment it can convert such currency on a reasonable basis into U.S.
dollars and transfer the resulting amounts to the United States, convert such
dividends and distributions to U.S. dollars and distribute such amount to the
holders of ADRs in proportion to the number of ADSs representing such Deposited
Securities held by each of them. The amount distributed will be reduced as
appropriate by any amounts required to be withheld by us, our agents or the
Depositary on account of taxes.

If a distribution on any Deposited Securities consists of a dividend in, or
free distribution of, shares, the Depositary may with our approval, and shall if
we request, distribute to the holders of outstanding ADRs, in proportion to
their holdings, additional ADRs evidencing an aggregate number of ADSs that
represents the number of shares received as such dividend or free distribution,
subject to the terms and conditions of the Deposit Agreement, including the
withholding of taxes, if any, and payment of fees to the Depositary. In lieu of
delivering ADRs for fractional ADSs in the event of any such distribution, the
Depositary may sell the number of shares represented by the aggregate of such
fractions and distribute the net proceeds to holders of ADRs in accordance with
the Deposit Agreement. If additional ADRs are not so distributed, each ADS shall
also represent the additional shares distributed in respect of the shares
represented by such ADS prior to such distribution.

-83-
<PAGE>

If we offer to the holders of Deposited Securities any rights to subscribe for
additional shares or any rights of any other nature, the Depositary will, after
consultation with us, have discretion as to the procedure to be followed in
making such rights available to holders of ADRs, or in disposing of such rights
on behalf of the holders of ADRs and making the net proceeds available in U.S.
dollars to such holders. The Depositary will, if requested by us, either

(1) make such rights available to holders of ADRs by means of rights, warrants
or otherwise, if the Depositary determines it to be lawful or feasible or

(2) after consultation with us, if making such rights available is not lawful
or feasible, or if the rights represented by such rights, warrants or
other instruments are not exercised and appear to be about to lapse, sell
such rights or warrants or other instruments at public or private sale, at
the place or places and upon the terms as the Depositary may deem proper,
and allocate the net proceeds of the sale for the account of the holders
of ADRs otherwise entitled thereto upon an averaged or other practicable
basis without regard to any distinctions among such holders because of
exchange restrictions, the date of delivery of any ADR, or otherwise. Such
a disposal of rights may reduce holders' equity interest.

If a registration statement under the Securities Act of 1933 is required with
respect to the securities to which any rights relate in order for us to offer
such rights to holders of ADRs and selling the securities represented by such
rights, the Depositary will not offer such rights to holders of ADRs unless and
until such a registration statement is in effect or unless the offer and sale of
such securities to holders of ADRs are exempt from registration under the
Securities Act of 1933 and the Depositary has received an opinion from
recognised counsel in the United States for us upon which the Depositary can
rely that the offering and sale of such securities to the holders of such ADRs
are exempt from registration under the Securities Act of 1933. We have no
obligation to prepare or file any registration statement mentioned above.

If the Depositary determines that any distribution in property, including
shares or rights to subscribe for shares, is subject to any tax or governmental
charge that the Depositary is obligated to withhold or pay, the Depositary may
dispose of all or a portion of such property in such amounts and in such manner,
by public or private sale, as the Depositary deems necessary and practicable,
and the Depositary will distribute the net proceeds of any sale or the balance
of any property after deduction of taxes or charges to the ADR holders entitled
to those proceeds.

Upon any change in par value, split-up, consolidation or any other
reclassification of Deposited Securities, or upon any recapitalisation,
reorganisation, merger or consolidation or sale of assets affecting us or to
which we are a party, any securities that shall be received by the Depositary or
the Custodian in exchange for or in conversion of or in respect of Deposited
Securities shall be treated as new Deposited Securities under the Deposit
Agreement, and the ADSs shall represent the right to receive new Deposited
Securities so received in exchange or conversion, unless additional ADRs are
delivered as in the case of a share dividend, or unless the Depositary calls for
the surrender of outstanding ADRs to be exchanged for new ADRs.

Record Dates

Whenever we pay any cash dividend or other cash distribution, or we make any
distribution other than cash, or whenever we issue rights with respect to the
Deposited Securities, or whenever the Depositary shall receive notice of any
meeting of holders of shares or other Deposited Securities, or whenever for any
reason there is a change in the number of shares that are represented by each
ADS, the Depositary shall, after consultation with us to the extent practicable
if such record date is different from the record date applicable to the holders
of shares, fix a record date, for

(1) determining the holders of ADRs who shall be entitled (a) to receive the
dividend, distribution or rights, or the net proceeds of sale thereof, or
(b) to give instructions for the exercise of voting rights at any meeting
or

(2) fixing the date on or after which each ADS will evidence the changed
number of shares, subject to the provisions of the Deposit Agreement.

-84-
<PAGE>

Voting of the Underlying Deposited Securities

Upon receipt of notice of any meeting at which holders of shares or other
Deposited Securities are entitled to vote, the Depositary shall, as soon as
practicable, mail to the holders of ADRs a notice which shall be prepared by the
Depositary and approved by us, which shall contain

(1) such information as is contained in such notice of meeting,

(2) a statement that the holders of ADRs at the close of business on a
specified record date will be entitled, subject to any applicable
provisions of law and of our Articles of Incorporation, to instruct the
Depositary as to the exercise of the voting rights, if any, pertaining to
the amount of Deposited Securities represented by their respective ADSs
and

(3) a brief statement as to the manner in which such instructions may be
given, including an express indication that instructions may be given to
the Depositary to give a discretionary proxy to a designated member or
members of our Board of Directors.

Upon the written request of a holder of an ADR on such record date, received on
or before the date established by the Depositary for such purpose, the
Depositary shall endeavor insofar as practicable to vote or cause to be voted
the amount of Deposited Securities represented by such ADR in accordance with
the instructions set forth in such request. The Depositary shall not, and the
Depositary shall ensure that the Custodian and any of their nominees shall not
vote the amount of shares or other Deposited Securities, represented by an ADR
unless it receives instructions from the holder of such ADR, nor shall the
Depositary or Custodian demand a poll.

Reports

The Depositary makes available for inspection by ADR holders at the Corporate
Trust Office of the Depositary any reports and communications received from us
which are both

(1) received by the Depositary or the Custodian or the nominee of either
receives as the holder of the Deposited Securities and

(2) we make generally available to the holders of such Deposited Securities.

The Depositary also sends to ADR holders copies of such reports we furnish
pursuant to the Deposit Agreement.

Amendment and Termination of the Deposit Agreement

We may at any time amend the form of the ADR and the Deposit Agreement by
agreement with the Depositary. Any amendment that imposes or increases any fees
or charges, other than fees of the Depositary for the execution and delivery or
cancellation of ADRs and the taxes and other governmental charges, or that
otherwise prejudices any substantial existing right of ADR holders, will not
take effect as to outstanding ADRs until the expiration of 90 days after notice
of the amendment has been given to the record holders of outstanding ADRs. Every
holder of an ADR at the time the amendment becomes effective shall be deemed, by
continuing to hold such ADR, to consent and agree to such amendment and to be
bound by the Deposit Agreement as amended thereby. In no event may any amendment
impair the right of any ADR holder to surrender the ADRs held by it and receive
the Deposited Securities represented, except in order to comply with mandatory
provisions of applicable law.

Whenever we direct the Depositary to do so, the Depositary will terminate the
Deposit Agreement by mailing notice of such termination to the record holders of
all ADRs then outstanding at least 30 days prior to the date fixed in such
notice for such termination. The Depositary may likewise terminate the Deposit
Agreement if at any time 60 days after the Depositary shall have delivered to us
a notice of its election to resign and a successor depositary shall not have
been appointed and accepted its appointment as provided in the Deposit
Agreement. On and after the date of termination, the holder of an ADR will, upon

(1) surrender of such ADR at the Depositary's Office,

(2) payment of the fee of the Depositary for the surrender of ADRs and

-85-
<PAGE>

(3) payment of any applicable taxes or governmental charges,

be entitled to delivery of the amount of Deposited Securities represented by the
ADSs evidenced by such ADR.

If any ADRs remain outstanding after the date of termination, the Depositary
will discontinue the registration of transfers of ADRs, will suspend the
distribution of dividends to the holders of ADRs and will not give any further
notices or perform any further acts under the Deposit Agreement, except

(1) the collection of the dividends and other distributions pertaining to the
Deposited Securities,

(2) the sale of rights as provided in the Deposit Agreement and

(3) the delivery of Deposited Securities, together with any dividends or other
distributions received with respect thereto and the net proceeds of the
sale of any rights or other property, in exchange for surrendered ADRs.

At any time after the expiration of one year from the date of termination, the
Depositary may sell the Deposited Securities and hold the net proceeds, together
with any other cash then held, unsegregated and without liability for interest,
for the pro rata benefit of the holders of ADRs that have not been surrendered
and those holders will become general creditors of the Depositary with respect
to such net proceeds. After making this sale, the Depositary shall be discharged
from all obligations under the Deposit Agreement, except to account for such net
proceeds and other cash.

Charges of Depositary

The Depositary will charge any party depositing or withdrawing shares or any
party surrendering ADRs or to whom ADRs are issued (including, without
limitation, issuance pursuant to a stock dividend or stock split we declare or
an exchange of stock regarding the ADRs or Deposited Securities or a
distribution of ADRs pursuant to the Deposit Agreement), whichever applicable:

(1) taxes and other governmental charges;

(2) such registration fees as may from time to time be in effect for the
registration of transfers of shares generally on our share register and
applicable to transfers of shares to the name of the Depositary or its
nominee or the Custodian or its nominee on the making of deposits or
withdrawals under the Deposit Agreement;

(3) such cable, telex and facsimile transmission expenses as are expressly
provided in the Deposit Agreement;

(4) such expenses as are incurred by the Depositary in the conversion of
foreign currency pursuant to the Deposit Agreement;

(5) a fee of $5.00 or less per 100 ADSs, or portion thereof, for the
execution, delivery and surrender of ADRs pursuant to the Deposit
Agreement, although this fee has been waived with respect to transactions
occurring until 17 September 1999;

(6) a fee of $.02 or less per ADS, or portion thereof, for any cash
distribution made pursuant to the Deposit Agreement, except for
distributions of cash dividends; and

(7) a fee for the distribution of securities pursuant to the Deposit
Agreement, such fee being in an amount equal to the fee charged as a
result of the deposit of such securities, for purposes of this clause (7)
treating all such securities as if they were shares, but which securities
are instead distributed by the Depositary to the holders.

Liability of Holder for Taxes

Any tax, duty or other governmental charge, including, without limitation, any
stamp tax, payable by the Custodian, the Depositary or any nominee of either of
them with respect to any ADR or any Deposited Securities

-86-
<PAGE>

underlying any ADR shall be payable by the holder of such ADR to the Depositary.
The Depositary may refuse to effect registration of transfer of such ADR or any
transfer and withdrawal of Deposited Securities underlying this ADR until the
payment is made, and may withhold any dividends or other cash distributions
constituting Deposited Securities underlying such ADR or may sell for the
account of the holder thereof any part or all of the other Deposited Securities
underlying such ADR and may apply such cash or the net proceeds of any such sale
in payment of any such tax, duty or other governmental charge, the holder of
such ADR remaining liable for any deficiency.

General

Neither we nor the Depositary will be liable to the holders of ADRs if we are
prevented or delayed by law or by reason of any provision, present or future, of
our Articles of Incorporation or the Deposited Securities or any circumstances
beyond its control from performing our obligations under the Deposit Agreement.
Our obligations under the Deposit Agreement are expressly limited to using our
best judgment and good faith in the performance of their respective obligations
specifically set forth in this section.

The ADRs are transferable on the books of the Depositary, provided that the
Depositary may close the transfer books at any time or from time to time, when
the Depositary deems expedient in connection with the performances of its duties
or at the request of the Company. Before the Depositary executes and delivers,
registers, registers a transfer, split-up, combination or surrender of any ADR
or transfer or withdrawal of Deposited Securities, the Depositary or the
Custodian may require payment of a sum sufficient to reimburse it for any tax or
any governmental charge, including, without limitation, any amounts in respect
of applicable stamp taxes payable by a holder in accordance with the Deposit
Agreement, and any stock transfer or registration fee and payment of any
applicable fees payable by the holders of ADRs. The Depositary may refuse to
deliver ADRs, register the transfer of any ADR or make any distribution of, or
related to, Deposited Securities until it or the Custodian has received such
proof of citizenship, residence, exchange control approval, legal or beneficial
ownership or other information as it may deem necessary or appropriate or as we
may require by written request to the Depositary or the Custodian.
Notwithstanding any other provision of the Deposit Agreement, the surrender of
outstanding ADRs and withdrawal of Deposited Securities may not be suspended
except as required in connection with

(1) temporary delays caused by closing the transfer books of the Depositary or
us or the deposit of Deposited Securities in connection with voting at a
meeting of shareholders or payment of dividends,

(2) the payment of fees, taxes and similar charges, and

(3) compliance with any U.S. or foreign laws or governmental regulations
relating to the ADRs or to the withdrawal of Deposited Securities.

The Depositary may suspend the delivery, registration, transfer and surrender
of ADRs during any period when the transfer books of the Depositary or us are
closed, or if we or the Depositary deem any such action necessary or advisable
at any time or from time to time because of any requirement of our Articles of
Incorporation, relevant law, any government or governmental body or commission
or any securities exchange on which the ADRs or shares are listed.

The Depositary will keep books at its transfer office in the City of New York
for the registration and transfer of ADRs. These books will be open for
inspection at all reasonable times by the holders of ADRs and us. Such
inspection shall not be for the purpose of communicating with holders of ADRs in
the interest of a business or object other than our business or a matter related
to the Deposit Agreement or the ADRs or shares.

The Depositary, upon request or with our approval, may appoint one or more co-
transfer agents for the purpose of effecting transfers, combinations and split-
ups of ADRs, at designated transfer offices on behalf of the Depositary. In
carrying out its functions, a co-transfer agent may require evidence of
authority and compliance with applicable laws and other requirements by holders
of ADRs or entitled persons.

Rule 144A American Depositary Receipt Facility

In connection with a prior offering of shares, we established a Rule 144A ADR
facility. The terms of the Rule 144A ADR facility are governed by the Rule 144A
Deposit Agreement between us and The Bank of New York, as depositary. Pursuant
to the Rule 144A Deposit Agreement, The Bank of New York technically has the
right to vote all the shares which are subject to the Rule 144A ADR facility and
to receive all dividend payments on behalf of the Rule 144A ADR subscribers, as
it is the shareholder of record in our register. However, pursuant to the Rule
144A Deposit Agreement, The Bank of New York is required to distribute all
dividends less any amounts permitted or required to be withheld pursuant to the
terms of the Rule 144A Deposit Agreement to the Rule 144A ADR subscribers and
to request instructions from the Rule 144A ADR subscribers as to the voting of
the shares which are subject to the Rule 144A ADR facility. The Rule 144A ADR
subscribers also have the right to transfer their ownership directly to their
own name at any time by converting their Rule 144A ADRs into shares. In
addition, Rule 144A ADR subscribers, through the Rule 144A ADR facility, receive
all materials we send to our shareholders.

-87-
<PAGE>

DESCRIPTION OF SHARES

General

Shares will only be issued in registered form. The power to issue new shares
is vested in the general meeting of shareholders and our directors. We have an
authorised capital of $1,000,000,000 consisting of 250,000,000 shares, par value
of $4.00 per share. As of 31 December 1998 we had issued capital of 86,561,872
shares, representing issued capital of $346,247,485. Pursuant to our Articles of
Incorporation, the Board of Directors is authorised to issue additional shares
up to the total authorised capital. The shares will participate equally in the
payment of dividends when, as and if declared by the general meeting of
shareholders, upon proposal from the directors, in their sole discretion.

All shares must be fully paid up. Our Articles of Incorporation provide that
shareholders will have preferential or preemptive rights if shares are offered
at below NAV. We do not, however, have to reserve such preferential and ratable
right in circumstances where the price per share at which the shares are offered
for subscription is not less than the last available sales price, on the stock
exchange having the highest average daily volume in shares, reported on the last
trading day preceding the time upon which the directors approved the pricing of
the shares. Please read "--Future Share Issuances--Rights Offerings and
Convertible Debt" below for more information. Each holder is entitled to one
vote per share at any general meeting of shareholders, in compliance with
Luxembourg law and our Articles of Incorporation, subject to the special voting
provisions described below. The holders of shares will vote together as a single
class at any general meeting and will have equal rights in all respects. The
Board of Directors may, however, in particular circumstances subdivide the
shares into two series of shares. The circumstances under which the Board of
Directors can resolve to do so and the consequences of such subdivision are set
out in our Articles of Incorporation.

Shares are freely transferable subject to the share ownership limitations and
other provisions described in Article 9 of our Articles of Incorporation.

The inscription of a shareholder's name in the register of shares evidences
that holder's right of ownership of such registered shares, and, unless a share
certificate is delivered, a holder of registered shares shall receive a written
confirmation of its shareholding.

Forms for the transfer of shares are available at the offices of the Transfer
Agent.

Recent Events Concerning the Shares

On 5 May 1999, we announced that our Board of Directors had authorised a share
repurchase programme of up to $100 million of the shares. We plan to repurchase
shares from time to time in the open market and privately negotiated
transactions, depending on market prices and other conditions. The share
repurchase programme may be terminated at any time.

On 17 May 1999, we announced that our shareholders had approved amendments to
our Articles of Incorporation that will affect a one-for-two reverse share
split. The effective date of the reverse share split was 18 June 1999.
Following effectiveness of the reverse share split, every two shares, par value
$2.00 per share, became one share, par value $4.00 per share. Each ADS will
represent one share on a post reverse split basis.

Future Share Issuances

General

Our Articles of Incorporation provide that shares offered from time to time
will be offered at a price per share which is no less than NAV except by
reserving for existing shareholders the right to subscribe for new shares on a
preferential and ratable basis in compliance with our Articles of Incorporation.
We do not have to reserve such preferential and ratable right in circumstances
where the price per share at which the shares are offered for subscription is
not less than the last available sales price, on the stock exchange having the
highest average daily volume in shares, reported on the last trading day
preceding the time upon which the directors approved the pricing of the shares
or in connection with the conversion of outstanding debt securities.

-88-
<PAGE>

We may offer shares by way of private placement or public offering if our
directors determine to raise additional capital in order to enable us to take
advantage of further investment opportunities.

We have the authority under our Articles of Incorporation to increase the
issue price per share by the estimated costs and expenses we incur for
investing the proceeds of the issue and by applicable sales commissions. In
addition, we have the authority under our Articles of Incorporation to pay such
costs and expenses and applicable sales commissions from our assets rather than
increasing the price at which shares are offered. We intend to use such
authority when market conditions indicate that to do so would be in our best
interests and our shareholders.

Rights Offerings and Convertible Debt

While we intend to continue capitalising the company by issuing shares to
investors at or above NAV or at or above market price where this is the most
appropriate method, we also have the additional flexibility of raising capital
through rights offerings for example, by reserving for existing shareholders a
preferential and ratable right to subscribe for new shares. With respect to
existing shareholders who elect not to exercise any rights to subscribe for new
shares in a rights offering, we would, in accordance with Luxembourg law, be
required to ensure that such nonparticipating shareholders would receive value
for such rights which they do not exercise, including arranging for such rights
to be publicly sold on the Luxembourg Stock Exchange. We retain the right to do
rights offerings for financing flexibility, but have not done a rights offering
and have no current plans to do a rights offering.

If we issued shares at a price below NAV, our existing shareholders would
experience some reduction in the NAV of outstanding shares. This is because in
determining NAV after the issuance of new shares, our assets would be divided by
a larger number of shares. Although our assets would have been increased by the
proceeds of the offering, the proceeds would not be sufficient to maintain the
pre-offering NAV because the shares issued in the offering would have been
issued at a price below the pre-offering NAV.

Our Articles of Incorporation also permit the Board of Directors to issue debt
securities convertible into shares at a conversion price which is above the last
reported sales price, on the stock exchange having the highest average daily
volume in shares, reported on the last trading day preceding the time upon which
the Directors approved the pricing of the convertible debt securities. The
price per share into which such debt securities are convertible shall be capable
of adjustment or deemed fit by the Directors in order to prevent the holders of
the convertible debt securities from being diluted. Typically, an offering of
convertible debt securities would provide conversion rights that could be
exercised by the holders at any time after issuance of the securities, but prior
to maturity, normally five to ten years after issuance.

If NAV increased to a level above the conversion price, after we issued
convertible debt securities, then the potential conversion of such debt
securities would impact NAV growth, diluting it from what it would be without
such conversion. This is because although our net assets would increase upon
conversion of such convertible debt securities, as a result of canceling the
indebtedness represented by such convertible debt securities, the increase in
our net assets would be less than the aggregate NAV of the shares issued upon
conversion of the convertible debt securities. However, we and our shareholders
would have benefitted from the issue of the convertible debt securities as such
would give us access to an additional source of funds at a lower interest rate
than, in the Directors' judgment, would have been available in a conventional
borrowing transaction. We would have used these funds to make additional
investments intended to increase NAV for the benefit of all shareholders.

Trading Through ASAS

Our shares are traded on the AEX through ASAS. This system was developed by
the AEX to enable foreign companies with registered shares to list their shares
on the AEX. The shares do not trade on the AEX in physical form.

Under ASAS, the legal owner of the shares is Nominee Amsterdam Stock Exchange
N.V. ("Nominee"), a wholly-owned subsidiary of the AEX-Clearing and Depository
N.V. which acts exclusively as depositary company. Nominee keeps accounts on
behalf of its participants, Dutch and foreign financial institutions which meet
certain criteria, in which it has booked such number of shares to which each
participant is entitled. Nominee may, however, only book credits on the accounts
of participants of ASAS when the shares are deposited with a custodian in its
name and/or on its behalf.

-89-
<PAGE>

Participants in ASAS have a claim against Nominee for delivery of the shares.
An investor has an account with an ASAS participant (the "Account Holder"), to
which the shares to which it is entitled are credited. Investors have a claim
against the Account Holder for delivery of the shares to which they are
entitled. Transfers of shares are effected through book entries.

All payments we make in shares are effected through ASAS. This means that
payments we make on behalf of the investor will be made via the Account Holder.

If the investor holds its shares through ASAS, notice and other information
from us will not be sent directly to the relevant investor by us. We will
publish notices to shareholders in the Daily Official List (Officiele
Prijscourant) of the Amsterdam Exchanges N.V. and at least one Dutch newspaper.
The notice will also indicate, when appropriate, where shareholders can obtain
copies of the documents to which the notice refers.

Clearing and Settlement Through Euroclear and Cedel

Transfers of shares held within Euroclear and Cedel will be in accordance with
the usual rules and operating procedures of the relevant system. Cross-market
transfers between investors who hold shares through Euroclear and/or Cedel will
be effected through the respective depositaries of Euroclear and Cedel.

Share Ownership Limitations

Article 9 of our Articles of Incorporation contains provisions restricting the
transfer and the voting power of the shares, including the shares to be acquired
upon conversion of convertible debt securities, to help prevent the Company from
being treated as a personal holding company ("PHC"), a foreign personal holding
company ("FPHC") or a controlled foreign corporation ("CFC") for U.S. federal
income tax purposes. If we were treated as a PHC, FPHC or CFC, some U.S.
Shareholders could have adverse U.S. federal income tax consequences.

Article 9 of our Articles of Incorporation provides that any transfer is
not enforceable against us if the transfer would result in any person, other
than Security Capital Group, "beneficially owning" more than 9.5% of the
outstanding shares. If the transfer cannot be unenforceable against us because
the transfer occurred through the facilities of a stock exchange or for some
other reason, the shares become "Excess Shares" and are transferred to the
"Excess Shares Fiduciary" as described in Article [9][10] of our Articles of
Incorporation. "Beneficial ownership" is defined in our Articles of
Incorporation based on the rules contained in the U.S. Internal Revenue Code.

Redemption of Shares

We are a closed-end undertaking for collective investment; consequently, the
shares shall not be redeemable at the request of a shareholder. We may, however,
determine to purchase shares on a stock exchange at market price; provided,
however, that such market price is not above NAV.

Pro Rata Redemptions

Pursuant to Article 8 of our Articles of Incorporation, we may redeem the
shares within the limits of Luxembourg law and our Articles of Incorporation
whenever the Directors consider a redemption to be in our best interest. Shares
may be redeemed at the option of the Directors on a pro rata basis as between
existing shareholders, in order to return to shareholders any proceeds should
we dispose of investment assets.

We do not currently intend to redeem any shares.

Special ERISA Redemptions

The U.S. Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the Internal Revenue Code, prohibit certain transactions between

(1) employee benefit plans (as defined in the section 3(3) of ERISA),

(2) plans described in section 4975 (e)(1) of the Internal Revenue Code,

-90-
<PAGE>

(3) any entities whose underlying assets include plan assets in accordance
with ERISA by reason of a plan's investment in such entities (each a
"Plan") and

(4) persons who have certain specified relations to such Plans ("Parties in
Interest" under ERISA and "Disqualified Persons" under the Internal
Revenue Code).

Such transactions are known as "Prohibited Transactions" under ERISA and the
Code. ERISA also imposes certain duties on persons who are fiduciaries of Plans
subject to ERISA.

Based on an opinion of counsel and on our operating policies, we qualify as a
"venture capital operating company" ("VCOC") under regulations issued by the
U.S. Department of Labor under ERISA, and therefore our underlying assets will
not be Plan Assets in accordance with ERISA and will be exempt from the
application of ERISA. If it is determined that we failed or will fail to
qualify as a VCOC and no other exemption from ERISA is applicable, we will
redeem shares held by pension plans and other U.S. and non-U.S. benefit funds
pro rata to the extent necessary to cause such investors, as a group, to own
less than 25% of the outstanding shares. This action will make ERISA
inapplicable to our assets.

Redemption Price

The redemption price will be the NAV as determined by applying the provisions
of Article 10 of our Articles of Incorporation calculated on the relevant
valuation day, less an amount equal to any duties and charges which would be
incurred upon the disposal of our investments in order to fund such a
redemption. If shares are redeemed otherwise than on a pro rata basis from all
existing shareholders, the Board of Directors may elect, if it considers this to
be necessary for the protection of the interests of the remaining shareholders,
to fix a redemption price below NAV, but no less than the last available sales
price, on the stock exchange having the highest average daily trading volume in
the shares, reported on such trading day as specified by the directors at their
discretion. No fee shall be payable in respect of any redemption.

The redemption price may be higher or lower than the price paid by the
redeeming shareholder at the time of subscription or acquisition.

Redemptions may take place at market price if we elect to purchase shares on a
stock exchange, provided, however, that such market price is not above NAV.

Effect of Redemption

In the unlikely event of a redemption, the redemption will be effected in
accordance with our Articles of Incorporation and the provisions of Luxembourg
law, including such publication of notice in newspapers as may be required or
determined by the directors.

The monies payable on redemption shall be paid against production of relevant
transfer documents and share certificates, if any, within a period as determined
by the Directors but which shall not exceed 14 Business Days from the relevant
Valuation Day.

Payment shall be made by cheque mailed to the shareholder or by bank transfer
to an account indicated by the shareholder. The redemption price shall be
payable in U.S. Dollars. If, however, a shareholder requests to be repaid in any
other freely convertible currency, the necessary foreign source exchange
transaction shall be arranged by the Custodian for the account and at the
expense of such shareholder without any responsibility on our part.

The provisions of the above two paragraphs do not apply to shares redeemed by
virtue of purchases on a stock exchange.

Shares which we redeem shall remain in existence but shall not have any voting
rights or any right to participate in any dividends declared by us or in any
distribution paid upon our liquidation or winding up and shall be disregarded
for purposes of determining the NAV, in each case, for so long as such shares
are held by us. If we reissue such shares, any consideration we receive shall be
no less than the NAV, as determined by the Board of Directors as of the
Valuation Day immediately preceding the date of such reissue, or the price which
is no less than the last available sales price, on the stock exchange having the
highest average trading volume in the shares, reported

-91-
<PAGE>

on the last trading day preceding the time upon which the directors priced the
reissue of shares, unless such shares are reissued by way of rights offerings.

Distribution Policy

Luxembourg law requires that 5% of our annual net profits be allocated to a
special reserve. This allocation is not required as soon and so long as such
surplus reserve equals or exceeds 10% of our issued capital as such capital is
increased or reduced from time to time.

The shareholders at the general meeting of shareholders shall, within the
limits provided by law, determine how the balance of our net profits shall be
disposed of, and may from time to time declare or authorise the Directors to
declare dividends and distributions in respect of such amounts.

We expect to have opportunities to make further investments in our strategic
investment positions. In addition, we will continue to research other
opportunities, consistent with its operating strategy. While opportunities are
available which are consistent with our strategy, we currently intend to re-
invest earnings and not pay dividends for the foreseeable future. This dividend
policy will be carefully and prudently monitored by the directors in light of
the foregoing and the reasonable needs of the business, including the fact that
affiliated real estate companies may require significant capital commitments on
short notice.

Meetings of and Reports to Shareholders

We will mail notice of any general meeting of shareholders, including those
considering amendments to our Articles of Incorporation or our dissolution and
liquidation, to each registered shareholder at least eight days prior to the
meeting and publish a notice in the "Memorial, Recueil Special des Societes et
Associations" (the "Memorial") and at least one Luxembourg newspaper, in
accordance with Luxembourg law, in the Daily Official List (Officiele
Prijscourant) 20.

If our Articles of Incorporation are amended, such amendments shall be filed
with the Chancery of the District Court of Luxembourg and published in the
Memorial.

We annually publish a consolidated report on our activities and on the
management of our assets; such report includes, among other things, our audited
consolidated annual accounts, a detailed description of our assets and a report
from our auditors. The most recent annual report was published as of 31 December
1998.

We also publish semi-annual unaudited consolidated reports, including, among
other things, a description of our assets and the number of Shares issued,
disposed of and redeemed since the last publication. The most recent semi-annual
report was published as of 30 June 1998.

In our annual and semi-annual reports, we clearly explain the accounting
principles applied for the consolidation of our accounts and those of our
consolidated subsidiaries.

We send the annual and semi-annual reports to registered Shareholders within
four and two months of the dates of those reports. Copies may be obtained free
of charge by any person at our registered office. Shareholders who hold their
shares through ASAS can obtain copies via their Account Holder, please read "--
Trading through ASAS" above for more information.

We will also publish quarterly reports summarising our consolidated financial
information.

Our accounting year commences on the first day of January of each year and
terminates on the last day of December of the same year.

Our annual general meeting of shareholders takes place in Luxembourg City, at
a place specified in the notice of meeting, on the last Wednesday in the month
of June at 11:00 a.m.

Our consolidated accounts are maintained in U.S. Dollars, which is the
reference currency of the share capital.

-92-
<PAGE>

In the event that we request the Dutch Central Bank to revoke its
authorisation pursuant to Section 15(a) of the Investment Institution
Supervision Act, we will announce such request through an advertisement in a
Dutch national newspaper.

-93-
<PAGE>

TAXATION

The following summary discusses the material United States federal tax
considerations and the material Luxembourg and United Kingdom tax considerations
relating to an investment in the Convertible Notes and our shares or American
Depositary Shares. For purposes of this section, the word Securities refers to
both the shares and American Depository Shares. This summary does not address
all possible United States federal income tax consequences or Luxembourg or
United Kingdom income tax consequences relating to an investment in the
Convertible Notes and Securities. In particular, the discussion does not
address the tax consequences to any investors under state, local and non-United
States tax laws. The summary of the material United States federal income tax
consequences is based upon the current provisions of the Internal Revenue Code,
its legislative history, Treasury regulations, administrative pronouncements and
judicial decisions, all of which are subject to change, possibly with
retroactive effect. This summary does not purport to be a complete discussion
of all United States federal income tax consequences or Luxembourg or United
Kingdom income tax consequences relating to making an investment in the
Convertible Notes and Securities. In addition, this summary may not apply, in
whole or in part, to particular categories of persons, such as financial
institutions, broker-dealers, life insurance companies, tax-exempt
organisations, investment companies, foreign persons and other special status
taxpayers. Finally, a tax ruling from the United States Internal Revenue
Service (the "Service" or the "IRS") has not been requested. The Discussion in
this section concerning certain tax consequences with respect to an investment
in the Convertible Notes and securities is included for general information
only. All persons are urged to consult their own tax advisors to determine the
specific tax consequences of making an investment in the Convertible Notes and
securities, including any U.S., state, local or non-U.S. tax consequences.

For purposes of the following discussion, a "United States Holder" is any
person other than a "Non-U.S. Holder". A "Non-U.S. Holder" is any person other
than:

. a citizen or resident of the United States;

. a corporation, partnership or other entity created or organised in the
United States or under the laws of the United States or any state;

. an estate whose income is includible in gross income for United States
tax purposes regardless of source; or

. a "United States Trust".

A United States Trust includes a trust if, and only if:

. a court within the United States is able to exercise primary supervision
over the administration of the trust; and

. one or more U.S. persons have the authority to control all substantial
decisions of the trust.

United States Federal Income Taxation of Noteholders

Interest

Interest on a Convertible Note which constitutes the 2% current mandatory
payment of interest is "qualified stated interest" as defined below under
"Original Issue Discount", and is taxable to a United States Holder as ordinary
income at the time it is received or accrued, depending on the holder's method
of accounting for tax purposes.

Original Issue Discount

The Convertible Notes were issued at an original issue discount equal, in the
case of a Convertible Note, to the excess of the Convertible Note's "stated
redemption price at maturity" over its "issue price." Generally, the issue
price of a Convertible Note was the first price at which a substantial amount of
Convertible Notes included in the issue of which the Convertible Note is a part
is sold to persons other than bond houses, brokers or similar persons or
organisations acting in the capacity of underwriters, placement agents, or
wholesalers. The stated redemption price at maturity of a Convertible Note is
the total of all payments provided by the Convertible Note that are not payments

-94-
<PAGE>

of "qualified stated interest." A qualified stated interest payment is
generally any one of a series of stated interest payments on a Convertible Note
that are unconditionally payable at least annually at a single fixed rate
applied to the outstanding principal amount of the Convertible Note.
Accordingly, the 2% current mandatory interest payable on a Convertible Note
constitutes "qualified stated interest".

United States Holders of a Convertible Note must generally include original
issue discount ("OID") in income calculated on a constant-yield method before
the receipt of cash attributable to such income, and generally will have to
include in income increasingly greater amounts of OID over the life of the
Convertible Note. The amount of OID includible in income by a United States
Holder of a Convertible Note is the sum of the daily portions of OID with
respect to the Convertible Note for each day during the taxable year or portion
of the taxable year on which the United States Holder holds such Convertible
Note ("accrued OID"), subject to the adjustments described below with respect to
persons which purchase such Convertible Note at a premium over its principal
amount or a price less than its principal amount but at a lower yield to
maturity then the Convertible Note had for OID purposes with respect to the
initial Holder of the Convertible Note. The daily portion is determined by
allocating to each day in any "accrual period" a pro rata portion of the OID
allocable to that accrual period. Accrual periods with respect to a Convertible
Note may be of any length selected by the United States Holder and may vary in
length over the term of the Convertible Note as long as no accrual period is
longer than one year and each scheduled payment of interest or principal on the
Convertible Note occurs on either the final or first day of an accrual period.
The amount of OID allocable to an accrual period equals the excess of (a) the
product of the Convertible Note's adjusted issue price at the beginning of any
accrual period and such Convertible Note's yield to maturity, determined on the
basis of compounding at the close of each accrual period and such Convertible
Note's yield to maturity, determined on the basis of compounding at the close of
each accrual period, and properly adjusted for the length of the accrual period,
over (b) the sum of the payments of qualified stated interest on the Convertible
Note allocable to the accrual period. The "adjusted issue price" of a
Convertible Note at the beginning of any accrual period is the issue price of
the Convertible Note increased by (x) the amount of accrued OID for each prior
accrual period is the issue price of the Convertible Note increased by (x) the
amount of accrued OID for each prior accrual period and decreased by (y) the
amount of any payments previously made on the Convertible Note that were not
qualified stated interest payments.

For purposes of determining the amount of OID allocable to an accrual period,
if an interval between payments of qualified stated interest on the Convertible
Note contains more than one accrual period, the amount of qualified stated
interest payable at the end of the interval (including any qualified stated
interest that is payable on the first day of the accrual period immediately
following the interval) is allocated pro rata on the basis of relative lengths
of each accrual period in the interval, and the adjusted issue price at the
beginning of each accrual period in the interval must be increased by the amount
of any qualified stated interest that has accrued prior to the first day of the
accrual period but that is not payable until the end of the interval. The
amount of OID allocable to an initial short accrual period may be computed using
any reasonable method if all other accrual periods other than a final short
accrual period are of equal length. The amount of OID allocable to the final
accrual period is the difference between (x) the amount payable at the maturity
of the Convertible Note (other than any payment of qualified stated interest)
and (y) the Convertible Note's adjusted issue price as of the beginning of the
final accrual period.

If a United States Holder acquires the Convertible Note at a lower yield to
maturity than the yield on the Convertible Note for original issue discount
purposes with respect to the initial Holder of the Convertible Note, the
subsequent United States Holder may reduce its periodic inclusions of original
issue discount income to reflect the lower yield to maturity of the Convertible
Note or elect to compute original issue discount accruals by treating the
purchase as a purchase at original issue and applying the mechanics of the
constant yield method.

A United States Holder of a Convertible Note that purchases the Convertible
Note at a cost greater than its principal amount, excluding from such cost for
this purpose any amount attributable to the conversion feature of the
Convertible Note, will be considered to have purchased the Convertible Note at a
premium, will not be subject to the OID rules described above, and may make an
election, applicable to all notes, other than obligations the interest on which
is excludable from gross income, purchased at a premium and held by such Holder
at the beginning of the first taxable year to which the election applies or
thereafter acquired, to amortise such premium, using a constant yield method,
over the remaining term of such notes.

Tax Basis

A United States Holder's initial tax basis in a Convertible Note generally is
equal to the purchase price paid by such Holder for such Convertible Note. A
United States Holder's tax basis in a Convertible Note will be increased

-95-
<PAGE>

by the amount of any OID that is included in the Holder's income pursuant to the
foregoing rules, and will be decreased by the amount of any cash payments
received other than payments of qualified stated interest and by any amortised
premium claimed by the Holder, as the case may be.

Payments on an Illiquidity Event

Because additional interest is payable on the Convertible Notes in the event
of an Illiquidity Event, interest on the Convertible Notes, instead of being
taken into account under the rules described above, might have to be taken into
account under special rules applicable to "contingent interest" set forth in
United States Treasury Regulations (the "Contingent Interest Regulations")
unless, as discussed below, the likelihood of an additional payment is
considered "remote". The Company determined that, as of the date of issuance of
the Convertible Notes, the possibility that additional interest would be paid to
Holders pursuant to an Illiquidity event was remote. Assuming the possibility
of such additional payments was remote as of the issue date, the Convertible
Notes should not be subject to the Contingent Interest Regulations. The Service
may take a different position, which could affect the timing and character of
interest income reported by United States Holders. The Company's determination
that such additional payments were a remote contingency for these purposes is
binding on a United States Holder, unless such Holder discloses in the proper
manner to the Service that it is taking a different position.

Assuming that the possibility that additional interest will be paid to United
States Holders pursuant to an Illiquidity Event was appropriately considered
remote under the Contingent Interest Regulations but such additional interest is
in fact paid, the additional interest so paid would be taxable to a United
States Holder as ordinary interest income in accordance with such Holder's
method of accounting, subject to the discussion below. Under the Contingent
interest Regulations the Convertible Notes would be considered to have been
reissued as of the date of the Illiquidity Event for an amount equal to their
adjusted issued price at that time. If at the time of such deemed reissuance,
the possibility that the Company would be required to make future payments of
additional interest were not considered remote, under the Contingent Interest
Regulations, the stated interest and the additional interest in respect of an
Illiquidity Event anticipated, as of the date of the Convertible Notes'
reissuance, to be payable on the Convertible Notes could be treated as OID
required to be accrued and included in income by United States Holders on a
constant yield basis, including by United States Holders who use the cash method
of accounting for federal income tax purposes, in which case there generally
would be:

. a timing difference between the accrual of such OID as income for
United States federal income tax purposes and the receipt of cash
interest payments;

. adjustments to such income to the extent actual additional interest
payments differed from anticipated additional interest payments; and

. a possibility that gain recognised on disposition of a Convertible
Note would be recognised as interest income and not capital gain.

United States Holders should consult their tax advisors with respect to the
tax consequences of additional interest payable upon an Illiquidity Event.

Adjustment of Conversion Rate

The conversion rate of the Convertible Notes is subject to adjustment in
certain circumstances. Adjustments that have the effect of increasing the
proportionate interest of a holder of the Convertible Notes in assets or
earnings of the Company may give rise to deemed dividend income to United States
Holders. If, for example, at any time the Company makes a distribution of
property to Shareholders that would be taxable to such Shareholders as a
dividend for United States Federal income tax purposes, for example,
distributions of evidence of indebtedness or assets of the Company, but
generally not stock dividends or rights to subscribe for shares, and, pursuant
to the antidilution provisions of the Convertible Notes, the conversion rate of
the Convertible Notes is increased, such increase would likely result in taxable
income for the United States Holders of the Convertible Notes. Similarly, if
the conversion rate were increased at the discretion of the Company, such
increase will likely result in taxable income for the United States Holders of
the Convertible Notes.

-96-
<PAGE>

Sale, Redemption or Retirement of Convertible Notes

Upon the sale of a Convertible Note for cash, a United States Holder will
recognise gain or loss equal to the difference between the amount of cash
received, other than cash attributable to accrued interest not included in basis
as accrued OID, and such holder's adjusted tax basis in the Convertible Note.
Subject to the discussion below concerning "market discount," such gain or loss
will be capital gain or loss if the Convertible Note is a capital asset to such
holder and will be taxed at the rates discussed below under "U.S. Federal Income
Taxation of Securityholders--General". Cash received attributable to accrued
interest not recognised as OID income will constitute ordinary interest income
to a cash method United States Holder, and a return of capital with respect to
interest accrued as income by an accrual method United States Holders. Upon the
redemption or retirement by the Company of a Convertible Note for cash, a United
States Holder will recognise gain or loss equal to the difference between the
amount of cash received, other than cash attributable to accrued interest not
included in basis as accrued OID, and such holder's adjusted tax basis in the
Convertible Note. Subject to the discussion below concerning "market discount",
such gain or loss will be capital gain or loss if the Convertible Note is a
capital asset to such holder. Cash received attributable to accrued interest
not recognised as OID income will constitute ordinary interest income to a cash
method United States Holder, and a return of capital with respect to interest
accrued as income by an accrual method United States Holder.

If a United States Holder of a Convertible Note purchases the Convertible Note
at a price that produces a yield to maturity higher than the yield to maturity
at which such Convertible Note first was issued, the Convertible Note generally
will be considered to bear "market discount" in the hands of such United States
Holder. In such case, gain realised by the United States Holder on the sale,
exchange or retirement of the Convertible Note generally will be treated as
ordinary income to the extent of the market discount that accrued on the
Convertible Note while held by such Holder and such Holder could be required to
defer the deduction of a portion of the interest paid on any indebtedness
incurred or continued to purchase or carry the Convertible Note, unless the
Holder elects to include such market discount in income as it accrues. In some
cases a Holder may have to recognise accrued market discount as ordinary income
in excess of the Holder's gain realised at the time, for example, in the case of
a gift of the Convertible Note or receipt of a principal payment. In general
terms, market discount on a Convertible Note will be treated as accruing ratably
over the term of such Convertible Note, or, at the election of the Holder, under
a constant yield method.

Conversion of Convertible Note

If a Convertible Note is converted into Shares, accrued interest which is
deemed paid by delivery of the Shares (see "Description of Convertible Notes--
Conversion"), and accrued OID, such interest and OID accruing on a daily basis,
on the Convertible Note are includible in income by the United States Holder of
the Convertible Note in the manner described above as ordinary interest and OID
income. Gain or loss will not be recognised on the conversion of the
Convertible Note into Shares (except for any gain or loss attributable to the
receipt of cash in lieu of fractional shares), and the United States Holder's
adjusted tax basis in the Shares will equal his adjusted tax basis, including
accrued OID, in the Convertible Note converted plus the amount of accrued
interest on the Convertible Note deemed paid by the delivery of the Shares.

Please read the discussion under "U.S. Federal Information Reporting and
Withholding" below for more information concerning the reporting and withholding
on the Convertible Notes.

United States Federal Income Taxation of Securityholders

General

A securityholder who sells or exchanges its Securities will recognise gain or
loss for federal income tax purposes equal to the difference, if any, between
the amount realised from the sale or exchange and such securityholder's tax
basis in the Securities that are sold or exchanged. Such gain or loss will be a
capital gain or loss, provided that the Securities are held as capital assets.
Such gain or loss will be long-term capital gain or loss if the securityholder's
holding period is more than 12 months. For individual securityholders, long-
term capital gains are subject to a maximum federal income tax rate of 20
percent. The deduction of capital losses may be subject to limitation.

-97-
<PAGE>

If we make distributions, a securityholder will recognise ordinary income to
the extent of current and accumulated earnings and profits and any amounts
distributed in excess of current and accumulated earnings and profits will be
considered a tax-free return of capital, reducing the tax basis in the
securityholder's Securities by the amount of the distribution, but not below
zero, with distributions in excess of the securityholders' tax basis taxable as
capital gains, if such stock is held as a capital asset. Dividends we pay will
not be eligible for the dividends received deduction available to corporations
receiving dividends.

In general, the IRS will treat holders of ADRs evidencing ADSs as the owners
of the Shares represented by those ADSs, and exchanges of Shares for ADSs, and
ADSs for Shares, will not be subject to taxation.

Various provisions contained in the Code may impose special taxes in certain
circumstances on non-United States corporations and their securityholders. The
following is a general summary of these provisions.

Personal Holding Company

If the IRS were to classify SC-U.S. Realty as a PHC within the meaning of
section 542(a) of the Code, we would be subject to a personal holding company
tax equal to 39.6 percent of its undistributed taxable income subject to certain
adjustments under section 545(b) of the Code. We would generally be classified
as a PHC if (i) at least 60 percent of our adjusted ordinary gross income for a
taxable year was passive income such as dividends and capital gains from the
sale or exchange of stock and (ii) at any time during the last half of such
taxable year more than 50 percent in value of our outstanding Securities were
owned, directly or indirectly, by or for not more than five individuals. We
intend our securities to be widely held and that we will not be classified as a
PHC. To this end, we have adopted ownership and transfer restrictions on
Securities in our Articles of Incorporation to prevent possible classification
as a PHC, including a 9.5 percent limitation on ownership, prohibitions on any
transfers that would cause ownership to exceed 9.5 percent, and informational
reporting requirements for securityholders owning 5 percent or more of the
Securities. Certain of these ownership and transfer restrictions do not apply
to Security Capital Group. We believe that, based upon the current ownership of
Securities and the ownership and transfer restrictions on Securities described
above, which we intend to monitor and enforce, we will not be classified as a
PHC.

Foreign Personal Holding Company

If the IRS were to classify SC-U.S. Realty as a FPHC within the meaning of
section 552(a) of the Code, we would be deemed to distribute certain types of
undistributed income including dividends and capital gains from the sale or
exchange of Securities as a dividend on a pro rata basis to all of its
securityholders on the last day of its taxable year. A securityholder would be
required to include its pro rata share of the dividend in income even though we
would not actually have paid a dividend. A securityholder would increase its
tax basis by the amount of the deemed dividend. A securityholder who acquires
Securities from decedents would be denied the step-up of the tax basis for such
Securities to fair market value at the date of death which would otherwise have
been available, and instead would have a tax basis equal to the lower of fair
market value or the decedent's basis. We would generally be classified as a
FPHC if (i) at least 60 percent of our gross income for a taxable year was
passive income such as dividends and capital gains from the sale or exchange of
stock and (ii) at any time during the taxable year more than 50 percent of
either (A) the total combined voting power of all classes of our Securities
entitled to vote or (B) the total value of our Securities owned, directly or
indirectly, by or for more than five individuals who are citizens or residents
of the United States. We intend for our Securities to be widely held, and that
we will not be classified as a FPHC. To this end, we have adopted ownership and
transfer restrictions on Securities in our Articles of Incorporation to prevent
possible classification as a FPHC, including a 9.5 percent limitation on
ownership, prohibitions on any transfers that would cause ownership to exceed
9.5 percent, voting cut-back provisions that limit voting power to under 10
percent, and informational reporting requirements for securityholders owning 5
percent or more of the Securities. Certain of these ownership and transfer
restrictions do not apply to Security Capital Group. SC-U.S. Realty believes
that, based upon the current ownership of Securities and the ownership and
transfer restrictions on Securities described above, which we intend to monitor
and enforce, the Company will not be classified as a FPHC.

Controlled Foreign Corporation

If the IRS were to classify SC-U.S. Realty as a CFC within the meaning of
section 957(a) of the Code, 10% securityholders, as defined below, would be
required to currently include their pro rata share of certain types of

-98-
<PAGE>

undistributed income, including dividends and capital gains from the sale or
exchange of stock in income as a dividend even though we would not actually have
paid a dividend. In addition, where a 10% securityholder sells or exchanges
Securities or receives a distribution that is treated as an exchange of
Securities, the gains on such exchange which would otherwise qualify for capital
gains treatment will be recharacterised as dividend income to the extent of our
current or accumulated earnings and profits. We would generally be classified
as a CFC if more than 50 percent of (i) the total combined voting power of all
classes of our Securities, or (ii) the total value of our Securities is owned or
considered owned by 10% holders on any day during its taxable year. A 10%
securityholder is a U.S. person who owns or is considered to own at least 10
percent of the total combined voting power of all classes of our Securities
entitled to vote. We intend for our securities to be widely held and that we
will not be classified as a CFC. To this end, we have adopted ownership and
transfer restrictions on Securities in our Articles of Incorporation intended to
prevent possible classification as a CFC, including a 9.5 percent limitation on
ownership, prohibitions on any transfers that would cause ownership to exceed
9.5 percent, voting cut-back provisions that limit voting power to under 10
percent, and informational reporting requirements for securityholders owning 5
percent or more of the Securities. Certain of these ownership and transfer
restrictions do not apply to Security Capital Group. We believe that, based
upon the current ownership of Securities and the ownership and transfer
restrictions on Securities described above, which we intend to monitor and
enforce, we will not be classified as a CFC.

Accumulated Earnings Tax

If the IRS were to classify SC-U.S. Realty as a corporation subject to the
accumulated earnings tax ("AET") within the meaning of section 532(a) of the
Code, we would be subject to a tax equal to 39.6 percent of its undistributed
taxable income subject to certain adjustments under section 535(b) and 535(c) of
the Code. We would generally be classified as a corporation subject to the AET
if we had been formed or availed for the purpose of avoiding income tax, with
respect to its individual securityholders, by permitting earnings to accumulate
instead of being distributed to such securityholders. Case law suggests that
such individual tax avoidance can be shown only if some individual or group of
individuals, by virtue of his or their control over the corporation, purposely
causes the corporation to unreasonably accumulate its earnings and profits. In
addition, a tax avoidance purpose is presumed where a corporation accumulated
its earnings and profits "beyond the reasonable needs of its business." Finally,
prima facie evidence of a tax avoidance purpose exists where a corporation is a
"mere holding or investment company." We believe that we should not be
classified as a corporation subject to the AET.

Foreign Investment Company

If the IRS were to classify SC-U.S. Realty as a foreign investment company
("FIC") within the meaning of section 1246(b) of the Code, a securityholder's
gain on the sale or exchange of Securities, including a distribution treated as
an exchange of Securities, generally would be taxed as ordinary income to the
extent of such securityholder's ratable share of the accumulated earnings and
profits of the Company.

In addition, a securityholder who acquires Securities from a decedent would be
required to reduce the fair market value tax basis of such Securities by such
decedent's ratable share of earnings and profits of SC-U.S. Realty. We would
generally be classified as a FIC if (i) we were registered under the Investment
Company Act as a management company or as a unit investment trust, or (ii) we
were engaged (or holding itself out as being engaged) primarily in the business
of investing, reinvesting, or trading securities, commodities or any interest
therein, at a time when 50 percent or more of the total combined voting power of
all classes of stock entitled to vote, or the total value of all classes of
stock, was held, directly or indirectly, by U.S. persons (as defined in Section
7701(a)(30) of the Code). We are not registered under the Investment Company
Act as a management company or as a unit investment trust. While we expect that
50 percent or more of the total combined voting power of all classes of its
Securities entitled to vote or the total value of all classes of its Securities
will be held by U.S. persons, we do not believe, based on its anticipated method
of operation and the nature of its investments, that it should be considered
engaged primarily in the business of investing, reinvesting or trading
securities, commodities or any interest therein. We believe that we should not
be considered to be engaged in the business of investing in securities within
the meaning of section 3(a)(1) of the Investment Company Act. We believe that a
determination under section 3(a)(1) of the Investment Company Act will be
determinative of whether or not we will be considered engaged primarily in the
business of investing, reinvesting or trading securities, commodities or any
interest therein for purposes of being classified as a FIC and, accordingly, we
should not be a FIC.

-99-
<PAGE>

Passive Foreign Investment Company

If the IRS were to classify SC-U.S. Realty as a passive foreign investment
company ("PFIC") within the meaning of section 1297(a) of the Code, a
securityholder would, upon certain distributions by us and upon disposition of
his or her Securities, be liable to pay, in addition to the tax otherwise due at
the then prevailing rates, interest on the tax, and additional tax based on the
highest rate of individual or corporate tax, as the case may be, as if the
distribution or gain had been recognised ratably over the taxpayer's holding
period for the Securities. We would generally be classified as a PFIC if:

(1) 75 percent or more of our gross income for the taxable year is passive
income, or

(2) the average percentage of assets held by us during the taxable year which
produce passive income or which are held for the production of passive
income is at least 50 percent.

In general, "passive income" is defined to include the following:

(1) dividends, interest, and income equivalent to interest such as income from
commitment fees, royalties, rents, except active rents as discussed below,
and annuities;

(2) net gains from the sale or exchange of property, other than inventory,
that produces dividends, interest, royalties, rents, except for active
rents as discussed below, or annuities, or that produces no income;

(3) net gains from the sale or exchange of an interest in a trust or
partnership; and

(4) net gains from certain commodity and foreign currency transactions.

Rents are considered "active rents" if such rents are derived from leasing:

(1) property that the lessor has manufactured or produced, or has acquired and
added substantial value to, but only if the lessor is regularly engaged in
the manufacture or production of, or in the acquisition and addition of
substantial value to, property of such kind, or

(2) real property with respect to which the lessor, through its own officers
or staff of employees, regularly performs active and substantial
management and operation functions while the property is leased.

In general, an asset will be characterised as a "passive asset" if it has
generated (or is reasonably expected to generate in the reasonably foreseeable
future) passive income as defined above. For purposes of determining whether we
are a PFIC, if we own, directly or indirectly, at least 25 percent by value of
the stock of another corporation, the Company would be treated as if our (1)
held our proportionate share of the assets of such other corporation, and (2)
received directly our proportionate share of the income of such other
corporation. We believe that we should not be classified as a PFIC. However,
because classification of a PFIC depends in significant part upon the
investments and activities of the various strategic positions in which we invest
and because changes with respect to such investments and activities may occur as
a result of circumstances beyond our control, there can be no assurance we will
be able to avoid PFIC classification. However, our strategic investees have
contractually agreed to certain limitations designed to help ensure we will not
be a PFIC as a result of changes in their investment and activities.

We will use our best efforts to notify securityholders if we conclude that we
will be treated as a PFIC for any taxable year to enable affected taxpayers to
consider whether to elect to treat us as "qualified electing fund" for U.S.
income tax purposes. A securityholder of a qualified electing fund is required
in each taxable year to include in income a pro rata share of the ordinary
earnings and net capital gains of the PFIC. We will use our best efforts to
provide appropriate information and reporting to enable securityholders to make
the qualified electing fund election.

U.S. Federal Information Reporting and Withholding

Under current United States federal income tax law, a 31% backup withholding
tax requirement may apply to certain payments of (1) interest and original issue
discount on, and the proceeds of a sale, exchange or redemption of, the
Convertible Note and (2) dividends paid on Securities, and the proceeds of a
sale, exchange or redemption of,

-100-
<PAGE>

the Securities. In addition, certain persons making such payments are required
to submit information returns, for example, IRS Forms 1099, to the Service with
regard to those payments.

Backup withholding and information reporting will generally not apply with
respect to payments made to certain exempt recipients such as corporations or
certain exempt entities. In the case of a non-corporate United States Holder,
information reporting normally will apply, but backup withholding generally will
apply only if such holder:

(1) fails to furnish its Taxpayer Identification Number ("TIN") which, for an
individual, would be his Social Security number,

(2) furnishes an incorrect TIN,

(3) is notified by the Service that it has failed to properly report payments
of interest and dividends, or

(4) under certain circumstances, fails to certify, on IRS Form W-9 or a proper
substitute form, under penalties of perjury, that is has furnished a
correct TIN and has not been notified by the Service that it is subject to
backup withholding for failure to report interest and dividend payments.

In the case of a Non-U.S. Holder, information reporting on IRS Form 1099
(including IRS Form 1099B) and backup withholding should not apply to payments
of interest or OID on a Convertible Note or dividends on a Security made outside
the United States. Such payments made inside the United States will not be
subject to information reporting or backup withholding if such Holder has
provided the required certification on IRS Form W-8 under penalties of perjury
that it is not a United States Holder or has otherwise established an exemption,
provided in each case that the payor does not have actual knowledge that the
payee is a United States Holder.

The United States Treasury Department adopted new Regulations (the "New
Regulations") which affect the United States tax requirements with respect to
information reporting and backup withholding. As amended, the New Regulations
are generally effective, subject to certain transition rules, for payments made
after 31 December 1999, regardless of the issue date of the instrument with
respect to which such payments are made. The Service recently announced its
intention to amend the New Regulations to extend the effective date to those
payments made after 31 December 2000, subject to certain transition rules. The
New Regulations generally have similar rules to those described in the preceding
paragraphs.

If payments on a Convertible Note are made to or through a foreign office of a
custodian, nominee, broker or other agent acting on behalf of a beneficial owner
of a Convertible Note, such custodian, nominee or other agent will not be
required to apply backup withholding or information reporting to such payments
made to such beneficial owner. If, however, such nominee, custodian, agent or
broker is, for United States federal income tax purposes, a United States
person, a controlled foreign corporation or a foreign person 50% or more of
whose gross income is effectively connected with the conduct of a United States
trade or business for a specified three-year period, such payments will not be
subject to backup withholding but will be subject to information reporting,
unless (1) such custodian, nominee, agent or broker has documentary evidence in
its records that the beneficial owner is not a United States person and certain
other conditions are met or (2) the beneficial owner otherwise establishes an
exemption. Under the New Regulations, backup withholding will not apply to such
payments, absent actual knowledge that the payee is a United States person, and
failure to otherwise establish an exemption.

Payments on the sale, exchange or other disposition of a Convertible Note or
Security made to or through a foreign office of a broker generally will not be
subject to backup withholding. Such payments, however, will be subject to
information reporting if the broker is a United States person, a controlled
foreign corporation for United States federal income tax purposes or a foreign
person 50% or more of whose gross income is effectively connected with the
conduct of a United States trade or business for a specified three year period,
unless the broker has in its records documentary evidence that the beneficial
owner is not a United States person and certain other conditions are met, or the
beneficial owner otherwise establishes an exemption. Under the New Regulations,
backup withholding will apply if such broker has actual knowledge that the payee
is a United States Holder and fails to otherwise establish an exemption.
Payments on the sale, exchange or other disposition of a Convertible Note or
Share to or through the United States office of a broker will be subject to
backup withholding and information reporting unless the holder certifies (i.e.,
on IRS Form W-8) under penalties of perjury, that it is not a United States
Holder and the

-101-
<PAGE>

payor does not have actual knowledge to the contrary or otherwise establishes an
exemption, for example, a United States Holder may certify its exemption on IRS
Form W-9 or may be identified as an "exempt recipient".

Any amounts withheld under the backup withholding rules from a payment to a
holder will be refunded, or credited against the holder's United States federal
income tax liability, if any, provided that the amount withheld is claimed as
federal taxes withheld on the holder's United States federal income tax return
relating to the year in which the backup withholding occurred. A holder who is
not otherwise required to file a United States income tax return must generally
file a claim for refund, or in the case of Non-U.S. Holders, an income tax
return, in order to claim refunds of withheld amounts. A taxpayer
identification number must be reported on such claim for refund which may
require Non-U.S. Holders who are individuals in certain instances to obtain an
IRS individual taxpayer identification number (ITIN).

Holders of Convertible Notes or Securities should consult their tax advisors
regarding the application of information reporting and backup withholding in
their particular situations, the availability of an exemption therefrom, and the
procedure for obtaining such an exemption, if available.

Interest and OID paid on the Convertible Notes will be treated by the Company
as foreign source interest not subject to United States withholdings tax.

Assuming that less than 25% of our gross income and our subsidiaries is
effectively connected or treated as effectively connected with a United States
trade or business, including as effectively connected income for this purpose
capital gains subject to the Foreign Investment in Real Property Tax Act of 1980
including capital gain distributions from a REIT, for the three taxable years of
the Company prior to the taxable year of declaration of any distribution, any
such distributions we make with respect to the Securities will not be subject
to United States withholding tax.

U.S. Federal Information Requirements

The acquisition of 10 percent or more of the (1) total combined voting power
of all classes of our Securities entitled to vote or (2) total value of our
outstanding Securities of the Company by a United States Holder may trigger
certain reporting requirements which may necessitate the filing of Form 5471
with the annual tax return of the holder.

U.S. Federal Income Taxation of SC-U.S. Realty

We and our subsidiaries have conducted, and will continue to conduct, our
affairs with the intent that income realised will not be effectively connected
with the conduct of a United States trade or business or otherwise subject to
regular United States Federal income taxation on gross income less allowable
deductions. If any such corporation were considered engaged in a United States
trade or business all or part of the income from the U.S. investments could be
considered effectively connected income which would be subject to regular United
States federal income taxation and could also be subject to branch profits tax
at a rate of 30% on any "dividend equivalent amount".

Foreign corporations are generally subject to U.S. income tax on all income
that is effectively connected with the conduct of a U.S. trade or business.
Stock and securities transactions of the type engaged in by our subsidiaries do
not constitute a U.S. trade or business for this purpose if such transactions
constitute "investment" as opposed to "trading" in such stocks and securities.
The distinction between investing and trading for this purpose is a question of
fact. Under case law, the more frequent the purchases and sales of stocks and
securities and the shorter the period of time between the purchase and sale of
each stock and security, the more likely the activity constitutes a trading
activity rather than a mere investment activity. It is uncertain whether the
transactions of our subsidiaries in stocks and securities constitute "trading"
in stocks and securities. However, even if such activities did constitute
"trading" in stocks and securities, a safe harbor provision in Section
864(b)(2)(A) of the Code provides that a foreign corporation will not be
considered to be engaged in a trade or business within the United States solely
because such foreign corporation trades in the United States in stocks and/or
securities for the corporation's own account, whether by the corporation or its
employees or through a resident broker, commission agent, custodian or other
agent, and whether or not any such employee or agent has discretionary authority
to make decisions in effecting the transactions, provided that the corporation
is not a dealer in stocks or securities. The stock and securities transactions
of our subsidiaries should qualify for the safe harbor.

-102-
<PAGE>

Holdings has acquired and will acquire certain contractual rights with respect
to its strategic investees in order to obtain board and committee representation
to give effect to the operating strategy of such investee companies. Examples of
the type of rights which have been and will be acquired are the right to consult
on or approve annual budgets and strategy plans, the right to nominate directors
for approval pursuant to the usual procedures for election of directors in the
investee company, the right to receive financial information, the right to
approve major capital investments or other material matters and the right to
meet with principal officers of the investee companies on policy matters. In
order to comply with the ERISA requirements and ensure we qualify as a "venture
capital operating company", that we are and will be a party to the contract
between Holdings and the investee company pursuant to which we have and will
acquire and exercise such rights directly with the investee companies. Under the
applicable case law and IRS regulations, activities of this type should
constitute monitoring, supervisory and stewardship activities with respect to
the investments of our subsidiaries which would not cause us or our subsidiaries
to be engaged in a United States trade or business.

We believe that our current method of operation and our subsidiaries' intended
method of operation does not and will not result in any corporation being
considered engaged in a United States trade or business.

As described in detail elsewhere in this document, we own or will primarily
own through our wholly owned direct and indirect subsidiaries, shares in United
States real estate companies, most of which are or intend to become REITs as
defined in the Code. Assuming our subsidiaries are not considered engaged in a
United States trade or business, it will generally be subject to United States
withholding taxes on dividends from the REITs in which it invests and proposes
to invest.

A REIT's distributions may be comprised of returns of capital, capital gains
dividends arising from the sale or exchange of United States real property
interests by a REIT, and dividends of operating income. Distributions in excess
of current and/or accumulated earnings and profits will be treated as a non-
taxable return of capital to our subsidiaries to the extent of its tax basis in
the shares of the REIT and any remaining distributions would be treated as
amounts received in exchange for the shares of the subsidiary in the REIT.
Distributions from a REIT to the extent attributable to gain from sales or
exchanges by the REIT of United States real property interests, for example,
capital gains dividends by a REIT, are subject to income and withholding taxes
pursuant to the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA").
As a result, our subsidiaries will generally be subject to a 35% United States
federal income tax with respect to any such distribution received from a REIT
and may also be subject to a 30% United States branch profits tax with respect
to such distribution. Our strategic investees have agreed to use reasonable
efforts to structure their transactions to minimise capital gain dividends and
such dividends are not expected to be material.

With respect to dividends of operating income paid by a REIT, which are
generally subject to a 30% United States withholding tax unless a lower treaty
rate is applicable, our subsidiaries will be entitled to claim the lower 15%
withholding tax rate under Article IX of the current United States-Luxembourg
tax treaty provided that, in addition to meeting any other conditions of the
treaty, our subsidiaries, we would not qualify for treaty benefits, are treated
for U.S. federal income tax purposes as the beneficial owners of such dividends.
We believe that our subsidiaries are the beneficial owners of the strategic
investment positions and otherwise meet the conditions for a 15% rate of
dividend withholding tax under Article IX of the current United States-
Luxembourg tax treaty.

Under certain "conduit" income tax regulations promulgated by the U.S.
Treasury Department, if our subsidiaries are an "intermediate" corporation which
is a "conduit" in a "financing arrangement" which had as a principal purpose tax
avoidance and which results in a reduction of withholding tax on its income
compared to the tax which would have been imposed if such income were attributed
to us, the Service could assert that such income should be attributed to us for
U.S. Federal income tax purposes and be subject to the higher tax. A financing
arrangement consists of two "financing transactions". Under the regulations, a
financing transaction includes a loan (i.e., debt) and may include stock if such
stock is subject to certain redemption rights.

Our subsidiaries have been capitalised with a combination of equity and debt
from us. Such debt could constitute a financing transaction, but should not be
considered part of a financing arrangement unless the underlying proceeds are
used by our subsidiaries in a second financing transaction. Investments by our
subsidiaries in U.S. stocks which do not have certain redemption rights should
not constitute financing transactions. We and our subsidiaries intend that the
investments of the subsidiaries primarily are and will be U.S. stocks, and that
such stocks will not include those certain redemption rights which could cause
the investments to be considered part of a "financing arrangement". In the case
of U.S. debt instruments in which our subsidiaries may invest, the conduit

-103-
<PAGE>

regulations are not an issue if the interest on such debt is portfolio interest.
Portfolio interest is exempt from U.S. withholding tax, although it does not
include interest on debt obligations of U.S. companies in which our subsidiaries
own directly or by attribution more than 10% of the voting stock. In any event,
our subsidiaries do not intend to invest in any debt instruments where, for
whatever reason, U.S. withholding tax could be imposed.

The United States-Luxembourg tax treaty has been under renegotiation and on 3
April 1996 both countries signed a proposed new treaty and a memorandum of
understanding. The proposed new treaty will not become effective until the
necessary procedures to effect ratification in both jurisdictions are completed
and instruments of ratification are exchanged. In this regard, it should be
noted that an exchange of instruments with respect to the tax treaty is
conditional on an exchange of instruments between the United States and
Luxembourg in connection with a "Mutual Legal Assistance in Criminal Matters"
treaty. On 21 October 1998 the U.S. Senate approved the "Mutual Legal Assistance
in Criminal Matters" treaty, sometimes referred to herein as the "MLAT".

The ratification process in connection with the proposed tax treaty has been
completed in the United States. The treaty was ratified by the U.S. Senate on 31
October 1997 subject to a reservation regarding the taxation of dividends paid
by a REIT (the "Senate Reservation"), upon which Senate approval was
conditional. Luxembourg recently approved the treaty but has not yet approved
the MLAT. We believe that our subsidiaries should, under the revised terms of
the proposed new treaty and the Senate Reservation, if implemented, qualify for
a 15% rate of withholding tax on dividends of operating income from most (if not
all) of the REIT investments currently held by our subsidiaries. Furthermore,
under the revised terms of the proposed new treaty, we believe that Holdings,
or other subsidiaries of the Company, should also be able to qualify for the 15%
rate for future REIT investments. We base our beliefs upon the manner in which
our management intends to operate the company, but there can be no assurance
that these favourable rates will be achieved as to any or all such investments.
Moreover, the proposed treaty and the Senate Reservation will only be effective
upon approval by Luxembourg of the MLAT and the exchange of instruments of
ratification.

The proposed treaty generally provides for a reduction in the 30% U.S.
withholding tax rate to 15% on dividends paid by U.S. companies, but states
that, in general, no reduction applies in the case of dividends paid by a REIT.
However, the Senate Reservation provides that REIT dividends paid to a resident
of Luxembourg would be eligible for the 15% rate of withholding tax in three
cases. First, the 15% withholding tax rate would apply to REIT dividends if the
Luxembourg resident beneficially holds an interest of 5 percent or less in each
class of the REIT's stock and such dividends are paid with respect to a class of
the REIT's stock that is publicly traded. Second, the 15% withholding tax rate
would apply to REIT dividends if the Luxembourg resident beneficially holds an
interest of 10 percent or less in the REIT and the REIT is diversified,
regardless of whether the REIT's stock is publicly traded. Third, the 15%
withholding tax would apply to dividends paid with respect to an interest in a
REIT if the beneficial owner of the dividends owned such interest as of 30 June
1997, the REIT is diversified, and, for dividends paid after 31 December 1999,
the REIT is publicly traded on 31 December 1999 and thereafter. The special rule
for dividends on existing REIT investments will apply to an existing investment
in a REIT as of 30 June 1997, and to reinvestment in the REIT of both ordinary
and capital gain dividends paid with respect to that investment, and if a REIT
in which there is a qualifying investment as of 30 June 1997 goes out of
existence in a nonrecognition transaction, the special rule will continue to
apply to the investment in the successor REIT, if any.

For purposes of these rules, the U.S. Senate Foreign Relations Committee
Report on the proposed treaty (the "Committee Report") states that a REIT will
be considered diversified if the value of no single interest in real property
held by the REIT exceeds 10 percent of the value of the REIT's total interests
in real property. An interest in real property will not include a mortgage,
unless the mortgage has substantial equity components, and also will not include
foreclosure property. The diversification rule will be applied by looking
through a partnership interest held by a REIT to the underlying interests in
real property held by the partnership. Finally, the reduced withholding tax rate
will apply to a REIT dividend if the REIT's trustees or directors make a good
faith determination that the diversification requirement is satisfied as of the
date the dividend is declared.

Holdings, or any of our other subsidiaries claiming the reduced treaty rate,
will be eligible for benefits under the proposed treaty including the reduced
withholding rate on dividends of operating income from current or future REIT
investments only if it is treated as the beneficial owner of the dividends and
meets the tests for treaty eligibility prescribed in Article 24 concerning
"limitation on benefits". Article 24 is intended to limit indirect use of the
treaty by persons who are not entitled to its benefits. Article 24 of the
proposed treaty generally provides that a treaty country resident is entitled to
all treaty benefits in the other country only if it is a "qualified resident" as
defined in the proposed treaty.

-104-
<PAGE>

Generally, a company that is a resident of either country is a "qualified
resident" if it falls within one of the following categories:

. a company that satisfies an ownership test and a base erosion test;

. a company that satisfies a public company test;

. a company that is controlled by certain public companies and also satisfies
a base erosion test; or

. a not-for-profit, tax-exempt organisation that satisfies an ownership test.

To meet the ownership test, it is necessary that at least 50 percent of the
principal class of shares in the entity is ultimately owned by persons that
qualify as treaty residents or U.S. citizens.

To meet the base erosion test, not more than 50 percent of the gross income of
the company for the year may be paid or accrued by the company as deductible
amounts, under the laws of the company's residence country, to persons other
than qualified residents or U.S. citizens. For purposes of the base erosion
test, arm's length payments in the ordinary course of business for services or
purchase or rentals of tangible property including immovable property are not
taken into account in determining the amount of deductible payments made by the
company. This test is intended to prevent a corporation, for example, from
distributing most of its income in the form of deductible payments such as
interest, royalties, service fees, or other amounts to persons not entitled to
benefits under the proposed treaty.

The diplomatic notes included at the time the proposed treaty was signed (the
"Diplomatic Notes") provide that a taxpayer claiming benefits under the
ownership and base erosion tests of the proposed treaty may be denied treaty
benefits unless such a taxpayer demonstrates that the required percentage of its
shares, including bearer shares, is beneficially owned by qualified residents.

The tests prescribed by Article 24, particularly in terms of stock ownership
requirements, base erosion and publicly traded criteria, are inherently factual
in nature. Such tests will need to be applied to Holdings, or other of our
subsidiaries, only at a future point in time and will be dependent on the
particular facts at such time. However, management will use its best efforts to
ensure Holdings, or other of our subsidiaries, meets the conditions for claiming
the reduced treaty withholding rate at the relevant time. We currently believe
that such conditions will be met.

It should be noted that although the proposed treaty recently was approved by
the government of Luxembourg, the current provisions in the proposed treaty
still could be modified or amended and it is possible such treaty will never
become effective due to a failure to exchange instruments or because instruments
are not exchanged with respect to the "Mutual Legal Assistance in Criminal
Matters" treaty referred to above.

However, assuming the proposed treaty and the Senate Reservation approved by
Luxembourg remain unchanged and that instruments are exchanged during 1999, and
assuming our subsidiaries elect, in accordance with Article 30(3) of the
proposed treaty, to continue to receive benefits under the current treaty for an
additional year, the new treaty will only be effective as to our subsidiaries
for U.S. source income, including dividends of operating income from REITs,
received on or after 1 January 2001.

Generally, gains on the sale of shares of a REIT by a subsidiary of ours will
not be subject to tax provided the REIT is "domestically-controlled" or the
subsidiary owns 5% or less of a class of stock of the REIT which is publicly
traded, otherwise a 35% tax is expected to be due. Although certain REITs in
which our subsidiaries holds investments are not currently domestically
controlled, it is such subsidiaries' intention to own investments only in REITs
which are properly considered domestically-controlled REITs or will be so
considered prior to any disposition of shares by such subsidiary. A REIT
generally qualifies as "domestically-controlled" so long as less than 50% in
value of its shares is held by foreign persons, for example, non-resident aliens
and foreign corporations, partnerships, trusts and estates, at all times for a
five-year period prior to the date of disposition. While no assurances can be
given that any REIT in which a subsidiary of ours holds an interest in fact is,
or will continue to be throughout such five-year period, "domestically-
controlled," certain ownership restrictions in the articles of incorporation of
certain strategic positions are designed to help ensure such REITs will be
considered so domestically-controlled. Gains on investments made by a subsidiary
in special opportunity positions in REITs would

-105-
<PAGE>

generally not be subject to tax, since such REITs are generally publicly traded
and such subsidiary owns, or will own, a 5% or less interest.

To the extent that one of our subsidiaries invests in United States real
estate operating companies which do not qualify as REITs, dividends of current
and/or accumulated earnings and profits will generally be subject to a 15%
withholding tax under the current United States-Luxembourg treaty. Under the
proposed treaty all such dividends will be subject to a 30% withholding tax,
unless the subsidiary were to meet the tests for treaty eligibility prescribed
in Article 24 concerning "limitation on benefits", in which case all such
dividends would be subject to a 5% withholding tax if such subsidiary owned
directly at least 10% of the voting stock of the company paying the dividend, or
15% in other cases. Distributions in excess of current and/or accumulated
earnings and profits will be treated as a non-taxable return of capital to the
subsidiary to the extent of its tax basis in the shares of such companies. It is
anticipated that these real estate companies, with the possible exception of
Security Capital Group, would generally constitute United States Real Property
Holding Companies ("USRPHCs") under FIRPTA. Accordingly, a subsidiary will be
subject to United States federal income tax of 35% to the extent there is gain
on the sale or exchange of the shares in such USRPHCs. However, to the extent
possible, we expect that all such USRPHCs, with the exception of Security
Capital Group, will ultimately elect REIT status. Holdings currently owns
publicly traded shares of Security Capital Group. Provided Holdings owns 5% or
less of such shares at all times during a specified testing period, any gain on
disposition of such shares will not be subject to U.S. taxation under FIRPTA,
even if Security Capital Group is otherwise considered a USRPHC.

Other than the investments in United States REITs and real estate operating
companies, which are described above, neither we nor any of our subsidiaries
intends to make any other investments in United States securities or other
United States investments which would be subject to United States withholding or
other federal income taxes.

Luxembourg Taxation of SC-U.S. Realty and its Subsidiaries

Taxation of SC-U.S. Realty

We are not liable to any Luxembourg tax on profits or income, nor are
distributions or interest payments we pay liable to any Luxembourg withholding
tax. We are, however, liable in Luxembourg to a tax of 0.06% per annum of its
net asset value, such tax being payable quarterly on the basis of the value of
our aggregate net assets at the end of the relevant calendar quarter. No stamp
duty or other tax is payable in Luxembourg on the issue of the Securities. No
Luxembourg tax is payable on the realised capital appreciation of our assets.

We were liable to an initial capital tax of LUF 50,000, which was paid upon
incorporation.

Taxation of Holdings

As described above, we own and expect to own interests in REITs through
Holdings, an ordinary corporate taxpayer under Luxembourg law. Corporations
which are resident Luxembourg taxpayers are taxed on their worldwide net income,
determined on the basis of gross income less costs incurred. Certain items of
income and capital gains are excluded from the calculation of income received,
including income and capital gains from REIT investments which meet certain
holding period, generally one calendar year, and size requirements. This
exclusion, together with the treatment of interest paid to us as a deductible
expense, has been verified by a ruling from the Luxembourg Tax Inspector. We
intend that substantially all of Holdings' investments will qualify for the
exclusion from taxation of dividends. Any income not so excluded, net of
operating expenses and interest expense of Holdings, would be subject to tax at
an aggregate current rate of 37.45%.

Income Holdings pays to us will be subject to various levels of tax
withholding depending upon its character. The Luxembourg Tax Inspector has
confirmed that interest payments from Holdings to SC-U.S. Realty will be subject
to tax at a rate of 3.75%. Any dividends paid will be subject to tax at a rate
of 25%. Based on our operating strategy, payments from Holdings to the Company
for operating needs are expected to be minimal and consist of interest payments.
As a result, based on our intended operating methods and capital structure, our
consolidated taxation in Luxembourg will approximate a maximum of 3.75% of
dividends and capital gains realised from its REIT investments. No assurance can
be given that actual operating requirements will not result in a higher level of
taxation.

-106-
<PAGE>

United Kingdom Taxation of SC-U.S. Realty and its Subsidiaries

It is the intention of our directors and Holdings to conduct the affairs of
both companies such that they are managed and controlled from Luxembourg. That
being the case and in light of the proposed investment strategy which at present
does not envisage any investment or operations in the United Kingdom, neither we
nor Holdings will be subject to tax on their net income or capital gains in the
United Kingdom.

General

Dividends and interest we or one of our subsidiaries receive on investments
may be subject to non-recoverable withholding or other taxes in the countries of
origin.

Taxation of Non-United States Holders

Luxembourg

Under current legislation, investors who are not resident in Luxembourg are
not subject to any capital gains, income or withholding tax in Luxembourg on the
Securities except for:

(1) those domiciled, resident or having a permanent establishment in
Luxembourg; or

(2) non-residents of Luxembourg who hold more than 25% of the Shares and who
dispose of all or part of their holdings within six months of the date of
acquisition; or

(3) in some limited cases, certain former residents of Luxembourg who held
more than 25% of the Shares. For purposes of (1) and (2) above, ownership
of Securities is disregarded when calculating the 25% ownership tests.

United Kingdom

Tax Treatment of Companies

Interest receivable on the Securities will be chargeable to corporation
tax. The amount of interest received during a company's accounting period will
be calculated in accordance with an authorised accruals basis of accounting
whether or not such amounts are actually received.

United Kingdom resident companies may claim relief for overseas withholding
tax deducted at source from interest payments derived from the Securities. The
relief may be claimed by way of an expense or as a credit against United Kingdom
corporation tax, however, this will be restricted to the rate of United Kingdom
corporation tax payable on income from the same source.

Where the Securities are transferred or redeemed, a company will be subject
to tax on the amount realised less any amounts previously subject to corporation
tax.

The above discussion does not apply to corporate share dealers or insurance
companies. Any such company wishing to purchase Securities should consult its
professional advisors as to the likely tax treatment.

Tax Treatment of Pension Funds

Pension funds in the United Kingdom are exempt from capital gains tax and
income tax on receipts derived from investments provided that such income is not
deemed to amount to a trading receipt, for example, the activities of the
pension funds are not in the ordinary course of business.

-107-
<PAGE>

SELLING HOLDERS

Pursuant to a Registration Rights Agreement between the representatives of
the selling holders and us, we are required to register the Registrable
Securities owned by the selling holders.

Pursuant to the Registration Rights Agreement, we and the selling holders
agreed to indemnify each other against various liabilities, including
liabilities under the Securities Act in connection with the sale of the
securities. The selling holders are required to pay the underwriting discounts
and commissions and expenses of their legal counsel and accountants associated
with the offering contemplated by this prospectus and we are generally required
to pay all of the other expenses contemplated by this prospectus including,
without limitation, the cost of registering the Registrable Securities. None of
the selling holders are under any obligation known to us to sell any of the
Registrable Securities.

The table below sets forth the name of each selling holder and
relationship, if any, with us. The table also shows the amount of Registrable
Securities beneficially owned by each holder as of 21 June 1999, assuming no
Registrable Securities have been sold or converted under this prospectus as of
that date, the maximum number of such securities which may be offered for the
account of each selling holder under the prospectus, and the amount and
percentage of Registrable Securities to be owned by the selling holder assuming
the sale of all of the Registrable Securities which may be offered under this
prospectus.

-108-
<PAGE>

<TABLE>
<CAPTION>
Amount of Number of Shares
Convertible Notes into which
Beneficially Owned Convertible Notes
Name and Address of Selling Holder Prior to Offering (1) May Be Converted
- ---------------------------------- --------------------- -----------------
<S> <C> <C>
Goldman, Sachs & Co. 12,153,000 243,779.5961
Investors Fiduciary Trust Company 130,000 3,430.8235
LaSalle National Bank 210,000 5,542.0995
Marshall & Ilsley Bank 20,000 527.819
Mercantile Safe Deposit & Trust Company 300,000 7,917.285
Merrill Lynch Global Allocation Fund 53,100,000 1,401,359.445
Morgan Stanley & Co. Incorporated 2,769,000 86,272.01555
National City Bank 420,000 11,084.199
NationsBank, N.A. 1,500,000 39,586.425
Norwest Bank Minnesota, National Association 4,190,000 110,578.0805
The Northern Trust Company 2,125,000 56,080.76875
OCM Convertible Trust 3,450,000 91,048,777.5
Old Kent Bank 640,000 16,890.208
Oppenheimer Convertible Securities Fund 14,500,000 382,668,775
Partner Reinsurance Company Ltd. 510,000 13,459,384.5
PNC Bank, National Association 740,000 19,529.303
Raytheon Company Master Pension Trust 1,815,000 47,899,574.25
State Street Bank and Trust Company 44,239,000 1,190,337.4088
UMB Bank, National Association 1,000,000 26,390.95
Union Bank of California, N.A. 560,000 14,778.932
U.S. Bank National Association 270,000 7,125.5565
Vanguard Convertible Securities Fund, Inc. 2,640,000 69,672,108
Wachovia Bank, N.A. 40,000 1,055.638
The Fifth Third Bank 2,000,000 52,781.9
-----------
Totals 450,000,000
</TABLE>

(1) All Convertible Notes beneficially owned by the selling holder are
potentially being offered for sale by this prospectus. If all such
Convertible Notes are sold, the selling holder will beneficially own no
Convertible Notes after the offering. Amounts represent aggregate
principal amount at maturity of Convertible Notes.

(2) Convertible Notes may be converted into shares at the option of the selling
holder or further converted into American Depositary Shares, at the option
of the selling holder. The number of shares or American Depositary Shares
beneficially owned by each selling holder as a result of the conversion of
Convertible Notes is therefore the same.

-109-
<PAGE>

PLAN OF DISTRIBUTION

This prospectus relates to the offer and sale from time to time, which
would include an exchange of shares for American Depositary Shares, of up to
$450,000,000 of the Convertible Notes, and the 11,875,928 shares into which the
Convertible Notes may be converted, held by the selling holders.

We will not receive any proceeds from the sale of the securities by the
selling holders. The selling holders and any agents or broker-dealers that
participate in the distribution of the securities may be deemed to be
"underwriters" within the meaning of the Securities Act, and any commissions
received by them and any profit on the resale of the securities may be deemed to
be underwriting commissions or discounts under the Securities Act.

At the time a particular offer of securities is made, a prospectus
supplement, if required by the Securities Act, will be distributed that will set
forth the names of any agents or broker-dealers, any commissions or discounts
and other terms constituting compensation from the selling holders and any other
required information. The securities may be sold from time to time at varying
prices determined at the time of sale or at negotiated prices.

In order to comply with the securities laws of certain states, if
applicable, the securities may be sold only through registered or licensed
agents or broker-dealers. In addition, in certain states, the securities may
not be sold unless they have been registered or qualified for sale in such state
or an exemption from such registration or qualification requirement is available
and complied with.

EXPERTS

The consolidated financial statements for SC-U.S. Realty as of 31 December
1998 and 1997, and for each of the three years in the period ended 31 December
1998, included in this prospectus have been so included in reliance on the
report of Price Waterhouse SARL, independent accountants, given on the authority
of said firm as experts in auditing and accounting.

LEGAL MATTERS

Arendt & Medernach and Mayer, Brown & Platt, each will pass on various
legal matters relating to the validity of the securities. Both Arendt &
Medernach and Mayer, Brown & Platt have in the past represented SC-U.S. Realty,
some of the selling holders and their respective affiliates.

WHERE YOU CAN FIND MORE INFORMATION

We are subject to the reporting requirements of the Exchange Act and file
the reports required by the Exchange Act with the Securities and Exchange
Commission. You may read and copy materials we file with the Securities and
Exchange Commission at its Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You may obtain information on the operation of the
Public Reference Room by calling the Securities Exchange Commission at 1-800-
SEC-0330. In addition, the Securities and Exchange Commission maintains an
Internet site that contains reports and other information regarding issuers that
file electronically, and the address of that site is http://www.sec.gov. The
Securities and Exchange Commission has assigned the file number 1-1511 to the
reports and other information that we file with the Securities and Exchange
Commission. The American Depositary Shares are listed on the New York Stock
Exchange under the symbol "RTY" and all reports and other information we file
with the New York Stock Exchange may be inspected at the New York Stock Exchange
offices at 20 Broad Street, New York, NY 10005.

We have filed with the Securities and Exchange Commission a registration
statement on Form F-1 under the Securities Act with respect to the Registrable
Securities. This prospectus, which constitutes part of the registration
statement, does not contain all of the information set forth in the registration
statement. Parts of the registration statement are omitted from this prospectus
in accordance with the rules and regulations of the Securities and Exchange
Commission. For further information, your attention is directed to the
registration statement. Statements made in this prospectus concerning the
contents of any documents referred to herein are not necessarily

-110-
<PAGE>

complete, and in each case are qualified in all respects by reference to the
copy of such document filed with the Securities and Exchange Commission.

You should rely only on the information contained in this prospectus or to
which we have referred you. We have not authorised anyone to provide you with
information that is inconsistent with information contained in this document or
any document incorporated herein. This prospectus is not an offer to sell these
securities in any state where the offer and sale of these securities is not
permitted. The information in this prospectus is current as of the date is
mailed to Selling Holders, and not necessarily as of any later date. If any
material changes occurs, during the period that this prospectus is required to
be delivered, this prospectus will be supplemented or amended.

-111-
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants................................................................................ 113

Consolidated Statements of Net Assets at 31 December 1998 and 1997............................................... 114

Consolidated Statements of Operations for the years ended 31 December 1998, 1997 and 1996........................ 115

Consolidated Statements of Cash Flows for the years ended 31 December 1998, 1997 and 1996........................ 116

Consolidated Statements of Changes in Net Assets for the years ended 31 December 1998, 1997 and 1996............. 117

Consolidated Statements of Changes in Shares Outstanding for the years ended 31 December 1998, 1997 and 1996..... 117

Consolidated Financial Highlights for the years ended 31 December 1998, 1997 and 1996............................ 117

Consolidated Schedules of Strategic Investment Positions at 31 December 1998 and 1997............................ 118

Consolidated Schedules of Special Opportunity Positions at 31 December 1998 and 1997............................. 119

Notes to the Consolidated Financial Statements................................................................... 120

Additional Financial Information................................................................................. 129
</TABLE>

-112-
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of SECURITY CAPITAL U.S. REALTY

In our opinion, the consolidated statements of net assets (including the
consolidated schedules of strategic investment positions and of special
opportunity positions) and the related consolidated statements of operations, of
cash flows, of changes in net assets and of changes in shares outstanding, and
the consolidated financial highlights present fairly, in all material respects,
the financial position of SECURITY CAPITAL U.S. REALTY (the "Company") and its
wholly-owned subsidiaries at 31 December 1998 and 1997, and the results of
operations and their cash flows and financial highlights for each of the three
years ended 31 December 1998, 1997 and 1996, in conformity with accounting
principles generally accepted in the United States. These financial statements
and financial highlights (hereafter collectively referred to as "financial
statements") are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
International Standards on Auditing, which are substantially equivalent to
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.

PRICE WATERHOUSE SARL

Luxembourg
10 March 1999, except for note 13
which is as of 24 June 1999

-113-
<PAGE>

SECURITY CAPITAL U.S. REALTY

CONSOLIDATED STATEMENTS OF NET ASSETS
(in thousands $, except per share amounts)

<TABLE>
<CAPTION>
At 31 December
------------------------
A S S E T S 1998 1997
----------- ---------- ----------
<S> <C> <C>
Strategic investment positions at value:
CarrAmerica (Cost $699,851 and $636,387, respectively)...................................... $ 686,482 $ 838,343
City Center Retail (Cost $304,035 and $83,665, respectively)................................ 304,035 83,300
CWS Communities (Cost $153,563 and $92,600, respectively)................................... 153,563 91,646
Pacific Retail (Cost $524,038 and $523,459, respectively)................................... 501,805 610,811
Regency (Cost $235,750 and $225,695, respectively).......................................... 260,775 312,438
Storage USA (Cost $394,272 and $348,444, respectively)...................................... 380,178 422,265
Urban Growth Property (Cost $181,082 and $17,703, respectively)............................. 181,082 17,241
Special opportunity positions at value:
Security Capital Group Incorporated (Cost $165,000 and $165,000, respectively).............. 116,245 165,000
Other special opportunity positions (Cost $314,031 and $282,708, respectively).............. 262,480 352,010
---------- ----------
Total investments................................................................................ $2,846,645 $2,893,054
Cash and cash equivalents........................................................................ 2,994 1,970
Accounts receivable and other.................................................................... 23,989 6,796
---------- ----------
TOTAL ASSETS..................................................................................... $2,873,628 $2,901,820
---------- ----------

L I A B I L I T I E S
---------------------
Accounts payable and accrued expenses............................................................ $ 13,497 $ 12,382
Taxes payable.................................................................................... 1,306 1,018
Line of credit................................................................................... 262,500 130,000
Convertible notes................................................................................ 369,940 --
---------- ----------
TOTAL LIABILITIES................................................................................ $ 647,243 $ 143,400
---------- ----------
TOTAL NET ASSETS (SHAREHOLDERS' EQUITY).......................................................... $2,226,385 $2,758,420
========== ==========

SHARES
Authorized 250,000,000 shares, $4.00 par value, 86,561,872 shares
issued and outstanding at 31 December 1998 and 31 December 1997 (1)............................. $ 346,247 $ 346,247
Legal reserve.................................................................................... 30,375 27,304
Share premium account............................................................................ 1,749,158 1,749,598
---------- ----------
PAID-IN CAPITAL.................................................................................. $2,125,780 $2,123,149
Undistributed net operating income............................................................... $ 148,152 $ 73,324
Accumulated net realised gain.................................................................... 77,431 44,553
Unrealised (depreciation)/appreciation on strategic investment and special
opportunity positions........................................................................... (124,978) 517,394
---------- ----------
TOTAL NET ASSETS................................................................................. $2,226,385 $2,758,420
========== ==========

Net Asset Value per share (1).................................................................... $ 25.72 $ 31.87
</TABLE>

(1) Share and per share amounts have been restated to reflect the reverse stock
split which took effect 18 June 1999. See Note 13C.

The accompanying notes from an integral part of the financial statements.

-114-
<PAGE>

SECURITY CAPITAL U.S. REALTY

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands $, except per share amounts)

<TABLE>
<CAPTION>
For the years ended 31 December
-----------------------------------
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
REVENUES
Gross dividends from strategic investment positions:
CarrAmerica....................................................... $ 51,999 $ 41,412 $ 13,567
CWS Communities................................................... 4,783 -- --
Pacific Retail.................................................... 36,178 21,576 9,482
Regency........................................................... 20,244 11,441 773
Storage USA....................................................... 29,934 24,497 8,700
Urban Growth Property............................................. 4,338 -- --
--------- -------- --------
$ 147,476 $ 98,926 $ 32,522
Gross dividends from special opportunity positions.................. 20,908 17,594 5,192
--------- -------- --------
$ 168,384 $116,520 $ 37,714

Interest income from affiliate...................................... 3,575 2,896 504
Interest income from non-affiliate and other income................. 1,132 805 2,169
--------- -------- --------
TOTAL GROSS REVENUES................................................ $ 173,091 $120,221 $ 40,387
Withholding tax on dividends received (Note 9)...................... (16,266) (17,304) (5,551)
--------- -------- --------
TOTAL REVENUES...................................................... $ 156,825 $102,917 $ 34,836
========= ======== ========

EXPENSES
Operating advisor fees (Note 8)..................................... $ 35,220 $ 24,632 $ 8,041
Custodian fees...................................................... 459 470 318
Directors' fees..................................................... 103 85 57
Professional expenses............................................... 1,843 810 1,023
Administrative expenses............................................. 2057. 1,159 845
Amortisation of convertible notes deferred costs.................... 959 -- --
Amortisation of formation expenses.................................. -- -- 1,654
Formation expenses.................................................. -- -- 172
Taxes............................................................... 2,429 1,857 628
Line of credit arrangement and commitment fees...................... 2,561 2,259 2,991
Interest on line of credit.......................................... 18,434 11,336 6,168
Interest on convertible notes....................................... 14,861 -- --
--------- -------- --------
TOTAL EXPENSES...................................................... $ 78,926 $ 42,608 $ 21,897
--------- -------- --------

NET OPERATING INCOME................................................ $ 77,899 $ 60,309 $ 12,939

NET REALISED AND UNREALISED (LOSS)/GAIN ON STRATEGIC
INVESTMENT AND SPECIAL OPPORTUNITY POSITIONS
Net realised gain on special opportunity positions.................. $ 32,878 $ 41,073 $ 3,480
Net (decrease)/increase in appreciation on strategic investment and
special opportunity positions....................................... (642,372) 264,974 252,294
--------- -------- --------

NET (LOSS)/GAIN ON STRATEGIC INVESTMENT AND SPECIAL
OPPORTUNITY POSITIONS.............................................. $(609,494) $306,047 $255,774
--------- -------- --------

(DECREASE)/INCREASE IN NET ASSETS RESULTING FROM OPERATIONS......... $(531,595) $366,356 $268,713
========= ======== ========
</TABLE>

The accompanying notes from an integral part of the financial statements.

-115-
<PAGE>

SECURITY CAPITAL U.S. REALTY

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands $, except per share amounts)

<TABLE>
<CAPTION>
For the years ended 31 December
---------------------------------------------
1998 1997 1996
----------- ------------ ------------
<S> <C> <C> <C>
Operating Activities:
(Decrease)/Increase in net assets resulting from
operations.............................................................. $(531,595) $ 366,356 $ 268,713
Adjustments to reconcile (decrease)/increase in net
assets resulting from operations to net cash
provided by operating activities:
Movement in unrealised gain.......................................... 642,372 (264,974) (252,294)
Movement in accretion on convertible notes........................... 9,387 -- --
Movement in convertible notes deferred costs......................... 959 -- --
Amortisation of formation expenses................................... -- -- 1,654
Changes in operating assets and liabilities:
Accounts receivable and other..................................... (10,266) 1,498 (8,289)
Interest receivable from affiliate................................ -- 366 (366)
Accounts payable and accrued expenses............................. (256) 2,488 2,426
Operating advisor fees payable.................................... 1,371 4,629 2,594
Taxes payable..................................................... 286 625 386
--------- ----------- -----------
Net cash provided by operating activities...................... $ 112,258 $ 110,988 $ 14,824
--------- ----------- -----------

Investing Activities:
Fundings in strategic investment positions:
CarrAmerica............................................................. $ (63,464) $ (207,971) $ (428,416)
City Center Retail...................................................... (220,370) (83,665) --
CWS Communities......................................................... (60,963) (92,600) --
Pacific Retail.......................................................... (579) (313,145) (157,255)
Regency................................................................. (10,055) (158,596) (67,098)
Storage USA............................................................. (45,828) (76,561) (271,883)
Urban Growth Property................................................... (163,379) (17,703) --
Fundings in Security Capital Group........................................ -- (142,500) (22,500)
Fundings in other special opportunity positions, net....................... (31,323) (104,700) (176,413)
--------- ----------- -----------
Net cash used in investing activities............................. $(595,961) $(1,197,441) $(1,123,565)
--------- ----------- -----------

Financing Activities:
Net proceeds from share offerings......................................... $ -- $ 1,072,966 $ 987,238
Net proceeds from convertible notes offering.............................. 352,667 -- --
Offering expenses charged against the share premium account............... (440) -- --
Drawdowns from line of credit............................................. 340,000 1,425,000 376,500
Repayment of line of credit............................................... (207,500) (1,464,500) (207,000)
--------- ----------- -----------
Net cash provided by financing activities......................... $ 484,727 1,033,466 $ 1,156,738
--------- ----------- -----------

Net increase/(decrease) in cash and cash equivalents........................ $ 1,024 $ (52,987) $ 47,997
Cash and cash equivalents, beginning of the year............................ 1,970 54,957 6,960
--------- ----------- -----------
Cash and cash equivalents, end of the year.................................. $ 2,994 $ 1,970 $ 54,957
========= =========== ===========

Supplemental disclosure of cash flow information:
Tax paid.................................................................. $ 2,141 $ 1,232 $ 242
========= =========== ===========

Interest paid on borrowings............................................... $ 22,987 $ 11,929 $ 5,522
========= =========== ===========
</TABLE>

The accompanying notes from an integral part of the financial statements.

-116-
<PAGE>

SECURITY CAPITAL U.S. REALTY

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(in thousands $)

<TABLE>
<CAPTION>
For the years ended
31 December
--------------------------------------
1998 1997 1996
----------- --------- ----------

(in thousands $, except per share amount)
OPERATIONS:
<S> <C> <C> <C>
Net operating income............................................................ $ 77,899 $ 60,309 $ 12,939
Realised gain on special opportunity positions.................................. 32,878 41,073 3,480
(Decrease)/Increase in appreciation on strategic investment
and special opportunity positions.............................................. (642,372) 264,974 252,294
---------- ---------- ----------
(Decrease)/Increase in net assets resulting from operations..................... $ (531,595) $ 366,356 $ 268,713

CAPITAL TRANSACTIONS:
Net proceeds from offerings..................................................... $ -- $1,072,965 $ 987,238
(Decrease)/Increase in share premium account.................................... (440) -- --
---------- ---------- ----------
(Decrease)/Increase in net assets resulting from capital
transactions.................................................................... $ (440) $1,072,965 $ 987,238

NET ASSETS:
(Decrease)/Increase in net assets during the year............................... $ (532,035) $1,439,321 $1,255,951
Net assets at the beginning of the year......................................... 2,758,420 1,319,099 63,148
---------- ---------- ----------
Net assets at the end of the year (includes
undistributed net operating income of $148,252
for 1998, $73,324 for 1997, and $13,015 for 1996)............................ $2,226,385 $2,758,420 $1,319,099
========== ========== ==========
</TABLE>

CONSOLIDATED STATEMENTS OF CHANGES IN SHARES OUTSTANDING(1)

<TABLE>
<CAPTION>
Number of shares
----------------------------------
For the years ended 31 December
----------------------------------
1998 1997 1996
---------- ---------- ----------

<S> <C> <C> <C>
At the beginning of the year 86,561,872 48,246,355 3,147,28
Issued during the year -- 38,315,517 45,099,068
---------- ---------- ----------
At the end of the year 86,561,872 86,561,872 48,246,355
========== ========== ==========
</TABLE>

(1) Share amounts have been restated to reflect the reverse stock split which
took effect 18 June 1999. See Note 13C.

CONSOLIDATED FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
For the years ended 31 December
-------------------------------
1998 1997 1996
-------- ------- -------
Per share data(1):
<S> <C> <C> <C>
Net asset value per share at the beginning of the year.............. $31.87 $27.34 $20.06
Net operating income................................................ 0.90 0.74 0.24
Net change in movement in unrealised appreciation and
realised gain on strategic investment and special
opportunity positions in the year.................................. (7.05) 3.79 7.04
------ ------ ------
Net asset value per share at the end of the year.................... $25.72 $31.87 $27.34
====== ====== ======
</TABLE>

(1) Per share amounts have been restated to reflect the reverse stock split
which took effect 18 June 1999. See Note 13C.

The accompanying notes form an integral part of the financial statements.

-117-
<PAGE>

SECURITY CAPITAL U.S. REALTY

CONSOLIDATED SCHEDULES OF STRATEGIC INVESTMENT POSITIONS

At 31 December 1998
(in thousands $, except shares held and percentages)

<TABLE>
<CAPTION>
Number of Percentage
Shares of Total
Strategic Investment Positions Security Type Held Cost Value Assets
- ------------------------------ ------------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
CarrAmerica.......................... Common Stock 28,603,417 $ 699,851 $ 686,482 23.9%
City Center Retail................... Common Stock 30,390,000 304,035 304,035 10.6%
CWS Communities...................... Common Stock 15,323,358 153,563 153,563 5.3%
Pacific Retail(1).................... Common Stock 46,985,459 524,038 501,805 17.5%
Regency(1)........................... Common Stock 11,720,216 235,750 260,775 9.1%
Storage USA.......................... Common Stock 11,765,654 394,272 380,178 13.2%
Urban Growth Property................ Common Stock 18,074,100 181,082 181,082 6.3%
---------- ---------- ----
Total investment in strategic
investment positions................ $2,492,591 $2,467,920 85.9%
========== ========== ====
</TABLE>

(1) See Note 3A and Note 13 to the Consolidated Financial Statements regarding
the merger of Pacific Retail and Regency.

At 31 December 1997
(inthousands $, except shares held and percentages)

<TABLE>
<CAPTION>
Number of Percentage
Shares of Total
Strategic Investment Positions Security Type Held Cost Value Assets
- ------------------------------ ------------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
CarrAmerica.................... Common Stock 26,456,583 $ 636,387 $ 838,343 28.9%
City Center Retail............. Common Stock 8,330,000 83,665 83,300 2.9%
CWS Communities................ Common Stock 9,164,597 92,600 91,646 3.2%
Pacific Retail................. Common Stock 46,985,459 523,459 610,811 21.0%
Regency........................ Common Stock 11,284,439 225,695 312,438 10.8%
Storage USA.................... Common Stock 10,573,154 348,444 422,265 14.6%
Urban Growth Property.......... Common Stock 1,724,100 17,703 17,241 0.6%
---------- ---------- ----
Total investment in strategic
investment positions.......... $1,927,953 $2,376,044 82.0%
========== ========== ====
</TABLE>

The accompanying notes form an integral part of the financial statements.

-118-
<PAGE>

SECURITY CAPITAL U.S. REALTY

CONSOLIDATED SCHEDULES OF SPECIAL OPPORTUNITY POSITIONS

At 31 December 1998
(In thousands $, except percentages)

<TABLE>
<CAPTION>
Percentage
of Total
Property Type Cost Value Assets
- ------------- --------- --------- -----------
<S> <C> <C> <C>
Companies in which SC-U.S. Realty owns a 5% or greater interest:
Retail............................................................. $ 35,493 $ 37,646 1.3%
Other.............................................................. 14,446 14,446 0.5%
Companies in which SC-U.S. Realty owns less than a 5% interest:
Office/Industrial.................................................. 107,905 97,658 3.4%
Hotel.............................................................. 79,600 41,356 1.4%
Multifamily........................................................ 29,044 28,727 1.0%
Diversified........................................................ 13,683 11,004 0.4%
Storage............................................................ 10,227 11,350 0.4%
Retail............................................................. 8,406 6,949 0.2%
Other.............................................................. 15,227 13,344 0.5%
-------- -------- ----
Total investment in other special opportunity positions............. $314,031 $262,480 9.1%
Investment in Security Capital Group Incorporated................... 165,000 116,245 4.0%
-------- -------- ----
Total investment in special opportunity positions................... $479,031 $378,725 13.1%
======== ======== ====
</TABLE>

At 31 December 1997
(in thousands $, except percentages)

<TABLE>
<CAPTION>
Percentage
of Total
Property Type Cost Value Assets
- ------------- --------- --------- -----------
<S> <C> <C> <C>
Companies in which SC-U.S. Realty owns a 5% or greater interest:
Other............................................................... $ 7,506 $ 7,049 0.2%
Companies in which SC-U.S. Realty owns less than 5% interest:
Office/Industrial................................................... 81,558 112,635 3.9%
Storage............................................................. 53,311 63,045 2.2%
Retail.............................................................. 48,265 63,026 2.2%
Multifamily......................................................... 45,646 58,117 2.0%
Hotel............................................................... 46,422 48,138 1.7%
-------- -------- ----
Total investment in other special opportunity positions.............. $282,708 $352,010 12.2%
Investment in Security Capital Group Incorporated.................... 165,000 165,000 5.7%
-------- -------- ----
Total investment in special opportunity positions.................... $447,708 $517,010 17.9%
======== ======== ====
</TABLE>

The accompanying notes form an integral part of the financial statements.

-119-
<PAGE>

SECURITY CAPITAL U.S. REALTY

CONSOLIDATED TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--ORGANISATION

Security Capital U.S. Realty (Amsterdam Stock Exchange ISIN Code:
LU0060100673, Bloomberg Symbol: SCUS NA, Reuters Symbol: CAPAu.AS) was
incorporated on 7 July 1995 and is a research-driven, growth-orientated real
estate company focused on taking significant strategic investment positions
(with board representation, consultation and other rights) in value-added real
estate operating companies based in the United States. Our primary capital
deployment objective is to take a proactive ownership role in businesses that it
believes can potentially generate above-average rates of return. We are
organised in Luxembourg as a Societe d'Investissement a Capital Fixe (a company
with a fixed capital).

We own our assets through direct and indirect wholly owned subsidiaries,
including Security Capital Holdings S.A. (such subsidiaries collectively
referred to herein as "Holdings"). All accounts of Holdings have been
consolidated with SC-U.S. Realty and all significant intercompany transactions
have been eliminated upon consolidation. References to SC-U.S. Realty are to the
consolidated entity consisting of Security Capital U.S. Realty and Holdings,
unless noted otherwise.

NOTE 2--SIGNIFICANT ACCOUNTING POLICIES

The financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") in the United States and with Luxembourg
regulatory requirements. The preparation of financial statements in accordance
with GAAP requires our management to make estimates of certain reported amounts
in the financial statements. Actual results may differ from those estimates.

A. Fair Value Basis of Presentation

We account for our investments at fair value in accordance with the U.S.
specialised industry accounting rules prescribed by the American Institute of
Certified Public Accountants (AICPA) Audit and Accounting Guide for Investment
Companies (the "Guide"). Thus, our investments in publicly traded companies are
valued at market determined by using closing market prices on the New York Stock
Exchange ("NYSE") or other recognised stock exchange when appropriate as of the
balance sheet date, subject to an appropriate adjustment for trade restrictions,
if any. Except for Pacific Retail, which is valued based on the exchange ratio
and the closing stock price of Regency on the NYSE (see Note 3A and Note 13
below), for privately held investments in which we have an ownership interest,
we will, whenever the Board of Directors believes significant developments have
occurred affecting the value of an investment and on at least an annual basis,
utilise valuation evidence and methodologies appropriate to the nature of the
investment to derive fair value. These will include external valuations, cash
flow valuation techniques and valuation information derived through placements
of private companies' securities as well as review by management for other
specific indicators of changes in value relating to property performance and/or
significant changes in local or general market conditions. The Board of
Directors, in its discretion, may permit some other method of valuation to be
used, if it determines that such valuation better reflects the fair value of any
of our assets.

Under fair value accounting, unrealised gains or losses are determined by
comparing the fair value of the securities held to the cost of such securities.
Unrealised gains or losses relating to changes in fair value of our investments
are reported as a component of net earnings. Deferred income taxes, if any, are
recorded at the applicable statutory rate as the estimate of taxes payable as if
such gains were realised. Under current tax laws, and in light of our operating
methods and plans, our investment gains generally are not subject to income
taxes.

As of 31 December 1998 and 1997, 40.6% (23.0% excluding the investment in
Pacific Retail which merged with Regency on 28 February 1999, see Note 3A and
Note 13) and 27.8%, respectively, of our investments were 115 in private or
untraded securities valued at their fair value as determined by the Board of
Directors, using the methodology described above. This value may differ from the
value that would have been used had a trading market for these securities
existed. The valuation of assets assumes that any assets disposed of would be
sold in an orderly

-120-
<PAGE>

SECURITY CAPITAL U.S. REALTY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

process; any forced sale of assets under short-term pressures, which is not
foreseen, could adversely affect realisable values.

B. Accounting for Investments and Income

All purchases and sales of publicly traded securities are recorded as of the
trade date (i.e., the date that our broker actually executes an order to buy or
sell). All purchases and sales of privately held securities are recorded as of
the date the actual purchase or sale is made. Dividend income is recorded on the
ex-dividend date for each dividend declared by an issuer. Holdings may be
entitled to refunds on a portion of the withholding tax because the withholding
tax is not levied on the portion of dividends which is a return of capital.
Interest income is recorded on the accrual basis. Interest received is stated
net of withholding taxes. Realised gains and losses on sales of shares are
determined on the average cost method.

C. Cash and Cash Equivalents

We consider all cash on hand, demand deposits with financial institutions and
short-term, highly liquid investments with original maturities of three months
or less to be cash equivalents.

D. Deferred Financing Costs/Discounts

Underwriting fees relating to the issue of the $450 million aggregate
principal amount at maturity of our 2% Senior Unsecured Convertible Notes due
2003 (the "Convertible Notes") are capitalised and amortised using the effective
interest method over the term of the obligation. Discounts on the Convertible
Notes are accreted as a component of interest expense using the effective
interest method over the term of the obligation.

E. New Accounting Pronouncements

During June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133 "Accounting for Derivative Instruments and Hedging Activities". This
statement provides new accounting and reporting standards for the use of
derivative instruments. Adoption of this statement is required by the Company
effective 1 January 2000. Management intends to adopt the statement as required
in fiscal 2000. Although the Company has not historically used such instruments,
it is not precluded from doing so. Management believes that the impact of such
adoption will not be material to the financial statements.

NOTE 3--INVESTMENTS

We aim to have 85% to 90% of its assets deployed in strategic investment
positions and 10% to 15% invested in special opportunity positions.

A. Strategic Investment Positions

Strategic investment positions represent significant (minimum of 25% to a
general maximum of 49% of each issuer's fully diluted common stock outstanding)
equity ownership positions in public companies, or in private companies that
will be positioned to be taken public. With private companies which we sponsor,
it expects to own substantially more than 50% of the voting shares until such
companies become publicly traded, at which time we expect its ownership of such
shares will begin to be diluted until it reaches 35% to 45% on a fully diluted
basis. We will be the largest shareholder of its strategic investees, have
representation on their boards of directors, and influence their operations and
strategies through ongoing consultation and research. Strategic investees are
characterised by the perceived potential for a superior market niche and the
ultimate potential for market preeminence with a focused strategy and product.

-121-
<PAGE>

SECURITY CAPITAL U.S. REALTY

CONSOLIDATED TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

On 24 September 1998 it was announced that Regency agreed to merge with
Pacific Retail in a tax-free transaction. The merger occurred on 28 February
1999. Pursuant to the terms of the merger agreement, shareholders of Pacific
Retail received 0.48 shares of Regency common stock for each common share of
Pacific Retail they owned. Immediately prior to the merger, we owned 46,985,459
shares of beneficial interest of Pacific Retail and 11,720,216 shares of common
stock of Regency. Immediately following the merger, we owned 34,273,236 shares
of common stock of Regency. The closing price of a share of common stock of
Regency on the NYSE on 26 February 1999 (the last trading date preceding the
closing of the merger) was $20.25. Since the merger had not occurred at 31
December 1998, we have reflected in our financial statements the number of
shares and value of its investment in Pacific Retail using the market price of
Regency's common stock and the exchange ratio of 0.48.

B. Special Opportunity Positions

Special opportunity positions primarily consist of ownership positions of less
than 10% of the fully diluted stock in publicly traded entities taxed as real
estate investment trusts under the U.S. Internal Revenue Code of 1986, as
amended ("REITs") and other publicly traded U.S. real estate companies. The
investments have and will take the form of either direct investments in, or
public market purchases of, shares of companies that we believe possess the
requisite fundamentals to generate strong cash flow growth and/or value
appreciation. In exceptional circumstances, and to a very limited extent, we may
make special opportunity investments in companies which are not publicly traded.
Typically such an investment would be in a company which does not at the time of
investment fulfill the criteria for a strategic investment position, but in
which we may take a strategic investment position in the future.

As of 31 December 1998 and 1997, we had deployed a total of $165 million in
securities of Security Capital Group. This amount is made up of an investment of
$110 million (representing 52,430.9 shares of Class A common stock and $55
million aggregate principal amount of 6.5% convertible subordinated debentures
due 2016) and an additional $55 million (representing 1,964,286 shares of Class
B common stock) invested during Security Capital Group's initial public offering
in September 1997.

NOTE 4--ACCOUNTS RECEIVABLE AND OTHER

<TABLE>
<CAPTION>
At 31 December
----------------------------------
1998 1997
---------------- ----------------
(in thousands $) (in thousands $)
<S> <C> <C>
Dividends............................................. $ 8,162 $1,668
Receivable from brokers on investments sold........... 8,219 4,905
Deferred issue costs on Convertible Notes (1)......... 6,927 --
Interest.............................................. 580 --
Refund of withholding tax............................. 97 223
Other................................................. 4 --
------- ------
$23,989 $6,796
======= ======
</TABLE>
_________________
(1) Represents the underwriting fees of $7.9 million relating to the issuance
of Convertible Notes (see Note 7). The fees have been deferred and will be
fully amortised over a period of five years starting from the date of issue
on 22 May 1998.

-122-
<PAGE>

SECURITY CAPITAL U.S. REALTY

CONSOLIDATED TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 5--ACCOUNTS PAYABLE AND ACCRUED EXPENSES

<TABLE>
<CAPTION>
At 31 December
----------------------------------
1998 1997
---------------- ----------------
(in thousands $) (in thousands $)
<S> <C> <C>
Operating advisor fees...................... $ 8,614 $ 7,243
Offering expenses........................... -- 1,739
Line of credit arrangement fees............. -- 860
Interest payable on line of credit.......... 762 53
Interest payable on Convertible Notes....... 975 --
Custodian fees.............................. 110 110
Other....................................... 3,036 2,377
------- -------
$13,497 $12,382
======= =======
</TABLE>

NOTE 6--LINE OF CREDIT

Our total indebtedness under the line of credit as of 31 December 1998 and
1997 was $262.5 million and $130.0 million, respectively.

In an effort to secure investment-grade credit ratings, on 8 December 1998, we
converted our $700 million secured line of credit into a $400 million unsecured
line of credit from Commerzbank Aktiengesellschaft and a consortium of European
and international banks, of which $262.5 million was drawn and outstanding as of
31 December 1998. SC-U.S. Realty received investment-grade ratings from each of
Moody's Investors Service (Baa3), Standard & Poor's Ratings Services (BBB-) and
Duff & Phelps Credit Rating Co. (BBB-). The earliest date on which this line of
credit will expire is 8 December 2000, but we have the right on 8 December 1999
to convert the then outstanding borrowings into a four-year term loan with
quarterly amortisation payments to be made over the four-year period, which
would effectively extend the final loan payment to 8 December 2003. Borrowings
under the line of credit (and the four-year term loan, if applicable) bear
interest at (a) the sum of (x) the greater of the federal funds rate plus 0.5%
or the United States prime rate and (y) a margin of 0% to 0.625% per annum
(based on our current senior unsecured long-term debt ratings) or (b) at SC-U.S.
Realty's option, LIBOR plus a margin of 0.85% to 1.625% per annum (also based on
SC-U.S. Realty's current senior unsecured long-term debt). Additionally, there
is a commitment fee of 0.15% to 0.25% per annum (based on the amount of the line
which remains undrawn). All borrowings under the line of credit are subject to
covenants that SC-U.S. Realty must maintain at all times, including: (i)
unsecured liabilities may not exceed 40% of the market value of a borrowing base
of owned securities, (ii) shareholders' equity must exceed the sum of 75% of
shareholders' equity as of 8 December 1998 and 75% of the net proceeds of sales
of equity securities thereafter, (iii) a ratio of total liabilities to net worth
of not more than 1:1, (iv) a fixed charge coverage ratio of not less than 1.5:1,
(v) an interest coverage ratio of not less than 2:1 and (vi) secured debt may
not exceed 10% of consolidated market net worth. As of 31 December 1998, we were
in compliance with these covenants.

Average daily borrowings under the line of credit were $274.4 million, $136.2
million and $84.9 million for the years ended 31 December 1998, 1997 and 1996,
respectively. The weighted average interest rates for these same periods were
6.67%, 7.27% and 7.18%, respectively.

-123-
<PAGE>

SECURITY CAPITAL U.S. REALTY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7-- CONVERTIBLE NOTES

<TABLE>
<CAPTION>
At 31 December
----------------
1998
----------------
(in thousands $)
----------------

<S> <C>
Convertible Notes proceeds..................... $360,553
Accumulated accretion on Convertible Notes..... 9,387
--------
$369,940
========
</TABLE>

We completed a convertible debt offering in May 1998. A holder may convert
the Convertible Notes at any time prior to maturity at a conversion rate equal
to 26.39095 Shares* per $1,000 aggregate principal amount at maturity of the
Convertible Notes. Interest is payable semi-annually at the rate of 2% per annum
on 22 May and 22 November of each year commencing on 22 November 1998. Effective
1 January 1999, the interest rate payable on the Convertible Notes was increased
to 2.5% per annum. The 2.5% interest rate will be in effect until we list
certain equity securities on the NYSE and register the Convertible Notes and
related equity securities for resale. The Convertible Notes were sold at a
discount to their principal amount at maturity and additional interest will
accrete at a rate of 4.75%, compounded semi-annually, to par by 22 May 2003. We
may redeem the Convertible Notes, in whole or in part, on or after 23 May 2001
at the accreted value, together with accreted and unpaid interest. Upon a change
in control of SC-U.S. Realty, each holder of Convertible Notes may require the
Company to repurchase such holder's Convertible Notes, in whole or in part, at a
purchase price equal to the accreted value, together with accrued and unpaid
interest through the repurchase date.

Conversion of the Convertible Notes would be anti-dilutive for the year
ended 31 December 1998.

*Share amounts have been restated to reflect the reverse stock split which took
effect 18 June 1999. See Note 13C.

NOTE 8--ADVISORY AGREEMENT

We have an advisory agreement with Security Capital U.S. Realty Management
S.A. (the "Operating Advisor"), a wholly owned subsidiary of Security Capital
Group. This agreement requires the Operating Advisor to provide us with advice
with respect to strategy, investments, financing and certain other
administrative matters affecting us. The Operating Advisor has agreed to
identify tangible capital deployment opportunities in U.S. real estate companies
and evaluate such companies' competitive positions, management expertise,
strategic direction, financial strength and prospects for long-term sustainable
per share cash flow growth. The Operating Advisor also advises us on obtaining
board and committee representation and management rights from strategic
investees. The agreement automatically renews for successive two-year periods
unless either party gives notice it will not renew. The Operating Advisor
subcontracts for certain services through affiliates based in London, United
Kingdom and Chicago, Illinois, United States. The Operating Advisor is entitled
to an advisory fee, payable quarterly in arrears, at an annual rate of 1.25% of
the average monthly value of invested assets (excluding investments in Security
Capital Group securities and investments of short-term cash and cash
equivalents). We pay our own third party operating and administrative expenses
and transaction costs, although the Operating Advisor's fee will be reduced to
the extent that third party operating and administrative expenses (but not
transaction costs) exceed 0.25% per annum of average monthly value of invested
assets (excluding investments in Security Capital Group securities and
investments of short-term cash and cash equivalents). Such third party operating
and administrative costs as a ratio of average monthly value of assets were
0.09%, 0.13% and 0.19% for the years ended 31 December 1998, 1997 and 1996,
respectively.

We pay fees to (i) Banque Internationale a Luxembourg as Administrative
Agent, Corporate Agent and Paying Agent, (ii) First European Transfer Agent S.A.
as Registrar and Transfer Agent, and (iii) Security Capital European Services
S.A. as Domiciliary Agent and Service Agent, in accordance with usual practice
in Luxembourg. Such fees are payable quarterly and are based on our gross
assets.

-124-
<PAGE>

SECURITY CAPITAL U.S. REALTY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9--TAXATION

SC-U.S. Realty as separate from Holdings, is not liable for any Luxembourg
tax on income. We are liable in Luxembourg for a capital tax of 0.06% per annum
of its net asset value. Cash dividends and interest received by SC-U.S. Realty
or Holdings on their investments may be subject to non-recoverable withholding
or other taxes in the countries of origin. U.S. withholding tax rates of 15%
were generally in effect for dividends received for all periods presented.

Under the current United States-Luxembourg tax treaty, we believe that
Holdings qualifies for a 15% rate of withholding tax on dividends of operating
income from the REIT investments currently held by Holdings and from its future
REIT investments (if any). We also believe that Holdings will qualify for a 15%
rate of withholding tax under the proposed United States-Luxembourg tax treaty
recently ratified by the United States on most, if not all, of the REIT
investments currently held by Holdings and from future REIT investments (if
any). Our beliefs are based on the manner in which management intends to operate
our subsidiaries. There can be no assurance that these favourable rates will be
achieved as to all such investments. These benefits are also dependent on
Holdings meeting the "limitations on benefits" test under Article 24 of the
proposed new treaty. The tests prescribed by Article 24, particularly in terms
of stock ownership requirements, base erosion and publicly traded criteria are
inherently factual in nature. Such tests will only need to be applied to
Holdings (or other subsidiaries of Holdings or our subsidiaries) at a future,
and presently indeterminate, point in time and will be dependent on the
particular facts at such time. However, management intends to use its best
efforts to ensure that Holdings meets the conditions for claiming the reduced
treaty withholding tax rate at the relevant times and the Company currently
believes that such conditions will be met.

Holdings, an ordinary corporate taxpayer under Luxembourg law, owns all of
the consolidated group's interests in REITs and other U.S. real estate
companies. Corporations which are resident Luxembourg taxpayers are taxed on
their worldwide net income, determined on the basis of gross income less costs
incurred. Certain items of income and capital gains are excluded from the
calculation of income received for tax purposes, including income and capital
gains from certain investments which meet certain holding period (generally one
calendar year) and size requirements. Holdings intends to operate so as to have
the highest possible percentage of its investments qualify for the exclusion.
Interest accrued on advances from us to Holdings is deducted in determining
Holdings' taxable income.

Income paid from Holdings to us is subject to various levels of tax,
including withholding taxes. Gross cash (but not accrued) interest payments from
Holdings to us are subject to withholding tax at a rate of 3.75%. No dividends
were paid to us during the reporting periods.

<TABLE>
<CAPTION>
For the years ended
31 December
-------------------------
1998 1997 1996
-------- ------- ------
<S> <C> <C> <C>
(in thousands $)
Gross cash interest payments........... $25,262 $15,264 $5,030
======= ======= ======

Capital tax............................ $ 1,481 $ 1,285 $ 439
Withholding tax........................ 947 572 189
------- ------- ------
$ 2,428 $ 1,857 $ 628
======= ======= ======
</TABLE>

Withholding taxes (net of expected refunds) for each investment are as
follows:

-125-
<PAGE>

SECURITY CAPITAL U.S. REALTY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>
For the years ended
31 December
--------------------------
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
(in thousands $)
CarrAmerica.......................... $ 7,882 $ 6,150 $ 2,015
CWS Communities...................... 190 -- --
Pacific Retail....................... (2,834) 3,204 1,359
Regency.............................. 2,675 1,699 115
Storage USA.......................... 4,798 3,638 1,292
Urban Growth Property................ 679 -- --
Special opportunity positions........ 2,876 2,613 770
------- ------- ------
$16,266 $17,304 $5,551
======= ======= ======
</TABLE>

NOTE 10--DIRECTORS' SHARE OPTION EQUIVALENTS

Each of our independent directors has received share option equivalents
("SOE") of 25,000 Shares* at strike prices ranging from $17.20* to $28.88* per
Share. All grants of SOEs were for services rendered by the Board of Directors
subsequent to their grant. A SOE granted prior to 30 June 1998 does not
represent a right to purchase Shares from us, but a right to receive a
restricted cash payment equal to the excess, if any, of the net asset value of
25,000 Shares* on the day of exercise over the strike price, which was the net
asset value on the date of grant. Such payments must be applied to the purchase
of Shares to be issued at net asset value on the date of exercise. SOEs granted
after 30 June 1998 do not represent a right to purchase Shares from us, but a
right to receive a restricted cash payment equal to the excess, if any, of the
closing stock price of 25,000 Shares* on the day of exercise over the strike
price, which was the closing stock price on the date of grant. Such payments
must be applied to the purchase of Shares to be issued at the closing stock
price on the date of exercise. Directors were granted a vested right to exercise
one-half of their SOEs immediately, and rights to the balance vest on the fourth
anniversary of their issuance. The right to exercise all SOEs expires five years
from the date of grant.

<TABLE>
<CAPTION>
For the years ended 31 December
-------------------------------
1998 1997 1996
---------------- --------------- --------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Number Price Number Price Number Price
------ -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
SOEs outstanding at beginning of year..... 125,000 $ 22.54 100,000 $20.96 50,000 $ 20.00
SOEs issued............................... 50,000 17.20 25,000 28.88 50,000 21.90
SOEs forfeited............................ (12,500) 21.90 -- -- -- --
SOEs exercised............................ (12,500) 21.90 -- -- -- --
------ ------ ------- ------ ------- ------
SOEs outstanding at end of year........... 150,000 $20.94 125,000 $22.54 100,000 $20.96
======= ====== ======= ====== ======= ======
SOEs currently exercisable................ 75,000 $20.94 62,500 $22.54 50,000 $20.96
======= ====== ======= ====== ======= ======
</TABLE>

No SOEs have expired during the years represented above, except for an SOE
in respect of 12,500 Shares* granted to a director in October 1998 upon his
retirement. The retiring director exercised the remaining part of such SOE in
respect of 12,500 Shares* in December 1998. We accrue a liability for the 50% of
the SOEs granted which vest immediately and the remaining 50% ratably over the
four year vesting period. This accrual is adjusted for changes in our net asset
value or closing stock price, as the case may be, at each balance sheet date
with the resultant change representing a charge to administrative expenses for
the period in the consolidated statement of operations. The charges were
$561,000, $526,500 and $636,000 for the years ended 31 December 1998, 1997 and
1996, respectively.

* Share and per share amounts have been restated to reflect the reverse stock
split which took effect 18 June 1999. See Note 13C.

-126-
<PAGE>

SECURITY CAPITAL U.S. REALTY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 11--COMMITMENTS

Our existing and committed fundings at cost as of 31 December 1998 were as
follows:

<TABLE>
<CAPTION>
Total Total Cost Amount
Amount (Amount to be
Committed funded)(1) Funded (1)
---------- -------------- ------------
(in thousands $)
<S> <C> <C> <C>
CarrAmerica (NYSE:CRE)............. $ 699,851 $ 699,851 $ --
City Center Retail (Private)(2).... 350,135 304,035 46,100(3)
CWS Communities (Private).......... 300,329 153,563 146,766(3)
Pacific Retail (Private)(4)........ 524,038 524,038 --
Regency (NYSE:REG)(4).............. 235,750 235,750 --
Storage USA (NYSE:SUS)............. 394,272 394,272 --
Urban Growth Property (Private).... 181,082 181,082 --
Special opportunity positions(5)... 479,031 479,031 --
--------- ---------- --------
Total............................ $3,164,488 $2,971,622 $192,866
========= ========== ========
</TABLE>
_____________________________

(1) Included in Total Amount Committed.
(2) In January 1999, the contractual obligation in respect of City Center
Retail was increased by up to $25 million.
(3) Represents a contractual obligation.
(4) On 24 September 1998, it was announced that Regency agreed to merge with
Pacific Retail. The merger occurred on 28 February 1999. See Note 3A and
Note 13 to the Consolidated Financial Statements.
(5) Includes an aggregate of $165 million invested in shares of common stock
and convertible subordinated debentures of Security Capital Group.

Our existing and committed fundings at cost as of 31 December 1997 were as
follows:

<TABLE>
<CAPTION>
Total Total Cost Amount
Amount (Amount to be
Committed Funded)(1) Funded (1)
---------- ----------- ------------
(in thousands $)
<S> <C> <C> <C>
CarrAmerica (NYSE:CRE)............. $ 636,387 $ 636,387 $ --
City Center Retail (Private)....... 151,865 83,665 68,200(2)
CWS Communities (Private).......... 300,954 92,600 208,354(2)
Pacific Retail (Private)........... 523,459 523,459 --
Regency (NYSE:REG)................. 225,695 225,695 --
Storage USA (NYSE:SUS)............. 348,444 348,444 --
Urban Growth Property (Private).... 150,837 17,703 133,134(2)
Special opportunity positions(3)... 447,708 447,708 --
---------- ---------- --------
Total.......................... $2,785,349 $2,375,661 $409,688
========== ========== ========
</TABLE>
_____________________________

(1) Included in Total Amount Committed.
(2) Represents a contractual obligation.
(3) Includes an aggregate of $165 million invested in shares of common stock and
convertible subordinated debentures of Security Capital Group.

Capital deployed to additional strategic investment positions, as well as
further funding to existing strategic investees, will generally be initially
funded with borrowings under our line of credit. These borrowings are expected
to be reduced by internally generated free cash flow and the proceeds of future
issuances of debt or equity securities.

-127-
<PAGE>

SECURITY CAPITAL U.S. REALTY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12--LEGAL RESERVE

According to Luxembourg law, an annual transfer of 5% of the net profit to a
legal reserve is required until this reserve equals 10% of the value of the
issued Share capital. A transfer of $3.1 million was made in 1998 upon the
shareholders' approval of the 1997 financial statements. No transfer will be
made in 1999 as a result of the decrease in net assets resulting from operations
for the year ended 31 December 1998.

NOTE 13--SUBSEQUENT EVENTS

A. Close of merger of Pacific Retail and Regency

The merger of Pacific Retail and Regency occurred on 28 February 1999.
Shareholders of Pacific Retail received 0.48 shares of Regency common stock for
each common share of Pacific Retail they owned.

B. Share Repurchase Programme

On 5 May 1999, we announced that our Board of Directors had authorised a
share repurchase programme of up to $100 million of our shares. We plan to
repurchase shares from time to time in open market and privately negotiated
transactions, depending on market prices and other conditions.

C. Reverse Stock Split

On 17 May 1999, our shareholders approved amendments to our Articles of
Incorporation that will effect a one-for-two reverse stock split. The effective
date of the reverse stock split was 18 June 1999, when every two shares of
SC-U.S. Realty were automatically converted into one share.

D. Listing of American Depositary Shares

On 24 June 1999, SC-U.S. Realty's American Depositary Receipts began
trading on the New York Stock Exchange, under the ticker symbol "RTY". Our
shares will continue to be listed on the AEX Stock Exchange in Amsterdam
(ISIN-Code LU0060100673).

-128-
<PAGE>

ADDITIONAL FINANCIAL INFORMATION

The following interim financial information for the quarter ended 31 March
1999 is being provided because we have otherwise made public information
relating to revenues and income that is more current than the information
contained in our audited financial statements on the preceding pages.

As you are aware, we account for our investments at fair value in accordance
with the U.S. specialised industry accounting rules prescribed by the American
Institute of Certified Public Accountants (AICPA) Audit and Accounting Guide for
Investment Companies. Under fair value accounting, unrealised gains or losses
are determined by comparing the fair value of the securities held to the cost of
those securities. Unrealised gains or losses relating to changes in fair value
of our investments are reported as a component of net earnings. Deferred income
taxes, if any, are recorded at the applicable statutory rate as the estimate of
taxes payable as if the gains were realised. Under current tax laws, and in
light of our operating methods and plans, our investment gains generally are not
subject to income taxes.

For more detail on fair value accounting, please read Note 2 of our
Consolidated Financial Statements at 31 December 1998.

-129-
<PAGE>

SECURITY CAPITAL U. S. REALTY

CONSOLIDATED STATEMENTS OF NET ASSETS

At 31 March 1999
(in thousands U. S. $ except per share amounts)
Unaudited

<TABLE>
<CAPTION>
March
1999
--------
<S> <C>
ASSETS
Strategic investment positions at value:
CarrAmerica (Cost $699,890) ............................................... $ 531,063
City Center Retail (Cost $304,113).......................................... 304,113
CWS Communities (Cost $155,563)............................................. 155.563
Regency (Cost $759,794)..................................................... 642,623
Storage USA (Cost $394,305)................................................. 333,850
Urban Growth Property (Cost $181,082)....................................... 181,082
Special opportunity positions at value:
Security Capital Group Incorporated (Cost $165,000)......................... 116,139
Other special opportunity positions (Cost $330,791)......................... 264,460
-----------
Total investments................................................................ $ 2,628,893
Cash and cash equivalents........................................................ 894
Accounts receivable and other.................................................... 16,994
-----------
TOTAL ASSETS..................................................................... $ 2,646,781
-----------

LIABILITIES
Accounts payable and accrued expenses............................................ $ 9,367
Taxes payable.................................................................... 1,558
Line of credit................................................................... 373,904
Convertible Notes................................................................ 258,500
-----------
TOTAL LIABILITIES................................................................ $ 643,329
----------
TOTAL NET ASSETS (SHAREHOLDERS' EQUITY).......................................... $2,003,452
==========

Authorised 250,000,000 shares of $4.00 par value, 86,561,872 shares
issued and outstanding at 31 March 1999. (1)................................... $ 346,247
Legal reserve.................................................................... 30,375
Share premium account............................................................ 1,749,159
----------

PAID-IN CAPITAL.................................................................. $2,125,781

Undistributed net operating income............................................... $ 161,304
Accumulated net realised gain.................................................... 78,011
Unrealised (depreciation)/appreciation on strategic investment and special
opportunity positions............................................................ (361,644)
----------
SHAREHOLDERS' EQUITY............................................................. $2,003,452
==========

NET ASSET VALUE PER SHARE (1)................................................... $ 23.14
</TABLE>

(1) Share and per share amounts have been restated to reflect the reverse stock
split which took effect 18 June 1999.

-130-
<PAGE>

SECURITY CAPITAL U.S. REALTY

CONSOLIDATED STATEMENTS OF OPERATIONS

For the three months ended 31 March 1999 and 1998
(in thousands $ except per share amounts)
Unaudited

1999 1998
----------- ----------
<S> <C> <C>
REVENUES
Dividends from strategic investment positions (net of withholding tax):
CarrAmerica.............................................................. $ 11,245 $ 10,546
CWS Communities.......................................................... 1,108 --
Pacific Retail........................................................... 4,905 9,565
Regency ................................................................. 4,583 4,252
Storage USA ............................................................. 6,700 6,346
Urban Growth Property.................................................... 181 --
--------- ---------
$ 28,722 $ 30,709
Dividends from special opportunity positions (net of withholding tax): 2,855 3,521
--------- ---------
$ 31,607 $ 34,230
Interest income from affiliate................................................ 894 894
Interest income from non-affiliate and other income........................... 677 177
--------- ---------
TOTAL REVENUES................................................................ $ 33,178 $ 35,301

EXPENSES
Operating advisor fees........................................................ $ 8,131 $ 8,665
Custodian fees................................................................ 114 119
Directors fees................................................................ - 32
Professional expenses......................................................... 215 56
Administrative expenses....................................................... 253 99
Amortisation of Convertible Notes deferred costs.............................. 394 --
Amortisation of formation expenses............................................ -- --
Formation expenses............................................................ -- --
Taxes......................................................................... 279 611
Line of credit arrangement and commitment fees................................ 52 569
Interest on line of credit.................................................... 4,374 4,186
Interest on convertible notes................................................. 6,214 --
--------- ---------
TOTAL EXPENSES................................................................ $ 20,026 $ 14,337
--------- ---------

NET OPERATING INCOME......................................................... $ 13,152 $ 20,964

NET REALISED AND UNREALISED (LOSS)/GAIN ON STRATEGIC
INVESTMENT AND SPECIAL OPPORTUNITY POSITIONS
Net realised gain on special opportunity positions........................... $ 580 $ 17,186
Net (decrease)/increase in appreciation on strategic investment and special (236,666) (92,837)
opportunity positions....................................................... --------- ---------

NET (LOSS)/GAIN ON STRATEGIC INVESTMENT AND SPECIAL $(236,086) $ (75,651)
OPPORTUNITY POSITIONS....................................................... --------- ---------

(DECREASE)/INCREASE IN NET ASSETS RESULTING FROM $(222,934) $ (54,687)
OPERATIONS.................................................................. ========= =========
</TABLE>

-131-
<PAGE>

SECURITY CAPITAL U.S. REALTY

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the three months ended 31 March 1999 and 1998
(in thousands $ except per share amounts)
Unaudited

1999 1998
--------- ----------
<S> <C> <C>
Operating Activities:
(Decrease)/Increase in net assets resulting from operations.................. $(222,934) $ (54,687)
Adjustments to reconcile (decrease)/increase in net assets resulting from
operations to net cash provided by operating activities:
Movement in unrealised gain................................................ 236,666 92,837
Movement in accretion on Convertible Notes................................. -- --
Movement in convertible notes deferred costs............................... 394 --
Amortisation of formation expenses......................................... -- --
Changes in operating assets and liabilities:
Accounts receivable and other............................................ 7,496 (13,756)
Interest receivable from affiliate....................................... (894) (894)
Accounts payable and accrued expenses.................................... 2,021 3,516
Operating advisor fees payable........................................... (6,150) 1,421
Taxes payable............................................................ 253 206
--------- ---------
Net cash provided by operating activities............................. $ 16,852 $ 28,643
--------- ---------

Investing Activities:
Fundings in strategic investment positions:
CarrAmerica.............................................................. $ (39) $ (4,918)
City Center Retail....................................................... (78) (15,113)
CWS Communities.......................................................... (2,000) (35,857)
Pacific Retail........................................................... 524,038 (11)
Regency.................................................................. (524,044) --
Storage USA.............................................................. (33) (41,308)
Urban Growth Property.................................................... -- (25,109)
Fundings in Security Capital Group.......................................... -- (142,500)
Fundings in other special opportunity positions, net........................ (15,760) (74,268)
---------
Net cash used in investing activities................................. $ (18,916) $(196,584)
--------- ---------

Financing Activities:
Net proceeds from share offerings........................................... $ -- $ --
Net proceeds from convertible notes offering................................ 3,964 --
Offering expenses charged against the share premium account................. -- (5)
Drawdowns from line of credit............................................... (4,000) 167,000
Repayment of line of credit................................................. -- --
Net cash provided by financing activities............................. $ (36) 166,695
--------- ---------

Net increase/(decrease) in cash and cash equivalents.......................... $ (2,100) $ (946)
Cash and cash equivalents, beginning of the year.............................. 2,994 1,970
--------- ---------
Cash and cash equivalents, end of the year.................................... $ 894 $ 1,024
========= =========

Supplemental disclosure of cash flow information:
Tax paid.................................................................... $ 2,141 $ 1,232
========= =========

Interest paid on borrowings................................................. $ 22,987 $ 11,929
========= =========
</TABLE>

-132-
<PAGE>

PART II.

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

The following table itemizes the expenses incurred by the Registrant in
connection with the offering of the notes being registered. All the amounts
shown are estimates (other than the SEC registration fee and the NASD fee).

AMOUNT
---------
SEC registration fee........................... $ 125,100
Trustee fees...................................
Printing fees..................................
Legal fees and expenses (other than Blue Sky)..
Accounting fees and expenses...................
Miscellaneous expenses.........................
---------
Total.................................... $
=========

Item 14. Indemnification of Directors and Officers.

Article 20 of the Registrant's Articles of Incorporation provide as follows
with respect to the indemnification of directors and officers of the Registrant:

"The Company shall indemnify any director or officer, and his heirs,
executors and administrators, against any expenses reasonably incurred by him in
connection with any action, suit or proceeding to which he may be made a party
by reason of his being or having been a director or officer of the Company or,
at its request, of any other company of which the Company is a shareholder or a
creditor and from which he is not entitled to be indemnified, except in relation
to matters as to which he shall be finally adjudged in such action, suit or
proceeding to be liable for gross negligence or misconduct; in the event of
settlement, indemnification shall be provided only in connection with such
matters covered by the settlement as to which the Company is advised by counsel
that the person to be indemnified did not commit such a breach of duty. The
foregoing right of indemnification shall not exclude other rights to which he
may be entitled. The Company shall advance litigation-related expenses to a
director or officer if the Company's legal counsel determines that
indemnification by the Company is likely and if the director or officer agrees
to repay any advance if he is determined not to be entitled to
indemnification."

Item 15. Recent Sales of Unregistered Securities.

In May 1998, the Registrant, through Goldman, Sachs & Co., sold to qualified
institutional buyers in the United States in reliance on Rule 144A and, through
Goldman Sachs International and J.P. Morgan Securities Ltd., to investors
outside the United States in reliance on Regulation S, $450,000,000 aggregate
principal amount at maturity of its Convertible Notes due 2003 (convertible into
an aggregate of approximately 23,750,000 Shares). The aggregate offering price
was $360,553,500 and the underwriting discount was 2.5%.

From October 1995 through April 1996, the Registrant sold to Security
Capital Group and accredited investors in and outside the United States in
reliance on Regulation D 25,066,242 of its Shares for an aggregate purchase
price of $509,500,580. In July 1996, the Registrant sold to Security Capital
Group in the United States in reliance on Section 4(2) and to investors outside
the United States in reliance on Regulation S 11,122,210 of its Shares for an
aggregate purchase price of $243,576,400. In December 1996, the Registrant sold
to Security Capital Group and qualified institutional buyers in the United
States in reliance on Regulation D and to investors outside the United States in
reliance on Regulation S 12,057,902 of its Shares for an aggregate purchase
price of $297,106,718. In March 1997, the Registrant sold to Security Capital
Group and qualified institutional buyers in the United States in reliance on
Regulation D and to investors outside the United States in reliance on

-133-
<PAGE>

Regulation S 8,651,766 of its Shares for an aggregate purchase price of
$239,999,989. In April 1997, the Registrant, sold to Security Capital Group in
the United States in reliance on Regulation D and, through Commerzbank AG, to
investors outside the United States in reliance on Regulation S 11,362,977 of
its Shares for an aggregate purchase price of $319,981,432. In July 1997, the
Registrant sold to Security Capital Group and qualified institutional buyers in
the United States in reliance on Regulation D and to investors outside the
United States in reliance on Regulation S 3,103,448 of its Shares for an
aggregate purchase price of $89,999,992. In September 1997, the Registrant sold
to Security Capital Group in the United States in reliance on Regulation D and,
through Commerzbank AG, to investors outside the United States in reliance on
Regulation S 6,085,192.5 of its Shares for an aggregate purchase price of
$179,999,994. In November 1997, the Registrant sold to Security Capital Group
and qualified institutional buyers in the United States in reliance on
Regulation D and to investors outside the United States in reliance on
Regulation S 3,207,949.5 of its Shares for an aggregate purchase price of
$94,826,987. In December 1997, the Registrant sold to Security Capital Group in
the United States in reliance on Regulation D and to investors outside the
United States in reliance on Regulation S 5,904,318.5 of its Shares for an
aggregate purchase price of $174,999,999.

Each non-employee director is currently entitled to receive an annual
retainer of $15,000 in cash.

Each of the foregoing transactions was effected without registration under
the Securities Act in reliance on the exemption from registration provided
pursuant to Section 4(2) and/or Regulation D, Rule 144A or Regulation S
promulgated thereunder as indicated.

Item 16. Exhibits and Financial Statement Schedules.

See Index to Financial Statements and Index to Exhibits.

Item 17. Undertakings.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

The Registrant hereby undertakes that: (1) for purposes of determining any
liability under the Securities Act of 1933, the information omitted from the
form of prospectus filed as part of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the Registrant pursuant
to Rule 424(b)(1) or (4), or 497(h) under the Securities Act shall be deemed to
be part of this registration statement as of the time it was declared effective;
and (2) for the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

-134-
<PAGE>

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors and
officers of Security Capital U.S. Realty, hereby constitutes and appoints
William D. Sanders, Jeffrey A. Cozad, Gerald R. Morgan, Jr., Susan P. S. Liow,
Christopher W. House and Claude Kremer, his or her true and lawful attorneys-in-
fact and agents, for him or her and in his or her name, place and stead, in any
and all capacities, with full power to act alone, to sign any and all amendments
and post-effective amendments to this registration statement, to sign a
registration statement filed with the Securities and Exchange Commission
pursuant to Rule 462(b) promulgated under the Securities Act and any and all
amendments and post-effective amendments thereto, and to file each such
registration statement or amendment or post-effective amendment with all
exhibits thereto, and any and all documents in connection therewith, with the
Securities and Exchange Commission, hereby granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform any and
all acts and things requisite and necessary to be done in and about the
premises, as fully and to all intents and purposes as he or she might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, may lawfully do or cause to be done by virtue
hereof.

-135-
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form F-1 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorised, in the city of Luxembourg, Country of Luxembourg, on the 30th day of
June, 1999.

SECURITY CAPITAL U.S. REALTY

By: /s/ Jeffrey A. Cozad
_____________________________
Name: Jeffrey A. Cozad
Title: Managing Director

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

Signature Title Date
- ------------------------- ----------------------------------- ------------

/s/ William D. Sanders Non-Executive Chairman and Director 30 June 1999
- -------------------------
William D. Sanders

/s/ Jeffrey A. Cozad Managing Director and Director 30 June 1999
- -------------------------
Jeffrey A. Cozad (Principal Executive Officer)

/s/ Gerald R. Morgan, Jr. Senior Vice President (Principal 30 June 1999
- -------------------------
Gerald R. Morgan, Jr. Financial Officer)

/s/ Susan P. S. Liow Vice President (Principal 30 June 1999
- -------------------------
Susan P. S. Liow Accounting Officer)

/s/ Erich Coenen Director 30 June 1999
- -------------------------
Erich Coenen

/s/ Claude Kremer Director 30 June 1999
- -------------------------
Claude Kremer

/s/ Jay O. Light Director 30 June 1999
- -------------------------
Jay O. Light

/s/ Francois Moes Director 30 June 1999
- -------------------------
Francois Moes

/s/ William D. Sanders U.S. Authorised Representative 30 June 1999
- -------------------------
William D. Sanders

-136-
<PAGE>

INDEX TO EXHIBITS

Exhibit
No. Document Description
----- --------------------

4.1 Articles of Incorporation of Security Capital U.S. Realty (the
"Company") (incorporated by reference to Exhibit 4.1 of the Company's
Registration Statement on Form 20-F, file no. 0-25815 (the "Form 20-
F")).

4.2 Indenture dated as of 22 May 1998 between the Company and State Street
Bank and Trust Company (incorporated by reference to Exhibit 4.2 of the
Form 20-F)

4.3 First Supplemental Indenture dated as of 22 May 1998 between the
Company and State Street Bank and Trust Company (incorporated by
reference to Exhibit 4.3 of the Form 20-F)

4.4 Form of the Convertible Notes due 2003 (incorporated by reference to
Exhibit 4.4 of the Form 20-F)

4.5 Registration Rights Agreement, dated as of May 28, 1998, by and among
the Company and Goldman, Sachs & Co. and J.P. Morgan Securities Ltd.

5 Form of Opinion of Arendt & Medernach

10.1 Stock Purchase Agreement, dated as of 5 November 1995, by and among
Carr Realty Corporation (currently known as CarrAmerica Realty
Corporation ("CarrAmerica")), the Company and Security Capital Holdings
S.A. ("Holdings") (incorporated by reference to Exhibit 5.1 of Carr
Realty Corporation's Current Report on Form 8-K dated 6 November 1995)

10.2 Amendment No. 1 to Stock Purchase Agreement, dated as of 29 April 1996,
by and among Carr Realty Corporation (currently known as CarrAmerica),
the Company and Holdings (incorporated by reference to Exhibit 2.1 of
Amendment No. 1 to the Company's Schedule 13D reflecting its ownership
in CarrAmerica filed 7 May 1996)

10.3 Stockholders' Agreement, dated as of 30 April 1996, by and among Carr
Realty Corporation (currently known as CarrAmerica), Carr Realty L.P.,
the Company and Holdings (incorporated by reference to Exhibit 2.2 of
Amendment No. 1 to the Company's Schedule 13D reflecting its ownership
in CarrAmerica filed 7 May 1996)

10.4 Registration Rights Agreement, dated as of 30 April 1996, by and among
Carr Realty Corporation (currently known as CarrAmerica), the Company
and Holdings (incorporated by reference to Exhibit 2.3 of Amendment No.
1 to the Company's Schedule 13D reflecting its ownership in CarrAmerica
filed 7 May 1996)

10.5 Strategic Alliance Agreement, dated as of 19 March 1996, by and among
Storage USA, Inc. ("Storage USA"), SUSA Partnership, L.P. ("SUSA"), the
Company and Holdings (incorporated by reference to Exhibit 2.1 of
Amendment No. 1 to the Company's Schedule 13D reflecting its ownership
in Storage USA filed 21 March 1996)

10.6 Registration Rights Agreement, dated as of 19 March 1996, by and among
Storage USA, the Company and Holdings (incorporated by reference to
Exhibit 2.2 of Amendment No. 1 to the Company's Schedule 13D reflecting
its ownership in Storage USA filed 21 March 1996)

10.7 Amendment No. 1 to Strategic Alliance Agreement, dated 14 June 1996,
between Storage USA, SUSA, Storage USA Trust, the Company and Holdings
(incorporated by reference to Exhibit 10.2 of Amendment No. 1 to
Storage USA's Registration Statement on Form S-3 (File No. 333-4556)
filed 27 August 1996)

10.8 Second Amendment to Strategic Alliance Agreement, dated as of 20
November 1997, by and among Storage USA, SUSA, the Company and Holdings
(incorporated by reference to Exhibit 8 of Amendment No. 8 to the
Company's Schedule 13D reflecting its ownership in Storage USA, filed 4
December 1997)

-137-
<PAGE>

10.9 Stock Purchase Agreement, dated 11 June 1996, by and among Regency
Realty Corporation ("Regency"), the Company and Holdings (incorporated
by reference to Appendix A to the definitive proxy statement of Regency
dated 19 September 1996)

10.10 Stockholders' Agreement, dated 10 July 1996, by and among Regency, the
Company and Holdings (incorporated by reference to Appendix B to the
definitive proxy statement of Regency dated 19 September 1996)

10.11 Registration Rights Agreement, dated 10 July 1996 by and among Regency,
the Company and HOLDINGS (incorporated by reference to Appendix C to
the definitive proxy statement of Regency dated 19 September 1996)

10.12 Amendment No. 1 to Stockholders' Agreement, dated 10 February 1997, by
and among Regency, the Company and Holdings (incorporated by reference
to Exhibit 10(f) of Regency's Current Report on Form 8-K filed 14 March
1997)

10.13 Amendment No. 2 to Stockholders' Agreement, dated 4 December 1997, by
and among Regency, the Company and Holdings (incorporated by reference
to Exhibit 6.2 of the Company's Schedule 13D reflecting its ownership
in Regency filed 11 December 1997)

10.14 Amendment No. 3 to Stockholders' Agreement, dated as of 23 September
1998, by and among Regency, the Company and Holdings (incorporated by
reference to Exhibit 8.2 of the Company's Schedule 13D reflecting its
ownership in Regency filed 2 October 1998)

10.15 Advisory Agreement dated 1 July 1997, between the Company,Holdings and
Security Capital U.S. Realty Management S.A. (incorporated by reference
to Exhibit 10.15 of the Form 20-F)

10.16 Amended and Restated Revolving Credit and Swingline Facility dated as
of 8 December 1998 by and among the Company, Commerzbank
Aktiengesellschaft, as arranger and administrative agent, and
Nationsbank of Texas, N.A., as syndication agent (incorporated by
reference to Exhibit 10.16 of the Form 20-F)

12 Statement re: Computation of Ratios

23.1 Consent of Arendt & Medernach (included in Exhibit 5)

23.2 Consent of Price Waterhouse Sarl

-138-

<PAGE>

Exhibit 4.5

REGISTRATION RIGHTS AGREEMENT

THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into as of May 22, 1998, by and among Security Capital U.S. Realty, a
Luxembourg corporation (the "Company"), and Goldman, Sachs & Co. and J.P. Morgan
Securities Ltd. (collectively, the "Initial Purchasers") pursuant to the
Purchase Agreement, dated as of May 14, 1998 (the "Purchase Agreement"), between
the Company and the Initial Purchasers. In addition, it is understood that the
Company intends to list the shares of capital stock of the Company, par value
$2.00 per share (the "Shares"), on the New York Stock Exchange (the "NYSE") on
or prior to December 31, 1998. In order to induce the Initial Purchasers to
enter into the Purchase Agreement, the Company has agreed to provide the
registration rights set forth in this Agreement. The execution of this Agreement
is a condition to the closing under the Purchase Agreement.

The Company agrees with the Initial Purchasers, (i) for their benefit
as Initial Purchasers and (ii) for the benefit of the Holders (as defined below)
from time to time of the Registrable Securities (as defined below) (including
the Initial Purchasers), as follows:

1. Definitions. Capitalized terms used herein without definition shall
have their respective meanings set forth in the Purchase Agreement. As used in
this Agreement, the following terms shall have the following meanings:

Affiliate: "Affiliate" means, with respect to any Person, any other
Person directly or indirectly controlling or controlled by, or under direct or
indirect common control with, such Person. For purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.

Damages Accrual Period: See Section 2(e) hereof.

Damages Payment Date: Each of the semi-annual interest payment dates
provided in the Indenture, whether or not Liquidated Damages are payable on such
date.

Effectiveness Period: The period commencing with the date hereof and
ending on the earliest to occur of (i) two years from the date of the Offering
Circular, (ii) the time when there are no outstanding Registrable Securities, or
(iii) the time when all outstanding Registrable Securities may be resold without
registration pursuant to Rule 144(k) under the Securities Act.

Event: See Section 2(e) hereof.

Event Date: See Section 2(e) hereof.

<PAGE>

Exchange Act: The United States Securities Exchange Act of 1934, as
amended, and the rules and regulations of the SEC promulgated thereunder.

Holder: Any Person that is the record owner of Registrable Securities.

Indenture: The Indenture, dated as of May 22, 1998, between the
Company and the Trustee thereunder, together with the First Supplemental
Indenture, dated as of May 22, 1998, between the Company and the Trustee
thereunder, pursuant to which the Securities are being issued, as amended,
modified or supplemented from time to time in accordance with the terms thereof.

Initial Purchasers: See the first paragraph of this Agreement.

Liquidated Damages: See Section 2(e) hereof.

Losses: See Section 6 hereof.

NYSE: See the first paragraph of this Agreement.

Person: An individual, partnership, limited liability company,
corporation, trust, or unincorporated organization, or government agency or
political subdivision thereof.

Prospectus: The prospectus included in any Registration Statement
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A under the Securities Act), as amended or
supplemented by any amendment or prospectus supplement, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus.

Purchase Agreement: See the first paragraph of this Agreement.

Record Holder: With respect to any Damages Payment Date relating to
any Security as to which any Liquidated Damages have accrued, the registered
Holder of such Security on the record date with respect to the interest payment
date under the Indenture on which such Damages Payment Date shall occur.

Registrable Securities: The Securities and the Shares issuable upon
conversion of the Securities until, in the case of any such Securities or
Shares, (i) they are effectively registered under the Securities Act and
disposed of in accordance with the Registration Statement covering them, (ii)
they are saleable by the holder thereof pursuant to Rule 144(k) or (iii) they
are sold to the public pursuant to Rule 144, and, as a result of the event or
circumstance described in any of the foregoing clauses (i) through (iii), the
legends with respect to transfer restrictions required under the Indenture
(other than any such legends required solely as the consequence of the fact that
the Registrable Securities (or the Securities, upon the conversion of which,
such Registrable

2
<PAGE>

Securities were issued or are issuable) are owned by, or were previously owned
by, the Company or an Affiliate of the Company) are removed or removable in
accordance with the terms of the Indenture.

Registration Statement: Any registration statement of the Company
which covers any of the Registrable Securities pursuant to the provisions of
this Agreement, including the Prospectus, amendments and supplements to such
registration statement, including post-effective amendments, all exhibits, and
all material incorporated by reference or deemed to be incorporated by reference
in such registration statement.

Rule 144: Rule 144 under the Securities Act, as such Rule may be
amended from time to time, or any similar rule or regulation hereafter adopted
by the SEC.

Rule 144A: Rule 144A under the Securities Act, as such Rule may be
amended from time to time, or any similar rule or regulation hereafter adopted
by the SEC.

SEC: The United States Securities and Exchange Commission or any
successor federal agency that administers the Securities Act or Exchange Act.

Securities Act: The United States Securities Act of 1933, as amended,
and the rules and regulations promulgated by the SEC thereunder.

Shares: See the first paragraph of this Agreement.

Shelf Registration Statement: See Section 2(a) hereof.

Suspension Period: See Section 2(d)(ii) hereof.

Trustee: The Trustee under the Indenture.

Trust Indenture Act: The United States Trust Indenture Act of 1939, as
amended, and the rules and regulations promulgated by the SEC thereunder.

2. Registration.

(a) Upon the listing of the Shares on the NYSE, the Company will use
its best efforts to prepare and file with, and have declared effective by, the
SEC three Registration Statements (as described below) with respect to the
Registrable Securities.

The Company will use its best efforts to file an initial Registration
Statement with the SEC by December 31, 1998 and will use its best efforts to
have such initial Registration Statement declared effective by the SEC by March
1, 1999. The Company will use its best efforts to have a second Registration
Statement declared effective by the SEC by July 31, 1999 (but not prior to April
30, 1999). The Company will keep each such Registration Statement

3
<PAGE>

effective for a period of 30 consecutive days from the effective date of the
respective Registration Statement, except as provided herein. The Company will
use its best efforts to have a third Registration Statement, a Registration
Statement for an offering to be made on a continuous basis pursuant to Rule 415
of the Securities Act (a "Shelf Registration Statement"), declared effective by
the SEC by March 1, 2000. The Company will use its best efforts to keep the
Shelf Registration Statement continuously effective until the expiration of the
Effectiveness Period. Each such Registration Statement shall register the resale
from time to time by Holders thereof of all of the Registrable Securities. The
Shelf Registration Statement shall be on a Form F-3, or other appropriate short-
form registration statement allowing incorporation by reference and permitting
registration of such Registrable Securities for resale by such Holders.

(b) If a Registration Statement ceases to be effective for any reason
as a result of the issuance of a stop order by the SEC, the Company shall use
its reasonable best efforts to obtain the prompt withdrawal of any order
suspending the effectiveness thereof.

(c) The Company shall supplement and amend a Registration Statement if
required by the rules, regulations or instructions applicable to the
registration form used by the Company for such Registration Statement.

(d) Each Holder of Registrable Securities agrees that if the Holder
wishes to sell its Registrable Securities pursuant to a Registration Statement
and related Prospectus, it will do so only in accordance with this Section 2(d).
Each Holder of Registrable Securities agrees to give notice to the Company at
least three New York Business Days (but no more than 30 New York Business Days)
prior to any intended distribution of Registrable Securities under a
Registration Statement, which notice shall specify the date on which such Holder
intends to begin such distribution and such information with respect to such
Holder and the intended distribution of Registrable Securities by such Holder as
may be required to amend the Registration Statement or supplement the related
Prospectus with respect to such intended distribution of Registrable Securities
by such Holder. As soon as practicable after the date such notice is provided by
or on behalf of a Holder, and in any event within two New York Business Days
after such date, the Company shall either:

(i) (A) If necessary, prepare and file with the SEC a post-
effective amendment to a Registration Statement, a supplement to the related
Prospectus, a supplement or amendment to any document incorporated therein by
reference, or any other required document so that such Registration Statement
will not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and so that, as thereafter delivered to purchasers of the
Registrable Securities being sold thereunder, such Prospectus will not contain
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading; (B) provide the
Holders copies of any documents filed pursuant to Section 2(d)(i)(A) hereof, or
take any other actions reasonably necessary to register the sale of any
Registrable Securities of such Holder and to identify such

4
<PAGE>

Holder as a selling securityholder; and (C) inform the Holders that the Company
has complied with its obligations in Section 2(d)(i)(A) hereof (or, if the
Company has filed a post-effective amendment to a Registration Statement which
has not yet been declared effective, the Company will notify the Holders to that
effect, it will use its reasonable best efforts to secure the effectiveness of
such post-effective amendment and will immediately notify the Holders when such
post-effective amendment has become effective);

(ii) in the event (A) of the happening of any event of the kind
described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v) or 3(c)(vi) hereof
or (B) that, in the good faith judgment of the Company, it is advisable to
suspend the effectiveness of a Registration Statement or use of the Prospectus
for a discrete period of time due to pending material corporate developments or
similar material events that have not yet been publicly disclosed and as to
which the Company in good faith believes public disclosure would be prejudicial
to the Company (each such period, a "Suspension Period"), the Company shall
deliver a certificate in writing, signed by an authorized executive officer of
the Company, to the Holders, to the effect of the foregoing and, upon receipt of
such certificate, each such Holder will cease use of a Prospectus until such
Holder's receipt of copies of the supplemented or amended Prospectus provided
for in Section 2(d)(i)(A) hereof, or until it is advised in writing by the
Company that the Prospectus may be used, and has received copies of any
additional or supplemental filings that are incorporated or deemed incorporated
by reference in such Prospectus, if such copies are requested by Holders in
writing. The Company will use its reasonable best efforts to ensure that the use
of the Prospectus may be resumed as soon as reasonably practicable and, in the
case of a pending development or event referred to in Section 2(d)(ii)(B)
hereof, as soon as the earlier of (x) public disclosure of such pending material
corporate development or similar material event or (y) such time as the Company
determines not to proceed with the pending development or event and, therefore,
no public disclosure is necessary.

(e) The parties hereto agree that the Holders of Registrable
Securities will suffer damages, and that it would not be feasible to ascertain
the extent of such damages with precision, if (i) the Shares are not listed on
the NYSE by December 31, 1998, (ii) an initial Registration Statement has not
been filed with the SEC by December 31, 1998, (iii) the initial Registration
Statement has not been declared effective by the SEC by March 1, 1999 or is not
kept effective for 30 consecutive days (except as described in Section 2(d)(ii)
hereof), (iv) a second Registration Statement has not been declared effective by
the SEC by July 31, 1999 (but not prior to April 30, 1999) or is not kept
effective for 30 consecutive days (except as described in Section 2(d)(ii)
hereof), (v) the Shelf Registration Statement has not been declared effective by
the SEC by March 1, 2000 or (vi) the aggregate number of days in any Suspension
Period exceeds 45 days, whether consecutive or not, in any three-month period or
90 days, whether consecutive or not, in any twelve-month period (each of the
events of a type described in any of the foregoing clauses (i) through (vi) are
individually referred to herein as an "Event," and each of the respective listed
dates in the case of clause (i) through (v) and the date on which the duration
of a Suspension Period exceeds the number of days permitted by Section 2(e)(vi)
hereof, being referred to herein as an "Event Date"). Events shall be deemed to
continue until the date of the termination of such Event, which shall be the
following dates with respect to the

5
<PAGE>

respective types of Events: the date on which the Shares are listed on the NYSE
in the case of an Event of the type described in clause (i), the date the
initial Registration Statement is filed with the SEC in the case of an Event of
the type described in clause (ii), the date each respective Registration
Statement is declared effective by the SEC in the case of an Event of the types
described in clause (iii), (iv) and (v) and termination of the Suspension Period
which caused the aggregate number of days of suspension permitted by Section
2(e)(vi) hereof to be exceeded.

Accordingly, upon the occurrence of any Event and until such time as there
are no Events which have occurred and are continuing (a "Damages Accrual
Period"), commencing on the date following an Event Date on which such Damages
Accrual Period began, the Company agrees to pay, as liquidated damages, and not
as a penalty, an additional amount of interest (the "Liquidated Damages"): (A)
to each Holder in connection with an Event described in clauses (i) through (v)
of the immediately preceding paragraph, accruing at a rate equal to one-quarter
of one percent per annum (25 basis points) on the aggregate principal amount at
maturity of Securities held by such Holder and (B) if the Damages Accrual Period
arises in connection with an Event described in clause (vi) of the immediately
preceding paragraph or arises in connection with an Event described in clauses
(i) through (v) of the immediately preceding paragraph and continues for a
period in excess of 90 days from the Event Date, from and after the end of such
90-day period until such time as there are no Events which have occurred and are
continuing in excess of 90 days from the respective Event Date, to each Holder,
accruing at a rate equal to one-half of one percent per annum (50 basis points)
on the aggregate principal amount at maturity of Securities held by such Holder.
Liquidated Damages only affect the interest rate currently payable on the
Securities and do not affect the rate at which additional interest accretes on
the Securities from their offering price. Notwithstanding the foregoing, no
Liquidated Damages shall accrue under clause (A) of the preceding sentence
during any period for which Liquidated Damages accrue under clause (B) of the
preceding sentence with respect to the same Event. Except as to an Event
described in clause (i) of the immediately preceding paragraph which is
continuing for a period in excess of 90 days for which Liquidated Damages shall
accrue until the earlier of the listing of the Shares on the NYSE or the payment
of the principal at maturity on the Securities or their earlier conversion or
redemption, no Liquidated Damages shall accrue as to any Registrable Securities
from and after the expiration of the Effectiveness Period. The rate of accrual
of the Liquidated Damages with respect to any period shall not exceed the rate
provided for in this paragraph (i.e., one-half of one percent per annum (50
basis points)) notwithstanding the occurrence of multiple concurrent Events.

Liquidated Damages on the Securities will be paid by the Company to the
Holders of such Securities on each Interest Payment Date (as defined in the
Indenture) in the same manner as for interest on the Securities as set forth in
Section 307 of the Indenture. No payment shall be made for Liquidated Damages
accrued through the applicable conversion date with respect to any Security or
portion thereof converted into Shares prior to a Damages Payment Date as the
delivery of the Shares into which the Security is convertible will be deemed to
satisfy the Company's obligation to pay the principal amount of the Security,
accrued but unpaid interest and Liquidated Damages. The Trustee shall be
entitled, on behalf of the Holders to seek any available remedy for the
enforcement of this Agreement, including for the payment of such

6
<PAGE>

Liquidated Damages. Notwithstanding the foregoing, the parties agree that the
sole damages payable for a violation of the terms of this Agreement with respect
to which Liquidated Damages are expressly provided shall be such Liquidated
Damages. Nothing shall preclude a Holder of Registrable Securities from pursuing
or obtaining specific performance or other equitable relief with respect to this
Agreement.

The parties hereto agree that the Liquidated Damages provided for in this
Section 2(e) constitute a reasonable estimate of the damages that may be
incurred by Holders of Registrable Securities by reason of the failure of the
Shares to be listed on the NYSE or the failure of a Registration Statement to be
filed with the SEC, declared effective by the SEC, or available (absolutely or
as a practical matter) for effecting resales of Registrable Securities, as the
case may be, in accordance with the provisions hereof.

3. Registration Procedures. In connection with the Company's registration
obligations under Section 2 hereof, the Company shall as expeditiously as
possible:

(a) Prepare and file with the SEC the Registration Statement or
Registration Statements on any appropriate form (except with respect to the
Shelf Registration Statement) under the Securities Act available for the sale of
the Registrable Securities by the Holders thereof, and use its best efforts to
cause each such Registration Statement to become effective and remain effective
as provided herein; provided, that before filing with the SEC any such
Registration Statement or Prospectus or any amendment or supplement thereto
(other than documents that would be incorporated or deemed to be incorporated
therein by reference and that the Company is required by applicable securities
laws or stock exchange requirements to file) the Company shall furnish to the
Initial Purchasers and the Holders (if requested by the Holders) copies of all
such documents proposed to be filed, which documents will be subject to the
review of the Initial Purchasers and any such Holders and the Company shall (i)
use its reasonable best efforts to reflect in each such document, when so filed
with the SEC, such comments as the Initial Purchasers and such Holders
reasonably and in a timely fashion may propose and to which the Company does not
reasonably object and (ii) not file any such document (other than such documents
which, upon filing, would be incorporated or deemed to be incorporated by
reference therein and that the Company is required by applicable securities laws
or stock exchange requirements to file) to which the Initial Purchasers or the
Holders of a majority of the Registrable Securities covered by such Registration
Statement shall reasonably object in writing within two full New York Business
Days. The Company shall take such action as may be necessary so that (i) any
Registration Statement and any Prospectus or any amendment or supplement thereto
(and each report or other document incorporated therein by reference in each
case) complies in all material respects with the Securities Act and the Exchange
Act and (ii) any Registration Statement and any Prospectus and any amendment or
supplement thereto does not, when it becomes effective, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading.

<PAGE>

(b) Prepare and file with the SEC such amendments and post-effective
amendments to each Registration Statement as may be necessary to keep such
Registration Statement continuously effective for the applicable period
specified in Section 2; cause the related Prospectus to be supplemented by any
required Prospectus supplement, and as so supplemented to be filed pursuant to
Rule 424 (or any similar provisions then in force) under the Securities Act; and
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such Registration Statement during the applicable
period in accordance with the intended methods of disposition by the sellers
thereof set forth in such Registration Statement as so amended or such
Prospectus as so supplemented.

(c) Notify the Holders and the Initial Purchasers promptly, and (if
requested by any such Person) confirm such notice in writing, (i) when a
Prospectus, any Prospectus supplement, a Registration Statement or a post-
effective amendment to a Registration Statement has been filed with the SEC,
and, with respect to a Registration Statement or any post-effective amendment,
when the same has been declared effective by the SEC, (ii) of any request by the
SEC or any other federal or state governmental authority for amendments or
supplements to a Registration Statement or related Prospectus or for additional
information, (iii) of the issuance by the SEC or any other federal governmental
authority of any stop order suspending the effectiveness of a Registration
Statement or the initiation or threatening of any proceedings for that purpose,
(iv) the receipt by the Company of any notification with respect to the
suspension of the qualification of the securities included therein for sale in
any jurisdiction or the initiation of any proceeding for such purpose; (v) of
the receipt by the Company of any notification with respect to the suspension of
the qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose, (vi) of the existence of any fact or happening of
any event which makes any statement of a material fact in such Registration
Statement or related Prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue or which would require the making of
any changes in the Registration Statement or Prospectus in order that, in the
case of the Registration Statement, it will not contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and that in the case
of the Prospectus, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading (which notice shall be accompanied by an instruction to
suspend the use of the Prospectus until the requisite changes have been made),
and (vii) of the Company's determination that a post-effective amendment to a
Registration Statement would be appropriate.

(d) Use its reasonable best efforts to prevent the issuance, and if
issued to obtain the withdrawal of any order suspending the effectiveness of a
Registration Statement, or the lifting of any suspension of the qualification
(or exemption from qualification) of any of the Registrable Securities for sale
in any jurisdiction, at the earliest possible moment.

(e) If reasonably requested by the Initial Purchasers or the Holders
of a majority of the Registrable Securities being sold and reasonably agreed to
by the Company, (i)

<PAGE>

promptly incorporate in a Prospectus supplement or post-effective amendment to a
Registration Statement such information as the Initial Purchasers or such
Holders, in connection with any offering of Registrable Securities, agree should
be included therein as required by applicable law, and (ii) make all required
filings of such Prospectus supplement or such post-effective amendment as soon
as practicable after the Company has received notification of the matters to be
incorporated in such Prospectus supplement or post-effective amendment;
provided, that the Company shall not be required to take any actions under this
Section 3(e) that are not, in the reasonable opinion of counsel for the Company,
in compliance with applicable law.

(f) Furnish to the Initial Purchasers and each Holder (if requested in
writing), without charge, at least one conformed copy of each Registration
Statement and any amendment thereto, including financial statements and
schedules but excluding all documents incorporated or deemed to be incorporated
therein by reference and all exhibits (unless requested in writing by the
Initial Purchasers and/or any Holder).

(g) Deliver to each selling Holder and the Initial Purchasers in
connection with any offering of Registrable Securities, without charge, as many
copies of the Prospectus or Prospectuses relating to such Registrable Securities
and any amendment or supplement thereto as such persons may reasonably request;
and the Company hereby consents to the use of such Prospectus or each amendment
or supplement thereto by each of the selling Holders of Registrable Securities,
in connection with any offering and sale of the Registrable Securities covered
by such Prospectus or any amendment or supplement thereto.

(h) Use its reasonable efforts if requested by a Holder to obtain
"cold comfort" letters at the time of effectiveness of a Registration Statement
from the independent public accountants of the Company (and, if necessary, any
other independent public accountants of any subsidiary of the Company or of any
business acquired by the Company for which financial statements and financial
data are, or are required to be, included in a Registration Statement),
addressed (where reasonably possible) to each selling Holder of Registrable
Securities registered thereunder (provided such Holder so requests and furnishes
the accountants with such representations as the accountants customarily require
in similar situations), in customary form and covering matters of the type
customarily covered in "cold comfort" letters in connection with a shelf
registration statement.

(i) Prior to any public offering of Registrable Securities, to
register or qualify or cooperate with the selling Holders in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
any selling Holder reasonably requests in writing; keep each such registration
or qualification (or exemption therefrom) effective during the period such
Registration Statement is required to be kept effective and do any and all other
acts or things necessary or advisable to enable the offer and sale in such
jurisdictions of the Registrable Securities covered by the applicable
Registration Statement; provided, that the Company will not be required to (i)
qualify generally to do business in any jurisdiction where it is not then so
qualified or (ii) take any action that would

<PAGE>

subject it to general service of process in suits or to taxation in any such
jurisdiction where it is not then so subject.

(j) Cause the Registrable Securities covered by the applicable
Registration Statement to be registered with or approved by such other
governmental agencies or authorities within the United States, except as may be
required solely as a consequence of the nature of such selling Holder, in which
case the Company will cooperate in all reasonable respects with the filing of
such Registration Statement and the granting of such approvals, as may be
necessary to enable the selling Holder or Holders thereof, to consummate the
disposition of such Registrable Securities.

(k) During any period (other than during a Suspension Period),
immediately upon the existence of any fact or the occurrence of any event as a
result of which a Registration Statement shall contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, or a Prospectus
shall contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, promptly prepare and file a post-effective amendment to each
Registration Statement or a supplement to the related Prospectus or any document
incorporated therein by reference or file any other required document (such as a
Current Report on Form 6-K) that would be incorporated by reference into the
Registration Statement so that the Registration Statement shall not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading,
and so that the Prospectus will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, as thereafter delivered to the purchasers
of the Registrable Securities being sold thereunder, and, in the case of a post-
effective amendment to a Registration Statement, use its best efforts to cause
it to become effective as soon as practicable.

(l) Comply with all applicable rules and regulations of the SEC and
make generally available earning statements (which need not be audited)
satisfying the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder (or any similar rule promulgated under the Securities Act) no later
than 45 days after the end of any 12-month period (or 90 days after the end of
any 12-month period if such period is a fiscal year) commencing on the first day
of the first fiscal quarter of the Company commencing after the effective date
of a Registration Statement, which statements shall cover said 12-month periods.

(m) If certificates are to be delivered, cooperate with the selling
Holders of Registrable Securities and, as applicable, the Trustee and the
transfer agent for the Shares, to facilitate the timely preparation and delivery
of certificates representing Registrable Securities to be sold pursuant to any
Registration Statement free of any restrictive securities legends; and enable
such Registrable Securities to be in such denominations and registered in such
names as the Holders may request.

<PAGE>

(n) The Company shall cause the Indenture to be qualified under the
Trust Indenture Act in a timely manner; and in connection with such
qualification, the Company shall cooperate with the Trustee under the Indenture
and the Holders (as defined in the Indenture) to effect such changes to the
Indenture as may be required for such Indenture to be so qualified in accordance
with the terms of the Trust Indenture Act.

(o) Provide the transfer agent for the Securities and the Shares with
certificates for the Registrable Securities which are in a form eligible for
deposit with The Depository Trust Company.

(p) Cooperate and assist in any filings required to be made with the
National Association of Securities Dealers, Inc.

(q) The Company will use its reasonable efforts to take all other
steps necessary to effect the registration, offering and sale of the Registrable
Securities covered by any Registration Statement contemplated hereby.

4. Holder's Obligations. Each Holder agrees, by acquisition of the
Securities and Registrable Securities, that no Holder of Registrable Securities
shall be entitled to sell any of such Registrable Securities pursuant to a
Registration Statement or to receive a Prospectus relating thereto, unless such
Holder has furnished the Company with the notice required pursuant to Section
2(d) hereof, such notice to include such other information regarding such Holder
and the distribution of such Registrable Securities as may be required to be
included in the Registration Statement or the Prospectus or as the Company may
from time to time reasonably request. The Company may exclude from such
registration the Registrable Securities of any Holder who does not furnish such
information provided above for so long as such information is not so furnished.
Each Holder of Registrable Securities as to which any Registration Statement is
being effected agrees promptly to furnish to the Company all information
required to be disclosed in order to make the information previously furnished
to the Company by such Holder not misleading. Any sale of any Registrable
Securities by any Holder shall constitute a representation and warranty by such
Holder that the information relating to such Holder and its plan of distribution
is as set forth in the Prospectus delivered by such Holder in connection with
such disposition, that such Prospectus does not as of the time of such sale
contain any untrue statement of a material fact relating to such Holder or its
plan of distribution and that such Prospectus does not as of the time of such
sale omit to state any material fact relating to such Holder or its plan of
distribution necessary to make the statements in such Prospectus, in light of
the circumstances under which they were made, not misleading.

5. Registration Expenses. All fees and expenses incident to the
Company's performance of or compliance with this Agreement shall be borne by the
Company whether or not any of the Registration Statements become effective.
Such fees and expenses shall include, without limitation, (i) all registration
and filing fees (including, without limitation, fees and expenses (x) with
respect to filings required to be made with the National Association of
Securities Dealers, Inc. and (y) of compliance with federal securities or Blue
Sky laws

<PAGE>

(including, without limitation, fees and disbursements in connection with Blue
Sky qualifications of the Registrable Securities laws of such jurisdictions as
the Holders of a majority of the Registrable Securities being sold may
designate)), (ii) printing expenses (including, without limitation, expenses of
printing certificates for Registrable Securities in a form eligible for deposit
with The Depository Trust Company and of printing prospectuses if the printing
of prospectuses is requested by the Holders of a majority of the Registrable
Securities included in any Registration Statement), (iii) reasonable fees and
disbursements of counsel for the Company in connection with each Registration
Statement, (iv) fees and disbursements of all independent certified public
accountants of the Company, (v) Securities Act liability insurance obtained by
the Company in its sole discretion and (vi) listing of the Shares on the NYSE.
In addition, the Company shall pay its internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), the expense of any annual audit, the fees and
expenses incurred in connection with the listing of the securities to be
registered on any securities exchange on which similar securities issued by the
Company are then listed and the fees and expenses of any Person, including
special experts, retained by the Company. Notwithstanding the provisions of this
Section 5, each seller of Registrable Securities shall pay all selling expenses
(including all broker's commissions and discounts) and all registration expenses
to the extent, but only to the extent, that the Company is prohibited by
applicable Blue Sky laws from paying for or on behalf of such seller of
Registrable Securities.

6. Indemnification.
---------------

(a) Indemnification by the Company. The Company shall indemnify and
hold harmless each Initial Purchaser, each Holder and each Person, if any, who
controls any Holder (within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act), and the directors, officers, employees
and agents of each such Person, from and against all losses, claims,
liabilities, damages and expenses, joint or several (including, without
limitation, any legal or other costs or expenses reasonably incurred in
connection with investigating, defending against or appearing as a third-party
witness in connection with any such loss, claim, liability, damage or expense
(or actions in respect thereof) (collectively, "Losses"), to which such party or
such controlling person may become subject under the Securities Act or
otherwise, insofar as such Losses arise out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement or Prospectus or in any amendment or supplement thereto
or in any preliminary prospectus, or arise out of or based upon any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse,
as incurred, each such indemnified party for each such Loss, except insofar as
such Losses arise out of or are based upon the information relating to any
Holder furnished to the Company in writing by such Holder expressly for use
therein; provided, that the Company shall not be liable to any Holder of
Registrable Securities (or any Person controlling such Holder) to the extent
that any such Losses arise out of or are based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in any preliminary
prospectus if either (A)(i) such Holder failed to send or deliver a copy of the
Prospectus with or prior to the delivery of written confirmation of the sale by
such Holder to the Person asserting the claims from which such Losses arise and
(ii) the

<PAGE>

Prospectus would have corrected such untrue statement or alleged untrue
statement or such omission or alleged omission, or (B)(x) such untrue statement
or alleged untrue statement, omission or alleged omission is corrected in an
amendment or supplement to the Prospectus and (y) having previously been
furnished by or on behalf of the Company with copies of the Prospectus as so
amended or supplemented, such Holder thereafter fails to deliver such Prospectus
as so amended or supplemented, with or prior to the delivery of written
confirmation of the sale of a Registrable Security to the Person asserting the
claim from which such Losses arise.

(b) Indemnification by Holder of Registrable Securities. Each Holder
agrees severally and not jointly to indemnify and hold harmless the Company and
each Person, if any, who controls the Company (within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act), and each
Initial Purchaser and the Holders, and the directors, officers (including,
without limitation, each director and officer of the Company who signs any
Registration Statement), employees and agents of each such Person, from and
against all Losses to which such party or such controlling Person may become
subject under the Securities Act or otherwise, insofar as such Losses arise out
of or based upon any untrue statement or alleged untrue statement of a material
fact contained in any Registration Statement or Prospectus or in any amendment
or supplement thereto or in any preliminary prospectus, or arise out of or based
upon any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
in each case, to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission is contained in any
information relating to such Holder so furnished in writing by such Holder to
the Company expressly for use in such Registration Statement or Prospectus, and,
subject to the limitation set forth immediately preceding this clause, will
reimburse, as incurred, any legal or other expenses reasonably incurred by the
Company or any such Initial Purchaser, other Holder or director, officer or
controlling person in connection with investigating, defending against or
appearing as a third-party witness in connection with any such loss, claim,
liability, damage or expense or any action in respect thereof. In no event
shall the liability of any selling Holder of Registrable Securities hereunder be
greater in amount than the dollar amount of the proceeds received by such Holder
upon the sale of the Registrable Securities giving rise to such indemnification
obligation.

(c) Conduct of Indemnification Proceedings. In case any proceeding
(including any governmental investigation) shall be instituted involving any
Person in respect of which indemnity may be sought pursuant to either of the two
immediately preceding paragraphs, such Person (the "indemnified party") shall
promptly notify the Person against whom such indemnity may be sought (the
"indemnifying party") in writing and the indemnifying party, upon request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to

<PAGE>

the retention of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying party and the
indemnified party and the indemnified party shall have reasonably concluded that
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interests between them. It is understood that the
indemnifying party shall not, in respect of the legal expenses of any
indemnified party in connection with any proceeding or related proceedings in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for (a) the fees and expenses of more than one separate
firm (in addition to any local counsel) for all Holders and all Persons, if any,
who control any Holder within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act, and (b) the fees and expenses of more
than one separate firm (in addition to any local counsel) for the Company, its
directors, its officers who sign a Registration Statement and each Person, if
any, who controls the Company within the meaning of either such Section, and
that all such fees and expenses shall be reimbursed as they are incurred, it
being understood, however, that in the case of paragraph (a) of this Section 6,
the indemnifying party's obligation shall extend to liability for the fees and
expenses of one separate firm (in addition to any one local counsel for the
Initial Purchasers and their related indemnified parties and the Holders and
their related indemnified parties to the extent any of the foregoing indemnified
parties are parties to such action or actions. All fees and expenses reimbursed
pursuant to this paragraph (c) shall be reimbursed as they are incurred. In the
case of any such separate firm for the Company, and such directors, officers and
control Persons of the Company, such firm shall be designated in writing by the
Company. The indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.

(d) Contribution. If the indemnification provided for in this
Section 6 is unavailable to an indemnified party under Section 6(a) or 6(b)
hereof in respect of any Losses or is unavailable or insufficient, for any
reason, to hold such indemnified party harmless, then each applicable
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such Losses in such proportion as is appropriate to reflect the relative
fault of the indemnifying party or parties on the one hand and of the
indemnified party or parties on the other hand in connection with the statements
or omissions or alleged statements or omissions that resulted in such Losses, as
well as any other relevant equitable considerations. The relative fault of the
Holders on the one hand and the Company on the other hand shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Holders on the one hand or by the Company
on the other hand, the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission and
any other

14
<PAGE>

equitable considerations appropriate in the circumstances. The Holders'
respective obligations to contribute hereunder are several in proportion to the
respective number of Registrable Securities they have sold pursuant to a
Registration Statement, and not joint. For purposes of this Section 6(d), each
person, if any, who controls a Holder within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act shall have the same rights to
contribution as such Holder, and each director of the Company, each officer of
the Company and each Person, if any, who controls the Company within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act, shall
have the same rights to contribution as the Company.

The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 6(d) were determined by pro rata or pro
capita allocation (even if the Holders were treated as one entity for such
purpose) or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the Losses
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating,
defending against or appearing as a third-party witness in connection with any
such Loss. Notwithstanding this Section 6(d), an indemnifying party that is a
selling Holder of Registrable Securities shall not be required to contribute any
amount in excess of the amount by which the total price at which the Registrable
Securities sold by such indemnifying party and distributed to the public were
offered to the public exceeds the amount of any damages which such indemnifying
party has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.

The indemnity, contribution and expense reimbursement obligations of the
Company hereunder shall be in addition to any liability the Company may
otherwise have hereunder, under the Purchase Agreement or otherwise. The
provisions of this Section 6 shall survive so long as Registrable Securities
remain outstanding, notwithstanding any transfer of the Registrable Securities
by any Holder or any termination of this Agreement.

The indemnity and contribution provisions contained in this Section 6 shall
remain operative and in full force and effect regardless of (i) any termination
of this Agreement, (ii) any investigation made by or on behalf of any Holder or
any Person controlling any Holder, or the Company, its officers or directors or
any Person controlling the Company and (iii) the sale of any Registrable
Securities by any Holder. The remedies provided for in this Section 6 are not
exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.

15
<PAGE>

7. Information Requirements.
------------------------

(a) The Company shall timely file the reports required to be filed by
it under the Securities Act and the Exchange Act, and if at any time the Company
is not required to file such reports and is not exempt from reporting pursuant
to Rule 12g3-2(b) under the Exchange Act, it will, upon the request of any
Holder of Registrable Securities, make available other information so long as
necessary to permit sales pursuant to Rule 144 and Rule 144A under the
Securities Act. The Company further covenants that it will cooperate with any
Holder of Registrable Securities and take such further reasonable action as any
Holder of Registrable Securities may reasonably request, all to the extent
required from time to time to enable such Holder to sell Registrable Securities
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144 and Rule 144A under the Securities Act. Upon the
request of any Holder of Registrable Securities, the Company shall deliver to
such Holder a written statement as to whether it has complied with such filing
requirements. Notwithstanding the foregoing, nothing in this Section 7 shall be
deemed to require the Company to register any of its securities under any
section of the Exchange Act.

(b) The Company shall comply with all other requirements set forth in
the instructions to Form F-3 in order to allow the Company to be eligible to
file registration statements on Form F-3.

8. Miscellaneous.
-------------

(a) Remedies. In the event of a breach by the Company of its
obligations under this Agreement, each Holder of Registrable Securities, in
addition to being entitled to exercise all rights granted by law, including,
without limitation, recovery of damages, will be entitled to specific
performance of its rights under this Agreement, provided that the sole damages
payable for a violation of the terms of this Agreement for which Liquidated
Damages are expressly provided pursuant to Section 2(e) hereof shall be such
Liquidated Damages. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of any
of the provisions of this Agreement and hereby further agrees that, in the event
of any action for specific performance in respect of such breach, it shall waive
the defense that a remedy at law would be adequate.

(b) No Conflicting Agreements. The Company has not, as of the date
hereof, and shall not, on or after the date of this Agreement, enter into any
agreement with respect to its securities which conflicts with the rights granted
to the Holders of Registrable Securities in this Agreement. The Company
represents and warrants that the rights granted to the Holders of Registrable
Securities hereunder do not in any way conflict with the rights granted to the
holders of the Company's securities under any other agreements.

(c) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, qualified,
modified or supplemented, and

16
<PAGE>

waivers or consents to departures from the provisions hereof may not be given,
unless the Company has obtained the written consent of Holders of a majority of
the then outstanding Registrable Securities. Notwithstanding the foregoing, a
waiver or consent to depart from the provisions hereof with respect to a matter
that relates exclusively to the rights of Holders of Registrable Securities
whose securities are being sold pursuant to a Registration Statement and that
does not directly or indirectly affect the rights of other Holders of
Registrable Securities may be given by Holders of at least a majority of the
Registrable Securities being sold by such Holders; provided, that the provisions
of this sentence may not be amended, qualified, modified, or supplemented except
in accordance with the provisions of the immediately preceding sentence.

(d) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing and shall be deemed given (i) when
made, if made by hand delivery, (ii) upon confirmation, if made by telecopier or
(iii) one business day after being deposited with a reputable next-day courier,
postage prepaid, to the parties as follows:

(x) if to a Holder of Registrable Securities, at the most
current address given by such Holder to the Company in accordance with the
provisions of Section 8(e) hereof;

(y) if to the Company, to:

Security Capital U.S. Realty
69, route d'Esch
L-1470 Luxembourg
Attention: Jeffrey A. Cozad
Telecopy No.: 44-171-839-1335

with a copy to:

Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Attention: Edward J. Schneidman
Telecopy No.: 312-701-7711

and

17
<PAGE>

(z) if to the Initial Purchasers to:

Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Attention: Richard Lieb
Telecopy No.: 212-357-5505

with a copy to:

Hogan & Hartson L.L.P.
Columbia Square
555 Thirteenth Street, N.W.
Washington, D.C. 20004
Attention: J. Warren Gorrell, Jr.
Telecopy No.: 202-637-5910

or to such other address as such Person may have furnished to the other Persons
identified in this Section 8(d) in writing in accordance herewith.

(e) Owner of Registrable Securities. The Company will maintain, or
will cause its registrar and transfer agent to maintain, a register with respect
to the Registrable Securities in which all transfers of Registrable Securities
of which the Company has received notice will be recorded. The Company may deem
and treat the Person in whose name Registrable Securities are registered in such
register of the Company as the owner thereof for all purposes, including,
without limitation, the giving of notices under this Agreement.

(f) Approval of Holders. Whenever the consent or approval of Holders
of a specified percentage of Registrable Securities is required hereunder, such
percentage shall be calculated based on the total of (A) the number of Shares
constituting Registrable Securities plus (B) the number of Shares obtainable at
the time in question if all of the Securities constituting Registrable
Securities then outstanding were converted, and Registrable Securities held by
the Company or its affiliates (as such term is defined in Rule 405 under the
Securities Act) (other than the Initial Purchasers or subsequent Holders of
Registrable Securities if such subsequent Holders are deemed to be such
affiliates solely by reason of their holdings of such Registrable Securities)
shall not be counted in determining whether such consent or approval was given
by the Holders of such required percentage.

(g) Successors and Assigns. Any Person who purchases any Registerable
Securities from an Initial Purchaser shall be deemed, for purposes of this
Agreement, to be an assignee of such Initial Purchaser. This Agreement shall
inure to the benefit of and be binding upon the successors and assigns of each
of the parties and shall inure to the benefit of and be binding upon each Holder
of any Registrable Securities, including, without the need for an

18
<PAGE>

express assignment or any consent by the Company thereto, subsequent Holders of
Registrable Securities.

(h) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be original and all of which taken together
shall constitute one and the same agreement.

(i) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.

(j) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK OF THE UNITED STATES OF
AMERICA, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK
WITHOUT REGARD TO ANY PROVISIONS OR PRINCIPLES OF CONFLICT OF LAWS.

(k) Severability. If any term, provision, covenant or restriction of
this Agreement is held to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated thereby, and the parties hereto shall use their best efforts to
find and employ an alternative means to achieve the same or substantially the
same result as that contemplated by such term, provision, covenant or
restriction. It is hereby stipulated and declared to be the intention of the
parties that they would have executed the remaining terms, provisions, covenants
and restrictions without including any of such which may be hereafter declared
invalid, illegal, void or unenforceable.

(l) Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and is intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein and the registration rights
granted by the Company with respect to the Securities and Shares of the Company
into which Securities are convertible sold pursuant to the Purchase Agreement.
Except as provided in the Purchase Agreement, there are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein, with respect to the registration rights granted by the Company with
respect to the Shares of the Company into which the Securities are convertible.
This Agreement supersedes all prior agreements and understandings among the
parties with respect to such registration rights.

(m) Inspection. For so long as any Registrable Securities shall
remain outstanding, this Agreement and, for any purpose reasonably related to
this Agreement, a complete list of the names and addresses of all of the Holders
shall be available for inspection and copying on any business day by any Holder
at the offices of the Company at the address thereof set forth in Section 8(d)
hereof.

19
<PAGE>

(n) Further Assurances. Each of the parties hereto shall use all
reasonable efforts to take, or cause to be taken, all appropriate action, do or
cause to be done all things reasonably necessary, proper or advisable under
applicable law, and execute and deliver such documents and other papers, as may
be required to carry out the provisions of this Agreement and the other
documents contemplated hereby and consummate and make effective the transactions
contemplated hereby.

(o) Termination. This Agreement and the obligations of the parties
hereunder shall terminate upon the end of the Effectiveness Period, except for
any liabilities or obligations under Sections 4, 5 or 6 hereof, the provisions
of Section 8 and the obligations to make payments of and provide for Liquidated
Damages under Section 2(e) hereof to the extent such damages accrue prior to the
end of the Effectiveness Period, each of which shall remain in effect in
accordance with their terms.

(p) [INTENTIONALLY OMITTED]

(q) Venue. Any legal suit, action or proceeding against the Company
brought by any Holder arising out of or based upon this Agreement may be
instituted in any State or Federal Court located in the Borough of Manhattan,
City of New York. The Company waives, to the fullest extent it may effectively
do so, any objection which it may or hereafter have to the laying of venue of
any such proceeding and the Company submits to the non-exclusive jurisdiction of
such courts in any such suit, action or proceeding. The Company has appointed
CT Corporation System, New York, New York, as its authorized agent (the
"Authorized Agent") upon whom process may be served in any such action arising
out of or based on this Agreement which may be instituted in any State of
Federal Court located in the Borough of Manhattan, City of New York, by any
Holder. The Company expressly consents to the jurisdiction of any such court in
respect of any such action and waives any other requirements of or objections to
personal jurisdiction with respect thereto. The Company represents and warrants
that the Authorized Agent has agreed to act as such agent for service of process
and agrees to take any and all action, including the filing of any and all
documents and instruments, that may be necessary to continue such appointment in
full force and effect as aforesaid. Service of process upon the Authorized
Agent and written notice of such service to the Company shall be deemed, in
every respect, effective service of process upon the Company.

SIGNATURE PAGE FOLLOWS

20
<PAGE>

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.

SECURITY CAPITAL U.S. REALTY

By: /s/ Ariel Amir
-------------------------------
Name: Ariel Amir
Title: Vice President

Accepted as of the date first above written:

GOLDMAN, SACHS & CO.

By: /s/ Goldman, Sachs & Co.
-------------------------

On behalf of each of the Initial Purchasers

<PAGE>

Exhibit 5
---------

June __, 1999

Security Capital U.S. Realty
25b, boulevard Royal
L-2449 Luxembourg

Re: 2% Unsecured Senior Convertible Notes due 2003
----------------------------------------------

Ladies and Gentlemen:

We have acted as counsel to Security Capital U.S. Realty, a Luxembourg
corporation (the "Company"), in connection with the preparation of a
registration statement on Form F-1 (the "Registration Statement") to register
under the Securities Act of 1933, as amended (the "Act"), the resale of 2%
Unsecured Senior Convertible Notes due 2003 (the "Notes") and the underlying
shares of the Company having a par value of $4.00 per share ("Shares") into
which the Notes are convertible and the American Depositary Shares listed on the
New York Stock Exchange. The Notes have been issued under an indenture (the
"Indenture") dated May 22, 1998 between the Company and State Street Bank and
Trust Company, as trustee, as amended by a First Supplemental Indenture. In
this connection, we have examined such corporate and other records, instruments,
certificates and documents as we considered necessary to enable us to express
this opinion.

Based on the foregoing, it is our opinion that the Notes have been duly
authorized for issuance and have been duly executed, authenticated, issued and
delivered, and constitute valid and legally binding obligations of the Company
entitled to the benefits of the Indenture, subject to bankruptcy, insolvency,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditor's rights and to general equity principles (whether
considered in a proceeding at law or in equity). It is also our opinion that
the Shares issuable upon conversion of the Notes have been duly authorized for
issuance and, upon issuance, will be fully paid and non-assessable.
<PAGE>

Security Capital U.S. Realty
June __, 1999
Page 2

We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to Arendt & Medernach under the captions "Legal
Matters" and "Enforceability of Civil Liabilities".

Very truly yours,

-------------------------------
Arendt & Medernach

<PAGE>

EXHIBIT 12

SECURITY CAPITAL U.S. REALTY
STATEMENT REGARDING COMPUTATION OF
RATIO OF EARNINGS TO FIXED CHARGES
(in thousands $)

<TABLE>
<CAPTION>
Year Ended 31 December 7 July to
31 December
1998 1997 1996 1995
<S> <C> <C> <C> <C>
Net Earnings (loss) from Operations 77,899 60,309 12,939 76

Add:

Interest Expense 36,815 13,595 9,159 163
-------- -------- -------- --------
Earnings as Adjusted 114,714 73,904 22,098 239
======== ======== ======== ========
Fixed Charges

Interest Expense 25,323 12,240 6,168 163
-------- -------- -------- --------
Total Fixed Charges $ 25,323 $ 12,240 $ 6,168 $ 163
======== ======== ======== ========
Ratio of Earnings to Fixed Charges 4.5x 6.0x 3.6x 1.5x
</TABLE>

<PAGE>

Exhibit 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------

We hereby consent to the use in this Registration Statement on Form F-1 of our
report dated 10 March 1999, except for Note 13 which is as of 24 June 1999,
relating to the consolidated financial statements of Security Capital U.S.
Realty, which appears in such Registration Statement. We also consent to the
reference to us under the heading "Experts" and "Selected Financial Data" in
such Registration Statement.

PRICE WATERHOUSE SARL

Luxembourg
25 June 1999