<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 17, 1997
REGISTRATION NOS. 333-20649
811-8033
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 4
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
Amendment No. 6
(Check Appropriate Box or Boxes)
----------------------------
SECURITY CAPITAL U.S. REAL ESTATE SHARES INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
11 SOUTH LASALLE STREET
CHICAGO, ILLINOIS 60603
(312) 345-5800
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE)
WITH COPIES TO:
<TABLE>
<S> <C>
ANTHONY R. MANNO JR. JEFFREY A. KLOPF
SECURITY CAPITAL (US) MANAGEMENT GROUP SECURITY CAPITAL GROUP
INCORPORATED INCORPORATED
11 SOUTH LASALLE STREET 125 LINCOLN AVENUE
CHICAGO, ILLINOIS 60603 SANTA FE, NEW MEXICO 87501
(NAME AND ADDRESS OF AGENT FOR SERVICE)
JEFFREY C. NELLESSEN DIANE E. AMBLER
SECURITY CAPITAL (US) MANAGEMENT GROUP MAYER, BROWN & PLATT
INCORPORATED 2000 PENNSYLVANIA AVENUE, N.W.
11 SOUTH LASALLE STREET WASHINGTON, D.C. 20006
CHICAGO, ILLINOIS 60603
</TABLE>
It is proposed that this filing will become effective (check appropriate box):
<TABLE>
<S> <C>
X immediately upon filing pursuant to paragraph (b). _ (date) pursuant to paragraph (a)(1) of
Rule 485.
_ on (date) pursuant to paragraph (b). _ 75 days after filing pursuant to paragraph
(a)(2).
_ 60 days after filing pursuant to _ on (date pursuant to paragraph (a)(2)
paragraph (a)(1). of Rule 485.
If appropriate, check the following box:
_ this post-effective amendment designates a new
effective date for a previously filed
post-effective amendment
</TABLE>
RULE 24F-2 NOTICE
Pursuant to Rule 24f-2(a)(1) under the Investment Company Act of 1940, as
amended, the Registrant has registered an indefinite number of shares of its
Common Stock. The Fund has not yet completed its first fiscal year of operation,
therefore, no Form 24f-2 has yet been filed.
<PAGE>
CROSS REFERENCE TABLE
Pursuant to Rule 495
Showing Location in Part A (Prospectus),
Part B (Statement of Additional Information), and
Part C (Other Information) of Registration Statement
Information Required by Form N-1A
PART A
------
Item of Form N-1A Prospectus Caption
----------------- ------------------
1. Cover Page Cover Page
2. Synopsis Description of SC-US
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Description of SC-US
5. Management of SC-US Management of SC-US
5A. Management's Discussion of SC-US Performance Performance Information
6. Capital Stock and Other Securities Organization and Description
of Capital Stock
7. Purchase of Securities Being Offered Purchase of Shares
8. Redemption or Repurchase Redemption of Shares
9. Pending Legal Proceedings Not Applicable
PART B
------
Statement of Additional
Item of Form N-1A Information Caption
----------------- -------------------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Organization and Description
of Capital Stock
13. Investment Objectives and Policies Investment Objectives and
Policies
14. Management of SC-US Management of SC-US
15. Control Persons and Principal Holders Organization and Description
of Capital Stock of Securities
<PAGE>
<TABLE>
<CAPTION>
Statement of Additional
Item of Form N-1A Information Caption
- ----------------- -------------------
<S> <C>
16. Investment Advisory and Other Services Management of SC-US;
and Brokerage Portfolio Transactions
17. Brokerage Allocation and Other Practices Management of SC-US; Portfolio
and Brokerage Transactions
18. Capital Stock and Other Securities Organization and Description
of Capital Stock
19. Purchase, Redemption and Pricing of Distribution Plan; Determination of Net Asset
Securities Being Offered Value; Redemption of Shares
20. Tax Status Taxation
21. Underwriters Distributor
22. Calculation of Performance Data Performance Information
23. Financial Statements Financial Statement
PART C
------
Item of Form N-1A Part C Caption
----------------- --------------
24. Financial Statements and Exhibits Financial Statements and Exhibits
25. Persons Controlled by or Under Persons Controlled By or Under Common
Common Control With Registrant Control with Registrant
26. Number of Holders of Securities Number of Holders of Securities
27. Indemnification Indemnification
28. Business and Other Connections of Business and Other Connections of
Investment Adviser Investment Adviser
29. Principal Underwriters Principal Underwriter
30. Location of Accounts and Records Location of Accounts and Records
31. Management Services Management Services
32. Undertakings Undertakings
33. Signatures Signatures
</TABLE>
<PAGE>
PROSPECTUS
LOGO
11 SOUTH LASALLE STREET
CHICAGO, ILLINOIS 60603
Security Capital U.S. Real Estate Shares Incorporated ("SC-US"), formerly
Security Capital Employee REIT Fund Incorporated, is a non-diversified, no-load,
open-end management investment company ("mutual fund") that seeks to provide
shareholders with above-average total returns, including current income and
capital appreciation, primarily through investments in real estate securities in
the United States. Long term, SC-US's objective is to achieve top-quartile total
returns as compared with other mutual funds that invest primarily in real estate
securities in the United States, by integrating in-depth proprietary real estate
market research with sophisticated capital markets research and modeling
techniques. Security Capital (US) Management Group Incorporated ("SC (US)
Management"), formerly Security Capital Investment Research Group Incorporated,
serves as both investment adviser and administrator to SC-US.
By this Prospectus, SC-US is offering Class I shares. Class I shares are
offered to investors whose minimum initial investment is $250,000. SC-US also
offers another class of shares which has different expenses which would affect
performance. Investors desiring to obtain information about SC-US's other class
of shares should call 1-800-699-4594 (toll free) or ask their sales
representatives or SC-US's distributor. This Prospectus provides you with
information specific to the Class I shares of SC-US. It contains information
you should know before you invest in SC-US.
INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE
REFERENCE.
An investment in SC-US should not be the sole source of investment for a
shareholder. Rather, an investment in SC-US should be considered as part of an
overall portfolio strategy which includes fixed income and equity securities.
SC-US is designed for long-term investors, including those who wish to use
shares for tax deferred retirement plans and individual retirement accounts, and
not for investors who intend to liquidate their investments after a short period
of time.
This Prospectus sets forth concisely the information a prospective investor
should know before investing in SC-US. A Statement of Additional Information
dated _______________, 1997, containing additional and more detailed information
about SC-US has been filed with the Securities and Exchange Commission and is
hereby incorporated by reference into this Prospectus. It is available without
charge and can be obtained by writing or calling SC-US's Sub-Administrator at:
Firstar Trust Company, Mutual Fund Services, P.O. Box 701, Milwaukee, Wisconsin
53201-0701; telephone number 1-800-699-4594 (toll free).
THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO
BUY IN ANY STATE OR JURISDICTION WHERE PROHIBITED BY LAW OR TO ANY FIRM OR
INDIVIDUAL TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
[_______________, 1997]
<PAGE>
TABLE OF CONTENTS
PAGE
----
Expenses 2
Financial Highlights 4
Description of SC-US 5
Investment Objective and Policies 5
Real Estate Investment Trusts 6
Investment Strategy 6
Risk Factors 8
Non-Diversified Status; Portfolio Turnover 8
Investment Restrictions 9
Management of SC-US 10
Investment Advisory Agreement 11
Administrator and Sub-Administrator 12
Distribution and Servicing Plan 12
Determination of Net Asset Value 13
Purchase of Shares 13
Redemption of Shares 15
Dividends and Distributions 17
Taxation 17
Organization and Description of Capital Stock 18
Custodian and Transfer and Dividend
Disbursing Agent 19
Reports to Shareholders 19
Performance Information 19
Additional Information 20
<PAGE>
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
Shareholder transaction expenses are direct charges which are incurred when
shareholders buy or sell shares of SC-US.
ANNUAL FUND OPERATING EXPENSES
The Class I shares of SC-US pay for certain expenses attributable to Class I
shares directly out of SC-US's Class I assets. These expenses are related to
management of SC-US, administration and other services. For example, SC-US pays
an advisory fee and an administrative fee to SC (US) Management. SC-US also has
other customary expenses for services such as transfer agent fees, custodial
fees paid to the bank that holds its portfolio securities, audit fees and legal
expenses. These operating expenses are subtracted from SC-US's Class I assets to
calculate SC-US's Class I net asset value per share. In this manner,
shareholders pay for these expenses indirectly.
The following table is provided to help shareholders understand the direct
expenses of investing in SC-US and the portion of SC-US's operating expenses
that they might expect to bear indirectly. The numbers reflected below are based
on SC-US's expenses for its current fiscal period ending December 31, 1997.
FEE TABLE
Shareholder Transaction Expenses:
Maximum sales charge on purchases and reinvested distributions.. None
Redemption fee (1).............................................. None
Annual Fund Operating Expenses (after expense waivers and/or
reimbursements, as a percentage of average net assets):
Management fees............................................ .60%
12b-1 fees................................................. .25%
Other expenses (2)......................................... .15%
Total fund operating expenses(3)........................... 1.00%
- ------------
(1) SC-US's transfer agent charges a service fee of $12.00 for each wire
redemption. In addition, the purchase or redemption of shares through a
securities dealer that has not entered into a sales agreement with Security
Capital Markets Group Incorporated, SC-US's distributor, may be subject to a
transaction fee.
(2) Other Expenses are based upon the operating experience of SC-US since April
23, 1997, the effective date of its registration statement under the
Securities Act of 1933, as amended, and the Investment Company Act of 1940,
as amended.
(3) SC (US) Management has committed to waive fees and/or reimburse expenses to
maintain SC-US's Class I total fund operating expenses, other than brokerage
fees and commissions, taxes, interest and other extraordinary expenses, at
no more than 1.00% of the value of SC-US's Class I average daily net assets
for the year ending December 31, 1998. SC-US estimates that without such
waiver and/or reimbursement, actual total fund operating expenses would be
1.10% of the value of SC-US's Class I average daily net assets.
The information in the Fee Table has been restated to reflect current fees.
2
<PAGE>
EXAMPLE
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ----- -----
<S> <C> <C> <C> <C>
A shareholder would bear the following expenses on
a $1,000 investment, assuming: a five percent annual
return and operating expenses as outlined in the fee
table above........................................... $11 $35 $61 $134
</TABLE>
The actual expenses in future years may be more or less than the numbers in the
example, depending on a number of factors, including the actual value of SC-US's
assets.
3
<PAGE>
SECURITY CAPITAL U.S. REAL ESTATE SHARES INCORPORATED
The following information on financial highlights is unaudited. This
information should be read in conjunction with the financial information and
notes thereto which appear in the Statement of Additional Information.
SECURITY CAPITAL (US) REAL ESTATE SHARES INCORPORATED
Financial Highlights
(Unaudited)
April 23, 1997(1)
Per Share Data: through
September 30,
1997
----------------
Net asset value, beginning of period $10.15
Income from investment operations:
Net investment income 0.25
Net realized and unrealized gain on investments 2.39
Total from investment operations 2.64
Less distributions from net investment income (0.37)
Net asset value, end of period $12.42
Total return (2) 27.71%
Supplemental data and ratios:
Net assets, end of period $122,895,094
Ratio of expenses to average net assets (3)(4) 1.15%
Ratio of net investment income to average net
assets (3)(4) 5.66%
Portfolio turnover rate 46.00%
Average commission rate paid per share $0.0596
(1) Effective Date.
(2) Not annualized.
(3) Annualized.
(4) Without expense reimbursements of $15,653 for the period April 23, 1997
through September 30, 1997, the ratio of expenses to average net assets
would have been 1.18% and the ratio of net investment income to average net
assets would have been 5.63%.
See notes to the financial statements.
4
<PAGE>
DESCRIPTION OF SC-US
SC-US is a non-diversified, open-end management investment company that was
organized under the laws of the State of Maryland on January 23, 1997 as
Security Capital Employee REIT Fund Incorporated ("SC-ERF"). Prior to December
16, 1997, when its name was changed to Security Capital U.S. Real Estate Shares
Incorporated, SC-ERF issued one class of shares to directors, trustees and
employees of Security Capital Group Incorporated ("Security Capital Group") and
its affiliates and members of their families. In connection with the name
change, to SC-US, the Board of Directors voted to create two classes of shares,
one of which, Class I shares, includes investors whose minimum initial
investment is $250,000. The second class of shares, Class R shares, which
includes all other eligible investors and offers different services and incurs
different expenses than Class I shares, which would affect performance. See
"Purchase of Shares" and "Organization and Description of Capital Stock."
INVESTMENT OBJECTIVE AND POLICIES
SC-US's investment objective is to provide shareholders with above-average
total returns, including current income and capital appreciation, primarily
through investments in real estate securities in the United States. Long term,
SC-US's objective is to achieve top-quartile total returns as compared with
other mutual funds that invest primarily in real estate securities in the United
States, by integrating in-depth proprietary real estate market research with
sophisticated capital markets research and modeling techniques. SC-US's
investment objective is "fundamental" and cannot be changed without approval of
a majority of its outstanding voting securities. None of SC-US's policies, other
than its investment objective and the investment restrictions described below
under "Investment Restrictions," are fundamental and thus may be changed by SC-
US's Board of Directors without shareholder approval. There can be no assurance
that SC-US's investment objective will be achieved.
Under normal circumstances, SC-US will invest at least 65% of its assets in
REITs. Such equity securities will consist of (i) common stocks, (ii) rights or
warrants to purchase common stocks, (iii) securities convertible into common
stocks where the conversion feature represents, in SC (US) Management's view, a
significant element of the securities' value, and (iv) preferred stocks. For
purposes of SC-US's investment policies, a "real estate company" is one that
derives at least 50% of its revenues from the ownership, construction,
financing, management or sale of commercial, industrial, or residential real
estate or that has at least 50% of its assets invested in such real estate. SC-
US may invest in securities issued by real estate companies that are controlled
by Security Capital Group or its affiliates. When, in the judgment of SC (US)
Management, market or general economic conditions justify a temporary defensive
position, SC-US will deviate from its investment objective and invest all or any
portion of its assets in high-grade debt securities, including corporate debt
securities, U.S. government securities, and short-term money market instruments,
without regard to whether the issuer is a real estate company. SC-US may also at
any time invest funds awaiting investment or held as reserves to satisfy
redemption requests or to pay dividends and other distributions to shareholders
in short-term money market instruments.
SC-US will not invest more than 10% of its net assets in illiquid securities.
For this purpose, illiquid securities include, among others, securities that are
illiquid by virtue of the absence of a readily available market or legal or
contractual restrictions on resale. SC (US) Management will monitor the
liquidity of such restricted securities under the supervision of SC-US's Board
of Directors. If SC-US invests in securities issued by a real estate company
that is controlled by Security Capital Group or any of its affiliates, such
securities will be treated as illiquid securities. See SC-US's Statement of
Additional Information for further discussion of illiquid securities.
SC-US may engage in short sale transactions in securities listed on one or
more national securities exchanges or on the National Association of Securities
Dealers, Inc. Automated Quotation System ("NASDAQ"). Short selling involves the
sale of borrowed securities. At the time a short sale is effected, SC-US incurs
an obligation to replace the security borrowed at whatever its price may be at
the time that SC-US purchases it for delivery to the lender. When a short sale
transaction is closed out by delivery of the securities, any gain or loss on the
transaction is taxable as a short term capital gain or loss. Until the security
is replaced, SC-US is required to pay to the lender amounts equal to any
dividends or interest which accrue during the period of the loan. All short
sales will be fully collateralized. SC-US may also engage in short sales against
the box, which involves selling a security SC-US holds in its portfolio for
delivery at
5
<PAGE>
a specified date in the future. SC-US will not engage in short sales or short
sales against the box if immediately following such transaction the aggregate
market value of all securities sold short and sold short against the box would
exceed 10% of SC-US's net assets (taken at market value). See SC-US's Statement
of Additional Information for further discussion of short sales and short sales
against the box.
REAL ESTATE INVESTMENT TRUSTS
SC-US may invest without limit in shares of REITs. REITs pool investors' funds
for investment primarily in income producing real estate or real estate related
loans or interests. A REIT is not taxed on income distributed to shareholders if
it complies with several requirements relating to its organization, ownership,
assets, and income and a requirement that it distribute to its shareholders at
least 95% of its taxable income (other than net capital gains) for each taxable
year. REITs can generally be classified as equity REITs, mortgage REITs and
hybrid REITs. Equity REITs, which invest the majority of their assets directly
in real property, derive their income primarily from rents. Equity REITs can
also realize capital gains by selling properties that have appreciated in value.
Mortgage REITs, which invest the majority of their assets in real estate
mortgages, derive their income primarily from interest payments on real estate
mortgages in which they are invested. Hybrid REITs combine the characteristics
of both equity REITs and mortgage REITs.
INVESTMENT STRATEGY
SC-US intends to continue to follow its disciplined, research driven
investment strategy, to identify those publicly traded real estate companies
which have the potential to deliver above average cash flow growth. This
investment strategy has been deployed by SC-US since December 20, 1996, its
inception date, and has generated a total return as of September 30, 1997 of
28.25%, after the deduction of fees and expenses.
SC-US's investment strategy is also similar to that of USREALTY Special
Opportunity Investments ("USREALTY Special Opportunity"). USREALTY Special
Opportunity is a private investment portfolio with assets of $366.9 million (at
fair market value, as of September 30, 1997) that invests primarily in publicly
traded REITs in the United States. USREALTY Special Opportunity is
advised by Security Capital (EU) Management S.A. SC (US) Management, acting as
subadviser to Security Capital (EU) Management S.A., provides advice to USREALTY
Special Opportunity with respect to investments in publicly traded U.S. REITs,
relying on the same research and analytical tools and models that SC (US)
Management will rely on in making investments on behalf of SC-US. From December
31, 1995 through September 30, 1997, USREALTY Special Opportunity achieved an
average annual total return of approximately 49.30%, after the deduction of fees
and expenses. Past performance is not necessarily indicative of future results.
In addition, as a private investment portfolio, USREALTY Special Opportunity is
not subject to the same regulatory requirements, including the diversification
requirements of the Internal Revenue Code of 1986, as amended (the "Code").
Accordingly, there can be no assurance that SC-US can achieve results similar to
those achieved by USREALTY Special Opportunity.] FOR CURRENT RETURN INFORMATION
RELATED TO SC-US CONTACT ITS SUB-ADMINISTRATOR, FIRSTAR TRUST COMPANY, AT 1-800-
699-4594 (TOLL FREE).
REIT INDUSTRY OVERVIEW
SC (US) Management believes that the U.S. real estate industry has experienced
a fundamental transformation in the last six and one-half years which has
created a significant market opportunity. Direct investment of equity capital in
real estate, as was prevalent in the 1980s, has decreased while investments in
publicly traded equity REITs has increased. The aggregate market capitalization
of equity REITs has increased from $11.9 billion at December 31, 1990 to $165.1
billion at June 30, 1997 primarily as a result of $60.0 billion of public
offerings conducted during that period. This increasing securitization of the
U.S. real estate industry, primarily in the form of REITs, offers significant
benefits to shareholders, including enhanced liquidity, real-time pricing and
the opportunity for optimal growth and sustainable rates of return through a
more rational and disciplined approach to capital allocation and operating
management.
6
<PAGE>
SC (US) Management believes that the increasing securitization of the U.S.
real estate industry is still in its initial stages and that this trend will
continue over the next decade. SC-US intends to benefit from this restructuring
by investing in equity REITs that SC (US) Management believes could produce
above-average returns.
In addition to providing greater liquidity than direct real estate
investments, REITs have also generally out-performed direct real estate
investments for each of the past one, five, ten and fifteen year periods ended
September 30, 1997. The following chart reflects the performance of U.S. REITs
compared to SC-US, USREALTY Special Opportunity, an index of direct U.S. real
estate investments (NCREIF) and other indices.
REITS VS. OTHER INVESTMENTS
(AVERAGE ANNUAL TOTAL RETURN)
<TABLE>
<CAPTION>
USREALTY(1) NAREIT(2) NCREIF(3)
---------------------- --------------- ---------
THROUGH SEPTEMBER 30, 1997 SC-US SPECIAL OPPORTUNITY EQUITY INDEX INDEX S&P 500 BONDS(4)
- ---------------------------- ------ ---------------------- --------------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
6 months 22.01% 22.84% 17.38% 11.50% 26.21% 7.24%
1 year 49.00% 40.48% 10.94% 40.45% 9.67%
5 years 18.76% 6.06% 20.74% 6.98%
15 years 16.08% 6.59% 18.61% 10.54%
20 years 16.28% 8.82% 16.47% 9.53%
</TABLE>
- --------------
(1) Described under "Investment Strategy."
(2) The National Association of Real Estate Investment Trusts ("NAREIT") equity
index data is based upon the last closing price of the month for all tax-
qualified REITs listed on the New York Stock Exchange, American Stock
Exchange and the NASDAQ National Market System. The data is market-weighted.
(3) The National Counsel of Real Estate Investment Fiduciaries Property Index
total return includes appreciation (or depreciation), realized capital gain
(or loss) and income. It is computed by adding income and capital
appreciation return on a quarterly basis.
(4) Merrill Lynch Government/Corporate Bond Index (Master).
The investment results for SC-US, USREALTY Special Opportunity and the indices
shown in the table reflect past performance and are not necessarily indicative
of future results or the returns that shareholders should expect to receive from
SC-US. The results shown represent SC-US's "total return" which assumes the
reinvestment of all capital gains and income dividends. Results presented for
the S&P 500 and the NAREIT equity index also assume the reinvestment of
dividends; however, the indices are not managed and incur no operating expenses.
This information is provided to facilitate a better understanding of SC-US and
does not provide a basis for comparison with other investments which calculates
performance differently.
A RESEARCH-DRIVEN PHILOSOPHY AND APPROACH
SC-US seeks to achieve top-quartile returns by investing primarily in equity
REITs which have the potential to deliver above-average growth. SC (US)
Management believes that these investment opportunities can only be identified
through the integration of extensive property market research and in-depth
operating company cash flow modeling.
Property Market Research. SC-US is uniquely positioned to access meaningful,
proprietary real estate research collected at the market, submarket and property
level. This market research is provided by operating professionals within the
Security Capital Group affiliate company network and assists SC (US) Management
in identifying attractive growth markets and property sectors prior to making
investment decisions. Specifically, SC-US endeavors to identify markets reaching
a "marginal turning point." The market research conducted by SC-US includes a
comprehensive evaluation of real estate supply and demand factors (such as
population and economic trends, customer and industry needs, capital flows and
building permit and construction data) on a market and submarket basis and by
product type. Specifically,
7
<PAGE>
primary market research evaluates normalized cash flow lease economics
(accounting for capital expenditures and other leasing costs) to determine
whether the core economy of a real estate market is expected to improve,
stabilize or decline. Only through disciplined real estate market research does
SC-US believe it can identify markets, and thus, real estate operating
companies, with the potential for higher than average growth prospects.
Real Estate Operating Company Evaluation and Cash Flow Modeling. SC (US)
Management believes that analyzing the quality of a company's net cash flow
("NCF") and its potential growth is the appropriate identifier of above-average
return opportunities. Certain REIT valuation models utilized by SC (US)
Management integrate property market research with analysis on specific property
portfolios in order to establish an independent value of the underlying sources
of a company's NCF. Additional valuation models measure and compare the impact
of certain factors, both internal and external, on NCF growth expectations. The
data from these valuation models is ultimately compiled and reviewed in order to
identify real estate operating companies with significant potential for growth.
RISK FACTORS
RISKS OF INVESTMENT IN REAL ESTATE SECURITIES
SC-US will not invest in real estate directly, but only in securities issued
by real estate companies. However, SC-US may be subject to risks similar to
those associated with the direct ownership of real estate (in addition to
securities markets risks) because of its policy of concentration in the
securities of companies in the real estate industry. Such risks include declines
in the value of real estate, risks related to general and local economic
conditions, possible lack of availability of mortgage funds, overbuilding,
extended vacancies of properties, increased competition, increases in property
taxes and operating expenses, changes in zoning laws, losses due to costs
resulting from the clean-up of environmental problems, liability to third
parties for damages resulting from environmental problems, casualty or
condemnation losses, limitations on rents, changes in neighborhood values, the
appeal of properties to customers and changes in interest rates.
In addition to these risks, equity REITs may be affected by changes in the
value of the underlying property owned by the REITs, while mortgage REITs may be
affected by the quality of any credit extended. Further, equity and
mortgage REITs are dependent on the management skills of the management of the
REIT and of the operators of the real estate in which the REITs are invested and
generally may not be diversified. Equity and mortgage REITs are also subject to
defaults by borrowers or customers and self-liquidation. REITs also generate
expenses that are separate and apart from those charged by SC-US and therefore,
shareholders will indirectly pay the fees charged by the REITs in which SC-US
invests. In addition, equity and mortgage REITs could possibly fail to qualify
for tax free pass-through of income under the Code, or to maintain their
exemptions from registration under the Investment Company Act of 1940 (the "1940
Act"). The above factors may also adversely affect a borrower's or a customer's
ability to meet its obligations to the REIT. In the event of a default by a
borrower or customer, the REIT may experience delays in enforcing its rights as
a mortgagee or lessor and may incur substantial costs associated with protecting
its investments.
NON-DIVERSIFIED STATUS; PORTFOLIO TURNOVER
SC-US operates as a "non-diversified" investment company under the 1940 Act,
which means SC-US is not limited by the 1940 Act in the proportion of its assets
that may be invested in the securities of a single issuer. However, SC-US
intends to conduct its operations so as to qualify as a "regulated investment
company" for purposes of the Code, which generally will relieve SC-US of any
liability for Federal income tax to the extent its earnings are distributed to
shareholders. See "Taxation." To qualify as a regulated investment company,
among other requirements, SC-US will limit its investments so that, at the close
of each quarter of the taxable year, (i) not more than 25% of the market value
of SC-US's total assets will be invested in the securities of a single issuer,
and (ii) with respect to 50% of the market value of its total assets, not more
than 5% of the market value of its total assets will be invested in the
securities of a single issuer and SC-US will not own more than 10% of the
outstanding voting securities of a single issuer. SC-US's investments in
securities issued by the U.S. Government, its agencies and instrumentalities are
not subject to these limitations. Because SC-US, as a non-diversified investment
company, may invest in a smaller number of individual
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issuers than a diversified investment company, an investment in SC-US may
present greater risk to an investor than an investment in a diversified company.
SC-US anticipates that its annual portfolio turnover rate will not exceed
150%, but the turnover rate will not be a limiting factor when SC (US)
Management deems portfolio changes appropriate. The turnover rate may vary
greatly from year to year. An annual turnover rate of 150% occurs, for
example, when all of the securities held by SC-US are replaced one and one-half
times in a period of one year. A higher turnover rate results in correspondingly
greater brokerage commissions and other transactional expenses which are borne
by SC-US. High portfolio turnover may result in the realization of net short-
term capital gains by SC-US which, when distributed to shareholders, will be
taxable as ordinary income. See "Taxation."
INVESTMENT RESTRICTIONS
SC-US has adopted certain investment restrictions, which may not be changed
without the approval of the holders of a majority of SC-US's outstanding voting
securities as defined below. The percentage limitations set forth below, as well
as those described elsewhere in this Prospectus, apply only at the time an
investment is made or other relevant action is taken by SC-US.
In addition to other fundamental investment restrictions listed elsewhere in
this Prospectus, SC-US will not:
1. Make loans except through the purchase of debt obligations in accordance
with its investment objective and policies;
2. Borrow money, or pledge its assets, except that SC-US may borrow money
from banks for temporary or emergency purposes, including the meeting of
redemption requests which might require the untimely disposition of securities,
but not in an aggregate amount exceeding 33-1/3% of the value of SC-US's total
assets (including the amount borrowed) less liabilities (not including the
amount borrowed) at the time the borrowing is made. Outstanding borrowings in
excess of 5% of the value of SC-US's total assets will be repaid before any
subsequent investments are made;
3. Invest in illiquid securities, as defined in "Investment Objective and
Policies," if immediately after such investment more than 10% of SC-US's net
assets (taken at market value) would be invested in such securities;
4. Engage in short sales or short sales against the box if immediately
following such transaction the aggregate market value of all securities sold
short and sold short against the box would exceed 10% of SC-US's net assets
(taken at market value); or
5. Purchase or sell real estate, except that SC-US may purchase securities
issued by companies in the real estate industry and will, as a matter of
fundamental policy, concentrate its investments in such securities.
The foregoing restrictions are fundamental policies for purposes of the 1940
Act and therefore may not be changed without the approval of a majority of SC-
US's outstanding voting securities. As used in this Prospectus, a majority of
SC-US's outstanding voting securities means the lesser of (a) more than 50% of
its outstanding voting securities or (b) 67% or more of the voting securities
present at a meeting at which more than 50% of the outstanding voting securities
are present or represented by proxy. SC-US policies and restrictions which are
not fundamental may be modified by SC-US's Board of Directors without
shareholder approval if, in the reasonable exercise of its business judgment,
modification is determined to be necessary or appropriate to carry out SC-US's
objective. However, SC-US will not change its investment policies or
restrictions without written notice to shareholders.
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MANAGEMENT OF SC-US
BOARD OF DIRECTORS
The overall management of the business and affairs of SC-US is vested with the
Board of Directors. The Board of Directors approves all significant agreements
between SC-US and persons or companies furnishing services to it, including SC-
US's agreements with SC (US) Management, or its administrator, custodian and
transfer agent. The management of SC-US's day-to-day operations is delegated to
its officers, who include the Managing Directors, SC (US) Management and the
administrator, subject always to the investment objective and policies of SC-US
and to general supervision by the Board of Directors. Although SC-US is not
required by law to hold annual meetings, it may hold shareholder meetings from
time to time on important matters, and shareholders have the right to call a
meeting to remove a Director or to take other action described in SC-US's
Articles of Incorporation. The Directors and officers of SC-US and their
principal occupations are set forth below.
Stephen F. Kasbeer Director; retired Senior Vice President for
Administration and Treasurer of Loyola
University Chicago.
Anthony R. Manno Jr. Chairman of the Board of Directors, Managing
Director and President of SC-US; Managing
Director and President of SC (US) Management.
George F. Keane Director; Chairman of the Board of Trigen Energy
Corporation; former Chief Executive of the
Common Fund and Endowment Realty Investors.
Robert H. Abrams Director.
John H. Gardner, Jr. Managing Director of SC-US; Managing Director of
SC (US) Management.
Jeffrey C. Nellessen Vice President, Secretary and Treasurer
of SC-US; Vice President, Secretary and
Treasurer of SC (US) Management.
Kenneth D. Statz Managing Director of SC-US and Managing
Director of SC (US) Management.
Kevin W. Bedell Senior Vice President of SC-US and Senior Vice
President of SC(US) Management.
SC (US) MANAGEMENT
Security Capital (US) Management Group Incorporated ("SC (US) Management"),
formerly Security Capital Investment Research Group Incorporated, with offices
located at 11 South LaSalle Street, Chicago, Illinois 60603, has been retained
to provide investment advice, and, in general, to conduct the management and
investment program of SC-US under the overall supervision and control of the
Directors of SC-US. SC (US) Management intends to achieve top-quartile returns,
compared with other mutual funds that invest primarily in securities issued by
U.S. real estate companies, by integrating in-depth, proprietary property market
research with sophisticated capital markets research and modeling. There can be
no assurance that SC (US) Management will achieve this goal. SC (US) Management
was formed in December 1996, and is registered as an investment adviser with the
Securities and Exchange Commission (the "SEC"). Its principal officers include
Anthony R. Manno Jr., Managing Director and President, and John H. Gardner, Jr.,
Managing Director. While SC (US) Management emphasizes a team approach, Messrs.
Manno and Statz are primarily responsible for the day-to-day management of SC-
US's portfolio. SC (US)
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Management is a wholly-owned subsidiary of Security Capital Group, a real estate
research, investment and management company.
Following are the employees of SC (US) Management that are responsible for
identifying and analyzing investments on behalf of SC-US.
Albert D. Adriani Vice President of SC (US) Management, where
he is responsible for providing portfolio
management analysis.
John Montaquila III Vice President of SC (US) Management
responsible for providing in-depth
proprietary research on publicly traded
real estate companies in the multi-family
and the public storage sectors.
Darcy B. Boris Vice President of Security Capital Real
Estate Research Group Incorporated where
she conducts strategic market analyses.
Mark J. Chapman President of Security Capital Real Estate
Research Group Incorporated where he is
director of the group and conducts
strategic market analyses.
Anne Darnley Associate of SC (US) Management responsible
for providing in-depth proprietary research
on publicly traded real estate companies in
the retail sector.
James D. Foster Associate of SC (US) Management
responsible for providing in-depth
proprietary research on publicly traded
real estate companies in the hotel and the
healthcare sectors.
INVESTMENT ADVISORY AGREEMENT
Pursuant to an amended investment advisory agreement (the "Advisory
Agreement"), SC (US) Management furnishes a continuous investment program for
SC-US's portfolio, makes the day-to-day investment decisions for SC-US, and
generally manages SC-US's investments in accordance with the stated policies of
SC-US, subject to the general supervision of SC-US's Board of Directors. SC (US)
Management also selects brokers and dealers to execute purchase and sale orders
for the portfolio transactions of SC-US. SC (US) Management provides persons
satisfactory to the Directors of SC-US to serve as officers of SC-US. Such
officers, as well as certain other employees and Directors of SC-US, may be
directors, officers, or employees of SC (US) Management.
Under the Advisory Agreement, SC-US Class I shares pay SC (US) Management a
monthly management fee in an amount equal to 1/12th of .60% of the value of SC-
US's Class I average daily net assets (approximately .60% on an annual basis).
SC-US Management also has committed to waive fees and/or reimburse expenses to
maintain SC-US's Class I shares' total operating expenses, other than brokerage
fees and commissions, taxes, interest and other extraordinary expenses at no
more than 1.00% of the value of SC-US's Class I average daily net assets for the
year ending December 31, 1998.
In addition to the payments to SC (US) Management under the Advisory Agreement
described above, SC-US Class I shares pay certain other costs of operations
including (a) administration, custodian and transfer agency fees, (b) fees of
Directors who are not affiliated with SC (US) Management, (c) legal and auditing
expenses, (d) costs of printing and postage fees related to preparing and
distributing SC-US's prospectus and shareholder reports, (e) costs of
maintaining SC-US's existence, (f) interest charges, taxes, brokerage fees and
commissions, (g) costs of stationery and supplies, (h) expenses and fees related
to registration and filing with federal and state regulatory
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authorities, and (i) upon the approval of SC-US's Board of Directors, costs of
personnel of SC (US Management or its affiliates rendering clerical, accounting
and other office services. Each class of SC-US shares pays for the portion SC-
US's expenses attributable to its operations.
ADMINISTRATOR AND SUB-ADMINISTRATOR
SC (US) Management has also entered into a fund accounting and administration
agreement with SC-US (the "Administration Agreement") under which SC (US)
Management performs certain administrative functions for SC-US, including (i)
providing office space, telephone, office equipment and supplies for SC-US; (ii)
paying compensation of SC-US's officers for services rendered as such; (iii)
authorizing expenditures and approving bills for payment on behalf of SC-US;
(iv) supervising preparation of the periodic updating of SC-US's Prospectus and
Statement of Additional Information; (v) supervising preparation of quarterly
reports to SC-US's shareholders, notices of dividends, capital gains
distributions and tax credits, and attending to routine correspondence and other
communications with individual shareholders; (vi) supervising the daily pricing
of SC-US's investment portfolio and the publication of the net asset value of
SC-US's shares, earnings reports and other financial data; (vii) monitoring
relationships with organizations providing services to SC-US, including the
custodian ("Custodian"), transfer agent ("Transfer Agent") and printers; (viii)
providing trading desk facilities for SC-US; (ix) maintaining books and records
for SC-US (other than those maintained by the Custodian and Transfer Agent) and
preparing and filing of tax reports other than SC-US's income tax returns; and
(x) providing executive, clerical and secretarial help needed to carry out these
responsibilities.
In accordance with the terms of the Administration Agreement and with the
approval of SC-US's Board of Directors, SC (US) Management has caused SC-US to
retain Firstar Trust Company (the "Sub-Administrator") as sub-administrator
under a fund administration and servicing agreement (the "Sub-Administration
Agreement").
Under the Sub-Administration Agreement, the Sub-Administrator has assumed
responsibility for performing certain of the foregoing administrative functions,
including determining SC-US's net asset value and preparing such figures for
publication, maintaining certain of SC-US's books and records that are not
maintained by SC (US) Management, or the custodian or transfer agent, preparing
financial information for SC-US's income tax returns, proxy statements,
quarterly and annual shareholders reports, and SEC filings, and responding to
shareholder inquiries. Under the terms of the Sub-Administration Agreement, SC-
US pays the Sub-Administrator a monthly administration fee at the annual rate of
.06% of the first $200 million of SC-US's average daily net assets, and at lower
rates on SC-US's average daily net assets in excess of that amount, subject to
an annual minimum fee of $30,000. The Sub-Administrator also serves as SC-US's
Custodian and Transfer Agent. See "Custodian and Transfer and Dividend
Disbursing Agent."
Under the Administration Agreement, SC (US) Management remains responsible for
monitoring and overseeing the performance by the Sub-Administrator of its
obligations to SC-US under the Sub-Administration Agreement, subject to the
overall authority of SC-US's Board of Directors. For its services under the
Administration Agreement, SC (US) Management receives a monthly fee from SC-US
at the annual rate of .02% of the value of SC-US's average daily net assets.
DISTRIBUTION AND SERVICING PLAN
SC-US has adopted a Distribution and Servicing Plan ("Plan") with respect to
SC-US Class I shares pursuant to Rule 12b-1 under the Investment Company Act of
1940, as amended. Under the Plan, SC-US pays to Security Capital Markets Group
Incorporated in its capacity as principal distributor of SC-US's shares (the
"Distributor"), a monthly fee equal to, on an annual basis, .25% of the value of
SC-US's average daily net assets.
The Distributor may use the fee for services performed and expenses incurred
by the Distributor in connection with the distribution of Class I shares and for
providing certain services to Class I shareholders. The Distributor
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may pay third parties in respect of these services such amount as it may
determine. SC-US understands that these third parties may also charge fees to
their clients who are beneficial owners of SC-US Class I shares in connection
with their client accounts. These fees would be in addition to any amounts which
may be received by them from the Distributor under the Plan.
See "Distribution Plan" in the Statement of Additional Information for a
listing of the types of expenses for which the Distributor and third parties may
be compensated under the Plan. If the fee received by the Distributor exceeds
its expenses, the Distributor may realize a profit from these arrangements. The
Plan is reviewed and is subject to approval annually by the Board of Directors.
DETERMINATION OF NET ASSET VALUE
Net asset value per share of Class I shares of SC-US, $.01 par value per
share ("Common Stock"), is determined on each day the New York Stock Exchange is
open for trading and on each other day on which there is a sufficient degree of
trading in SC-US's investments to affect the net asset value, as of the close of
trading on the New York Stock Exchange, by adding the market value of all
securities in SC-US's portfolio and other assets represented by Class I shares,
subtracting liabilities, incurred or accrued allocable to Class I shares, and
dividing by the total number Class I shares then outstanding.
For purposes of determining the net asset value per share of Class I shares,
readily marketable portfolio securities listed on the New York Stock Exchange
are valued, except as indicated below, at the last sale price reflected on the
consolidated tape at the close of the New York Stock Exchange on the business
day as of which such value is being determined. If there has been no sale on
such day, the securities are valued at the mean of the closing bid and asked
prices on such day. If no bid or asked prices are quoted on such day, then the
security is valued by such method as the Directors shall determine in good faith
to reflect its fair market value. Readily marketable securities not listed on
the New York Stock Exchange but listed on other domestic or foreign securities
exchanges or admitted to trading on the NASDAQ National Market are valued in a
like manner. Portfolio securities traded on more than one securities exchange
are valued at the last sale price on the business day as of which such value is
being determined as reflected on the tape at the close of the exchange
representing the principal market for such securities.
Readily marketable securities traded in the over-the-counter market, including
listed securities whose primary market is believed by SC (US) Management to be
over-the-counter, but excluding securities admitted to trading on the NASDAQ
National Market, are valued at the mean of the current bid and asked prices as
reported by NASDAQ or, in the case of securities not quoted by NASDAQ, the
National Quotation Bureau or such other comparable sources as the Directors deem
appropriate to reflect their fair market value. Where securities are traded on
more than one exchange and also over-the-counter, the securities will generally
be valued using the quotations the Board of Directors believes reflect most
closely the value of such securities. Any securities, or other assets, for which
market quotations are not readily available are valued in good faith in a manner
determined by the Board of Directors that best reflects the fair value of such
securities or assets.
PURCHASE OF SHARES
Class I shares are being offered to investors whose minimum initial investment
is $250,000. SC-US Class I shares may be purchased through Firstar Trust
Company, SC-US's Transfer Agent or any dealer which has entered into a sales
agreement with the Distributor.
The minimum initial investment is $250,000. Subsequent investments in the
amount of at least $20,000 may be made by mail or by wire.
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Applications will not be accepted unless they are accompanied by payment in
U.S. funds. Payment should be made by check or money order drawn on a U.S. bank,
savings and loan, or credit union or by wire transfer. Orders for shares of SC-
US will become effective at the net asset value per share next determined after
receipt of payment. Checks must be payable in U.S. dollars and will be accepted
subject to collection at full face value. All funds will be invested in full and
fractional shares. A confirmation indicating the details of each purchase
transaction will be sent to a shareholder promptly following each transaction.
If a purchase order is placed through a dealer, the dealer must promptly forward
the order, together with payment, to the Transfer Agent. Investors must specify
that Class I shares are being purchased.
By investing in SC-US, a shareholder appoints the Transfer Agent, as his or
her agent, to establish an open account to which all shares purchased will be
credited, together with any dividends and capital gain distributions that are
paid in additional shares. See "Dividends and Distributions." Although most
shareholders elect not to receive stock certificates, certificates for full
shares can be obtained on specific written request to the Transfer Agent. All
fractional shares will be held in book-entry form. IT IS MORE COMPLICATED TO
REDEEM SHARES HELD IN CERTIFICATE FORM.
INITIAL INVESTMENT
Class I shares may be purchased by completing the enclosed application and
mailing it along with a check or money order payable to "Security Capital U.S.
Real Estate Shares Incorporated," to a securities dealer or the Transfer Agent.
If mailing to the Transfer Agent, please use the following address: Firstar
Trust Company, Mutual Fund Services, P.O. Box 701, Milwaukee, Wisconsin 53201-
0701. Overnight mail should be sent to the following address: Security Capital
U.S. Real Estate Shares Incorporated, Firstar Trust Company, Mutual Fund
Services, Third Floor, 615 East Michigan Street, Milwaukee, Wisconsin 53202. SC-
US does not consider the U.S. Postal service or other independent delivery
services to be its agents. Therefore, deposit in the mail or with such services,
or receipt at the Transfer Agent's post office box, of purchase applications
does not constitute receipt by the Transfer Agent or SC-US. Do not mail letters
by overnight courier to the post office box.
If a shareholder chooses a securities dealer that has not entered into a sales
agreement with the Distributor, such dealer may, nevertheless, offer to place an
order for the purchase of SC-US shares. Such dealer may charge a transaction
fee, as determined by the dealer. That fee may be avoided if shares are
purchased through a dealer who has entered into a sales agreement with the
Distributor or through the Transfer Agent.
If a shareholder's check does not clear, a service fee of $20 will be charged.
Such shareholder will also be responsible for any losses suffered by SC-US as a
result. Neither cash nor third-party checks will be accepted. All applications
to purchase shares are subject to acceptance by SC-US and are not binding until
so accepted. SC-US reserves the right to decline or accept a purchase order
application in whole or in part.
WIRE PURCHASES
Class I shares may be purchased by wire only through the Transfer Agent. The
following instructions should be followed when wiring funds to the Transfer
Agent for the purchase of shares:
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Wire to: Firstar Bank
ABA Number 075000022
Credit: Firstar Trust Company
Account 112-952-137
Further Credit: Security Capital U.S. Real Estate Shares Incorporated
(shareholder account number)
(shareholder name/account registration)
Please call 1-800-699-4594 (toll free) prior to wiring any funds to notify the
Transfer Agent that the wire is coming and to verify the proper wire
instructions so that the wire is properly applied when received. SC-US is not
responsible for the consequences of delays resulting from the banking or Federal
Reserve wire system.
TELEPHONE PURCHASES
Additional shares may be purchased by moving money from a shareholder's bank
account to his or her SC-US account. Only bank accounts held at domestic
financial institutions that are Automated Clearing House ("ACH") members can be
used for telephone transactions. In order for shares to be purchased at the net
asset value determined as of the close of regular trading on a given date, the
Transfer Agent must receive both the purchase order and payment by Electronic
Funds Transfer through the ACH System before the close of regular trading on
such date. Most transfers are completed within 3 business days. TELEPHONE
TRANSACTIONS MAY NOT BE USED FOR INITIAL PURCHASES OF CLASS I SHARES.
SUBSEQUENT INVESTMENTS
Additional investments of at least $20,000 may be made by mail or by wire.
When an additional purchase is made by mail, a check payable to "Security
Capital U.S. Real Estate Shares Incorporated" along with the Additional
Investment Form provided on the lower portion of a shareholder's account
statement must be enclosed. To make an additional purchase by wire, a
shareholder may call 1-800-699-4594 (toll free) for complete wiring
instructions.
REDEMPTION OF SHARES
A shareholder may request redemption of part or all of his or her Class I
shares at any time at the next determined net asset value. See "Determination of
Net Asset Value." SC-US normally will mail the redemption proceeds to the
shareholder on the next business day and, in any event, no later than seven
business days after receipt of a redemption request in good order. However, when
a purchase has been made by check, SC-US may hold payment on redemption proceeds
until it is reasonably satisfied that the check has cleared, which may take up
to twelve days.
Redemptions may also be made through brokers or dealers. Such redemptions will
be effected at the net asset value next determined after receipt by SC-US of the
broker or dealer's instruction to redeem shares. In addition, some brokers or
dealers may charge a fee in connection with such redemptions. See "Determination
of Net Asset Value."
REDEMPTION BY TELEPHONE
Shares may also be redeemed by calling the Transfer Agent at 1-800-699-4594
(toll free). In order to utilize this procedure, a shareholder must have
previously elected this option in writing, which election will be reflected
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in the records of the Transfer Agent, and the redemption proceeds must be mailed
directly to such shareholder or transmitted to a predesignated account. To
change the designated account, a written request with signature(s) guaranteed
must be sent to the Transfer Agent. See "Signature Guarantees" below. To change
the address, the Transfer Agent may be called or a written request must be sent
to the Transfer Agent. No telephone redemptions will be allowed within 15 days
of such a change. SC-US reserves the right to limit the number of telephone
redemptions by a shareholder. Once made, telephone redemption requests may not
be modified or canceled.
The Transfer Agent will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. Such procedures may include
requiring some form of personal identification prior to acting upon telephone
instructions, providing written confirmations of all such transactions, and/or
tape recording all telephone instructions. Assuming procedures such as the above
have been followed, SC-US will not be liable for any loss, cost, or expense for
acting upon a shareholder's telephone instructions or for any unauthorized
telephone redemption. SC-US reserves the right to refuse a telephone redemption
request if so advised.
REDEMPTION BY MAIL
For most redemption requests, a shareholder need only furnish a written,
unconditional request to redeem his or her Class I shares (or a fixed dollar
amount) at net asset value to SC-US's Transfer Agent: Firstar Trust Company,
Mutual Fund Services, P.O. Box 701, Milwaukee, Wisconsin 53201-0701. Overnight
mail should be sent to Security Capital U.S. Real Estate Shares Incorporated,
Firstar Trust Company, Mutual Fund Services, Third
Floor, 615 East Michigan Street, Milwaukee, Wisconsin 53202. Requests for
redemption must be signed exactly as the shares are registered, including the
signature of each joint owner. A shareholder must also specify the number of
shares or dollar amount to be redeemed. If the Class I shares to be redeemed
were issued in certificate form, the certificate must be endorsed for transfer
(or be accompanied by a duly executed stock power) and must be submitted to
Firstar Trust Company together with a redemption request. Redemption proceeds
made by written redemption request may also be wired to a commercial bank that
you have authorized on your account application. The Transfer Agent charges a
$12.00 service fee for wire redemptions. Additional documentation may be
requested from corporations, executors, administrators, trustees, guardians,
agents, or attorneys-in-fact. SC-US does not consider the U.S. Postal Service or
other independent delivery services to be its agents. Therefore, deposit in the
mail or with such services, or receipt at the Transfer Agent's post office box,
of redemption requests does not constitute receipt by the Transfer Agent or SC-
US. Do not mail letters by overnight courier to the post office box. Any written
redemption requests received within 15 days after an address change must be
accompanied by a signature guarantee.
SIGNATURE GUARANTEES
Signature guarantees are required for: (i) redemption requests to be mailed or
wired to a person other than the registered owner(s) of the shares; (ii)
redemption requests to be mailed or wired to other than the address of record;
(iii) any redemption request if a change of address request has been received by
SC-US or Transfer Agent within the last 15 days and (iv) any redemption request
involving $100,000 or more. A signature guarantee may be obtained from any
eligible guarantor institution, as defined by the SEC. These institutions
include banks, savings associations, credit unions, brokerage firms and others.
OTHER REDEMPTION INFORMATION
Unless other instructions are given in proper form, a check for the proceeds
of a redemption will be sent to the shareholder's address of record. The
Custodian may benefit from the use of redemption proceeds until the redemption
check for such proceeds has cleared.
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SC-US may suspend the right of redemption during any period when (i) trading
on the New York Stock Exchange is restricted or that Exchange is closed, other
than customary weekend and holiday closings, or (ii) an emergency, as defined by
rules adopted by the SEC, exists making disposal of portfolio securities or
determination of the value of the net assets of SC-US not reasonably
practicable.
The proceeds of redemption may be more or less than the amount invested and,
therefore, a redemption may result in a gain or loss for federal income tax
purposes.
A shareholder's account may be terminated by SC-US on not less than 30 days'
notice if, at the time of any redemption of Class I shares in his or her
account, the value of the remaining shares in the account falls below $250,000.
Upon any such termination, a check for the redemption proceeds will be sent to
the account of record within seven business days of the redemption. However, if
a shareholder is affected by the exercise of this right, he or she will be
allowed to make additional investments prior to the date fixed for redemption to
avoid liquidation of the account.
CONVERSION FEATURE
A Class I shareholder who fails to satisfy minimum account balance
requirements may elect to convert Class I shares to Class R shares. Class I
shares will be converted to Class R shares at the next determined net asset
value for Class I shares and Class R shares after the receipt by the distributor
of a written conversion request. SC-US does not charge a fee to process
conversions. SC-US reserves the right to reject any conversion request in whole
or in part. The conversion feature may be modified or terminated at any time
upon notice to SC-US Class I shareholders.
DIVIDENDS AND DISTRIBUTIONS
Dividends from SC-US's investment income will be declared and distributed
quarterly. SC-US intends to distribute net realized capital gains, if any, at
least annually although SC-US's Board of Directors may in the future determine
to retain realized capital gains and not distribute them to shareholders. For
information concerning the tax treatment of SC-US's distribution policies for
SC-US and its shareholders, see "Taxation."
Distributions will automatically be paid in full and fractional shares of SC-
US based on the net asset value per share at the close of business on the
payable date unless the shareholder has elected to have distributions paid in
cash.
TAXATION
The following discussion is intended for general information only.
Shareholders should consult with their own tax advisers as to the tax
consequences of an investment in SC-US, including the status of distributions
under applicable state or local law.
FEDERAL INCOME TAXES
SC-US intends to qualify and elect to be taxed as a "regulated investment
company" under the Code. To the extent that SC-US distributes its taxable income
and net capital gain to its shareholders, qualification as a regulated
investment company relieves SC-US of federal income and excise taxes on that
part of its taxable income including net capital gains which it pays out to its
shareholders. Dividends out of net ordinary income and distributions of net
short-term capital gains are taxable to the recipient shareholders as ordinary
income. In the case of corporate shareholders, such dividends may be eligible
for the dividends-received deduction, except that the amount eligible for the
deduction is limited to the amount of qualifying dividends received by SC-US,
which does not include distributions received by SC-US from REITs. A
corporation's dividends-received deduction will be disallowed unless the
corporation holds shares in SC-US
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at least 46 days. Furthermore, the dividends-received deduction will be
disallowed to the extent a corporation's investment in shares of SC-US is
financed with indebtedness.
The excess of net long-term capital gains over the net short-term capital
losses realized and distributed by SC-US to its shareholders as capital gain
distributions is taxable to the shareholders as long-term capital
gain, irrespective of the length of time a shareholder may have held his or her
stock. Recent legislation reduced the maximum tax rate on capital gains to 20%
for assets held for more than 18 months on the date of the sale or exchange of
those assets. A notice issued by the Internal Revenue Service provides that a
regulated investment company such as SC-US may, but is not required to,
designate which portion of a capital gain distribution qualifies for the reduced
capital gain rate. Long-term capital gain distributions are not eligible
for the dividends-received deduction referred to above.
Under current federal tax law, the amount of an ordinary income dividend or
capital gain distribution declared by SC-US during October, November or December
of a year to shareholders of record as of a specified date in such a month that
is paid during January of the following year is includable in the prior year's
taxable income of shareholders that are calendar year taxpayers.
Any dividend or distribution received by a shareholder on shares of SC-US will
have the effect of reducing the net asset value of such shares by the amount of
such dividend or distribution. Furthermore, a dividend or distribution made
shortly after the purchase of such shares by a shareholder, although in effect a
return of capital to that particular shareholder, would be taxable to him or her
as described above. If a shareholder held shares six months or less and during
that period received a distribution taxable to such shareholder as long-term
capital gain, any loss realized on the sale of such shares during such six-month
period would be a long-term capital loss to the extent of such distribution.
A dividend or capital gain distribution with respect to shares of SC-US
held by a tax-deferred or qualified plan, such as an individual retirement
account, 403(b)(7) retirement plan or corporate pension or profit-sharing plan,
will not be taxable to the plan, except to the extent the shares are debt-
financed within the meaning of Section 514 of the Code. Distributions from such
plans will be taxable to individual participants under applicable tax rules
without regard to the character of the income earned by the qualified plan.
SC-US will be required to withhold 31% of any payments made to a shareholder
if the shareholder has not provided a certified taxpayer identification number
to SC-US, or the Secretary of the Treasury notifies SC-US that the shareholder
has not reported all interest and dividend income required to be shown on the
shareholder's Federal income tax return. Any amounts withheld may be credited
against the shareholder's U.S. federal income tax liability.
Further information relating to tax consequences is contained elsewhere in
this Prospectus and in the Statement of Additional Information.
STATE AND LOCAL TAXES
SC-US distributions also may be subject to state and local taxes. Shareholders
should consult their own tax advisers regarding the particular state and local
tax consequences of an investment in SC-US.
ORGANIZATION AND DESCRIPTION OF CAPITAL STOCK
Security Capital Employee REIT Fund Incorporated was incorporated under
Maryland law as SCERF Incorporated ("SCERF"), a wholly-owned subsidiary of
Security Capital Group, on December 20, 1996. On January 23, 1997, all the
assets and liabilities of SCERF were transferred to Security Capital Employee
REIT Fund Incorporated in a reorganization transaction. On December 16, 1997,
its name was changed to Security Capital U.S. Real Estate Shares
Incorporated.
SC-US is authorized to issue 50,000,000 shares of common stock, $.01 par value
per share. SC-US's Board of Directors may, without shareholder approval,
increase or decrease the number of authorized but unissued shares of SC-US's
common stock and reclassify and issue any unissued shares of SC-US. The Board of
Directors also may create
18
<PAGE>
additional series of shares with different investment objectives, policies or
restrictions without shareholder approval. Pursuant to this authority, the Board
of Directors of SC-US has authorized the issuance of two classes of shares:
Class I shares and Class R shares. Class I shares offer different services to
shareholders and incur different expenses than Class R shares. Each class pays
its proportionate share of SC-US's expenses.
All classes of SC-US's shares have equal dividend, distribution, liquidation
and voting rights. There are no conversion or preemptive rights in connection
with any class of SC-US shares. Each class of SC-US's shares when duly issued
is fully paid and nonassessable. The rights of the holders of Class I shares may
not be modified except by the vote of a majority of all Class I shares
outstanding. Class I shareholders have exclusive voting rights with respect to
matters relating solely to Class I shares. Class I shareholders vote separately
from Class R shareholders on matters in which the interests of Class I
shareholders differ from the interests of Class R shareholders.
SC-US is not required to hold regular annual shareholders' meetings. A
shareholders' meeting shall, however, be called by the secretary upon the
written request of the holders of not less than 10% of the outstanding shares of
SC-US entitled to vote at the meeting. SC-US will assist shareholders wishing
to communicate with one another for the purpose of requesting such a meeting.
As of November 25, 1997, SCERF owned 98.93% of the issued and outstanding
Class I shares of SC-US, and 98.39% of the total issued and outstanding shares
of SC-US, which means that SCERF controls SC-US for purposes of the 1940 Act.
The effect of SCERF's ownership of a controlling interest in SC-US is to dilute
the voting power of other SC-US shareholders.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
Firstar Trust Company, which has its principal business address at 615 East
Michigan Street, Milwaukee, Wisconsin 53202 has been retained to act as
Custodian of SC-US's investments and to serve as SC-US's transfer and dividend
disbursing agent. Firstar Trust Company does not have any part in deciding SC-
US's investment policies or which securities are to be purchased or sold for SC-
US's portfolio.
REPORTS TO SHAREHOLDERS
The fiscal year of SC-US ends on December 31 of each year. SC-US will send to
its shareholders, at least semi-annually, reports showing the investments and
other information (including unaudited financial statements). An annual report,
containing financial statements audited by SC-US's independent accountants, will
be sent to shareholders each year.
PERFORMANCE INFORMATION
From time to time, SC-US may advertise the "average annual total return" of
the Class I shares over various periods of time. This total return figure shows
the average percentage change in value of an investment in SC-US's Class I
shares from the beginning date of the measuring period to the ending date of the
measuring period. The figure reflects changes in the price of SC-US's Class I
shares and assumes that any income, dividends and/or capital gains distributions
made by SC-US's Class I shares during the period are reinvested in Class I
shares of SC-US. Figures will be given for recent one-, five- and ten-year
periods (when applicable), and may be given for other periods as well (such as
from commencement of SC-US's operations, or on a year-by-year basis). When
considering "average" total return figures for periods longer than one year,
investors should note that SC-US's Class I annual total return for any one year
in the period might have been greater or less than the average for the entire
period. SC-US also may use "aggregate" total return figures for various
periods, representing the cumulative change in value of an investment in SC-US's
Class I shares for the specific period (again reflecting changes in SC-US's
Class I share price and assuming reinvestment of Class I dividends and
distributions). Aggregate total returns may be shown by means of schedules,
charts or graphs, and may indicate subtotals of the various components of total
return (that is, the change in value of initial investment, income dividends and
capital gains distributions).
19
<PAGE>
It is important to note that total return figures are based on historical
earnings and are not intended to indicate future performance. The Statement of
Additional Information further describes the methods used to determine SC-US's
performance.
ADDITIONAL INFORMATION
Any shareholder inquiries may be directed to SC-US at the address or telephone
number listed on the cover page of this Prospectus. This Prospectus, including
the Statement of Additional Information which is incorporated by reference
herein, does not contain all the information set forth in the Registration
Statement filed by SC-US with the SEC under the Securities Act of 1933. Copies
of the Registration Statement may be obtained at a reasonable charge from the
SEC or may be examined, without charge, at the offices of the SEC in Washington,
D.C. or may be obtained from the SEC's worldwide web site at http://www.sec.gov.
20
<PAGE>
PROSPECTUS
----------
LOGO
----
11 SOUTH LASALLE STREET
CHICAGO, ILLINOIS 60603
Security Capital U.S. Real Estate Shares Incorporated ("SC-US"), formerly
Security Capital Employee REIT Fund Incorporated, is a non-diversified, no-load,
open-end management investment company ("mutual fund") that seeks to provide
shareholders with above-average total returns, including current income and
capital appreciation, primarily through investments in real estate securities in
the United States. Long term, SC-US's objective is to achieve top-quartile total
returns as compared with other mutual funds that invest primarily in real estate
securities in the United States, by integrating in-depth proprietary real estate
market research with sophisticated capital markets research and modeling
techniques. Security Capital (US) Management Group Incorporated ("SC (US)
Management"), formerly Security Capital Investment Research Group Incorporated,
serves as both investment adviser and administrator to SC-US.
By this Prospectus, SC-US is offering Class R shares. SC-US also offers
another class of shares which has different expenses which would affect
performance. Investors desiring to obtain information about SC-US's other class
of shares should call 1-800-699-4594 (toll free) or ask their sales
representatives or SC-US's distributor. This Prospectus provides you with
information specific to the Class R shares of SC-US. It contains information
you should know before you invest in SC-US.
INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE
REFERENCE.
An investment in SC-US should not be the sole source of investment for a
shareholder. Rather, an investment in SC-US should be considered as part of an
overall portfolio strategy which includes fixed income and equity securities.
SC-US is designed for long-term investors, including those who wish to use
shares for tax deferred retirement plans and individual retirement accounts, and
not for investors who intend to liquidate their investments after a short period
of time.
This Prospectus sets forth concisely the information a prospective investor
should know before investing in SC-US. A Statement of Additional Information
dated _______________, 1997, containing additional and more detailed information
about SC-US has been filed with the Securities and Exchange Commission and is
hereby incorporated by reference into this Prospectus. It is available without
charge and can be obtained by writing or calling SC-US's Sub-Administrator at:
Firstar Trust Company, Mutual Fund Services, P.O. Box 701, Milwaukee, Wisconsin
53201-0701; telephone number 1-800-699-4594 (toll free).
THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
IN ANY STATE OR JURISDICTION WHERE PROHIBITED BY LAW OR TO ANY FIRM OR
INDIVIDUAL TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
[_______________, 1997]
<PAGE>
TABLE OF CONTENTS
PAGE
----
Expenses 2
Financial Highlights 4
Description of SC-US 5
Investment Objective and Policies 5
Real Estate Investment Trusts 6
Investment Strategy 6
Risk Factors 8
Non-Diversified Status; Portfolio Turnover 8
Investment Restrictions 9
Management of SC-US 10
Investment Advisory Agreement 11
Administrator and Sub-Administrator 12
Distribution and Servicing Plan 13
Determination of Net Asset Value 13
Purchase of Shares 14
Redemption of Shares 16
Dividends and Distributions 18
Taxation 18
Organization and Description of Capital Stock 19
Custodian and Transfer and Dividend
Disbursing Agent 20
Reports to Shareholders 20
Performance Information 20
Additional Information 20
<PAGE>
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
Shareholder transaction expenses are direct charges which are incurred when
shareholders buy or sell shares of SC-US.
ANNUAL FUND OPERATING EXPENSES
The Class R shares of SC-US pay for certain expenses attributable to Class R
shares directly out of SC-US's Class R assets. These expenses are related to
management of SC-US, administration and other services. For example, SC-US pays
an advisory fee and an administrative fee to SC (US) Management. SC-US also has
other customary expenses for services such as transfer agent fees, custodial
fees paid to the bank that holds its portfolio securities, audit fees and legal
expenses. These operating expenses are subtracted from SC-US's Class R assets to
calculate SC-US's Class R net asset value per share. In this manner,
shareholders pay for these expenses indirectly.
The following table is provided to help shareholders understand the direct
expenses of investing in SC-US and the portion of SC-US's operating expenses
that they might expect to bear indirectly. The numbers reflected below are based
on SC-US's expenses for its current fiscal period ending December 31,
1997.
FEE TABLE
Shareholder Transaction Expenses:
Maximum sales charge on purchases and reinvested distributions.. None
Redemption fee (1).............................................. None
Annual Fund Operating Expenses (after expense waivers and/or
reimbursements, as a percentage of average net assets):
Management fees............................................ .60%
12b-1 fees................................................. .25%
Other expenses (2)......................................... .30%
Total fund operating expenses(3)........................... 1.15%
- -----------
(1) SC-US's transfer agent charges a service fee of $12.00 for each wire
redemption. In addition, the purchase or redemption of Class R Shares
through a securities dealer that has not entered into agreement with
Security Capital Markets Group Incorporated, SC-US's distributor, may be
subject to a transaction fee.
(2) Other Expenses are based upon the operating experience of SC-US since April
23, 1997, the effective date of its registration statement under the
Securities Act of 1933, as amended, and the Investment Company Act of 1940,
as amended.
(3) SC(US) Management has committed to waive fees and/or reimburse expenses to
maintain SC-US's Class R total Fund operating expenses, other than brokerage
fees and commissions, taxes, interest and other extraordinary expenses, at
no more than 1.15% of the value of SC-US's Class R average daily net assets
for the year ending December 31, 1998.
The information in the Fee Table has been restated to reflect current fees.
2
<PAGE>
EXAMPLE
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ----- -----
<S> <C> <C> <C> <C>
A shareholder would bear the following expenses on
a $1,000 investment, assuming: a five percent annual
return and operating expenses as outlined in the fee
table above........................................... $12 $37 $63 $140
</TABLE>
THE ACTUAL EXPENSES IN FUTURE YEARS MAY BE MORE OR LESS THAN THE NUMBERS IN THE
EXAMPLE, DEPENDING ON A NUMBER OF FACTORS, INCLUDING THE ACTUAL VALUE OF SC-US'S
ASSETS.
3
<PAGE>
SECURITY CAPITAL U.S. REAL ESTATE SHARES INCORPORATED
The following information on financial highlights is unaudited. This
information should be read in conjunction with the financial statements and
notes thereto which appear in the Statement of Additional Information.
SECURITY CAPITAL (US) REAL ESTATE SHARES INCORPORATED
Financial Highlights
(Unaudited)
<TABLE>
<CAPTION>
April 23,
1997(1)
Per Share Data: through
September 30,
1997
----------------
<S> <C>
Net asset value, beginning of period $10.15
Income from investment operations:
Net investment income 0.25
Net realized and unrealized gain on investments 2.39
Total from investment operations 2.64
Less distributions from net investment income (0.37)
Net asset value, end of period $12.42
Total return (2) 27.71%
Supplemental data and ratios:
Net assets, end of period $122,895,094
Ratio of expenses to average net assets (3)(4) 1.15%
Ratio of net investment income to average net
assets (3)(4) 5.66%
Portfolio turnover rate 46.00%
Average commission rate paid per share $0.0596
</TABLE>
(1) Effective Date
(2) Not annualized.
(3) Annualized.
(4) Without expense reimbursements of $15,653 for the period April 23, 1997
through September 30, 1997, the ratio of expenses to average net assets
would have been 1.18% and the ratio of net investment income to average
net assets would have been 5.63%.
See notes to the financial statements.
4
<PAGE>
DESCRIPTION OF SC-US
SC-US is a non-diversified, open-end management investment company that was
organized under the laws of the State of Maryland on January 23, 1997 as
Security Capital Employee REIT Fund Incorporated ("SC-ERF"). Prior to December
16, 1997, when its name was changed to Security Capital U.S. Real Estate Shares
Incorporated, SC-ERF issued one class of shares to directors, trustees and
employees of Security Capital Group Incorporated ("Security Capital Group") and
its affiliates and members of their families. In connection with the name
change, to SC-US, the Board of Directors voted to create two classes of shares,
one of which, Class I shares, includes investors whose minimum initial
investment is $250,000. The second class of shares, Class R shares, which
includes all other eligible investors offers different services and incurs
different expenses than Class I shares, which would affect performance. See
"Purchase of Shares" and "Organization and Description of Capital Stock."
INVESTMENT OBJECTIVE AND POLICIES
SC-US's investment objective is to provide shareholders with above-average
total returns, including current income and capital appreciation, primarily
through investments in real estate securities in the United States. Long term,
SC-US's objective is to achieve top-quartile total returns as compared with
other mutual funds that invest primarily in real estate securities in the United
States, by integrating in-depth proprietary real estate market research with
sophisticated capital markets research and modeling techniques. SC-US's
investment objective is "fundamental" and cannot be changed without approval of
a majority of its outstanding voting securities. None of SC-US's policies, other
than its investment objective and the investment restrictions described below
under "Investment Restrictions," are fundamental and thus may be changed by SC-
US's Board of Directors without shareholder approval. There can be no assurance
that SC-US's investment objective will be achieved.
Under normal circumstances, SC-US will invest at least 65% of its assets in
REITs. Such equity securities will consist of (i) common stocks, (ii) rights or
warrants to purchase common stocks, (iii) securities convertible into common
stocks where the conversion feature represents, in SC (US) Management's view, a
significant element of the securities' value, and (iv) preferred stocks. For
purposes of SC-US's investment policies, a "real estate company" is one that
derives at least 50% of its revenues from the ownership, construction,
financing, management or sale of commercial, industrial, or residential real
estate or that has at least 50% of its assets invested in such real estate. SC-
US may invest in securities issued by real estate companies that are controlled
by Security Capital Group or its affiliates. When, in the judgment of SC (US)
Management, market or general economic conditions justify a temporary defensive
position, SC-US will deviate from its investment objective and invest all or any
portion of its assets in high-grade debt securities, including corporate debt
securities, U.S. government securities, and short-term money market instruments,
without regard to whether the issuer is a real estate company. SC-US may also at
any time invest funds awaiting investment or held as reserves to satisfy
redemption requests or to pay dividends and other distributions to shareholders
in short-term money market instruments.
SC-US will not invest more than 10% of its net assets in illiquid securities.
For this purpose, illiquid securities include, among others, securities that are
illiquid by virtue of the absence of a readily available market or legal or
contractual restrictions on resale. SC (US) Management will monitor the
liquidity of such restricted securities under the supervision of SC-US's Board
of Directors. If SC-US invests in securities issued by a real estate company
that is controlled by Security Capital Group or any of its affiliates, such
securities will be treated as illiquid securities. See SC-US's Statement of
Additional Information for further discussion of illiquid securities.
SC-US may engage in short sale transactions in securities listed on one or
more national securities exchanges or on the National Association of Securities
Dealers, Inc. Automated Quotation System ("NASDAQ"). Short selling involves the
sale of borrowed securities. At the time a short sale is effected, SC-US incurs
an obligation to replace the security borrowed at whatever its price may be at
the time that SC-US purchases it for delivery to the lender. When a short sale
transaction is closed out by delivery of the securities, any gain or loss on the
transaction is taxable as a short term capital gain or loss. Until the security
is replaced, SC-US is required to pay to the lender amounts equal to any
dividends or interest which accrue during the period of the loan. All short
sales will be fully collateralized. SC-US may
5
<PAGE>
also engage in short sales against the box, which involves selling a security
SC-US holds in its portfolio for delivery at a specified date in the future.
SC-US will not engage in short sales or short sales against the box if
immediately following such transaction the aggregate market value of all
securities sold short and sold short against the box would exceed 10% of SC-US's
net assets (taken at market value). See SC-US's Statement of Additional
Information for further discussion of short sales and short sales against the
box.
REAL ESTATE INVESTMENT TRUSTS
SC-US may invest without limit in shares of REITs. REITs pool investors' funds
for investment primarily in income producing real estate or real estate related
loans or interests. A REIT is not taxed on income distributed to shareholders if
it complies with several requirements relating to its organization, ownership,
assets, and income and a requirement that it distribute to its shareholders at
least 95% of its taxable income (other than net capital gains) for each taxable
year. REITs can generally be classified as equity REITs, mortgage REITs and
hybrid REITs. Equity REITs, which invest the majority of their assets directly
in real property, derive their income primarily from rents. Equity REITs can
also realize capital gains by selling properties that have appreciated in value.
Mortgage REITs, which invest the majority of their assets in real estate
mortgages, derive their income primarily from interest payments on real estate
mortgages in which they are invested. Hybrid REITs combine the characteristics
of both equity REITs and mortgage REITs.
INVESTMENT STRATEGY
SC-US intends to continue to follow its disciplined, research driven
investment strategy, to identify those publicly traded real estate companies
which have the potential to deliver above average cash flow growth. This
investment strategy has been deployed by SC-US since December 20, 1996, its
inception date, and has generated a total return as of September 30, 1997 of
28.25%, after the deduction of fees and expenses.
SC-US's investment strategy is also similar to that of USREALTY Special
Opportunity Investments ("USREALTY Special Opportunity"). USREALTY Special
Opportunity is a private investment portfolio with assets of $366.9 million (at
fair market value, as of September 30, 1997) that invests primarily in publicly
traded REITs in the United States. USREALTY Special Opportunity is
advised by Security Capital (EU) Management S.A. SC (US) Management, acting as
subadviser to Security Capital (EU) Management S.A., provides advice to USREALTY
Special Opportunity with respect to investments in publicly traded U.S. REITs,
relying on the same research and analytical tools and models that SC (US)
Management will rely on in making investments on behalf of SC-US. From December
31, 1995 through September 30, 1997, USREALTY Special Opportunity achieved an
average annual total return of approximately 49.30%, after the deduction of fees
and expenses. Past performance is not necessarily indicative of future results.
In addition, as a private investment portfolio, USREALTY Special Opportunity is
not subject to the same regulatory requirements, including the diversification
requirements of the Internal Revenue Code of 1986, as amended (the "Code").
Accordingly, there can be no assurance that SC-US can achieve results similar to
those achieved by USREALTY Special Opportunity.] FOR CURRENT RETURN INFORMATION
RELATED TO SC-US CONTACT ITS SUB-ADMINISTRATOR, FIRSTAR TRUST COMPANY, AT 1-800-
699-4594 (TOLL FREE).
REIT INDUSTRY OVERVIEW
SC (US) Management believes that the U.S. real estate industry has experienced
a fundamental transformation in the last six and one-half years which has
created a significant market opportunity. Direct investment of equity capital in
real estate, as was prevalent in the 1980s, has decreased while investments in
publicly traded equity REITs has increased. The aggregate market capitalization
of equity REITs has increased from $11.9 billion at December 31, 1990 to $165.1
billion at June 30, 1997 primarily as a result of $60.0 billion of public
offerings conducted during that period. This increasing securitization of the
U.S. real estate industry, primarily in the form of REITs, offers significant
benefits to shareholders, including enhanced liquidity, real-time pricing and
the opportunity for optimal growth and sustainable rates of return through a
more rational and disciplined approach to capital allocation and operating
management.
6
<PAGE>
SC (US) Management believes that the increasing securitization of the U.S.
real estate industry is still in its initial stages and that this trend will
continue over the next decade. SC-US intends to benefit from this restructuring
by investing in equity REITs that SC (US) Management believes could produce
above-average returns.
In addition to providing greater liquidity than direct real estate
investments, REITs have also generally out-performed direct real estate
investments for each of the past one, five, ten and fifteen year periods ended
September 30, 1997. The following chart reflects the performance of U.S. REITs
compared to SC-US, USREALTY Special Opportunity, an index of direct U.S. real
estate investments (NCREIF) and other indices.
REITS VS. OTHER INVESTMENTS
(AVERAGE ANNUAL TOTAL RETURN)
<TABLE>
<CAPTION>
USREALTY(1) NAREIT(2) NCREIF(3)
---------------------- --------------- ---------
THROUGH SEPTEMBER 30, 1997 SC-US SPECIAL OPPORTUNITY EQUITY INDEX INDEX S&P 500 BONDS(4)
- ---------------------------- ------ ---------------------- --------------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
6 months 22.01% 22.84% 17.38% 11.50% 26.21% 7.24%
1 year 49.00% 40.48% 10.94% 40.45% 9.67%
5 years 18.76% 6.06% 20.74% 6.98%
15 years 16.08% 6.59% 18.61% 10.54%
20 years 16.28% 8.82% 16.47% 9.53%
</TABLE>
- --------------
(1) Described under "Investment Strategy."
(2) The National Association of Real Estate Investment Trusts ("NAREIT") equity
index data is based upon the last closing price of the month for all tax-
qualified REITs listed on the New York Stock Exchange, American Stock
Exchange and the NASDAQ National Market System. The data is market-
weighted.
(3) The National Counsel of Real Estate Investment Fiduciaries Property Index
total return includes appreciation (or depreciation), realized capital gain
(or loss) and income. It is computed by adding income and capital
appreciation return on a quarterly basis.
(4) Merrill Lynch Government/Corporate Bond Index (Master).
The investment results for SC-US, USREALTY Special Opportunity and the indices
shown in the table reflect past performance and are not necessarily indicative
of future results or the returns that shareholders should expect to receive from
SC-US. The results shown represent SC-US's "total return" which assumes the
reinvestment of all capital gains and income dividends. Results presented for
the S&P 500 and the NAREIT equity index also assume the reinvestment of
dividends; however, the indices are not managed and incur no operating expenses.
This information is provided to facilitate a better understanding of SC-US and
does not provide a basis for comparison with other investments which calculates
performance differently.
A RESEARCH-DRIVEN PHILOSOPHY AND APPROACH
SC-US seeks to achieve top-quartile returns by investing primarily in equity
REITs which have the potential to deliver above-average growth. SC (US)
Management believes that these investment opportunities can only be identified
through the integration of extensive property market research and in-depth
operating company cash flow modeling.
Property Market Research. SC-US is uniquely positioned to access meaningful,
proprietary real estate research collected at the market, submarket and property
level. This market research is provided by operating professionals within the
Security Capital Group affiliate company network and assists SC (US) Management
in identifying attractive growth markets and property sectors prior to making
investment decisions. Specifically, SC-US endeavors
7
<PAGE>
to identify markets reaching a "marginal turning point." The market research
conducted by SC-US includes a comprehensive evaluation of real estate supply and
demand factors (such as population and economic trends, customer and industry
needs, capital flows and building permit and construction data) on a market and
submarket basis and by product type. Specifically, primary market research
evaluates normalized cash flow lease economics (accounting for capital
expenditures and other leasing costs) to determine whether the core economy of a
real estate market is expected to improve, stabilize or decline. Only through
disciplined real estate market research does SC-US believe it can identify
markets, and thus, real estate operating companies, with the potential for
higher than average growth prospects.
Real Estate Operating Company Evaluation and Cash Flow Modeling. SC (US)
Management believes that analyzing the quality of a company's net cash flow
("NCF") and its potential growth is the appropriate identifier of above-average
return opportunities. Certain REIT valuation models utilized by SC (US)
Management integrate property market research with analysis on specific property
portfolios in order to establish an independent value of the underlying sources
of a company's NCF. Additional valuation models measure and compare the impact
of certain factors, both internal and external, on NCF growth expectations. The
data from these valuation models is ultimately compiled and reviewed in order to
identify real estate operating companies with significant potential for growth.
RISK FACTORS
RISKS OF INVESTMENT IN REAL ESTATE SECURITIES
SC-US will not invest in real estate directly, but only in securities issued
by real estate companies. However, SC-US may be subject to risks similar to
those associated with the direct ownership of real estate (in addition to
securities markets risks) because of its policy of concentration in the
securities of companies in the real estate industry. Such risks include declines
in the value of real estate, risks related to general and local economic
conditions, possible lack of availability of mortgage funds, overbuilding,
extended vacancies of properties, increased competition, increases in property
taxes and operating expenses, changes in zoning laws, losses due to costs
resulting from the clean-up of environmental problems, liability to third
parties for damages resulting from environmental problems, casualty or
condemnation losses, limitations on rents, changes in neighborhood values, the
appeal of properties to customers and changes in interest rates.
In addition to these risks, equity REITs may be affected by changes in the
value of the underlying property owned by the REITs, while mortgage REITs may be
affected by the quality of any credit extended. Further, equity and mortgage
REITs are dependent on the management skills of the management of the REIT and
of the operators of the real estate in which the REITs are invested and
generally may not be diversified. Equity and mortgage REITs are also subject to
defaults by borrowers or customers and self-liquidation. REITs also generate
expenses that are separate and apart from those charged by SC-US and therefore,
shareholders will indirectly pay the fees charged by the REITs in which SC-US
invests. In addition, equity and mortgage REITs could possibly fail to qualify
for tax free pass-through of income under the Code, or to maintain their
exemptions from registration under the Investment Company Act of 1940 (the "1940
Act"). The above factors may also adversely affect a borrower's or a customer's
ability to meet its obligations to the REIT. In the event of a default by a
borrower or customer, the REIT may experience delays in enforcing its rights as
a mortgagee or lessor and may incur substantial costs associated with protecting
its investments.
NON-DIVERSIFIED STATUS; PORTFOLIO TURNOVER
SC-US operates as a "non-diversified" investment company under the 1940 Act,
which means SC-US is not limited by the 1940 Act in the proportion of its assets
that may be invested in the securities of a single issuer. However, SC-US
intends to conduct its operations so as to qualify as a "regulated investment
company" for purposes of the Code, which generally will relieve SC-US of any
liability for Federal income tax to the extent its
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earnings are distributed to shareholders. See "Taxation." To qualify as a
regulated investment company, among other requirements, SC-US will limit its
investments so that, at the close of each quarter of the taxable year, (i) not
more than 25% of the market value of SC-US's total assets will be invested in
the securities of a single issuer, and (ii) with respect to 50% of the market
value of its total assets, not more than 5% of the market value of its total
assets will be invested in the securities of a single issuer and SC-US will not
own more than 10% of the outstanding voting securities of a single issuer. SC-
US's investments in securities issued by the U.S. Government, its agencies and
instrumentalities are not subject to these limitations. Because SC-US, as a non-
diversified investment company, may invest in a smaller number of individual
issuers than a diversified investment company, an investment in SC-US may
present greater risk to an investor than an investment in a diversified company.
SC-US anticipates that its annual portfolio turnover rate will not exceed
150%, but the turnover rate will not be a limiting factor when SC (US)
Management deems portfolio changes appropriate. The turnover rate may vary
greatly from year to year. An annual turnover rate of 150% occurs, for
example, when all of the securities held by SC-US are replaced one and one-half
times in a period of one year. A higher turnover rate results in correspondingly
greater brokerage commissions and other transactional expenses which are borne
by SC-US. High portfolio turnover may result in the realization of net short-
term capital gains by SC-US which, when distributed to shareholders, will be
taxable as ordinary income. See "Taxation."
INVESTMENT RESTRICTIONS
SC-US has adopted certain investment restrictions, which may not be changed
without the approval of the holders of a majority of SC-US's outstanding voting
securities as defined below. The percentage limitations set forth below, as well
as those described elsewhere in this Prospectus, apply only at the time an
investment is made or other relevant action is taken by SC-US.
In addition to other fundamental investment restrictions listed elsewhere in
this Prospectus, SC-US will not:
1. Make loans except through the purchase of debt obligations in accordance
with its investment objective and policies;
2. Borrow money, or pledge its assets, except that SC-US may borrow money
from banks for temporary or emergency purposes, including the meeting of
redemption requests which might require the untimely disposition of securities,
but not in an aggregate amount exceeding 33-1/3% of the value of SC-US's total
assets (including the amount borrowed) less liabilities (not including the
amount borrowed) at the time the borrowing is made. Outstanding borrowings in
excess of 5% of the value of SC-US's total assets will be repaid before any
subsequent investments are made;
3. Invest in illiquid securities, as defined in "Investment Objective and
Policies," if immediately after such investment more than 10% of SC-US's net
assets (taken at market value) would be invested in such securities;
4. Engage in short sales or short sales against the box if immediately
following such transaction the aggregate market value of all securities sold
short and sold short against the box would exceed 10% of SC-US's net assets
(taken at market value); or
5. Purchase or sell real estate, except that SC-US may purchase securities
issued by companies in the real estate industry and will, as a matter of
fundamental policy, concentrate its investments in such securities.
The foregoing restrictions are fundamental policies for purposes of the 1940
Act and therefore may not be changed without the approval of a majority of SC-
US's outstanding voting securities. As used in this Prospectus, a majority of
SC-US's outstanding voting securities means the lesser of (a) more than 50% of
its outstanding voting securities or (b) 67% or more of the voting securities
present at a meeting at which more than 50% of the outstanding voting securities
are present or represented by proxy. SC-US policies and restrictions which are
not
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fundamental may be modified by SC-US's Board of Directors without shareholder
approval if, in the reasonable exercise of its business judgment, modification
is determined to be necessary or appropriate to carry out SC-US's objective.
However, SC-US will not change its investment policies or restrictions without
written notice to shareholders.
MANAGEMENT OF SC-US
BOARD OF DIRECTORS
The overall management of the business and affairs of SC-US is vested with the
Board of Directors. The Board of Directors approves all significant agreements
between SC-US and persons or companies furnishing services to it, including SC-
US's agreements with SC (US) Management, or its administrator, custodian and
transfer agent. The management of SC-US's day-to-day operations is delegated to
its officers, who include the Managing Directors, SC (US) Management and the
administrator, subject always to the investment objective and policies of SC-US
and to general supervision by the Board of Directors. Although SC-US is not
required by law to hold annual meetings, it may hold shareholder meetings from
time to time on important matters, and shareholders have the right to call a
meeting to remove a Director or to take other action described in SC-US's
Articles of Incorporation. The Directors and officers of SC-US and their
principal occupations are set forth below.
Stephen F. Kasbeer Director; retired Senior Vice President for
Administration and Treasurer of Loyola University
Chicago.
Anthony R. Manno Jr. Chairman of the Board of Directors, Managing
Director and President of SC-US; Managing
Director and President of SC (US) Management.
George F. Keane Director; Chairman of the Board of Trigen Energy
Corporation; former Chief Executive of the
Common Fund and Endowment Realty Investors.
Robert Abrams Director.
John H. Gardner, Jr. Managing Director of SC-US; Managing Director of
SC (US) Management.
Jeffrey C. Nellessen Vice President, Secretary and Treasurer of
SC-US; Vice President, Secretary and Treasurer of
SC (US) Management.
Kenneth D. Statz Managing Director of SC-US and Managing Director
of SC (US) Management.
Kevin W. Bedell Senior Vice President of SC-US and Senior Vice
President of SC (US) Management.
SC (US) MANAGEMENT
Security Capital (US) Management Group Incorporated ("SC (US) Management"),
formerly Security Capital Investment Research Group Incorporated, with offices
located at 11 South LaSalle Street, Chicago, Illinois 60603, has been retained
to provide investment advice, and, in general, to conduct the management and
investment program of SC-US under the overall supervision and control of the
Directors of SC-US. SC (US) Management intends to achieve top-quartile returns,
compared with other mutual funds that invest primarily in securities issued by
U.S. real estate companies, by integrating in-depth, proprietary property market
research with sophisticated capital
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markets research and modeling. There can be no assurance that SC (US) Management
will achieve this goal. SC (US) Management was formed in December 1996, and is
registered as an investment adviser with the Securities and Exchange Commission
(the "SEC"). Its principal officers include Anthony R. Manno Jr., Managing
Director and President, and John H. Gardner, Jr., Managing Director. While SC
(US) Management emphasizes a team approach, Messrs. Manno and Statz are
primarily responsible for the day-to-day management of SC-US's portfolio. SC
(US) Management is a wholly-owned subsidiary of Security Capital Group, a real
estate research, investment and management company.
Following are the employees of SC (US) Management that are responsible for
identifying and analyzing investments on behalf of SC-US.
Albert D. Adriani Vice President of SC (US) Management, where he is
responsible for providing portfolio management
analysis.
John Montaquila III Vice President of SC (US) Management
responsible for providing in-depth proprietary
research on publicly traded real estate
companies in the multi-family and the public
storage sectors.
Darcy B. Boris Vice President of Security Capital Real
Estate Research Group Incorporated where she
conducts strategic market analyses.
Mark J. Chapman President of Security Capital Real Estate Research
Group Incorporated where he is director of the
group and conducts strategic market analyses.
Anne Darnley Associate of SC (US) Management responsible for
providing in-depth proprietary research on
publicly traded real estate companies in the
retail sector.
James D. Foster Associate of SC (US) Management responsible
for providing in-depth proprietary research on
publicly traded real estate companies in the
hotel and the healthcare sectors.
INVESTMENT ADVISORY AGREEMENT
Pursuant to an amended investment advisory agreement (the "Advisory
Agreement"), SC (US) Management furnishes a continuous investment program for
SC-US's portfolio, makes the day-to-day investment decisions for SC-US, and
generally manages SC-US's investments in accordance with the stated policies of
SC-US, subject to the general supervision of SC-US's Board of Directors. SC (US)
Management also selects brokers and dealers to execute purchase and sale orders
for the portfolio transactions of SC-US. SC (US) Management provides persons
satisfactory to the Directors of SC-US to serve as officers of SC-US. Such
officers, as well as certain other employees and Directors of SC-US, may be
directors, officers, or employees of SC (US) Management.
Under the Advisory Agreement, SC-US Class R shares pay SC (US) Management a
monthly management fee in an amount equal to 1/12th of .60% of the value of SC-
US's Class R average daily net assets (approximately .60% on an annual basis).
SC-US Management also has committed to waive fees and/or reimburse expenses to
maintain SC-US's Class R total operating expenses, other than brokerage fees and
commission, taxes, interest and other extraordinary expenses, at no more than
1.15% of the value of SC-US's Class R average daily net assets for the year
ending December 31, 1998.
In addition to the payments to SC (US) Management under the Advisory Agreement
described above, SC-US Class R shares pay certain other costs of operations
including (a) administration, custodian and transfer agency fees,
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(b) fees of Directors who are not affiliated with SC (US) Management, (c) legal
and auditing expenses, (d) costs of printing and postage fees related to
preparing and distributing SC-US's prospectus and shareholder reports, (e) costs
of maintaining SC-US's existence, (f) interest charges, taxes, brokerage fees
and commissions, (g) costs of stationery and supplies, (h) expenses and fees
related to registration and filing with federal and state regulatory
authorities, and (i) upon the approval of SC-US's Board of Directors, costs of
personnel of SC (US Management or its affiliates rendering clerical, accounting
and other office services. Each class of SC-US shares pays for the portion SC-
US's expenses attributable to its operations.
ADMINISTRATOR AND SUB-ADMINISTRATOR
SC (US) Management has also entered into a fund accounting and administration
agreement with SC-US (the "Administration Agreement") under which SC (US)
Management performs certain administrative functions for SC-US, including (i)
providing office space, telephone, office equipment and supplies for SC-US; (ii)
paying compensation of SC-US's officers for services rendered as such; (iii)
authorizing expenditures and approving bills for payment on behalf of SC-US;
(iv) supervising preparation of the periodic updating of SC-US's Prospectus and
Statement of Additional Information; (v) supervising preparation of quarterly
reports to SC-US's shareholders, notices of dividends, capital gains
distributions and tax credits, and attending to routine correspondence and other
communications with individual shareholders; (vi) supervising the daily pricing
of SC-US's investment portfolio and the publication of the net asset value of
SC-US's shares, earnings reports and other financial data; (vii) monitoring
relationships with organizations providing services to SC-US, including the
custodian ("Custodian"), transfer agent ("Transfer Agent") and printers; (viii)
providing trading desk facilities for SC-US; (ix) maintaining books and records
for SC-US (other than those maintained by the Custodian and Transfer Agent) and
preparing and filing of tax reports other than SC-US's income tax returns; and
(x) providing executive, clerical and secretarial help needed to carry out these
responsibilities.
In accordance with the terms of the Administration Agreement and with the
approval of SC-US's Board of Directors, SC (US) Management has caused SC-US to
retain Firstar Trust Company (the "Sub-Administrator") as sub-administrator
under a fund administration and servicing agreement (the "Sub-Administration
Agreement").
Under the Sub-Administration Agreement, the Sub-Administrator has assumed
responsibility for performing certain of the foregoing administrative functions,
including determining SC-US's net asset value and preparing such figures for
publication, maintaining certain of SC-US's books and records that are not
maintained by SC (US) Management, or the custodian or transfer agent, preparing
financial information for SC-US's income tax returns, proxy statements,
quarterly and annual shareholders reports, and SEC filings, and responding to
shareholder inquiries. Under the terms of the Sub-Administration Agreement, SC-
US pays the Sub-Administrator a monthly administration fee at the annual rate of
.06% of the first $200 million of SC-US's average daily net assets, and at lower
rates on SC-US's average daily net assets in excess of that amount, subject to
an annual minimum fee of $30,000. The Sub-Administrator also serves as SC-US's
Custodian and Transfer Agent. See "Custodian and Transfer and Dividend
Disbursing Agent."
Under the Administration Agreement, SC (US) Management remains responsible for
monitoring and overseeing the performance by the Sub-Administrator of its
obligations to SC-US under the Sub-Administration Agreement, subject to the
overall authority of SC-US's Board of Directors. For its services under the
Administration Agreement, SC (US) Management receives a monthly fee from SC-US
at the annual rate of .02% of the value of SC-US's average daily net assets.
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DISTRIBUTION AND SERVICING PLAN
SC-US has adopted a Distribution and Servicing Plan ("Plan") with respect to
SC-US Class R shares pursuant to Rule 12b-1 under the Investment Company Act of
1940, as amended. Under the Plan, SC-US pays to Security Capital Markets Group
Incorporated in its capacity as principal distributor of SC-US's shares (the
"Distributor"), a monthly fee equal to, on an annual basis, .25% of the value of
SC-US's Class R average daily net assets.
The Distributor may use the fee for services performed and expenses incurred
by the Distributor in connection with the distribution of Class R shares and for
providing certain services to Class R shareholders. The Distributor may pay
third parties in respect of these services such amount as it may determine. SC-
US understands that these third parties may also charge fees to their clients
who are beneficial owners of SC-US Class R shares in connection with their
client accounts. These fees would be in addition to any amounts which may be
received by them from the Distributor under the Plan.
See "Distribution Plan" in the Statement of Additional Information for a
listing of the types of expenses for which the Distributor and third parties may
be compensated under the Plan. If the fee received by the Distributor exceeds
its expenses, the Distributor may realize a profit from these arrangements. The
Plan is reviewed and is subject to approval annually by the Board of Directors.
DETERMINATION OF NET ASSET VALUE
Net asset value per share of Class R shares of SC-US, $.01 par value per
share ("Common Stock"), is determined on each day the New York Stock Exchange is
open for trading and on each other day on which there is a sufficient degree of
trading in SC-US's investments to affect the net asset value, as of the close of
trading on the New York Stock Exchange, by adding the market value of all
securities in SC-US's portfolio and other assets represented by Class R shares,
subtracting liabilities, incurred or accrued allocable to Class R Shares, and
dividing by the total number Class R shares then outstanding.
For purposes of determining the net asset value per share of Class R shares,
readily marketable portfolio securities listed on the New York Stock Exchange
are valued, except as indicated below, at the last sale price reflected on the
consolidated tape at the close of the New York Stock Exchange on the business
day as of which such value is being determined. If there has been no sale on
such day, the securities are valued at the mean of the closing bid and asked
prices on such day. If no bid or asked prices are quoted on such day, then the
security is valued by such method as the Directors shall determine in good faith
to reflect its fair market value. Readily marketable securities not listed on
the New York Stock Exchange but listed on other domestic or foreign securities
exchanges or admitted to trading on the NASDAQ National Market are valued in a
like manner. Portfolio securities traded on more than one securities exchange
are valued at the last sale price on the business day as of which such value is
being determined as reflected on the tape at the close of the exchange
representing the principal market for such securities.
Readily marketable securities traded in the over-the-counter market, including
listed securities whose primary market is believed by SC (US) Management to be
over-the-counter, but excluding securities admitted to trading on the NASDAQ
National Market, are valued at the mean of the current bid and asked prices as
reported by NASDAQ or, in the case of securities not quoted by NASDAQ, the
National Quotation Bureau or such other comparable sources as the Directors deem
appropriate to reflect their fair market value. Where securities are traded on
more than one exchange and also over-the-counter, the securities will generally
be valued using the quotations the Board of Directors believes reflect most
closely the value of such securities. Any securities, or other assets, for which
market quotations are not readily available are valued in good faith in a manner
determined by the Board of Directors that best reflects the fair value of such
securities or assets.
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PURCHASE OF SHARES
SC-US Class R shares may be purchased through Firstar Trust Company, SC-US's
Transfer Agent or any dealer which has entered into a sales agreement with the
Distributor.
The minimum initial investment is $2,500. Subsequent investments in the
amount of at least $250 may be made by mail or by wire. For individual
retirement accounts and employee benefit plans qualified under Sections 401,
403(b)(7) or 457 of the Code, as well as UGMA or UTMA accounts, the minimum
initial investment is $1,000. For investors using the Automatic Investment Plan
(described below), the minimum investment is $250. These minimums can be changed
or waived by SC-US at any time. Shareholders will be given at least 30 days'
notice of any increase in the minimum dollar amount of subsequent investments.
Applications will not be accepted unless they are accompanied by payment in
U.S. funds. Payment should be made by check or money order drawn on a U.S. bank,
savings and loan, or credit union or by wire transfer. Orders for shares of SC-
US will become effective at the net asset value per share next determined after
receipt of payment. Checks must be payable in U.S. dollars and will be accepted
subject to collection at full face value. All funds will be invested in full and
fractional shares. A confirmation indicating the details of each purchase
transaction will be sent to a shareholder promptly following each transaction.
If a purchase order is placed through a dealer, the dealer must promptly forward
the order, together with payment, to the Transfer Agent. Investors must specify
that Class R shares are being purchased.
By investing in SC-US, a shareholder appoints the Transfer Agent, as his or
her agent, to establish an open account to which all shares purchased will be
credited, together with any dividends and capital gain distributions that are
paid in additional shares. See "Dividends and Distributions." Although most
shareholders elect not to receive stock certificates, certificates for full
shares can be obtained on specific written request to the Transfer Agent. All
fractional shares will be held in book-entry form. IT IS MORE COMPLICATED TO
REDEEM SHARES HELD IN CERTIFICATE FORM.
INITIAL INVESTMENT
Class R shares may be purchased by completing the enclosed application and
mailing it along with a check or money order payable to "Security Capital U.S.
Real Estate Shares Incorporated," to a securities dealer or the Transfer Agent.
If mailing to the Transfer Agent, please use the following address: Firstar
Trust Company, Mutual Fund Services, P.O. Box 701, Milwaukee, Wisconsin 53201-
0701. Overnight mail should be sent to the following address: Security Capital
U.S. Real Estate Shares Incorporated, Firstar Trust Company, Mutual Fund
Services, Third Floor, 615 East Michigan Street, Milwaukee, Wisconsin 53202. SC-
US does not consider the U.S. Postal service or other independent delivery
services to be its agents. Therefore, deposit in the mail or with such services,
or receipt at the Transfer Agent's post office box, of purchase applications
does not constitute receipt by the Transfer Agent or SC-US. Do not mail letters
by overnight courier to the post office box.
If a shareholder chooses a securities dealer that has not entered into a sales
agreement with the Distributor, such dealer may, nevertheless, offer to place an
order for the purchase of SC-US shares. Such dealer may charge a transaction
fee, as determined by the dealer. That fee may be avoided if shares are
purchased through a dealer who has entered into a sales agreement with the
Distributor or through the Transfer Agent.
If a shareholder's check does not clear, a service fee of $20 will be charged.
Such shareholder will also be responsible for any losses suffered by SC-US as a
result. Neither cash nor third-party checks will be accepted. All applications
to purchase shares are subject to acceptance by SC-US and are not binding until
so accepted. SC-US reserves the right to decline or accept a purchase order
application in whole or in part.
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WIRE PURCHASES
Class R shares may be purchased by wire only through the Transfer Agent. The
following instructions should be followed when wiring funds to the Transfer
Agent for the purchase of shares:
Wire to: Firstar Bank
ABA Number 075000022
Credit: Firstar Trust Company
Account 112-952-137
Further Credit: Security Capital U.S. Real Estate Shares Incorporated
(shareholder account number)
(shareholder name/account registration)
Please call 1-800-699-4594 (toll free) prior to wiring any funds to notify the
Transfer Agent that the wire is coming and to verify the proper wire
instructions so that the wire is properly applied when received. SC-US is not
responsible for the consequences of delays resulting from the banking or Federal
Reserve wire system.
TELEPHONE PURCHASES
Additional shares may be purchased by moving money from a shareholder's bank
account to his or her SC-US account. Only bank accounts held at domestic
financial institutions that are Automated Clearing House ("ACH") members can be
used for telephone transactions. In order for shares to be purchased at the net
asset value determined as of the close of regular trading on a given date, the
Transfer Agent must receive both the purchase order and payment by Electronic
Funds Transfer through the ACH System before the close of regular trading on
such date. Most transfers are completed within 3 business days. TELEPHONE
TRANSACTIONS MAY NOT BE USED FOR INITIAL PURCHASES OF CLASS R SHARES.
AUTOMATIC INVESTMENT PLAN
The Automatic Investment Plan allows regular, systematic investments in SC-US
Class R shares from a bank checking or NOW account. SC-US will reduce the
minimum initial investment to $250 if a shareholder elects to use the Automatic
Investment Plan. To establish the Automatic Investment Plan, the appropriate
section in SC-US's application must be completed. The Automatic Investment Plan
can be set up with any financial institution that is a member of the ACH. Under
certain circumstances (such as discontinuation of the Automatic Investment Plan
before the minimum initial investment is reached, or, after reaching the minimum
initial investment, the account balance is reduced to less than $500), SC-US
reserves the right to close such account. Prior to closing any account for
failure to reach the minimum initial investment, SC-US will give a shareholder
written notice and 60 days in which to reinstate the Automatic Investment Plan
or otherwise reach the minimum initial investment. A shareholder should consider
his or her financial ability to continue in the Automatic Investment Plan until
the minimum initial investment amount is met because SC-US has the right to
close such account for failure to reach the minimum initial investment. Such
closing may occur in periods of declining share prices.
Under the Automatic Investment Plan, a shareholder may choose to make
investments on the day of his or her choosing (or the next business day
thereafter) in amounts of $250 or more. There is no service fee for
participating in the Automatic Investment Plan. However, a service fee of $20.00
will be deducted from a shareholder's SC-US account for any Automatic Investment
Plan purchase that does not clear due to insufficient funds or, if prior to
notifying SC-US in writing or by telephone to terminate the plan, a shareholder
closes his or her bank account or in any manner prevent withdrawal of funds from
the designated bank checking or NOW account.
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The Automatic Investment Plan is a method of using dollar cost averaging which
is an investment strategy that involves investing a fixed amount of money at a
regular time interval. However, a program of regular investment cannot ensure a
profit or protect against a loss from declining markets. By always investing the
same amount, a shareholder will be purchasing more shares when the price is low
and fewer shares when the price is high. Since such a program involves
continuous investment regardless of fluctuating share values, a shareholder
should consider his or her financial ability to continue the program through
periods of low share price levels.
SUBSEQUENT INVESTMENTS
Additional investments of at least $250 may be made by mail or by wire. When
an additional purchase is made by mail, a check payable to "Security Capital
U.S. Real Estate Shares Incorporated" along with the Additional Investment Form
provided on the lower portion of a shareholder's account statement must be
enclosed. To make an additional purchase by wire, a shareholder may call 1-800-
699-4594 (toll free) for complete wiring instructions.
CLASS I SHARES
SC-US also issues Class I shares which offer different services and incur
different expenses which would affect performance. Investors may call the
Distributor at 1-800-699-4594 (toll free) to obtain additional information about
Class I shares.
REDEMPTION OF SHARES
A shareholder may request redemption of part or all of his or her Class R
shares at any time at the next determined net asset value. See "Determination of
Net Asset Value." SC-US normally will mail the redemption proceeds to the
shareholder on the next business day and, in any event, no later than seven
business days after receipt of a redemption request in good order. However, when
a purchase has been made by check, SC-US may hold payment on redemption proceeds
until it is reasonably satisfied that the check has cleared, which may take up
to twelve days.
Redemptions may also be made through brokers or dealers. Such redemptions will
be effected at the net asset value next determined after receipt by SC-US of the
broker or dealer's instruction to redeem shares. In addition, some brokers or
dealers may charge a fee in connection with such redemptions. See "Determination
of Net Asset Value."
REDEMPTION BY TELEPHONE
Shares may also be redeemed by calling the Transfer Agent at 1-800-699-4594
(toll free). In order to utilize this procedure, a shareholder must have
previously elected this option in writing, which election will be reflected in
the records of the Transfer Agent, and the redemption proceeds must be mailed
directly to such shareholder or transmitted to a predesignated account. To
change the designated account, a written request with signature(s) guaranteed
must be sent to the Transfer Agent. See "Signature Guarantees" below. To change
the address, the Transfer Agent may be called or a written request must be sent
to the Transfer Agent. No telephone redemptions will be allowed within 15 days
of such a change. SC-US reserves the right to limit the number of telephone
redemptions by a shareholder. Once made, telephone redemption requests may not
be modified or canceled.
The Transfer Agent will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. Such procedures may include
requiring some form of personal identification prior to acting upon telephone
instructions, providing written confirmations of all such transactions, and/or
tape recording all telephone instructions. Assuming procedures such as the above
have been followed, SC-US will not be liable for any loss,
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cost, or expense for acting upon a shareholder's telephone instructions or for
any unauthorized telephone redemption. SC-US reserves the right to refuse a
telephone redemption request if so advised.
REDEMPTION BY MAIL
For most redemption requests, a shareholder need only furnish a written,
unconditional request to redeem his or her Class R shares (or a fixed dollar
amount) at net asset value to SC-US's Transfer Agent: Firstar Trust Company,
Mutual Fund Services, P.O. Box 701, Milwaukee, Wisconsin 53201-0701. Overnight
mail should be sent to Security Capital U.S. Real Estate Shares Incorporated,
Firstar Trust Company, Mutual Fund Services, Third Floor, 615 East Michigan
Street, Milwaukee, Wisconsin 53202. Requests for redemption must be signed
exactly as the shares are registered, including the signature of each joint
owner. A shareholder must also specify the number of shares or dollar amount to
be redeemed. If the Class R shares to be redeemed were issued in certificate
form, the certificate must be endorsed for transfer (or be accompanied by a duly
executed stock power) and must be submitted to Firstar Trust Company together
with a redemption request. Redemption proceeds made by written redemption
request may also be wired to a commercial bank that you have authorized on your
account application. The Transfer Agent charges a $12.00 service fee for wire
redemptions. Additional documentation may be requested from corporations,
executors, administrators, trustees, guardians, agents, or attorneys-in-fact.
SC-US does not consider the U.S. Postal Service or other independent delivery
services to be its agents. Therefore, deposit in the mail or with such services,
or receipt at the Transfer Agent's post office box, of redemption requests does
not constitute receipt by the Transfer Agent or SC-US. Do not mail letters by
overnight courier to the post office box. Any written redemption requests
received within 15 days after an address change must be accompanied by a
signature guarantee.
SIGNATURE GUARANTEES
Signature guarantees are required for: (i) redemption requests to be mailed or
wired to a person other than the registered owner(s) of the shares; (ii)
redemption requests to be mailed or wired to other than the address of record;
(iii) any redemption request if a change of address request has been received by
SC-US or Transfer Agent within the last 15 days and (iv) any redemption request
involving $100,000 or more. A signature guarantee may be obtained from any
eligible guarantor institution, as defined by the SEC. These institutions
include banks, savings associations, credit unions, brokerage firms and others.
OTHER REDEMPTION INFORMATION
Unless other instructions are given in proper form, a check for the proceeds
of a redemption will be sent to the shareholder's address of record. The
Custodian may benefit from the use of redemption proceeds until the redemption
check for such proceeds has cleared.
SC-US may suspend the right of redemption during any period when (i) trading
on the New York Stock Exchange is restricted or that Exchange is closed, other
than customary weekend and holiday closings, or (ii) an emergency, as defined by
rules adopted by the SEC, exists making disposal of portfolio securities or
determination of the value of the net assets of SC-US not reasonably
practicable.
The proceeds of redemption may be more or less than the amount invested and,
therefore, a redemption may result in a gain or loss for federal income tax
purposes.
A shareholder's account may be terminated by SC-US on not less than 30 days'
notice if, at the time of any redemption of Class R shares in his or her
account, the value of the remaining shares in the account falls below $2,500
($1,000 in the case of individual retirement accounts and employee benefit plans
qualified under Sections 401, 403(b)(7) or 457 of the Code). Upon any such
termination, a check for the redemption proceeds will be sent
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to the account of record within seven business days of the redemption. However,
if a shareholder is affected by the exercise of this right, he or she will be
allowed to make additional investments prior to the date fixed for redemption to
avoid liquidation of the account.
DIVIDENDS AND DISTRIBUTIONS
Dividends from SC-US's investment income will be declared and distributed
quarterly. SC-US intends to distribute net realized capital gains, if any, at
least annually although SC-US's Board of Directors may in the future determine
to retain realized capital gains and not distribute them to shareholders. For
information concerning the tax treatment of SC-US's distribution policies for
SC-US and its shareholders, see "Taxation."
Distributions will automatically be paid in full and fractional shares of SC-
US based on the net asset value per share at the close of business on the
payable date unless the shareholder has elected to have distributions paid in
cash.
TAXATION
The following discussion is intended for general information only.
Shareholders should consult with their own tax advisers as to the tax
consequences of an investment in SC-US, including the status of distributions
under applicable state or local law.
FEDERAL INCOME TAXES
SC-US intends to qualify and elect to be taxed as a "regulated investment
company" under the Code. To the extent that SC-US distributes its taxable income
and net capital gain to its shareholders, qualification as a regulated
investment company relieves SC-US of federal income and excise taxes on that
part of its taxable income including net capital gains which it pays out to its
shareholders. Dividends out of net ordinary income and distributions of net
short-term capital gains are taxable to the recipient shareholders as ordinary
income. In the case of corporate shareholders, such dividends may be eligible
for the dividends-received deduction, except that the amount eligible for the
deduction is limited to the amount of qualifying dividends received by SC-US,
which does not include distributions received by SC-US from REITs. A
corporation's dividends-received deduction will be disallowed unless the
corporation holds shares in SC-US at least 46 days. Furthermore, the dividends-
received deduction will be disallowed to the extent a corporation's investment
in shares of SC-US is financed with indebtedness.
The excess of net long-term capital gains over the net short-term capital
losses realized and distributed by SC-US to its shareholders as capital gain
distributions is taxable to the shareholders as long-term capital
gain, irrespective of the length of time a shareholder may have held his or her
stock. Recent legislation reduced the maximum tax rate on capital gains to 20%
for assets held for more than 18 months on the date of the sale or exchange of
those assets. A notice issued by the Internal Revenue Service provides that a
regulated investment company such as SC-US may, but is not required to,
designate which portion of a capital gain distribution qualifies for the reduced
capital gain rate. Long-term capital gain distributions are not eligible
for the dividends-received deduction referred to above.
Under the current federal tax law, the amount of an ordinary income dividend
or capital gain distribution declared by SC-US during October, November or
December of a year to shareholders of record as of a specified date in such a
month that is paid during January of the following year is includable in the
prior year's taxable income of shareholders that are calendar year taxpayers.
Any dividend or distribution received by a shareholder on shares of SC-US will
have the effect of reducing the net asset value of such shares by the amount of
such dividend or distribution. Furthermore, a dividend or
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distribution made shortly after the purchase of such shares by a shareholder,
although in effect a return of capital to that particular shareholder, would be
taxable to him or her as described above. If a shareholder held shares six
months or less and during that period received a distribution taxable to such
shareholder as long-term capital gain, any loss realized on the sale of such
shares during such six-month period would be a long-term capital loss to the
extent of such distribution.
A dividend or capital gain distribution with respect to shares of SC-US
held by a tax-deferred or qualified plan, such as an individual retirement
account, 403(b)(7) retirement plan or corporate pension or profit-sharing plan,
will not be taxable to the plan, except to the extent the shares are debt-
financed within the meaning of Section 514 of the Code. Distributions from such
plans will be taxable to individual participants under applicable tax rules
without regard to the character of the income earned by the qualified plan.
SC-US will be required to withhold 31% of any payments made to a shareholder
if the shareholder has not provided a certified taxpayer identification number
to SC-US, or the Secretary of the Treasury notifies SC-US that the shareholder
has not reported all interest and dividend income required to be shown on the
shareholder's Federal income tax return. Any amounts withheld may be credited
against the shareholder's U.S. federal income tax liability.
Further information relating to tax consequences is contained elsewhere in
this Prospectus and in the Statement of Additional Information.
STATE AND LOCAL TAXES
SC-US distributions also may be subject to state and local taxes. Shareholders
should consult their own tax advisers regarding the particular state and local
tax consequences of an investment in SC-US.
ORGANIZATION AND DESCRIPTION OF CAPITAL STOCK
Security Capital Employee REIT Fund Incorporated was incorporated under
Maryland law as SCERF Incorporated ("SCERF"), a wholly-owned subsidiary of
Security Capital Group, on December 20, 1996. On January 23, 1997, all the
assets and liabilities of SCERF were transferred to Security Capital Employee
REIT Fund Incorporated in a reorganization transaction. On December 16, 1997,
its name was changed to Security Capital U.S. Real Estate Shares Incorporated.
SC-US is authorized to issue 50,000,000 shares of common stock, $.01 par value
per share. SC-US's Board of Directors may, without shareholder approval,
increase or decrease the number of authorized but unissued shares of SC-US's
common stock and reclassify and issue any unissued shares of SC-US. The Board of
Directors also may create additional series of shares with different investment
objectives, policies or restrictions without shareholder approval. Pursuant to
this authority, the Board of Directors of SC-US has authorized the issuance of
two classes of shares: Class I shares and Class R shares. Class R shares offer
different services to shareholders and incur different expenses than Class I
shares. Each class pays its proportionate share of SC-US's expenses.
All classes of SC-US's shares have equal dividend, distribution, liquidation
and voting rights. There are no conversion or preemptive rights in connection
with any class of SC-US shares. Each class of SC-US's shares when duly issued is
fully paid and nonassessable. The rights of the holders of Class R shares may
not be modified except by the vote of a majority of all Class R shares
outstanding. Class R shareholders have exclusive voting rights with respect to
matters relating solely to Class R shares. Class R shareholders vote separately
from Class I shareholders on matters in which the interests of Class R
shareholders differ from the interests of Class I shareholders.
SC-US is not required to hold regular annual shareholders' meetings. A
shareholders' meeting shall, however, be called by the secretary upon the
written request of the holders of not less than 10% of the outstanding shares of
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SC-US entitled to vote at the meeting. SC-US will assist shareholders wishing
to communicate with one another for the purpose of requesting such a meeting.
As of September 30, 1997, SCERF owned 98.93% of the issued and outstanding
Class I shares of SC-US and 98.39% of the total issued and outstanding shares of
SC-US, which means that SCERF controls SC-US for purposes of the 1940 Act. The
effect of SCERF's ownership of a controlling interest in SC-US is to dilute the
voting power of other SC-US shareholders.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
Firstar Trust Company, which has its principal business address at 615 East
Michigan Street, Milwaukee, Wisconsin 53202 has been retained to act as
Custodian of SC-US's investments and to serve as SC-US's transfer and dividend
disbursing agent. Firstar Trust Company does not have any part in deciding SC-
US's investment policies or which securities are to be purchased or sold for SC-
US's portfolio.
REPORTS TO SHAREHOLDERS
The fiscal year of SC-US ends on December 31 of each year. SC-US will send to
its shareholders, at least semi-annually, reports showing the investments and
other information (including unaudited financial statements). An annual report,
containing financial statements audited by SC-US's independent accountants, will
be sent to shareholders each year.
PERFORMANCE INFORMATION
From time to time, SC-US may advertise the "average annual total return" of
the Class R shares over various periods of time. This total return figure shows
the average percentage change in value of an investment in SC-US's Class R
shares from the beginning date of the measuring period to the ending date of the
measuring period. The figure reflects changes in the price of SC-US's Class R
shares and assumes that any income, dividends and/or capital gains distributions
made by SC-US's Class R shares during the period are reinvested in Class R
shares of SC-US. Figures will be given for recent one-, five- and ten-year
periods (when applicable), and may be given for other periods as well (such as
from commencement of SC-US's operations, or on a year-by-year basis). When
considering "average" total return figures for periods longer than one year,
investors should note that SC-US's Class R annual total return for any one year
in the period might have been greater or less than the average for the entire
period. SC-US also may use "aggregate" total return figures for various
periods, representing the cumulative change in value of an investment in SC-US's
Class R shares for the specific period (again reflecting changes in SC-US's
Class R share price and assuming reinvestment of Class R dividends and
distributions). Aggregate total returns may be shown by means of schedules,
charts or graphs, and may indicate subtotals of the various components of total
return (that is, the change in value of initial investment, income dividends and
capital gains distributions).
It is important to note that total return figures are based on historical
earnings and are not intended to indicate future performance. The Statement of
Additional Information further describes the methods used to determine SC-US's
performance.
ADDITIONAL INFORMATION
Any shareholder inquiries may be directed to SC-US at the address or telephone
number listed on the cover page of this Prospectus. This Prospectus, including
the Statement of Additional Information which is incorporated by reference
herein, does not contain all the information set forth in the Registration
Statement filed by SC-US with the SEC under the Securities Act of 1933. Copies
of the Registration Statement may be obtained at a reasonable
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charge from the SEC or may be examined, without charge, at the offices of the
SEC in Washington, D.C. or may be obtained from the SEC's worldwide web site at
http://www.sec.gov.
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LOGO
11 SOUTH LASALLE STREET
CHICAGO, ILLINOIS 60603
STATEMENT OF ADDITIONAL INFORMATION
[__________________, 1997]
Security Capital U.S. Real Estate Shares Incorporated ("SC-US"), formerly
known as Security Capital Employee REIT Fund Incorporated, is a non-diversified,
no-load, open-end management investment company ("mutual fund") that seeks to
provide shareholders with above-average total returns, including current income
and capital appreciation, primarily through investments in real estate
securities in the United States. Long term, SC-US's objective is to achieve top-
quartile total returns as compared with other mutual funds that invest primarily
in real estate securities in the United States, by integrating in-depth
proprietary real estate market research with sophisticated capital markets
research and modeling techniques. Security Capital (US) Management Group
Incorporated ("SC (US) Management") serves as both investment adviser and
administrator to SC-US.
This Statement of Additional Information is not a prospectus and is authorized
for distribution only when preceded or accompanied by SC-US's prospectus dated
________, 1997 (the "Prospectus"). This Statement of Additional Information
contains additional and more detailed information than that set forth in the
Prospectus and should be read in conjunction with the Prospectus, additional
copies of which may be obtained without charge by writing or calling SC-US's
Sub-Administrator at: Firstar Trust Company, Mutual Fund Services, P.O. Box 701,
Milwaukee, Wisconsin 53201-0701; telephone number 1-800-699-4594 (toll free).
Table of Contents
<TABLE>
<CAPTION>
Page
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<S> <C>
Investment Objective and Policies.................. 2
Investment Restrictions............................ 4
Management of SC-US................................ 4
Distribution and Servicing Plans................... 13
Determination of Net Asset Value................... 14
Redemption of Shares............................... 15
Portfolio Transactions and Brokerage............... 15
Taxation........................................... 16
Organization and Description of Capital Stock 19
Distributor........................................ 21
Custodian and Transfer and Dividend Disbursing Agent 21
Performance Information............................ 21
Counsel and Independent Accountants................ 23
Financial Statements............................... 23
</TABLE>
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INVESTMENT OBJECTIVE AND POLICIES
The following discussion of SC-US's investment objective and policies
supplements, and should be read in conjunction with, the information regarding
SC-US's investment objective and policies set forth in the Prospectus. Except as
otherwise provided below under "Investment Restrictions," SC-US's investment
policies are not fundamental and may be changed by SC-US's Board of Directors
without the approval of the shareholders; however, SC-US will not change its
investment policies without written notice to shareholders.
ILLIQUID SECURITIES
SC-US will not invest in illiquid securities if immediately after such
investment more than 10% of SC-US net assets (taken at market value) would be
invested in such securities. For this purpose, illiquid securities include,
among others, securities that are illiquid by virtue of the absence of a readily
available market or legal or contractual restrictions on resale.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
and securities which are otherwise not readily marketable. Securities which have
not been registered under the Securities Act are referred to as private
placements or restricted securities and are purchased directly from the issuer
or in the secondary market. Mutual funds do not typically hold a significant
amount of these restricted or other illiquid securities because of the potential
for delays on resale and uncertainty in valuation. Limitations on resale may
have an adverse effect on the marketability of portfolio securities and a mutual
fund might be unable to dispose of restricted or other illiquid securities
promptly or at reasonable prices and might thereby experience difficulty
satisfying redemptions within seven business days. A mutual fund might also have
to register such restricted securities in order to dispose of them, resulting in
additional expense and delay. Adverse market conditions could impede such a
public offering of securities.
If SC-US invests in securities issued by a real estate company that is
controlled by Security Capital Group Incorporated ("Security Capital Group") or
any of its affiliates (a "Security Capital controlled real estate company"), SC-
US may be considered an affiliate of the issuer of such securities and therefore
an underwriter as such term is defined in the Securities Act. SC-US's ability to
resell such securities without registration may, therefore, be limited. In
addition, because SC-US is an affiliate of Security Capital Group, SC-US's
purchases and sales of securities issued by a Security Capital controlled real
estate company may be netted against sales and purchases by Security Capital and
any of its other affiliates of securities of the same issuer during the six
months preceding or following SC-US's "opposite way" transactions for purposes
of Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). If such netting results in a profit to Security Capital Group or any of
its affiliates (including SC-US), Security Capital or its affiliates, as the
case may be, will be required to disgorge such "profits" to the issuer of such
securities. In addition, because SC-US is an affiliate of Security Capital
Group, SC-US's purchases and sales of securities issued by a Security Capital
controlled real estate company could raise issues under Section 17(d) of the
1940 Act. Depending upon the timing of purchases and sales of securities of such
an issuer by Security Capital Group and its affiliates, in order to avoid
Security Capital Group or its affiliates (including SC-US) having to disgorge
"profits" to the issuer of such securities, or in order to avoid violations of
Section 17(d) of the 1940 Act, SC-US may not be able to purchase or sell
securities of a Security Capital controlled real estate company, even when it
might otherwise be advantageous for SC-US to do so. As a result, SC-US will
treat such securities as illiquid securities.
In recent years, a large institutional market has developed for certain
securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be
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indicative of the liquidity of such investments. The Securities and Exchange
Commission (the "SEC") has adopted Rule 144A which allows a broader
institutional trading market for securities otherwise subject to restriction on
resale to the general public. Rule 144A establishes a "safe harbor" from the
registration requirements of the Securities Act of resales of certain securities
to qualified institutional buyers.
SC (US) Management will monitor the liquidity of restricted securities in SC-
US's portfolio under the supervision of the Board of Directors. In reaching
liquidity decisions, SC (US) Management will consider, among other factors, the
following: (1) the frequency of trades and quotes for the security; (2) the
number of dealers wishing to purchase or sell the security and the number of
other potential purchasers; (3) dealer undertakings to make a market in the
security; and (4) the nature of the security and the nature of the marketplace
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of the transfer).
SHORT SALES AND SHORT SALES AGAINST THE BOX
SC-US will not engage in a short sale or a short sale against the box if
immediately after such transaction the aggregate market value of all securities
sold short and sold short against the box would exceed 10% of SC-US's net assets
(taken at market value).
Short Sales
SC-US may seek to realize gains through short sale transactions in securities
listed on one or more national securities exchanges or on the National
Association of Securities Dealers, Inc. Automated Quotation System. Short
selling involves the sale of borrowed securities. At the time a short sale is
effected, SC-US incurs an obligation to replace the security borrowed at
whatever its price may be at the time that SC-US purchases it for delivery to
the lender. When a short sale transaction is closed out by delivery of the
securities, any gain or loss on the transaction is taxable as a short term
capital gain or loss. Until the security is replaced, SC-US is required to pay
to the lender amounts equal to any dividends or interest which accrue during the
period of the loan. To borrow the security, SC-US also may be required to pay a
premium, which would increase the cost of the security sold. Until SC-US
replaces a borrowed security in connection with a short sale, SC-US will: (a)
maintain daily a segregated account containing cash or U.S. government
securities, at such a level that (i) the amount deposited in the segregated
account plus the amount deposited with the broker as collateral will equal the
current value of the security sold short and (ii) the amount deposited in the
segregated account plus the amount deposited with the broker as collateral will
not be less than the market value of the security at the time it was sold short;
or (b) otherwise cover its short position.
Since short selling can result in profits when stock prices generally decline,
SC-US in this manner, can, to a certain extent, hedge the market risk to the
value of its other investments and protect its equity in a declining market.
However, SC-US could, at any given time, suffer both a loss on the purchase or
retention of one security, if that security should decline in value, and a loss
on a short sale of another security, if the security sold short should increase
in value. Moreover, to the extent that in a generally rising market SC-US
maintains short positions in securities rising with the market, the net asset
value of SC-US would be expected to increase to a lesser extent than the net
asset value of an investment company that does not engage in short sales.
Short Sales Against the Box
When SC (US) Management believes that the price of a particular security in
SC-US's portfolio may decline, it may sell the security short against the box
which involves selling the security for delivery at a specified date in the
future. If, for example, SC-US bought 100 shares of XYZ REIT at $40 per share in
January and the price appreciates to $50 in March, SC-US might "sell short" the
100 shares at $50 for delivery the following July. Thereafter, if the price of
the stock declines to $45, it will realize the full $1,000 gain rather than the
$500 gain it would have received had it sold the stock in the market. On the
other hand, if the price appreciates to $55 per share, SC-US would be required
to sell at $50 and thus receive a $1,000 gain rather than the $1,500 gain it
would have received had it sold the stock in the market. SC-US may also be
required to pay a premium for short sales
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against the box which would partially offset its gain. Under a recent
legislative change, a short sale against the box will result in a constructive
sale of the underlying security at the time when the short sale is entered into,
thus reducing the benefit of these transactions.
INVESTMENT RESTRICTIONS
SC-US is subject to certain investment restrictions, in addition to those
listed in the Prospectus, which are deemed fundamental policies of SC-US. Such
fundamental policies are those which cannot be changed without the approval of
the holders of a majority of SC-US's outstanding shares which means the vote of
(i) 67% or more of SC-US's shares present at a meeting, if the holders of more
than 50% of the outstanding shares of SC-US are present or represented by proxy,
or (ii) more than 50% of SC-US's outstanding shares, whichever is less.
SC-US may not:
1. Pledge, hypothecate, mortgage or otherwise encumber its assets, except to
secure permitted borrowings;
2. Participate on a joint or joint and several basis in any securities
trading account;
3. Invest in companies for the purpose of exercising control;
4. Purchase a security if, as a result (unless the security is acquired
pursuant to a plan of reorganization or an offer of exchange), SC-US would own
any securities of an open-end investment company or more than 3% of the value of
SC-US's total assets would be invested in securities of any closed-end
investment company or more than 10% of such value in closed-end investment
companies in general; or
5. (a) purchase or sell commodities or commodity contracts; (b) invest in
interests in oil, gas, or other mineral exploration or development programs; (c)
purchase securities on margin, except for such short-term credits as may be
necessary for the clearance of transactions and except for borrowings in an
amount not exceeding 33/1//3% of the value of SC-US's total assets; or (d) act
as an underwriter of securities, except that SC-US may acquire restricted
securities under circumstances in which, if such securities were sold, SC-US
might be deemed to be an underwriter for purposes of the Securities Act.
MANAGEMENT OF SC-US
The directors and officers of SC-US and their principal occupations during the
past five years are set forth below. Directors deemed to be "interested persons"
of SC-US for purposes of the Investment Company Act of 1940, as amended ("1940
Act") are indicated by an asterisk.
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<TABLE>
<CAPTION>
PRINCIPAL
OCCUPATIONS DURING
NAME AND ADDRESS OFFICE AGE THE PAST FIVE YEARS
<S> <C> <C> <C>
Stephen F. Kasbeer.............. Director 72 Retired; Senior Vice President for Administration
8 Bonanza Trail and Treasurer of Loyola University, Chicago from
Santa Fe, New Mexico 87505 1981 to July 1994, where he was responsible for
administration, investment, real estate and treasurer
functions, served as Chief Investment Officer, was
Chairman of the Operations Committee, was a
member of the Investment and Finance Committees
of the Board of Trustees and was President and a
Director of the Loyola Management Company. Mr.
Kasbeer received his J.D. from John Marshall Law
School and his M.A. and B.S. from Northwestern
University.
Anthony R. Manno Jr.* Chairman of 45 Managing Director of SC (US) Management since
11 South LaSalle Street the Board of March 1997, where he is responsible for overseeing
Chicago, Illinois 60603 Directors, all investment and capital allocation matters for SC
Managing (US) Management's public market securities
Director and activities and is also responsible for company and
President industry analysis, market strategy and trading and
reporting; from January 1995 to March 1997, he
was Managing Director of SC (US) Management,
where he performed the same functions. Mr.
Manno was a member of the Investment Committee
of Security Capital Group from March 1994 to June
1996. Prior to joining Security Capital, Mr. Manno
was a Managing Director of LaSalle Partners
Limited from March 1980 to March 1994. Mr.
Manno received his M.B.A. from the University of
Chicago Graduate School of Business, an M.A. and
a B.A. from Northwestern University and is a
Certified Public Accountant.
</TABLE>
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<TABLE>
<S> <C> <C> <C>
George F. Keane Director 68 Chairman of the Board of Trigen Energy
7408 Eaton Court Corporation since 1994. As founding chief
University Park, Florida 34201 executive of The Common Fund in 1971 and
Endowment Realty Investors in 1988, Mr. Keane for
many years headed an investment management service
for colleges, universities and independent schools that
managed $15 billion for 1,200 educational institutions
when he became President Emeritus of the Common
Fund in 1993. He has served as a member of the
Investment Advisory Committee of the $75 billion
New York State Common Retirement Fund since
1982. He has been a Director of the RCB Trust
Company since 1991, a Trustee of the Nicholas
Applegate Investment Trust since 1993, and a Director
of the Bramwell Funds since 1994. He is also a
Director of Universal Stainless & Alloy Products,
Global Pharmaceutical Corporation, United Water
Resources and United Properties Group, Gulf
Resources Corporation, and the Universal Bond Fund,
and is an advisor to Associated Energy Managers. Mr.
Keane also serves as a Trustee of his alma mater,
Fairfield University where he received his B.A., and
as a Director and Chairman of the Investment
Committee of the United Negro College Fund.
Mr. Keane holds honorary degrees
from Loyola University, Chicago, Illinois and
Lawrence University, Appleton, Wisconsin.
Robert H. Abrams Director 65 Founder of Colliers ABR, Inc. (formerly Abrams
106 West Sibley Hall Benisch Riker Inc.), a property management firm. Mr.
Ithaca, New York 14851 Abrams was Principal of Colliers ABR, Inc. from
1978 to 1992 and since 1992, has served as a
Consultant. From 1959 to 1978 Mr. Abrams was
Executive Vice President and Director of Cross and
Brown Company. Mr. Abrams also serves as a
Director of Greater New York Mutual Insurance
Company and Trustee Emeritus and Presidential
Counselor of his alma mater, Cornell University. Mr.
Abrams received his M.B.A. from Harvard University
and his B.A. from Cornell University.
</TABLE>
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<TABLE>
<S> <C> <C> <C>
John H. Gardner, Jr. Managing 43 Managing Director of Security Capital (US)
11 South LaSalle Street Director Management Group since July, 1997. Prior thereto,
Chicago, Illinois 60603 Director of Security Capital Pacific Trust ("PTR") and
the PTR REIT Manager from February 1995 to June
1997 and Senior Vice President of Security Capital
Atlantic Incorporated ("ATLANTIC"), PTR and the
PTR REIT Manager from September 1994 to June
1997 where he had overall responsibility for asset
management and multifamily dispositions. Prior to
joining Security Capital, Mr. Gardner was with
Copley Real Estate Advisors as a Managing Director
and Principal responsible for portfolio management
from January 1991 to September 1994 and as a Vice
President and Principal of asset management from
December 1984 to December 1990. From July 1977
to November 1984, Mr. Gardner was a Real Estate
Manager with the John Hancock Companies. Mr.
Gardner received his M.S. in Computer Information
Systems from Bentley College and his B.S. in
Accounting from Stonehill College.
Jeffrey C. Nellessen............ Vice 36 Vice President and Controller of SC (US)
11 South LaSalle Street President, Management since March 1997. Prior thereto, from
Chicago, Illinois 60603 Secretary and June 1988 to March 1997, he was Controller, Manager
Treasurer of Client Administration and Compliance Officer at
Strong Capital Management, Inc. Mr. Nellessen is a
Certified Public Accountant, Certified Management
Accountant and a Certified Financial Planner. He
received his B.B.A. from the University of Wisconsin,
Madison.
Kenneth D. Statz Managing 38 Managing Director of SC(US) Management since
11 South LaSalle Street Director November 1997. Senior Vice President where he is
Chicago, Illinois 60603 responsible for the development and implementation
of portfolio investment strategy. Prior thereto, Senior
Vice President from July 1996 to October 1997 and
Vice President from May 1995 to June 1996. Prior to
joining Security Capital, Mr. Statz was a Vice
President in the investment research department of
Goldman, Sachs & Co., from February 1993 to
January 1995, 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 from August 1982 to February 1992.
Mr. Statz received his M.B.A. and B.B.A. from the
University of Wisconsin, Madison.
</TABLE>
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<TABLE>
<S> <C> <C>
Kevin W. Bedell Senior Vice Senior Vice President of SC (US) Management since
President November 1997 and Vice President since July 1996,
where he is responsible for directing the activities of
the industry/research group and providing in-depth
proprietary research on publicly traded companies
with office and industrial sectors. Prior to joining SC
(US) Management, Mr. Bedell spent 9 years with
LaSalle Partners Limited where he was Equity Vice
President and Portfolio Manager responsible for the
strategic, operational and financial management of a
private REIT with commercial real estate investments
of $600-800 million. Mr. Bedell received his M.B.A.
from the University of Chicago and his B.A. from
Kenyon College.
</TABLE>
COMPENSATION OF DIRECTORS AND CERTAIN OFFICERS
The Directors of SC-US who are interested persons of SC-US, under the 1940
Act, (which includes persons who are employees of SC (US) Management or
officers or employees of any of its affiliates) receive no remuneration from SC-
US. Each of the other Directors is paid an annual retainer of $14,000, an
additional annual retainer of $1,000 for each committee of the Board of
Directors for which he or she serves as chairperson, and a fee of $1,000 for
each meeting attended (other than telephonically) and is reimbursed for the
expenses of attendance at such meetings. The following table sets forth
information regarding estimated compensation of Directors by SC-US for the
fiscal year ending December 31, 1997.
8
<PAGE>
COMPENSATION TABLE(1)
FISCAL YEAR ENDING DECEMBER 31, 1997
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT
BENEFITS ESTIMATED
AGGREGATE ACCRUED AS ANNUAL TOTAL
COMPENSATION PART OF BENEFITS COMPENSATION
FROM SC-US UPON FROM SC-US
NAME OF PERSON, POSITION SC-US EXPENSES RETIREMENT PAID TO DIRECTORS
- ------------------------ --------- -------- ---------- -----------------
<S> <C> <C> <C> <C>
George F. Keane
Director $3,333 N/A N/A $3,333
Stephen F. Kasbeer
Director $13,500 N/A N/A $13,500
**Anthony R. Manno Jr.
Chairman, Managing Director and 0 N/A N/A 0
President
- -----------------------------------
</TABLE>
** "Interested person," as defined in the 1940 Act, of SC-US.
(1) For the period January 1, 1997 to December 31, 1997.
SC (US) MANAGEMENT
Security Capital (US) Management Group Incorporated, a registered investment
adviser, was formed in December 1996 under law and specializes in the management
of real estate securities portfolios. SC (US) Management is a wholly-owned
subsidiary of Security Capital Group, a Maryland corporation.
Following are the employees of SC (US) Management that are responsible for
identifying and analyzing investments on behalf of SC-US.
Albert D. Adriani Vice President of SC (US) Management since
April 1996, where he is responsible for
providing portfolio management analysis.
From January 1995 to April 1996, he was Vice
President, Security Capital (UK) Management
Limited and SC-USREALTY; from March 1994 to
January 1995, he was with Security Capital
Markets Group. Prior thereto, he was an
investment analyst with HAL Investments BV
from July 1992 to January 1994. Mr. Adriani
received his M.B.A., with honors, from the
University of Chicago Graduate School of
Business and his B.A. with honors from the
University of Chicago. Mr. Adriani is a
Certified Financial Analyst.
John Montaquila III Vice President of SC (US) Management
responsible for providing in-depth
proprietary research on publicly traded
real estate companies in the multi-family
and public storage sectors. Previously, Mr.
Montaquila was in the Management
Development Program with Security Capital
Group, working in six-month rotational
assignments with Managing Directors of the
firm. Prior to joining Security Capital
Group, Mr. Montaquila was a vice president
in the investment real estate
9
<PAGE>
division of The Boston Financial Group. Mr.
Montaquila received his M.M. from J.L.
Kellogg Graduate School of Management at
Northwestern University and his B.S. from
The Wharton School, University of
Pennsylvania.
Darcy B. Boris Vice President of the Real Estate Research
Group, where she conducts strategic market
analyses for affiliates of Security Capital.
Prior thereto, Vice President of SC (US)
Management from June 1995 until March 1997,
and an associate from December 1994 to June
1995. Prior thereto, Ms. Boris was with
Security Capital Markets Group Incorporated
from August 1993 to November 1994, where she
provided capital markets services for
affiliates of the Company. Prior to joining
Security Capital Markets Group, Ms. Boris
was associated with Summerhill Development
Company, the multifamily development
subsidiary of Marcus & Millichap,
Incorporated, from January 1987 to September
1991 where she managed the development of
multifamily housing. Ms. Boris received her
M.B.A. from the University of California at
Berkeley and her B.A. from Stanford
University.
Mark J. Chapman President of the Real Estate Research Group,
where he is director of the group and
conducts strategic market analyses for
affiliates of Security Capital. Prior
thereto, Vice President of SC (US)
Management from November 1995 until March
1997. From November 1994 to November 1995,
Mr. Chapman was a Vice President of PTR with
asset management responsibilities in five
major markets. From July 1989 to November
1994, Mr. Chapman as a Vice President of
Copley Real Estate Advisors, Inc. where he
directed asset management for Copley assets
located from Connecticut to Virginia. Mr.
Chapman received his M.S. from Marquette
University.
Ann Darnley Associate of SC (US) Management responsible
for providing in-depth proprietary research
on publicly traded real estate companies in
the retail sector. Prior to joining SC (US)
Management, Ms. Darnley spent eleven years
with JMB Institutional Realty Corporation
and Heitman/JMB most recently as a Vice
President in the Portfolio Management area.
Ms. Darnley received her B.S. in Business
Administration from the University of
Colorado.
James D. Foster Associate of SC (US) Management responsible
for providing in-depth proprietary research
on publicly traded real estate companies in
the hotel and the healthcare sectors. Prior
to joining SC (US) Management, Mr. Foster
was an account manager with the government
securities clearance division of the Bank of
New York. Previously, Mr. Foster was
employed by the National Basketball
Association and the New York Yankees. Mr.
Foster received his M.B.A. from the
University
10
<PAGE>
of Chicago Graduate School of Business and
his B.A. from Tufts University.
INVESTMENT ADVISORY AGREEMENT
Certain other clients of SC (US) Management may have investment objectives and
policies similar to those of SC-US. SC (US) Management may, from time to time,
make recommendations which result in the purchase or sale of a particular
security by its other clients simultaneously with SC-US. If transactions on
behalf of more than one client during the same period increase the demand for
securities being sold, there may be an adverse effect on the price of such
securities. It is the policy of SC (US) Management to allocate advisory
recommendations and the placing of orders in a manner which is deemed equitable
by SC (US) Management to the accounts involved, including SC-US. When two or
more of the clients of SC (US) Management (including SC-US) are purchasing or
selling the same security on a given day through the same broker-dealer, such
transactions may be averaged as to price.
SC (US) Management's advice to SC-US with respect to purchases or sales of
securities issued by a Security Capital controlled real estate company may be
affected by sales or purchases by Security Capital Group or its affiliates of
securities issued by the same issuer. Because SC-US is an affiliate of Security
Capital Group, SC-US's purchases and sales of securities issued by such an
issuer may be netted against sales and purchases by Security Capital Group and
any of its other affiliates of securities of such issuer during the six months
preceding or following SC-US's "opposite way" transactions for purposes of
Section 16 of the Exchange Act. If such netting results in a profit to Security
Capital Group or any of is affiliates (including SC-US), Security Capital Group
or its affiliates, as the case may be, will be required to disgorge such
"profits" to the issuer of such securities. As a result, SC (US) Management's
recommendations to SC-US may be affected by SC (US) Management's desire to avoid
SC-US or Security Capital Group or any of its other affiliates having to
disgorge profits to such issuer.
Pursuant to an amended investment advisory agreement dated December 16, 1997
(the "Advisory Agreement"), SC (US) Management furnishes a continuous investment
program for SC-US's portfolio, makes the day-to-day investment decisions for SC-
US, executes the purchase and sale orders for the portfolio transactions of SC-
US and generally manages SC-US's investments in accordance with the stated
policies of SC-US, subject to the general supervision of SC-US's Board of
Directors.
Under the Advisory Agreement, each class of SC-US shares pays SC (US)
Management a monthly management fee in an amount equal to /1//12th of .60% of
the value of the average daily net assets of that class of SC-US shares
(approximately .60% on an annual basis). Under a prior investment advisory
agreement, effective April 11, 1997 through December 14, 1997, ("Initial
Advisory Agreement"), pursuant to which SC (US) Management provided the same
advisory services as under the Advisory Agreement, the monthly management fee
was equal to 1/12th of .85% of the value of the average daily net assets of SC-
US (approximately .85% on an annual basis). Under the Initial Advisory
Agreement, SC (US) Management waived fees and/or reimbursed expenses to maintain
SC-US's total operating expenses, other than brokerage fees and commissions,
taxes, interest and other extraordinary expenses, at no more than 1.20% of the
value of the average daily net assets of SC-US for the year ending December 31,
1997 and agreed to reimburse SC-US or otherwise limit SC-US's expenses to the
extent required by expense limitations imposed by certain states. Under a
separate agreement, SC-US Management has agreed to waive advisory fees and/or
reimburse expenses to maintain the total operating expenses, other than
brokerage fees and commissions, interest, taxes and other extraordinary expenses
of SC-US's Class I shares at 1.00% of the value of SC-US's Class I average daily
net assets and SC-US's Class R shares at 1.15% of the value of SC-US's Class R
average daily net assets, for the year ending December 31, 1998. For the period
April 23, 1997 (the effective date of SC-US's initial registration statement)
through September 30, 1997, SC (US) Management earned $393,502 for providing
investment management services to SC-US.
SC (US) Management also provides SC-US with such personnel as SC-US may from
time to time request for the performance of clerical, accounting and other
office services, such as coordinating matters with the
11
<PAGE>
administrator, the transfer agent and the custodian, which SC (US) Management is
not required to furnish under the Advisory Agreement. The personnel rendering
these services, who may act as officers of SC-US, may be employees of SC (US)
Management or its affiliates. The cost to SC-US of these services must be agreed
to by SC-US and is intended to be no higher than the actual cost to SC (US)
Management or its affiliates of providing the services. SC-US does not pay for
services performed by officers of SC (US) Management or its affiliates. SC-US
may from time to time hire its own employees or contract to have services
performed by third parties, and the management of SC-US intends to do so
whenever it appears advantageous to SC-US.
In addition to the payments to SC (US) Management under the Advisory Agreement
described above, each class of SC-US's shares pays for certain other costs of
its operations including: (a) administration , custodian and transfer agency
fees, (b) fees of Directors who are not affiliated with SC (US) Management, (c)
legal and auditing expenses, (d) costs of printing SC-US's prospectus and
shareholder reports, (e) costs of maintaining SC-US's existence, (f) interest
charges, taxes, brokerage fees and commissions, (g) costs of stationery and
supplies, (h) expenses and fees related to registration and filing with federal
and state regulatory authorities, (i) distribution fees (Class R), and (j) upon
the approval of SC-US's Board of Directors, costs of personnel of SC-US
Management or its affiliates rendering clerical, accounting and other office
services. Each class of SC-US's shares pays for the portion of SC-US's expenses
attributable to its operations.
The Advisory Agreement was approved on November 25, 1997 by SC-US's Directors,
including a majority of the Directors who are not interested persons (as defined
in the 1940 Act) of SC-US or SC (US) Management ("non-interested Directors"),
and by SC-US's shareholders on December 12, 1997. The Initial Advisory Agreement
had been approved by SC-US's Directors, including a majority of the non-
interested Directors on April 11, 1997 and by the unanimous written consent of
SC-US shareholders on that same date. The Advisory Agreement continues in effect
until December 16, 1999 and will continue in effect from year to year
thereafter, provided that its continuance is specifically approved prior to the
initial expiration of the Advisory Agreement or annually thereafter, as the case
may be, by the Directors or by a vote of the shareholders, and in either case by
a majority of the Directors who are not parties to the Advisory Agreement or
interested persons of any such party, by vote cast in person at a meeting called
for the purpose of voting on such approval.
The Advisory Agreement is terminable without penalty by SC-US on sixty days'
written notice when authorized either by majority vote of its outstanding voting
securities or by a vote of a majority of its Directors, or by SC (US) Management
on sixty days' written notice, and will automatically terminate in the event of
its assignment. The Advisory Agreement provides that in the absence of willful
misfeasance, bad faith or gross negligence on the part of SC (US) Management, or
of reckless disregard of its obligations thereunder, SC (US) Management shall
not be liable for any action or failure to act in accordance with its duties
thereunder.
ADMINISTRATOR AND SUB-ADMINISTRATOR
SC-US has also entered into a fund administration and accounting agreement
with SC (US) Management (the "Administration Agreement") under which SC (US)
Management performs certain administrative functions for SC-US, including (i)
providing office space, telephone, office equipment and supplies for the Fund;
(ii) paying compensation of SC-US's officers for services rendered as such;
(iii) authorizing expenditures and approving bills for payment on behalf of SC-
US; (iv) supervising preparation of the periodic updating of SC-US's Prospectus
and Statement of Additional Information; (v) supervising preparation of
quarterly reports to SC-US's shareholders, notices of dividends, capital gains
distributions and tax credits, and attending to routine correspondence and other
communications with individual shareholders; (vi) supervising the daily pricing
of SC-US's investment portfolio and the publication of the net asset value of
SC-US's shares, earnings reports and other financial data; (vii) monitoring
relationships with organizations providing services to SC-US, including SC-US's
custodian (the "Custodian"), transfer agent (the "Transfer Agent") and printers;
(viii) providing trading desk facilities for SC-US; (ix) maintaining books and
records for SC-US (other than those maintained by the Custodian and Transfer
Agent) and preparing and filing of tax reports other than SC-US's income tax
returns; and (x) providing executive, clerical and secretarial help needed to
carry out these responsibilities.
12
<PAGE>
In accordance with the terms of the Administration Agreement and with the
approval of SC-US's Board of Directors, SC (US) Management has caused SC-US to
retain Firstar Trust Company (the "Sub-Administrator") as sub-administrator
under a fund administration and servicing agreement (the "Sub-Administration
Agreement").
Under the Sub-Administration Agreement, the Sub-Administrator has assumed
responsibility for performing certain of the foregoing administrative functions,
including determining the net asset value of each class of SC-US's shares and
preparing such figures for publication, maintaining certain of SC-US's books and
records that are not maintained by SC (US) Management as investment adviser, or
by the Custodian or Transfer Agent, preparing financial information for SC-US's
income tax returns, proxy statements, quarterly and annual shareholders
reports, and SEC filings, and responding to shareholder inquiries. Under the
terms of the Sub-Administration Agreement, SC-US pays the Sub-Administrator a
monthly administration fee at the annual rate of .06% of the first $200 million
of SC-US's average daily net assets, and at lower rates on SC-US's average daily
net assets in excess of that amount, subject to an annual minimum fee of
$30,000. For the period April 23, 1997 (the effective date of SC-US's initial
registration statement) through September 30, 1997, the Sub-Administrator earned
$30,632 for providing sub-administration services to SC-US. The Sub-
Administrator also serves as the Custodian and Transfer Agent. See "Custodian
and Transfer and Dividend Disbursing Agent."
Under the Administration Agreement, SC (US) Management remains responsible for
monitoring and overseeing the performance by the Sub-Administrator of its
obligations to SC-US under the Sub-Administration Agreement, subject to the
overall authority of SC-US's Board of Directors. For its services under the
Administration Agreement, SC (US) Management receives a monthly fee from SC-US
at the annual rate of .02% of the value of SC-US's average daily net assets.
For the period April 23, 1997 (the effective date of SC-US's initial
registration statement) through September 30, 1997, SC (US) Management earned
$10,211 for providing services to SC-US under the Administration Agreement.
The Administration Agreement is terminable by either party on sixty days'
written notice to the other. The Administration Agreement provides that in the
absence of willful misfeasance, bad faith or gross negligence on the part of SC
(US) Management, or of reckless disregard of its obligations thereunder, SC (US)
Management shall not be liable for any action or failure to act in accordance
with its duties thereunder.
DISTRIBUTION AND SERVICING PLANS
As described in the Prospectus, SC-US has adopted Distribution and Servicing
Plans with respect to the Class I and Class R shares ("Plans") pursuant to Rule
12b-1 under the 1940 Act. See "Distribution and Servicing Plan" in each
Prospectus. The Plans have been approved by a vote of the Board of Directors
with respect to the Class I and the Class R shares, including a majority of the
Directors who are not interested persons of SC-US and have no direct or indirect
financial interest in the operation of the Plan ("disinterested Directors"),
cast in person at a meeting called for the purposes of voting on the Plan. The
annual compensation payable by SC-US to Security Capital Markets Group
Incorporated ("Distributor") under each Plan is an amount equal to .25% (on an
annual basis) of the value of the average daily net assets of the class of
shares to which the Plan relates.
Under the Plans, SC-US is authorized to pay a distribution fee for
distribution activities in connection with the sale of shares and a service fee
for services provided which are necessary for the maintenance of shareholder
accounts. To the extent such fee exceeds the expenses of these distribution and
shareholder servicing activities, the Distributor may retain such excess as
compensation for its services and may realize a profit from these arrangements.
The Plans are compensation plans which provide for the payment of a specified
distribution and service fee without regard to the distribution and service
expenses actually incurred by the Distributor with respect to one share. If the
Plans were to be terminated by the Board of Directors and no successor Plans
were to be adopted, the Directors would cease to make distribution and service
payments to the Distributor and the Distributor would be unable to recover the
amount of any of its unreimbursed distribution expenditures. However, the
Distributor does
13
<PAGE>
not intend to incur distribution and service expenses at a rate that materially
exceeds the rate of compensation received under the Plan.
The types of expenses for which the Distributor and third parties may be
compensated under the Plans include compensation paid to and expenses incurred
by their officers, employees and sales representatives, allocable overhead,
telephone and travel expenses, the printing of prospectuses and reports for
other than existing shareholders, preparation and distribution of sales
literature, advertising of any type and all other expenses incurred in
connection with activities primarily intended to result in the sale of shares.
Additional types of expenses covered by the Plans include responding to
shareholder inquiries and providing shareholders with information on their
investments.
Under the Plans, the Distributor will provide to the Board of Directors for
its review, and the Board will review at least quarterly, a written report of
the services provided and amounts expended by the Distributor under the Plans
and the purposes for which such services were performed and expenditures were
made.
The Plans were approved by the Board of Directors, including the disinterested
Directors, on November 25, 1998 and by SC-US's Class I and Class R shareholders
on December 12, 1997. The Plans remain in effect from year to year, provided
such continuance is approved annually by a vote of the Board of Directors,
including a majority of the disinterested Directors. The Plans may not be
amended to increase materially the amount to be spent for the services described
therein as to the Class I and/or Class R shares without approval of a majority
of the outstanding Class I and/or Class R shares. All material amendments of the
Plan must also be approved by the Board of Directors in the manner described
above. The Plans may be terminated at any time without payment of any penalty by
a vote of a majority of the disinterested Directors or by a vote of a majority
of the outstanding Class I and/or Class R shares. So long as a Plan is in
effect, the selection and nomination of disinterested Directors shall be
committed to the discretion of the disinterested Directors. The Board of
Directors has determined that in their judgment there is a reasonable likelihood
that the Plans will benefit SC-US and the holders of its Class I and Class R
shares.
DETERMINATION OF NET ASSET VALUE
Net asset value per share for each class of shares is determined by SC-US on
each day the New York Stock Exchange is open for trading, and on any other day
during which there is a sufficient degree of trading in the investments of SC-US
to affect materially the Fund's net asset value. The New York Stock Exchange is
closed on Saturdays, Sundays, and on New Year's Day, Presidents' Day (the third
Monday in February), Good Friday, Memorial Day (the last Monday in May),
Independence Day, Labor Day (the first Monday in September), Thanksgiving Day
and Christmas Day (collectively, the "Holidays"). When any Holiday falls on a
Saturday, the Exchange is closed the preceding Friday, and when any Holiday
falls on a Sunday, the Exchange is closed the following Monday. No redemptions
will be made on Martin Luther King Day (the third Monday in January), Columbus
Day (the second Monday in October) and Veteran's Day, nor on any of the
Holidays.
Net asset value per share for each class is determined by adding the market
value of all securities in SC-US's portfolio and other assets represented by a
class, subtracting liabilities incurred or accrued that are allocable to the
class, and dividing by the total number shares of that class then outstanding.
Because of the differences in operating expenses incurred by each class, the per
share net asset value of each class will differ.
For purposes of determining SC-US's net asset value per share for each class,
all assets and liabilities initially expressed in foreign currencies will be
converted into U.S. dollars at the mean of the bid and asked prices of such
currencies against the U.S. dollar last quoted by a major bank which is a
regular participant in the institutional foreign exchange markets or on the
basis of a pricing service which takes into account the quotes provided by a
number of such major banks.
14
<PAGE>
REDEMPTION OF SHARES
Payment of the redemption price for shares redeemed may be made either in cash
or in portfolio securities (selected in the discretion of SC-US's Board of
Directors and taken at their value used in determining SC-US's net asset value
per share as described in the Prospectus under "Determination of Net Asset
Value"), or partly in cash and partly in portfolio securities. However, payments
will be made wholly in cash unless SC-US's Board of Directors believes that
economic conditions exist which would make such a practice detrimental to the
best interests of SC-US. If payment for shares redeemed is made wholly or partly
in portfolio securities, brokerage costs may be incurred by the investor in
converting the securities to cash. SC-US will not distribute in kind portfolio
securities that are not readily marketable.
SC-US has elected to be governed by Rule 18f-1 under the 1940 Act, which
obligates SC-US to redeem shares in cash, with respect to any one shareholder
during any 90-day period, up to the lesser of $250,000 or 1% of the net assets
of SC-US at the beginning of such period. Although redemptions in excess of this
limitation would normally be paid in cash, SC-US reserves the right to make
payments in whole or in part in securities or other assets in case of an
emergency, or if the payment of redemption in cash would be detrimental to the
existing shareholders of SC-US as determined by the board of directors. In such
circumstances, the securities distributed would be valued as set forth in the
Prospectus. Should SC-US distribute securities, a shareholder may incur
brokerage fees or other transaction costs in converting the securities to cash.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to the supervision of the Directors, decisions to buy and sell
securities for SC-US and negotiation of its brokerage commission rates are made
by SC (US) Management. Transactions on U.S. stock exchanges involve the payment
by SC-US of negotiated brokerage commissions. There is generally no stated
commission in the case of securities traded in the over-the-counter market but
the price paid by SC-US usually includes an undisclosed dealer commission or
mark-up. In certain instances, SC-US may make purchases of underwritten issues
at prices which include underwriting fees.
In selecting a broker to execute each particular transaction, SC (US)
Management will take the following into consideration: the best net price
available; the reliability, integrity and financial condition of the broker; the
size and difficulty in executing the order; and the value of the expected
contribution of the broker to the investment performance of SC-US on a
continuing basis. Accordingly, the cost of the brokerage commissions to SC-US in
any transaction may be greater than that available from other brokers if the
difference is reasonably justified by other aspects of the portfolio execution
services offered. Subject to such policies and procedures as the Directors may
determine, SC (US) Management shall not be deemed to have acted unlawfully or to
have breached any duty solely by reason of it having caused SC-US to pay a
broker that provides research services to SC (US) Management an amount of
commission for effecting a portfolio investment transaction in excess of the
amount of commission another broker would have charged for effecting that
transaction, if SC (US) Management determines in good faith that such amount of
commission was reasonable in relation to the value of the research service
provided by such broker viewed in terms of either that particular transaction or
SC (US) Management's ongoing responsibilities with respect to SC-US. Research
and investment information is provided by these and other brokers at no cost to
SC (US) Management and is available for the benefit of other accounts advised by
SC (US) Management and its affiliates, and not all of the information will be
used in connection with SC-US. While this information may be useful in varying
degrees and may tend to reduce SC (US) Management's expenses, it is not possible
to estimate its value and in the opinion of SC (US) Management it does not
reduce SC (US) Management's expenses in a determinable amount. The extent to
which SC (US) Management makes use of statistical, research and other services
furnished by brokers is considered by SC (US) Management in the allocation of
brokerage business but there is no formula by which such business is allocated.
SC (US) Management does so in accordance with its judgment of the best interests
of SC-US and its shareholders. SC (US) Management may also take into account
payments made by brokers effecting transactions for SC-US to other persons on
behalf of SC-US for services provided to it for which
15
<PAGE>
it would be obligated to pay (such as custodial and professional fees). In
addition, consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc., and subject to seeking best price and execution, SC
(US) Management may consider sales of shares of SC-US as a factor in the
selection of brokers and dealers to enter into portfolio transactions with SC-
US.
TAXATION
TAXATION OF SC-US
SC-US intends to qualify annually and to elect to be treated as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code").
To qualify as a regulated investment company, SC-US must, among other things:
(a) derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stock, securities or foreign currencies or other income
derived with respect to its business of investing in such stock, securities or
currencies; (b) prior to January 1, 1998, derive less than 30% of its gross
income from the sale or other disposition of certain assets (namely, (i) stock
or securities, (ii) options, futures, and forward contracts (other than those on
foreign currencies), and (iii) foreign currencies (including options, futures,
and forward contracts on such currencies) not directly related to SC-US's
principal business of investing in stock or securities (or options and futures
with respect to stocks or securities)) held less than 3 months for the year
ending December 31, 1997; (c) diversify its holdings so that, at the end of each
quarter of the taxable year, (i) at least 50% of the market value of SC-US's
assets is represented by cash and cash items (including receivables), U.S.
Government securities, the securities of other regulated investment companies
and other securities, with such other securities of any one issuer limited for
the purposes of this calculation to an amount not greater than 5% of the value
of SC-US's total assets and not greater than 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
assets is invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment
companies); and (d) distribute at least 90% of its investment company taxable
income (which includes, among other items, dividends, interest and net short-
term capital gains in excess of net long-term capital losses) each taxable year.
As a regulated investment company, SC-US generally will not be subject to U.S.
federal income tax on its investment company taxable income and net capital
gains (the excess of net long-term capital gains over net short-term capital
losses), if any, that it distributes to shareholders. SC-US intends to
distribute to its shareholders, at least annually, substantially all of its
investment company taxable income and net capital gains. Amounts not distributed
on a timely basis in accordance with a calendar year distribution requirement
are subject to a nondeductible 4% excise tax. To prevent imposition of the
excise tax, SC-US must distribute during each calendar year an amount equal to
the sum of (1) at least 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year, (2) at least 98% of its capital
gains in excess of its capital losses (adjusted for certain ordinary losses) for
the one-year period ending on October 31 of the calendar year, and (3) any
ordinary income and capital gains for previous years that was not distributed
during those years. A distribution will be treated as paid on December 31 of the
current calendar year if it is declared by SC-US in October, November or
December with a record date in such a month and paid by SC-US during January of
the following calendar year. Such distributions will be taxable to shareholders
in the calendar year in which the distributions are declared, rather than the
calendar year in which the distributions are received. To prevent application of
the excise tax, SC-US intends to make its distributions in accordance with the
calendar year distribution requirement.
DISTRIBUTIONS
Dividends paid out of SC-US's investment company taxable income will be
taxable to a U.S. shareholder as ordinary income. Because a portion of SC-US's
income may consist of dividends paid by U.S. corporations, a portion of the
dividends paid by SC-US may be eligible for the corporate dividends-received
deduction. Dividends
16
<PAGE>
paid by SC-US attributable to dividends received by SC-US from REITs, however,
are not eligible for such deduction. Distributions of net capital gains, if any,
designated as capital gain dividends are taxable as long-term capital gains,
regardless of how long the shareholder has held SC-US's shares, and are not
eligible for the dividends-received deduction. Shareholders receiving
distributions in the form of additional shares, rather than cash, generally will
have taxable income from the receipt of, and a cost basis in, each such share
equal to the net asset value of a share of SC-US on the reinvestment date.
Shareholders will be notified annually as to the U.S. federal tax status of
distributions, and shareholders receiving distributions in the form of
additional shares will receive a report as to the net asset value of those
shares.
The recently enacted Taxpayer Relief Act of 1997 (the "Taxpayer Relief Act")
made certain changes to the Code with respect to taxation of long-term capital
gains earned by taxpayers other than a corporation. In general and subject to
certain transition rules, the maximum tax rate for individual taxpayers on net
long-term capital gains (i.e., the excess of net long-term capital gain over net
short-term capital loss) is lowered to 20% for most assets held for more than 18
months at the time of disposition. Capital gains on the disposition of assets
held for more than one year and up to 18 months at the time of disposition will
be taxed as "mid-term gain" at a maximum rate of 28%. A lower rate of 18% will
apply after December 31, 2000 for assets held for more than 5 years. However,
the 18% rate applies only to assets acquired after December 31, 2000 unless the
taxpayer elects to treat an asset held prior to such date as sold for fair
market value on January 1, 2001. In the case of individuals whose ordinary
income is taxed at a 15% rate, the 20% rate for assets held for more than 18
months is reduced to 10% and the 18% rate for assets held for more than 5 years
is reduced to 8%. According to a notice recently issued by the Internal Revenue
Service, a regulated investment company such as SC-US is entitled to (but is not
required to) designate which portion of a capital gain distribution will be
taxed at a maximum rate of 20% and which portion will be taxed at a maximum rate
of 28%. If SC-US does not make such a designation, the capital gain will be
taxed at a maximum rate of 28%.
The portion of a SC-US distribution classified as a return of capital
generally is not taxable to SC-US shareholders, but it will reduce their tax
basis in their shares, which in turn would effect the amount of gain or loss
shareholders would realize on the sale or redemption of their shares. If a
return of capital distribution exceeds a shareholder's tax basis in his shares,
the excess is generally taxed as capital gain to the shareholder assuming the
shares are a capital asset.
REITs do not provide complete information about the taxability of their
distributions (i.e., how much of their distributions represent a return of
capital) until after the calendar year ends. As a result, SC-US may not be able
to determine how much of SC-US's annual distributions for a particular year are
taxable to shareholders until after the traditional January 31 deadline for
issuing Form 1099-DIV ("Form 1099''). SC-US in such circumstance may send to
shareholders amended Form 1099s after January 31 or may request permission from
the Internal Revenue Service for an extension permitting SC-US to send the Form
1099 in February.
SALE OF SHARES
Upon the sale or other disposition of shares of SC-US, a shareholder may
realize a capital gain or loss which will be long-term, mid-term or short-term,
generally depending upon the shareholder's holding period for the shares. Any
loss realized on a sale or exchange will be disallowed to the extent the shares
disposed of are replaced within a period of 61 days beginning 30 days before and
ending 30 days after disposition of the shares. In such a case, the basis of the
shares acquired will be adjusted to reflect the disallowed loss. Any loss
realized by a shareholder on a disposition of SC-US shares held by the
shareholder for six months or less will be treated as a long-term capital loss
to the extent of any distributions of net capital gains received by the
shareholder with respect to such shares.
17
<PAGE>
INVESTMENTS IN REAL ESTATE INVESTMENT TRUSTS
SC-US may invest in real estate investment trusts ("REITs") that hold residual
interests in real estate mortgage investment conduits ("REMICs"). Under Treasury
regulations that have not yet been issued, but may apply retroactively, a
portion of SC-US's income from a REIT that is attributable to the REIT's
residual interest in a REMIC (referred to in the Code as an "excess inclusion")
will be subject to federal income tax in all events. These regulations are also
expected to provide that excess inclusion income of a regulated investment
company, such as SC-US, will be allocated to shareholders of the regulated
investment company in proportion to the dividends received by such shareholders,
with the same consequences as if the shareholders held the related REMIC
residual interest directly. In general, excess inclusion income allocated to
shareholders (i) cannot be offset by net operating losses (subject to a limited
exception for certain thrift institutions), (ii) will constitute unrelated
business taxable income to entities (including a qualified pension plan, an
individual retirement account, a 401(k) plan, a Keogh plan or other tax-exempt
entity) subject to tax on unrelated business income, thereby potentially
requiring such an entity that is allocated excess inclusion income, and
otherwise might not be required to file a tax return, to file a tax return and
pay tax on such income, and (iii) in the case of a foreign shareholder, will not
qualify for any reduction in U.S. federal withholding tax. In addition, if at
any time during any taxable year a "disqualified organization" (as defined in
the Code) is a record holder of a share in a regulated investment company, then
the regulated investment company will be subject to a tax equal to that portion
of its excess inclusion income for the taxable year that is allocable to the
disqualified organization, multiplied by the highest federal income tax rate
imposed on corporations. SC (US) Management does not intend on behalf of SC-US
to invest in REITs, a substantial portion of the assets of which consists of
residual interests in REMICs.
BACKUP WITHHOLDING
Except as described below, SC-US is required to withhold U.S. federal income
tax at the rate of 31% of all taxable distributions payable to shareholders who
fail to provide SC-US with their correct taxpayer identification number or to
make required certifications, or who have been notified by the IRS that they are
subject to backup withholding. Corporate shareholders and certain other
shareholders specified in the Code generally are exempt from such backup
withholding. Backup withholding is not an additional tax. Any amounts withheld
may be credited against the shareholder's U.S. federal income tax liability.
FOREIGN SHAREHOLDERS
U.S. taxation of a shareholder who, as to the United States, is a nonresident
alien individual, a foreign trust or estate, a foreign corporation or foreign
partnership ("foreign shareholder") depends on whether the income of SC-US is
"effectively connected" with a U.S. trade or business carried on by the
shareholder.
Income Not Effectively Connected. If the income from SC-US is not "effectively
connected" with a U.S. trade or business carried on by the foreign shareholder,
distributions of investment company taxable income will be subject to a U.S.
withholding tax of 30% (or lower treaty rate, except in the case of any excess
inclusion income allocated to the shareholder (see "Taxation--Investments in
Real Estate Investment Trusts," above)), which tax is generally withheld from
such distributions.
Distributions of capital gain dividends and any amounts retained by SC-US
which are designated as undistributed capital gains will not be subject to U.S.
withholding tax at the rate of 30% (or lower treaty rate) unless the foreign
shareholder is a nonresident alien individual and is physically present in the
United States for more than 182 days during the taxable year and meets certain
other requirements. However, this 30% withholding tax on capital gains of
nonresident alien individuals who are physically present in the United States
for more than the 182-day period only applies in exceptional cases because any
individually present in the United States for more than182 days during the
taxable year is generally treated as a resident for U.S. income tax purposes; in
that case, he or she would be subject to U.S. income tax on his or her worldwide
income at the graduated rates applicable to U.S.
18
<PAGE>
citizens, rather than the 30% U.S. withholding tax. In the case of a foreign
shareholder who is a nonresident alien individual, SC-US may be required to
withhold U.S. income tax at a rate of 31% of distributions of net capital gains
unless the foreign shareholder certifies his or her non-U.S. status under
penalties of perjury or otherwise establishes an exemption. See "Taxation--
Backup Withholding," above. If a foreign shareholder is a nonresident alien
individual, any gain such shareholder realizes upon the sale or exchange of such
shareholder's shares of SC-US in the United States will ordinarily be exempt
from U.S. tax unless (i) the gain is U.S. source income and such shareholder is
physically present in the United States for more than 182 days during the
taxable year and meets certain other requirements, or is otherwise considered to
be a resident alien of the United States, or (ii) at any time during the shorter
of the period during which the foreign shareholder held shares of SC-US and the
five year period ending on the date of the disposition of those shares, SC-US
was a "U.S. real property holding corporation" (and, if the shares of SC-US are
regularly traded on an established securities market, the foreign shareholder
held more than 5% of the shares of SC-US), in which event the gain would be
taxed in the same manner as for a U.S. shareholder as discussed above and a 10%
U.S. withholding tax would be imposed on the amount realized on the disposition
of such shares to be credited against the foreign shareholder's U.S. income tax
liability on such disposition. A corporation is a "U.S. real property holding
corporation" if the fair market value of its U.S. real property interests equals
or exceeds 50% of the fair market value of such interests plus its interests in
real property located outside the United States plus any other assets used or
held for use in a business. In the case of SC-US, U.S. real property interests
include interests in stock in U.S. real property holding corporations (other
than stock of a REIT controlled by U.S. persons and holdings of 5% or less in
the stock of publicly traded U.S. real property holding corporations) and
certain participating debt securities. SC-US does not expect to be treated as a
U.S. real property corporation under these rules, but no assurances can be
given.
Income Effectively Connected. If the income from SC-US is "effectively
connected" with a U.S. trade or business carried on by a foreign shareholder,
then distributions of investment company taxable income and capital gain
dividends, any amounts retained by SC-US which are designated as undistributed
capital gains and any gains realized upon the sale or exchange of shares of SC-
US will be subject to U.S. income tax at the graduated rates applicable to U.S.
citizens, residents and domestic corporations. Foreign corporate shareholders
may also be subject to the branch profits tax imposed by the Code.
The tax consequences to a foreign shareholder entitled to claim the benefits
of an applicable tax treaty may differ from those described herein. Foreign
shareholders are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in SC-US.
OTHER TAXATION
SC-US shareholders may be subject to state, local and foreign taxes on their
SC-US distributions. Shareholders are advised to consult their own tax advisers
with respect to the particular state and local tax consequences to them of an
investment in SC-US.
ORGANIZATION AND DESCRIPTION OF CAPITAL STOCK
Security Capital Employee REIT Fund Incorporated was incorporated under
Maryland law as SCERF Incorporated ("SCERF"), a wholly-owned subsidiary of
Security Capital Group, on December 20, 1996. On January 23, 1997, all the
assets and liabilities of SCERF were transferred to Security Capital REIT Fund
Incorporated in a reorganization transaction. On December 16, 1997, its name
was changed to Security Capital U.S. Real Estate Shares Incorporated.
SC-US is authorized to issue 50,000,000 shares of common stock, $.01 par value
per share (the "Common Stock"). SC-US's shares have no preemptive, conversion,
exchange or redemption rights. Each share has equal voting, dividend,
distribution and liquidation rights. All shares of SC-US, when duly issued, are
fully paid and nonassessable. Shareholders are entitled to one vote per share.
All voting rights for the election of Directors are
19
<PAGE>
noncumulative, which means that the holders of more than 50% of the shares can
elect 100% of the Directors then nominated for election if they choose to do so
and, in such event, the holders of the remaining shares will not be able to
elect any Directors. The foregoing description is subject to the provisions
contained in SC-US's Articles of Incorporation and By-Laws which have been filed
with the SEC as exhibits to the registration statement of which this Statement
of Additional Information is a part.
The Board of Directors is authorized to reclassify and issue any unissued
shares of SC-US without shareholder approval and create additional series of
shares with different investment objectives, policies or restrictions. Pursuant
to this authority, on November 25, 1997, the Board of Directors adopted a
Multiple Class Plan ("Plan") under Rule 18f-3 of the Investment Company Act of
1940, as amended, authorizing SC-US to issue two classes of shares: Class I
shares and Class R shares. In accordance with the Plan, Class I shares are
offered to investors whose initial minimum investment is $250,000 and Class R
shares are available for purchase by all other eligible investors. Class I
shares and Class R shares offer different services to shareholders and incur
different expenses. Each class pays its proportionate share of SC-US expenses.
At November 25, 1997, there were 9,750,437.375 Class I shares and 53,409.61
Class R Shares outstanding. At such date the Directors and officers as a group
beneficially owned, directly or indirectly, including the power to vote or to
dispose of, less than 1% of the issued and outstanding shares of SC-US. Also as
of that date, the following persons owned of record 5% or more of SC-US's
outstanding shares:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE
TITLE OF CLASS BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP PERCENT OF CLASS
- -------------- --------------------------- ----------------------- ----------------
<S> <C> <C> <C>
Class I SCERF Incorporated 9,646,032.884 98.93%
3753 Howard Hughes Parkway
Las Vegas, Nevada 89109-0952
Class R Dennis G. Lopez 18,498.266 34.63%
117 Beekman Street, 4E
New York, New York
10038-2001
Class R Trustees FBO Alexia
DeGunzburg 4,987.15 9.34%
c/o Joseph Cooper
1675 Broadway
Floor 16
New York, New York 10019
Class R Gerard DeGunzburg 4,987.15 9.34%
Peter F. DeGaetano, Jr.
Gregory DeGunzburg Trust
1675 Broadway
Floor 16
New York, New York 10019
Class R Anthony R. Manno Jr.* 4,863.813 9.11%
85 East Westminster Road
Lake Forest, Illinois 60045-1803
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE
TITLE OF CLASS BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP PERCENT OF CLASS
- -------------- ---------------- ----------------------- ----------------
<S> <C> <C> <C>
Class R Directors, Nominees
and Executive Officers 8,512.634 15.94%
as a Group**/
</TABLE>
______________
(*) Director, Chairman of the Board and President of the Fund.
(**) Anthony R. Manno Jr., Director, Chairman of the Board and President,
beneficially owns 4,863.813 Class R shares, John H. Gardner, Jr., Managing
Director, beneficially owns 1,364.412 Class R shares, Jeffrey C. Nellessen,
Secretary and Treasurer beneficially owns 843.883 Class R shares and Kevin W.
Bedell, Senior Vice President beneficially owns 1,440.526 Class R shares.
As of November 25 1997, SCERF owned 98.39% of the total issued and outstanding
shares of SC-US, which means that SCERF controls SC-US for purposes of the 1940
Act. The effect of SCERF's ownership of a controlling interest in SC-US is to
dilute the voting power of other SC-US shareholders.
DISTRIBUTOR
Security Capital Markets Group Incorporated, an affiliate of SC (US)
Management, serves as the distributor of SC-US's Class I shares and Class R
shares pursuant to a Distribution and Servicing Agreement dated December 16,
1997 ("Agreement"). The Distributor is not obligated to sell any specific amount
of shares and will sell shares, as agent for SC-US, on a best efforts continuous
basis only against orders to purchase shares.
The Agreement was approved by the Board of Directors, including a majority of
the disinterested Directors on November 25, 1997.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
Firstar Trust Company which has its principal business at 615 East Michigan
Street, Milwaukee, Wisconsin 53202 has been retained to act as Custodian of SC-
US's investments and as SC-US's transfer and dividend disbursing agent. Firstar
Trust Company does not determine the investment policies of SC-US or decide
which securities SC-US will buy or sell.
PERFORMANCE INFORMATION
From time to time, SC-US may quote SC-US's total return in advertisements or
in reports and other communications to shareholders. SC-US's performance will
vary from time to time depending upon market conditions, the composition of its
portfolio and its operating expenses. Consequently, any given performance
quotation should not be considered representative of SC-US's performance for any
specified period in the future. In addition, because performance will fluctuate,
it may not provide a basis for comparing an investment in SC-US with certain
bank deposits or other investments that pay a fixed yield for a stated period of
time. Investors comparing SC-US's performance with that of other mutual funds
should give consideration to the quality and maturity of the respective
investment companies' portfolio securities.
21
<PAGE>
AVERAGE ANNUAL TOTAL RETURN
SC-US's "average annual total return" figures described in the Prospectus are
computed according to a formula. The formula can be expressed as follows:
P(1 + T)/n/ = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = beginning of a 1-, 5-, or 10-year period at the
end of a 1-, 5-, or 10-year period
(or fractional portion thereof), assuming
reinvestment of all dividends and Ending Redeemable Value of
a hypothetical $1,000 investment made at the distributions.
AGGREGATE TOTAL RETURNS
SC-US's aggregate total return figures described in the Prospectus represent
the cumulative change in the value of an investment in SC-US for the specified
period and are computed by the following formula.
Aggregate Total Return = (ERV-P)
-------
P
Where: P = a hypothetical initial payment of $1,000.
ERV = Ending Redeemable Value of a hypothetical $1,000 investment made
at the beginning of the 1-, 5- or 10-year period at the end of
the 1-, 5- or 10-year period (or fractional portion thereof),
assuming reinvestment of all dividends and distributions.
YIELD
Quotations of yield for SC-US will be based on all investment income per share
earned during a particular 30-day period (including dividends and interest),
less expenses accrued during the period ("net investment income") and are
computed by dividing net investment income by the maximum offering price per
share on the last day of the period, according to the following formula:
Yield = 2[(a-b + 1)/6/-1]
---
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = the maximum offering price per share on the last day of
the period.
In reports or other communications to shareholders of SC-US or in advertising
materials, SC-US may compare its performance with that of (i) other mutual funds
listed in the rankings prepared by Lipper Analytical Services, Inc.,
publications such as Barron's, Business Week, Forbes, Fortune, Institutional
Investor, Kiplinger's Personal Finance, Money, Morningstar Mutual Fund Values,
The New York Times, The Wall Street Journal and USA Today or other industry or
financial publications or (ii) the Standard and Poor's Index of 500 Stocks, the
Dow Jones Industrial Average and other relevant indices and industry
publications. SC-US may also compare the historical volatility of its portfolio
to the volatility of such indices during the same time periods. (Volatility is a
generally
22
<PAGE>
accepted barometer of the market risk associated with a portfolio of securities
and is generally measured in comparison to the stock market as a whole--the
beta--or in absolute terms--the standard deviation.)
COUNSEL AND INDEPENDENT ACCOUNTANTS
Legal matters in connection with the issuance of the shares of SC-US offered
hereby will be passed upon by Mayer, Brown & Platt, 2000 Pennsylvania Ave., NW,
Washington, DC, 20006, which will rely as to certain matters of Maryland law
on Ballard Spahr Andrews & Ingersoll.
Arthur Andersen LLP has been appointed as independent accountants for SC-US.
FINANCIAL STATEMENTS
The unaudited Financial Statements of Security Capital Employee REIT Fund
Incorporated for the period January 1, 1997 through September 30, 1997, are
included herein.
23
<PAGE>
SECURITY CAPITAL U.S. REAL ESTATE SHARES INCORPORATED
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Number of Shares Market Value
- ------------------ ---------------
<S> <C> <C>
COMMON STOCK - REAL ESTATE
INVESTMENT TRUSTS (REITS) - 94.4%
OFFICE PROPERTIES - 31.3%
417,500 Beacon Properties Corporation $ 19,126,719
105,000 Boston Properties, Inc. 3,445,312
41,000 Cali Realty Corporation 1,706,625
65,000 Cornerstone Properties, Inc. 1,243,125
135,000 Kilroy Realty Corporation 3,645,000
11,400 Koger Equity, Inc. 233,275
54,900 Prentiss Properties Trust 1,585,286
50,000 SL Green Realty Corp. 1,293,750
152,100 Spieker Properties, Inc. 6,169,556
---------------
38,448,648
---------------
MULTIFAMILY - 21.8%
255,500 Apartment Investment & Management Company 9,229,937
116,500 Equity Residential Properties Trust 6,356,531
175,000 Essex Property Trust, Inc. 6,092,187
150,000 Charles E. Smith Residential Realty, Inc. 5,100,000
---------------
26,778,655
---------------
HOTELS - 14.4%
105,000 FelCor Suite Hotels, Inc. 4,311,562
22,200 Homestead Village, Inc. 394,050
312,500 Innkeepers USA Trust 5,371,094
5,000 Patriot American Hospitality, Inc. 187,785
130,000 Starwood Lodging Trust 7,466,875
---------------
17,731,366
---------------
STORAGE - 7.9%
260,800 Public Storage, Inc. 7,726,200
75,500 Storage Trust Realty 1,972,438
---------------
9,698,638
---------------
</TABLE>
See notes to the financial statements
24
<PAGE>
SECURITY CAPITAL U.S. REAL ESTATE SHARES INCORPORATED
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
REGIONAL MALLS - 7.6%
173,600 The Macerich Company 5,012,650
136,000 Urban Shopping Centers, Inc. 4,352,000
---------------
9,364,650
---------------
SHOPPING CENTERS - 5.2%
90,000 Developers Diversified Realty Corporation $ 3,600,000
58,300 Kimco Realty Corporation 2,029,569
55,200 Western Investment Real Estate Trust 745,593
---------------
6,375,162
---------------
INDUSTRIAL - 4.1%
80,000 Liberty Property Trust 2,155,000
121,700 Pacific Gulf Properties, Inc. 2,890,375
---------------
5,045,375
---------------
FACTORY OUTLETS - 2.1%
60,000 Chelsea GCA Realty, Inc. 2,505,000
---------------
Total Common Stock - Real Estate Investment
Trusts (REITs) (Cost $98,921,861) 115,947,494
---------------
LIMITED PARTNERSHIPS - 2.4%
DIVERSIFIED - 2.4%
124,200 Newhall Land & Farming Company 2,996,327
---------------
Total Limited Partnerships (Cost $2,335,796) 2,996,327
---------------
</TABLE>
See notes to the financial statements
25
<PAGE>
SECURITY CAPITAL U.S. REAL ESTATE SHARES INCORPORATED
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Principal
Amount
- ------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS - 2.8%
VARIABLE RATE DEMAND NOTES* - 2.8%
$840,535 American Family Financial Services Inc., 5.1553% 840,535
241,385 General Mills, Inc., 5.135% 241,385
142,376 Johnson Controls, Inc., 5.165% 142,376
1,561,839 Pitney Bowes, Inc., 5.1441% 1,561,839
261,716 Sara Lee Corporation, 5.124% 261,716
379,515 Warner-Lambert Co., 5.115% 379,515
52,725 Wisconsin Electric Power Company, 5.1852% 52,725
---------------
(Cost $3,480,091) 3,480,091
---------------
Total Investments - 99.6%
(Cost $104,737,748) $122,423,912
---------------
Other Assets in Excess of
Liabilities - 0.4% 471,182
---------------
NET ASSETS 100.0% $122,895,094
===============
* Variable rate demand notes are considered short-term
obligations and are payable on demand. Interest rates change
periodically on specified dates. The rates listed are as of
September 30, 1997.
</TABLE>
See notes to the financial statements.
26
<PAGE>
SECURITY CAPITAL U.S. REAL ESTATE SHARES INCORPORATED
- -----------------------------------------------------
Statement of Assets and Liabilities
September 30, 1997 (Unaudited)
ASSETS:
Investments, at value
(cost $104,737,748) $122,423,912
Deferred organization costs 101,864
Receivable for investment securities sold 5,393,971
Dividends receivable 590,251
Interest receivable 18,150
Other assets 21,222
------------
Total Assets 128,549,370
------------
LIABILITIES:
Payable for investment securities 5,168,210
purchased
Payable to investment adviser 397,345
Accrued expenses and other liabilities 88,721
------------
Total Liabilities 5,654,276
------------
NET ASSETS $122,895,094
============
NET ASSETS CONSIST OF:
Capital stock $102,736,474
Accumulated undistributed net
investment income 35,910
Accumulated undistributed net
realized gain on investments 2,436,546
Net unrealized appreciation on
investments 17,686,164
------------
Total Net Assets $122,895,094
============
Shares outstanding (500,000,000
shares 9,891,030
of $0.01 par value authorized)
Net Asset Value, Redemption Price
and Offering Price Per Share $12.42
============
See notes to the financial statements.
27
<PAGE>
SECURITY CAPITAL U.S. REAL ESTATE SHARES INCORPORATED
- -----------------------------------------------------
STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30,
1997
(UNAUDITED)
INVESTMENT INCOME:
Dividend income $ 4,104,233
Interest income 79,674
------------
Total investment income 4,183,907
------------
EXPENSES:
Investment advisory fee 407,554
Administrative fee 40,844
Shareholder servicing and
accounting costs 27,152
Custody fees 11,987
Federal and state registration 24,632
Professional fees 18,984
Reports to shareholders 6,552
Directors' fees and expenses 11,592
Amortization of organizational 16,235
expenses
Other 1,680
------------
Total expenses before reimbursement 567,212
Less: Reimbursement from Adviser (16,235)
------------
Total expenses 550,977
------------
See notes to the financial statements.
28
<PAGE>
SECURITY CAPITAL U.S. REAL ESTATE SHARES INCORPORATED
- -----------------------------------------------------
NET INVESTMENT INCOME 3,632,930
------------
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS:
Net realized gain on investments 2,436,546
Change in unrealized
appreciation on investments 17,390,410
------------
Net realized and unrealized
gain on investments 19,826,956
------------
NET INCREASE IN
NET ASSETS RESULTING ============
FROM OPERATIONS
$ 23,459,886
============
See notes to the financial statements.
29
<PAGE>
SECURITY CAPITAL U.S. REAL ESTATE SHARES INCORPORATED
- -----------------------------------------------------
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
(Unaudited)
Nine months December 20,
ended 1996(1)
September 30, through
1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 3,632,930 $ 24,188
Net realized gain on investments 2,436,546 0
Change in unrealized appreciation on 17,390,410 295,754
investments ------------ -----------
Net increase in net assets from operations 23,459,886 319,942
------------ -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 91,678,805 9,926,736
Shares issued to holders in reinvestment of 3,624,372 0
dividends
Cost of shares redeemed (2,488,471) 0
------------ -----------
Net increase in net assets from
capital share transactions 92,814,706 9,926,736
------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS
(3,626,176) 0
FROM NET INVESTMENT INCOME ------------ -----------
TOTAL INCREASE IN NET ASSETS 112,648,416 10,246,678
NET ASSETS:
Beginning of period 10,246,678 0
------------ -----------
End of period (including undistributed net
investment $122,895,094 $10,246,678
income of $35,910 and $24,188, respectively) ------------ -----------
</TABLE>
(1) Inception date.
See notes to the financial statements.
30
<PAGE>
SECURITY CAPITAL U.S. REAL ESTATE SHARES INCORPORATED
- -----------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
1.ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Security Capital U.S. Real Estate Shares Incorporated (the "Fund"), formerly
Security Capital Employee REIT Fund Incorporated, is a Maryland corporation,
originally formed on December 20, 1996, as SCERF Incorporated (SCERF), a
Maryland corporation. On January 23, 1997, all of the assets and liabilities of
SCERF were transferred to the Fund in a reorganization (the "Reorganization")
accounted for as a pooling of interests. The Reorganization was a taxable event
to SCERF and a capital gain of $1,002,746 was realized for tax purposes. This
capital gain will be included in the consolidated income tax return of the sole
shareholder of SCERF and will not affect the Fund's tax status for 1997. This
will result in a lower required capital gain distribution for the Fund for
calendar year 1997. As of September 30, 1997, $388,754 of the capital gain was
realized for book purposes. As a result, at September 30, 1997, the tax basis
of securities held was $613,992 higher than their basis for financial reporting
purposes.
The Fund is registered as a non-diversified, no-load, open-end management
investment company under the Investment Company Act of 1940 (the "1940 Act").
The investment objective of the Fund is to provide shareholders with above-
average total returns, including current income and capital appreciation,
primarily through investments in real estate securities in the United States.
The costs incurred in connection with the organization, initial registration and
public offering of shares, aggregating $118,099, havebeen paid by the Adviser.
The Fund will reimburse the Adviser. These costs are being amortized over the
period of benefit, but not to exceed sixty months from the Fund's commencement
of operations. The Adviser has voluntarily agreed to absorb the amortization
expenses in the Fund's first year. The amortization as of September 30, 1997 of
$16,235 will be reimbursed to the Fund.
The following is a summary of significant accounting policies consistently
followed by the Fund.
a) Investment Valuation - Each day, securities are valued at the last sales
price from the principal exchange on which they are traded. Securities that have
not traded on the valuation date, or securities for which sales prices are not
generally reported, are valued at the mean between the last bid and asked
prices. Securities for which market quotations are not readily available are
valued at their fair values determined by, or under the direction of, the Board
of Directors (the "Directors"). Temporary cash investments (those with
remaining maturities of 60 days or less) are valued at amortized cost, which
approximates market value.
Because the Fund may invest a substantial portion of its assets in Real Estate
Investment Trusts ("REITs"), the Fund may be subject to certain risks associated
with direct investments in REITs. REITs may be affected by changes in the value
of their underlying properties and by defaults by borrowers and tenants. REITs
depend generally on their ability to generate cash flow to make distributions to
shareholders, and certain REITs have self-liquidation provisions by which
mortgages held may be paid in full and distributions of capital returns may be
made at any time.
b) Federal Income Taxes - No provision for federal income taxes has been made
since the Fund has complied to date with the provisions of the Internal Revenue
Code available to regulated investment companies and intends to continue to so
comply in future years and to distribute investment company net taxable income
and net capital gains to shareholders.
c) Distributions to Shareholders - Dividends from net investment income are
declared and paid quarterly. The Fund intends to distribute net realized
capital gains, if any, at least annually, although the Fund's Board of Directors
may in the future determine to retain realized capital gains and not distribute
them to shareholders.
Distributions will automatically be paid in full and fractional shares of the
Fund based on the net asset value per share at the close of business on the
payable date unless the shareholder has elected to have distributions paid in
cash.
The characterization of shareholder distributions for financial reporting
purposes is determined in
31
<PAGE>
SECURITY CAPITAL U.S. REAL ESTATE SHARES INCORPORATED
- -----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
accordance with income tax rules. Therefore, the source of the Fund's
distributions may be shown in the accompanying financial statements as either
from or in excess of net investment income or net realized gain on investment
transactions, or from paid- in-capital, depending on the type of book/tax
differences that may exist.
A portion of the dividend income recorded by the Fund is from distributions by
publicly traded REITs and such distributions for tax purposes may consist of
capital gains and return of capital. The actual return of capital and capital
gainsportions of such distributions will be determined by formal notifications
from the REITs subsequent to the calendar year-end. Distributions received from
the REITs that are determined to be a return of capital are recorded by the Fund
as reduction of the cost basis of the securities held. The character of such
distributions, for tax purposes, is determined by the Fund based on estimates
and information received by the Fund from the REITs.
d) Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statementsand the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
e) Other - Investment and shareholder transactions are recorded on trade date.
The Fund determines the gain or loss realized from the investment transactions,
using the specific identification method for both financial reporting and
federal income tax purposes, by comparing the original cost of the security lot
sold with the net sales proceeds. It is the Fund's practice to first select for
sale those securities that have the highest cost and also qualify for long-term
capital gain or loss treatment for tax purposes. Dividend income is recognized
on the ex-dividend date or as soon as information is available to the Fund, and
interest income is recognized on an accrual basis. Generally accepted accounting
principles require that permanent financial reporting and tax differences be
reclassified to capital stock.
2. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Fund were as follows:
NINE MONTHS 12/20/96
ENDED THROUGH
9/30/97 12/31/96
-------- --------
Shares sold 8,803,960 987,423
Shares issued to
holders in
reinvestment of
dividends 323,631 -
Shares redeemed (223,984) -
--------- --------
Net increase 8,903,607 987,423
========= ========
3. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of investments by the Fund for the nine months
ended September 30, 1997, were $140,160,737 and $51,851,664, respectively.
At September 30, 1997, gross unrealized appreciation and depreciation of
investments for tax purposes were as follows:
Appreciation $17,078,344
(Depreciation) (152,740)
-------------
Net appreciation on
investments $16,925,604
===========
At September 30, 1997, the cost of investments for federal income tax purposes
was $105,498,308.
4. INVESTMENT ADVISORY AND OTHER AGREEMENTS
The Fund has entered into an Investment Advisory Agreement with Security Capital
(US) Management Group Incorporated ("SC (US) Management"), formerly Security
Capital Investment Research Group Incorporated. Pursuant to its advisory
agreement with the Fund, the Investment Adviser is entitled to receive a fee,
calculated daily and payable monthly, at the annual rate of 0.85% as applied to
the Fund's daily net assets.
32
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SC (US) Management voluntarily agrees to reimburse its management fee and other
expenses to the extent that total operating expenses (exclusive of interest,
taxes, brokerage commissions and other costs incurred in connection with the
purchase or sale of portfolio securities, and extraordinary items) exceed the
annual rate of 1.20% of the net assets of the Fund, computed on a daily basis,
for the year ending December 31, 1997.
SC (US) Management also serves as the Fund's administrator. SC (US) Management
intends to charge the Fund an administrative fee calculated daily at the annual
rate of 0.02% of the Fund's average daily net assets.
Firstar Trust Company, a subsidiary of Firstar Corporation, a publicly held bank
holding company, serves as custodian, transfer agent, sub-administrator and
accounting services agent for the Fund. Sub-administration fees will be
calculated daily at an annual rate of 0.06% of the first $200 million of the
Fund's average daily net assets. Custodian, transfer agent fees and accounting
services will be charged by Firstar according to contractual fee schedules
agreed to by the Fund. All such expenses incurred through April 15, 1997 have
been paid by SC (US) Management, which does not intend to seek reimbursement
from the Fund.
33
<PAGE>
SECURITY CAPITAL U.S. REAL ESTATE SHARES INCORPORATED
FORM N-1A
PART C -- OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements.
To be filed by amendment.
(b) Exhibits:
A list of exhibits filed herewith is contained on the Exhibit Index
which immediately precedes such exhibits and is incorporated herein by
reference.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Following is a list of entities that for purposes of the Investment Company
Act of 1940 are controlled by or under common control with Security Capital U.S.
Real Estate Shares Incorporated:
<TABLE>
<CAPTION>
JURISDICTION OF
NAME ORGANIZATION BASIS OF CONTROL
- ------------------------------------------ --------------- ---------------------------------------
<S> <C> <C>
Security Capital Group Incorporated Maryland No entity controls Group
("Group")
SC Realty Incorporated ("SC Realty") Nevada Ownership by Group of 100% of
voting securities
Security Capital Global Management Delaware Ownership by Group of 100% of
Incorporated ("Global Management") voting securities
SCERF Incorporated Maryland Ownership by SC Realty of 100% of
voting securities
Security Capital U.S. Real Estate Shares Maryland Ownership by SCERF Incorporated of
Incorporated 100% of voting securities
Security Capital EuroPacific Real Estate Maryland Ownership by SC Realty of 100% of
Shares Incorporated voting securities
Security Capital Management Incorporated Delaware Ownership by Group of 100% of voting
securities
Belmont Corporation Delaware Ownership by Group 100% of voting
securities
Security Capital BVI Holdings Maryland Ownership by Group of 100% of
Incorporated voting securities
Security Capital (US) Management Delaware Ownership by Global Management of
Group Incorporated 100% of voting securities
Security Capital Global Strategic Group Maryland Ownership by Global Management of
Incorporated 100% of voting securities
Security Capital Real Estate Research Maryland Ownership by Global Management of
Group Incorporated 100% of voting securities
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
SC Group Incorporated Texas Ownership by Group of 100% of voting
securities
Coast Services Incorporated Maryland Ownership by SC Group Incorporated
of 100% of voting securities
Security Capital Markets Group Incorporated Delaware Ownership by Group of 100% of
voting securities
Strategic Hotel Capital Incorporated Delaware Ownership by Group of 49.65% of
voting securities
SHC Funding Incorporated Delaware Ownership by Group of 100% of
voting securities
Strategic Hotel Capital Limited Partnership Delaware Ownership by Group of 100% of
voting securities
SHC Holdings LLC Delaware Ownership by Group of 49.65% of
voting securities
SHC Philadelphia LLC Delaware Ownership by Group of 49.65% of
voting securities
SHC Santa Clara LLC Delaware Ownership by Group of 49.65% of
voting securities
SHC Laguna Niguel LLC Delaware Ownership by Group of 49.65% of
voting securities
SHC Capitol LLC Delaware Ownership by Group of 49.65% of
voting securities
SHC Westport Inn Delaware Ownership by Group of 49.65% of
voting securities
SHC Westport Plaza LLC Delaware Ownership by Group of 49.65% of
voting securities
SHC Mexico Holdings Incorporated Delaware Ownership by Group of 49.65% of
voting securities
Security Capital (EU) Management Holdings S.A. Luxemburg Ownership by Group of 100% of
voting securities
Security Capital (EU) Management Group S.A Luxemburg Ownership by Security Capital
(EU)Holdings S.A. of 100% of
voting securities
Security Capital Global Management S.A. Luxemburg Ownership by Security Capital (EU)
Management Holdings S.A. of 100% of
voting securities.
Security Capital (EU) Management S.A. Luxemburg Ownership by Security Capital (EU)
Management Holdings S.A. of 100% of
voting securities
Security Capital (UK) Management Limited United Kingdom Ownership by Security Capital (EU)
Management S.A. of 100% of voting securities
Security Capital (EU) Holdings S.A Luxemburg Ownership by Security Capital (UK)
Management Holdings of 100% of voting securities
CarrAmerica Realty Corporation Maryland Ownership by US Realty of
37.2% of voting securities
Storage USA, Inc. Tennessee Ownership by US Realty of
33.8% of voting securities
Regency Realty Corporation Florida Ownership by US Realty of 37.5% of
voting securities
Pacific Retail Trust Maryland Ownership by US Realty of 69.3% of
voting securities
Urban Growth Property Incorporated Delaware Ownership by Urban Growth Property Trust
of 99% of voting securities
Urban Growth Property Trust Maryland Ownership by US Realty of 100% of voting
securities
LWP Associates LLC Maryland Ownership by Urban Growth Property Trust
of 50% of voting securities
</TABLE>
2
<PAGE>
<TABLE>
<S> <C> <C>
Van Wells Realty Company, LLC Maryland Ownership by Urban Growth Property
Trust of 50% of voting securities
City Center Retail Trust Maryland Ownership by US Realty of 99% of
voting securities
City Center Retail Trust McCaffrey Developments, L.P. Delaware Sole general partnership interest owned by
City Center Retail Trust
CCRT I Incorporated Delaware Ownership by City Center Retail Trust of 100%
of voting securities
CCRT II Incorporated Delaware Ownership by City Center Retail Trust of 100%
of voting securities
Parking Services International Incorporated Maryland Ownership by US Realty of 8.8% of
voting securities
NPC-1 Incorporated Maryland Ownership by Parking Services International
Incorporated of 100% of voting securities
CWS Communities Trust Maryland Ownership by US Realty of 100% of voting
securities
CWS Communities L.P. Delaware/3/ Sole general partnership interest owned by
CWS Communities Trust
SC Communities Incorporated Delaware Ownership by US Realty of 100% of voting
securities
Security Capital Industrial Trust ("SCI") Maryland Ownership by SC Realty of 44.1% of
voting securities
International Industrial Investments Inc. Maryland Ownership by SCI of 100% of voting
securities
Security Capital Logistar International Incorporated Delaware Ownership by SCI of 100% of voting
securities
Security Capital Logistar Management Services Incorporated Delaware Ownership by SCI of 100% of voting
securities
Security Capital Logistar Interim SARL Luxembourg Ownership by SCI of 100% of voting
securities
Logistar Interim II SARL Luxembourg Ownership by SCI of 100% of voting
securities
Logistar SARL Luxembourg Ownership by SCI of 100% of voting
securities
Logistar BV Luxembourg Ownership by SCI of 100% of voting
securities
Security Capital Logistar Fund SCA Luxembourg Ownership by SCI of 100% of voting
securities
SCI Logistar Management SARL Luxembourg Ownership by SCI of 100% of voting
securities
Logistar Germany SARL Luxembourg Ownership by SCI of 100% of voting
securities
Logistar Italy SARL Luxembourg Ownership by SCI of 100% of voting
securities
Logistar Belgium SARL Luxembourg Ownership by SCI of 100% of voting
securities
Logistar Netherlands II SARL Luxembourg Ownership by SCI of 100% of voting
securities
Logistar U.K. SARL Luxembourg Ownership by SCI of 100% of voting
securities
Logistar Poland SARL Luxembourg Ownership by SCI of 100% of voting
securities
Logistar Spain SARL Luxembourg Ownership by SCI of 100% of voting
securities
CS Integrated LLC ("CSI") Delaware Ownership by SCI of 80% of voting
securities
Enterprise Refrigerated Services LLC Delaware Ownership by CSI of 100% of voting
securities
CS Integrated Retail Services LLC Delaware Ownership by CSI of 100% of voting
securities
CS Integrated-Texas Limited Partnership Delaware Ownership by CSI of 100% of voting
securities
CS Integrated Investment Management LLC Delaware Ownership by CSI of 100% of voting
securities
CS Integrated Investments Southwest LLC Delaware Ownership by CSI of 100% of voting
securities
SCI Logistics Services Incorporated Delaware Ownership by SCI of 95% of voting
securities
1440 Goodyear Partners Texas Sole general Partnership interest owned
by SCI
Red Mountain Joint Venture Texas Sole general Partnership interest owned
by SCI
</TABLE>
3
<PAGE>
<TABLE>
<S> <C> <C>
SCI Limited Partnership-I Delaware Sole general partnership interest owned
by SCI
SCI Limited Partnership-II Delaware Sole general partnership interest owned
by SCI
SCI Limited Partnership-III Delaware Sole general partnership interest owned
by SCI
SCI Limited Partnership-IV Delaware Sole general partnership interest owned
by SCI IV, Inc.
SCI IV, Inc. Delaware Ownership by SCI of 100% of voting
securities
Security Capital Industrial Delaware Ownership by SCI of 100% of
Management Incorporated voting securities
SCI--Alabama (1) Incorporated Maryland Ownership by SCI of 100% of voting
securities
SCI--Alabama (2) Incorporated Maryland Ownership by SCI of 100% of voting
securities
Security Capital Alabama Industrial Alabama Ownership of 100% of voting securities
Trust by SCI--Alabama (1) Incorporated
and SCI--Alabama (2) Incorporated
SCI--North Carolina (1) Incorporated Maryland Ownership by SCI of 100% of voting
securities
SCI--North Carolina (2) Incorporated Maryland Ownership by SCI of 100% of voting
securities
SCI--North Carolina Limited Delaware Sole general partnership interest owned
Partnership by SCI--North Carolina (1)
Incorporated
SCI Houston Holdings Inc. Delaware Ownership by SCI of 100% of voting
securities
SCI Mexico Industrial Trust Maryland Ownership of SCI of 100% non-voting
preferred securities
SCI De Mexico SA DE CV Mexico Ownership by SCI-DS Mexico of 100%
of voting securities
SCI Development Services Incorporated Delaware Ownership by SCI of 100% of voting
securities
SCI-DS Mexico Incorporated Maryland Ownership by SCI Development
Services 100% of voting securities
Security Capital Atlantic Incorporated Maryland Ownership by SC Realty of 49% of
("Atlantic") voting securities
SCG Realty Services Atlantic Delaware Ownership by Atlantic of 100% of
Incorporated voting securities
SCA Florida Holdings (1) Incorporated Florida Ownership by Atlantic of 100% of
voting securities
Atlantic--Alabama (1) Incorporated Maryland Ownership by Atlantic of 100% of
voting securities
Atlantic Development Services Delaware Ownership by SCA of 100% of
preferred stock
Atlantic-Tennessee Limited Partnership Delaware Ownership by SCA (3) and SCA (4) of 100%
of voting securities
SCA Tennessee (3) Incorporated Maryland Ownership by SCA of 100% of voting
securities
SCA Tennessee (4) Incorporated Maryland Ownership by SCA of 100% of voting
securities
</TABLE>
4
<PAGE>
<TABLE>
<S> <C> <C>
Atlantic--Alabama (2) Incorporated Maryland Ownership by Atlantic of 100% of
voting securities
Security Capital Alabama Multifamily Alabama Ownership by Atlantic--Alabama (1)
Trust Incorporated and Atlantic--Alabama
(2) Incorporated of 100% of voting
securities
Atlantic--Alabama (3) Incorporated Delaware Ownership by Atlantic of 100% of
voting securities
Atlantic--Alabama (4) Incorporated Delaware Ownership by Atlantic of 100% of
voting securities
Atlantic Alabama Multifamily Trust Alabama Ownership of 100% of voting
securities
by Atlantic--Alabama (3)
Incorporated and Atlantic--Alabama
(4) Incorporated
Atlantic--Alabama (5) Incorporated Delaware Ownership by Atlantic of 100% of
voting securities
Atlantic--Alabama (6) Incorporated Delaware Ownership by Atlantic of 100% of
voting securities
SCA Alabama Multifamily Trust Alabama Ownership by Atlantic-Alabama (5) and (6)
of 100% of voting securities
SCA--South Carolina (1) Incorporated Maryland Ownership by Atlantic of 100% of
voting securities
SCA--North Carolina (1) Incorporated Maryland Ownership by Atlantic of 100% of
voting securities
SCA North Carolina (2) Incorporated Maryland Ownership by Atlantic of 100% of
voting securities
SCA North Carolina Limited Partnership Delaware Sole general partnership interest owned
by SCA--North Carolina (1)
Incorporated
SCA--Indiana Limited Partnership Delaware Sole general partnership interest owned
by SCA--North Carolina (1)
Incorporated
SCA--Tennessee Limited Partnership Delaware Sole general partnership interest owned
by SCA--Tennessee (1) Incorporated
SCA--Tennessee (1) Incorporated Delaware Ownership by Atlantic of 100% of
voting securities
SCA--Tennessee (2) Incorporated Delaware Ownership by Atlantic of 100% of
voting securities
Security Capital Atlantic Multifamily Delaware Ownership by Atlantic of 100% of
Inc. voting securities
Security Capital Pacific Trust ("PTR") Maryland Ownership by SC Realty of 36.0% of
voting securities
SCG Realty Service Incorporated Delaware Ownership by PTR of 100% of voting
securities
SCP Nevada Holdings 1 Incorporated Nevada Ownership by PTR of 100% of voting
securities
SCP Utah Holdings 1 Incorporated Utah Ownership by PTR of 100% of voting
securities
SCP Utah Holdings 2 Incorporated Utah Ownership by PTR of 100% of voting
securities
SCP Utah Holdings 3 Incorporated Utah Ownership by PTR of 100% of voting
securities
</TABLE>
5
<PAGE>
<TABLE>
<S> <C> <C>
SCP Utah Holdings (4) Incorporated Utah Ownership by PTR of 100% of voting
securities
SCP Utah Holdings (5) Incorporated Utah Ownership by PTR of 100% of voting
securities
PTR Multifamily Holdings Incorporated Delaware Ownership by PTR of 100% of voting
securities
Resident Advantage Delaware Ownership by PTR of 100% of voting
securities
Las Flores Development Company Texas Ownership by PTR of 100% of voting
securities
PTR Holdings (Texas) Incorporated Texas Ownership by PTR of 100% of voting
securities
PTR Multifamily Incorporated Delaware Ownership by PTR of 100% of voting
securities
PTR-California Holdings (1) Incorporated Maryland Ownership by PTR of 100% of voting
securities
PTR-California Holdings (2) Incorporated Maryland Ownership by PTR of 100% of voting
securities
PTR-California Holdings (3) Incorporated Delaware Ownership by PTR of 100% of voting
securities
PTR-New Mexico (1) Incorporated Delaware Ownership by PTR of 100% of voting
securities
PTR Development Services Delaware Ownership by PTR of 100% of
preferred stock
PTR-New Mexico (2) Incorporated Delaware Ownership by PTR of 100% of voting
securities
PTR Washington Holdings (1) Incorporated Maryland Ownership by PTR Development
Services of 100% of voting securities
Homestead Village Incorporated Maryland Ownership by SC Realty (including its
subsidiaries) of 56.5% of voting
securities
KC Homestead Village Redevelopment Missouri Ownership by Homestead Village
Corporation Incorporated of 100% of voting
securities
Missouri Homestead Village Incorporated Maryland Ownership by Homestead Village
Incorporated of 100% of voting
securities
Atlantic Homestead Village Limited Delaware Sole general partnership interest owned
Partnership by Atlantic Homestead Village (1)
Incorporated
Atlantic Homestead Village (1) Incorporated Maryland Ownership by Homestead Village
Incorporated of 100% of voting
securities
Atlantic Homestead Village (2) Incorporated Maryland Ownership by Homestead Village
Incorporated of 100% of voting
securities
PTR Homestead Village (1) Incorporated Maryland Ownership by Homestead Village
Incorporated of 100% of voting
securities
PTR Homestead Village (2) Incorporated Maryland Ownership by Homestead Village
Incorporated of 100% of voting
securities
</TABLE>
6
<PAGE>
<TABLE>
<S> <C> <C>
Homestead Alabama Incorporated Alabama Ownership by Homestead Village of 100% of
voting securities
BTW Incorporated Delaware Ownership by Homestead Village
Incorporated of 100% of voting
securities
Homestead Village Management Delaware Ownership by Homestead Village
Incorporated Incorporated of 100% of voting
securities
PTR Homestead Village Limited Partnership Delaware Sole general partnership interest owned
by PTR Homestead Village (1)
Incorporated
</TABLE>
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
TITLE OF CLASS NUMBER OF RECORD HOLDERS
Shares of Beneficial Interest at November 25, 1997
Class I Shares 9,750,437.375
Class R Shares 53,409.61
ITEM 27. INDEMNIFICATION.
Reference is made to Article Eighth of the Registrant's Articles of
Incorporation, incorporated by reference to SC-US's Registration Statement on
Form N-1A (File Nos. 333-20649 and 811-8033), filed with the Securities and
Exchange Commission on January 29, 1997.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant by the Registrant pursuant to its Articles of Incorporation, its By-
Laws or otherwise, the Registrant is aware that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Act and, therefore, is unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by directors, officers or controlling
persons of the Registrant in connection with the successful defense of any act,
suit or proceeding) is asserted by such directors, officers or controlling
persons in connection with shares being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issues.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Security Capital (US) Management Group Incorporated ("SC (US) Management"), 11
South LaSalle Street, Chicago, Illinois 60603, provides investment advisory
services to institutional investors.
7
<PAGE>
For information as to any other business, vocation or employment of a
substantial nature in which each Director or officer of the Registrant's
investment adviser has been engaged for his own account or in the capacity of
Director, officer, employee, partner or trustee, reference is made to Prospectus
and Statement of Additional Information contained in this registration
statement.
ITEM 29. PRINCIPAL UNDERWRITER.
(a) Security Capital Markets Group Incorporated ("SCMG"), the principal
distributor for the Registrant's securities, does not currently act as principal
underwriter or distributor for any other investment company.
(b) The table below sets forth certain information as to SCMG's Directors,
Officers and Control Persons:
<TABLE>
<CAPTION>
NAME AND PRINCIPAL *POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT
- ------------------------- ----------------------------------- ---------------------
<S> <C> <C>
Lucinda G. Marker*/ President None
K. Scott Canon**/ Director and Senior Vice President None
Jeffrey A. Klopf*/ Director, Secretary and Senior None
Vice President
Gerard de Gunzburg***/ Senior Vice President None
Donald E. Suter**/ Managing Director None
Robert H. Fippinger*/ Vice President None
Alison C. Hefele**/ Senior Vice President None
Garett C. House**/ Vice President None
Gerald R. Morgan, Jr.*/ Assistant Controller None
Jayson C. Cyr****/ Assistant Controller None
</TABLE>
*/ Principal business address is 125 Lincoln Avenue, Santa Fe, New Mexico,
87501.
**/ Principal business address is 11 South LaSalle Street, Chicago, Illinois
60609
***/ Principal business address is 399 Park Avenue, 23rd Floor, New York, NY
10022.
****/ Principal business address is 7777 Market Center Avenue, El Paso, Texas
79912.
(c) Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
Certain of the records described in Section 31(a) of the 1940 Act and the
Rules 17 CFR 270.31a-1 to 31a-3 promulgated thereunder, are maintained by SC-
US's Investment Adviser and Administrator, Security Capital (US) Management
Group Incorporated, 11 S. LaSalle Street, Chicago, Illinois 60603. The remainder
of such records are
8
<PAGE>
maintained by Firstar Trust Company, SC-US's Sub-Administrator, 615 East
Michigan Street, Milwaukee, Wisconsin 53202.
ITEM 31. MANAGEMENT SERVICES.
There are no management-related service contracts not discussed in Part A or
Part B.
ITEM 32. UNDERTAKINGS.
(a) Registrant hereby undertakes to furnish each person to whom a prospectus
is delivered with a copy of the Registrant's latest Annual Report to
Shareholders upon request and without charge.
(b) The Registrant hereby undertakes to promptly call a meeting of
shareholders for the purpose of voting upon the question of removal of any
director or directors when requested in writing to do so by the record holders
of not less than 10 percent of the Registrant's outstanding shares and to assist
its shareholders in accordance with the requirements of Section 16(c) of the
Investment Company Act of 1940 relating to shareholder communications.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this amended Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Chicago, and State of Illinois on the 16th day
of December, 1997.
Security Capital U.S. Real Estate
Shares Incorporated
By: /s/ Anthony R. Manno
---------------------------------------
Anthony R. Manno Jr.
Chairman, Managing Director and President
Pursuant to the requirements of the Securities Act of 1933, this amended
Registration Statement of Security Capital U.S. Real Estate Shares Incorporated
has been signed below by the following persons in the capacities and on the 16th
day of December, 1997.
Signature Capacity Date
- --------------------------- --------------------------- ---------------------
/s/ Anthony R. Manno Jr. Chairman, Managing December 16, 1997
- ------------------------- Director
Anthony R. Manno Jr. and
President
/s/ Jeffrey C. Nellessen
- ------------------------ Principal Financial Officer December 16, 1997
Jeffrey C. Nellessen
/s/ Jeffrey C. Nellessen
- ------------------------- Comptroller December 16, 1997
Jeffrey C. Nellessen
/s/ Stephen F. Kasbeer
- ------------------------- Director December 16, 1997
Stephen F. Kasbeer
/s/ Anthony R. Manno Jr.
- ------------------------- Director December 16, 1997
Anthony R. Manno Jr.
/s/ George F. Keane
- ------------------------- Director December 16, 1997
George F. Keane
/s/ Robert H. Abrams Director
- ------------------------- December 16, 1997
Robert H. Abrams
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
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1* Articles of Incorporation.
2(a)* By-Laws.
2(b) Amended By-Laws.
5(a)** Investment Advisory Contract.
5(b) Amended Investment Advisory Contract.
5(c) Sponsorship Agreement
6(a)*** General Distributor's Agreement.
6(b) Distribution and Servicing Agreement.
8** Custodian Agreement.
9(a)** Transfer Agent Agreement.
9(b)** Fund Accounting and Administration Agreement.
9(b)(i) Amended Fund Accounting and Administration Agreement.
9(c)** Fund Accounting Servicing Agreement.
10(a)*** Opinion and Consent of Mayer, Brown & Platt regarding the
legality of the securities being issued.
11(a) Consent of Mayer, Brown & Platt.
11(b) Consent of Ballard Spahr Andrews & Ingersoll.
15(a) Rule 12b-1 Distribution and Service Plan for Class I Shares.
15(b)
Rule 12b-1 Distribution and Service Plan for Class R Shares.
17 Financial Data Schedule.
18 Rule 18f-3 Multiple Class Plan.
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*Incorporated herein by reference to Registrant's registration statement on
Form N-1A (File Nos. 333-20649 and 811-8033) filed with the Securities and
Exchange Commission on January 29, 1997.
**Incorporated herein by reference to Pre-Effective Amendment No. 1 to
Registrant's registration statement on Form N-1A (File Nos. 333-20649 and 811-
8033) filed with the Securities and Exchange Commission on April 7, 1997.
***Incorporated herein by reference to Pre-Effective Amendment No. 2 to
Registrant's registration statement on Form N-1A (file Nos. 333-20649 and 811-
9033) filed with the Securities and Exchange Commission on April 21, 1997.
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EXHIBIT 2(B)
BY-LAWS
OF
SECURITY CAPITAL EMPLOYEE REIT FUND INCORPORATED
AS AMENDED NOVEMBER 25, 1997
_______________________
ARTICLE I
Offices
Section 1. Principal Office in Illinois. The Corporation shall have
a principal office in the City of Chicago, State of Illinois.
Section 2. Other Offices. The Corporation may have offices also at
such other places within and without the State of Illinois as the Board of
Directors may from time to time determine or as the business of the Corporation
may require.
ARTICLE II
Meetings of Stockholders
Section 1. Place of Meeting. Meetings of stockholders shall be held
at such place, either within the State of Illinois or at such other place within
the United States, as shall be fixed from time to time by the Board of
Directors.
Section 2. Annual Meetings. The Corporation shall not be required
to hold an annual meeting of stockholders in any year in which the election of
directors is not required to be acted on by stockholders under the Investment
Company Act of 1940. If the Corporation is required to hold a meeting of
stockholders to elect directors, the meeting shall be designated as the annual
meeting of stockholders for that year and shall be held no later than 120 days
after the occurrence of the event requiring the meeting. Any business may be
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considered at an annual meeting of stockholders without the purpose of the
meeting having been specified in the notice.
Section 3. Notice of Annual Meeting. Written or printed notice of
the annual meeting, stating the place, date and hour thereof, shall be given to
each stockholder entitled to vote thereat and each other shareholder entitled to
notice thereof not less than ten nor more than ninety days before the date of
the meeting.
Section 4. Special Meetings. Special meetings of stockholders may
be called by the chairman, the president or by the Board of Directors and shall
be called by the secretary upon the written request of holders of shares
entitled to cast not less than ten percent of all the votes entitled to be cast
at such meeting. Such request shall state the purpose or purposes of such
meeting and the matters proposed to be acted on thereat. In the case of such
request for a special meeting, upon payment by such stockholders to the
Corporation of the estimated reasonable cost of preparing and mailing a notice
of such meeting, the secretary shall give the notice of such meeting. The
secretary shall not be required to call a special meeting to consider any matter
which is substantially the same as a matter acted upon at any special meeting of
stockholders held within the preceding twelve months, other than the question of
removal of any director or directors of the Corporation, unless requested to do
so by holders of shares entitled to cast not less than a majority of all votes
entitled to be cast at such meeting.
Section 5. Notice of Special Meeting. Written or printed notice of
a special meeting of stockholders, stating the place, date, hour and purpose
thereof, shall be given by the secretary to each stockholder entitled to vote
thereat and each other shareholder
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entitled to notice thereof not less than ten nor more than ninety days before
the date fixed for the meeting.
Section 6. Business of Special Meetings. Business transacted at any
special meeting of stockholders shall be limited to the purposes stated in the
notice thereof.
Section 7. Quorum. The holders of shares entitled to cast a
majority of the votes entitled to be cast thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business, except with respect to any matter
which, under applicable statutes or regulatory requirements or the Corporation's
charter, requires approval by a separate vote of one or more classes of stock,
in which case the presence in person or by proxy of the holders of shares
entitled to cast a majority of the votes entitled to be cast on the matter shall
constitute a quorum. A meeting of stockholders convened on the date for which
it is called may be adjourned from time to time without further notice to a date
not more than 120 days after the record date.
Section 8. Voting. When a quorum is present at any meeting, the
affirmative vote of a majority of the votes cast by stockholders entitled to
vote on the matter, shall decide any question brought before such meeting
(except that directors may be elected by the affirmative vote of a plurality of
the votes cast), unless the question is one upon which by express provision of
the Investment Company Act of 1940, as from time to time in effect, or other
statutes or rules or orders of the Securities and Exchange Commission or any
successor thereto or of the Articles of Incorporation a different vote is
required, in which case such express provision shall govern and control the
decision of such question.
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Section 9. Proxies. Each stockholder shall at every meeting of
stockholders be entitled to vote in person or by written proxy signed by the
stockholder or by his duly authorized attorney-in-fact. No proxy shall be voted
after eleven months from its date, unless otherwise provided in the proxy.
Section 10. Record Date. In order that the Corporation may determine
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, to express consent to corporate action in writing
without a meeting, or to receive payment of any dividend or other distribution
or allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date which shall be
not more than ninety days and, in the case of a meeting of stockholders, not
less than ten days prior to the date on which the particular action requiring
such determination of stockholders is to be taken. In lieu of fixing a record
date, the Board of Directors may provide that the stock transfer books shall be
closed for a stated period, but not to exceed, in any case, twenty days. If the
stock transfer books are closed for the purpose of determining stockholders
entitled to notice of or to vote at a meeting of stockholders, such books shall
be closed for at least ten days immediately preceding such meeting. If no
record date is fixed and the stock transfer books are not closed for the
determination of stockholders: (1) The record date for the determination of
stockholders entitled to notice of, or to vote at, a meeting of stockholders
shall be at the close of business on the day on which notice of the meeting of
stockholders is mailed or the day thirty days before the meeting, whichever is
the closer date to the meeting; and (2) The record date for
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the determination of stockholders entitled to receive payment of a dividend or
an allotment of any rights shall be at the close of business on the day on which
the resolution of the Board of Directors, declaring the dividend or allotment of
rights, is adopted, provided that the payment or allotment date shall not be
more than sixty days after the date of the adoption of such resolution. If a
record date has been fixed for the determination of stockholders entitled to
vote at a meeting, only the stockholders of record on the record date shall be
entitled to vote at the meeting and such stockholders shall be entitled to vote
at the meeting notwithstanding the subsequent transfer or redemption of the
shares owned of record on such date.
Section 11. Inspectors of Election. The directors, in advance of any
meeting, may, but need not, appoint one or more inspectors to act at the meeting
or any adjournment thereof. If an inspector or inspectors are not appointed,
the person presiding at the meeting may, but need not, appoint one or more
inspectors. In case any person who may be appointed as an inspector fails to
appear or act, the vacancy may be filled by appointment made by the directors in
advance of the meeting or at the meeting by the person presiding thereat. Each
inspector, if any, before entering upon the discharge of his duties, may be
required to take and sign an oath faithfully to execute the duties of inspector
at such meeting with strict impartiality and according to the best of his
ability. The inspectors, if any, shall determine the number of shares
outstanding and the voting power of each, the shares represented at the meeting,
the existence of a quorum, the validity and effect of proxies, and shall receive
votes, ballots or consents, hear and determine all challenges and questions
arising in connection with the right to vote, count and tabulate all votes,
ballots or consents,
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determine the result, and do such acts as are proper to conduct the election or
vote with fairness to all stockholders. On request of the person presiding at
the meeting or any stockholder, the inspector or inspectors, if any, shall make
a report in writing of any challenge, question or matter determined by him or
them and execute a certificate of any fact found by him or them.
Section 12. Informal Action by Stockholders. Except to the extent
prohibited by the Investment Company Act of 1940, as from time to time in
effect, or rules or orders of the Securities and Exchange Commission or any
successor thereto, any action required or permitted to be taken at any meeting
of stockholders may be taken without a meeting if a consent in writing, setting
forth such action, is signed by all the stockholders entitled to vote on the
subject matter thereof and any other stockholders entitled to notice of a
meeting of stockholders (but not to vote thereat) have waived in writing any
rights which they may have to dissent from such action, and such consent and
waiver are filed with the records of the Corporation.
ARTICLE III
Board of Directors
Section 1. Number of Directors. The number of directors
constituting the entire Board of Directors (which initially was fixed at one in
the Corporation's Articles of Incorporation) may be increased or decreased from
time to time by the vote of a majority of the entire Board of Directors within
the limits permitted by law but at no time may be more than twenty, but the
tenure of office of a director in office at the time of any decrease in the
number of directors shall not be affected as a result thereof. The directors
shall be elected to
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hold offices at the annual meeting of stockholders and each director shall hold
office until the next annual meeting of stockholders or until his successor is
elected and qualifies. Any director may resign at any time upon written notice
to the Corporation. Any director may be removed, either with or without cause,
at any meeting of stockholders duly called and at which a quorum is present by
the affirmative vote of the majority of the votes entitled to be cast thereon,
and the vacancy in the Board of Directors caused by such removal may be filled
by the stockholders at the time of such removal. Directors need not be
stockholders.
Section 2. Vacancies and Newly-Created Directorships. Any vacancy
occurring in the Board of Directors for any cause other than by reason of an
increase in the number of directors may be filled by a majority of the remaining
members of the Board of Directors although such majority is less than a quorum.
Any vacancy occurring by reason of an increase in the number of directors may be
filled by a majority of the entire Board of Directors. A director elected by
the Board of Directors to fill a vacancy shall be elected to hold office until
the next annual meeting of stockholders or until his successor is elected and
qualifies.
Section 3. Powers. The business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Articles of Incorporation or by these By-
Laws conferred upon or reserved to the stockholders.
Section 4. Meetings. The Board of Directors of the Corporation or
any committee thereof may hold meetings, both regular and special, either within
or without the
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State of Maryland. Regular meetings of the Board of Directors may be held
without notice at such time and at such place as shall from time to time be
determined by the Board of Directors. Special meetings of the Board of Directors
may be called by the chairman, the president or by two or more directors. Notice
of special meetings of the Board of Directors shall be given by the secretary to
each director at least three days before the meeting if by mail or at least 24
hours before the meeting if given in person or by telephone or by telegraph. The
notice need not specify the business to be transacted.
Section 5. Quorum and Voting. During such times when the Board of
Directors shall consist of more than one director, a quorum for the transaction
of business at meetings of the Board of Directors shall consist of one-third of
the entire Board of Directors, but in no event less than two directors. The
action of a majority of the directors present at a meeting at which a quorum is
present shall be the action of the Board of Directors. If a quorum shall not be
present at any meeting of the Board of Directors, the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 6. Committees. The Board of Directors may appoint from
among its members an executive committee and other committees of the Board of
Directors, each committee to be composed of two or more of the directors of the
Corporation. The Board of Directors may delegate to such committees any of the
powers of the Board of Directors except those which may not by law be delegated
to a committee. Such committee or committees shall have the name or names as
may be determined from time to time by resolution adopted by the Board of
Directors. Unless the Board of Directors designates one
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or more directors as alternate members of any committee, who may replace an
absent or disqualified member at any meeting of the committee, the members of
any such committee present at any meeting and not disqualified from voting may,
whether or not they constitute a quorum, appoint another member of the Board of
Directors to act at the meeting in the place of any absent or disqualified
member of such committee. At meetings of any such committee, a majority of the
members or alternate members of such committee shall constitute a quorum for the
transaction of business and the act of a majority of the members or alternate
members present at any meeting at which a quorum is present shall be the act of
the committee.
Section 7. Minutes of Committee Meetings. The committees shall keep
regular minutes of their proceedings.
Section 8. Informal Action by Board of Directors and Committees.
Any action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting if a
written consent thereto is signed by all members of the Board of Directors or of
such committee, as the case may be, and such written consent is filed with the
minutes of proceedings of the Board of Directors or committee, provided,
however, that such written consent shall not constitute approval of any matter
which pursuant to the Investment Company Act of 1940 and the rules thereunder
requires the approval of directors by vote cast in person at a meeting.
Section 9. Meetings by Conference Telephone. The members of the
Board of Directors or any committee thereof may participate in a meeting of the
Board of Directors or committee by means of a conference telephone or similar
communications equipment by
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means of which all persons participating in the meeting can hear each other at
the same time and such participation shall constitute presence in person at such
meeting, provided, however, that such participation shall not constitute
presence in person with respect to matters which pursuant to the Investment
Company Act of 1940 and the rules thereunder require the approval of directors
by vote cast in person at a meeting.
Section 10. Fees and Expenses. Directors who are not "Interested
Persons," as defined in the Investment Company Act of 1940, may be paid their
expenses of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors, a stated
salary as director or such other compensation as the Board of Directors may
approve. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like reimbursement and
compensation for attending committee meetings.
ARTICLE IV
Notices
Section 1. General. Notices to directors and stockholders mailed to
them at their post office addresses appearing on the books of the Corporation
shall be deemed to be given at the time when deposited in the United States
mail.
Section 2. Waiver of Notice. Whenever any notice is required to be
given under the provisions of the statutes, of the Articles of Incorporation or
of these By-Laws, each person entitled to said notice waives notice if, before
or after the meeting he signs a written waiver of notice and such waiver is
filed with the records of the meeting.
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Attendance of a person at a meeting shall constitute a waiver of notice of such
meeting except when the person attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened.
ARTICLE V
Officers
Section 1. General. The officers of the Corporation shall be chosen
by the Board of Directors and shall be a chairman of the Board of Directors, a
president, a secretary and a treasurer. The Board of Directors may choose also
such vice presidents and additional officers or assistant officers as it may
deem advisable. Any number of offices, except the offices of president and vice
president and chairman and vice president, may be held by the same person. No
officer shall execute, acknowledge or verify any instrument in more than one
capacity if such instrument is required by law to be executed, acknowledged or
verified by two or more officers.
Section 2. Other Officers and Agents. The Board of Directors may
appoint such other officers and agents as it desires who shall hold their
offices for such terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the Board of Directors.
Section 3. Tenure of Officers. The officers of the Corporation
shall hold office at the pleasure of the Board of Directors. Each officer shall
hold his office until his successor is elected and qualifies or until his
earlier resignation or removal. Any officer may
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resign at any time upon written notice to the Corporation. Any officer elected
or appointed by the Board of Directors may be removed at any time by the Board
of Directors when, in its judgment, the best interests of the Corporation will
be served thereby. Any vacancy occurring in any office of the Corporation by
death, resignation, removal or otherwise shall be filled by the Board of
Directors.
Section 4. Chairman of the Board of Directors. The chairman of the
Board of Directors shall preside at all meetings of the stockholders and of the
Board of Directors. Unless otherwise determined by the Board of Directors, he
shall be the chief executive officer and shall have general and active
management of the business of the Corporation and shall see that all orders and
resolutions of the Board of Directors are carried into effect. He shall be ex
officio a member of all committees designated by the Board of Directors except
as otherwise determined by the Board of Directors. He shall have authority to
execute instruments and contracts on behalf of the Corporation except where
required by law to be otherwise signed and executed and except where the signing
and execution thereof shall be expressly delegated by the Board of Directors to
some other officer or agent of the Corporation.
Section 5. President. The president shall act under the direction
of the chairman and in the absence or disability of the chairman shall perform
the duties and exercise the powers of the chairman. Unless otherwise determined
by the Board of Directors, he shall be the chief operating officer and shall
perform such other duties and have such other powers as the chairman or the
Board of Directors may from time to time prescribe. He shall have authority to
execute instruments and contracts on behalf of the
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Corporation except where required by law to be otherwise signed and except where
the signing and execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the Corporation.
Section 6. Vice Presidents. The vice presidents shall act under the
direction of the chairman and the president and in the absence or disability of
the president shall perform the duties and exercise the powers of the president.
They shall perform such other duties and have such other powers as the chairman,
the president or the Board of Directors may from time to time prescribe. The
Board of Directors may designate one or more executive vice presidents or may
otherwise specify the order of seniority of the vice presidents and, in that
event, the duties and powers of the president shall descend to the vice
presidents in the specified order of seniority.
Section 7. Secretary. The secretary shall act under the direction
of the chairman and the president. Subject to the direction of the chairman and
the president he shall attend all meetings of the Board of Directors and all
meetings of stockholders and record the proceedings in a book to be kept for
that purpose and shall perform like duties for the committees designated by the
Board of Directors when required. He shall give, or cause to be given, notice
of all meetings of stockholders and special meetings of the Board of Directors,
and shall perform such other duties as may be prescribed by the chairman or the
Board of Directors. He shall keep in safe custody the seal of the Corporation
and shall affix the seal or cause it to be affixed to any instrument requiring
it.
Section 8. Assistant Secretaries. The assistant secretaries in the
order of their seniority, unless otherwise determined by the chairman, the
president or the Board of
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Directors, shall, in the absence or disability of the secretary, perform the
duties and exercise the powers of the secretary. They shall perform such other
duties and have such other powers as the chairman, the president or the Board of
Directors may from time to time prescribe.
Section 9. Treasurer. The treasurer shall act under the direction
of the chairman and the president. Subject to the direction of the chairman and
the president he shall have the custody of the corporate funds and securities
and shall keep full and accurate accounts of receipts and disbursements in books
belonging to the Corporation and shall deposit all moneys and other valuable
effects in the name and to the credit of the Corporation in such depositories as
may be designated by the Board of Directors. He shall disburse the funds of the
Corporation as may be ordered by the chairman, the president or the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the chairman, the president and the Board of Directors, at its regular meetings,
or when the Board of Directors so requires, an account of all his transactions
as treasurer and of the financial condition of the Corporation.
Section 10. Assistant Treasurers. The assistant treasurers in the
order of their seniority, unless otherwise determined by the chairman, the
president or the Board of Directors, shall, in the absence or disability of the
treasurer, perform the duties and exercise the powers of the treasurer. They
shall perform such other duties and have such other powers as the chairman, the
president or the Board of Directors may from time to time prescribe.
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ARTICLE VI
Certificates of Stock
Section 1. General. Every holder of stock of the Corporation who
has made full payment of the consideration for such stock shall be entitled upon
request to have a certificate, signed by, or in the name of the Corporation by,
the chairman, the president or a vice president and countersigned by the
treasurer or an assistant treasurer or the secretary or an assistant secretary
of the Corporation, certifying the number of whole shares of each class of stock
owned by him in the Corporation.
Section 2. Fractional Share Interests. The Corporation may issue
fractions of a share of stock. Fractional shares of stock shall have
proportionately to the respective fractions represented thereby all the rights
of whole shares, including the right to vote, the right to receive dividends and
distributions and the right to participate upon liquidation of the Corporation,
excluding, however, the right to receive a stock certificate representing such
fractional shares.
Section 3. Signatures on Certificates. Any of or all the signatures
on a certificate may be a facsimile. In case any officer who has signed or
whose facsimile signature has been placed upon a certificate shall cease to be
such officer before such certificate is issued, it may be issued with the same
effect as if he were such officer at the date of issue. The seal of the
Corporation or a facsimile thereof may, but need not, be affixed to certificates
of stock.
Section 4. Lost, Stolen or Destroyed Certificates. The Board of
Directors may direct a new certificate or certificates to be issued in place of
any certificate or
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certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of any affidavit of that fact by the person
claiming the certificate or certificates to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to give the Corporation a bond in
such sum as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate or certificates alleged
to have been lost, stolen or destroyed.
Section 5. Transfer of Shares. Upon request by the registered owner
of shares, and if a certificate has been issued to represent such shares upon
surrender to the Corporation or a transfer agent of the Corporation of a
certificate for shares of stock duly endorsed or accompanied by proper evidence
of succession, assignment or authority to transfer, it shall be the duty of the
Corporation, if it is satisfied that all provisions of the Articles of
Incorporation, of the By-Laws and of the law regarding the transfer of shares
have been duly complied with, to record the transaction upon its books, issue a
new certificate to the person entitled thereto upon request for such
certificate, and cancel the old certificate, if any.
Section 6. Registered Owners. The Corporation shall be entitled to
recognize the person registered on its books as the owner of shares to be the
exclusive owner for all purposes including voting and dividends, and the
Corporation shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part or
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any other person, whether or not it shall have express or other notice thereof,
except as otherwise provided by the laws of Maryland.
ARTICLE VII
Miscellaneous
Section 1. Reserves. There may be set aside out of any funds of the
Corporation available for dividends such sum or sums as the Board of Directors
from time to time, in their absolute discretion, think proper as a reserve or
reserves to meet contingencies, or for such other purpose as the Board of
Directors shall think conducive to the interest of the Corporation, and the
Board of Directors may modify or abolish any such reserve.
Section 2. Dividends. Dividends upon the stock of the Corporation
may, subject to the provisions of the Articles of Incorporation and of
applicable law, be declared by the Board of Directors at any time. Dividends
may be paid in cash, in property or in shares of the Corporation's stock,
subject to the provisions of the Articles of Incorporation and of applicable
law.
Section 3. Capital Gains Distributions. The amount and number of
capital gains distributions paid to the stockholders during each fiscal year
shall be determined by the Board of Directors. Each such payment shall be
accompanied by a statement as to the source of such payment, to the extent
required by law.
Section 4. Checks. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
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Section 5. Fiscal Year. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
Section 6. Seal. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its organization and the words "Corporate
Seal, Maryland." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or in another manner reproduced or by placing the word
"(seal)" adjacent to the signature of the person authorized to sign the document
on behalf of the Corporation.
ARTICLE VII
Indemnification
Section 1. Indemnification of Directors and Officers. The
Corporation shall indemnify its directors to the fullest extent that
indemnification of directors is permitted by the Maryland General Corporation
Law. The Corporation shall indemnify its officers to the same extent as its
directors and to such further extent as is consistent with law. The Corporation
shall indemnify its directors and officers who while serving as directors or
officers also serve at the request of the Corporation as a director, officer,
partner, trustee, employee, agent or fiduciary of another corporation,
partnership, joint venture, trust, other enterprise or employee benefit plan to
the fullest extent consistent with law. The indemnification and other rights
provided by this Article shall continue as to a person who has ceased to be a
director or officer and shall inure to the benefit of the heirs, executors and
administrators of such a person. This Article shall not protect any such person
against any liability to the Corporation or any stockholder thereof to which
such person would otherwise
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be subject by reason of willful misfeasance, bad faith gross negligence or
reckless disregard of the duties involved in the conduct of his office
("disabling conduct").
Section 2. Advances. Any current or former director or officer of
the Corporation seeking indemnification within the scope of this Article shall
be entitled to advances from the Corporation for payment of the reasonable
expenses incurred by him in connection with the matter as to which he is seeking
indemnification without requiring a preliminary determination of ultimate
entitlement to indemnification except as provided below, to the fullest extent
permissible under the Maryland General Corporation Law. The person seeking
indemnification shall provide to the Corporation a written affirmation of his
good faith belief that the standard of conduct necessary for indemnification by
the Corporation has been met and a written undertaking to repay any such advance
if it should ultimately be determined that the standard of conduct has not been
met. In addition, at least one of the following additional conditions shall be
met: (a) the person seeking indemnification shall provide a security in form and
amount acceptable to the Corporation for his undertaking; (b) the Corporation is
insured against losses arising by reason of the advance; or (c) a majority of a
quorum of directors of the Corporation who are neither "interested persons" as
defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended,
nor parties to the proceeding ("disinterested non-party directors"), or
independent legal counsel, in a written opinion, shall have determined, based on
a review of facts readily available to the Corporation at the time the advance
is proposed to be made, that there is reason to believe that the person seeking
indemnification will ultimately be found to be entitled to indemnification.
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<PAGE>
Section 3. Procedure. At the request of any person claiming
indemnification under this Article, the Board of Directors shall determine, or
cause to be determined, in a manner consistent with the Maryland General
Corporation Law, whether the standards required by this Article have been met.
Indemnification shall be made only following: (a) a final decision on the merits
by a court or other body before whom the proceeding was brought that the person
to be Indemnified was not liable by reason of disabling conduct; or (b) in the
absence of such a decision, a reasonable determination, based upon a review of
the facts, that the person to be indemnified was not liable by reason of
disabling conduct by (i) the vote of a majority of a quorum of disinterested
non-party directors or (ii) an independent legal counsel in a written opinion.
Section 4. Indemnification of Employees and Agents. Employees and
agents who are not officers or directors of the Corporation may be indemnified,
and reasonable expenses may be advanced to such employees or agents, as may be
provided by action of the Board of Directors or by contract, subject to any
limitations imposed by the Investment Company Act of 1940.
Section 5. Other Rights. The Board of Directors may make further
provision consistent with law for indemnification and advance of expenses to
directors, officers, employees and agents by resolution, agreement or otherwise.
The indemnification provided by this Article shall not be deemed exclusive of
any other right, with respect to indemnification or otherwise, to which those
seeking indemnification may be entitled under any insurance or other agreement
or resolution of stockholders or disinterested directors or otherwise. The
rights provided to any person by this Article shall be enforceable against the
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<PAGE>
Corporation by such person who shall be presumed to have relied upon it in
serving or continuing to serve as a director, officer, employee, or agent as
provided above.
Section 6. Amendments. References in this Article are to the
Maryland General Corporation Law and to the Investment Company Act of 1940 as
from time to time amended. No amendment of these By-laws shall effect any right
of any person under this Article based on any event, omission or proceeding
prior to the amendment.
ARTICLE IX
Amendments
The Board of Directors shall have the power to make, alter and repeal
by-laws of the Corporation.
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<PAGE>
EXHIBIT 5(B)
INVESTMENT ADVISORY AGREEMENT
Security Capital U.S. Real Estate Shares Incorporated
Amended and Restated December __, 1997
Security Capital (US) Management Group Incorporated
11 South LaSalle Street, Second Floor
Chicago, Illinois 60603
Dear Sirs:
We, the undersigned Security Capital U.S. Real Estate Shares Incorporated,
herewith confirm our agreement with you as follows:
1. We are an open-end, non-diversified management investment company.
Our Directors are authorized to reclassify and issue any unissued shares to any
number of additional classes or series (portfolios), each having its own
investment objective, policies and restrictions, without shareholder approval,
all as more fully described in our prospectus and statement of additional
information.
We engage in the business of investing and reinvesting our assets in
securities of the type and in accordance with the limitations specified in our
Articles of Incorporation, By-Laws and any representations made in our
prospectus and statement of additional information, all in such manner and to
such extent as may from time to time be authorized by our Board of Directors. We
enclose copies of the documents listed above and will from time to time furnish
you with any amendments thereof.
<PAGE>
2. (a) We hereby employ you to manage the investment and reinvestment of
our assets as above specified and, without limiting the generality of the
foregoing, to provide management, investment, advisory and other services
specified below.
(b) You will make decisions with respect to all purchases and sales of
our portfolio securities. To carry out such decisions, you are hereby
authorized, as our agent and attorney-in-fact, for our account and at our risk
and in our name, to place orders for the investment and reinvestment of our
assets. In all purchases, sales and other transactions in our portfolio
securities you are authorized to exercise full discretion and act for us in the
same manner and with the same force and effect as we might or could do with
respect to such purchases, sales or other transactions, as well as with respect
to all other things necessary or incidental to the furtherance or conduct of
such purchases, sales or other transactions.
(c) You will report to our Board of Directors at each meeting thereof
all changes in our portfolio since the prior report, and will also keep us in
touch with important developments affecting our portfolio and on your own
initiative will furnish us from time to time with such information as you may
believe appropriate for this purpose, whether concerning the individual issuers
whose securities are included in our portfolio, the industries in which they
engage, or the conditions prevailing in the economy generally. You will also
furnish us with such statistical and analytical information with respect to our
portfolio securities as you may believe appropriate or as we reasonably may
request. In making such purchases and sales of our portfolio securities, you
will bear in mind the policies set from time to time by our Board of Directors
as well as the limitations imposed by our Articles of Incorporation, the
Investment
-2-
<PAGE>
Company Act of 1940 (the "Act") and the Securities Act of 1933, and of the
Internal Revenue Code of 1986, as amended, in respect of regulated investment
companies.
(d) It is understood that you will from time to time employ or
associate with yourselves such persons as you believe to be particularly fitted
to assist you in the execution of your duties hereunder, the cost of performance
of such duties to be borne and paid by you. No obligation may be incurred on
our behalf in any such respect. During the continuance of this Agreement at our
request you will provide us persons satisfactory to our Board of Directors to
serve as our officers.
3. We propose to retain the services of an administrator, which shall be
a firm acceptable to you, to administer all aspects of our operations except
those which are your responsibility pursuant to this Agreement. We will bear
the cost of and pay the fee of the administrator. Our initial Administrator
will be Security Capital (US) Management Group Incorporated.
4. It is further agreed that you shall pay the fees and expenses
associated with the printing and mailing of our prospectus and statement of
additional information, and any other sales literature, to parties other than
existing shareholders. We hereby confirm that, subject to the foregoing, we
shall be responsible and hereby assume the obligation for payment of all our
other expenses, including: (a) payment of the fee payable to you under
paragraph 6 hereof; (b) charges and expenses of our administrator, custodian,
transfer, and dividend disbursing agent; (c) fees of directors who are not your
affiliated persons; (d) legal and auditing expenses; (e) compensation of our
officers, Directors and employees who do not devote any part of their time to
your affairs or the affairs of your affiliates other than us; (f) costs of
printing our prospectuses
-3-
<PAGE>
and stockholder reports; (g) costs of proxy solicitation; (h) costs of
maintenance of corporate existence; (i) interest charges, taxes, brokerage fees
and commissions; (j) costs of stationery and supplies; (k) expenses and fees
related to registration and filing with the Securities and Exchange Commission
and with state regulatory authorities; and (l) upon the approval of the Board of
Directors, costs of your personnel or your affiliates rendering clerical,
accounting and other office services.
5. We shall expect of you, and you will give us the benefit of, your best
judgment and efforts in rendering these services to us, and we agree as an
inducement to your undertaking these services that you shall not be liable
hereunder for any mistake of judgment or in any event whatsoever, except for
lack of good faith, provided that nothing herein shall be deemed to protect, or
purport to protect, you against any liability to us or to our security holders
to which you would otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence in the performance of your duties hereunder, or by
reason of your reckless disregard of your obligations and duties hereunder.
6. In consideration of the foregoing we will pay you a monthly fee at an
annualized rate of .60 of 1% of the average daily net assets of each class of
shares. Such fee shall be payable in arrears on the last day of each calendar
month for services performed hereunder during such month. If this Agreement
terminates prior to the end of a month, such fee shall be prorated according to
the proportion which such portion of the month bears to the full month.
7. This Agreement shall become effective on the date it is approved by
the vote of a majority of the Company's outstanding voting securities, as
defined in the Act, and shall continue in effect until the second anniversary of
the date hereof and may be continued for
-4-
<PAGE>
successive twelve-month periods (computed from each January 1) with respect to
each portfolio provided that such continuance is specifically approved at least
annually by the Board of Directors or by majority vote of the holders of the
outstanding voting securities of such portfolio (as defined in the Act), and, in
either case, by a majority of the Board of Directors who are not interested
persons, as defined in the Act, of any party to this Agreement (other than as
Directors of our corporation), provided further, however, that if the
continuation of this Agreement is not approved, you may continue to render the
services described herein in the manner and to the extent permitted by the Act
and the rules and regulations thereunder. Upon the effectiveness of this
Agreement, it shall supersede all previous agreements between us covering the
subject matter hereof. This Agreement may be terminated at any time, without the
payment of any penalty, by vote of a majority of the outstanding voting
securities (as so defined) or by a vote of a majority of the Board of Directors
on 60 days' written notice to you, or by you on 60 days' written notice to us.
8. This Agreement may not be transferred, assigned, sold or in any manner
hypothecated or pledged by you and this Agreement shall terminate automatically
in the event of any such transfer, assignment, sale, hypothecation or pledge by
you. The terms "transfer", "assignment" and "sale" as used in this paragraph
shall have the meanings ascribed thereto by governing law and any interpretation
thereof contained in rules or regulations promulgated by the Securities and
Exchange Commission thereunder.
9. Except to the extent necessary to perform your obligations hereunder,
nothing herein shall be deemed to limit or restrict your right, or the right of
any of your officers, directors or employees, who may also be a Director,
officer or employee of ours, or persons otherwise
-5-
<PAGE>
affiliated with us (within the meaning of the Act) to engage in any other
business or to devote time and attention to the management or other aspects of
any other business, whether of a similar or dissimilar nature, or to render
services of any kind to any other trust, corporation, firm, individual or
association.
10. This Agreement shall be construed in accordance with the laws of the
State of Illinois, provided, however, that nothing herein shall be construed as
being inconsistent with the Act.
If the foregoing is in accordance with your understanding, will you kindly
so indicate by signing and returning to us the enclosed copy hereof.
Very truly yours,
Security Capital U.S. Real Estate Shares
Incorporated
By:
-----------------------------------------
Anthony R. Manno, Jr.
President
Agreed to and accepted as
of the date first set forth above
By:
--------------------------
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<PAGE>
EXHIBIT 5(C)
SPONSORSHIP AGREEMENT
SPONSORSHIP AGREEMENT (the "Agreement"), dated as of ______, 1997 by and
between Security Capital (US) Management Group Incorporated, a Delaware
corporation ("SC (US) Management") and Security Capital U.S. Real Estate Shares
Incorporated, a Maryland corporation ("Fund").
WHEREAS, the Fund is an open-end investment company registered under the
Investment Company Act of 1940, as amended (the "Act"); and
WHEREAS, SC (US) Management serves as investment adviser to the Fund
pursuant to an Amended and Restated Investment Advisory Agreement dated December
__, 1997 ("Advisory Agreement"), pursuant to which each class of the Fund's
shares pays SC (US) Management a monthly management fee in an amount equal to
1/12 of .60% of the average daily net assets of that class (approximately .60%
on an annual basis) ("Advisory Fee"); and
WHEREAS, the Fund and the Sponsor desire to enter into an agreement
pursuant to which the Sponsor shall waive the Advisory Fee and/or reimburse the
Fund for operating expenses on the terms and conditions hereto set forth;
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein set forth, the parties covenant and agree as follows:
1. Duties of Sponsor. SC (US) Management hereby agrees that from the date
hereof through December 31, 1998, SC (US) Management shall waive the Advisory
Fee and/or reimburse the Fund to the extent necessary to maintain the total
operating expenses (excluding brokerage fees and commissions, interest, taxes
and other extraordinary expenses) of: (i) Class I shares of the Fund at 1.00% of
the average daily net assets of the Class I shares; and (ii) Class R shares of
the Fund at 1.15% of the average daily net assets of the Class R shares.
2. Annual Review. The Sponsor will review its undertaking to waive the
Advisory Fee and/or reimburse the Fund as set forth in Paragraph 1 on an annual
basis. There is no assurance the Sponsor will continue to waive the Advisory Fee
and/or reimburse expenses beyond the specified period. The Sponsor shall notify
the Fund promptly of its annual determination with respect to the undertaking
hereunder.
3. Severability. If any provision of this Agreement shall be found to be
invalid by a court decision, statute, rule or otherwise, the reminder of this
Agreement shall not be affected thereby.
4. Notice. Any notices under this Agreement shall be in writing addressed and
delivered personally (or by telecopy) or mailed postage-paid, to the other party
at such address as such other party may designate in accordance with this
paragraph for the receipt of such notice. Until
<PAGE>
further notice to the other party, it is agreed that the address of the SC (US)
Management and the Fund shall be 11 South LaSalle Street, Second Floor, Chicago,
Illinois 60603.
5. Miscellaneous. Each party agrees to perform such further actions and
execute such further documents as are necessary to effectuate the purposes
hereof. This Agreement shall be construed and enforced and interpreted in
accordance with and governed by the laws of the State of Illinois without
reference to principles of conflicts of law. The captions in this Agreement are
included for convenience only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed in any number of counterparts, each of which shall be
deemed to be an original, but such counterparts shall, together, constitute only
one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
SECURITY CAPITAL U.S. REAL ESTATE SHARES
INCORPORATED
By:_____________________________________
SECURITY CAPITAL (US) MANAGEMENT GROUP
INCORPORATED
By:_____________________________________
<PAGE>
EXHIBIT 6(B)
DISTRIBUTION AND SERVICING AGREEMENT
This Distribution and Servicing Agreement, made this ___ day of
___________, 1997, by and between Security Capital U.S. Real Estate Shares
Incorporated, a Maryland corporation ("Fund") and Security Capital Markets Group
Incorporated, a _______ corporation, (the "Distributor").
WHEREAS, the Fund is registered with the Securities and Exchange
Commission as an open-end investment company under the Investment Company Act of
1940, as amended (the "1940 Act"), and has registered shares of Class I, Class I
and Class R common stock for sale to the public under the Securities Act of 1933
(the "1933 Act") and various state securities laws; and
WHEREAS, the Fund wishes to retain the Distributor as the principal
underwriter in connection with the offering and sale of Class I and Class R
shares of the Fund ("Shares") and to furnish certain other services to the
Fund's Class I and Class R shareholders as specified in this Agreement; and
WHEREAS, this Agreement has been approved by separate votes of the Fund's
Board of Directors and of its disinterested directors in conformity with Section
15 of, and paragraph (b)(2) of Rule 12b-1 under, the 1940 Act; and
WHEREAS, the Distributor is willing to act as principal underwriter and to
furnish such services on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed as follows:
1. (a) The Fund hereby appoints the Distributor as principal
underwriter in connection with the offering and sale of the Fund's Class I and
Class R shares. The Distributor, as exclusive agent for the Fund, and subject
to applicable federal and state law and the Articles of Incorporation and By-
Laws of the Fund, shall: (1) provide services to the Fund primarily intended to
result in the sale of the Shares; (2) solicit orders for the purchase of the
Shares subject to such terms and conditions as the Fund may specify; and (3)
accept orders for the purchase of the Shares on behalf of the Fund
(collectively, "Distribution Services"). The Distributor shall comply with all
applicable federal and state laws and offer the Shares of the Fund on an agency
or "best efforts" basis under which the Fund shall issue only such Shares as
are actually sold. The Distributor shall have the right to use any list of
shareholders of the Fund or the Fund or any other list of investors which it
obtains in connection with its provision of services under this Agreement;
provided, however, that the Distributor shall not sell or knowingly provide such
list or lists to any unaffiliated person without the consent of the Fund's Board
of Directors.
<PAGE>
(b) The Distributor shall provide ongoing shareholder liaison
services, including responding to shareholder inquiries, providing shareholders
with information on their investments, and any other services now or hereafter
deemed to be appropriate subjects for the payments of "service fees" under Rule
2830 of the Conduct Rules of the National Association of Securities Dealers,
Inc. (collectively, "Shareholder Services").
2. The Distributor may enter into dealer agreements with registered and
qualified securities dealers it may select for the performance of Distribution
and Shareholder Services, and may enter into agreements with qualified dealers
and other qualified entities to perform record keeping and sub-accounting
services, the form of such agreements to be as mutually agreed upon and approved
by the Fund and the Distributor. In making such arrangements, the Distributor
shall act only as principal and not as agent for the Fund. No such dealer or
other entity is authorized to act as agent for the Fund in connection with the
offering or sale of Shares to the public or otherwise.
3. The public offering price of the Shares of the Fund shall be the net
asset value per share of the outstanding Shares of the Fund. The Fund or its
administrator shall furnish the Distributor with a statement of each computation
of public offering price and of the details entering into such computation.
4. As compensation for providing Distribution Services under this
Agreement, the Distributor shall receive from the Fund a distribution fee and a
service fee at the rates and under the terms and conditions of the Distribution
and Service Plan for Class I Shares and the Distribution and Service Plan for
Class R Shares (each, a "Plan") adopted by the Fund, as such Plans are in effect
from time to time, and subject to any further limitations on such fees as the
Fund's Board of Directors may impose. The Distributor may reallow any or all of
the distribution fee and service fee that it has received under this Agreement
to such dealers or sub-accountants as it may from time to time determine.
5. As used in this Agreement, the term "Registration Statement" shall
mean the registration statement most recently filed by the Fund with the
Securities and Exchange Commission and effective under the 1940 Act and 1933
Act, as such Registration Statement is amended by any amendments thereto at the
time in effect, and the terms "Prospectus" and "Statement of Additional
Information" shall mean, respectively, the form of prospectus and statement of
additional information with respect to the Fund filed by the Fund as part of the
Registration Statement, or as they may be amended from time to time.
6. The Distributor shall print and distribute to prospective investors
Prospectuses, and shall print and distribute, upon request, to prospective
investors Statements of Additional Information, and may print and distribute
such other sales literature, reports, forms and advertisements in connection
with the sale of the Shares as comply with the applicable provisions of federal
and state law. In connection with such sales and offers of sale, the
Distributor and any dealer or subaccountant shall give only such information and
make only such statements or representations as are contained in the Prospectus,
Statement of Additional Information, or in information furnished in writing to
the Distributor by the Fund, and the Fund shall not be responsible
2
<PAGE>
in any way for any other information, statements or representations given or
made by the Distributor, any dealer or sub-accountant, or their representatives
or agents. Except as specifically provided in this Agreement, the Fund shall
bear none of the expenses of the Distributor in connection with its offer and
sale of the Shares.
7. The Fund agrees at its own expense to register the Shares with the
Securities and Exchange Commission, state and other regulatory bodies, and to
prepare and file from time to time such Prospectuses, Statements of Additional
Information, amendments, reports and other documents as may be necessary to
maintain the Registration Statement. The Fund shall bear all expenses related
to preparing and typesetting such Prospectuses, Statements of Additional
Information, and other materials required by law and such other expenses,
including printing and mailing expenses, related to such Fund's communications
with persons who are shareholders of the Fund.
8. The Fund agrees to indemnify, defend and hold the Distributor, its
several officers and directors, and any person who controls the Distributor
within the meaning of Section 15 of the 1933 Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Distributor, its
officers or directors, or any such controlling person may incur, under the 1933
Act or under common law or otherwise, arising out of or based upon any alleged
untrue statement of a material fact contained in the Registration Statement or
arising out of or based upon any alleged omission to state a material fact
required to be stated or necessary to make the Registration Statement not
misleading, provided that in no event shall anything contained in this Agreement
be construed so as to protect the Distributor against any liability to the Fund
or its shareholders to which the Distributor would otherwise be subject by
reason of willful misfeasance, bad faith, or gross negligence in the performance
of its duties, or by reason of its reckless disregard of its obligations and
duties under this Agreement, and further provided that the Fund shall not
indemnify the Distributor for conduct set forth in paragraph 9.
9. The Distributor agrees to indemnify, defend and hold the Fund, its
several officers and directors, and any person who controls the Fund within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which the Fund, its officers or
directors, or any such controlling person may incur, under the 1933 Act or under
common law or otherwise, on account of any wrongful act of the Distributor or
any of its employees or arising out of or based upon any alleged untrue
statement of a material fact contained in information furnished in writing by
the Distributor to the Fund for use in the Registration Statement or arising out
of or based upon any alleged omission to state a material fact in connection
with such information required to be stated in the Registration Statement or
necessary to make such information not misleading. As used in this paragraph,
the term "employee" shall not include a corporate entity under contract to
provide services to the Fund or the Fund, or any employee of such a corporate
entity, unless such person is otherwise an employee of the Fund.
3
<PAGE>
10. The Fund reserves the right at any time to withdraw all offerings of
the Shares of the Fund by written notice to the Distributor at its principal
office.
11. The Fund shall not issue certificates representing Shares unless
requested by a shareholder. If such request is transmitted through the
Distributor, the Fund will cause certificates evidencing the Shares owned to be
issued in such names and denominations as the Distributor shall from time to
time direct, provided that no certificates shall be issued for fractional
Shares.
12. The Distributor may at its sole discretion, directly or through
dealers, repurchase Shares offered for sale by the shareholders or dealers.
Repurchase of Shares by the Distributor shall be at the net asset value next
determined after a repurchase order has been received. The Distributor will
receive no commission or other remuneration for repurchasing Shares. At the end
of each business day, the Distributor shall notify by facsimile or in writing,
the Fund and the Fund's transfer agent, of the orders for repurchase of Shares
received by the Distributor since the last such report, the amount to be paid
for such Shares, and the identity of the shareholders or dealers offering Shares
for repurchase. Upon such notice, the Fund shall pay the Distributor such
amounts as are required by the Distributor for the repurchase of such Shares in
cash or in the form of a credit against moneys due the Fund from the Distributor
as proceeds from the sale of Shares. The Fund reserves the right to suspend
such repurchase right upon written notice to the Distributor. The Distributor
further agrees to act as agent for the Fund to receive and transmit promptly to
the Fund's transfer agent shareholder and dealer requests for redemption of
Shares.
13. The Distributor is an independent contractor and shall be agent for
the Fund only in respect to the sale and redemption of the Shares.
14. The services of the Distributor to the Fund under this Agreement are
not to be deemed exclusive, and the Distributor shall be free to render similar
services or other services to others so long as its services hereunder are not
impaired thereby.
15. The Distributor shall prepare reports for the Fund's Board of
Directors on a quarterly basis showing such information concerning expenditures
related to this Agreement as from time to time shall be reasonably requested by
the Board of Directors.
16. As used in this Agreement, the terms "assignment", "interested
person", and "majority of the outstanding voting securities" shall have the
meanings given to them by Section 2(a) of the 1940 Act, subject to such
exemptions as may be granted by the Securities and Exchange Commission by any
rule, regulation or order.
17. This Agreement will become effective with respect to the Fund on the
date first written above and, unless sooner terminated as provided herein, will
continue in effect for one year from the above written date. Thereafter, if not
terminated, this Agreement shall continue in effect with respect to the Fund for
successive annual periods ending on the same date of each year, provided that
such continuance is specifically approved at least annually (i) by the Fund's
Board of Directors or (ii) by a vote of a majority of the outstanding Class I
and Class R voting securities of
4
<PAGE>
the Fund (as defined in the 1940 Act), provided that in either event the
continuance is also approved by a majority of the Fund's Directors who are not
interested persons (as defined in the 1940 Act) of any party to this Agreement,
by vote cast in person at a meeting called for the purpose of voting on such
approval.
18. This Agreement is terminable with respect to the Fund or in its
entirety without penalty, on not less than 60 days notice to the other party,
by: (i) the Fund's Board of Directors by a vote of the Directors who are not
interested persons of the Fund within the meaning of Section 2(a)(19) of the
1940 Act, and have no direct or indirect financial interest in the operation of
the Plans or in any agreement related to the Plans, including this Agreement;
(ii), by vote of a majority of the outstanding Class I and Class R voting
securities of the Fund (as defined in the 1940 Act); (iii) by the Distributor,
or (iv) upon the mutual written consent of the Distributor and the Fund. This
Agreement will also automatically and immediately terminate in the event of its
assignment.
19. No provision of this Agreement may be changed, waived, discharged or
terminated orally, except by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought.
IN WITNESS WHEREOF, the parties hereto caused this Agreement
to be executed by their officers thereunto duly authorized.
Attest: SECURITY CAPITAL U.S. REAL ESTATE
SHARES INCORPORATED
By: _____________________________ By: ______________________________
Attest: SECURITY CAPITAL MARKETS GROUP
INCORPORATED
By: ____________________________ By: ______________________________
5
<PAGE>
EXHIBIT 9(B)(I)
FUND ACCOUNTING AND ADMINISTRATION AGREEMENT
Amended and Restated December __, 1997
THIS AGREEMENT made as of December __, 1997 by and between Security
Capital U.S. Real Estate Shares Incorporated, a Maryland corporation (the
"Fund"), and Security Capital (US) Management Group Incorporated, a Delaware
corporation (the "Administrator").
W I T N E S S E T H:
WHEREAS, the Fund is an open-end, management investment company; and
WHEREAS, the Fund wishes to retain the Administrator to provide
certain fund accounting and administration services with respect to the Fund and
the Administrator is willing to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints the Administrator to
provide fund accounting and administration services to the Fund, subject to the
supervision of the Board of Directors of the Fund (the "Board of Directors"),
for the period and on the terms set forth in this Agreement. The Administrator
accepts such appointment and agrees to furnish the services herein set forth in
return for the compensation as provided in Paragraph 4 of this Agreement. In
the event that the Fund establishes one or more additional portfolios with
respect to which it decides to retain the Administrator to act as administrator
hereunder, the Fund shall notify the Administrator in writing. If the
Administrator is willing to render such services to a new portfolio, they shall
so notify the Fund in writing whereupon such portfolio shall become a Fund
hereunder and shall be subject to the provisions of this Agreement to the same
extent as the Fund, except to the extent that said provisions (including those
relating to the compensation payable by the Fund) may be modified with respect
to such portfolio in writing by the Fund and the Administrator at the time of
the addition of such new portfolio.
2. Delivery of Documents. The Fund has furnished the Administrator
with copies, properly certified or authenticated, of each of the following:
<PAGE>
(a) Resolutions of the Fund's Board of Directors authorizing the
appointment of the Administrator to provide certain fund accounting and
administration services to the Fund and approving this Agreement;
(b) The Fund's Articles of Incorporation ("Charter");
(c) The Fund's By-Laws ("By-Laws");
(d) The most recent draft of the Fund's Registration Statement on
Form N-1A and when completed, the Fund will provide its most recent Prospectus
and Statement of Additional Information and all amendments and supplements
thereto (such Prospectus and Statement of Additional Information and supplements
thereto, as presently in effect and as from time to time hereafter amended and
supplemented, herein called the "Prospectus").
The Fund will timely furnish the Administrator from time to time with
copies, properly certified or authenticated, of all amendments of or supplements
to the foregoing, if any.
3. Services and Duties. Subject to the supervision and control of
the Fund's Board of Directors, the Administrator agrees to assist in supervising
aspects of the Fund's administrative operations, including but not limited to
the performance of the following specific services for the Fund:
(a) Provide office facilities (which may be in the offices of the
Administrator or a corporate affiliate of them, but shall be in such location as
the Fund shall reasonably approve) and the services of a principal financial
officer to be appointed by the Fund;
(b) Furnish statistical and research data, clerical services, and
stationery and office supplies;
(c) Keep and maintain all financial accounts and records (other than
those required to be maintained by the Fund's Custodian and Transfer Agent)
including without limit those required under Section 31 (a) and Rule 31a-1 under
the Investment Company Act of 1940 (the "1940 Act");
(d) Compute, and transmit to the NASD service for the publication of
fund prices, the Fund's net asset value, net income and net capital gain (loss)
in accordance with the Fund's Prospectus and resolutions of its Board of
Directors;
-2-
<PAGE>
(e) Compile data for, and prepare required reports and notices to
shareholders of record including, without limitation, proxy statements,
Semiannual and Annual Reports to shareholders;
(f) Compile data for, prepare for execution and file all reports or
other documents, including tax returns, required by Federal, state and other
applicable laws and regulations, including those required by applicable Federal
and state tax laws (other than those required to be filed by the Fund's
Custodian or Transfer Agent);
(g) Assist in developing and monitoring compliance procedures for the
Fund and any class or series thereof, including, without limitation, procedures
to monitor compliance with applicable law and regulations, the Fund's investment
objectives, policies and restrictions, its continued qualification as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code");
(h) Determine, together with the Fund's Board of Directors, the
jurisdictions in which the Fund's shares shall be registered or qualified for
sale and, in connection therewith, the Administrator shall be responsible for
the registration for sale and maintenance of the registrations of shares for
sale under the securities laws of any state. Payment of share registration fees
for qualifying or continuing the qualification of Fund shares or the Fund as a
dealer or broker, if applicable, shall be made by the Fund;
(i) Provide financial data requested by the Fund and its outside
counsel;
(j) Perform such other duties related to the administration of the
Fund's operations as reasonably requested by the Board of Directors, from time
to time;
(k) Assist in the monitoring of regulatory and legislative
developments which may affect the Fund and, in response to such developments,
counsel and assist the Fund in routine regulatory examinations or investigations
of the Fund, and work with outside counsel to the Fund in connection with
regulatory matters or litigation.
In performing its duties as administrator of the Fund, the
Administrator (a) will act in accordance with the Fund's Charter, By-Laws,
Prospectus, Statement of Additional Information and the instructions and
directions of the Fund's Board of Directors and will conform to, and comply
with, the requirements of the 1940 Act and all other applicable Federal
-3-
<PAGE>
or state laws and regulations, and (b) will consult with outside legal counsel
to the Fund, as necessary or appropriate.
The Administrator will preserve for the periods prescribed by Rule
31a-2 under the 1940 Act the records required to be maintained by Rule 31a-1
under said Act in connection with the services required to be performed
hereunder. The Administrator further agrees that all such records which it
maintains for the Fund are the property of the Fund and further agrees to
surrender promptly to the Fund any of such records upon the Fund's request.
4. Fees; Expenses; Expense Reimbursement. For the services rendered
pursuant to this Agreement for the Fund, the Administrator shall be entitled to
a fee based on the average net assets of each class of shares issued by the Fund
determined at the annual rate outlined in Exhibit A and applied to the average
daily net assets of each class of the Fund's shares. Such fees are to be
computed daily and paid monthly on the first business day of the following
month. Upon any termination of this Agreement before the end of any month, the
fee for such part of the month shall be prorated according to the proportion
which such period bears to the full monthly period and shall be payable upon the
date of termination of this Agreement.
For the purpose of determining fees payable to the Administrator, the value
of the Fund's net assets shall be computed as required by its Prospectus,
generally accepted accounting principles and resolutions of the Fund's Board of
Directors.
The Administrator will from time to time employ or associate with
themselves such person or persons as they may believe to be fitted to assist
them in the performance of this Agreement. Such person or persons may be
officers and employees who are employed by both the Administrator and the Fund.
The compensation of such person or persons for such employment shall be paid by
the Administrator and no obligation may be incurred on behalf of the Fund in
such respect.
The Administrator will bear all expenses in connection with the performance
of its services under this Agreement except as otherwise expressly provided
herein. Other expenses to be incurred in the operation of the Fund, including
taxes, interest, brokerage fees and commissions, if any, salaries and fees of
officers and directors who are not officers, directors shareholders or employees
of the Administrator, or the Fund's investment advisor or distributor for the
Fund, Securities and Exchange Commission fees and state Blue Sky qualification
fees,
-4-
<PAGE>
advisory and administration fees, charges of custodians, transfer and divided
disbursing agents' fees, certain insurance premiums including fidelity bond
premiums, outside auditing and legal expenses, costs of maintenance of corporate
existence, typesetting and printing of prospectuses for regulatory purposes and
for distribution to current shareholders of the Fund, costs of shareholders'
reports and corporate meetings and any extraordinary expenses, will be borne by
the Fund, provided, however, that, except as provided in any distribution plan
adopted by the Fund, the Fund will not bear, directly or indirectly, the cost of
any activity which is primarily intended to result in the distribution of shares
of the Fund, and further provided that the Administrator may utilize one or more
independent pricing services, approved from time to time by the Board of
Directors of the Fund, to obtain securities prices in connection with
determining the net asset value of each class of the Fund's shares and the Fund
will reimburse the Administrator for its share of the cost of such services
based upon its actual use of the services.
If in any fiscal year the Fund's aggregate expenses (as defined under the
securities regulations of any state having jurisdiction over the Fund) exceed
the expense limitations of any such state, the Administrator agrees to reimburse
the Fund for a portion of any such excess expense in an amount equal to the
proportion that the fee otherwise payable to the Administrator bear to the total
amount of investment advisory and administration fees otherwise payable by the
Fund. The expense reimbursement obligation of the Administrator is limited to
the amount of its fees hereunder for such fiscal year, provided, however, that
notwithstanding the foregoing, the Administrator shall reimburse the Fund for a
portion of any such excess expenses in an amount equal to the proportion that
the fees otherwise payable to the Administrator bear to the total amount of
investment advisory and administration fees otherwise payable by the Fund
regardless of the amount of fees paid to the Administrator during such fiscal
year to the extent that the securities regulations of any state having
jurisdiction over the Fund so require. Such expense reimbursement, if any, will
be estimated on a daily basis, reconciled and paid on a monthly basis.
5. Proprietary and Confidential Information. The Administrator agrees on
behalf of itself and its employees to treat confidentially and as proprietary
information of the Fund all records and other information relative to the Fund's
prior, present or potential shareholders, and not to use such records and
information for any purpose other than performance of their responsibilities and
duties hereunder, except after prior notification to and approval in writing by
-5-
<PAGE>
the Fund, which approval shall not be unreasonably withheld and may not be
withheld where the Administrator may be exposed to Civil or Criminal contempt
proceedings for failure to comply, when requested to divulge such information by
duly constituted authorities, or when so requested by the Fund.
6. Limitation of Liability. The Administrator shall not be liable for any
error of judgement or mistake of law or for any loss or expense suffered by the
Fund, in connection with the matters to which this Agreement relates, except for
a loss or expense resulting from willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement. Any person,
even though also an officer, director, partner, employee or agent of the
Administrator, who may be or become an officer, director, employee or agent of
the Fund, shall be deemed when rendering services to the Fund or acting on any
business of the Fund (other than services or business in connection with the
Administrator's duties hereunder) to be rendering such services to or acting
solely for the Fund and not as an officer, director, partner, employee or agent
or one under the control or direction of the Administrator even though paid by
them.
7. Terms. This Agreement shall become effective on the date first
hereinabove written and, unless sooner terminated as provided herein, shall
continue in effect from year to year thereafter, provided such continuance is
specifically approved at least annually (i) by the Fund's Board of Directors or
(ii) by a vote of a majority (as defined in the 1940 Act) of the outstanding
voting securities of the Fund, provided that in either event the continuance is
also approved by the majority of the Fund's Board of Directors who are not
interested persons (as defined in the 1940 Act) of any party to this Agreement,
by vote cast in person at a meeting called for the purpose of voting on such
approval. This Agreement is terminable, without penalty, by the Fund's Board of
Directors, by vote of a majority (as defined in the 1940 Act) of the outstanding
voting securities of such Fund, or by the Administrator, on not less than sixty
days' notice. This agreement shall automatically terminate upon its assignment
by the Administrator without the prior written consent of the Fund, provided,
however, that no such assignment shall release the Administrator from its
obligations under this Agreement.
8. Governing Law. This Agreement shall be governed by Illinois law.
-6-
<PAGE>
9. Amendments. No provision of this Agreement may be changed,
discharged, or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, discharge or termination is
sought.
10. Miscellaneous. The parties to this Agreement acknowledge and agree
that all liabilities arising, directly or indirectly, under this Agreement, of
any and every nature whatsoever, including without limitation, liabilities
arising in connection with any agreement of the Fund set forth herein to
indemnify any party to this Agreement or any other person, shall be satisfied
out of the assets of the Fund and that no director, officer or shareholder of
the Fund shall be personally liable for any of the foregoing liabilities.
If a change or discharge is sought against the Fund, the instrument must be
signed by the Administrator.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the date indicated below.
SECURITY CAPITAL U.S. REAL ESTATE
SHARES INCORPORATED
ATTEST: By:
---------------------- -------------------------------
(Title)
SECURITY CAPITAL (US) MANAGEMENT
GROUP INCORPORATED
ATTEST: By:
---------------------- -------------------------------
(Title)
EFFECTIVE AS OF:
-7-
<PAGE>
EXHIBIT A
FUND ACCOUNTING AND FUND ADMINISTRATION
FEE SCHEDULE
FOR
SECURITY CAPITAL U.S. REAL ESTATE SHARES INCORPORATED
Annual Rate: .02% (2 basis points) of the average daily net assets of the
Fund billed monthly.
-8-
<PAGE>
EXHIBIT 11(A)
CONSENT TO
MAYER, BROWN & PLATT
We hereby consent to the reference to our firm under the caption "Counsel
and Independent Accountants" in the statement of additional information
comprising a part of Post-Effective Amendment No. 4 to the Form N-1A
Registration Statement of Security Capital U.S. Real Estate Shares Incorporated,
File Nos. 333-20649 and 811-8033.
/s/Mayer, Brown & Platt
MAYER, BROWN & PLATT
Washington, D.C.
December 16, 1997
<PAGE>
EXHIBIT 11(B)
Law Offices
BALLARD SPAHR ANDREWS & INGERSOLL
300 East Lombard Street, 19th Floor
Baltimore, Maryland 21202-3268
410-528-5600
Fax: 410-528-5650
[email protected]
December 16, 1997
Mr. John H. Gardner, Jr.
Managing Director
Security Capital (US) Management
Group, Incorporated
11 South LaSalle Street, 2nd Floor
Chicago, IL 60603
Re: Security Capital U.S. Real Estate
Shares Incorporated
Registration Statement on Form N-1A
(File Nos. 333-20649 and 811-8033)
Ladies and Gentlemen:
We hereby consent to the use of the name of our firm in the above-
referenced Registration Statement, and all amendments thereto, under the
Securities Act of 1933, as amended and the Investment Company Act of 1940, as
amended. In giving this consent, we do not admit that we are within the
category of persons whose consent is required by Section 7 of the 1933 Act.
Very truly yours,
/s/ Ballard Spahr Andrews & Ingersoll
<PAGE>
EXHIBIT 15(A)
DISTRIBUTION AND SERVICE PLAN
FOR CLASS I SHARES
This Plan is adopted by Security Capital U.S. Real Estate Shares Incorporated
(the "Company"), pursuant to Rule 12b-1 under the Investment Company Act of
1940, as amended (the "Act"), to provide for payment by the Company of certain
expenses in connection with the distribution of the Company's Class I shares,
the provision of personal services to the Company's Class I shareholders and/or
the maintenance of its Class I shareholder accounts. Payments under the Plan
are to be made to Security Capital Markets Group Incorporated ("SCMGI") which
serves as the principal underwriter for the Company under the terms of the
Distribution and Servicing Agreement pursuant to which SCMGI offers and sells
the shares of the Company.
DISTRIBUTION FEE AND SERVICE FEE
The annual compensation payable by the Company to SCMGI is an amount equal to
.25 of 1% on an annual basis of the Company's average net assets of the Class I
shares as either (1) a "distribution fee" to finance the distribution of the
Company's Class I shares, or (2) a "service fee" to finance shareholder
servicing by SCMGI, its affiliated companies and broker-dealers who may sell
Class I shares and to encourage and foster the maintenance of Class I
shareholder accounts, or as a combination of the two fees. The amounts shall be
payable to SCMGI monthly or at such other intervals as the board of directors
may determine to compensate SCMGI for services provided hereunder. The amount
of the distribution fee and service fee payable to SCMGI hereunder is not
related directly to expenses incurred by SCMGI on behalf of the Company and the
Company is not obligated to reimburse SCMGI for such expenses.
NASD DEFINITION
For purposes of this Plan, the "distribution fee" may be considered as a sales
charge that is deducted from the Class I net assets of the Company and does not
include the service fee. The "service fee" shall be considered a payment made
by the Company for personal service and/or maintenance of Class I shareholder
accounts, as such is now defined by the National Association of Securities
Dealers Regulation, Inc. ("NASD"), provided , however, if the NASD adopts a
definition of "service fee" for purposes of Rule 2830 of the NASD Conduct Rules
that differs from the definition of "service fee" as presently used, or if the
NASD adopts a related definition intended to define the same concept, the
definition of "service fee" as used herein shall be automatically amended to
conform to the NASD definition.
QUARTERLY REPORTS
SCMGI shall provide to the board of directors of the Company and the board of
directors shall review at least quarterly a written report of the amounts so
expended of the distribution fee and/or service fee paid under this Plan and the
purposes for which such expenditures were made.
<PAGE>
APPROVAL OF PLAN
This Plan shall become effective when it has been approved by a vote of at least
a majority of the outstanding Class I voting securities of the Company (as
defined in the Act) and by a vote of the board of directors of the Company and
of the directors who are not interested persons of the Company and have no
direct or indirect financial interest in the operation of the Plan or any
agreement related to this Plan (other than as directors or shareholders of the
Company) ("independent directors") cast in person at a meeting called for the
purposes of voting on such Plan.
CONTINUANCE
This Plan shall continue in effect for a period of one (1) year and thereafter
from year to year only so long as such continuance is approved by the directors,
including the independent directors, as specified hereinabove for the adoption
of the Plan by the directors and independent directors.
DIRECTOR CONTINUATION
In considering whether to adopt, continue or implement this Plan, the directors
shall have a duty to request and evaluate, and SCMGI shall have a duty to
furnish, such information as may be reasonably necessary to an informed
determination of whether this Plan should be adopted, implemented or continued.
TERMINATION
This Plan may be terminated at any time by a vote of a majority of the
independent directors of the Company or by a vote of the majority of the
outstanding Class I voting securities of the Company without penalty. The
distribution fee and service fee will be paid by the Company to SCMGI unless and
until this Plan is terminated or not renewed, in which event the Company shall
pay SCMGI for services provided on a pro-rata basis up through the date of
termination. Any expenses incurred by SCMGI on behalf of the Company in excess
of the distribution fee and service fee payable hereunder through the date of
termination are the sole responsibility and liability of SCMGI, and are not
obligations of the Company.
AMENDMENTS
This Plan may not be amended to increase materially the amount to be spent for
distribution of Class I shares, personal service and/or maintenance of
shareholder accounts without approval of the Class I shareholders, and all
material amendments of this Plan must be approved in the manner prescribed for
the adoption of the Plan as provided hereinabove.
DIRECTORS
While this Plan is in effect, the selection and nomination of the directors who
are not interested persons of the Company shall be committed to the discretion
of the directors who are not interested persons of the Company.
RECORDS
Copies of this Plan, the Distribution Agreement and reports made pursuant to
this Plan shall be preserved as provided in Rule 12b-1(f) under the Act.
2
<PAGE>
EXHIBIT 15(B)
DISTRIBUTION AND SERVICE PLAN
FOR CLASS R SHARES
This Plan is adopted by Security Capital U.S. Real Estate Shares Incorporated
(the "Company"), pursuant to Rule 12b-1 under the Investment Company Act of
1940, as amended (the "Act"), to provide for payment by the Company of certain
expenses in connection with the distribution of the Company's Class R shares,
the provision of personal services to the Company's Class R shareholders and/or
the maintenance of its Class R shareholder accounts. Payments under the Plan
are to be made to Security Capital Markets Group Incorporated ("SCMGI") which
serves as the principal underwriter for the Company under the terms of the
Distribution and Servicing Agreement pursuant to which SCMGI offers and sells
the shares of the Company.
DISTRIBUTION FEE AND SERVICE FEE
The annual compensation payable by the Company to SCMGI is an amount equal to
.25 of 1% on an annual basis of the Company's average net assets of the Class R
shares as either (1) a "distribution fee" to finance the distribution of the
Company's Class R shares, or (2) a "service fee" to finance shareholder
servicing by SCMGI, its affiliated companies and broker-dealers who may sell
Class R shares and to encourage and foster the maintenance of Class R
shareholder accounts, or as a combination of the two fees. The amounts shall be
payable to SCMGI monthly or at such other intervals as the board of directors
may determine to compensate SCMGI for services provided hereunder. The amount
of the distribution fee and service fee payable to SCMGI hereunder is not
related directly to expenses incurred by SCMGI on behalf of the Company and the
Company is not obligated to reimburse SCMGI for such expenses.
NASD DEFINITION
For purposes of this Plan, the "distribution fee" may be considered as a sales
charge that is deducted from the Class R net assets of the Company and does not
include the service fee. The "service fee" shall be considered a payment made
by the Company for personal service and/or maintenance of Class R shareholder
accounts, as such is now defined by the National Association of Securities
Dealers Regulation, Inc. ("NASD"), provided , however, if the NASD adopts a
definition of "service fee" for purposes of Rule 2830 of the NASD Conduct Rules
that differs from the definition of "service fee" as presently used, or if the
NASD adopts a related definition intended to define the same concept, the
definition of "service fee" as used herein shall be automatically amended to
conform to the NASD definition.
QUARTERLY REPORTS
SCMGI shall provide to the board of directors of the Company and the board of
directors shall review at least quarterly a written report of the amounts so
expended of the distribution fee and/or service fee paid under this Plan and the
purposes for which such expenditures were made.
<PAGE>
APPROVAL OF PLAN
This Plan shall become effective when it has been approved by a vote of at least
a majority of the outstanding Class R voting securities of the Company (as
defined in the Act) and by a vote of the board of directors of the Company and
of the directors who are not interested persons of the Company and have no
direct or indirect financial interest in the operation of the Plan or any
agreement related to this Plan (other than as directors or shareholders of the
Company) ("independent directors") cast in person at a meeting called for the
purposes of voting on such Plan.
CONTINUANCE
This Plan shall continue in effect for a period of one (1) year and thereafter
from year to year only so long as such continuance is approved by the directors,
including the independent directors, as specified hereinabove for the adoption
of the Plan by the directors and independent directors.
DIRECTOR CONTINUATION
In considering whether to adopt, continue or implement this Plan, the directors
shall have a duty to request and evaluate, and SCMGI shall have a duty to
furnish, such information as may be reasonably necessary to an informed
determination of whether this Plan should be adopted, implemented or continued.
TERMINATION
This Plan may be terminated at any time by a vote of a majority of the
independent directors of the Company or by a vote of the majority of the
outstanding Class R voting securities of the Company without penalty. The
distribution fee and service fee will be paid by the Company to SCMGI unless and
until this Plan is terminated or not renewed, in which event the Company shall
pay SCMGI for services provided on a pro-rata basis up through the date of
termination. Any expenses incurred by SCMGI on behalf of the Company in excess
of the distribution fee and service fee payable hereunder through the date of
termination are the sole responsibility and liability of SCMGI, and are not
obligations of the Company.
AMENDMENTS
This Plan may not be amended to increase materially the amount to be spent for
distribution of Class R shares, personal service and/or maintenance of
shareholder accounts without approval of the Class R shareholders, and all
material amendments of this Plan must be approved in the manner prescribed for
the adoption of the Plan as provided hereinabove.
DIRECTORS
While this Plan is in effect, the selection and nomination of the directors who
are not interested persons of the Company shall be committed to the discretion
of the directors who are not interested persons of the Company.
RECORDS
Copies of this Plan, the Distribution Agreement and reports made pursuant to
this Plan shall be preserved as provided in Rule 12b-1(f) under the Act.
2
<PAGE>
EXHIBIT 18
MULTIPLE CLASS PLAN PURSUANT TO RULE 18F-3
Security Capital Employee REIT Fund Incorporated ("Fund") hereby adopts
this Multiple Class Plan pursuant to Rule 18f-3 under the Investment Company Act
of 1940, as amended ("1940 Act").
A. GENERAL DESCRIPTION OF CLASSES THAT ARE OFFERED:
1. Class R Shares. Class R shares of the Fund are sold to the general
public without an initial or a deferred sales charge.
Class R shares of the Fund are subject to a distribution fee and service
fee equal, in the aggregate, to .25 of 1% on an annual basis of the average
daily net assets of the Class R shares of the Fund paid pursuant to a
distribution and service plan adopted pursuant to Rule 12b-1 under the 1940 Act.
Class R shares of the Fund are available for purchase only by investors
whose minimum initial investment is $2,500.
2. Class I Shares. Class I shares of the Fund are sold to the general
public without an initial or a deferred sales charge.
Class I shares of the Fund are subject to a distribution fee and service
fee equal, in the aggregate, to .25 of 1% on an annual basis of the average
daily net assets of the Class I shares of the Fund paid pursuant to a
distribution and service plan adopted pursuant to Rule 12b-1 under the 1940 Act.
Class I shares of the Fund are available for purchase only by investors
whose minimum initial investment is $250,000.
B. EXPENSE ALLOCATIONS OF EACH CLASS:
Certain expenses may be attributable to a Class of shares ("Class
Expenses"). Class Expenses are charged directly to the net assets of the Class
and, thus, are borne on a pro rata basis by the outstanding shares of that
Class.
Each Class may pay a different amount of the following expenses:
(1) administration and transfer agency fees;
<PAGE>
(2) fees of directors who are not affiliated with the Fund's investment
adviser;
(3) legal and auditing expenses;
(4) printing and postage fees that are related to preparing and
distributing the Fund's prospectus, proxy statements and shareholder
reports;
(5) costs of maintaining the Fund's existence;
(6) interest charges and taxes;
(7) costs of stationery and supplies;
(8) expenses and fees related to registration and filing with federal and
sate regulatory authorities; and
(9) costs of personnel rendering clerical accounting and other services.
C. CONVERSION FEATURE:
Class I shares may be converted to Class R shares, at the election of a
shareholder, in the event applicable minimum account balance requirements are
not satisfied, as disclosed in the Fund's then current prospectus for Class I
shares. No other conversions are permissible.
D. EXCHANGE PRIVILEGES:
Class I and Class R shares of the Fund are not exchangeable.
E . CLASS DESIGNATION:
Subject to approval by the Board of Directors, the Fund may alter the
nomenclature for the designations of one or more of its classes of shares.
F. ADDITIONAL INFORMATION:
This Multiple Class Plan is qualified by and subject to the terms of the
then current prospectus for each Class; provided, however, that none of the
terms set forth in any such prospectus shall be inconsistent with the terms of
the Class contained in this Plan. The prospectus for each Class contains
additional information about the Classes and each Fund's multiple class
structure.
<PAGE>
G. DATE OF EFFECTIVENESS:
This Multiple Class Plan is effective as of the date hereof, provided that
this Plan shall not become effective unless such action has first been
approved by the vote of a majority of the Board and by vote of a majority
of those Directors of the Fund who are not interested persons of the Fund.
By Action of the Board of Directors
November 25, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 104,738
<INVESTMENTS-AT-VALUE> 122,424
<RECEIVABLES> 6,002
<ASSETS-OTHER> 123
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 128,549
<PAYABLE-FOR-SECURITIES> 5,168
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 486
<TOTAL-LIABILITIES> 5,654
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 102,736
<SHARES-COMMON-STOCK> 9,891
<SHARES-COMMON-PRIOR> 987
<ACCUMULATED-NII-CURRENT> 36
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,437
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 17,686
<NET-ASSETS> 122,895
<DIVIDEND-INCOME> 4,104
<INTEREST-INCOME> 80
<OTHER-INCOME> 0
<EXPENSES-NET> 551
<NET-INVESTMENT-INCOME> 3,633
<REALIZED-GAINS-CURRENT> 2,437
<APPREC-INCREASE-CURRENT> 17,390
<NET-CHANGE-FROM-OPS> 23,460
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,626
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,804
<NUMBER-OF-SHARES-REDEEMED> 224
<SHARES-REINVESTED> 324
<NET-CHANGE-IN-ASSETS> 112,648
<ACCUMULATED-NII-PRIOR> 24
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 408
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 567
<AVERAGE-NET-ASSETS> 87,741
<PER-SHARE-NAV-BEGIN> 10.38
<PER-SHARE-NII> 0.46
<PER-SHARE-GAIN-APPREC> 1.95
<PER-SHARE-DIVIDEND> 0.37
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.42
<EXPENSE-RATIO> 0.84
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
