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000 B000000 12/31/97
000 C000000 0001031659
000 D000000 N
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000 J000000 A
001 A000000 SECURITY CAPITAL U.S. REAL ESTATE SHARES INC.
001 B000000 811-8033
001 C000000 4142873315
002 A000000 615 E. MICHIGAN STREET
002 B000000 MILWAUKEE
002 C000000 WI
002 D010000 53202
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008 A00AA01 SECURITY CAPITAL (US) MANAGEMENT GROUP INC.
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008 D01AA01 CHICAGO
008 D02AA01 IL
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010 A00AA01 SECURITY CAPITAL (US) MANAGEMENT GROUP INC.
010 B00AA01 801-53815
010 C01AA01 CHICAGO
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010 C03AA01 60603
010 A00AA02 FIRSTAR TRUST COMPANY
010 B00AA02 85-00410
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011 A00AA01 SECURITY CAPITAL MARKETS GROUP INCORPORATED
<PAGE> PAGE 2
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<PAGE> PAGE 3
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<PAGE> PAGE 4
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SIGNATURE JEFFREY NELLESSEN
TITLE SECRETARY
Item 77 C
SPECIAL MEETING OF SHAREHOLDERS
A Special Meeting of Shareholders ("Special Meeting") was held
on December 12, 1997. The matters voted on by Security Capital U.S. Real
Estate Shares Incorporated's ("SC-US") shareholders at the Special Meeting
are discussed below.
Class I shareholders and Class R shareholders, voting separately,
approved a Distribution and Service Plan for Class I Shares and a
Distribution and Service Plan for Class R Shares (Plans) pursuant to
Rule 12b-1 of the Investment Company Act of 1940, as amended. Under the
Plans, Security Capital Markets Group Incorporated ("Capital Markets"), as
principal underwriter of the Class I and Class R shares, provides
distribution services primarily intended to result in the sale of Class I
shares and Class R shares. Capital Markets also provides services to
Class I and Class R shareholders, including the provision of information
and explanations concerning Class I and Class R shareholder investments
and the status of shareholder accounts. The aggregate distribution fee
and service fee under each Plan is .25% on an annual basis, of the average
daily net assets of the Class I or Class R shares, respectively. The
Plan for Class I shares was approved with 9,750,437 votes for, 0 votes
against and 0 votes abstaining. The Plan for Class R shares was approved
with 44,123.705 votes for, 2,303.295 votes against and 0 votes abstaining.
The shareholders approved an amended investment advisory agreement
("Amended Advisory Agreement") with Security Capital (US) Management Group
Incorporated ("SC(US)MG"). The terms and conditions of the Amended
Advisory Agreement are identical to the terms and conditions of the
advisory agreement with SC(US)MG then in effect (Advisory Agreement),
except as to the effective and termination dates, the reduced advisory fee
and the expense waiver and/or reimbursement provisions. Under the Amended
Advisory Agreement SC(US)MG receives a monthly fee in an amount equal to
1/12 of .60% of SC-US's average daily net assets (approximately .60% on an
annual basis), as compared to the monthly fee under the Advisory Agreement
of 1/12 of .85% of SC-US's average daily net asset (approximately .85% on
an annual basis). Under the Advisory Agreement SC(US)MG also agreed to
waive fees and/or reimburse expenses to maintain SC-US's total operating
expenses, other than brokerage fees and commissions, interest taxes and
other extraordinary expenses at no more than 1.20% of SC-US's average
daily net assets for the year ending December 31, 1997. The Amended
Advisory Agreement does not include a expense waiver or reimbursement
provisions. However, under a separate sponsorship agreement, SC(US)MG
has committed to waive fees and/or reimburse expenses to maintain the
total operating expenses of the Class I shares at no more than 1.00%
of the Class I average daily net assets and the Class R shares at no more
than 1.15% of the Class R average daily net assets for the year ending
December 31, 1998. The Amended Advisory Agreement was approved with
9,796,864 votes for, 0 votes against and 0 votes abstaining.
The shareholders elected two of SC-US's four directors. George
F. Keane and Robert H. Abrams each were elected with 9,796,864 votes
for, 0 votes against and 0 votes abstaining. The terms of SC-US's other
directors, Anthony R. Manno Jr. and Stephen F. Kasbeer, who were
previously elected by the shareholders, continued after the Special
Meeting.
The shareholders approved the amendment of SC-US's long-term
investment objective to clarify that SC-US shall invest primarily in
real estate securities. SC-US's investment objective is to provide
above-average total returns, including current income and capital
appreciation, primarily through investments in real estate securities
in the United States. Prior to shareholder approval of the proposed
amendment, SC-US's long-term objective was to achieve top-quartile
total returns as compared with other mutual funds that invest primarily
in the securities of publicly-traded REITs in the United States by
integrating in-depth proprietary real estate market research with
sophisticated capital markets research and modeling techniques. As
amended, SC-US's long-term investment 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. The amendment
provides SC-US with the flexibility to continue both to invest in
publicly-traded REITs and to take advantage of investment opportunities
in other real estate securities. The amendment of SC-US's long term
investment objective was approved with 9,796,864 votes for, 0 votes
against and 0 votes abstaining.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001031659
<NAME> SECURITY CAPITAL US REAL ESTATE INC. - I CLASS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 100,493,571
<INVESTMENTS-AT-VALUE> 113,678,709
<RECEIVABLES> 4,089,540
<ASSETS-OTHER> 117,474
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 117,885,723
<PAYABLE-FOR-SECURITIES> 479,854
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 173,685
<TOTAL-LIABILITIES> 653,539
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 101,731,755
<SHARES-COMMON-STOCK> 9,755,880
<SHARES-COMMON-PRIOR> 987
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,315,291
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 13,185,138
<NET-ASSETS> 117,232,184
<DIVIDEND-INCOME> 4,729,653
<INTEREST-INCOME> 141,838
<OTHER-INCOME> 0
<EXPENSES-NET> 901,702
<NET-INVESTMENT-INCOME> 3,969,789
<REALIZED-GAINS-CURRENT> 8,063,795
<APPREC-INCREASE-CURRENT> 12,889,384
<NET-CHANGE-FROM-OPS> 24,922,968
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,978,815
<DISTRIBUTIONS-OF-GAINS> 5,717,116
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,776,671
<NUMBER-OF-SHARES-REDEEMED> 309,713
<SHARES-REINVESTED> 240,503
<NET-CHANGE-IN-ASSETS> 106,985,506
<ACCUMULATED-NII-PRIOR> 24
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 652,224
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 932,145
<AVERAGE-NET-ASSETS> 95,394,149
<PER-SHARE-NAV-BEGIN> 10.38
<PER-SHARE-NII> 0.46
<PER-SHARE-GAIN-APPREC> 2.11
<PER-SHARE-DIVIDEND> (0.46)
<PER-SHARE-DISTRIBUTIONS> (0.54)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.95
<EXPENSE-RATIO> 0.94
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001031659
<NAME> SECURITY CAPITAL US REAL ESTATE INC. - R CLASS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 100,493,571
<INVESTMENTS-AT-VALUE> 113,678,709
<RECEIVABLES> 4,089,540
<ASSETS-OTHER> 117,474
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 117,885,723
<PAYABLE-FOR-SECURITIES> 479,854
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 173,685
<TOTAL-LIABILITIES> 653,539
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 101,731,755
<SHARES-COMMON-STOCK> 56,234
<SHARES-COMMON-PRIOR> 987
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,315,291
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 13,185,138
<NET-ASSETS> 117,232,184
<DIVIDEND-INCOME> 4,729,653
<INTEREST-INCOME> 141,838
<OTHER-INCOME> 0
<EXPENSES-NET> 901,702
<NET-INVESTMENT-INCOME> 3,969,789
<REALIZED-GAINS-CURRENT> 8,063,795
<APPREC-INCREASE-CURRENT> 12,889,384
<NET-CHANGE-FROM-OPS> 24,922,968
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 21,950
<DISTRIBUTIONS-OF-GAINS> 31,388
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 113,720
<NUMBER-OF-SHARES-REDEEMED> 6
<SHARES-REINVESTED> 3,516
<NET-CHANGE-IN-ASSETS> 106,985,506
<ACCUMULATED-NII-PRIOR> 24
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 652,224
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 932,145
<AVERAGE-NET-ASSETS> 526,000
<PER-SHARE-NAV-BEGIN> 10.38
<PER-SHARE-NII> 0.46
<PER-SHARE-GAIN-APPREC> 2.11
<PER-SHARE-DIVIDEND> (0.46)
<PER-SHARE-DISTRIBUTIONS> (0.54)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.95
<EXPENSE-RATIO> 0.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
Item 77 B
To the board of directors of Security Capital U. S. Real Estate
Shares Incorporated:
In planning and performing our audit of the financial statements
of Security Capital U.S. Real Estate Shares Incorporated for the
year ended December 31, 1997, we considered its internal control
structure, including procedures for safeguarding securities in order
to determine our auditing procedures for the purpose of expressing
our opinion on the financial statements and to comply with the
requirements of Form N-SAR, and not to provide assurance on the
internal control structure.
The management of Security Capital U. S. Real Estate Shares
Incorporated is responsible for establishing and maintaining an
internal control structure. In fulfilling this responsibility,
estimates and judgments by management are required to assess the
expected benefits and related costs of internal control structure
policies and procedures. The objectives of an internal control
structure are to provide management with reasonable, but no
absolute, assurance that assets are safeguarded against loss from
unauthorized use or disposition and that transactions are executed
in accordance with management's authorization and recorded properly to
permit preparation of financial statements in conformity with generally
accepted accounting principles.
Because of inherent limitations in any internal control structure,
errors or irregularities may occur and not be detected. Also,
projection of any evaluation of the structure to future periods
is subject to the risk that it may become inadequate because of changes
in conditions or that the effectiveness of the design and operation
may deteriorate.
Our consideration of the internal control structure would not
necessarily disclose all matters in the internal control structure
that might be material weaknesses under standards established by
the American Institute of Certified Public Accountants. A material
weakness is a significant deficiency in which the design or operation
of the specific internal control structure elements does not reduce to
a relatively low level the risk that errors or irregularities in amounts
that would be material in relation to the financial statements being
audited may occur and not be detected within a timely period by
employees in the normal course of performing their assigned functions.
However, we noted no matters involving the internal control structure,
including procedures for safeguarding securities, that we consider to
be material weaknesses as defined above as of December 31, 1997.
This report is intended solely for the information and use of
management and the Securities and Exchange Commission.
Chicago, Illinois
February 2, 1998
Security Capital U.S. Real Estate Shares Inc.
Form N-SAR Report for the Period Ended 12/31/97
Item 77-I
Security Capital Employee REIT Fund Incorporated was
incorporated under Maryland law as SCERF Incorporated ("SCERF"),
a wholly-owned subsidiary of Security Capital Group, on December
20, 1996. On January 23, 1997, all the assets and liabilities
of SCERF were transferred to Security Capital REIT Fund
Incorporated in a reorganization transaction. On December 16,
1997 its name was changed to Security Capital U.S. Real Estate
Shares Incorporated ("SC-US").
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
were previously filed with the SEC on January 29, 1997 as exhibits
to the registration statement.
The Board of Directors is authorized to reclassify and issue
any unissued shares of SC-US without shareholder approval and
create additional series of shares with different investment
objectives, policies or restrictions. Pursuant to this
authority, on November 25, 1997, the board of Directors adopted
a Multiple Class Plan ("Plan") under Rule 18f-3 of the
Investment Company Act of 1940, as amended, authorizing SC-US to
issue two classes of shares: Class I shares and Class R shares.
In accordance with the Plan, Class I shares are offered to
investors whose initial minimum investment is $250,000 and Class
R shares are available for purchase by all other eligible
investors. Class I shares and Class R shares offer different
services to shareholders and incur different expenses. Each
class pays its proportionate share of SC-US expenses.
