SECURITY CAPITAL U S REAL ESTATE SHARES INC, 485APOS, 1998-05-15

SECURITY CAPITAL U S REAL ESTATE SHARES INC
485APOS, 1998-05-15

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<PAGE>

As filed with the Securities and Exchange Commission on May 15, 1998

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. 7

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940

Amendment No. 9

(Check Appropriate Box or Boxes)

Security Capital Real Estate Mutual Funds 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)

Anthony R. Manno Jr.

Security Capital Global Capital Management Group Incorporated

11 South LaSalle Street
Chicago, Illinois 60603
(Name and Address of Agent for Service)

With Copies to:

Jeffrey C. Nellessen Jeffrey A. Klopf
Security Capital Global Capital Management Group Security Capital Group
Incorporated Incorporated
11 South LaSalle Street 125 Lincoln Avenue
Chicago, Illinois 60603 Santa Fe, New Mexico 87501

Diane E. Ambler
Mayer, Brown & Platt
2000 Pennsylvania Avenue, N.W.
Washington, D.C. 20006

It is proposed that this filing will become effective (check appropriate
box):

__ immediately upon filing pursuant X on June 30, 1998 pursuant
to paragraph (b). to paragraph (a)(1) of Rule 485.
__ on (date) pursuant to paragraph (b). __ 75 days after filing pursuant to
__ 60 days after filing pursuant to paragraph (a)(2).
paragraph (a)(1). __ on (date pursuant to paragraph
(a)(2) of Rule 485.

If appropriate, check the following box:

__ this post-effective amendment designates a new effective
date for a previously filed post-effective amendment

Title of Securities being Registered................................Common Stock
<PAGE>

CROSS REFERENCE TABLE

Pursuant to Rule 495

Showing Location in Part A (Prospectus),
Part B (Statement of Additional Information), and
Part C (Other Information) of Registration Statement

Information Required by Form N-1A

PART A

Item of Form N-1A Prospectus Caption
----------------- ------------------

1. Cover Page Cover Page

2. Synopsis Description of SC-REMFs and SC-US

3. Condensed Financial Information Financial Highlights

4. General Description of Registrant Description of SC-REMFs and SC-US

5. Management of SC-US Management of SC-US

5A. Management's Discussion of Fund Performance Information
Performance

6. Capital Stock and Other Securities Organization and Description of
Capital Stock

7. Purchase of Securities Being Offered Purchase of Shares

8. Redemption or Repurchase Redemption of Shares

9. Pending Legal Proceedings Not Applicable

PART B

Statement of Additional
Item of Form N-1A Information Caption
----------------- -------------------

10. Cover Page Cover Page

11. Table of Contents Table of Contents

12. General Information and History Organization and Description of
Capital Stock

13. Investment Objectives and Policies Investment Objectives and
Policies

14. Management of SC-REMFs Management of SC-REMFs

15. Control Persons and Principal Holders Organization and Description of
of Securities Capital Stock
<PAGE>

Statement of Additional
Item of Form N-1A Information Caption
- ----------------- -------------------

16. Investment Advisory and Other Services Management of SC-REMFs; Portfolio
Transactions and Brokerage

17. Brokerage Allocation and Other Management of SC-REMFs; Portfolio
Practices Transactions and Brokerage

18. Capital Stock and Other Securities Organization and Description of
Capital Stock

19. Purchase, Redemption and Pricing of Distribution Plans; Determination
Securities Being Offered of Net Asset Value; Redemption of
Shares

20. Tax Status Taxation

21. Underwriters Distributor

22. Calculation of Performance Data Performance Information

23. Financial Statements Financial Statement

PART C

Item of Form N-1A Part C Caption
----------------- --------------

24. Financial Statements and Exhibits Financial Statements and Exhibits

25. Persons Controlled by or Under Persons Controlled By or Under
Common Control With Registrant Common 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
<PAGE>

PROSPECTUS

LOGO

11 South LaSalle Street
Chicago, Illinois 60603

Security Capital U.S. Real Estate Shares ("SC-US") is an investment
portfolio of Security Capital Real Estate Mutual Funds Incorporated
("SC-REMFs"), an open-end management investment company organized under Maryland
law. SC-US 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 Global Capital
Management Group Incorporated ("SCGCMG") serves as both investment adviser and
administrator to SC-US.

By this Prospectus, Class I shares of SC-US are being offered. Class I
shares are sold at net asset value without a sales charge to investors whose
minimum initial investment is $250,000. Class I shares are offered directly
through SC-REMFs, Security Capital Markets Group Incorporated, SC-US's
distributor ("Distributor"), and various financial intermediaries. SC-US also
offers Class R shares to investors whose minimum initial investment is $2,500.
Class R shares have different expenses than Class I shares which would affect
performance. Investors desiring to obtain information about SC-US's Class R
shares should call 1-888-SECURITY (toll free) or ask their sales representatives
or the 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.

This Prospectus sets forth concisely the information a prospective
investor should know before investing in SC-US. SC-REMFs offers other investment
portfolios which are described in the prospectuses for Security Capital European
Real Estate Shares, Security Capital Asia/Pacific Real Estate Shares and
Security Capital Real Estate Arbitrage Shares. A Statement of Additional
Information dated [_______________,1998], 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 calling 1-888-SECURITY (toll
free) or by writing SC-US's Sub-Administrator at: Firstar Trust Company, Mutual
Fund Services, P.O. Box 701, Milwaukee, Wisconsin 53201-0701.

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.

[_______________, 1998]
<PAGE>

TABLE OF CONTENTS

Page
----

Expenses................................................................... 2

Financial Highlights....................................................... 4

Description of SC-US....................................................... 5

Investment Objective and Policies.......................................... 5

Investment Strategy........................................................ 6

Risk Factors............................................................... 8

Non-Diversified Status & Portfolio Turnover................................ 9

Directors, Officers and Other Personnel.................................... 9

Investment Advisory Agreement.............................................. 12

Administrator and Sub-Administrator........................................ 13

Distribution and Servicing Plan............................................ 13

Determination of Net Asset Value........................................... 14

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

Year 2000 Risks............................................................ 21

Additional Information..................................................... 21

<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.

Fee Table (1)

Shareholder Transaction Expenses:
Maximum sales charge on purchases and reinvested distributions... None
Redemption fee (2)............................................... None
Annual Fund Operating Expenses (after expense waivers and/or
reimbursements, as a percentage of average net assets):
Management fees................................................. .60%
12b-1 fees (3).................................................. .25%
Other expenses (4).............................................. .15%
--------
Total fund operating expenses (5)............................... 1.00%

(1) SC-US's net investment income and net expenses for the period January 1,
1997 through December 16, 1997 were allocated to each class of shares
based upon the relative outstanding shares of each class as of the close
of business on December 16, 1997, and the results thereof were combined
with the results of operations for each applicable class for the period
December 17, 1997 through December 31, 1997.

(2) SC-US's transfer agent charges a service fee of $12.00 for each wire
redemption. In addition, the purchase or redemption of shares through a
securities dealer that has not entered into a sales agreement with
Security Capital Markets Group Incorporated, SC-US's distributor
("Distributor"), may be subject to a transaction fee.

(3) SC-REMFs has adopted a Distribution and Service Plan for SC-US Class I
shares pursuant to Rule 12b-1 of the Investment Company Act of 1940, as
amended, pursuant to which SC-US pays the Distributor a fee for
distribution-related services and services related to the maintenance of
shareholder accounts at the annual rate of 0.25% of SC-US's Class I
average daily net assets. As a result, long-term Class I shareholders of
SC-US may pay more than the economic equivalent of the maximum front-end
sales load permitted by the National Association of Securities Dealers,
Inc. ("NASD").

(4) 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.

(5) From April 23, 1997 through December 16, 1997, SCGCMG committed to waive
fees and/or reimburse expenses to maintain SC-US's 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 daily net
assets. Since December 17, 1997 and for the year ending December 31, 1998,
SCGCMG has committed to waive fees and/or reimburse other expenses to
maintain SC-US's Class I total fund operating expenses, other than
brokerage fees and commissions, taxes, interest and other extraordinary
expenses, at no more than 1.00% of the value of SC-US's

2
<PAGE>

Class I average daily net assets. Without such waiver and/or
reimbursement, SC-US's other expenses would have been .34% of SC-US's
Class I average daily net assets from April 23, 1997 to December 16, 1997
and .32% of SC-US's Class I average daily net assets from December 17,
1997 to December 31, 1997. Similarly, total fund operating expenses would
have been 1.19% of SC-US's Class I average daily net assets from April 23,
1997 to December 16, 1997 and 1.17% of SC-US's Class I average daily net
assets from December 17, 1997 to December 31, 1997.

Expenses reflected in the Fee Table are expressed as a percentage of SC-US's
average daily net assets for the year ending December 31, 1997 and have 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............................................. $10 $32 $55 $122
</TABLE>

The actual expenses in future years may be more or less than the numbers
in the example, depending on a number of factors, including the actual value of
SC-US's assets.

3
<PAGE>

SECURITY CAPITAL U.S. REAL ESTATE SHARES

The following audited financial highlights should be read in conjunction
with the financial information and notes thereto which appear in the Statement
of Additional Information.

SECURITY CAPITAL U.S. REAL ESTATE SHARES INCORPORATED - CLASS I SHARES(1)

Financial Highlights April 23, 1997(2)
through
Per Share Data: December 31, 1997
-----------------
Net asset value, beginning of period $10.15
-----------------
Income from investment operations:
Net investment income 0.31
Net realized and unrealized gain
on investments 2.49
-----------------
Total from investment operations 2.80
-----------------
Less distributions:
Dividends from net investment income (0.31)
Dividends in excess of net investment income (0.15)
Distributions from net realized gains (0.54)
-----------------
Total distributions (1.00)
-----------------
Net asset value, end of period 11.95
=================
Total return(3) 29.92%
Supplemental data and ratios:
Net assets, end of period $116,560,328
Ratio of expenses to average net assets(4)(5) 1.15%
Ratio of net investment income to average net assets(4)(5) 4.08%
Portfolio turnover rate(6) 82.10%
Average commission rate paid per share(6) $0.0595

(1) On December 16, 1997, the shares held by SC-US's existing shareholders
were split into Class R and Class I shares based on the amount then
invested in SC-US. For the year ended December 31, 1997, the Financial
Highlights ratios of net expenses to average net assets, ratios of net
investment income to average net assets and the per share income from
investment operations are presented on a basis whereby SC-US's net
investment income and net expenses for the period January 1, 1997 through
December 16, 1997, were allocated to each class of shares based upon the
relative outstanding shares of each class as of the close of business on
December 16, 1997, and the results thereof were combined with the results
of operations for each applicable class for the period December 17, 1997
through December 31, 1997.

(2) Date the Fund was effective with the SEC.

(3) Not annualized for the period April 23, 1997 through December 31, 1997.

(4) Annualized for the period April 23, 1997 through December 31, 1997.

(5) Without expense reimbursements of $30,276 for the period April 23, 1997
through December 31, 1997, $22,063 of which represents the amortization of
organizational expenses attributable to Class I shares, the ratio of
expenses to average net assets would have been 1.19% and the ratio of net
investment income to average net assets would have been 4.04%.

(6) Portfolio turnover and average commissions rate paid are calculated on the
basis of the Fund as a whole without distinguishing between the classes of
shares issued.

4
<PAGE>

DESCRIPTION OF SC-US

SC-US is a non-diversified investment portfolio of Security Capital Real
Estate Mutual Funds Incorporated ("SC-REMFs"), an open-end management investment
company organized under Maryland law. SC-REMFs is comprised of four investment
portfolios, SC-US, Security Capital European Real Estate Shares ("SC-EURO"),
Security Capital Asia/Pacific Real Estate Shares ("SC-ASIA") and Security
Capital Real Estate Arbitrage Shares ("SC-ARBITRAGE").

SC-US issues 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 are offered to all other eligible investors,
offers different services and incurs different expenses than Class I shares,
which would affect performance. See "Purchase of Shares" and "Organization and
Description of Capital Stock." SC-US Class I shares are offered by this
prospectus.

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 in the
Statement of Additional Information, 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.

Real Estate Securities

Under normal circumstances, SC-US will invest at least 80% of its assets
in real estate securities, including real estate investment trusts ("REITs") and
other publicly-traded real estate securities. 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, organized primarily in the U.S., that are controlled
by Security Capital Group Incorporated and its affiliated persons. SC-US will
not make any investments in securities issued by real estate companies
controlled by Security Capital Group Incorporated or its affiliated persons
prohibited by the Investment Company Act of 1940, as amended ("1940 Act"),
without prior application to the Securities and Exchange Commission ("SEC") and
SEC approval.

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.

5
<PAGE>

Illiquid Securities

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. SCGCMG will monitor the
liquidity of such restricted securities under the supervision of SC-REMFs's
Board of Directors. If SC-US invests in securities issued by a real estate
company that is controlled by Security Capital Group Incorporated or any of its
affiliates, such securities will be treated as illiquid securities. See the
Statement of Additional Information for further discussion of illiquid
securities.

Debt Securities and Money Market Instruments

SC-US may invest in debt securities from time to time, if SCGCMG believes
investing in such securities might help achieve SC-US's objective. SC-US may
invest in debt securities to the extent consistent with its investment policies,
although SCGCMG expects that under normal circumstances the Funds are not likely
to invest a substantial portion of their assets in debt securities.

SC-US will invest only in securities rated "investment grade" or
considered by SCGCMG to be of comparable quality. Investment grade securities
are rated Baa or higher by Moody's Investors Service, Inc. or BBB or higher by
Standard & Poor's. Descriptions of the securities ratings assigned by Moody's
and Standard & Poor's are described in Appendix A to the Statement of Additional
Information.

When, in the judgment of SC (US) Management, market or general economic
conditions justify a temporary defensive position, SC-US may invest 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 use
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.

Short Sales

SC-US may engage in short sale transactions in securities listed on one or
more national securities exchanges or on the National Association of Securities
Dealers, Inc. Automated Quotation System ("NASDAQ"). Short selling involves the
sale of borrowed securities. At the time a short sale is effected, SC-US incurs
an obligation to replace the security borrowed at whatever its price may be at
the time that SC-US purchases it for delivery to the lender. When a short sale
transaction is closed out by delivery of the securities, any gain or loss on the
transaction is taxable as a short-term capital gain or loss. Until the security
is replaced, SC-US is required to pay to the lender amounts equal to any
dividends or interest which accrue during the period of the loan. All short
sales will be fully collateralized. SC-US may also engage in short sales against
the box, which involves selling a security SC-US holds in its portfolio for
delivery at a specified date in the future. Under a recent legislative change, a
short sale against the box will result in a constructive sale of the underlying
security at the time when the short sale is entered into, thus reducing the
benefit of these transactions. 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 the Statement of
Additional Information for further discussion of short sales and short sales
against the box.

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. Through December 31, 1997, the average annual total return for
Class I shares was 28.84%, after deducting fees and expenses and allocating net
investment income and net expenses to Class I and Class R shares as described in
SC-US's audited financial statements which appear in the Statement of Additional
Information. Past performance is not necessarily indicative of future results.
For current return information related to SC-US, contact SC-US at 1-888-SECURITY
(toll free).

6
<PAGE>

SC-US's investment strategy is also similar to that of Security Capital
U.S. Realty Special Opportunity Investments Portfolio ("USREALTY Special
Opportunity"). USREALTY Special Opportunity is a private investment portfolio
with assets of $344.6 million (at fair market value, as of December 31, 1997)
that invests primarily in publicly traded real estate securities in the United
States. USREALTY Special Opportunity is advised by Security Capital (EU)
Management S.A. SC (US) Management, acting as subadviser to Security Capital
(EU) Management S.A., provides advice to USREALTY Special Opportunity with
respect to investments in publicly traded U.S. real estate securities relying on
the same research and analytical tools and models that SCGCMG will rely on in
making investments on behalf of SC-US. From December 31, 1995 through December
31, 1997, USREALTY Special Opportunity achieved an average annual total return
of approximately 42.61%, 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.

Real Estate Industry Overview

SCGCMG 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 $8.8 billion at December 31, 1990 to $213.9
billion at December 31, 1997, in part, due to $117.1 billion of public offerings
conducted during that period. The 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.

SCGCMG 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 SCGCMG believes could produce above-average returns.

In addition to providing greater liquidity than direct real estate
investments, REITs have also generally outperformed direct real estate
investments for each of the past one-, five-, ten- and fifteen-year periods
ended December 31, 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 December 31, 1997 SC-US SC-US Special Equity Index Index S&P 500 Bonds(4)
- ------------------------- Class I Class R Opportunity ------------ ----- ------- --------
------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 year 25.20% 25.19% 25.18% 20.26% 13.71% 33.35% 9.78%
5 years 18.28% 7.77% 20.23% 7.63%
15 years 14.99% 6.74% 17.49% 10.19%
20 years 16.02% 7.94% 16.63% 9.76%
</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).

7
<PAGE>

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 real estate securities which have the potential to deliver above-average
growth. SCGCMG 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 Incorporated affiliate company network and
assists SCGCMG 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. SCGCMG
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 SCGCMG 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.

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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 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 AND 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
150%, but the turnover rate will not be a limiting factor when SCGCMG deems
portfolio changes appropriate. The turnover rate may vary greatly from year to
year. An annual turnover rate of 150% occurs, for example, when all of the
securities held by SC-US are replaced one and one-half times in a period of one
year. A higher turnover rate results in correspondingly greater brokerage
commissions and other transactional expenses which are borne by SC-US. High
portfolio turnover may result in the realization of net short-term capital gains
by SC-US which, when distributed to shareholders, will be taxable as ordinary
income. See "Taxation."

DIRECTORS, OFFICERS AND OTHER PERSONNEL

The overall management of the business and affairs of SC-US is vested with
the Board of Directors of SC-REMFs. The Board of Directors approves all
significant agreements between SC-REMFs and persons or companies furnishing
services to SC-US, including SC-REMFs's agreements with SC (US) Management, or
SC-US's administrator, custodian and transfer agent. The management of SC-US's
day-to-day operations is delegated to the officers of SC-REMFs, who include the
Managing Directors, SCGCMG 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-REMFs 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-REMFs's Articles of Incorporation. The
Directors and officers of SC-REMFs and certain key members of the SC-US
Portfolio Management Committee and their principal occupations are set forth
below.

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Anthony R. Manno Jr. Chairman of the Board of Directors, Managing
Director and President of SC-REMFs. Managing
Director and President of SCGCMG since March 1994,
where he is responsible for overseeing all
investment and capital allocation matters for SC
(US) Management's public market securities
activities and is also responsible for company and
industry analysis, market strategy and trading and
reporting. Mr. Manno was a member of the
Investment Committee of Security Capital Group
Incorporated from March 1994 to June 1996. Prior
to joining Security Capital, Mr. Manno was a
Managing Director of LaSalle Partners Limited from
March 1980 to March 1994. Mr. Manno received his
M.B.A. from the University of Chicago Graduate
School of Business, an M.A. and a B.A. from
Northwestern University and is a Certified Public
Accountant.

Robert H. Abrams Director of SC-REMFs. Director of the Program in
Real Estate at Cornell University. Founder of
Colliers ABR, Inc. (formerly Abrams Benisch Riker
Inc.), a property management firm. Mr. Abrams was
Principal of Colliers ABR, Inc. from 1978 to 1992
and since 1992, has served as a Consultant. From
1959 to 1978 Mr. Abrams was Executive Vice
President and Director of Cross and Brown Company.
Mr. Abrams also serves as Trustee Emeritus and
Presidential Counselor of his alma mater, Cornell
University. Mr. Abrams received his M.B.A. from
Harvard University and his B.A. from Cornell
University.

Stephen F. Kasbeer Director of SC-REMFs. Retired; Senior Vice
President for Administration and Treasurer of
Loyola University, Chicago from 1981 to July 1994,
where he was responsible for administration,
investment, real estate and treasurer functions.
At Loyola University, he also 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. Currently, Mr. Kasbeer serves
as a Director of Endowment Realty, Inc. and
Endowment Realty II and as a Member of the
Investment Committee of the University of San
Diego. Mr. Kasbeer also serves as Trustee,
Treasurer and Chairman of the Investment and
Finance Committees of Santa Fe Preparatory School
and as Trustee and Chairman of the Santa Fe
Preparatory School Combined Permanent Endowment
Fund Trust. Mr. Kasbeer received his J.D. from
John Marshall Law School and his M.A. and B.S.
from Northwestern University.

George F. Keane Director of SC-REMFs. 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 of
the Common Fund in 1993. He has served as a member
of the Investment Advisory Committee of the $75
billion New York State Common Retirement Fund
since 1982. He has been a Director of the RCB
Trust Company since 1991, a Trustee of the
Nicholas Applegate Investment Trust since 1993,
and a Director of the Bramwell Funds since 1994.
He is also a Director of Universal Stainless &
Alloy Products, Global Pharmaceutical Corporation,
United Water Resources and United Properties
Group, Gulf Resources Corporation, and the
Universal Bond Fund, and is an advisor to
Associated Energy Managers. Mr. Keane also serves
as a Trustee of his alma mater, Fairfield
University where he

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<PAGE>

received his B.A., and as a Director and Chairman
of the Investment Committee of the United Negro
College Fund. Mr. Keane holds honorary degrees
from Loyola University, Chicago, Illinois and
Lawrence University, Appleton, Wisconsin.

John H. Gardner, Jr. Director of SC-REMFs. Managing Director of
Security Capital (US) Management since July, 1997.
Prior thereto, the REIT Manager for Security
Capital Pacific Trust ("PTR") 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. from
Bentley College and his B.S. from Stonehill
College.

Kenneth D. Statz Managing Director of SC-REMFs. Managing Director
of SCGCMG since November 1997 where he is
responsible for the development and implementation
of portfolio investment strategy. Prior thereto,
Senior Vice President of SCGCMG 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 and Senior REIT Analyst
in the investment research department of Goldman,
Sachs & Co., from February 1993 to January 1995,
concentrating on research and underwriting for the
REIT industry. Prior thereto, Mr. Statz was a real
estate stock portfolio manager and a managing
director of Chancellor Capital Management from
August 1982 to February 1992. Mr. Statz received
his M.B.A. and B.B.A. from the University of
Wisconsin, Madison.

Kevin W. Bedell Senior Vice President of SC-REMFs. Senior Vice
President of SCGCMG since November 1997 and Vice
President since July 1996, where he is responsible
for directing the activities of the
industry/company securities research group and
providing in-depth proprietary research on
publicly traded companies. Prior to joining SC
(US) Management, Mr. Bedell spent nine years with
LaSalle Partners Limited where he was Equity Vice
President and Portfolio Manager responsible for
the strategic, operational and financial
management of a private REIT with commercial real
estate investments of $800 million. Mr. Bedell
received his M.B.A. from the University of Chicago
and his B.A. from Kenyon College.

Albert D. Adriani Member SC-US Portfolio Management Committee; Vice
President of SCGCMG 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 Security Capital U.S. Realty
Incorporated; from March 1994 to January 1995, he
was with Security Capital Markets Group. Prior
thereto, he was an investment analyst with HAL
Investments BV from July 1992 to January 1994. Mr.
Adriani received his M.B.A. from the University of
Chicago Graduate School of Business and his B.A.
from the University of Chicago. Mr. Adriani is a
Chartered Financial Analyst.

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<PAGE>

Jeffrey C. Nellessen Vice President, Secretary and Treasurer of
SC-REMFs. Vice President and Controller of SCGCMG
since March 1997. Prior thereto, from June 1988 to
March 1997, he was Controller, Manager of Client
Administration and Compliance Officer at Strong
Capital Management, Inc. Mr. Nellessen is a
Certified Public Accountant, Certified Management
Accountant and a Certified Financial Planner. He
received his B.B.A. from the University of
Wisconsin, Madison.

SCGCMG

Security Capital Global Capital Management Group Incorporated ("SC (US)
Management"), 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-REMFs.

SCGCMG was formed in March 1994, and is registered as an investment
adviser with the SEC. SC (US) Management's principal officers include Anthony R.
Manno Jr., Managing Director and President, John H. Gardner, Jr., Managing
Director, Kenneth D. Statz, Managing Director, and Kevin W. Bedell, Senior Vice
President. SCGCMG is a wholly-owned subsidiary of Security Capital Group
Incorporated, a real estate research, investment and management company.

The SC-US Portfolio Management Committee, which is comprised of certain
SC-REMFs officers and SCGCMG analysts, is primarily responsible for the
construction of SC-US's portfolio.

INVESTMENT ADVISORY AGREEMENT

Pursuant to an investment advisory agreement (the "Advisory Agreement"),
SCGCMG 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-REMFs's Board of Directors. SCGCMG also selects
brokers and dealers to execute purchase and sale orders for the portfolio
transactions of SC-US. SCGCMG provides persons satisfactory to the Directors of
SC-REMFs to serve as officers of SC-REMFs. Such officers, as well as certain
other employees and Directors of SC-REMFs, may be directors, officers, or
employees of SC (US) Management.

Under the Advisory Agreement, SC-US Class I shares pay SCGCMG, monthly, an
annual management fee equal to .60% of SC-US's Class I average daily net asset
value. SC-US Management also has committed to waive fees and/or reimburse
expenses to maintain SC-US's Class I shares' total operating expenses, other
than brokerage fees and commissions, taxes, interest and other extraordinary
expenses at no more than 1.00% of the value of SC-US's Class I average daily net
assets for the year ending December 31, 1998.

In addition to the payments to SCGCMG 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-REMFs'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-REMFs's Board of Directors, costs
of personnel of SCGCMG 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. Income, realized gains and losses,
unrealized appreciation and depreciation and certain expenses not allocated to a
particular class are allocated to each class based on the net assets of that
class in relation to the net assets of SC-REMFs.

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<PAGE>

ADMINISTRATOR AND SUB-ADMINISTRATOR

SCGCMG has also entered into a fund accounting and administration
agreement with SC-REMFs (the "Administration Agreement") under which SCGCMG
performs certain administrative functions for SC-US, including (i) providing
office space, telephone, office equipment and supplies for SC-REMFs; (ii) paying
compensation of SC-REMFs'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 semi-annual
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-REMFs's Board of Directors, SCGCMG has caused SC-REMFs 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,
semi-annual and annual shareholders reports, and SEC filings, and responding to
shareholder inquiries. Under the terms of the Sub-Administration Agreement,
SC-REMFs 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, SCGCMG 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-REMFs's Board of Directors. For its services under the
Administration Agreement, SCGCMG receives a monthly fee from SC-REMFs at the
annual rate of .02% of the value of SC-US's average daily net assets.

DISTRIBUTION AND SERVICING PLAN

The Board of Directors of SC-REMFs and the Class I shareholders of SC-US
have adopted a Distribution and Servicing Plan ("Plan") with respect to SC-US's
Class I shares pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, SC-US
pays the Distributor a monthly fee equal to, on an annual basis, .25% of the
value of SC-US's Class I average daily net assets.

The Distributor may use the fee for services performed and expenses
incurred by the Distributor in connection with the distribution of Class I
shares and for providing certain services to Class I shareholders. The
Distributor 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.

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<PAGE>

the case of retirement plans) who are beneficial owners of SC-US Class I shares.
Such Agreements may be governed by the Plan.

The Distributor, with offices located at 11 South LaSalle Street, Chicago,
Illinois 60603, is an affiliate of SC (US) Management. 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 of Class I shares then outstanding.

For purposes of determining the net asset value per share of Class I
shares, readily marketable portfolio securities listed on the New York Stock
Exchange are valued, except as indicated below, at the last sale price reflected
on the consolidated tape at the close of the New York Stock Exchange on the
business day as of which such value is being determined. If there has been no
sale on such day, the securities are valued at the mean of the closing bid and
asked prices on such day. If no bid or asked prices are quoted on such day, then
the security is valued by such method as the Directors shall determine in good
faith to reflect its fair market value. Readily marketable securities not listed
on the New York Stock Exchange but listed on other domestic or foreign
securities exchanges or admitted to trading on the NASDAQ National Market are
valued in a like manner. Portfolio securities traded on more than one securities
exchange are valued at the last sale price on the business day as of which such
value is being determined as reflected on the tape at the close of the exchange
representing the principal market for such securities.

Readily marketable securities traded in the over-the-counter market,
including listed securities whose primary market is believed by SCGCMG 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 ("Transfer Agent") and various financial
intermediaries that have entered into a sales agreement with the Distributor.

Orders for shares of SC-US will become effective at the net asset value
per share next determined after the receipt of payment. All funds will be
invested in full and fractional shares. A confirmation indicating the details of
each purchase transaction will be sent to you 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.

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<PAGE>

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.

By investing in SC-US, you appoint the Transfer Agent as your 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. Please note that it is more complicated
to redeem shares held in certificate form.

Initial Investment

The minimum initial investment is $250,000. Class I shares may be
purchased by check or money order drawn on a U.S. bank, savings and loan, or
credit union by wire transfer. The enclosed application must be completed and
accompanied by payment in U.S. funds to open an account. Checks must be payable
in U.S. dollars and will be accepted subject to collection at full face value.
Note that 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 to
accept a purchase order application in whole or in part.

Mail

The following instructions should be used when mailing a check or money
order payable to "Security Capital U.S. Real Estate Shares," via U.S. mail to
the Distributor, a securities dealer or the Transfer Agent:

Via U.S. Mail By Overnight Courier

Security Capital U.S. Security Capital U.S.
Real Estate Shares Real Estate Shares
c/o Firstar Trust Company c/o Firstar Trust Company
Mutual Fund Services Mutual Fund Services
P.O. Box 701 3rd Floor
Milwaukee, Wisconsin 53201-0710 615 East Michigan Street
Milwaukee, Wisconsin 53202

SC-REMFs does not consider the U.S. Postal Service or other independent
delivery service 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-REMFs. Do
not mail letters by overnight courier to the post office box.

Please note that if your check does not clear, a service charge of $20
will be charged and you will be responsible for any losses suffered by SC-US as
a result.

Wire Purchases

Class I shares may be purchased by wire only through the Transfer Agent.
The following instructions should be used 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
(shareholder account number)
(shareholder name/registration)

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<PAGE>

Please call 1-800-699-4594 prior to wiring any funds in order to obtain a
confirmation number and to ensure prompt and accurate handling of funds. SC-US
and its Transfer Agent are not responsible for the consequences of delays
resulting from the banking or Federal Reserve wire system or from incomplete
wiring instructions.

Subsequent Investments

Additional investments must be at least $20,000 and may be made by mail,
wire or by telephone. When making an additional purchase by mail, a check
payable to "Security Capital U.S. Real Estate Shares" 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.

You may purchase additional shares by moving money from your bank account
to your SC-US account by telephone. 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 give 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 three business days. Telephone
transactions may not be used for initial purchases of Class I shares.

Exchange Feature

Class I shares of SC-US may be exchanged for Class I shares of SC-EURO,
SC-ASIA and SC-ARBITRAGE. Exchanges of Class I shares will be made at their
relative net asset values. Shares may be exchanged only if the amount being
exchanged satisfies the minimum investment required. However, you may not
exchange your investment in shares of SC-US, SC-EURO, SC-ASIA or SC-ARBITRAGE
more than four times in any twelve-month period (including the initial exchange
of your investment during that period).

REDEMPTION OF SHARES

You may request redemption of part or all of your Class I shares at any
time by telephone or by mail. The redemption of shares will be at the next
determined net asset value. See "Determination of Net Asset Value." SC-US
normally will mail the redemption proceeds to you on the next business day and,
in any event, no later than seven business days after the 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 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 requests must be signed exactly as the shares are registered
including the signature of each joint owner. You 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. The following
instructions should be used for the redemption of shares by mail, by wire and by
telephone:

Mail and Wire

For most redemption requests you need only furnish a written,
unconditional request to redeem your Class R shares (for a fixed dollar amount)
at net asset value to Security Capital U.S. Real Estate Shares:

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<PAGE>

Via U.S. Mail By Overnight Courier

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 as $12.00 service fee for wire redemptions.

Additional documentation may be requested from corporations, executors,
administrators, trustees, guardians, agents, or attorneys-in-fact. SC-REMFs 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 by 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.

Telephone

You may redeem shares by telephone by calling the Transfer Agent at
1-800-699-4594. In order to utilize this procedure, you must have previously
elected this option in writing, which election will be reflected in the Transfer
Agent's records and the redemption proceeds will be mailed directly to you or
transferred 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 that address, you may call or submit
a written request 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.

Signature Guarantees

Signature guarantees are required for: (i) redemption requests to be
mailed or wired to a person other than the registered owner(s) of the shares;
(ii) redemption requests to be mailed or wired to other than the address of
record; (iii) any redemption request if a change of address request has been
received by SC-US or Transfer Agent within the last 15 days and (iv) any
redemption request involving $100,000 or more. A signature guarantee may be
obtained from any eligible guarantor institution, as defined by the SEC. These
institutions include banks, savings associations, credit unions, brokerage firms
and others.

Other Redemption Information

Unless other instructions are given in proper form, a check for the
proceeds of a redemption will be sent to the shareholder's address of record.
The Custodian may benefit from the use of redemption proceeds until the
redemption check for such proceeds has cleared.

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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 in 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.

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.

Dividends and distributions will automatically be reinvested 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
dividends or distributions paid in cash. SC-US will send shareholders a
statement reflecting each dividend and distribution. In addition, after the end
of each calendar year, SC-US will send shareholders a statement showing the
amount and tax characterization of all dividends and distributions paid during
the previous year. In accordance with the Taxpayer Relief Act of 1997, SC-US
will indicate which portion of a capital gain distribution will be taxed at a
maximum rate of 20% and which portion will be taxed at a maximum rate of 28%.
For information concerning the tax treatment of SC-US's distribution policies
for SC-US and its shareholders, see "Taxation."

TAXATION

The following discussion is intended for general information only.
Shareholders should consult with their own tax advisers as to the tax
consequences of an investment in SC-US, including the status of distributions
under applicable state or local law.

Federal Income Taxes

SC-US intends to qualify and elect to be taxed as a "regulated investment
company" under the Code. To the extent that SC-US distributes its taxable income
and net capital gain to its shareholders, qualification as a regulated
investment company relieves SC-US of federal income and excise taxes on that
part of its taxable income including net capital gains which it pays out to its
shareholders. Dividends out of net ordinary income and distributions of net
short-term capital gains are taxable to the recipient shareholders as ordinary
income. In the case of corporate shareholders, such dividends may be eligible
for the dividends-received deduction, except that the amount eligible for the
deduction is limited to the amount of qualifying dividends received by SC-US,
which does not include distributions received by SC-US from REITs. A
corporation's dividends-received deduction will be disallowed unless the
corporation holds shares in SC-US at least 46 days. Furthermore, the
dividends-received deduction will be disallowed to the extent a corporation's
investment in shares of SC-US is financed with indebtedness.

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The excess of net long-term capital gains over the net short-term capital
losses realized and distributed by SC-US to its shareholders as capital gain
distributions is taxable to the shareholders as long-term capital gain,
irrespective of the length of time a shareholder may have held his or her stock.
Recent legislation reduced the maximum tax rate on capital gains to 20% for
assets held for more than 18 months on the date of the sale or exchange of those
assets. A notice issued by the Internal Revenue Service provides that a
regulated investment company such as SC-US may, but is not required to,
designate which portion of a capital gain distribution qualifies for the reduced
capital gain rate. Long-term capital gain distributions are not eligible for the
dividends-received deduction referred to above.

Under current federal tax law, the amount of an ordinary income dividend
or capital gain distribution declared by SC-US during October, November or
December of a year to shareholders of record as of a specified date in such a
month that is paid during January of the following year is includable in the
prior year's taxable income of shareholders that are calendar year taxpayers.

Any dividend or distribution received by a shareholder on shares of SC-US
will have the effect of reducing the net asset value of such shares by the
amount of such dividend or distribution. Furthermore, a dividend or distribution
made shortly after the purchase of such shares by a shareholder, although in
effect a return of capital to that particular shareholder, would be taxable to
him or her as described above. If a shareholder held shares for six months or
less, and during that period received a distribution taxable to such shareholder
as long-term capital gain, any loss realized on the sale of such shares during
such six-month period would be a long-term capital loss to the extent of such
distribution.

A dividend or capital gain distribution with respect to shares of SC-US
held by a tax-deferred or qualified plan, such as an individual retirement
account, 403(b)(7) retirement plan or corporate pension or profit-sharing plan,
will not be taxable to the plan, except to the extent the shares are
debt-financed within the meaning of Section 514 of the Code. Distributions from
such plans will be taxable to individual participants under applicable tax rules
without regard to the character of the income earned by the qualified plan.

SC-US will be required to withhold 31% of any payments made to a
shareholder if the shareholder has not provided a certified taxpayer
identification number to SC-US, or the Secretary of the Treasury notifies SC-US
that the shareholder has not reported all interest and dividend income required
to be shown on the shareholder's Federal income tax return. Any amounts withheld
may be credited against the shareholder's U.S. federal income tax liability.

Further information relating to tax consequences is contained elsewhere in
this Prospectus and in the Statement of Additional Information.

State and Local Taxes

SC-US distributions also may be subject to state and local taxes.
Shareholders should consult their own tax advisers regarding the particular
state and local tax consequences of an investment in SC-US.

ORGANIZATION AND DESCRIPTION OF CAPITAL STOCK

Security Capital Real Estate Mutual Funds Incorporated, formerly Security
Capital Employee REIT Fund Incorporated, was incorporated under Maryland law as
SCERF Incorporated ("SCERF"), a wholly-owned subsidiary of Security Capital
Group Incorporated, on December 20, 1996. On January 23, 1997, all the assets
and liabilities of SCERF were transferred to Security Capital Employee REIT Fund
Incorporated in a reorganization transaction. On December 16, 1997, its name was
changed to Security Capital U.S. Real Estate Shares Incorporated. On
[___________, 1998], its name was changed to Security Capital Real Estate Mutual
Funds Incorporated.

SC-REMFs is authorized to issue 200,000,000 shares of stock, $.01 par
value per share. SC-REMFs's Board of Directors may, without shareholder
approval, increase or decrease the number of authorized but unissued shares of
SC-US's stock and reclassify and issue any unissued shares. The Board of
Directors also may create additional series of shares with different investment
objectives, policies or restrictions without shareholder approval. The Board of
Directors of SC-REMFs has authorized the creation of four investment portfolios,
SC-US, SC-EURO, SC-ASIA and SC-ARBITRAGE, each with two classes of shares: Class
I shares and Class R shares. Class I shares offer different services

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to shareholders and incur different expenses than Class R shares. Each class
pays its proportionate share of SC-REMFs's expenses.

All classes of each series of SC-REMFs's shares have equal dividend,
distribution, liquidation and voting rights. There are no conversion or
preemptive rights in connection with any class of any series of SC-REMFs's
shares. All SC-REMFs shares, when duly issued, are fully paid and nonassessable.
The rights of the holders of SC-US's Class I shares may not be modified except
by the vote of a majority of the holders of all Class I shares outstanding.
SC-US's Class I shareholders have exclusive voting rights with respect to
matters relating solely to SC-US's Class I shares. SC-US's Class I shareholders
vote separately from SC-US's Class R shareholders and SC-EURO's, SC-ASIA's and
SC-ARBITRAGE's Class I and Class R shareholders on matters in which the
interests of SC-US's Class I shareholders differ from the interests of SC-US's
Class R shareholders and SC-EURO's, SC-ASIA's and SC-ARBITRAGE's Class I and
Class R shareholders.

SC-REMFs 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-REMFs entitled to vote at the meeting. SC-REMFs will assist shareholders
wishing to communicate with one another for the purpose of requesting such a
meeting.

As of June 30, 1998, SC REALTY Incorporated owned 100% of the issued and
outstanding shares of SC-EURO, SC-ASIA and SC-ARBITRAGE and, as of May 31, 1998,
SC REALTY Incorporated owned [______%] of the issued and outstanding shares of
SC-US (including [___%] of the issued and outstanding Class I shares), which
means that SC REALTY Incorporated controls SC-US, SC-EURO, SC-ASIA and
SC-ARBITRAGE for purposes of the 1940 Act. The effect of SC REALTY
Incorporated's ownership of a controlling interest in SC-US, SC-EURO, SC-ASIA,
SC-ARBITRAGE and, therefore, SC-REMFs, is to dilute the voting power of other
shareholders. SC REALTY Incorporated does not anticipate that its initial
control of SC-US, SC-EURO, SC-ASIA and SC-ARBITRAGE will adversely effect the
rights of future 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. Please call 1-888-SECURITY (toll fee) for a
copy of the most recent semi-annual report.

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

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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.

YEAR 2000 RISKS

Like investment companies, financial and business organizations around the
world, SC-REMFs could be adversely affected if the computer systems used by the
SC-REMFs, other service providers and entities with computer systems that are
linked to SC-REMFs's records do not properly process and calculate date-related
information and data from and after January 1, 2000. This is commonly known as
the "Year 2000 Issue." SC-REMFs is taking steps that it believes are reasonably
designed to address the Year 2000 Issue with respect to the computer systems
that it uses and to obtain satisfactory assurances that comparable steps are
being taken by each of SC-REMFs major service providers. However, there can be
no assurance that these steps will be sufficient to avoid any adverse impact on
SC-REMFs, SC-US, SC-EURO, SC-ASIA and SC-ARBITRAGE.

ADDITIONAL INFORMATION

Any shareholder inquiries may be directed to SC-REMFs 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-REMFs 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.

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PROSPECTUS

LOGO

11 South LaSalle Street
Chicago, Illinois 60603

Security Capital U.S. Real Estate Shares ("SC-US") is an investment
portfolio of Security Capital Real Estate Mutual Funds ("SC-REMFs"), an open-end
management investment company organized under Maryland law. SC-US 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 Global Capital
Management Group Incorporated ("SCGCMG") serves as both investment adviser and
administrator to SC-US.

By this Prospectus, Class R shares of SC-US are being offered. Class R
shares are offered directly through SC-REMFs, Security Capital Markets Group
Incorporated, SC-US's distributor ("Distributor"), and various financial
intermediaries. SC-US also offers Class I shares to investors whose minimum
initial investment is $250,000. Class I shares have different expenses than
Class R shares which would affect performance. Investors desiring to obtain
information about SC-US's Class I shares should call 1-888-SECURITY (toll free)
or ask their sales representatives or the 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.

This Prospectus sets forth concisely the information a prospective investor
should know before investing in SC-US. SC-REMFs offers other investment
portfolios which are described in the prospectuses for Security Capital European
Real Estate Shares, Security Capital Asia/Pacific Real Estate Shares and
Security Capital Real Estate Arbitrage Shares. A Statement of Additional
Information dated [_______________,1998], 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 calling 1-888-SECURITY (toll
free) or writing SC-US's Sub-Administrator at: Firstar Trust Company, Mutual
Fund Services, P.O. Box 701, Milwaukee, Wisconsin 53201-0701.

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.