<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X]Preliminary Proxy Statement [_]Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[_]Definitive Proxy Statement
[_]Definitive Additional Materials
[_]Soliciting Material Pursuant to (S)240.14a-11(c) or (S) 240.14-12
Security Capital Employee REIT Fund Incorporated
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X]No fee required.
[_]Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1)Title of each class of securities to which transaction applies:
(2)Aggregate number of securities to which transaction applies:
(3)Per unit or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
(4)Proposed maximum aggregate value of transaction:
(5)Total fee paid:
[_]Fee paid previously with preliminary materials.
[_]Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1)Amount previously paid:
- - -------------------------------------------------------------------------------
(2)Form, Schedule or Registration Statement no.:
- - -------------------------------------------------------------------------------
(3)Filing Party:
- - -------------------------------------------------------------------------------
(4)Date Filed:
- - -------------------------------------------------------------------------------
<PAGE>
SECURITY CAPITAL EMPLOYEE REIT FUND INCORPORATED
Notice of
Special Meeting of Class R Shareholders
December 4, 1997
To the Class R Shareholders:
A Special Meeting of the Class R shareholders of Security Capital Employee
REIT Fund Incorporated ("Fund") will be held at the principal executive offices
of Security Capital (US) Management Group Incorporated, 11 South LaSalle Street,
Second Floor, Chicago, Illinois 60603, on December 4, 1997 at 10:00 a.m.,
Central time for the following purposes:
1. To approve a Distribution and Service Plan pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended;
2. To approve an amended investment advisory agreement between the Fund
and Security Capital (US) Management Group Incorporated (formerly
Security Capital Investment Research Group Incorporated);
3. To elect one (1) director to hold office until his successor is
elected and qualified;
4. To amend the fundamental investment objective of the Fund to clarify
that the Fund will invest primarily in real estate securities; and
5. To transact such other business as may properly come before the
meeting and any adjournments thereof.
You will be entitled to notice of, and to vote at, the special meeting and
any adjournments thereof, if you owned shares of the Fund at the close of
business on October 31, 1997. If you attend the meeting, you may vote your
shares in person. If you do not expect to attend the meeting please complete,
date, sign and return the enclosed proxy card in the enclosed postage paid
envelope.
By Order of the Board of Directors,
/s/ Jeffrey C. Nellessen
-----------------------------------
Jeffrey C. Nellessen
Secretary
November 20, 1997
<PAGE>
SECURITY CAPITAL EMPLOYEE REIT FUND INCORPORATED
11 South LaSalle Street
Second Floor
Chicago, Illinois 60603
---------------------------------
PROXY STATEMENT
---------------------------------
This Proxy Statement is furnished in connection with the solicitation of
proxies by and on behalf of the Board of Directors ("Board") of Security Capital
Employee REIT Fund Incorporated ("Fund") for use at the Special Meeting
("Meeting") of the Fund's Class R shareholders on December 4, 1997. The Meeting
will be held at the principal executive offices of the Fund's investment
adviser, Security Capital (US) Management Group Incorporated ("SC(US)MG"), at 11
South LaSalle Street, Second Floor, Chicago, Illinois 60603, at 10:00 a.m.
Central time, for the purposes set forth in the Notice of Meeting.
The Fund's Class R shareholders of record as of the close of business on
October 31, 1997 ("Record Date"), are entitled to notice of and to vote at the
Meeting and any adjournment thereof. Each full share outstanding is entitled to
one vote, each fractional share outstanding is entitled to the corresponding
proportion of one vote, with respect to each matter voted upon by the
shareholders of the Fund.
All costs associated with the Meeting, including the solicitation of
proxies, will be borne by the Fund. The solicitation of proxies will be made
primarily by mail but also may be made by telephone and/or personal contact by
directors and officers of the Fund and by regular employees of SC(US)MG of its
affiliates.
The individuals named as proxies on the enclosed proxy card will vote in
accordance with your directions as indicated thereon if your proxy is received
properly executed by you or by your duly appointed agent or attorney-in-fact.
If you properly execute your proxy card and give no voting instructions, your
shares will be voted in favor of the proposals described in this Proxy
Statement. You may revoke your proxy statement at any time prior to its
exercise at the Meeting by written notice to the Fund, by execution of a
subsequent proxy or by voting in person at the Meeting.
A quorum of a majority of the Fund's issued and outstanding Class R shares
as of the close of business on the Record Date represented in person or by
proxy, must be present for the transaction of business at the Meeting. In the
absence of a quorum or in the event that a quorum is present at the meeting by
sufficient votes to approve the proposals are not received, the persons named as
proxies may propose one or more adjournments of the Meeting to permit further
solicitation of proxies. Any such adjournment will require the affirmative vote
of those
<PAGE>
shares represented at the Meeting in person or by proxy. If a quorum is
present, the persons named as proxies will vote those proxies which they are
entitled to vote FOR the proposal in favor of such an adjournment, and will vote
those required to vote AGAINST any such proposal against such adjournment.
Broker non-votes are shares held in street name for which the broker
indicates that instructions have not been received from the beneficial owners or
other persons entitled to vote and the broker does not have discretionary voting
authority. Abstentions and broker non-votes will be counted as shares present
for the purpose of determining whether a quorum is present but will not be
counted as votes cast for the purposes of determining whether sufficient votes
have been received to approve a proposal. Accordingly, abstentions and broker
non-votes effectively will be a vote against adjournment or against any proposal
where the required vote is a percentage of the shares present.
The Notice and Proxy Statement are being mailed to shareholders on or about
November 20, 1997.
2
<PAGE>
BACKGROUND
Currently, the Fund issues 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 ("SC Employees"). On October 9,
1997, the Fund's Board of Directors ("Board") determined that it would be in the
best interests of the Fund and its shareholders for the Fund to issue two or
more classes of shares which may offer different services to shareholders and
incur different expenses. Under the multi-class structure, Class R shares will
be offered to SC Employees and other retail investors and Class I shares will
be offered to institutional investors. Shares of the Fund owned by existing
shareholders who have invested $5 million or more will be designated Class I
shares and shares of the Fund owned by shareholders who have invested less than
$5 million will be designated Class R shares and additional classes may be
created in the future. On November 17, 1997 the Board voted to change the Fund's
name to Security Capital U.S. Real Estate Shares Incorporated to reflect the
future offering of the Fund's shares to SC Employees and other purchasers. The
name change also reflects the Board's determination to modify, subject to
shareholder approval, the Fund's fundamental investment policy to provide that
the Fund will invest primarily in real estate securities.
Currently the Fund receives no distribution services and incurs no
distribution expenses. On November 17, 1997, the Board approved, subject to
Class R shareholder approval, a Distribution and Service Plan ("Plan") pursuant
to Rule 12b-1 under the Investment Company Act of 1940, as amended ("1940 Act")
to finance the distribution of Class R shares and the provision of services to
Class R shareholders by the Fund's distributor, Security Capital Markets Group
Incorporated ("Capital Markets"). The annual compensation payable to Capital
Markets under the Plan is .25% on an annual basis. On November 17, 1997, the
Board also approved, and recommended that the shareholders approve, an amended
investment advisory agreement between the Fund and SC(US)MG ("Amended Advisory
Agreement"). The Amended Advisory Agreement provides for SC(US)MG to furnish
the same investment management services to the Fund that SC(US)MG provides under
the investment advisory agreement currently in effect ("Advisory Agreement"),
for compensation equal to .25% less, on an annual basis, than the compensation
payable under the Advisory Agreement.
If Class R shareholders approve both the Distribution and Service Plan
and the Amended Advisory Agreement, the .25% reduction in the advisory fee would
be offset by the .25% distribution and service fee payable under the Plan.
Therefore, aggregate investment management and distribution expenses borne by
Class R shareholders would remain unchanged. Proposal 1 requests Class R
shareholder ratification and approval of the Plan and Proposal 2 requests
shareholder ratification and approval of the Amended Advisory Agreement. The
following table and example reflects the current fees paid by Fund Class R
shareholders and the fees that would be paid if the proposals are adopted.
3
<PAGE>
Fee Table
<TABLE>
<CAPTION>
Shareholder Transaction Expenses: Current Proposed
-------- ---------
<S> <C> <C>
Maximum sales charge on purchases and
Reinvested distributions.......................... None None
Redemption Fee..................................... None None
Annual Fund Operating Expenses (as a percentage of
average net assets):
Management fees.................................. 0.85% 0.60%
12b-1 fees....................................... None 0.25%
Other expenses (1)............................... 0.30% 0.35%
Total Fund operating expenses (2)................ 1.14% 1.20%
- - -----------
</TABLE>
(1) Based upon the experience of the Fund, Management estimates a 0.05%
increase in other expenses in connection with the offering of Fund shares
to a broader market of retail investors.
(2) Under the Advisory Agreement, SC(US)MG has committed to waive fees and/or
reimburse expenses to maintain the Fund's total operating expenses, other
than brokerage fees and commissions, at no more than 1.20% of the Fund's
average net assets for the year ending December 31, 1997. Under the
Amended Advisory Agreement SC(US)MG has committed to waive fees and/or
reimburse expenses to maintain the Fund's total operating expenses, other
than brokerage fees and commissions, at no more than 1.20% of the Fund's
average net assets for Class R shares for the year ending December 31,
1998.
The information in the Fee Table has been restated to reflect current fees.
<TABLE>
<CAPTION>
Example
One Three Five Ten
Year Years Years Years
---- ----- ----- -----
Current Proposed Current Proposed Current Proposed Current Proposed
------- -------- ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <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 $12 $36 $38 N/A $66 N/A $145
</TABLE>
4
<PAGE>
PROPOSAL 1
TO APPROVE A DISTRIBUTION AND SERVICE PLAN FOR CLASS R SHARES
PURSUANT TO RULE 12b-1 UNDER THE 1940 ACT
Existing Distribution Arrangements
Currently, Capital Markets, an affiliate of SC(US)MG, serves without
charge as distributor of the Fund's shares. In this capacity, Capital Markets,
as agent for the Fund, sells the Fund's shares on a best efforts continuous
basis to SC Employees against orders to purchase shares. There is no formal
written agreement between the Fund and Capital Markets memorializing this
arrangement.
The Plan
In connection with the implementation of a multi-class structure, the
Board has determined that it is in the best interests of the Fund and the Class
R shareholders to adopt the Plan to facilitate the distribution of Class R
shares and the provision of services to maintain Class R shareholder accounts.
A copy of the Plan is attached to this Proxy Statement as Exhibit A.
Under the Plan, the Fund would pay Capital Markets a fee for distribution
activities in connection with the sale of Class R shares and services provided
to maintain Class R shareholder accounts. The aggregate distribution fee and
service fee payable under the Plan would be .25%, on an annual basis, of the
Fund's Class R average daily net assets. To the extent the distribution and
service fee exceeds the expenses of distribution and shareholder servicing
activities, Capital Markets could retain such excess as compensation for its
services and may realize a profit from these arrangements. Payments would be
made under the Plan pursuant to a distribution and servicing agreement
("Distribution Agreement").
Under the Distribution Agreement, Capital Markets, as principal
underwriter of the Class R shares would provide distribution services primarily
intended to result in the sale of Class R shares. Capital Markets also would
provide services to Class R shareholders, which may include the provision of
information and explanations concerning Class R shareholder investments and the
status of shareholder accounts. Capital Markets would be compensated under the
Plan for compensation paid to and expenses incurred by officers, employees and
sales representatives, allocable overhead, telephone and travel expenses, the
printing of prospectuses and reports for other than the existing shareholders,
the preparation and distribution of sales literature, advertising of any type
and all other expenses incurred in connection with the provision of distribution
and shareholder services. The Plan would authorize Capital Markets to pay a
portion of the distribution and service fee it receives from the Fund to other
broker-dealers who sell Class R shares to compensate such other broker-dealers
for providing distribution and shareholder services.
5
<PAGE>
The Plan is a compensation plan which provides for the payment of a
specified distribution and service fee to Capital Markets without regard to the
distribution and service expenses actually incurred by Capital Markets. If the
Plan is terminated by the Board and no successor Plan is adopted, the Fund would
cease to make payments to Capital Markets, and Capital Markets would be unable
to recover the amount of any of its unreimbursed distribution or shareholder
servicing expenditures. Capital Markets does not intend to incur distribution
and service expenses at a rate that materially exceeds the rate of compensation
received under the Plan.
The Plan would require that Capital Markets furnish to the Board, at
least quarterly, a written report of the amounts expended pursuant to the Plan
and the purposes for which such expenditures were made. While the Plan is in
effect, the selection and nomination of the directors who are not interested
persons of the Fund would be committed to the discretion of the Independent
Directors who have no financial interest in the operation of the Plan or any
related agreement ("Independent Plan Directors").
As required by Rule 12b-1 under the 1940 Act, if approved by the Class
R shareholders, the Plan would continue in effect from year to year, provided
such continuance is approved annually by a vote of the Board, including a
majority of the Independent Plan Directors. The Plan may be terminated at any
time, without penalty, by the vote of a majority of the Independent Plan
Directors or by a vote of a majority of the outstanding Class R shares of the
Fund. The Plan may be amended by a vote of the Directors, including a vote of
the Independent Plan Directors, cast in person at a meeting called for that
purpose.
Director Consideration of the Distribution Plan
At a meeting held on November 17, 1997, the directors, including a
majority of the Independent Plan Directors approved the Plan and recommended
that the Plan be submitted to Class R shareholders for approval. Prior to
approving the Plan, the directors reviewed detailed information relating to the
Plan including financial evaluations furnished by the Fund's sub-administrator.
Among the matters considered by the Board with respect to the Class R shares
were:
1. the cost of the Plan to Class R shares, which would be offset by the
reduced advisory fee provided Class R shareholders approve the Amended
Advisory Agreement described in Proposal 2 below;
2. whether the distribution and shareholder services to be provided by
Capital Markets under the Plan would result in the sale and retention
of Class R shares;
3. the benefits to the Class R shares of the Fund from Capital Market's
ability to attract and retain a professional staff to provide
distribution and shareholder services under the Plan;
6
<PAGE>
4. the effect of the cost of the Plan on the performance of Class R
shareholder investments over various periods of time;
5. the mutual fund industry's practices in the past several years of
adopting and maintaining plans similar to the Plan;
6. the benefit to SC(US)MG, an affiliate of Capital Markets, whose fees
for providing investment management services to the Fund are based on
the level of the Fund's Class R assets, if distribution services
provided under the Plan result in increased sales of the Fund's Class
R shares; and
7. the merits of possible alternatives to the Plan.
Following its consideration, the Board, including the Independent Plan
Directors, concluded that the fees payable pursuant to the Plan were reasonable
in view of the services that would be provided by Capital Markets and the
benefits of the Plan to the Class R shares of the Fund. The Directors,
including the Independent Plan Directors, determined that the implementation of
the Plan would be in the best interests of the Class R shareholders and would
have a reasonable likelihood of benefitting the Fund and its Class R
shareholders. The Directors, however, recognized that there was no assurance
that the benefits sought pursuant to the Plan would be achieved nor when or in
what period of time the benefits might be realized.
If this Proposal is not approved by the Class R shareholders of the
Fund, there will be no distribution arrangement in effect for the Class R
shares. In this event, the Board may consider such further action as may be
appropriate, and Capital Markets has advised the Board that, if the Plan is not
approved, it may consider the development of a modified Plan for presentation to
the Board and the Class R shareholders.
Required Vote
Approval of the Plan requires the affirmative vote of the holders of
the lesser of (i) 67% of the Class R shares of the Fund present at the Special
Meeting, if the holders of more than 50% of the outstanding Class R shares are
present or represented by proxy at the Special Meeting; or (ii) more than 50% of
the outstanding shares of the Fund entitled to vote at the Special Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE CLASS R SHAREHOLDERS VOTE "FOR" THE
DISTRIBUTION AND SERVICE PLAN PURSUANT TO RULE 12b-1 UNDER THE 1940 ACT
7
<PAGE>
PROPOSAL 2
TO APPROVE AN AMENDED INVESTMENT ADVISORY AGREEMENT
BETWEEN THE FUND AND
SECURITY CAPITAL (US) MANAGEMENT GROUP INCORPORATED
Description of the Advisory Agreement
Under the Advisory Agreement, SC(US)MG provides a continuous investment
program for the Fund and is responsible for the investment and reinvestment of
the Fund's assets, including the placement of orders for the purchase and sale
of the Fund's portfolio securities. Pursuant to this authority, SC(US)MG selects
brokers and dealers to execute purchase and sale orders for the Fund's portfolio
transactions. Under the Advisory Agreement, SC(US)MG has agreed, at its own
expense, to pay the fees and expenses associated with the printing and mailing
of the Fund's prospectus and sales literature to parties other than existing
shareholders. SC(US)MG also has committed to waive fees, and/or reimburse
expenses to maintain the Fund's total operating expenses, other than brokerage
fees and commissions, at no more than 1.20% of the Fund's average net assets for
the year ending December 31, 1997. SC(US)MG has also undertaken to reimburse the
Fund or make other arrangements to limit Fund expenses to the extent required by
expense limitations imposed by certain states .
As compensation for SC(US)MG's services under the Advisory Agreement,
the Fund has paid SC(US)MG, each month, an amount equal to 1/12 of .85% of the
Fund's average daily net assets (approximately .85% on an annual basis). The
advisory fee is payable in arrears on the last day of each calendar month. If
the Advisory Agreement terminates prior to the end of a month, the Advisory Fee
is prorated to cover the portion of the month during which services were
provided. For the period April 23, 1997 (the effective date of the Fund's
registration statement under the Securities Act of 1933, as amended) through
September 30, 1997, the Fund paid SC(US)MG advisory fees in the amount of
$393,502.
Under the Advisory Agreement, SC(US)MG will not be liable to the Fund
or any Fund shareholder for any act or failure to act in connection with the
rendering of services under the Advisory Agreement or for any mistake of
judgment in the absence of wilful misfeasance, bad faith, gross negligence, or
reckless disregard of obligations or duties by the Adviser. By its terms, the
Advisory Agreement terminates automatically unless its continuance is approved
annually (i) by the vote of a majority of Directors who are not interested
persons within the meaning of the 1940 Act, of either the Fund or SC(US)MG
("Independent Directors") or (ii) by the vote of the holders of a majority of
the outstanding voting securities of the Fund. The Advisory Agreement is also
terminable, without penalty, by either party upon 60 days' written notice and
upon its assignment.
The Advisory Agreement was initially approved by the Board and by the
unanimous written consent of the Fund's sole shareholder on April 11, 1997.
8
<PAGE>
The Amended Advisory Agreement
On November 17, 1997, the Board, including a majority of the Independent
Directors, approved the Amended Advisory Agreement subject to shareholder
approval. The terms and conditions of the Amended Advisory Agreement are
identical to the terms and conditions of the Advisory Agreement, except as to
the effective and termination dates and the reduction of the advisory fee,
described below. The Amended Advisory Agreement also reflects the existence of
the new multi-class structure. The duties that SC(US)MG is required to perform
under the Amended Advisory Agreement are identical to those performed by
SC(US)MG under the Advisory Agreement and would be performed by the same
personnel. Accordingly, the Fund would receive the same advisory services under
the Amended Advisory Agreement as it receives under the Advisory Agreement.
Under the Amended Advisory Agreement, the Class R shares would pay
SC(US)MG a monthly fee in an amount equal to 1/12 of .60% of the average daily
net assets of the Fund's Class R shares (approximately .60% of an annual basis).
Under the Amended Advisory Agreement, SC(US)MG has committed to waive fees
and/or reimburse expenses to maintain the Fund's Class R shares' total operating
expenses, other than brokerage fees and commissions, at no more than 1.20% of
the Fund's Class R average net assets for the year ending December 31, 1998 and
has undertaken to reimburse the Fund or make other arrangements to limit Fund
expenses to the extent required by expense limitations imposed by certain
states. If the Amended Advisory Agreement had been in effect from April 23,
1997 (the effective date of the Fund's registration statement under the 1933
Act) through September 30, 1997, the Fund would have paid SC(US)MG advisory fees
in the amount of $277,806 which is 68% of the amount of advisory fees paid to
SC(US)MG under the Advisory Agreement.
A copy of the Amended Advisory Agreement is attached to this Proxy
Statement as Exhibit B.
---------
If the Amended Advisory Agreement is approved by the shareholders, it
will become effective immediately for an initial two-year period. Thereafter,
the Amended Advisory Agreement will continue in effect for successive twelve-
month periods, provided that such continuance is specifically approved at least
annually by the Board, including a majority of the disinterested Directors, or
by a vote of a majority of the outstanding shares of the Fund.
Security Capital (US) Management Group Incorporated
SC(US)MG, the Fund's investment adviser, is a Maryland corporation
organized in December 1996. SC(US)MG is a wholly-owned subsidiary of Security
Capital Group, a real estate research, investment and management company. The
principal business address of Security Capital Group is 125 Lincoln Avenue,
Santa Fe, New Mexico 87501 and the principal business address of SC(US)MG is 11
LaSalle Street, Second Floor, Chicago, Illinois 60603.
9
<PAGE>
SC(US)MG's directors and principal executive officers and their
principal occupations are listed below. Anthony R. Manno Jr., the Chairman of
the Board, Managing Director and President of the Fund, serves as Managing
Director and President of SC(US)MG and John H. Gardner, Jr., Managing Director
of the Fund also serves as Managing Director of SC(US)MG. Jeffrey C. Nellessen,
Vice President, Secretary and Treasurer of the Fund is Vice President, Secretary
and Treasurer of SC(US)MG and Kenneth D. Statz, Vice President of the Fund is
Senior Vice President of SC(US)MG. The business address of each director and
principal executive officer of SC(US)MG is 11 South LaSalle Street, Chicago,
Illinois 60603.
DIRECTORS AND PRINCIPAL EXECUTIVE OFFICERS
OF SECURITY CAPITAL (US) MANAGEMENT GROUP INCORPORATED
<TABLE>
Principal
During Past
Occupation(s) Position(s) with -----------
Name and Address Adviser 5 Years
- - ---------------- ------- -------
<S> <C> <C>
Anthony R. Manno Jr.* Managing Managing Director and President
Director of SC(US)MG since March 1997
where he is responsible for
overseeing all investment and
capital allocation matters for
SC(US)MG's public market
securities activities and also
responsible for company and
industry analysis, market
strategy and trading and
reporting; Chairman of the Board,
President and Managing Director
of the Fund since April 1997;
from January 1995 to March 1997,
he was Managing Director of
SC(US)MG 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 form March 1980 to March
1994.
</TABLE>
10
<PAGE>
<TABLE>
Principal
During Past
Occupation(s) Position(s) with -----------
Name and Address Adviser 5 Years
- - ---------------- ------- -------
<S> <C> <C>
John H. Gardner, Jr. Managing Managing Director of SC(US)MG
Director since July 1997 and Managing
Director of the Fund since April
1997. Prior thereto, 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 multifamily
dispositions; from December 1984
to January 1993, Vice President
and Principal of Asset Management
and through September 1994,
Managing Director and Principal
of Copley Real Estate Advisors in
Boston, where he had overall
responsibility for the portfolio
management of the firm's separate
and closed-end accounts.
Jeffrey C. Nellessen Vice President, Vice President, Secretary and
Secretary and Treasurer of SC(US)MG since March
Controller 1997 and Secretary and Treasurer
of the Fund since April 1997.
Prior thereto, from June 1988 to
March 1997, he was Controller,
Manager of Client Administration
and Compliance Officer at Strong
Capital Management, Inc.
</TABLE>
11
<PAGE>
<TABLE>
Principal
During Past
Occupation(s) Position(s) with -----------
Name and Address Adviser 5 Years
- - ---------------- ------- -------
<S> <C> <C>
Kenneth D. Statz Senior Vice Senior Vice President of the
President SC(US)MG since March 1997; Vice
President of the Fund since April
1997; Senior Vice President of
SC(US)MG since July 1996, where
he is responsible for the
development and implementation of
portfolio investment strategy.
Prior thereto, 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.
Kevin W. Bedell Vice President Vice President of SC(US)MG, where
he is responsible for directing
the activities of the
industry/company research group
and providing in-depth
proprietary research on publicly
traded real estate companies in
the office and industrial
sectors. Prior to joining
SC(US)MG, Mr. Bedell was equity
vice president and portfolio
manager for the LaSalle Street
Fund, Inc., where he was
responsible for the strategic,
operational and financial
management of a private REIT with
commercial real estate
investments of $600-800 million.
Previously, Mr. Bedell was equity
vice president and vice president
for financial management of
LaSalle Partners' commingled
fund. Mr. Bedell received his
M.B.A. from the University of
Chicago and his B.A. from Kenyon
College.
</TABLE>
SC(US)MG does not serve as investment adviser or investment sub-adviser to
any investment companies with similar investment objectives to the Fund.
12
<PAGE>
Affiliated Broker
The Fund's distributor, Capital Markets, a registered broker-dealer, is a
wholly-owned subsidiary of Security Capital Group Incorporated. To date, the
Fund has paid no commissions to Capital Markets.
Evaluation by the Board of Directors
At a meeting held on November 17, 1997, the Board, including the Independent
Directors, approved the Amended Advisory Agreement and recommended that the
Amended Advisory Agreement be submitted to the shareholders for their approval.
The Directors approved the Amended Advisory Agreement because they believed
that the reduced advisory fee would benefit both the Fund and the shareholders.
The factor the Board considered most important was that the reduction in the
advisory fee would not reduce the quality or the scope of the services provided
to the Fund by SC(US)MG and that SC(US)MG's obligations to the Fund would remain
the same in all respects.
Required Vote
Approval of the Amended Advisory Agreement requires the affirmative vote of
the holders of the lesser of: (i) 67% of the shares present at the Special
Meeting, if the holders of more than 50% of the outstanding share are present or
represented by proxy at the Meeting; or (ii) more than 50% of the outstanding
Class R shares entitled to vote at the Special Meeting. If the Amended Advisory
Agreement is not approved by Class R shareholders at the Special Meeting, the
Board will take such action as it deems appropriate.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE CLASS R
SHAREHOLDERS VOTE "FOR" THE AMENDED ADVISORY AGREEMENT
PROPOSAL 3
ELECTION OF DIRECTOR
The Fund currently has two Directors who have been elected by shareholders to
hold office until their successors are elected and qualified. On November 17,
1997, the Board approved one other individual to stand for election to the
Board to hold office until his successor is elected and qualified. This nominee
and each of the existing Directors also serve as directors of Security Capital
EuroPacific Real Estate Shares Incorporated, an investment company advised by
SC(US)MG whose registration statement on Form N-1A under the 1940 Act and the
Securities Act of 1933 is pending with the Securities and Exchange Commission
("SEC"). Mr. Manno, the Chairman of the Board and President of the Fund, is
Managing Director of SC(US)MG.
13
<PAGE>
The Board has appointed an Audit Committee to make recommendations to the
Board regarding the selection of auditors for the Fund and to confer with the
auditors concerning the scope and results of each audit. Mr. Kasbeer, a
director of the Fund who is not an interested person of the Fund within the
meaning of Section 2(a)(19) of the 1940 Act, is the sole member of the Audit
Committee. As of the date of this Proxy Statement, the Audit Committee has held
no meetings.
It is the intention of the persons named in the accompanying Proxy to vote
for the election of the person named below. The nominee has indicated a
willingness to serve if elected. If the nominee should not be available for
election due to unforseen circumstances, it is the intention of the persons
named in the accompanying Proxy to vote for such other person as the Directors
may recommend.
Director/Nominee Information
<TABLE>
<CAPTION>
Name, Age, Business Experience Class R Shares
During Past Five Years and Other Beneficially Held As of
Relevant Information Director Since November 1, 1997
- - -------------------- -------------- ----------------
<S> <C> <C>
Stephen F. Kasbeer,*** [Age] April 11, None
Retired; Senior Vice President for 1997
Administration and Treasurer for
Loyola University, Chicago from 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 Investmen and
Finance Committees of the Board of
Trustees and was President and a
Director of the Loyola Management
Company.
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Name, Age, Business Experience Class R Shares
During Past Five Years and Other Beneficially Held As of
Relevant Information Director Since November 1, 1997
- - -------------------- -------------- ----------------
<S> <C> <C>
Anthony R. Manno Jr.* 45 April 11, None
Managing Director of SC(US)MG since 1997
March 1997 where he is responsible
for overseeing all investment and
capital allocation matters for
SC(US)MG's public market securities
activities and also responsible for
company and industry analysis, market
strategy and trading and reporting;
from January 1995 to March 1997, he
was Managing Director of SC(US)MG
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 form March 1980 to March
1994.
George F. Keane,** [Age] N/A None
Chairman of the Trigen Energy
Corporation since 1994. As founding
chief 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 education institutions
when he became President Emeritus in
1993. He has served as a member of the
Investment Advisory 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, and as a Director and
Chairman of the Investment Committee of the
United Negro College Fund.
</TABLE>
- - -------------
(*) Considered an interested person of the Fund, as defined in Section 2(a)(19)
of the 1940 Act by reason of his association with SC(US)MG.
15
<PAGE>
(**) Nominee for election as Director.
(***) Member of the Audit Committee.
Board Compensation
Members of the Board who are interested persons of the Fund within the
meaning of Section 2(a)(19) of the 1940 Act, receive no remuneration from the
Fund. Each of the other Directors is paid an annual retainer of $14,000, an
additional retainer of $1,000 for each meeting attended (other than
telephonically ) and is reimbursed for the expenses of attendance at any such
meetings. The following information sets forth information regarding estimated
compensation of Directors by the Fund for the fiscal year ending December 31,
1997.
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 Fund Upon From Fund
---- ---- ---- ---------
Name of Person, Position Fund Expenses Retirement Paid To Directors
- - ------------------------ ---- -------- ---------- -----------------
<S> <C> <C> <C> <C>
George F. Keane
Director................ $ 4,000 N/A N/A $ 4,000
Stephen F. Kasbeer
Director................ $14,500 N/A N/A $14,500
**Anthony R. Manno Jr.
Chairman, Managing
Director and President 0 N/A N/A 0
</TABLE>
- - ---------------------------
** "Interested person," as defined in the 1940 Act, of SC-US.
(1) For the period January 1, 1997 to December 31, 1997.
16
<PAGE>
Executive Officers and Significant Employees
<TABLE>
<CAPTION>
Position with Fund Business Experience
Name and Age and Term During Past 5 Years
- - ------------ ------------------ -------------------
<S> <C> <C>
John H. Gardner, Jr., 43 Managing Managing Director of SC(US)MG
Director since since July 1997. Prior
April, 1997 thereto, Director of the PTR
REIT Manager from February
1995 to June 1997 and Senior
Vice President of ATLANTIC,
PTR and the PTR REIT Manager
from September 1994 to June
1997, where he had overall
responsibility for multifamily
dispositions; from December
1984 to January 1993, Vice
President and Principal of
Asset Management and through
September 1994, Managing
Director and Principal of
Copley Real Estate Advisors in
Boston, where he had overall
responsibility for the
portfolio management of the
firm's separate and closed-end
accounts.
Jeffrey C. Nellessen, 36 Secretary and Vice President, Secretary and
Treasurer Treasurer of SC(US)MG since
April 1997 March 1997. Prior thereto,
from June 1988 to March 1997,
he was Controller, Manager of
Client Administration and
Compliance Officer at Strong
Capital Management, Inc.
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Position with Fund Business Experience
Name and Age and Term During Past 5 Years
- - ------------ ------------------ -------------------
<S> <C> <C>
Kenneth D. Statz, 38 Senior Vice Senior Vice President of
President SC(US)MG since March 1997;
since April Senior Vice President of
1997 SC(US)MG since July 1996,
where he is responsible for
the development and
implementation of portfolio
investment strategy. Prior
thereto, 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.
</TABLE>
Required Vote
The election of a Director requires the affirmative vote of a majority of the
shareholders present at the Meeting in person or by proxy and entitled to vote,
provided a quorum is present.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE FUND'S
SHAREHOLDERS VOTE "FOR" THE NOMINEE TO THE BOARD
PROPOSAL 4
TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT
OBJECTIVE TO PROVIDE THAT THE FUND SHALL INVEST
PRIMARILY IN REAL ESTATE SECURITIES
Currently, the Fund's investment objective is to provide above-average total
returns, including current income and capital appreciation, primarily through
investments in real estate securities in the United States. The Fund's long-term
objective is to achieve top-quartile total returns as compared with other mutual
funds that invest primarily in the securities of publicly traded REITs in the
United States by integrating in-depth proprietary real estate market research
with sophisticated capital markets research and modeling techniques. These
fundamental investment objectives may be changed only upon the approval of the
Fund's shareholders.
The Fund's Board has concluded that it would be in the best interests of the
Fund and its shareholders to amend the Fund's long-term investment objective to
clarify that the Fund will
18
<PAGE>
invest primarily in real estate securities, which may include publicly-traded
REITs or other securities of real estate companies. For purposes of the Fund'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.
Amendment of the Fund's long-term investment policy would provide the Fund
with the flexibility to continue to both invest in publicly-traded REITS and to
take advantage of investment opportunities in other real estate securities.
Thus, the Board recommends changing the Fund's long-term investment objective to
state that the Fund intends "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."
Required Vote
Amendment of this fundamental policy requires the affirmative vote of the
holders of the lesser of : (i) 67% of the Class R shares of the Fund present at
the Special Meeting, if the holders of more than 50% of the outstanding shares
are present or represented by proxy at the Special Meeting; or (ii) more than
50% of the outstanding shares of the Fund entitled to vote at the Special
Meeting.
THE BOARD RECOMMENDS THAT THE CLASS R SHAREHOLDERS VOTE
FOR AMENDING THE FUND'S FUNDAMENTAL INVESTMENT
POLICY TO PROVIDE THAT THE FUND SHALL INVEST
PRIMARILY IN REAL ESTATE SECURITIES
OTHER MATTERS
The Fund's management does not know of any matters to be presented to the
Special Meeting other than the matters set forth in this statement. If other
business should properly come before the Special Meeting, the proxy holders will
vote thereon in accordance with their best judgment.
SECURITIES OWNERSHIP
As of October 31, 1997 there were 9,646,032.884 Class I shares and
157,689.998 Class R shares of the Fund issued and outstanding.
The following table sets forth information, as of October 31, 1997, regarding
the beneficial ownership of the Fund's Class I and Class R shares by the Fund's
directors and by
19
<PAGE>
shareholders owning more than 5% of either Class. As of October 31, 1997, no
director, nominee, or executive officer of the Fund beneficially owned,
individually or as a group, any of the Fund's Class I shares. As of that date,
the directors, nominees and executive officers of the Fund as a group owned
6,989.258 Class R shares, representing 4.43% of the Class R shares issued and
outstanding.
<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 9,646,032.884 100%
11 South LaSalle Street
Chicago, Illinois
Class R William D. Sanders 49,809.120 31.59%
7777 Market Center Avenue
El Paso, Texas 79912-8411
Class R William Buerger 30,038.875 19.05%
3 Mayfair Circle
Purchase, New York 10577-1436
Class R Campr Partners Limited 24,556.875 15.57%
7777 Market Center Avenue
El Paso, Texas 79912-8411
Class R Dennis G. Lopez 18,498.266 11.73%
117 Beekman Street, 4E
New York, New York 10038-2001
Class R Anthony R. Manno, Jr.* 4,863.813 3.08%
11 Satin LaSalle Street
Second Floor
Chicago, Illinois
</TABLE>
- - ---------------
(*) Director, Chairman of the Board and President of the Fund.
INFORMATION ABOUT THE FUND
Security Capital Employee REIT Fund Incorporated, is a non-diversified, no-
load, open-end management investment company. The Fund was incorporated under
Maryland law as SCERF Incorporated ("SCERF"), a wholly-owned subsidiary of
Security Capital Group, on
20
<PAGE>
December 20, 1996. On January 23, 1997, all the assets and liabilities of SCERF
were transferred to the Fund.
To date, the Fund has issued one class of shares to directors, trustees, and
employees of Security Capital Group and its affiliates, and members of their
families. Upon the implementation of a multi-class structure later this year,
the Fund will issue two or more classes of shares to institutional investors and
to retail investors. At that time, the Fund's name will be changed to
Security Capital U.S. Real Estate Shares Incorporated.
The Fund's investment objective is provide above-average total returns,
including current income and capital appreciation, primarily through investment
in real estate securities in the United States. compared with other mutual funds
that invest primarily in the securities of publicly traded REITs in the United
States by integrating in-depth proprietary real estate market research with
sophisticated capital markets research and modeling techniques. If Proposal 4 is
approved by the Fund's shareholders, the Fund's long-term objective will be 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.
Under normal conditions, the Fund will invest at least 65% of its assets in
REITs. The Fund will also invest in equity securities consisting 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)MG's view, a significant element of the securities' value, and (iv)
preferred stock. The Fund will not invest more than 10% of its nets 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. The Fund 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").
CUSTODIAN, TRANSFER 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 the
Fund's investments and as the Fund's transfer and dividend disbursing agent.
Firstar Trust Company does not determine the investment policies of the Fund or
decide which securities the Fund will buy or sell.
21
<PAGE>
GENERAL INFORMATION
Shareholder Proposals and Shareholders' Meetings
Any shareholder who wishes to submit a proposal for consideration at the
Meeting should submit the proposal promptly to the Fund.
The Fund is not required to hold regular annual shareholders' meeting. A
shareholders' meeting shall, however, be called by the secretary upon the
written request of holders of not less than 10% of the outstanding shares of the
Fund entitled to vote at the meeting. The Fund will assist shareholders wishing
to communicate with one another for the purpose of requesting such a meeting.
Annual Report
Copies of the Fund's semi-annual report have previously been delivered to
shareholders. Shareholders of the Fund may obtain without charge additional
copies of the semi-annual report by writing to: Security Capital Employee REIT
Fund Incorporated, c/o Firstar Trust Company, Mutual Fund Services, P.O. Box
701, Milwaukee, Wisconsin 53201-0701 or by calling (800) 699-4594 (toll free).
IN ORDER THAT THE PRESENCE OF A QUORUM AT THE MEETING MAY BE ASSURED, PROMPT
EXECUTION AND RETURN OF THE ENCLOSED PROXY IS REQUESTED. A SELF-ADDRESSED,
POSTAGE-PAID ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
By Order of the Board of Directors,
/s/ Anthony R. Manno Jr.
Anthony R. Manno Jr., President
November 20, 1997
22
<PAGE>
EXHIBIT A
---------
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 of personal service and/or maintenance of Class R shareholder
accounts, as such is now defined by the National Association of Securities
Dealers, 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 B
---------
INVESTMENT ADVISORY AGREEMENT
Security Capital U.S. Real Estate Shares Incorporated
Amended and Restated December 8, 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 propose to engage in the business of investing and reinvesting our
assets in securities of the type and in accordance with the limitations
specified in our Articles of Incorporation, By-Laws and any representations made
in our prospectus and statement of additional information, all in such manner
and to such extent as may from time to time be authorized by our Board of
Directors. 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 be responsible for the portion of
our net expenses (except interest, taxes, brokerage, expenditures which are
capitalized in accordance with generally accepted accounting principles and
extraordinary expenses, all to the extent permitted by applicable state law and
regulation) incurred by us during each of our fiscal years or portion thereof
that this Agreement is in effect between us which, in any such year exceeds the
limits applicable to us under the laws or regulations of any state in which our
shares are qualified for sale (reduced pro rata for any portion of less than a
year). You shall also 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.
-3-
<PAGE>
We hereby confirm that, subject to the foregoing, we shall be responsible and
hereby assume the obligation for payment of all our other expenses, including:
(a) payment of the fee payable to you under paragraph 6 hereof; (b) charges and
expenses of our administrator, custodian, transfer, and dividend disbursing
agent; (c) fees of directors who are not your affiliated persons; (d) legal and
auditing expenses; (e) compensation of our officers, Directors and employees who
do not devote any part of their time to your affairs or the affairs of your
affiliates other than us; (f) costs of printing our prospectuses and stockholder
reports; (g) costs of proxy solicitation; (h) 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
-4-
<PAGE>
payable in arrears on the last day of each calendar month for services performed
hereunder during such month. If this Agreement terminates prior to the end of a
month, such fee shall be prorated according to the proportion which such portion
of the month bears to the full month.
7. You shall hereby commit to waive any fees, payable by us to you, in
connection with paragraph 6 above, to the extent that any such fees exceed 1.20%
of the average daily net assets of either class of shares for the fiscal year
ending December 31, 1998 and for any additional periods subsequently agreed to.
8. This Agreement shall become effective on the date December 8, 1997, if
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 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)
-5-
<PAGE>
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.
9. This Agreement may not be transferred, assigned, sold or in any manner
hypothecated or pledged by you and this Agreement shall terminate automatically
in the event of any such transfer, assignment, sale, hypothecation or pledge by
you. The terms "transfer", "assignment" and "sale" as used in this paragraph
shall have the meanings ascribed thereto by governing law and any interpretation
thereof contained in rules or regulations promulgated by the Securities and
Exchange Commission thereunder.
10. Except to the extent necessary to perform your obligations hereunder,
nothing herein shall be deemed to limit or restrict your right, or the right of
any of your officers, directors or employees, who may also be a Director,
officer or employee of ours, or persons otherwise affiliated with us (within the
meaning of the Act) to engage in any other business or to devote time and
attention to the management or other aspects of any other business, whether of a
similar or dissimilar nature, or to render services of any kind to any other
trust, corporation, firm, individual or association.
11. This Agreement shall be construed in accordance with the laws of the
State of Illinois, provided, however, that nothing herein shall be construed as
being inconsistent with the Act.
-6-
<PAGE>
If the foregoing is in accordance with your understanding, will you kindly
so indicate by signing and returning to us the enclosed copy hereof.
Very truly yours,
Security Capital 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:
--------------------------------
-7-
<PAGE>
SECURITY CAPITAL EMPLOYEE REIT FUND INCORPORATED
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints John H. Gardner, Jr. and Jeffrey C.
Nellessen as proxies, each with the powers to act alone and to appoint his or
her substitute, and hereby authorizes them to represent and vote, as designated
herein, all the Class R shares of Security Capital Employee REIT Fund
Incorporated which the undersigned is entitled to vote as of October 31, 1997,
the record date, at the Special Meeting of Class R Shareholders to be held
December 4, 1997, or any adjournment thereof.
THIS PROXY IS CONTINUED ON THE REVERSE.
PLEASE SIGN ON THE REVERSE AND RETURN PROMPTLY
SECURITY CAPITAL EMPLOYEE REIT FUND INCORPORATED
SPECIAL MEETING OF CLASS R SHAREHOLDERS
THURSDAY, DECEMBER 4, 1997
10:00 A.M.
11 SOUTH LASALLE STREET
SECOND FLOOR
CHICAGO, ILLINOIS 60603
<PAGE>
This proxy when properly executed will be voted in the manner directed herein by
the undersigned Class R shareholder. If no direction is made, this Proxy will be
voted FOR the approval of the Distribution and Service Plan, FOR the approval of
the Amended Advisory Agreement, FOR the nominee named in Item 3, and FOR the
Proposal in Item 4. All items are proposed by Security Capital Employee REIT
Fund Incorporated.
Please mark your vote
as indicated in this
example
X
THE BOARD OF DIRECTORS RECOMMENDS THAT THE FUND'S CLASS R SHAREHOLDERS VOTE
"FOR" EACH OF THE FOLLOWING PROPOSALS:
Item 1 - Proposal to approve the Distribution and Service Plan pursuant to
Rule 12b-1 under the Investment Company Act of 1940, as amended.
For Against Abstain
[_] [_] [_]
Item 2 - Proposal to approve the Amended investment Advisory Agreement
between the Fund and Security Capital (US) Management Group
Incorporated (formerly Security Capital Investment Research Group
Incorporated).
For Against Abstain
[_] [_] [_]
Item 3 - Election of George F. Keane as Director.
For Against
[_] [_]
Item 4 - Proposal to amend the Fund's fundamental investment objective to
clarify that the Fund will invest primarily in real estate securities.
For Against Abstain
[_] [_] [_]
Item 5 - In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the meeting.
Please sign as name appears herein. Joint
owners should each sign. When signing as
attorney, executor, administrator, trustee
or guardian, please give full title as such.
Dated: ______________________________ , 1997
--------------------------------------------
Signature
--------------------------------------------
Signature
PLEASE SIGN, DATE AND MAIL YOUR PROXY CARD PROMPTLY!
