<PAGE>
As filed with the Securities and Exchange Commission on November 25, 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. 3
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
Amendment No. 5
(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) Security Capital Group Incorporated
Management Group Incorporated 125 Lincoln Avenue
11 South LaSalle Street Santa Fe, New Mexico 87501
Chicago, Illinois 60603
(Name and Address of Agent for Service)
Jeffrey C. Nellessen Diane E. Ambler
Security Capital (US) Mayer, Brown & Platt
Management Group 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):
immediately upon filing X on December 15, 1997 pursuant to paragraph
- - pursuant to paragraph (b). - (a)(1) of Rule 485.
on (date) pursuant to
- - paragraph (b). 75 days after filing pursuant to paragraph
60 days after filing - (a)(2).
- - pursuant to paragraph on (date pursuant to paragraph (a)(2) of
(a)(1). - Rule 485.
If appropriate, check the following box:
- - this post-effective amendment designates a new effective
date for a previously filed post-effective amendment
RULE 24F-2 NOTICE
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
------
<TABLE>
<CAPTION>
Item of Form N-1A Prospectus Caption
----------------- ------------------
<S> <C>
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
------
<CAPTION>
Statement of Additional
Item of Form N-1A Information Caption
----------------- -------------------
<S> <C>
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
</TABLE>
<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; Portfolio Transactions and Brokerage
17. Brokerage Allocation and Other Practices Management of SC-US; Portfolio Transactions and Brokerage
18. Capital Stock and Other Securities Organization and Description of Capital Stock
19. Purchase, Redemption and Pricing of Distribution Plan; Determination of Net Asset Value; Redemption of Shares
Securities Being Offered
20. Tax Status Taxation
21. Underwriters Distributor
22. Calculation of Performance Data Performance Information
23. Financial Statements Financial Statement
<CAPTION>
PART C
------
Item of Form N-1A Part C Caption
----------------- --------------
<S> <C>
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>
********************************************************************************
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE *
* SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY *
* OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT *
* BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR *
* THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE *
* SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE *
* UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATIONS UNDER THE SECURITIES LAWS *
* OF ANY SUCH STATE. *
********************************************************************************
PROSPECTUS
[LOGO APPEARS HERE]
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
<TABLE>
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Page
----
<S> <C>
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
</TABLE>
<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 projected expenses for its current fiscal period ending December 31,
1997, assuming that SC-US's average annual net assets for such fiscal year are
$250 million. The actual expenses in future years may be more or less than the
numbers in the table, depending on a number of factors, including the actual
value of SC-US's assets.
Fee Table
<TABLE>
<CAPTION>
Shareholder Transaction Expenses:
Maximum sales charge on purchases and reinvested distributions None
Redemption fee (1) None
<S> <C>
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%
</TABLE>
- ------------
(1) SC-US's transfer agent charges a service fee of $12.00 for each wire
redemption.
(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
2
<PAGE>
extraordinary expenses, at no more than 1.00% of the average daily net
assets of the Class I shares 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 SC-US's Class I average daily net
assets.
The information in the Fee Table has been restated to reflect current fees.
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>
3
<PAGE>
SECURITY CAPITAL (US) 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)
<TABLE>
<CAPTION>
Nine months December 20, 1996(1)
ended through
September 30, 1997 December 31, 1996
Per Share Data: --------------------- --------------------
<S> <C> <C>
Net asset value, beginning of $ 10.38 $ 10.00
period
Income from Investment
operations:
Net investment Income 0.46(2) 0.02
Net realized and unrealized
gain on investments 1.95 0.36
------------ -----------
Total from investment
operations 2.41 0.38
------------ -----------
Less distributions from net
investment income (0.37) -
------------ -----------
Net asset value, end of period $ 12.42 $ 10.38
------------ -----------
Total return (3) 23.68% 3.77%
Supplemental data and ratios:
Net assets, end of period $122,895,094 $10,246,678
Ratio of expenses to average
net assets (4)(5) 0.84% 0.00%
Ratio of net investment income
to average net assets (4)(5) 5.54% 19.71%
Portfolio turnover rate 61.24% 0.00%
Average commission rate paid
per share $ 0.0568 $ 0.0601
</TABLE>
4
<PAGE>
(1) Inception date.
(2) Net investment income per
share represents net
investment income divided by
the average shares outstanding
throughout the period.
(3) Not annualized.
(4) Annualized.
(5) Without expense
reimbursements of $16,235 for
the nine months ended
September 30, 1997, the ratio
of expenses to average net
assets would have been 0.86%
and the ratio of net
investment income to average
net assets would have been
5.51%.
See notes to the financial statements.
5
<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
[__________, 1997], when its name was officially 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 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
6
<PAGE>
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 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. US REALTY 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 a 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
7
<PAGE>
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.
In addition to providing greater liquidity than direct real estate
investments, REITs have also outperformed direct real estate investments for
each of the past one, five, ten and fifteen year periods ended March 31, 1997.
The following chart reflects the performance of U.S. REITs compared to direct
U.S. real estate investments and other indices.
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.
8
<PAGE>
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, 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
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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 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
100%, 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 100% 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;
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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.
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, 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.
<TABLE>
<S> <C>
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.
John H. Gardner, Jr. Managing Director of SC-US; Managing Director of
SC (US) Management.
Jeffrey C. Nellessen 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.
</TABLE>
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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. Messrs. Manno and Statz are 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.
<TABLE>
<S> <C>
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.
</TABLE>
INVESTMENT ADVISORY AGREEMENT
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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 average daily
net assets of SC-US Class I (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 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 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.
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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 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 SC-US's
average daily net assets for Class I shares.
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 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
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<PAGE>
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.
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
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<PAGE>
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:
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.
Automatic Investment Plan
The Automatic Investment Plan allows regular, systematic investments in SC-US
Class I shares from a bank checking or NOW account. SC-US will reduce the
minimum initial investment to [$________] if a shareholder elects to use the
Automatic Investment Plan. To establish the Automatic Investment Plan, the
appropriate section in
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<PAGE>
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 [$___]), 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 $20,000 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.
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 $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."
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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, 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
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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 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.
19
<PAGE>
Federal Income Taxes
SC-US intends to qualify 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 gains
distributions is taxable to the shareholders as long-term capital gains,
irrespective of the length of time a shareholder may have held his or her stock.
Long-term capital gains distributions are not eligible for the dividends-
received deduction referred to above.
Under the current federal tax law, the amount of an income dividend or capital
gains distribution declared by SC-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 gains 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 tax consequences
of an investment in SC-US.
20
<PAGE>
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 [___________, 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 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 September 30, 1997, SCERF owned 98.41% of the issued and outstanding
shares (which will become Class I 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.
21
<PAGE>
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).
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.
22
<PAGE>
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICIATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
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
<TABLE>
<CAPTION>
Page
----
<S> <C>
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...... 9
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
</TABLE>
<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 projected expenses for its current fiscal period ending December 31,
1997, assuming that SC-US's average annual net assets for such fiscal year are
$250 million. The actual expenses in future years may be more or less than the
numbers in the table, depending on a number of factors, including the actual
value of SC-US's assets.
Fee Table
<TABLE>
<CAPTION>
Shareholder Transaction Expenses:
<S> <C>
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%
</TABLE>
- -----------
(1) SC-US's transfer agent charges a service fee of $12.00 for each wire
redemption.
(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 average daily net assets of the Class R shares 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>
3
<PAGE>
SECURITY CAPITAL (US) 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>
Nine months December 20, 1996(1)
ended through
September 30, 1997 December 31, 1996
Per Share Data: --------------------- --------------------
<S> <C> <C>
Net asset value, beginning of period $ 10.38 $ 10.00
Income from Investment operations:
Net investment Income 0.46(2) 0.02
Net realized and unrealized gain on investments 1.95 0.36
------------ -----------
Total from investment operations 2.41 0.38
------------ -----------
Less distributions from net investment income (0.37) -
------------ -----------
Net asset value, end of period $ 12.42 $ 10.38
------------ -----------
Total return (3) 23.68% 3.77%
Supplemental data and ratios:
Net assets, end of period $122,895,094 $10,246,678
Ratio of expenses to average net assets (4)(5) 0.84% 0.00%
Ratio of net investment income to average net assets (4)(5) 5.54% 19.71%
Portfolio turnover rate 61.24% 0.00%
Average commission rate paid per share $ 0.0568 $ 0.0601
</TABLE>
4
<PAGE>
(1) Inception date.
(2) Net investment income per share represents net investment income divided by
the average shares outstanding throughout the period.
(3) Not annualized.
(4) Annualized.
(5) Without expense reimbursements of $16,235 for the nine months ended
September 30, 1997, the ratio of expenses to average net assets would have
been 0.86% and the ratio of net investment income to average net assets
would have been 5.51%.
See notes to the financial statements.
5
<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
[__________, 1997], when its name was officially 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 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
6
<PAGE>
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 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. US REALTY 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 a 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.
7
<PAGE>
In addition to providing greater liquidity than direct real estate
investments, REITs have also outperformed direct real estate investments for
each of the past one, five, ten and fifteen year periods ended March 31, 1997.
The following chart reflects the performance of U.S. REITs compared to direct
U.S. real estate investments and other indices.
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
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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, 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
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<PAGE>
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
100%, 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 100% 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, 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.
<TABLE>
<CAPTION>
<S> <C>
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.
John H. Gardner, Jr. Managing Director of SC-US; Managing Director of SC (US) Management.
Jeffrey C. Nellessen 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 or SC-US and Senior Vice President of SC (US)
Management.
</TABLE>
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. Messrs. Manno and Statz are 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.
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Following are the employees of SC (US) Management that are responsible for
identifying and analyzing investments on behalf of SC-US.
<TABLE>
<CAPTION>
<S> <C>
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.
</TABLE>
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 average
daily net assets of SC-US Class R (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 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, (b) fees
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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 SC-US's average daily net assets.
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<PAGE>
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 SC-US's
average daily net assets for Class R shares.
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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<PAGE>
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, 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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<PAGE>
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, 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.
17
<PAGE>
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 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.
18
<PAGE>
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 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 gains
distributions is taxable to the shareholders as long-term capital gains,
irrespective of the length of time a shareholder may have held his or her stock.
Long-term capital gains distributions are not eligible for the dividends-
received deduction referred to above.
Under the current federal tax law, the amount of an income dividend or
capital gains distribution declared by SC-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 gains 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
19
<PAGE>
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 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 [___________, 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
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 98.41% of the issued and outstanding
shares (which will become Class I 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.
20
<PAGE>
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
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.
21
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES+
+EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION SHALL NOT CONSTITUTE AN +
+OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY +
+SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR +
+SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE +
+SECURITIES LAWS OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
[LOGO APPEARS HERE]
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
----
<S> <C>
Investment Objective and Policies................... 2
Investment Restrictions............................. 4
Management of SC-US................................. 4
Distribution Plan................................... 11
Determination of Net Asset Value.................... 12
Redemption of Shares................................ 13
Portfolio Transactions and Brokerage................ 13
Taxation............................................ 14
Organization and Description of Capital Stock....... 17
Distributor......................................... 18
Custodian and Transfer and Dividend Disbursing Agent 18
Performance Information............................. 18
Counsel and Independent Accountants................. 20
Financial Statements................................ 20
</TABLE>
<PAGE>
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. 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, 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 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
2
<PAGE>
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 against the box which would partially
offset its gain.
3
<PAGE>
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.
<TABLE>
<CAPTION>
Principal
Occupations During
Name and Address Office Age The Past Five Years
<S> <C> <C> <C>
Stephen F. Kasbeer......... Director [ ] 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.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Anthony R. Manno Jr*....... Chairman of 45 Managing Director of SC (US) Management since March 1997,
11 South LaSalle Street the Board of where he is responsible for overseeing all investment
Chicago, Illinois 60603 Directors, and capital allocation matters for SC (US) Management's
Managing public market securities activities and is also
Director and responsible for company and industry analysis,
President market strategy and trading and reporting; from January
1995 to March 1997, he was, he was Managing Director of
SC (USS) 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.
George F. Keane Director [ ] Chairman of the Board of 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 educational institutions when he became President
Emeritus 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, and as a Director and
Chairman of the Investment Committee of the United Negro College
Fund.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
John H. Gardner, Jr. Managing 43 Managing Director of Security Capital (US) Management Group
11 South LaSalle Street Director since July, 1997. Prior thereto, Director of Security Capital
Chicago, Illinois 60603 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....... Secretary and 36 Vice President and Controller of SC (US) Management since March 1997.
11 South LaSalle Street Treasurer Prior thereto, from June 1988 to March 1997, he was Controller, Manager
Chicago, Illinois 60603 of Client Administration and Compliance Officer at Strong Capital
Management, Inc.
Kenneth D. Statz........... Vice President 38 Senior Vice President of SC (US) Management since March 1997, where he
11 South LaSalle Street is responsible for the development and implementation of portfolio
Chicago, Illinois 60603 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.
</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.
6
<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..................... $ 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 0 N/A N/A 0
Director and 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.
<TABLE>
<CAPTION>
<S> <C>
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.
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
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
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 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.
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.
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.
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
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Yankees. Mr. Foster received his M.B.A. from the University of Chicago Graduate School of
Business and his B.A. from Tufts University.
</TABLE>
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 [___________, 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 average daily value of the 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 [___________, 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 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 SC-US's
average net assets 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
9
<PAGE>
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 SC-US's Class I average daily net assets and SC-US's Class R
shares at 1.15% 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 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 [_______, 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 [____________, 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 [_____________, 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
10
<PAGE>
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.
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 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.
11
<PAGE>
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 average daily net asset value 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 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 Plan for Class R shares was approved by the Board of Directors, including
the disinterested Directors, on [ ___________, 1997] and by SC-US's Class R
shareholders on [_____________, 1997]. The Plan for Class I shares was approved
by the Board of Directors, including the disinterested Directors, on
[___________, 1997], and by the sole Class I shareholder on [___________,
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.
12
<PAGE>
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.
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.
13
<PAGE>
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 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) 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.
14
<PAGE>
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 paid by SC-US attributable to dividends received by SC-US
from REITs or corporations exempt from federal income tax under Section 501 of
the Code, however, are not eligible for such deduction. Distributions of net
capital gains, if any, designated as capital gain dividends are taxable as long-
term capital gains, regardless of how long the shareholder has held SC-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 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 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
15
<PAGE>
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.
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. 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.
tax at the rate of 30% (or lower treaty rate) unless the foreign shareholder is
a nonresident alien individual and is physically present in the United States
for more than 182 days during the taxable year and meets certain other
requirements. However, this 30% tax on capital gains of nonresident
16
<PAGE>
alien individuals who are physically present in the United States for more than
the 182-day period only applies in exceptional cases because any individual
present in the United States for more than 182 days during the taxable year is
generally treated as a resident for U.S. income tax purposes; in that case, he
or she would be subject to U.S. income tax on his or her worldwide income at the
graduated rates applicable to U.S. citizens, rather than the 30% U.S. tax. In
the case of a foreign shareholder who is a nonresident alien individual, SC-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.
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 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 [___________, 1997], its name
was changed to Security Capital U.S. Real Estate Shares Incorporated.
17
<PAGE>
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 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 [__________, 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 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 [_____________, 1997], there were [___] Class R shares and [___] Class I
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>
Number of Percentage of
Name of Shareholder Shares Owned Shares Owned
- ------------------- ------------ ------------
<S> <C> <C>
SCERF Incorporated
(a Maryland corporation)
3753 Howard Hughes Parkway
Las Vegas, Nevada 89109.......... 9,733,622.89 98.41%
</TABLE>
As of September 30, 1997, SCERF owned 98.41% of the issued and outstanding
shares (which will become Class I 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 without charge
and as the distributor of Class R shares pursuant to a Distribution and
Servicing Agreement dated [____________, 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 [______________, 1997].
18
<PAGE>
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.
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 = Ending Redeemable Value of a hypothetical $1,000 investment
made at the beginning of a 1-, 5-, or 10-year period at the
end of a 1-, 5-, or 10-year period (or fractional portion
thereof), assuming reinvestment of all dividends and
distributions.
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.
19
<PAGE>
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 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
an opinion of [__________________].
[_______________] have 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.
20
<PAGE>
Security Capital (US) 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
---------------
</TABLE>
21
<PAGE>
Security Capital (US) Real Estate Shares Incorporated
Schedule of Investments
September 30, 1997 (Unaudited)
<TABLE>
<S> <C>
Hotels - 14.4% <C>
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
22
<PAGE>
Security Capital (US) Real Estate Shares Incorporated
Schedule of Investments
September 30, 1997 (Unaudited)
<TABLE>
<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>
23
<PAGE>
Security Capital (US) Real Estate Shares Incorporated
Schedule of Investments
September 30, 1997 (Unaudited)
<TABLE>
<S> <C> <C>
Principal Amount 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.
See notes to the financial statements.
</TABLE>
24
<PAGE>
SECURITY CAPITAL (US) REAL ESTATE SHARES INCORPORATED
-----------------------------------------------------
Statement of Assets and Liabilities
September 30, 1997
(Unaudited)
<TABLE>
<S> <C>
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 purchased 5,168,210
Payable to investment adviser 397,345
Accrued expenses and other liabilities 88,721
------------
</TABLE>
See notes to the financial statements.
25
<PAGE>
SECURITY CAPITAL (US) REAL ESTATE SHARES INCORPORATED
-----------------------------------------------------
<TABLE>
<S> <C>
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 of $0.01 par 9,891,030
value authorized)
Net Asset Value, Redemption Price and Offering
Price Per Share $12.42
============
</TABLE>
See notes to the financial statements.
26
<PAGE>
SECURITY CAPITAL (US) REAL ESTATE SHARES INCORPORATED
-----------------------------------------------------
Statement of Operations
Nine Months Ended September 30, 1997
(Unaudited)
<TABLE>
<S> <C>
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 expenses 16,235
Other 1,680
------------
Total expenses before reimbursement 567,212
Less: Reimbursement from Adviser (16,235)
------------
Total expenses 550,977
------------
</TABLE>
See notes to the financial statements.
27
<PAGE>
SECURITY CAPITAL (US) REAL ESTATE SHARES INCORPORATED
-----------------------------------------------------
<TABLE>
<S> <C>
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
============
</TABLE>
See notes to the financial statements.
28
<PAGE>
SECURITY CAPITAL (US) REAL ESTATE SHARES INCORPORATED
-----------------------------------------------------
Statement of Changes in Net Assets
(Unaudited)
<TABLE>
<CAPTION>
Nine months December 20, 1996(1)
ended through
September 30, 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 investments 17,390,410 295,754
------------ -----------
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 dividends 3,624,372 0
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
FROM NET INVESTMENT INCOME (3,626,176) 0
------------ -----------
TOTAL INCREASE IN NET ASSETS 112,648,416 10,246,678
NET ASSETS:
Beginning of period 10,246,678 0
------------ -----------
</TABLE>
See notes to financial statements.
29
<PAGE>
SECURITY CAPITAL (US) REAL ESTATE SHARES INCORPORATED
-----------------------------------------------------
<TABLE>
<S> <C> <C>
End of period (including undistributed net investment $122,895,094 $10,246,678
income of $35,910 and $24,188, respectively) ------------ -----------
(1) Inception date.
</TABLE>
See notes to financial statements.
30
<PAGE>
SECURITY CAPITAL (US) 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, have been 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.
See notes to the financial statements.
31
<PAGE>
SECURITY CAPITAL (US) REAL ESTATE SHARES INCORPORATED
-----------------------------------------------------
The characterization of shareholder distributions for financial reporting
purposes is determined in
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
gains portions of such distributions will be determined by formal notifications
from the REITs subsequent to the calendar year-end. Distributions received from
the REITs that are determined to be a return of capital are recorded by the Fund
as reduction of the cost basis of the securities held. The character of such
distributions, for tax purposes, is determined by the Fund based on estimates
and information received by the Fund from the REITs.
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 statements and 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:
<TABLE>
Nine Months 12/20/96
Ended Through
9/30/97 12/31/96
------- --------
<S> <C> <C>
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
========= ========
</TABLE>
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:
<TABLE>
<S> <C>
Appreciation $17,078,344
(Depreciation) (152,740)
-------------
Net appreciation on investments $16,925,604
=============
</TABLE>
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"),
See notes to financial statements.
32
<PAGE>
SECURITY CAPITAL (US) REAL ESTATE SHARES INCORPORATED
-----------------------------------------------------
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.
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.
See notes to the financial statements.
33
<PAGE>
SECURITY CAPITAL (US) REAL ESTATE SHARES INCORPORATED
-----------------------------------------------------
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 Maryland No entity controls Group
Incorporated ("Group")
SC Realty Incorporated Nevada Ownership by Group of 100% of
("SC Realty") voting securities
SCERF Incorporated Maryland Ownership by SC Realty of 100% of
voting securities
Security Capital U.S. Real Maryland Ownership by SCERF Incorporated of
Estate Shares Incorporated 100% of voting securities
SC Europacific Real Maryland
EstateShares Incorporated
Security Capital Preferred Maryland Ownership by SC Realty of 100% of
Growth Incorporated voting securities
Harbor Capital Incorporated Delaware
Development Services Trust
Security Capital Management Delaware Ownership by Group of 100% of
Incorporated voting securities
Belmont Corporation Delaware Ownership by Group 100% of voting
</TABLE>
See notes to the financial statements.
<PAGE>
SECURITY CAPITAL (US) REAL ESTATE SHARES INCORPORATED
-----------------------------------------------------
<TABLE>
<S> <C> <C>
Security Capital BVI Maryland Ownership by Group of 100% of
Holdings Incorporated voting securities
Security Capital Investment Delaware Ownership by Group of 100% of
Research Incorporated voting securities
("Investment Research")
</TABLE>
See notes to the financial statements.
2
<PAGE>
SECURITY CAPITAL (US) REAL ESTATE SHARES INCORPORATED
-----------------------------------------------------
<TABLE>
<S> <C> <C>
Security Capital Maryland Ownership by Investment Research
Strategic Global Group of 100% of voting securities
Incorporated
Security Capital Real Maryland Ownership by Investment Research
Estate Research of 100% of voting securities
Group Incorporated
Security Capital Global Delaware
Management Group
Incorporated
SC Group Incorporated Texas Ownership by Group of 100% of
voting securities
Security Capital Markets Delaware Ownership by Group of 100% of
Group Incorporated voting securities
Strategic Hotel Capital Delaware Ownership by Group of 49.65% of
Incorporated voting securities
SHC Funding Incorporated Delaware Ownership by Group of 1005% of
voting securities
Strategic Hotel Capital Delaware Ownership by Group of 100% of
Limited Partnership 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 Delaware
Incorporated
Security Capital (EU) Luxemburg Ownership by Group of 100% of
Management Holdings S.A. voting securities
Security Capital (EU) Luxemburg Ownership by Security Capital
Management Group S.A. (EU)Holdings S.A. of 100% of
voting securities
Security Capital (EU) Luxemburg Ownership by Group of 100% of
Management S.A. voting securities
</TABLE>
See notes to financial statements.
3
<PAGE>
SECURITY CAPITAL (US) REAL ESTATE SHARES INCORPORATED
-----------------------------------------------------
<TABLE>
<S> <C> <C>
Security Capital (UK) United Kingdom Ownership by Security Capital (EU)
Management Limited Management S.A. of 100% of voting
securities
CarrAmerica Realty Maryland Ownership by US Realty of 39.5% of
Corporation voting securities
Storage USA, Inc. Tennessee Ownership by US Realty of 36.7% of
voting securities
Regency Realty Florida Ownership by US Realty of 43.4% of
Corporation voting securities
Pacific Retail Trust Maryland Ownership by US Realty of 99% of
voting securities
Urban Growth Property Delaware Ownership by US Realty of 99% of
Incorporated voting securities
Urban Growth Property Maryland Ownership by US Realty of 99% of
Trust voting securities
LWP Associates LLC Maryland Ownership by US Realty of 99% of
voting securities
Van Wells Realty Maryland Ownership by US Realty of 99% of
Company, LLC voting securities
City Center Retail Trust Maryland Ownership by US Realty of 8.8% of
voting securities
City Center Retail Trust Delaware
Developments, L.P.
CCRT I Incorporated Delaware
CCRT II Incorporated Delaware
National Parking Company Maryland Ownership by US Realty of 100% of
voting securities
Parking Serviced Maryland Ownership by US Realty of 100% of
International Incorporated voting securities
NPC-1 Incorporated Maryland Ownership by US Realty of 100% of
voting securities
SC Communities Incorporated Delaware
Security Capital Maryland Ownership by SC Realty of 44.1% of
Industrial Trust voting securities
Security Capital Logistar Delaware Ownership by SCI of 100% of
International Incorporated voting securities
Security Capital Logistar Delaware Ownership by SCI of 100% of
Management Services voting securities
Incorporated
</TABLE>
See notes to the financial statements.
4
<PAGE>
SECURITY CAPITAL (US) REAL ESTATE SHARES INCORPORATED
-----------------------------------------------------
<TABLE>
<S> <C> <C>
Security Capital Interim Luxembourg Ownership by SCI of 100% of
SARL voting securities
Logistar Interim II SARL Luxembourg Ownership by SCI of 100% of
voting securities
Logistar SARL Luxembourg
Logistar BV Luxembourg
Security Capital Logistar Luxembourg Ownership by SCI of 100% of
Fund SCA voting securities
SCI Logistar Management Luxembourg Ownership by SCI of 100% of
SARL voting securities
CS Integrated LLC Delaware Ownership by SCI of 100% of
voting securities
Enterprise Refrigerated Delaware Ownership by SCI of 100% of
Services LLC voting securities
CS Integrated Retail Delaware
Services LLC
CS Integrated-Texas Delaware Ownership by SCI of 100% of
Limited Partnership voting securities
CS Integrated Investment Delaware
Management LLC
CS Integrated Investments Delaware
Southwest LLC
SCI Logistics Services Delaware Ownership by SCI of 100% of
Incorporated voting securities
SCI Logistics Holdings Delaware Ownership by SCI of 100% of
LLC 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
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 Client Services of Colorado
Colorado
SCI IV, Inc. Delaware Ownership by SCI of 100% of voting
securities
SCI--Alabama (1) Maryland Ownership by SCI of 100% of voting
Incorporated securities
</TABLE>
See notes to the financial statements.
5
<PAGE>
SECURITY CAPITAL (US) REAL ESTATE SHARES INCORPORATED
-----------------------------------------------------
<TABLE>
<S> <C> <C>
SCI--Alabama (2) Maryland Ownership by SCI of 100% of voting
Incorporated securities
Security Capital Alabama Alabama Ownership of 100% of voting
Industrial Trust securities by SCI--Alabama (1)
Incorporated and SCI--Alabama (2)
Incorporated
SCI--North Carolina (1) Maryland Ownership by SCI of 100% of voting
Incorporated securities
SCI--North Carolina (2) Maryland Ownership by SCI of 100% of voting
Incorporated securities
SCI--North Carolina Delaware Sole general partnership interest
Limited Partnership owned by SCI--North Carolina (1)
Incorporated
SCI Houston Holdings Inc. Delaware Ownership by SCI of 100% of voting
securities
SCI Mexico Industrial Maryland Ownership of SCI of 100%
Trust non-voting preferred securities
SCIT De Mexico SA DE CV
SCI Development Services Delaware Ownership by SCI of 100% of voting
Incorporated securities
SCI-DS Mexico Incorporated Maryland Ownership by SCI Development
Services 100% of voting securities
Security Capital Atlantic Maryland Ownership by SC Realty of 51.4% of
Incorporated ("Atlantic") voting securities
SCG Realty Services Delaware Ownership by Atlantic of 100% of
Atlantic Incorporated voting securities
SCA Florida Holdings (1) Florida Ownership by Atlantic of 100% of
Incorporated voting securities
Atlantic--Alabama (1) Maryland Ownership by Atlantic of 100% of
Incorporated voting securities
Atlantic Development Delaware Ownership by SCA of 100% of
Services preferred stock
Atlantic-Tennessee Delaware Ownership by SCA (3) and SCA
Limited Partnership (4)of 100% of voting securities
SCA Tennessee (3) Maryland Ownership by SCA of 100% of
Incorporated voting securities
SCA Tennessee (4) Maryland Ownership by SCA of 100% of
Incorporated voting securities
</TABLE>
See notes to the financial statements.
6
<PAGE>
SECURITY CAPITAL (US) REAL ESTATE SHARES INCORPORATED
-----------------------------------------------------
<TABLE>
<S> <C> <C>
Atlantic--Alabama (2) Maryland Ownership by Atlantic of 100% of
Incorporated voting securities
Security Capital Alabama Alabama Ownership by Atlantic--Alabama (1)
Multifamily Incorporated and Atlantic--Alabama
Trust (2) Incorporated of 100% of voting
securities
Atlantic--Alabama (3) Delaware Ownership by Atlantic of 100% of
Incorporated voting securities
Atlantic--Alabama (4) Delaware Ownership by Atlantic of 100% of
Incorporated voting securities
Atlantic Alabama Alabama Ownership of 100% of voting
Multifamily Trust securities by Atlantic--Alabama
(3) Incorporated and Atlantic--
Alabama (4) Incorporated
Atlantic--Alabama (5) Delaware Ownership by Atlantic of 100% of
Incorporated voting securities
Atlantic--Alabama (6) Delaware Ownership by Atlantic of 100% of
Incorporated voting securities
SCA Alabama Multifamily Alabama
Trust
SCA--South Carolina (1) Maryland Ownership by Atlantic of 100% of
Incorporated voting securities
SCA--North Carolina (1) Maryland Ownership by Atlantic of 100% of
Incorporated voting securities
SCA North Carolina (2) Maryland Ownership by Atlantic of 100% of
Incorporated voting securities
SCA North Carolina Delaware Sole general partnership interest
Limited Partnership owned by SCA--North Carolina (1)
Incorporated
SCA--Indiana Limited Delaware
Partnership
SCA--Tennessee Limited Delaware Sole general partnership interest
Partnership owned by SCA--Tennessee (1)
Incorporated
SCA--Tennessee (1) Delaware Ownership by Atlantic of 100% of
Incorporated voting securities
SCA--Tennessee (2) Delaware Ownership by Atlantic of 100% of
Incorporated voting securities
Security Capital Delaware Ownership by Atlantic of 100% of
Atlantic Multifamily voting securities
Inc.
Security Capital Pacific Maryland Ownership by SC Realty of 36.0% of
Trust ("PTR") voting securities
</TABLE>
See notes to the financial statements.
7
<PAGE>
SECURITY CAPITAL (US) REAL ESTATE SHARES INCORPORATED
-----------------------------------------------------
<TABLE>
<S> <C> <C>
SCG Realty Service Delaware Ownership by PTR of 100% of voting
Incorporated securities
SCP Nevada Holdings 1 Nevada Ownership by PTR of 100% of voting
Incorporated securities
SCP Utah Holdings 1 Utah Ownership by PTR of 100% of voting
Incorporated securities
SCP Utah Holdings 2 Utah Ownership by PTR of 100% of voting
Incorporated securities
SCP Utah Holdings 3 Utah Ownership by PTR of 100% of voting
Incorporated securities
SCP Utah Holdings (4) Utah Ownership by PTR of 100% of voting
Incorporated securities
SCP Utah Holdings (5) Utah Ownership by PTR of 100% of voting
Incorporated securities
PTR Multifamily Holdings Delaware Ownership by PTR of 100% of voting
Incorporated securities
Resident Advantage Delaware Ownership by PTR of 100% of voting
securities
Las Flores Development Texas Ownership by PTR of 100% of voting
Company securities
PTR Holdings (Texas) Texas
Incorporated
PTR Multifamily Delaware Ownership by PTR of 100% of voting
Incorporated securities
PTR-California Holdings Maryland Ownership by PTR of 100% of voting
(1) Incorporated securities
PTR-California Holdings Maryland Ownership by PTR of 100% of voting
(2) Incorporated securities
PTR-New Mexico (1) Delaware Ownership by PTR of 100% of voting
Incorporated securities
PTR Development Services Delaware Ownership by PTR of 100% of
preferred stock
PTR-New Mexico (2) Delaware Ownership by PTR of 100% of voting
Incorporated securities
PTR Washington Holdings Maryland Ownership by PTR Development
(1) Incorporated Services of 100% of voting
securities
Homestead Village Maryland Ownership by SC Realty (including
Incorporated its subsidiaries) of 56.5% of
voting securities
KC Homestead Village Missouri Ownership by Homestead Village
Redevelopment Incorporated of 100% of voting
Corporation securities
</TABLE>
See notes to the financial statements.
8
<PAGE>
SECURITY CAPITAL (US) REAL ESTATE SHARES INCORPORATED
-----------------------------------------------------
<TABLE>
<S> <C> <C>
Missouri Homestead Maryland Ownership by Homestead Village
Village Incorporated of 100% of voting
Incorporated securities
Atlantic Homestead Delaware Sole general partnership interest
Village Limited owned by Atlantic Homestead
Partnership Village (1) Incorporated
Atlantic Homestead Maryland Ownership by Homestead Village
Village (1) Incorporated of 100% of voting
Incorporated securities
Atlantic Homestead Maryland Ownership by Homestead Village
Village (2) Incorporated of 100% of voting
Incorporated securities
PTR Homestead Village (1) Maryland Ownership by Homestead Village
Incorporated Incorporated of 100% of voting
securities
PTR Homestead Village (2) Maryland Ownership by Homestead Village
Incorporated Incorporated of 100% of voting
securities
Homestead Village LP Delaware Ownership by Homestead Village(1)
and Homestead Village (2) of 100%
of voting securities
Homestead Alabama Alabama Ownership by Homestead Village of
Incorporated 100% of voting securities
BTW Incorporated Delaware Ownership by Homestead Village
Incorporated of 100% of voting
securities
Homestead Village Delaware Ownership by Homestead Village
Management Incorporated of 100% of voting
Incorporated securities
PTR Homestead Village Delaware Sole general partnership interest
Limited Partnership owned by PTR Homestead Village (1)
Incorporated
Homestead Alabama Alabama Ownership by Homestead Village
Incorporated Incorporated of 100% of voting
securities
</TABLE>
Item 26. Number of Holders of Securities.
<TABLE>
<CAPTION>
TITLE OF CLASS NUMBER OF RECORD HOLDERS
-------------- ------------------------
Shares of Beneficial Interest at , 1997
<S> <C>
Class I Shares _____
Class R Shares _____
</TABLE>
See notes to the financial statements.
9
<PAGE>
SECURITY CAPITAL (US) REAL ESTATE SHARES INCORPORATED
-----------------------------------------------------
[To be filed by amendment.]
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.
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 None
President
Jeffrey A. Klopf Director, Secretary and None
Senior Vice President
Gerard de Gunzburg Senior Vice President None
Donald E. Suter Managing Director None
Robert H. Fippinger Vice President None
</TABLE>
See notes to the financial statements.
10
<PAGE>
SECURITY CAPITAL (US) REAL ESTATE SHARES INCORPORATED
-----------------------------------------------------
<TABLE>
<S> <C> <C>
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>
*[Addresses to be filed by amendment.]
(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 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.
See notes to the financial statements.
11
<PAGE>
SECURITY CAPITAL (US) REAL ESTATE SHARES INCORPORATED
-----------------------------------------------------
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 25th day of
November, 1997.
Security Capital U.S. Real Estate Shares
Incorporated
By:/s/ Anthony R. Manno Jr.
-----------------------------------
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 21st
day of October, 1997.
<TABLE>
<CAPTION>
Signature Capacity Date
- ---------------------- ------------------------------- ------------------
<S> <C> <C>
/s/Anthony R. Manno Jr. Chairman, Managing Director and November 25, 1997
- ------------------------ President
Anthony R. Manno Jr.
/s/Jeffrey C. Nellessen Principal Financial Officer November 25, 1997
- ------------------------
Jeffrey C. Nellessen
/s/Jeffrey C. Nellessen Comptroller November 25, 1997
- ------------------------
Jeffrey C. Nellessen
/s/Stephen F. Kasbeer Director November 25, 1997
- ------------------------
Stephen F. Kasbeer
/s/Anthony R. Manno Jr. Director November 25, 1997
- ------------------------
Anthony R. Manno Jr.
</TABLE>
See notes to the financial statements.
12
<PAGE>
SECURITY CAPITAL (US) REAL ESTATE SHARES INCORPORATED
-----------------------------------------------------
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ------------ ---------------------------------------------------
<S> <C>
1* Articles of Incorporation.
2* By-Laws.
5(a)** Investment Advisory Contract.
5(b) Amended Investment Advisory Contract. [To be filed
by amendment.]
6(a)*** General Distributor's Agreement.
6(b) Distribution and Servicing Agreement. [To be filed
by amendment.]
8** Custodian Agreement.
9(a)** Transfer Agent Agreement.
9(b)** 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 Consent of Mayer, Brown & Platt.
15 Rule 12b-1 Distribution and Shareholder Servicing
Plan.[To be filed by amendment.]
17 Financial Data Schedule.
18 Rule 18f-3 Multiple Class Plan. [To be filed by
amendment.]
</TABLE>
-------------
*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.
See notes to the financial statements.
13
<PAGE>
SECURITY CAPITAL (US) REAL ESTATE SHARES INCORPORATED
-----------------------------------------------------
***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.
See notes to the financial statements.
14
<PAGE>
EXHIBIT 11(b)
CONSENT OF
----------
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. 3 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.
November 25, 1997
<TABLE> <S> <C>
<PAGE>
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<NAME> SECURITY CAPITAL EMPLOYEE REIT FUND INC.
<MULTIPLIER> 1,000
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
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