<PAGE>
As filed with the Securities and Exchange Commission on April 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. 5
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
Amendment No. 7
(Check Appropriate Box or Boxes)
Security Capital U.S. Real Estate Shares Incorporated
(Exact Name of Registrant as Specified in Charter)
11 South LaSalle Street
Chicago, Illinois 60603
(312) 345-5800
(Address of Principal Executive Offices, Including Zip Code, and Telephone
Number, Including Area Code) With Copies to:
Anthony R. Manno Jr. Jeffrey A. Klopf
Security Capital (US) Management Group Security Capital Group
Incorporated Incorporated
11 South LaSalle Street 125 Lincoln Avenue
Chicago, Illinois 60603 Santa Fe, New Mexico 87501
(Name and Address of Agent for Service)
Jeffrey C. Nellessen Diane E. Ambler
Security Capital (US) Management Group Mayer, Brown & Platt
Incorporated 2000 Pennsylvania Avenue, N.W.
11 South LaSalle Street Washington, D.C. 20006
Chicago, Illinois 60603
It is proposed that this filing will become effective (check appropriate
box):
X immediately upon filing pursuant to _ on (date) pursuant to paragraph
- -
paragraph (b). (a)(1) of Rule 485.
_ on (date) pursuant to paragraph (b). _ 75 days after filing pursuant
to paragraph (a)(2).
_ 60 days after filing pursuant to _ on (date pursuant to paragraph
paragraph (a)(1). (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-US
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Description of SC-US
5. Management of SC-US Management of SC-US
5A. Management's Discussion of SC-US Performance Information
Performanc
6. Capital Stock and Other Securities Organization and Description
of Capital Stock
7. Purchase of Securities Being Offered Purchase of Shares
8. Redemption or Repurchase Redemption of Shares
9. Pending Legal Proceedings Not Applicable
PART B
Statement of Additional
Item of Form N-1A Information Caption
----------------- --------------------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Organization and Description
of Capital Stock
13. Investment Objectives and Policies Investment Objectives and
Policies
14. Management of SC-US Management of SC-US
15. Control Persons and Principal Holders Organization and Description
of Securities of Capital Stock
<PAGE>
Statement of Additional
Item of Form N-1A Information Caption
----------------- -------------------
16. Investment Advisory and Other Management of SC-US;
Services Portfolio Transactions and
Brokerage
17. Brokerage Allocation and Other Management of SC-US;
Practices Portfolio Transactions and
Brokerage
18. Capital Stock and Other Securities Organization and Description
of Capital Stock
19. Purchase, Redemption and Pricing of Distribution Plan;
Securities Being Offered Determination 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
Common Control With Registrant Under 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
Investment Adviser Connections of 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 Incorporated ("SC-US"),
formerly Security Capital Employee REIT Fund Incorporated, is a non-diversified,
no-load, open-end management investment company ("mutual fund") that seeks to
provide shareholders with above-average total returns, including current income
and capital appreciation, primarily through investments in real estate
securities in the United States. Long term, SC-US's objective is to achieve
top-quartile total returns as compared with other mutual funds that invest
primarily in real estate securities in the United States, by integrating
in-depth proprietary real estate market research with sophisticated capital
markets research and modeling techniques. Security Capital (US) Management Group
Incorporated ("SC (US) Management"), formerly Security Capital Investment
Research Group Incorporated, serves as both investment adviser and administrator
to SC-US.
By this Prospectus, Class I shares of SC-US are being offered. Class I
shares are sold at net asset value to investors whose minimum initial investment
is $250,000. 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 SC-US's distributor. This Prospectus provides you with
information specific to the Class I shares of SC-US. It contains information you
should know before you invest in SC-US.
INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE
REFERENCE.
An investment in SC-US should not be the sole source of investment for a
shareholder. Rather, an investment in SC-US should be considered as part of an
overall portfolio strategy which includes fixed income and equity securities.
SC-US is designed for long-term investors, including those who wish to use
shares for tax deferred retirement plans and individual retirement accounts, and
not for investors who intend to liquidate their investments after a short period
of time.
This Prospectus sets forth concisely the information a prospective
investor should know before investing in SC-US. A Statement of Additional
Information dated _______________, 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.
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
<TABLE>
<CAPTION>
Page
----
<S> <C>
Expenses................................................................... 2
Financial Highlights....................................................... 4
Description of SC-US....................................................... 5
Investment Objective and Policies.......................................... 5
Real Estate Investment Trusts.............................................. 6
Investment Strategy........................................................ 6
Risk Factors............................................................... 8
Non-Diversified Status; Portfolio Turnover................................. 9
Investment Restrictions.................................................... 9
Management of SC-US........................................................ 10
Investment Advisory Agreement.............................................. 11
Administrator and Sub-Administrator........................................ 12
Distribution and Servicing Plan............................................ 13
Determination of Net Asset Value........................................... 13
Purchase of Shares......................................................... 14
Redemption of Shares....................................................... 15
Dividends and Distributions................................................ 17
Taxation................................................................... 17
Organization and Description of Capital Stock.............................. 19
Custodian and Transfer and Dividend
Disbursing Agent......................................................... 19
Reports to Shareholders.................................................... 20
Performance Information.................................................... 20
Additional Information..................................................... 20
</TABLE>
<PAGE>
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
Shareholder transaction expenses are direct charges which are incurred when
shareholders buy or sell shares of SC-US.
ANNUAL FUND OPERATING EXPENSES
The Class I shares of SC-US pay for certain expenses attributable to Class I
shares directly out of SC-US's Class I assets. These expenses are related to
management of SC-US, administration and other services. For example, SC-US pays
an advisory fee and an administrative fee to SC (US) Management. SC-US also has
other customary expenses for services such as transfer agent fees, custodial
fees paid to the bank that holds its portfolio securities, audit fees and legal
expenses. These operating expenses are subtracted from SC-US's Class I assets to
calculate SC-US's Class I net asset value per share. In this manner,
shareholders pay for these expenses indirectly.
The following table is provided to help shareholders understand the direct
expenses of investing in SC-US and the portion of SC-US's operating expenses
that they might expect to bear indirectly. The numbers reflected below are based
on SC-US's expenses for the fiscal period ending December 31, 1997.
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, may be subject to
a transaction fee.
(3) SC-US has adopted a Distribution and Service Plan for Class I shares
pursuant to Rule 12b-1 of the Investment Company Act of 1940, as amended,
pursuant to which SC-US pays Security Capital Markets Group Incorporated 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 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, and the Investment Company Act of 1940,
as amended.
2
<PAGE>
(5) From April 23, 1997 through December 16, 1997, SC (US) Management 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 the value of SC-US's
average daily net assets. Since December 17, 1997 and for the year ending
December 31, 1998, SC (US) Management has committed to waive fees and/or
reimburse expenses to maintain SC-US's Class I total fund operating
expenses, other than brokerage fees and commissions, taxes, interest and
other extraordinary expenses, at no more than 1.00% of the value of SC-US's
Class I average daily net assets. Without such waiver and/or reimbursement,
SC-US's Class I actual total fund operating expenses would have been 1.194%
of SC-US's Class I average daily net assets from April 23, 1997 to December
16, 1997 and 1.166% of SC-US's Class I average daily net assets from
December 17, 1997 to December 31, 1997.
The information in the Fee Table has been restated to reflect current fees.
EXAMPLE
<TABLE>
<CAPTION>
One Three Five Ten
Year Years Years Years
<S> <C> <C> <C> <C>
A shareholder would bear the following expenses on
a $1,000 investment, assuming: a five percent annual
return and operating expenses as outlined in the fee
table above . . . . . . . . . . . . . . . . . . . . $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
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SECURITY CAPITAL U.S. REAL ESTATE SHARES INCORPORATED
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
<TABLE>
<CAPTION>
April 23, 1997(2)
through
December 31, 1997
<S> <C>
Per Share Data:
Net asset value, beginning of period $ 10.15
Income from investment operations:
Net investment income (3) 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 (4) 29.92%
Supplemental data and ratios:
Net assets, end of period $116,560,328
Ratio of expenses to average net assets (5) (6) 1.15%
Ratio of net investment income to average net assets (5) (6) 4.08%
Portfolio turnover rate (7) 82.10%
Average commission rate paid per share (7) $ 0.0595
</TABLE>
4
<PAGE>
(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) Net investment income per share represents net investment income divided
by the average shares outstanding throughout the period.
(4) Not annualized for the period April 23, 1997 through December 31, 1997.
(5) Annualized for the period April 23, 1997 through December 31, 1997.
(6) 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%.
(7) Portfolio turnover and average commission rate paid are calculated on the
basis of the Fund as a whole without distinguishing between classes of
shares issued.
See notes to the financial statements.
5
<PAGE>
DESCRIPTION OF SC-US
SC-US is a non-diversified, open-end management investment company that was
organized under the laws of the State of Maryland on January 23, 1997 as
Security Capital Employee REIT Fund Incorporated ("SC-ERF"). Prior to December
16, 1997, when its name was changed to Security Capital U.S. Real Estate Shares
Incorporated, SC-ERF issued one class of shares to directors, trustees and
employees of Security Capital Group Incorporated ("Security Capital Group
Incorporated") and its affiliates and members of their families. In connection
with the name change, to SC-US, the Board of Directors voted to create two
classes of shares, one of which, Class I shares, includes investors whose
minimum initial investment is $250,000. The second class of shares, Class R
shares, includes all other eligible investors and offers different services and
incurs different expenses than Class I shares, which would affect performance.
See "Purchase of Shares" and "Organization and Description of Capital Stock."
INVESTMENT OBJECTIVE AND POLICIES
SC-US's investment objective is to provide shareholders with above-average
total returns, including current income and capital appreciation, primarily
through investments in real estate securities in the United States. Long term,
SC-US's objective is to achieve top-quartile total returns as compared with
other mutual funds that invest primarily in real estate securities in the United
States, by integrating in-depth proprietary real estate market research with
sophisticated capital markets research and modeling techniques. SC-US's
investment objective is "fundamental" and cannot be changed without approval of
a majority of its outstanding voting securities. None of SC-US's policies, other
than its investment objective and the investment restrictions described below
under "Investment Restrictions," are fundamental and thus may be changed by
SC-US's Board of Directors without shareholder approval. There can be no
assurance that SC-US's investment objective will be achieved.
Under normal circumstances, SC-US will invest at least 65% of its assets in
REITs. Such equity securities will consist of (i) common stocks, (ii) rights or
warrants to purchase common stocks, (iii) securities convertible into common
stocks where the conversion feature represents, in SC (US) Management's view, a
significant element of the securities' value, and (iv) preferred stocks. For
purposes of SC-US's investment policies, a "real estate company" is one that
derives at least 50% of its revenues from the ownership, construction,
financing, management or sale of commercial, industrial, or residential real
estate or that has at least 50% of its assets invested in such real estate.
SC-US may invest in securities issued by real estate companies that are
controlled by Security Capital Group Incorporated or its affiliates. When, in
the judgment of SC (US) Management, market or general economic conditions
justify a temporary defensive position, SC-US will deviate from its investment
objective and invest all or any portion of its assets in high-grade debt
securities, including corporate debt securities, U.S. government securities, and
short-term money market instruments, without regard to whether the issuer is a
real estate company. SC-US may also at any time invest funds awaiting investment
or held as reserves to satisfy redemption requests or to pay dividends and other
distributions to shareholders in short-term money market instruments.
SC-US will not invest more than 10% of its net assets in illiquid
securities. For this purpose, illiquid securities include, among others,
securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions on resale. SC (US) Management will
monitor the liquidity of such restricted securities under the supervision of
SC-US's Board of Directors. If SC-US invests in securities issued by a real
estate company that is controlled by Security Capital Group Incorporated or any
of its affiliates, such securities will be treated as illiquid securities. See
SC-US's Statement of Additional Information for further discussion of illiquid
securities.
SC-US may engage in short sale transactions in securities listed on one or
more national securities exchanges or on the National Association of Securities
Dealers, Inc. Automated Quotation System ("NASDAQ"). Short selling involves the
sale of borrowed securities. At the time a short sale is effected, SC-US incurs
an obligation to replace the security borrowed at whatever its price may be at
the time that SC-US purchases it for delivery to the lender. When a short sale
transaction is closed out by delivery of the securities, any gain or loss on the
transaction is taxable as a short term capital gain or loss. Until the security
is replaced, SC-US is required to pay to the lender amounts
6
<PAGE>
equal to any dividends or interest which accrue during the period of the loan.
All short sales will be fully collateralized. SC-US may also engage in short
sales against the box, which involves selling a security SC-US holds in its
portfolio for delivery at a specified date in the future. SC-US will not engage
in short sales or short sales against the box if immediately following such
transaction the aggregate market value of all securities sold short and sold
short against the box would exceed 10% of SC-US's net assets (taken at market
value). See SC-US's Statement of Additional Information for further discussion
of short sales and short sales against the box.
REAL ESTATE INVESTMENT TRUSTS
SC-US may invest without limit in shares of REITs. REITs pool investors'
funds for investment primarily in income producing real estate or real estate
related loans or interests. A REIT is not taxed on income distributed to
shareholders if it complies with several requirements relating to its
organization, ownership, assets, and income and a requirement that it distribute
to its shareholders at least 95% of its taxable income (other than net capital
gains) for each taxable year. REITs can generally be classified as equity REITs,
mortgage REITs and hybrid REITs. Equity REITs, which invest the majority of
their assets directly in real property, derive their income primarily from
rents. Equity REITs can also realize capital gains by selling properties that
have appreciated in value. Mortgage REITs, which invest the majority of their
assets in real estate mortgages, derive their income primarily from interest
payments on real estate mortgages in which they are invested. Hybrid REITs
combine the characteristics of both equity REITs and mortgage REITs.
INVESTMENT STRATEGY
SC-US intends to continue to follow its disciplined, research driven
investment strategy, to identify those publicly traded real estate companies
which have the potential to deliver above average cash flow growth. This
investment strategy has been deployed by SC-US since December 20, 1996, its
inception date. As of 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. For current return information related to SC-US, contact its
Sub-Administrator, Firstar Trust Company, at 1-888-SECURITY (toll free).
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. REITs, relying on the same
research and analytical tools and models that SC (US) Management will rely on in
making investments on behalf of SC-US. From December 31, 1995 through 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.
7
<PAGE>
REAL ESTATE INDUSTRY OVERVIEW
SC (US) Management believes that the U.S. real estate industry has
experienced a fundamental transformation in the last six and one-half years
which has created a significant market opportunity. Direct investment of equity
capital in real estate, as was prevalent in the 1980s, has decreased while
investments in publicly traded equity REITs has increased. The 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.
SC (US) Management believes that the increasing securitization of the U.S.
real estate industry is still in its initial stages and that this trend will
continue over the next decade. SC-US intends to benefit from this restructuring
by investing in equity REITs that SC (US) Management believes could produce
above-average returns.
In addition to providing greater liquidity than direct real estate
investments, REITs have also generally out-performed direct real estate
investments for each of the past one, five, ten and fifteen year periods ended
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>
Through SC-US SC-US USREALTY(1) NAREIT(2) NCREIF(3)
December 31, 1997 Class I Class R Special Opportunity Equity Index Index S&P 500 Bonds(4)
<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.
8
<PAGE>
(3) The National Counsel of Real Estate Investment Fiduciaries Property Index
total return includes appreciation (or depreciation), realized capital gain
(or loss) and income. It is computed by adding income and capital
appreciation return on a quarterly basis.
(4) Merrill Lynch Government/Corporate Bond Index (Master).
The investment results for SC-US, USREALTY Special Opportunity and the
indices shown in the table reflect past performance and are not necessarily
indicative of future results or the returns that shareholders should expect to
receive from SC-US. The results shown represent SC- US's "total return" which
assumes the reinvestment of all capital gains and income dividends. Results
presented for the S&P 500 and the NAREIT equity index also assume the
reinvestment of dividends; however, the indices are not managed and incur no
operating expenses. This information is provided to facilitate a better
understanding of SC-US and does not provide a basis for comparison with other
investments which calculates performance differently.
A RESEARCH-DRIVEN PHILOSOPHY AND APPROACH
SC-US seeks to achieve top-quartile returns by investing primarily in
equity REITs which have the potential to deliver above-average growth. SC (US)
Management believes that these investment opportunities can only be identified
through the integration of extensive property market research and in-depth
operating company cash flow modeling.
Property Market Research. SC-US is uniquely positioned to access
meaningful, proprietary real estate research collected at the market, submarket
and property level. This market research is provided by operating professionals
within the Security Capital Group Incorporated affiliate company network and
assists SC (US) Management in identifying attractive growth markets and property
sectors prior to making investment decisions. Specifically, SC-US endeavors to
identify markets reaching a "marginal turning point." The market research
conducted by SC-US includes a comprehensive evaluation of real estate supply and
demand factors (such as population and economic trends, customer and industry
needs, capital flows and building permit and construction data) on a market and
submarket basis and by product type. Specifically, primary market research
evaluates normalized cash flow lease economics (accounting for capital
expenditures and other leasing costs) to determine whether the core economy of a
real estate market is expected to improve, stabilize or decline. Only through
disciplined real estate market research does SC-US believe it can identify
markets, and thus, real estate operating companies, with the potential for
higher than average growth prospects.
Real Estate Operating Company Evaluation and Cash Flow Modeling. SC (US)
Management believes that analyzing the quality of a company's net cash flow
("NCF") and its potential growth is the appropriate identifier of above-average
return opportunities. Certain REIT valuation models utilized by SC (US)
Management integrate property market research with analysis on specific property
portfolios in order to establish an independent value of the underlying sources
of a company's NCF. Additional valuation models measure and compare the impact
of certain factors, both internal and external, on NCF growth expectations. The
data from these valuation models is ultimately compiled and reviewed in order to
identify real estate operating companies with significant potential for growth.
RISK FACTORS
RISKS OF INVESTMENT IN REAL ESTATE SECURITIES
SC-US will not invest in real estate directly, but only in securities
issued by real estate companies. However, SC-US may be subject to risks similar
to those associated with the direct ownership of real estate (in addition to
securities markets risks) because of its policy of concentration in the
securities of companies in the real estate industry. Such risks include declines
in the value of real estate, risks related to general and local economic
conditions, possible lack of availability of mortgage funds, overbuilding,
extended vacancies of properties, increased competition,
9
<PAGE>
increases in property taxes and operating expenses, changes in zoning laws,
losses due to costs resulting from the clean-up of environmental problems,
liability to third parties for damages resulting from environmental problems,
casualty or condemnation losses, limitations on rents, changes in neighborhood
values, the appeal of properties to customers and changes in interest rates.
In addition to these risks, equity REITs may be affected by changes in the
value of the underlying property owned by the REITs, while mortgage REITs may be
affected by the quality of any credit extended. Further, equity and mortgage
REITs are dependent on the management skills of the management of the REIT and
of the operators of the real estate in which the REITs are invested and
generally may not be diversified. Equity and mortgage REITs are also subject to
defaults by borrowers or customers and self-liquidation. REITs also generate
expenses that are separate and apart from those charged by SC-US and therefore,
shareholders will indirectly pay the fees charged by the REITs in which SC-US
invests. In addition, equity and mortgage REITs could possibly fail to qualify
for tax free pass-through of income under the Code, or to maintain their
exemptions from registration under the Investment Company Act of 1940 (the "1940
Act"). The above factors may also adversely affect a borrower's or a customer's
ability to meet its obligations to the REIT. In the event of a default by a
borrower or customer, the REIT may experience delays in enforcing its rights as
a mortgagee or lessor and may incur substantial costs associated with protecting
its investments.
NON-DIVERSIFIED STATUS; PORTFOLIO TURNOVER
SC-US operates as a "non-diversified" investment company under the 1940
Act, which means SC-US is not limited by the 1940 Act in the proportion of its
assets that may be invested in the securities of a single issuer. However, SC-US
intends to conduct its operations so as to qualify as a "regulated investment
company" for purposes of the Code, which generally will relieve SC- US of any
liability for Federal income tax to the extent its earnings are distributed to
shareholders. See "Taxation." To qualify as a regulated investment company,
among other requirements, SC-US will limit its investments so that, at the close
of each quarter of the taxable year, (i) not more than 25% of the market value
of SC-US's total assets will be invested in the securities of a single issuer,
and (ii) with respect to 50% of the market value of its total assets, not more
than 5% of the market value of its total assets will be invested in the
securities of a single issuer and SC-US will not own more than 10% of the
outstanding voting securities of a single issuer. SC-US's investments in
securities issued by the U.S. Government, its agencies and instrumentalities are
not subject to these limitations. Because SC-US, as a non-diversified investment
company, may invest in a smaller number of individual issuers than a diversified
investment company, an investment in SC-US may present greater risk to an
investor than an investment in a diversified company.
SC-US anticipates that its annual portfolio turnover rate will not exceed
150%, but the turnover rate will not be a limiting factor when SC (US)
Management deems portfolio changes appropriate. The turnover rate may vary
greatly from year to year. An annual turnover rate of 150% occurs, for example,
when all of the securities held by SC-US are replaced one and one-half times in
a period of one year. A higher turnover rate results in correspondingly greater
brokerage commissions and other transactional expenses which are borne by SC-US.
High portfolio turnover may result in the realization of net short-term capital
gains by SC-US which, when distributed to shareholders, will be taxable as
ordinary income. See "Taxation."
INVESTMENT RESTRICTIONS
SC-US has adopted certain investment restrictions, which may not be changed
without the approval of the holders of a majority of SC-US's outstanding voting
securities as defined below. The percentage limitations set forth below, as well
as those described elsewhere in this Prospectus, apply only at the time an
investment is made or other relevant action is taken by SC- US.
In addition to other fundamental investment restrictions listed elsewhere
in this Prospectus, SC-US will not:
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1. Make loans except through the purchase of debt obligations in accordance
with its investment objective and policies;
2. Borrow money, or pledge its assets, except that SC-US may borrow money
from banks for temporary or emergency purposes, including the meeting of
redemption requests which might require the untimely disposition of securities,
but not in an aggregate amount exceeding 33-1/3% of the value of SC-US's total
assets (including the amount borrowed) less liabilities (not including the
amount borrowed) at the time the borrowing is made. Outstanding borrowings in
excess of 5% of the value of SC-US's total assets will be repaid before any
subsequent investments are made;
3. Invest in illiquid securities, as defined in "Investment Objective and
Policies," if immediately after such investment more than 10% of SC-US's net
assets (taken at market value) would be invested in such securities;
4. Engage in short sales or short sales against the box if immediately
following such transaction the aggregate market value of all securities sold
short and sold short against the box would exceed 10% of SC-US's net assets
(taken at market value); or
5. Purchase or sell real estate, except that SC-US may purchase securities
issued by companies in the real estate industry and will, as a matter of
fundamental policy, concentrate its investments in such securities.
The foregoing restrictions are fundamental policies for purposes of the 1940
Act and therefore may not be changed without the approval of a majority of
SC-US's outstanding voting securities. As used in this Prospectus, a majority of
SC-US's outstanding voting securities means the lesser of (a) more than 50% of
its outstanding voting securities or (b) 67% or more of the voting securities
present at a meeting at which more than 50% of the outstanding voting securities
are present or represented by proxy. SC-US policies and restrictions which are
not fundamental may be modified by SC-US's Board of Directors without
shareholder approval if, in the reasonable exercise of its business judgment,
modification is determined to be necessary or appropriate to carry out SC-US's
objective. However, SC-US will not change its investment policies or
restrictions without written notice to shareholders.
MANAGEMENT OF SC-US
BOARD OF DIRECTORS
The overall management of the business and affairs of SC-US is vested with
the Board of Directors. The Board of Directors approves all significant
agreements between SC-US and persons or companies furnishing services to it,
including SC-US's agreements with SC (US) Management, or its administrator,
custodian and transfer agent. The management of SC-US's day-to-day operations is
delegated to its officers, who include the Managing Directors, SC (US)
Management and the administrator, subject always to the investment objective and
policies of SC- US and to general supervision by the Board of Directors.
Although SC-US is not required by law to hold annual meetings, it may hold
shareholder meetings from time to time on important matters, and shareholders
have the right to call a meeting to remove a Director or to take other action
described in SC-US's Articles of Incorporation. The Directors and officers of
SC-US and their principal occupations are set forth below.
Stephen F. Kasbeer Director; retired Senior Vice President for
Administration and Treasurer of Loyola
University Chicago.
Anthony R. Manno Jr. Chairman of the Board of Directors,
Managing Director and President of SC-US;
Managing Director and President of SC (US)
Management.
George F. Keane Director; Chairman of the Board of Trigen
Energy Corporation; former Chief Executive
of the Common Fund and Endowment Realty
Investors.
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Robert H. Abrams Director.
John H. Gardner, Jr. Director; Managing Director of SC (US)
Management.
Jeffrey C. Nellessen Vice President, Secretary and Treasurer of
SC-US; Vice President, Secretary and
Treasurer of SC (US) Management.
Kenneth D. Statz Managing Director of SC-US and Managing
Director of SC (US) Management.
Kevin W. Bedell Senior Vice President of SC-US and Senior
Vice President of SC(US) Management.
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SC (US) MANAGEMENT
Security Capital (US) Management Group Incorporated ("SC (US) Management"),
formerly Security Capital Investment Research Group Incorporated, with offices
located at 11 South LaSalle Street, Chicago, Illinois 60603, has been retained
to provide investment advice, and, in general, to conduct the management and
investment program of SC-US under the overall supervision and control of the
Directors of SC-US. SC (US) Management intends to achieve top- quartile returns,
compared with other mutual funds that invest primarily in securities issued by
U.S. real estate companies, by integrating in-depth, proprietary property market
research with sophisticated capital markets research and modeling. There can be
no assurance that SC (US) Management will achieve this goal. SC (US) Management
was formed in March 1994, and is registered as an investment adviser with the
Securities and Exchange Commission (the "SEC"). Its principal officers include
Anthony R. Manno Jr., Managing Director and President, and John H. Gardner, Jr.,
Managing Director. While SC (US) Management emphasizes a team approach, Messrs.
Manno and Statz are primarily responsible for the day-to-day management of
SC-US's portfolio. SC (US) Management is a wholly-owned subsidiary of Security
Capital Group Incorporated, a real estate research, investment and management
company.
Following are the employees of SC (US) Management that are responsible for
identifying and analyzing investments on behalf of SC-US.
Albert D. Adriani Vice President of SC (US) Management, where
he is responsible for providing portfolio
management analysis.
John Montaquila III Vice President of SC (US) Management
responsible for providing in-depth
proprietary research on publicly traded real
estate companies in the multi-family and the
public storage sectors.
Darcy B. Boris Vice President of Security Capital Real
Estate Research Group Incorporated where she
conducts strategic market analyses.
Mark J. Chapman President of Security Capital Real Estate
Research Group Incorporated where he is
director of the group and conducts strategic
market analyses.
Anne Darnley Associate of SC (US) Management responsible
for providing in-depth proprietary research
on publicly traded real estate companies in
the retail sector.
James D. Foster Associate of SC (US) Management responsible
for providing in-depth proprietary research
on publicly traded real estate companies in
the hotel and the healthcare sectors.
INVESTMENT ADVISORY AGREEMENT
Pursuant to an amended investment advisory agreement (the "Advisory
Agreement"), SC (US) Management furnishes a continuous investment program for
SC-US's portfolio, makes the day-to-day investment decisions for SC-US, and
generally manages SC-US's investments in accordance with the stated policies of
SC-US, subject to the general supervision of SC-US's Board of Directors. SC (US)
Management also selects brokers and dealers to execute purchase and sale orders
for the portfolio transactions of SC-US. SC (US) Management provides persons
satisfactory to the Directors of SC-US to serve as officers of SC-US. Such
officers, as well as certain other employees and Directors of SC-US, may be
directors, officers, or employees of SC (US) Management.
Under the Advisory Agreement, SC-US Class I shares pay SC (US) Management a
monthly management fee in an amount equal to 1/12th of .60% of the value of
SC-US's Class I average daily net assets (approximately .60%
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on an annual basis). SC-US Management also has committed to waive fees and/or
reimburse expenses to maintain SC-US's Class I shares' total operating expenses,
other than brokerage fees and commissions, taxes, interest and other
extraordinary expenses at no more than 1.00% of the value of SC-US's Class I
average daily net assets for the year ending December 31, 1998.
In addition to the payments to SC (US) Management under the Advisory
Agreement described above, SC-US Class I shares pay certain other costs of
operations including (a) administration, custodian and transfer agency fees, (b)
fees of Directors who are not affiliated with SC (US) Management, (c) legal and
auditing expenses, (d) costs of printing and postage fees related to preparing
and distributing SC-US's prospectus and shareholder reports, (e) costs of
maintaining SC-US's existence, (f) interest charges, taxes, brokerage fees and
commissions, (g) costs of stationery and supplies, (h) expenses and fees related
to registration and filing with federal and state regulatory authorities, and
(i) upon the approval of SC-US's Board of Directors, costs of personnel of SC
(US Management or its affiliates rendering clerical, accounting and other office
services. Each class of SC-US shares pays for the portion SC-US's expenses
attributable to its operations. 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-US.
ADMINISTRATOR AND SUB-ADMINISTRATOR
SC (US) Management has also entered into a fund accounting and
administration agreement with SC-US (the "Administration Agreement") under which
SC (US) Management performs certain administrative functions for SC-US,
including (i) providing office space, telephone, office equipment and supplies
for SC-US; (ii) paying compensation of SC-US's officers for services rendered as
such; (iii) authorizing expenditures and approving bills for payment on behalf
of SC- US; (iv) supervising preparation of the periodic updating of SC-US's
Prospectus and Statement of Additional Information; (v) supervising preparation
of quarterly reports to SC-US's shareholders, notices of dividends, capital
gains distributions and tax credits, and attending to routine correspondence and
other communications with individual shareholders; (vi) supervising the daily
pricing of SC-US's investment portfolio and the publication of the net asset
value of SC-US's shares, earnings reports and other financial data; (vii)
monitoring relationships with organizations providing services to SC-US,
including the custodian ("Custodian"), transfer agent ("Transfer Agent") and
printers; (viii) providing trading desk facilities for SC-US; (ix) maintaining
books and records for SC-US (other than those maintained by the Custodian and
Transfer Agent) and preparing and filing of tax reports other than SC-US's
income tax returns; and (x) providing executive, clerical and secretarial help
needed to carry out these responsibilities.
In accordance with the terms of the Administration Agreement and with the
approval of SC- US's Board of Directors, SC (US) Management has caused SC-US to
retain Firstar Trust Company (the "Sub-Administrator") as sub-administrator
under a fund administration and servicing agreement (the "Sub-Administration
Agreement").
Under the Sub-Administration Agreement, the Sub-Administrator has assumed
responsibility for performing certain of the foregoing administrative functions,
including determining SC-US's net asset value and preparing such figures for
publication, maintaining certain of SC-US's books and records that are not
maintained by SC (US) Management, or the custodian or transfer agent, preparing
financial information for SC-US's income tax returns, proxy statements,
quarterly and annual shareholders reports, and SEC filings, and responding to
shareholder inquiries. Under the terms of the Sub-Administration Agreement,
SC-US pays the Sub-Administrator a monthly administration fee at the annual rate
of .06% of the first $200 million of SC-US's average daily net assets, and at
lower rates on SC-US's average daily net assets in excess of that amount,
subject to an annual minimum fee of $30,000. The Sub-Administrator also serves
as SC-US's Custodian and Transfer Agent. See "Custodian and Transfer and
Dividend Disbursing Agent."
Under the Administration Agreement, SC (US) Management remains responsible
for monitoring and overseeing the performance by the Sub-Administrator of its
obligations to SC-US under the Sub-Administration Agreement, subject to the
overall authority of SC-US's Board of Directors. For its services under the
Administration Agreement,
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SC (US) Management receives a monthly fee from SC-US at the annual rate of .02%
of the value of SC-US's average daily net assets.
DISTRIBUTION AND SERVICING PLAN
SC-US has adopted a Distribution and Servicing Plan ("Plan") with respect to
SC-US Class I shares pursuant to Rule 12b-1 under the Investment Company Act of
1940, as amended. Under the Plan, SC-US pays to Security Capital Markets Group
Incorporated in its capacity as principal distributor of SC-US's shares (the
"Distributor"), a monthly fee equal to, on an annual basis, .25% of the value of
SC-US's 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.
The Distributor, with offices located at 125 Lincoln Avenue, Santa Fe, New
Mexico 87501, 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 Class I shares then outstanding.
For purposes of determining the net asset value per share of Class I shares,
readily marketable portfolio securities listed on the New York Stock Exchange
are valued, except as indicated below, at the last sale price reflected on the
consolidated tape at the close of the New York Stock Exchange on the business
day as of which such value is being determined. If there has been no sale on
such day, the securities are valued at the mean of the closing bid and asked
prices on such day. If no bid or asked prices are quoted on such day, then the
security is valued by such method as the Directors shall determine in good faith
to reflect its fair market value. Readily marketable securities not listed on
the New York Stock Exchange but listed on other domestic or foreign securities
exchanges or admitted to trading on the NASDAQ National Market are valued in a
like manner. Portfolio securities traded on more than one securities exchange
are valued at the last sale price on the business day as of which such value is
being determined as reflected on the tape at the close of the exchange
representing the principal market for such securities.
Readily marketable securities traded in the over-the-counter market,
including listed securities whose primary market is believed by SC (US)
Management to be over-the-counter, but excluding securities admitted to trading
on the NASDAQ National Market, are valued at the mean of the current bid and
asked prices as reported by NASDAQ or, in the case of securities not quoted by
NASDAQ, the National Quotation Bureau or such other comparable sources as the
Directors deem appropriate to reflect their fair market value. Where securities
are traded on more than one exchange and also over-the-counter, the securities
will generally be valued using the quotations the Board of Directors believes
reflect most closely the value of such securities. Any securities,
or other assets, for which market
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quotations are not readily available are valued in good faith in a manner
determined by the Board of Directors that best reflects the fair value of such
securities or assets.
PURCHASE OF SHARES
Class I shares are being offered to investors whose minimum initial
investment is $250,000. SC-US Class I shares may be purchased through Firstar
Trust Company, SC-US's Transfer Agent or any dealer which has entered into a
sales agreement with the Distributor.
The minimum initial investment is $250,000. Subsequent investments in the
amount of at least $20,000 may be made by mail or by wire.
Applications will not be accepted unless they are accompanied by payment in
U.S. funds. Payment should be made by check or money order drawn on a U.S. bank,
savings and loan, or credit union or by wire transfer. Orders for shares of
SC-US will become effective at the net asset value per share next determined
after receipt of payment. Checks must be payable in U.S. dollars and will be
accepted subject to collection at full face value. All funds will be invested in
full and fractional shares. A confirmation indicating the details of each
purchase transaction will be sent to a shareholder promptly following each
transaction. If a purchase order is placed through a dealer, the dealer must
promptly forward the order, together with payment, to the Transfer Agent.
Investors must specify that Class I shares are being purchased.
By investing in SC-US, a shareholder appoints the Transfer Agent, as his or
her agent, to establish an open account to which all shares purchased will be
credited, together with any dividends and capital gain distributions that are
paid in additional shares. See "Dividends and Distributions." Although most
shareholders elect not to receive stock certificates, certificates for full
shares can be obtained on specific written request to the Transfer Agent. All
fractional shares will be held in book-entry form. It is more complicated to
redeem shares held in certificate form.
INITIAL INVESTMENT
Class I shares may be purchased by completing the enclosed application and
mailing it along with a check or money order payable to "Security Capital U.S.
Real Estate Shares Incorporated," to a securities dealer or the Transfer Agent.
If mailing to the Transfer Agent, please use the following address: Firstar
Trust Company, Mutual Fund Services, P.O. Box 701, Milwaukee, Wisconsin
53201-0701. Overnight mail should be sent to the following address: Security
Capital U.S. Real Estate Shares Incorporated, Firstar Trust Company, Mutual Fund
Services, Third Floor, 615 East Michigan Street, Milwaukee, Wisconsin 53202.
SC-US does not consider the U.S. Postal service or other independent delivery
services to be its agents. Therefore, deposit in the mail or with such services,
or receipt at the Transfer Agent's post office box, of purchase applications
does not constitute receipt by the Transfer Agent or SC-US. Do not mail letters
by overnight courier to the post office box.
If a shareholder chooses a securities dealer that has not entered into a
sales agreement with the Distributor, such dealer may, nevertheless, offer to
place an order for the purchase of SC-US shares. Such dealer may charge a
transaction fee, as determined by the dealer. That fee may be avoided if shares
are purchased through a dealer who has entered into a sales agreement with the
Distributor or through the Transfer Agent.
If a shareholder's check does not clear, a service fee of $20 will be
charged. Such shareholder will also be responsible for any losses suffered by
SC-US as a result. Neither cash nor third-party checks will be accepted. All
applications to purchase shares are subject to acceptance by SC-US and are not
binding until so accepted. SC-US reserves the right to decline or accept a
purchase order application in whole or in part.
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WIRE PURCHASES
Class I shares may be purchased by wire only through the Transfer Agent. The
following instructions should be followed when wiring funds to the Transfer
Agent for the purchase of shares:
Wire to: Firstar Bank
ABA Number 075000022
Credit: Firstar Trust Company
Account 112-952-137
Further Credit: Security Capital U.S. Real Estate Shares Incorporated
(shareholder account number)
(shareholder name/account registration)
Please call 1-800-699-4594 (toll free) prior to wiring any funds 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.
TELEPHONE PURCHASES
Additional shares may be purchased by moving money from a shareholder's bank
account to his or her SC-US account. Only bank accounts held at domestic
financial institutions that are Automated Clearing House ("ACH") members can be
used for telephone transactions. In order for shares to be purchased at the net
asset value determined as of the close of regular trading on a given date, the
Transfer Agent must receive both the purchase order and payment by Electronic
Funds Transfer through the ACH System before the close of regular trading on
such date. Most transfers are completed within 3 business days. Telephone
transactions may not be used for initial purchases of Class I shares.
SUBSEQUENT INVESTMENTS
Additional investments of at least $20,000 may be made by mail or by wire.
When an additional purchase is made by mail, a check payable to "Security
Capital U.S. Real Estate Shares Incorporated" along with the Additional
Investment Form provided on the lower portion of a shareholder's account
statement must be enclosed. To make an additional purchase by wire, a
shareholder may call 1-800-699-4594 (toll free) for complete wiring
instructions.
REDEMPTION OF SHARES
A shareholder may request redemption of part or all of his or her Class I
shares at any time at the next determined net asset value. See "Determination of
Net Asset Value." SC-US normally will mail the redemption proceeds to the
shareholder on the next business day and, in any event, no later than seven
business days after receipt of a redemption request in good order. However, when
a purchase has been made by check, SC-US may hold payment on redemption proceeds
until it is reasonably satisfied that the check has cleared, which may take up
to twelve days.
Redemptions may also be made through brokers or dealers. Such redemptions
will be effected at the net asset value next determined after receipt by SC-US
of the broker or dealer's instruction to redeem shares. In addition,
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some brokers or dealers may charge a fee in connection with such redemptions.
See "Determination of Net Asset Value."
REDEMPTION BY TELEPHONE
Shares may also be redeemed by calling the Transfer Agent at 1-800-699-4594
(toll free). In order to utilize this procedure, a shareholder must have
previously elected this option in writing, which election will be reflected in
the records of the Transfer Agent, and the redemption proceeds must be mailed
directly to such shareholder or transmitted to a predesignated account. To
change the designated account, a written request with signature(s) guaranteed
must be sent to the Transfer Agent. See "Signature Guarantees" below. To change
the address, the Transfer Agent may be called or a written request must be sent
to the Transfer Agent. No telephone redemptions will be allowed within 15 days
of such a change. SC-US reserves the right to limit the number of telephone
redemptions by a shareholder. Once made, telephone redemption requests may not
be modified or canceled.
The Transfer Agent will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. Such procedures may include
requiring some form of personal identification prior to acting upon telephone
instructions, providing written confirmations of all such transactions, and/or
tape recording all telephone instructions. Assuming procedures such as the above
have been followed, SC-US will not be liable for any loss, cost, or expense for
acting upon a shareholder's telephone instructions or for any unauthorized
telephone redemption. SC-US reserves the right to refuse a telephone redemption
request if so advised.
REDEMPTION BY MAIL
For most redemption requests, a shareholder need only furnish a written,
unconditional request to redeem his or her Class I shares (or a fixed dollar
amount) at net asset value to SC-US's Transfer Agent: Firstar Trust Company,
Mutual Fund Services, P.O. Box 701, Milwaukee, Wisconsin 53201-0701. Overnight
mail should be sent to Security Capital U.S. Real Estate Shares Incorporated,
Firstar Trust Company, Mutual Fund Services, Third Floor, 615 East Michigan
Street, Milwaukee, Wisconsin 53202. Requests for redemption must be signed
exactly as the shares are registered, including the signature of each joint
owner. A shareholder must also specify the number of shares or dollar amount to
be redeemed. If the Class I shares to be redeemed were issued in certificate
form, the certificate must be endorsed for transfer (or be accompanied by a duly
executed stock power) and must be submitted to Firstar Trust Company together
with a redemption request. Redemption proceeds made by written redemption
request may also be wired to a commercial bank that you have authorized on your
account application. The Transfer Agent charges a $12.00 service fee for wire
redemptions. Additional documentation may be requested from corporations,
executors, administrators, trustees, guardians, agents, or attorneys-in-fact.
SC-US does not consider the U.S. Postal Service or other independent delivery
services to be its agents. Therefore, deposit in the mail or with such services,
or receipt at the Transfer Agent's post office box, of redemption requests does
not constitute receipt by the Transfer Agent or SC- US. Do not mail letters by
overnight courier to the post office box. Any written redemption requests
received within 15 days after an address change must be accompanied by a
signature guarantee.
SIGNATURE GUARANTEES
Signature guarantees are required for: (i) redemption requests to be mailed
or wired to a person other than the registered owner(s) of the shares; (ii)
redemption requests to be mailed or wired to other than the address of record;
(iii) any redemption request if a change of address request has been received by
SC-US or Transfer Agent within the last 15 days and (iv) any redemption request
involving $100,000 or more. A signature guarantee may be obtained from any
eligible guarantor institution, as defined by the SEC. These institutions
include banks, savings associations, credit unions, brokerage firms and others.
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OTHER REDEMPTION INFORMATION
Unless other instructions are given in proper form, a check for the proceeds
of a redemption will be sent to the shareholder's address of record. The
Custodian may benefit from the use of redemption proceeds until the redemption
check for such proceeds has cleared.
SC-US may suspend the right of redemption during any period when (i) trading
on the New York Stock Exchange is restricted or that Exchange is closed, other
than customary weekend and holiday closings, or (ii) an emergency, as defined by
rules adopted by the SEC, exists making disposal of portfolio securities or
determination of the value of the net assets of SC-US not reasonably
practicable.
The proceeds of redemption may be more or less than the amount invested and,
therefore, a redemption may result in a gain or loss for federal income tax
purposes.
A shareholder's account may be terminated by SC-US on not less than 30 days'
notice if, at the time of any redemption of Class I shares in his or her
account, the value of the remaining shares in the account falls below $250,000.
Upon any such termination, a check for the redemption proceeds will be sent to
the account of record within seven business days of the redemption. However, if
a shareholder is affected by the exercise of this right, he or she will be
allowed to make additional investments prior to the date fixed for redemption to
avoid liquidation of the account.
A Class I shareholder who fails to satisfy minimum account balance
requirements may elect to convert Class I shares to Class R shares. Class I
shares will be converted to Class R shares at the next determined net asset
value for Class I shares and Class R shares after the receipt by the distributor
of a written conversion request. SC-US does not charge a fee to process
conversions. SC-US reserves the right to reject any conversion request in whole
or in part. The conversion feature may be modified or terminated at any time
upon notice to SC-US Class I shareholders.
DIVIDENDS AND DISTRIBUTIONS
Dividends from SC-US's investment income will be declared and distributed
quarterly. SC-US intends to distribute net realized capital gains, if any, at
least annually although SC-US's Board of Directors may in the future determine
to retain realized capital gains and not distribute them to shareholders. For
information concerning the tax treatment of SC-US's distribution policies for
SC-US and its shareholders, see "Taxation."
Distributions will automatically be paid in full and fractional shares of
SC-US based on the net asset value per share at the close of business on the
payable date unless the shareholder has elected to have distributions paid in
cash.
TAXATION
The following discussion is intended for general information only.
Shareholders should consult with their own tax advisers as to the tax
consequences of an investment in SC-US, including the status of distributions
under applicable state or local law.
19
<PAGE>
FEDERAL INCOME TAXES
SC-US intends to qualify and elect to be taxed as a "regulated investment
company" under the Code. To the extent that SC-US distributes its taxable income
and net capital gain to its shareholders, qualification as a regulated
investment company relieves SC-US of federal income and excise taxes on that
part of its taxable income including net capital gains which it pays out to its
shareholders. Dividends out of net ordinary income and distributions of net
short-term capital gains are taxable to the recipient shareholders as ordinary
income. In the case of corporate shareholders, such dividends may be eligible
for the dividends-received deduction, except that the amount eligible for the
deduction is limited to the amount of qualifying dividends received by SC-US,
which does not include distributions received by SC-US from REITs. A
corporation's dividends-received deduction will be disallowed unless the
corporation holds shares in SC-US at least 46 days. Furthermore, the
dividends-received deduction will be disallowed to the extent a corporation's
investment in shares of SC-US is financed with indebtedness.
The excess of net long-term capital gains over the net short-term capital
losses realized and distributed by SC-US to its shareholders as capital gain
distributions is taxable to the shareholders as long-term capital gain,
irrespective of the length of time a shareholder may have held his or her stock.
Recent legislation reduced the maximum tax rate on capital gains to 20% for
assets held for more than 18 months on the date of the sale or exchange of those
assets. A notice issued by the Internal Revenue Service provides that a
regulated investment company such as SC- US may, but is not required to,
designate which portion of a capital gain distribution qualifies for the reduced
capital gain rate. Long-term capital gain distributions are not eligible for the
dividends-received deduction referred to above.
Under current federal tax law, the amount of an ordinary income dividend or
capital gain distribution declared by SC-US during October, November or December
of a year to shareholders of record as of a specified date in such a month that
is paid during January of the following year is includable in the prior year's
taxable income of shareholders that are calendar year taxpayers.
Any dividend or distribution received by a shareholder on shares of SC-US
will have the effect of reducing the net asset value of such shares by the
amount of such dividend or distribution. Furthermore, a dividend or distribution
made shortly after the purchase of such shares by a shareholder, although in
effect a return of capital to that particular shareholder, would be taxable to
him or her as described above. If a shareholder held shares six months or less
and during that period received a distribution taxable to such shareholder as
long-term capital gain, any loss realized on the sale of such shares during such
six-month period would be a long-term capital loss to the extent of such
distribution.
A dividend or capital gain distribution with respect to shares of SC-US held
by a tax-deferred or qualified plan, such as an individual retirement account,
403(b)(7) retirement plan or corporate pension or profit-sharing plan, will not
be taxable to the plan, except to the extent the shares are debt-financed within
the meaning of Section 514 of the Code. Distributions from such plans will be
taxable to individual participants under applicable tax rules without regard to
the character of the income earned by the qualified plan.
SC-US will be required to withhold 31% of any payments made to a shareholder
if the shareholder has not provided a certified taxpayer identification number
to SC-US, or the Secretary of the Treasury notifies SC-US that the shareholder
has not reported all interest and dividend income required to be shown on the
shareholder's Federal income tax return. Any amounts withheld may be credited
against the shareholder's U.S. federal income tax liability.
Further information relating to tax consequences is contained elsewhere in
this Prospectus and in the Statement of Additional Information.
20
<PAGE>
STATE AND LOCAL TAXES
SC-US distributions also may be subject to state and local taxes.
Shareholders should consult their own tax advisers regarding the particular
state and local tax consequences of an investment in SC-US.
ORGANIZATION AND DESCRIPTION OF CAPITAL STOCK
Security Capital Employee REIT Fund Incorporated was incorporated under
Maryland law as SCERF Incorporated ("SCERF"), a wholly-owned subsidiary of
Security Capital Group 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.
SC-US is authorized to issue 50,000,000 shares of common stock, $.01 par
value per share. SC-US's Board of Directors may, without shareholder approval,
increase or decrease the number of authorized but unissued shares of SC-US's
common stock and reclassify and issue any unissued shares of SC-US. The Board of
Directors also may create additional series of shares with different investment
objectives, policies or restrictions without shareholder approval.
The Board of Directors of SC-US has authorized the issuance of two classes
of shares: Class I shares and Class R shares. Class I shares offer different
services to shareholders and incur different expenses than Class R shares. Each
class pays its proportionate share of SC-US's expenses.
All classes of SC-US's shares have equal dividend, distribution, liquidation
and voting rights. There are no conversion or preemptive rights in connection
with any class of SC-US shares. Each class of SC-US's shares, when duly issued,
is fully paid and nonassessable. The rights of the holders of Class I shares may
not be modified except by the vote of a majority of the holders of all Class I
shares outstanding. Class I shareholders have exclusive voting rights with
respect to matters relating solely to Class I shares. Class I shareholders vote
separately from Class R shareholders on matters in which the interests of Class
I shareholders differ from the interests of Class R shareholders.
SC-US is not required to hold regular annual shareholders' meetings. A
shareholders' meeting shall, however, be called by the secretary upon the
written request of the holders of not less than 10% of the outstanding shares of
SC-US entitled to vote at the meeting. SC-US will assist shareholders wishing to
communicate with one another for the purpose of requesting such a meeting.
As of March 31, 1998, SCREALTY Incorporated owned 98.54% of the issued and
outstanding Class I shares of SC-US, and 96.56% of the total issued and
outstanding shares of SC-US, which means that SCREALTY Incorporated controls SC-
US for purposes of the 1940 Act. The effect of SCREALTY Incorporated's ownership
of a controlling interest in SC-US is to dilute the voting power of other SC-US
shareholders.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
Firstar Trust Company, which has its principal business address at 615 East
Michigan Street, Milwaukee, Wisconsin 53202 has been retained to act as
Custodian of SC-US's investments and to serve as SC-US's transfer and dividend
disbursing agent. Firstar Trust Company does not have any part in deciding
SC-US's investment policies or which securities are to be purchased or sold for
SC-US's portfolio.
21
<PAGE>
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 free) 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
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 and business organizations around the world, SC-US
could be adversely affected if the computer systems used by SC-US, other service
providers and entities with computer systems that are linked to SC-US'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-US 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-US's
major service providers. However, there can be no assurance that these steps
will be sufficient to avoid any adverse impact on SC-US.
ADDITIONAL INFORMATION
Any shareholder inquiries may be directed to SC-US at the address or
telephone number listed on the cover page of this Prospectus. This Prospectus,
including the Statement of Additional Information which is incorporated by
reference herein, does not contain all the information set forth in the
Registration Statement filed by SC-US with the SEC under the Securities Act of
1933. Copies of the Registration Statement may be obtained at a reasonable
charge from the SEC or may be examined, without charge, at the offices of the
SEC in Washington, D.C. or may be obtained from the SEC's worldwide web site at
http://www.sec.gov.
22
<PAGE>
PROSPECTUS
LOGO
11 South LaSalle Street
Chicago, Illinois 60603
Security Capital U.S. Real Estate Shares Incorporated ("SC-US"), formerly
Security Capital Employee REIT Fund Incorporated, is a non-diversified, no-load,
open-end management investment company ("mutual fund") that seeks to provide
shareholders with above-average total returns, including current income and
capital appreciation, primarily through investments in real estate securities in
the United States. Long term, SC-US's objective is to achieve top-quartile total
returns as compared with other mutual funds that invest primarily in real estate
securities in the United States, by integrating in-depth proprietary real estate
market research with sophisticated capital markets research and modeling
techniques. Security Capital (US) Management Group Incorporated ("SC (US)
Management"), formerly Security Capital Investment Research Group Incorporated,
serves as both investment adviser and administrator to SC-US.
By this Prospectus, Class R shares of SC-US are being offered. 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 SC-US's distributor. This Prospectus provides you with information specific
to the Class R shares of SC-US. It contains information you should know before
you invest in SC-US.
Investors are advised to read this Prospectus and retain it for future
reference.
An investment in SC-US should not be the sole source of investment for a
shareholder. Rather, an investment in SC-US should be considered as part of an
overall portfolio strategy which includes fixed income and equity securities.
SC-US is designed for long-term investors, including those who wish to use
shares for tax deferred retirement plans and individual retirement accounts, and
not for investors who intend to liquidate their investments after a short period
of time.
This Prospectus sets forth concisely the information a prospective investor
should know before investing in SC-US. A Statement of Additional Information
dated _______________, 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.
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
<TABLE>
<CAPTION>
Page
----
<S> <C>
Expenses............................................................ 2
Financial Highlights................................................ 4
Description of SC-US................................................ 5
Investment Objective and Policies................................... 5
Real Estate Investment Trusts....................................... 6
Investment Strategy................................................. 6
Risk Factors........................................................ 8
Non-Diversified Status; Portfolio Turnover.......................... 9
Investment Restrictions............................................. 9
Management of SC-US................................................. 10
Investment Advisory Agreement....................................... 11
Administrator and Sub-Administrator................................. 12
Distribution and Servicing Plan..................................... 13
Determination of Net Asset Value.................................... 13
Purchase of Shares.................................................. 14
Redemption of Shares................................................ 15
Dividends and Distributions......................................... 17
Taxation............................................................ 17
Organization and Description of Capital Stock....................... 19
Custodian and Transfer and Dividend
Disbursing Agent.................................................. 19
Reports to Shareholders............................................. 20
Performance Information............................................. 20
Additional Information.............................................. 20
</TABLE>
<PAGE>
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
Shareholder transaction expenses are direct charges which are incurred when
shareholders buy or sell shares of SC-US.
ANNUAL FUND OPERATING EXPENSES
The Class R shares of SC-US pay for certain expenses attributable to Class R
shares directly out of SC-US's Class R assets. These expenses are related to
management of SC-US, administration and other services. For example, SC-US pays
an advisory fee and an administrative fee to SC (US) Management. SC-US also has
other customary expenses for services such as transfer agent fees, custodial
fees paid to the bank that holds its portfolio securities, audit fees and legal
expenses. These operating expenses are subtracted from SC-US's Class R assets to
calculate SC-US's Class R net asset value per share. In this manner,
shareholders pay for these expenses indirectly.
The following table is provided to help shareholders understand the direct
expenses of investing in SC-US and the portion of SC-US's operating expenses
that they might expect to bear indirectly. The numbers reflected below are based
on SC-US's expenses for the fiscal period ending December 31, 1997.
FEE TABLE (1)
<TABLE>
<S> <C>
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).................................................... .30%
Total fund operating expenses (5)..................................... 1.15%
</TABLE>
________
(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 Class R Shares
through a securities dealer that has not entered into agreement with
Security Capital Markets Group Incorporated, SC-US's distributor, may be
subject to a transaction fee.
(3) SC-US has adopted a Distribution and Service Plan for Class R shares
pursuant to Rule 12b-1 of the Investment Company Act of 1940, as amended,
pursuant to which SC-US pays Security Capital Markets Group Incorporated 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 R average daily net assets. As a result, long-term 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, and the Investment Company Act of 1940,
as amended.
2
<PAGE>
(5) From April 23, 1997 through December 16, 1997, SC (US) Management committed
to waive 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 the value of SC-US's
average daily net assets. Since December 17, 1997 and for the year ending
December 31, 1998, SC (US) Management has committed to waive fees and/or
reimburse expenses to maintain SC-US's Class R total Fund operating
expenses, other than brokerage fees and commissions, taxes, interest and
other extraordinary expenses, at no more than 1.15% of the value of SC-US's
Class R average daily net assets. Without such waiver and/or reimbursement,
SC-US's Class R actual total fund operating expenses would have been 1.302%
of SC-US's Class R average daily net assets from April 23, 1997 to December
16, 1997 and 1.66% of SC-US's Class R average daily net assets from December
17, 1997 to December 31, 1997.
The information in the Fee Table has been restated to reflect current fees.
EXAMPLE
<TABLE>
<CAPTION>
One Three Five Ten
Year Years Years Years
---- ----- ----- -----
<S> <C> <C> <C> <C>
A shareholder would bear the following expenses on
a $1,000 investment, assuming: a five percent annual
return and operating expenses as outlined in the fee
table above........................................... $12 $37 $63 $140
</TABLE>
THE ACTUAL EXPENSES IN FUTURE YEARS MAY BE MORE OR LESS THAN THE NUMBERS IN
THE EXAMPLE, DEPENDING ON A NUMBER OF FACTORS, INCLUDING THE ACTUAL VALUE OF
SC-US'S ASSETS.
3
<PAGE>
SECURITY CAPITAL U.S. REAL ESTATE SHARES INCORPORATED
The following audited financial highlights should be read in conjunction
with the financial statements and notes thereto which appear in the Statement of
Additional Information.
SECURITY CAPITAL U.S. REAL ESTATE SHARES INCORPORATED - CLASS R SHARES (1)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
April 23, 1997(2)
through
Per Share Data: December 31,1997
<S> <C>
Net asset value, beginning of period $ 10.15
Income from investment operations:
Net investment income (3) 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 (4) 29.91%
Supplemental data and ratios:
Net assets, end of period $671,856
Ratio of expenses to average net assets (5) (6) 1.16%
Ratio of net investment income to average net assets (5) (6) 4.06%
Portfolio turnover rate (7) 82.10%
Average commission rate paid per share (7) $ 0.0595
</TABLE>
4
<PAGE>
(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) Net investment income per share represents net investment income divided by
the average shares outstanding throughout the period.
(4) Not annualized for the period April 23, 1997 through December 31, 1997.
(5) Annualized for the period April 23, 1997 through December 31, 1997.
(6) Without expense reimbursement of $167.00 for the period April 23, 1997
through December 31, 1997, $122.00 of which represents the amortization of
organizational expenses attributable to Class R shares, the ratio of
expenses to average net assets would have been 1.20% and the ratio of net
investment income to average net assets would have been 4.02%.
(7) Portfolio turnover and average commission rate paid are calculated on the
basis of the Fund as a whole without distinguishing between classes of
shares issued.
See notes to the financial statements.
5
<PAGE>
DESCRIPTION OF SC-US
SC-US is a non-diversified, open-end management investment company that was
organized under the laws of the State of Maryland on January 23, 1997 as
Security Capital Employee REIT Fund Incorporated ("SC-ERF"). Prior to December
16, 1997, when its name was changed to Security Capital U.S. Real Estate Shares
Incorporated, SC-ERF issued one class of shares to directors, trustees and
employees of Security Capital Group Incorporated ("Security Capital Group
Incorporated") and its affiliates and members of their families. In connection
with the name change, to SC-US, the Board of Directors voted to create two
classes of shares, one of which, Class R shares is offered by this Prospectus.
SC-US also issues Class I shares to investors whose minimum initial investment
is $250,000. Class I shares offer different services and incur different
expenses than Class R shares, which would affect performance. See "Purchase of
Shares" and "Organization and Description of Capital Stock."
INVESTMENT OBJECTIVE AND POLICIES
SC-US's investment objective is to provide shareholders with above-average
total returns, including current income and capital appreciation, primarily
through investments in real estate securities in the United States. Long term,
SC-US's objective is to achieve top-quartile total returns as compared with
other mutual funds that invest primarily in real estate securities in the United
States, by integrating in-depth proprietary real estate market research with
sophisticated capital markets research and modeling techniques. SC-US's
investment objective is "fundamental" and cannot be changed without approval of
a majority of its outstanding voting securities. None of SC-US's policies, other
than its investment objective and the investment restrictions described below
under "Investment Restrictions," are fundamental and thus may be changed by
SC-US's Board of Directors without shareholder approval. There can be no
assurance that SC-US's investment objective will be achieved.
Under normal circumstances, SC-US will invest at least 65% of its assets in
REITs. Such equity securities will consist of (i) common stocks, (ii) rights or
warrants to purchase common stocks, (iii) securities convertible into common
stocks where the conversion feature represents, in SC (US) Management's view, a
significant element of the securities' value, and (iv) preferred stocks. For
purposes of SC-US's investment policies, a "real estate company" is one that
derives at least 50% of its revenues from the ownership, construction,
financing, management or sale of commercial, industrial, or residential real
estate or that has at least 50% of its assets invested in such real estate.
SC-US may invest in securities issued by real estate companies that are
controlled by Security Capital Group Incorporated or its affiliates. When, in
the judgment of SC (US) Management, market or general economic conditions
justify a temporary defensive position, SC-US will deviate from its investment
objective and invest all or any portion of its assets in high-grade debt
securities, including corporate debt securities, U.S. government securities, and
short-term money market instruments, without regard to whether the issuer is a
real estate company. SC-US may also at any time invest funds awaiting investment
or held as reserves to satisfy redemption requests or to pay dividends and other
distributions to shareholders in short-term money market instruments.
SC-US will not invest more than 10% of its net assets in illiquid
securities. For this purpose, illiquid securities include, among others,
securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions on resale. SC (US) Management will
monitor the liquidity of such restricted securities under the supervision of SC-
US's Board of Directors. If SC-US invests in securities issued by a real estate
company that is controlled by Security Capital Group Incorporated or any of its
affiliates, such securities will be treated as illiquid securities. See SC-US's
Statement of Additional Information for further discussion of illiquid
securities.
SC-US may engage in short sale transactions in securities listed on one or
more national securities exchanges or on the National Association of Securities
Dealers, Inc. Automated Quotation System ("NASDAQ"). Short selling involves the
sale of borrowed securities. At the time a short sale is effected, SC-US incurs
an obligation to replace
6
<PAGE>
the security borrowed at whatever its price may be at the time that SC-US
purchases it for delivery to the lender. When a short sale transaction is closed
out by delivery of the securities, any gain or loss on the transaction is
taxable as a short term capital gain or loss. Until the security is replaced,
SC-US is required to pay to the lender amounts equal to any dividends or
interest which accrue during the period of the loan. All short sales will be
fully collateralized. SC-US may also engage in short sales against the box,
which involves selling a security SC-US holds in its portfolio for delivery at a
specified date in the future. SC-US will not engage in short sales or short
sales against the box if immediately following such transaction the aggregate
market value of all securities sold short and sold short against the box would
exceed 10% of SC-US's net assets (taken at market value). See SC-US's Statement
of Additional Information for further discussion of short sales and short sales
against the box.
REAL ESTATE INVESTMENT TRUSTS
SC-US may invest without limit in shares of REITs. REITs pool investors'
funds for investment primarily in income producing real estate or real estate
related loans or interests. A REIT is not taxed on income distributed to
shareholders if it complies with several requirements relating to its
organization, ownership, assets, and income and a requirement that it distribute
to its shareholders at least 95% of its taxable income (other than net capital
gains) for each taxable year. REITs can generally be classified as equity REITs,
mortgage REITs and hybrid REITs. Equity REITs, which invest the majority of
their assets directly in real property, derive their income primarily from
rents. Equity REITs can also realize capital gains by selling properties that
have appreciated in value. Mortgage REITs, which invest the majority of their
assets in real estate mortgages, derive their income primarily from interest
payments on real estate mortgages in which they are invested. Hybrid REITs
combine the characteristics of both equity REITs and mortgage REITs.
INVESTMENT STRATEGY
SC-US intends to continue to follow its disciplined, research driven
investment strategy, to identify those publicly traded real estate companies
which have the potential to deliver above average cash flow growth. This
investment strategy has been deployed by SC-US since December 20, 1996, its
inception date. Since December 31, 1997, the average annual total return for
Class R shares was 28.83%, 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 financial statements, which appear in the Statement of Additional
Information. For current return information related to SC-US, contact its
Sub-Administrator, Firstar Trust Company, at 1-888-SECURITY (toll free).
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. REITs, relying on the same
research and analytical tools and models that SC (US) Management will rely on in
making investments on behalf of SC-US. From December 31, 1995 through 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.]
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REAL ESTATE INDUSTRY OVERVIEW
SC (US) Management believes that the U.S. real estate industry has
experienced a fundamental transformation in the last six and one-half years
which has created a significant market opportunity. Direct investment of equity
capital in real estate, as was prevalent in the 1980s, has decreased while
investments in publicly traded equity REITs has increased. The 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.
SC (US) Management believes that the increasing securitization of the U.S.
real estate industry is still in its initial stages and that this trend will
continue over the next decade. SC-US intends to benefit from this restructuring
by investing in equity REITs that SC (US) Management believes could produce
above-average returns.
In addition to providing greater liquidity than direct real estate
investments, REITs have also generally out-performed direct real estate
investments for each of the past one, five, ten and fifteen year periods ended
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.
<TABLE>
<CAPTION>
REITs vs. Other Investments
(Average Annual Total Return)
Through SC-US SC-US USREALTY(1) NAREIT(2) NCREIF(3)
December 31, 1997 Class I Class R Special Opportunity Equity Index Index S&P 500 Bonds(4)
- ----------------- ------- ------- ------------------- ------------ ----- ------- --------
<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."
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<PAGE>
(2) The National Association of Real Estate Investment Trusts ("NAREIT") equity
index data is based upon the last closing price of the month for all
tax-qualified REITs listed on the New York Stock Exchange, American Stock
Exchange and the NASDAQ National Market System. The data is market-weighted.
(3) The National Counsel of Real Estate Investment Fiduciaries Property Index
total return includes appreciation (or depreciation), realized capital gain
(or loss) and income. It is computed by adding income and capital
appreciation return on a quarterly basis.
(4) Merrill Lynch Government/Corporate Bond Index (Master).
The investment results for SC-US, USREALTY Special Opportunity and the
indices shown in the table reflect past performance and are not necessarily
indicative of future results or the returns that shareholders should expect to
receive from SC-US. The results shown represent SC-US's "total return" which
assumes the reinvestment of all capital gains and income dividends. Results
presented for the S&P 500 and the NAREIT equity index also assume the
reinvestment of dividends; however, the indices are not managed and incur no
operating expenses. This information is provided to facilitate a better
understanding of SC-US and does not provide a basis for comparison with other
investments which calculates performance differently.
A RESEARCH-DRIVEN PHILOSOPHY AND APPROACH
SC-US seeks to achieve top-quartile returns by investing primarily in equity
REITs which have the potential to deliver above-average growth. SC (US)
Management believes that these investment opportunities can only be identified
through the integration of extensive property market research and in-depth
operating company cash flow modeling.
Property Market Research. SC-US is uniquely positioned to access meaningful,
proprietary real estate research collected at the market, submarket and property
level. This market research is provided by operating professionals within the
Security Capital Group Incorporated affiliate company network and assists SC
(US) Management in identifying attractive growth markets and property sectors
prior to making investment decisions. Specifically, SC-US endeavors to identify
markets reaching a "marginal turning point." The market research conducted by
SC-US includes a comprehensive evaluation of real estate supply and demand
factors (such as population and economic trends, customer and industry needs,
capital flows and building permit and construction data) on a market and
submarket basis and by product type. Specifically, primary market research
evaluates normalized cash flow lease economics (accounting for capital
expenditures and other leasing costs) to determine whether the core economy of a
real estate market is expected to improve, stabilize or decline. Only through
disciplined real estate market research does SC-US believe it can identify
markets, and thus, real estate operating companies, with the potential for
higher than average growth prospects.
Real Estate Operating Company Evaluation and Cash Flow Modeling. SC (US)
Management believes that analyzing the quality of a company's net cash flow
("NCF") and its potential growth is the appropriate identifier of above-average
return opportunities. Certain REIT valuation models utilized by SC (US)
Management integrate property market research with analysis on specific property
portfolios in order to establish an independent value of the underlying sources
of a company's NCF. Additional valuation models measure and compare the impact
of certain factors, both internal and external, on NCF growth expectations. The
data from these valuation models is ultimately compiled and reviewed in order to
identify real estate operating companies with significant potential for growth.
9
<PAGE>
RISK FACTORS
RISKS OF INVESTMENT IN REAL ESTATE SECURITIES
SC-US will not invest in real estate directly, but only in securities issued
by real estate companies. However, SC-US may be subject to risks similar to
those associated with the direct ownership of real estate (in addition to
securities markets risks) because of its policy of concentration in the
securities of companies in the real estate industry. Such risks include declines
in the value of real estate, risks related to general and local economic
conditions, possible lack of availability of mortgage funds, overbuilding,
extended vacancies of properties, increased competition, increases in property
taxes and operating expenses, changes in zoning laws, losses due to costs
resulting from the clean-up of environmental problems, liability to third
parties for damages resulting from environmental problems, casualty or
condemnation losses, limitations on rents, changes in neighborhood values, the
appeal of properties to customers and changes in interest rates.
In addition to these risks, equity REITs may be affected by changes in the
value of the underlying property owned by the REITs, while mortgage REITs may be
affected by the quality of any credit extended. Further, equity and mortgage
REITs are dependent on the management skills of the management of the REIT and
of the operators of the real estate in which the REITs are invested and
generally may not be diversified. Equity and mortgage REITs are also subject to
defaults by borrowers or customers and self-liquidation. REITs also generate
expenses that are separate and apart from those charged by SC-US and therefore,
shareholders will indirectly pay the fees charged by the REITs in which SC-US
invests. In addition, equity and mortgage REITs could possibly fail to qualify
for tax free pass-through of income under the Code, or to maintain their
exemptions from registration under the Investment Company Act of 1940 (the "1940
Act"). The above factors may also adversely affect a borrower's or a customer's
ability to meet its obligations to the REIT. In the event of a default by a
borrower or customer, the REIT may experience delays in enforcing its rights as
a mortgagee or lessor and may incur substantial costs associated with protecting
its investments.
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<PAGE>
NON-DIVERSIFIED STATUS; PORTFOLIO TURNOVER
SC-US operates as a "non-diversified" investment company under the 1940 Act,
which means SC-US is not limited by the 1940 Act in the proportion of its assets
that may be invested in the securities of a single issuer. However, SC-US
intends to conduct its operations so as to qualify as a "regulated investment
company" for purposes of the Code, which generally will relieve SC-US of any
liability for Federal income tax to the extent its earnings are distributed to
shareholders. See "Taxation." To qualify as a regulated investment company,
among other requirements, SC-US will limit its investments so that, at the close
of each quarter of the taxable year, (i) not more than 25% of the market value
of SC-US's total assets will be invested in the securities of a single issuer,
and (ii) with respect to 50% of the market value of its total assets, not more
than 5% of the market value of its total assets will be invested in the
securities of a single issuer and SC-US will not own more than 10% of the
outstanding voting securities of a single issuer. SC-US's investments in
securities issued by the U.S. Government, its agencies and instrumentalities are
not subject to these limitations. Because SC-US, as a non-diversified investment
company, may invest in a smaller number of individual issuers than a diversified
investment company, an investment in SC-US may present greater risk to an
investor than an investment in a diversified company.
SC-US anticipates that its annual portfolio turnover rate will not exceed
150%, but the turnover rate will not be a limiting factor when SC (US)
Management deems portfolio changes appropriate. The turnover rate may vary
greatly from year to year. An annual turnover rate of 150% occurs, for example,
when all of the securities held by SC-US are replaced one and one-half times in
a period of one year. A higher turnover rate results in correspondingly greater
brokerage commissions and other transactional expenses which are borne by SC-US.
High portfolio turnover may result in the realization of net short-term capital
gains by SC-US which, when distributed to shareholders, will be taxable as
ordinary income. See "Taxation."
INVESTMENT RESTRICTIONS
SC-US has adopted certain investment restrictions, which may not be changed
without the approval of the holders of a majority of SC-US's outstanding voting
securities as defined below. The percentage limitations set forth below, as well
as those described elsewhere in this Prospectus, apply only at the time an
investment is made or other relevant action is taken by SC-US.
In addition to other fundamental investment restrictions listed elsewhere in
this Prospectus, SC-US will not:
1. Make loans except through the purchase of debt obligations in accordance
with its investment objective and policies;
2. Borrow money, or pledge its assets, except that SC-US may borrow money
from banks for temporary or emergency purposes, including the meeting of
redemption requests which might require the untimely disposition of securities,
but not in an aggregate amount exceeding 33-1/3% of the value of SC-US's total
assets (including the amount borrowed) less liabilities (not including the
amount borrowed) at the time the borrowing is made. Outstanding borrowings in
excess of 5% of the value of SC-US's total assets will be repaid before any
subsequent investments are made;
3. Invest in illiquid securities, as defined in "Investment Objective and
Policies," if immediately after such investment more than 10% of SC-US's net
assets (taken at market value) would be invested in such securities;
4. Engage in short sales or short sales against the box if immediately
following such transaction the aggregate market value of all securities sold
short and sold short against the box would exceed 10% of SC-US's net assets
(taken at market value); or
5. Purchase or sell real estate, except that SC-US may purchase securities
issued by companies in the real estate industry and will, as a matter of
fundamental policy, concentrate its investments in such securities.
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<PAGE>
The foregoing restrictions are fundamental policies for purposes of the 1940
Act and therefore may not be changed without the approval of a majority of
SC-US's outstanding voting securities. As used in this Prospectus, a majority of
SC-US's outstanding voting securities means the lesser of (a) more than 50% of
its outstanding voting securities or (b) 67% or more of the voting securities
present at a meeting at which more than 50% of the outstanding voting securities
are present or represented by proxy. SC-US policies and restrictions which are
not fundamental may be modified by SC-US's Board of Directors without
shareholder approval if, in the reasonable exercise of its business judgment,
modification is determined to be necessary or appropriate to carry out SC-US's
objective. However, SC-US will not change its investment policies or
restrictions without written notice to shareholders.
MANAGEMENT OF SC-US
BOARD OF DIRECTORS
The overall management of the business and affairs of SC-US is vested with
the Board of Directors. The Board of Directors approves all significant
agreements between SC-US and persons or companies furnishing services to it,
including SC-US's agreements with SC (US) Management, or its administrator,
custodian and transfer agent. The management of SC-US's day-to-day operations is
delegated to its officers, who include the Managing Directors, SC (US)
Management and the administrator, subject always to the investment objective and
policies of SC-US and to general supervision by the Board of Directors. Although
SC-US is not required by law to hold annual meetings, it may hold shareholder
meetings from time to time on important matters, and shareholders have the right
to call a meeting to remove a Director or to take other action described in
SC-US's Articles of Incorporation. The Directors and officers of SC-US and their
principal occupations are set forth below.
Stephen F. Kasbeer Director; retired Senior Vice President for
Administration and Treasurer of Loyola
University Chicago.
Anthony R. Manno Jr. Chairman of the Board of Directors, Managing
Director and President of SC-US; Managing
Director and President of SC (US)
Management.
George F. Keane Director; Chairman of the Board of Trigen
Energy Corporation; former Chief Executive
of the Common Fund and Endowment Realty
Investors.
Robert Abrams Director.
John H. Gardner, Jr. Director; Managing Director of SC (US)
Management.
Jeffrey C. Nellessen Vice President, Secretary and Treasurer of
SC-US; Vice President, Secretary and
Treasurer of SC (US) Management.
Kenneth D. Statz Managing Director of SC-US and Managing
Director of SC (US) Management.
Kevin W. Bedell Senior Vice President of SC-US and Senior
Vice President of SC (US) Management.
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<PAGE>
SC (US) MANAGEMENT
Security Capital (US) Management Group Incorporated ("SC (US) Management"),
formerly Security Capital Investment Research Group Incorporated, with offices
located at 11 South LaSalle Street, Chicago, Illinois 60603, has been retained
to provide investment advice, and, in general, to conduct the management and
investment program of SC-US under the overall supervision and control of the
Directors of SC-US. SC (US) Management intends to achieve top-quartile returns,
compared with other mutual funds that invest primarily in securities issued by
U.S. real estate companies, by integrating in-depth, proprietary property market
research with sophisticated capital markets research and modeling. There can be
no assurance that SC (US) Management will achieve this goal. SC (US) Management
was formed in March 1994, and is registered as an investment adviser with the
Securities and Exchange Commission (the "SEC"). Its principal officers include
Anthony R. Manno Jr., Managing Director and President, and John H. Gardner, Jr.,
Managing Director. While SC (US) Management emphasizes a team approach, Messrs.
Manno and Statz are primarily responsible for the day-to-day management of SC-
US's portfolio. SC (US) Management is a wholly-owned subsidiary of Security
Capital Group Incorporated, a real estate research, investment and management
company.
Following are the employees of SC (US) Management that are responsible for
identifying and analyzing investments on behalf of SC-US.
Albert D. Adriani Vice President of SC (US) Management, where he is
responsible for providing portfolio management
analysis.
John Montaquila III Vice President of SC (US) Management responsible
for providing in-depth proprietary research on
publicly traded real estate companies in the
multi-family and the public storage sectors.
Darcy B. Boris Vice President of Security Capital Real Estate
Research Group Incorporated where she conducts
strategic market analyses.
Mark J. Chapman President of Security Capital Real Estate
Research Group Incorporated where he is director
of the group and conducts strategic market
analyses.
Anne Darnley Associate of SC (US) Management responsible for
providing in-depth proprietary research on
publicly traded real estate companies in the
retail sector.
James D. Foster Associate of SC (US) Management responsible for
providing in-depth proprietary research on
publicly traded real estate companies in the
hotel and the healthcare sectors.
INVESTMENT ADVISORY AGREEMENT
Pursuant to an amended investment advisory agreement (the "Advisory
Agreement"), SC (US) Management furnishes a continuous investment program for
SC-US's portfolio, makes the day-to-day investment decisions for SC- US, and
generally manages SC-US's investments in accordance with the stated policies of
SC-US, subject to the general supervision of SC-US's Board of Directors. SC (US)
Management also selects brokers and dealers to execute purchase and sale orders
for the portfolio transactions of SC-US. SC (US) Management provides persons
satisfactory to the Directors of SC-US to serve as officers of SC-US. Such
officers, as well as certain other employees and Directors of SC-US, may be
directors, officers, or employees of SC (US) Management.
Under the Advisory Agreement, SC-US Class R shares pay SC (US) Management a
monthly management fee in an amount equal to 1/12th of .60% of the value of
SC-US's Class R average daily net assets (approximately .60% on an annual
basis). SC-US Management also has committed to waive fees and/or reimburse
expenses to maintain
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<PAGE>
SC-US's Class R total operating expenses, other than brokerage fees and
commission, taxes, interest and other extraordinary expenses, at no more than
1.15% of the value of SC-US's Class R average daily net assets for the year
ending December 31, 1998.
In addition to the payments to SC (US) Management under the Advisory
Agreement described above, SC-US Class R shares pay certain other costs of
operations including (a) administration, custodian and transfer agency fees, (b)
fees of Directors who are not affiliated with SC (US) Management, (c) legal and
auditing expenses, (d) costs of printing and postage fees related to preparing
and distributing SC-US's prospectus and shareholder reports, (e) costs of
maintaining SC-US's existence, (f) interest charges, taxes, brokerage fees and
commissions, (g) costs of stationery and supplies, (h) expenses and fees related
to registration and filing with federal and state regulatory authorities, and
(i) upon the approval of SC-US's Board of Directors, costs of personnel of SC
(US Management or its affiliates rendering clerical, accounting and other office
services. Each class of SC-US shares pays for the portion SC-US's expenses
attributable to its operations. 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-US.
ADMINISTRATOR AND SUB-ADMINISTRATOR
SC (US) Management has also entered into a fund accounting and
administration agreement with SC-US (the "Administration Agreement") under which
SC (US) Management performs certain administrative functions for SC-US,
including (i) providing office space, telephone, office equipment and supplies
for SC-US; (ii) paying compensation of SC-US's officers for services rendered as
such; (iii) authorizing expenditures and approving bills for payment on behalf
of SC- US; (iv) supervising preparation of the periodic updating of SC-US's
Prospectus and Statement of Additional Information; (v) supervising preparation
of quarterly reports to SC-US's shareholders, notices of dividends, capital
gains distributions and tax credits, and attending to routine correspondence and
other communications with individual shareholders; (vi) supervising the daily
pricing of SC-US's investment portfolio and the publication of the net asset
value of SC-US's shares, earnings reports and other financial data; (vii)
monitoring relationships with organizations providing services to SC-US,
including the custodian ("Custodian"), transfer agent ("Transfer Agent") and
printers; (viii) providing trading desk facilities for SC-US; (ix) maintaining
books and records for SC-US (other than those maintained by the Custodian and
Transfer Agent) and preparing and filing of tax reports other than SC-US's
income tax returns; and (x) providing executive, clerical and secretarial help
needed to carry out these responsibilities.
In accordance with the terms of the Administration Agreement and with the
approval of SC- US's Board of Directors, SC (US) Management has caused SC-US to
retain Firstar Trust Company (the "Sub-Administrator") as sub-administrator
under a fund administration and servicing agreement (the "Sub-Administration
Agreement").
Under the Sub-Administration Agreement, the Sub-Administrator has assumed
responsibility for performing certain of the foregoing administrative functions,
including determining SC-US's net asset value and preparing such figures for
publication, maintaining certain of SC-US's books and records that are not
maintained by SC (US) Management, or the custodian or transfer agent, preparing
financial information for SC-US's income tax returns, proxy statements,
quarterly and annual shareholders reports, and SEC filings, and responding to
shareholder inquiries. Under the terms of the Sub-Administration Agreement, SC-
US pays the Sub-Administrator a monthly administration fee at the annual rate of
.06% of the first $200 million of SC-US's average daily net assets, and at lower
rates on SC-US's average daily net assets in excess of that amount, subject to
an annual minimum fee of $30,000. The Sub-Administrator also serves as SC-US's
Custodian and Transfer Agent. See "Custodian and Transfer and Dividend
Disbursing Agent."
Under the Administration Agreement, SC (US) Management remains responsible
for monitoring and overseeing the performance by the Sub-Administrator of its
obligations to SC-US under the Sub-Administration Agreement, subject to the
overall authority of SC-US's Board of Directors. For its services under the
Administration Agreement,
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SC (US) Management receives a monthly fee from SC-US at the annual rate of .02%
of the value of SC-US's average daily net assets.
DISTRIBUTION AND SERVICING PLAN
SC-US has adopted a Distribution and Servicing Plan ("Plan") with respect to
SC-US Class R shares pursuant to Rule 12b-1 under the Investment Company Act of
1940, as amended. Under the Plan, SC-US pays to Security Capital Markets Group
Incorporated in its capacity as principal distributor of SC-US's shares (the
"Distributor"), a monthly fee equal to, on an annual basis, .25% of the value of
SC-US's Class R average daily net assets.
The Distributor may use the fee for services performed and expenses incurred
by the Distributor in connection with the distribution of Class R shares and for
providing certain services to Class R shareholders. The Distributor may pay
third parties in respect of these services such amount as it may determine.
SC-US understands that these third parties may also charge fees to their clients
who are beneficial owners of SC-US Class R shares in connection with their
client accounts. These fees would be in addition to any amounts which may be
received by them from the Distributor under the Plan.
The Distributor, with offices located at 125 Lincoln Avenue, Santa Fe, New
Mexico 87501, 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 R shares of SC-US, $.01 par value per
share ("Common Stock"), is determined on each day the New York Stock Exchange is
open for trading and on each other day on which there is a sufficient degree of
trading in SC-US's investments to affect the net asset value, as of the close of
trading on the New York Stock Exchange, by adding the market value of all
securities in SC-US's portfolio and other assets represented by Class R shares,
subtracting liabilities, incurred or accrued allocable to Class R shares, and
dividing by the total number Class R shares then outstanding.
For purposes of determining the net asset value per share of Class R shares,
readily marketable portfolio securities listed on the New York Stock Exchange
are valued, except as indicated below, at the last sale price reflected on the
consolidated tape at the close of the New York Stock Exchange on the business
day as of which such value is being determined. If there has been no sale on
such day, the securities are valued at the mean of the closing bid and asked
prices on such day. If no bid or asked prices are quoted on such day, then the
security is valued by such method as the Directors shall determine in good faith
to reflect its fair market value. Readily marketable securities not listed on
the New York Stock Exchange but listed on other domestic or foreign securities
exchanges or admitted to trading on the NASDAQ National Market are valued in a
like manner. Portfolio securities traded on more than one securities exchange
are valued at the last sale price on the business day as of which such value is
being determined as reflected on the tape at the close of the exchange
representing the principal market for such securities.
Readily marketable securities traded in the over-the-counter market,
including listed securities whose primary market is believed by SC (US)
Management to be over-the-counter, but excluding securities admitted to trading
on the NASDAQ National Market, are valued at the mean of the current bid and
asked prices as reported by NASDAQ or, in the case of securities not quoted by
NASDAQ, the National Quotation Bureau or such other comparable sources as the
Directors deem appropriate to reflect their fair market value. Where securities
are traded on more than one exchange and also over-the-counter, the securities
will generally be valued using the quotations the Board of Directors believes
reflect most closely the value of such securities. Any securities, or other
assets, for which market
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<PAGE>
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
SC-US Class R shares may be purchased through Firstar Trust Company, SC-US's
Transfer Agent or any dealer which has entered into a sales agreement with the
Distributor.
The minimum initial investment is $2,500. Subsequent investments in the
amount of at least $250 may be made by mail or by wire. For individual
retirement accounts and employee benefit plans qualified under Sections 401,
403(b)(7) or 457 of the Code, as well as UGMA or UTMA accounts, the minimum
initial investment is $1,000. For investors using the Automatic Investment Plan
(described below), the minimum investment is $250. These minimums can be changed
or waived by SC-US at any time. Shareholders will be given at least 30 days'
notice of any increase in the minimum dollar amount of subsequent investments.
Applications will not be accepted unless they are accompanied by payment in
U.S. funds. Payment should be made by check or money order drawn on a U.S. bank,
savings and loan, or credit union or by wire transfer. Orders for shares of
SC-US will become effective at the net asset value per share next determined
after receipt of payment. Checks must be payable in U.S. dollars and will be
accepted subject to collection at full face value. All funds will be invested in
full and fractional shares. A confirmation indicating the details of each
purchase transaction will be sent to a shareholder promptly following each
transaction. If a purchase order is placed through a dealer, the dealer must
promptly forward the order, together with payment, to the Transfer Agent.
Investors must specify that Class R shares are being purchased.
By investing in SC-US, a shareholder appoints the Transfer Agent, as his or
her agent, to establish an open account to which all shares purchased will be
credited, together with any dividends and capital gain distributions that are
paid in additional shares. See "Dividends and Distributions." Although most
shareholders elect not to receive stock certificates, certificates for full
shares can be obtained on specific written request to the Transfer Agent. All
fractional shares will be held in book-entry form. It is more complicated to
redeem shares held in certificate form.
INITIAL INVESTMENT
Class R shares may be purchased by completing the enclosed application and
mailing it along with a check or money order payable to "Security Capital U.S.
Real Estate Shares Incorporated," to a securities dealer or the Transfer Agent.
If mailing to the Transfer Agent, please use the following address: Firstar
Trust Company, Mutual Fund Services, P.O. Box 701, Milwaukee, Wisconsin
53201-0701. Overnight mail should be sent to the following address: Security
Capital U.S. Real Estate Shares Incorporated, Firstar Trust Company, Mutual Fund
Services, Third Floor, 615 East Michigan Street, Milwaukee, Wisconsin 53202.
SC-US does not consider the U.S. Postal service or other independent delivery
services to be its agents. Therefore, deposit in the mail or with such services,
or receipt at the Transfer Agent's post office box, of purchase applications
does not constitute receipt by the Transfer Agent or SC-US. Do not mail letters
by overnight courier to the post office box.
If a shareholder chooses a securities dealer that has not entered into a
sales agreement with the Distributor, such dealer may, nevertheless, offer to
place an order for the purchase of SC-US shares. Such dealer may charge a
transaction fee, as determined by the dealer. That fee may be avoided if shares
are purchased through a dealer who has entered into a sales agreement with the
Distributor or through the Transfer Agent.
If a shareholder's check does not clear, a service fee of $20 will be
charged. Such shareholder will also be responsible for any losses suffered by
SC-US as a result. Neither cash nor third-party checks will be accepted. All
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<PAGE>
applications to purchase shares are subject to acceptance by SC-US and are not
binding until so accepted. SC-US reserves the right to decline or accept a
purchase order application in whole or in part.
WIRE PURCHASES
Class R shares may be purchased by wire only through the Transfer Agent. The
following instructions should be followed when wiring funds to the Transfer
Agent for the purchase of shares:
Wire to: Firstar Bank
ABA Number 075000022
Credit: Firstar Trust Company
Account 112-952-137
Further Credit: Security Capital U.S. Real Estate Shares Incorporated
(shareholder account number)
(shareholder name/account registration)
Please call 1-800-699-4594 (toll free) prior to wiring any funds 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.
TELEPHONE PURCHASES
Additional shares may be purchased by moving money from a shareholder's bank
account to his or her SC-US account. Only bank accounts held at domestic
financial institutions that are Automated Clearing House ("ACH") members can be
used for telephone transactions. In order for shares to be purchased at the net
asset value determined as of the close of regular trading on a given date, the
Transfer Agent must receive both the purchase order and payment by Electronic
Funds Transfer through the ACH System before the close of regular trading on
such date. Most transfers are completed within 3 business days. Telephone
transactions may not be used for initial purchases of Class R shares.
AUTOMATIC INVESTMENT PLAN
The Automatic Investment Plan allows regular, systematic investments in SC-
US Class R shares from a bank checking or NOW account. SC-US will reduce the
minimum initial investment to $250 if a shareholder elects to use the Automatic
Investment Plan. To establish the Automatic Investment Plan, an investor should
complete the appropriate section in SC-US's application and an existing SC-US
shareholder should call 1-888-SECURITY (toll free) for an automatic investment
plan form. The Automatic Investment Plan can be set up with any financial
institution that is a member of the ACH. Under certain circumstances (such as
discontinuation of the Automatic Investment Plan before the minimum initial
investment is reached, or, after reaching the minimum initial investment, the
account balance is reduced to less than $500), SC-US reserves the right to
close such account. Prior to closing any account for failure to reach the
minimum initial investment, SC-US will give a shareholder written notice and 60
days in which to reinstate the Automatic Investment Plan or otherwise reach the
minimum initial investment. A shareholder should consider his or her financial
ability to continue in the Automatic Investment Plan until the minimum initial
investment amount is met because SC-US has the right to close such account for
failure to reach the minimum initial investment. Such closing may occur in
periods of declining share prices.
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Under the Automatic Investment Plan, a shareholder may choose to make
investments on the day of his or her choosing (or the next business day
thereafter) in amounts of $250 or more. There is no service fee for
participating in the Automatic Investment Plan. However, a service fee of $20.00
will be deducted from a shareholder's SC-US account for any Automatic Investment
Plan purchase that does not clear due to insufficient funds or, if prior to
notifying SC- US in writing or by telephone to terminate the plan, a shareholder
closes his or her bank account or in any manner prevent withdrawal of funds from
the designated bank checking or NOW account.
The Automatic Investment Plan is a method of using dollar cost averaging
which is an investment strategy that involves investing a fixed amount of money
at a regular time interval. However, a program of regular investment cannot
ensure a profit or protect against a loss from declining markets. By always
investing the same amount, a shareholder will be purchasing more shares when the
price is low and fewer shares when the price is high. Since such a program
involves continuous investment regardless of fluctuating share values, a
shareholder should consider his or her financial ability to continue the program
through periods of low share price levels.
SUBSEQUENT INVESTMENTS
Additional investments of at least $250 may be made by mail or by wire. When
an additional purchase is made by mail, a check payable to "Security Capital
U.S. Real Estate Shares Incorporated" along with the Additional Investment Form
provided on the lower portion of a shareholder's account statement must be
enclosed. To make an additional purchase by wire, a shareholder may call
1-800-699-4594 (toll free) for complete wiring instructions.
CLASS I SHARES
SC-US also issues Class I shares which offer different services and incur
different expenses which would affect performance. Investors may call the
Distributor at 1-800-699-4594 (toll free) to obtain additional information about
Class I shares.
REDEMPTION OF SHARES
A shareholder may request redemption of part or all of his or her Class R
shares at any time at the next determined net asset value. See "Determination of
Net Asset Value." SC-US normally will mail the redemption proceeds to the
shareholder on the next business day and, in any event, no later than seven
business days after receipt of a redemption request in good order. However, when
a purchase has been made by check, SC-US may hold payment on redemption proceeds
until it is reasonably satisfied that the check has cleared, which may take up
to twelve days.
Redemptions may also be made through brokers or dealers. Such redemptions
will be effected at the net asset value next determined after receipt by SC-US
of the broker or dealer's instruction to redeem shares. In addition, some
brokers or dealers may charge a fee in connection with such redemptions. See
"Determination of Net Asset Value."
REDEMPTION BY TELEPHONE
Shares may also be redeemed by calling the Transfer Agent at 1-800-699-4594
(toll free). In order to utilize this procedure, a shareholder must have
previously elected this option in writing, which election will be reflected in
the records of the Transfer Agent, and the redemption proceeds must be mailed
directly to such shareholder or transmitted to a predesignated account. To
change the designated account, a written request with signature(s) guaranteed
must be sent to the Transfer Agent. See "Signature Guarantees" below. To change
the address, the Transfer Agent may be called or a written request must be sent
to the Transfer Agent. No telephone redemptions
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will be allowed within 15 days of such a change. SC-US reserves the right to
limit the number of telephone redemptions by a shareholder. Once made, telephone
redemption requests may not be modified or canceled.
The Transfer Agent will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. Such procedures may include
requiring some form of personal identification prior to acting upon telephone
instructions, providing written confirmations of all such transactions, and/or
tape recording all telephone instructions. Assuming procedures such as the above
have been followed, SC-US will not be liable for any loss, cost, or expense for
acting upon a shareholder's telephone instructions or for any unauthorized
telephone redemption. SC-US reserves the right to refuse a telephone redemption
request if so advised.
REDEMPTION BY MAIL
For most redemption requests, a shareholder need only furnish a written,
unconditional request to redeem his or her Class R shares (or a fixed dollar
amount) at net asset value to SC-US's Transfer Agent: Firstar Trust Company,
Mutual Fund Services, P.O. Box 701, Milwaukee, Wisconsin 53201-0701. Overnight
mail should be sent to Security Capital U.S. Real Estate Shares Incorporated,
Firstar Trust Company, Mutual Fund Services, Third Floor, 615 East Michigan
Street, Milwaukee, Wisconsin 53202. Requests for redemption must be signed
exactly as the shares are registered, including the signature of each joint
owner. A shareholder must also specify the number of shares or dollar amount to
be redeemed. If the Class R shares to be redeemed were issued in certificate
form, the certificate must be endorsed for transfer (or be accompanied by a duly
executed stock power) and must be submitted to Firstar Trust Company together
with a redemption request. Redemption proceeds made by written redemption
request may also be wired to a commercial bank that you have authorized on your
account application. The Transfer Agent charges a $12.00 service fee for wire
redemptions. Additional documentation may be requested from corporations,
executors, administrators, trustees, guardians, agents, or attorneys-in-fact.
SC- US does not consider the U.S. Postal Service or other independent delivery
services to be its agents. Therefore, deposit in the mail or with such services,
or receipt at the Transfer Agent's post office box, of redemption requests does
not constitute receipt by the Transfer Agent or SC- US. Do not mail letters by
overnight courier to the post office box. Any written redemption requests
received within 15 days after an address change must be accompanied by a
signature guarantee.
SIGNATURE GUARANTEES
Signature guarantees are required for: (i) redemption requests to be mailed
or wired to a person other than the registered owner(s) of the shares; (ii)
redemption requests to be mailed or wired to other than the address of record;
(iii) any redemption request if a change of address request has been received by
SC-US or Transfer Agent within the last 15 days and (iv) any redemption request
involving $100,000 or more. A signature guarantee may be obtained from any
eligible guarantor institution, as defined by the SEC. These institutions
include banks, savings associations, credit unions, brokerage firms and others.
OTHER REDEMPTION INFORMATION
Unless other instructions are given in proper form, a check for the proceeds
of a redemption will be sent to the shareholder's address of record. The
Custodian may benefit from the use of redemption proceeds until the redemption
check for such proceeds has cleared.
SC-US may suspend the right of redemption during any period when (i) trading
on the New York Stock Exchange is restricted or that Exchange is closed, other
than customary weekend and holiday closings, or (ii) an emergency, as defined by
rules adopted by the SEC, exists making disposal of portfolio securities or
determination of the value of the net assets of SC-US not reasonably
practicable.
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The proceeds of redemption may be more or less than the amount invested and,
therefore, a redemption may result in a gain or loss for federal income tax
purposes.
A shareholder's account may be terminated by SC-US on not less than 30 days'
notice if, at the time of any redemption of Class R shares in his or her
account, the value of the remaining shares in the account falls below $2,500
($1,000 in the case of individual retirement accounts and employee benefit plans
qualified under Sections 401, 403(b)(7) or 457 of the Code). Upon any such
termination, a check for the redemption proceeds will be sent to the account of
record within seven business days of the redemption. However, if a shareholder
is affected by the exercise of this right, he or she will be allowed to make
additional investments prior to the date fixed for redemption to avoid
liquidation of the account.
DIVIDENDS AND DISTRIBUTIONS
Dividends from SC-US's investment income will be declared and distributed
quarterly. SC-US intends to distribute net realized capital gains, if any, at
least annually although SC-US's Board of Directors may in the future determine
to retain realized capital gains and not distribute them to shareholders. For
information concerning the tax treatment of SC-US's distribution policies for
SC-US and its shareholders, see "Taxation."
Distributions will automatically be paid in full and fractional shares of
SC-US based on the net asset value per share at the close of business on the
payable date unless the shareholder has elected to have distributions paid in
cash.
TAXATION
The following discussion is intended for general information only.
Shareholders should consult with their own tax advisers as to the tax
consequences of an investment in SC-US, including the status of distributions
under applicable state or local law.
FEDERAL INCOME TAXES
SC-US intends to qualify and elect to be taxed as a "regulated investment
company" under the Code. To the extent that SC-US distributes its taxable income
and net capital gain to its shareholders, qualification as a regulated
investment company relieves SC-US of federal income and excise taxes on that
part of its taxable income including net capital gains which it pays out to its
shareholders. Dividends out of net ordinary income and distributions of net
short-term capital gains are taxable to the recipient shareholders as ordinary
income. In the case of corporate shareholders, such dividends may be eligible
for the dividends-received deduction, except that the amount eligible for the
deduction is limited to the amount of qualifying dividends received by SC-US,
which does not include distributions received by SC-US from REITs. A
corporation's dividends-received deduction will be disallowed unless the
corporation holds shares in SC-US at least 46 days. Furthermore, the dividends-
received deduction will be disallowed to the extent a corporation's investment
in shares of SC-US is financed with indebtedness.
The excess of net long-term capital gains over the net short-term capital
losses realized and distributed by SC-US to its shareholders as capital gain
distributions is taxable to the shareholders as long-term capital gain,
irrespective of the length of time a shareholder may have held his or her stock.
Recent legislation reduced the maximum tax rate on capital gains to 20% for
assets held for more than 18 months on the date of the sale or exchange of those
assets. A notice issued by the Internal Revenue Service provides that a
regulated investment company such as SC- US may, but is not required to,
designate which portion of a capital gain distribution qualifies for the reduced
capital gain rate. Long-term capital gain distributions are not eligible for the
dividends-received deduction referred to above.
Under 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
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a month that is paid during January of the following year is includable in the
prior year's taxable income of shareholders that are calendar year taxpayers.
Any dividend or distribution received by a shareholder on shares of SC-US
will have the effect of reducing the net asset value of such shares by the
amount of such dividend or distribution. Furthermore, a dividend or distribution
made shortly after the purchase of such shares by a shareholder, although in
effect a return of capital to that particular shareholder, would be taxable to
him or her as described above. If a shareholder held shares six months or less
and during that period received a distribution taxable to such shareholder as
long-term capital gain, any loss realized on the sale of such shares during such
six-month period would be a long-term capital loss to the extent of such
distribution.
A dividend or capital gain distribution with respect to shares of SC-US held
by a tax-deferred or qualified plan, such as an individual retirement account,
403(b)(7) retirement plan or corporate pension or profit-sharing plan, will not
be taxable to the plan, except to the extent the shares are debt-financed within
the meaning of Section 514 of the Code. Distributions from such plans will be
taxable to individual participants under applicable tax rules without regard to
the character of the income earned by the qualified plan.
SC-US will be required to withhold 31% of any payments made to a shareholder
if the shareholder has not provided a certified taxpayer identification number
to SC-US, or the Secretary of the Treasury notifies SC-US that the shareholder
has not reported all interest and dividend income required to be shown on the
shareholder's Federal income tax return. Any amounts withheld may be credited
against the shareholder's U.S. federal income tax liability.
Further information relating to tax consequences is contained elsewhere in
this Prospectus and in the Statement of Additional Information.
STATE AND LOCAL TAXES
SC-US distributions also may be subject to state and local taxes.
Shareholders should consult their own tax advisers regarding the particular
state and local tax consequences of an investment in SC-US.
ORGANIZATION AND DESCRIPTION OF CAPITAL STOCK
Security Capital Employee REIT Fund Incorporated was incorporated under
Maryland law as SCERF Incorporated ("SCERF"), a wholly-owned subsidiary of
Security Capital Group 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.
SC-US is authorized to issue 50,000,000 shares of common stock, $.01 par
value per share. SC-US's Board of Directors may, without shareholder approval,
increase or decrease the number of authorized but unissued shares of SC-US's
common stock and reclassify and issue any unissued shares of SC-US. The Board of
Directors also may create additional series of shares with different investment
objectives, policies or restrictions without shareholder approval.
The Board of Directors of SC-US has authorized the issuance of two classes
of shares: Class I shares and Class R shares. Class R shares offer different
services to shareholders and incur different expenses than Class I shares. Each
class pays its proportionate share of SC-US's expenses.
All classes of SC-US's shares have equal dividend, distribution, liquidation
and voting rights. There are no conversion or preemptive rights in connection
with any class of SC-US shares. Each class of SC-US's shares, when duly issued,
is fully paid and nonassessable. The rights of the holders of Class R shares may
not be modified except
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by the vote of a majority of the holders of all Class R shares outstanding.
Class R shareholders have exclusive voting rights with respect to matters
relating solely to Class R shares. Class R shareholders vote separately from
Class I shareholders on matters in which the interests of Class R shareholders
differ from the interests of Class I shareholders.
SC-US is not required to hold regular annual shareholders' meetings. A
shareholders' meeting shall, however, be called by the secretary upon the
written request of the holders of not less than 10% of the outstanding shares of
SC-US entitled to vote at the meeting. SC-US will assist shareholders wishing to
communicate with one another for the purpose of requesting such a meeting.
As of March 31, 1998, SCREALTY Incorporated owned 98.54% of the issued and
outstanding Class I shares of SC-US and 96.56% of the total issued and
outstanding shares of SC-US, which means that SCREALTY Incorporated controls SC-
US for purposes of the 1940 Act. The effect of SCREALTY Incorporated's ownership
of a controlling interest in SC-US is to dilute the voting power of other SC-US
shareholders.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
Firstar Trust Company, which has its principal business address at 615 East
Michigan Street, Milwaukee, Wisconsin 53202 has been retained to act as
Custodian of SC-US's investments and to serve as SC-US's transfer and dividend
disbursing agent. Firstar Trust Company does not have any part in deciding
SC-US's investment policies or which securities are to be purchased or sold for
SC-US's portfolio.
REPORTS TO SHAREHOLDERS
The fiscal year of SC-US ends on December 31 of each year. SC-US will send
to its shareholders, at least semi-annually, reports showing the investments and
other information (including unaudited financial statements). An annual report,
containing financial statements audited by SC-US's independent accountants, will
be sent to shareholders each year. For a copy of the most recent semi-annual
report, please call 1-888-SECURITY.
PERFORMANCE INFORMATION
From time to time, SC-US may advertise the "average annual total return" of
the Class R shares over various periods of time. This total return figure shows
the average percentage change in value of an investment in SC-US's Class R
shares from the beginning date of the measuring period to the ending date of the
measuring period. The figure reflects changes in the price of SC- US's Class R
shares and assumes that any income, dividends and/or capital gains distributions
made by SC-US's Class R shares during the period are reinvested in Class R
shares of SC-US. Figures will be given for recent one-, five- and ten-year
periods (when applicable), and may be given for other periods as well (such as
from commencement of SC-US's operations, or on a year-by-year basis). When
considering "average" total return figures for periods longer than one year,
investors should note that SC-US's Class R annual total return for any one year
in the period might have been greater or less than the average for the entire
period. SC-US also may use "aggregate" total return figures for various periods,
representing the cumulative change in value of an investment in SC-US's Class R
shares for the specific period (again reflecting changes in SC-US's Class R
share price and assuming reinvestment of Class R dividends and distributions).
Aggregate total returns may be shown by means of schedules, charts or graphs,
and may indicate subtotals of the various components of total return (that is,
the change in value of initial investment, income dividends and capital gains
distributions).
It is important to note that total return figures are based on historical
earnings and are not intended to indicate future performance. The Statement of
Additional Information further describes the methods used to determine SC-US's
performance.
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YEAR 2000 RISKS
Like investment companies and business organizations around the world, SC-US
could be adversely affected if the computer systems used by SC-US, other service
providers and entities with computer systems that are linked to SC-US'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-US 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-US's
major service providers. However, there can be no assurance that these steps
will be sufficient to avoid any adverse impact on SC-US.
ADDITIONAL INFORMATION
Any shareholder inquiries may be directed to SC-US at the address or
telephone number listed on the cover page of this Prospectus. This Prospectus,
including the Statement of Additional Information which is incorporated by
reference herein, does not contain all the information set forth in the
Registration Statement filed by SC-US with the SEC under the Securities Act of
1933. Copies of the Registration Statement may be obtained at a reasonable
charge from the SEC or may be examined, without charge, at the offices of the
SEC in Washington, D.C. or may be obtained from the SEC's worldwide web site at
http://www.sec.gov.
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LOGO
11 South LaSalle Street
Chicago, Illinois 60603
STATEMENT OF ADDITIONAL INFORMATION
[____________], 1998
Security Capital U.S. Real Estate Shares Incorporated ("SC-US"), formerly
known as Security Capital Employee REIT Fund Incorporated, is a non-diversified,
no-load, open-end management investment company ("mutual fund") that seeks to
provide shareholders with above-average total returns, including current income
and capital appreciation, primarily through investments in real estate
securities in the United States. Long term, SC-US's objective is to achieve
top-quartile total returns as compared with other mutual funds that invest
primarily in real estate securities in the United States, by integrating
in-depth proprietary real estate market research with sophisticated capital
markets research and modeling techniques. Security Capital (US) Management Group
Incorporated ("SC (US) Management") serves as both investment adviser and
administrator to SC-US.
This Statement of Additional Information is not a prospectus and is
authorized for distribution only when preceded or accompanied by SC-US's
prospectus dated [__________], 1998 (the "Prospectus"). This Statement of
Additional Information contains additional and more detailed information than
that set forth in the Prospectus and should be read in conjunction with the
Prospectus, additional copies of which may be obtained without charge by writing
or calling SC-US's Sub-Administrator at: Firstar Trust Company, Mutual Fund
Services, P.O. Box 701, Milwaukee, Wisconsin 53201-0701; telephone number
1-800-699-4594 (toll free).
Table of Contents
<TABLE>
Page
----
<S> <C>
Investment Objective and Policies....................... 2
Investment Restrictions................................. 4
Management of SC-US..................................... 4
Distribution and Servicing Plans........................ 13
Determination of Net Asset Value........................ 14
Redemption of Shares.................................... 15
Portfolio Transactions and Brokerage.................... 15
Taxation................................................ 16
Organization and Description of Capital Stock........... 19
Distributor............................................. 21
Custodian and Transfer and Dividend Disbursing Agent.... 21
Performance Information................................. 21
Counsel and Independent Accountants..................... 23
Financial Statements.................................... 23
</TABLE>
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INVESTMENT OBJECTIVE AND POLICIES
The following discussion of SC-US's investment objective and policies
supplements, and should be read in conjunction with, the information regarding
SC-US's investment objective and policies set forth in the Prospectus. Except as
otherwise provided below under "Investment Restrictions," SC-US's investment
policies are not fundamental and may be changed by SC-US's Board of Directors
without the approval of the shareholders; however, SC-US will not change its
investment policies without written notice to shareholders.
Illiquid Securities
SC-US will not invest in illiquid securities if immediately after such
investment more than 10% of SC-US net assets (taken at market value) would be
invested in such securities. For this purpose, illiquid securities include,
among others, securities that are illiquid by virtue of the absence of a readily
available market or legal or contractual restrictions on resale.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
and securities which are otherwise not readily marketable. Securities which have
not been registered under the Securities Act are referred to as private
placements or restricted securities and are purchased directly from the issuer
or in the secondary market. Mutual funds do not typically hold a significant
amount of these restricted or other illiquid securities because of the potential
for delays on resale and uncertainty in valuation. Limitations on resale may
have an adverse effect on the marketability of portfolio securities and a mutual
fund might be unable to dispose of restricted or other illiquid securities
promptly or at reasonable prices and might thereby experience difficulty
satisfying redemptions within seven business days. A mutual fund might also have
to register such restricted securities in order to dispose of them, resulting in
additional expense and delay. Adverse market conditions could impede such a
public offering of securities.
If SC-US invests in securities issued by a real estate company that is
controlled by Security Capital Group Incorporated ("Security Capital Group
Incorporated") or any of its affiliates (a "Security Capital controlled real
estate company"), SC-US may be considered an affiliate of the issuer of such
securities and therefore an underwriter as such term is defined in the
Securities Act. SC-US's ability to resell such securities without registration
may, therefore, be limited. In addition, because SC-US is an affiliate of
Security Capital Group Incorporated, SC-US's purchases and sales of securities
issued by a Security Capital controlled real estate company may be netted
against sales and purchases by Security Capital and any of its other affiliates
of securities of the same issuer during the six months preceding or following
SC-US's "opposite way" transactions for purposes of Section 16 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). If such netting results
in a profit to Security Capital Group Incorporated or any of its affiliates
(including SC-US), Security Capital or its affiliates, as the case may be, will
be required to disgorge such "profits" to the issuer of such securities. In
addition, because SC-US is an affiliate of Security Capital Group Incorporated,
SC-US's purchases and sales of securities issued by a Security Capital
controlled real estate company could raise issues under Section 17(d) of the
1940 Act. Depending upon the timing of purchases and sales of securities of such
an issuer by Security Capital Group Incorporated and its affiliates, in order to
avoid Security Capital Group Incorporated or its affiliates (including SC-US)
having to disgorge "profits" to the issuer of such securities, or in order to
avoid violations of Section 17(d) of the 1940 Act, SC-US may not be able to
purchase or sell securities of a Security Capital controlled real estate
company, even when it might otherwise be advantageous for SC-US to do so. As a
result, SC-US will treat such securities as illiquid securities.
In recent years, a large institutional market has developed for certain
securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the
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liquidity of such investments. The Securities and Exchange Commission (the
"SEC") has adopted Rule 144A which allows a broader institutional trading market
for securities otherwise subject to restriction on resale to the general public.
Rule 144A establishes a "safe harbor" from the registration requirements of the
Securities Act of resales of certain securities to qualified institutional
buyers.
SC (US) Management will monitor the liquidity of restricted securities in
SC-US's portfolio under the supervision of the Board of Directors. In reaching
liquidity decisions, SC (US) Management will consider, among other factors, the
following: (1) the frequency of trades and quotes for the security; (2) the
number of dealers wishing to purchase or sell the security and the number of
other potential purchasers; (3) dealer undertakings to make a market in the
security; and (4) the nature of the security and the nature of the marketplace
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of the transfer).
SHORT SALES AND SHORT SALES AGAINST THE BOX
SC-US will not engage in a short sale or a short sale against the box if
immediately after such transaction the aggregate market value of all securities
sold short and sold short against the box would exceed 10% of SC-US's net assets
(taken at market value).
Short Sales
SC-US may seek to realize gains through short sale transactions in
securities listed on one or more national securities exchanges or on the
National Association of Securities Dealers, Inc. Automated Quotation System.
Short selling involves the sale of borrowed securities. At the time a short sale
is effected, SC-US incurs an obligation to replace the security borrowed at
whatever its price may be at the time that SC-US purchases it for delivery to
the lender. When a short sale transaction is closed out by delivery of the
securities, any gain or loss on the transaction is taxable as a short term
capital gain or loss. Until the security is replaced, SC-US is required to pay
to the lender amounts equal to any dividends or interest which accrue during the
period of the loan. To borrow the security, SC- US also may be required to pay a
premium, which would increase the cost of the security sold. Until SC-US
replaces a borrowed security in connection with a short sale, SC-US will: (a)
maintain daily a segregated account containing cash or U.S. government
securities, at such a level that (i) the amount deposited in the segregated
account plus the amount deposited with the broker as collateral will equal the
current value of the security sold short and (ii) the amount deposited in the
segregated account plus the amount deposited with the broker as collateral will
not be less than the market value of the security at the time it was sold short;
or (b) otherwise cover its short position.
Since short selling can result in profits when stock prices generally
decline, SC-US in this manner, can, to a certain extent, hedge the market risk
to the value of its other investments and protect its equity in a declining
market. However, SC-US could, at any given time, suffer both a loss on the
purchase or retention of one security, if that security should decline in value,
and a loss on a short sale of another security, if the security sold short
should increase in value. Moreover, to the extent that in a generally rising
market SC-US maintains short positions in securities rising with the market, the
net asset value of SC-US would be expected to increase to a lesser extent than
the net asset value of an investment company that does not engage in short
sales.
Short Sales Against the Box
When SC (US) Management believes that the price of a particular security in
SC-US's portfolio may decline, it may sell the security short against the box
which involves selling the security for delivery at a specified date in the
future. If, for example, SC-US bought 100 shares of XYZ REIT at $40 per share in
January and the price appreciates to $50 in March, SC-US might "sell short" the
100 shares at $50 for delivery the following July. Thereafter, if the price of
the stock declines to $45, it will realize the full $1,000 gain rather than the
$500 gain it would have received had it sold the stock in the market. On the
other hand, if the price appreciates to $55 per share, SC-US would be required
to sell at $50 and thus receive a $1,000 gain rather than the $1,500 gain it
would have received had it sold the stock in the market. SC-US may also be
required to pay a premium for short sales against
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the box which would partially offset its gain. Under a recent legislative
change, a short sale against the box will result in a constructive sale of the
underlying security at the time when the short sale is entered into, thus
reducing the benefit of these transactions.
INVESTMENT RESTRICTIONS
SC-US is subject to certain investment restrictions, in addition to those
listed in the Prospectus, which are deemed fundamental policies of SC-US. Such
fundamental policies are those which cannot be changed without the approval of
the holders of a majority of SC-US's outstanding shares which means the vote of
(i) 67% or more of SC-US's shares present at a meeting, if the holders of more
than 50% of the outstanding shares of SC-US are present or represented by proxy,
or (ii) more than 50% of SC-US's outstanding shares, whichever is less.
SC-US may not:
1. Pledge, hypothecate, mortgage or otherwise encumber its assets, except to
secure permitted borrowings;
2. Participate on a joint or joint and several basis in any securities
trading account;
3. Invest in companies for the purpose of exercising control;
4. Purchase a security if, as a result (unless the security is acquired
pursuant to a plan of reorganization or an offer of exchange), SC-US would own
any securities of an open-end investment company or more than 3% of the value of
SC-US's total assets would be invested in securities of any closed-end
investment company or more than 10% of such value in closed-end investment
companies in general; or
5. (a) purchase or sell commodities or commodity contracts; (b) invest in
interests in oil, gas, or other mineral exploration or development programs; (c)
purchase securities on margin, except for such short-term credits as may be
necessary for the clearance of transactions and except for borrowings in an
amount not exceeding 33 1/3% of the value of SC-US's total assets; or (d) act as
an underwriter of securities, except that SC-US may acquire restricted
securities under circumstances in which, if such securities were sold, SC-US
might be deemed to be an underwriter for purposes of the Securities Act.
MANAGEMENT OF SC-US
The directors and officers of SC-US and their principal occupations during
the past five years are set forth below. Directors deemed to be "interested
persons" of SC-US for purposes of the Investment Company Act of 1940, as amended
("1940 Act") are indicated by an asterisk.
4
<PAGE>
PRINCIPAL
OCCUPATIONS DURING
NAME AND ADDRESS OFFICE AGE THE PAST FIVE YEARS
Stephen F. Kasbeer Director 72 Retired; Senior Vice President for
8 Bonanza Trail Administration and Treasurer of
Santa Fe, New Mexico 87505 Loyola University, Chicago from 1981
to July 1994, where he was
responsible for administration,
investment, real estate and
treasurer functions, served as Chief
Investment Officer, was Chairman of
the Operations Committee, was a
member of the Investment and Finance
Committees of the Board of Trustees
and was President and a Director of
the Loyola Management Company. Mr.
Kasbeer received his J.D. from John
Marshall Law School and his M.A. and
B.S. from Northwestern University.
Anthony R. Manno Jr.* Chairman of 45 Managing Director of SC (US)
11 South LaSalle Street the Board Management since March 1997, where
Chicago, Illinois 60603 of he is responsible for overseeing all
Directors, investment and capital allocation
Managing matters for SC (US) Management's
Director public market securities activities
and and is also responsible for company
President and industry analysis, market
strategy and trading and reporting;
from January 1995 to March 1997, he
was Managing Director of SC (US)
Management, where he performed the
same functions. Mr. Manno was a
member of the Investment Committee of
Security Capital Group 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.
5
<PAGE>
George F. Keane Director 68 Chairman of the Board of Trigen
7408 Eaton Court Energy Corporation since 1994.
University Park, Florida 34201 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 received his
B.A., and as a Director and
Chairman of the Investment
Committee of the United Negro
College Fund. Mr. Keane holds
honorary degrees from Loyola
University, Chicago, Illinois and
Lawrence University, Appleton,
Wisconsin.
Robert H. Abrams Director 65 Founder of Colliers ABR, Inc.
106 West Sibley Hall (formerly Abrams Benisch Riker
Ithaca, New York 14851 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 a Director of Greater
New York Mutual Insurance Company
and Trustee Emeritus and
Presidential Counselor of his alma
mater, Cornell University. Mr.
Abrams received his M.B.A. from
Harvard University and his B.A.
from Cornell University.
6
<PAGE>
John H. Gardner, Jr. Director 43 Managing Director of Security
11 South LaSalle Street Capital (US) Management since
Chicago, Illinois 60603 July, 1997. Prior thereto,
Director of Security Capital
Pacific Trust ("PTR") and the PTR
REIT Manager from February 1995 to
June 1997 and Senior Vice
President of Security Capital
Atlantic Incorporated
("ATLANTIC"), PTR and the PTR REIT
Manager from September 1994 to
June 1997 where he had overall
responsibility for asset
management and multifamily
dispositions. Prior to joining
Security Capital, Mr. Gardner was
with Copley Real Estate Advisors
as a Managing Director and
Principal responsible for
portfolio management from January
1991 to September 1994 and as a
Vice President and Principal of
asset management from December
1984 to December 1990. From July
1977 to November 1984, Mr. Gardner
was a Real Estate Manager with the
John Hancock Companies. Mr.
Gardner received his M.S. in
Computer Information Systems from
Bentley College and his B.S. in
Accounting from Stonehill
College.
Jeffrey C. Nellessen Vice President, 36 Vice President and Controller of
11 South LaSalle Street Secretary and SC (US)Management since March
Chicago, Illinois 60603 Treasurer 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.
Kenneth D. Statz Managing 38 Managing Director of SC (US)
11 South LaSalle Street Director Management since November 1997.
Chicago, Illinois 60603 Senior Vice President where he is
responsible for the development
and implementation of portfolio
investment strategy. Prior
thereto, Senior Vice President
from July 1996 to October 1997 and
Vice President from May 1995 to
June 1996. Prior to joining
Security Capital, Mr. Statz was a
Vice President in the investment
research department of Goldman,
Sachs & Co., from February 1993 to
January 1995, concentrating on
research and underwriting for the
REIT industry. Prior thereto, Mr.
Statz was a real estate stock
portfolio manager and a managing
director of Chancellor Capital
Management from August 1982 to
February 1992. Mr. Statz received
his M.B.A. and B.B.A. from the
University of Wisconsin, Madison.
7
<PAGE>
Kevin W. Bedell Senior Vice Senior Vice President of SC (US) Management
President since November 1997 and Vice President since
July 1996, where he is responsible for
directing the activities of the
industry/research group and providing in-depth
proprietary research on publicly traded
companies with office and industrial sectors.
Prior to joining SC (US) Management, Mr. Bedell
spent 9 years with LaSalle Partners Limited
where he was Equity Vice President and
Portfolio Manager responsible for the
strategic, operational and financial management
of a private REIT with commercial real estate
investments of $600-800 million. Mr. Bedell
received his M.B.A. from the University of
Chicago and his B.A. from Kenyon College.
COMPENSATION OF DIRECTORS AND CERTAIN OFFICERS
The Directors of SC-US who are interested persons of SC-US, under the 1940
Act, (which includes persons who are employees of SC (US) Management or officers
or employees of any of its affiliates) receive no remuneration from SC-US. Each
of the other Directors is paid an annual retainer of $28,000, an additional
annual retainer of $1,000 for each committee of the Board of Directors for which
he or she serves as chairperson, and a fee of $1,000 for each meeting attended
(other than telephonically) and is reimbursed for the expenses of attendance at
such meetings. The following table sets forth information regarding compensation
earned by the Directors by SC-US for the fiscal year ending December 31,
1997.
8
<PAGE>
Compensation Table(1)
Fiscal Year Ending December 31, 1997
<TABLE>
<CAPTION>
Pension or
Retirement
Benefits Estimated
Aggregate Accrued as Annual Total
Compensation Part of Benefits Compensation
From SC-US Upon From SC-US
Name of Person, Position SC-US Expenses Retirement Paid To Directors
- ------------------------ ----- -------- ---------- -----------------
<S> <C> <C> <C> <C>
George F. Keane
Director............................ $3,333 N/A N/A $3,333
Stephen F. Kasbeer
Director............................ $13,500 N/A N/A $13,500
Robert H. Abrams
Director............................ 0 N/A N/A 0
**John H. Gardner, Jr. (1)
Director............................ 0 N/A N/A 0
**Anthony R. Manno Jr. 0 N/A N/A 0
Chairman, Managing Director and President
</TABLE>
__________
** "Interested person," as defined in the 1940 Act, of SC-US.
(1) Elected to serve by the Board of Directors March 11, 1998.
SC (US) MANAGEMENT
Security Capital (US) Management Group Incorporated, a registered investment
adviser, was formed in March 1994 under Delaware law and specializes in the
management of real estate securities portfolios. SC (US) Management is a wholly-
owned subsidiary of Security Capital Group Incorporated, a Maryland
corporation.
Following are the employees of SC (US) Management that are responsible for
identifying and analyzing investments on behalf of SC-US.
Albert D. Adriani Vice President of SC (US) Management since April
1996, where he is responsible for providing
portfolio management analysis. From January 1995
to April 1996, he was Vice President, Security
Capital (UK) Management Limited and SC-USREALTY;
from March 1994 to January 1995, he was with
Security Capital Markets Group. Prior thereto, he
was an July 1992 to January 1994. Mr. Adriani
received his M.B.A., with honors, from the
University of Chicago Graduate School of Business
and his B.A. with honors from the University of
Chicago. Mr. Adriani is a Certified Financial
Analyst.
John Montaquila III Vice President of SC (US) Management responsible
for providing in-depth proprietary research on
publicly traded real
9
<PAGE>
estate companies in the multi-family and public
storage sectors. Previously, Mr. Montaquila was in
the Management Development Program with Security
Capital Group Incorporated, working in six-month
rotational assignments with Managing Directors of
the firm. Prior to joining Security Capital Group
Incorporated, Mr. Montaquila was a vice president
in the investment real estate division of The
Boston Financial Group. Mr. Montaquila received his
M.M. from J.L. Kellogg Graduate School of
Management at Northwestern University and his B.S.
from The Wharton School, University of
Pennsylvania.
Darcy B. Boris Vice President of the Real Estate Research Group,
where she conducts strategic market analyses for
affiliates of Security Capital. Prior thereto, Vice
President of SC (US) Management from June 1995
until March 1997, and an associate from December
1994 to June 1995. Prior thereto, Ms. Boris was
with Security Capital Markets Group Incorporated
from August 1993 to November 1994, where she
provided capital markets services for affiliates of
the Company. Prior to joining Security Capital
Markets Group, Ms. Boris was associated with
Summerhill Development Company, the multifamily
development subsidiary of Marcus & Millichap,
Incorporated, from January 1987 to September 1991
where she managed the development of multifamily
housing. Ms. Boris received her M.B.A. from the
University of California at Berkeley and her B.A.
from Stanford University.
Mark J. Chapman President of the Real Estate Research Group, where
he is director of the group and conducts strategic
market analyses for affiliates of Security Capital.
Prior thereto, Vice President of SC (US) Management
from November 1995 until March 1997. From November
1994 to November 1995, Mr. Chapman was a Vice
President of PTR with asset management
responsibilities in five major markets. From July
1989 to November 1994, Mr. Chapman as a Vice
President of Copley Real Estate Advisors, Inc.
where he directed asset management for Copley
assets located from Connecticut to Virginia. Mr.
Chapman received his M.S. from Marquette
University.
Ann Darnley Associate of SC (US) Management responsible for
providing in-depth proprietary research on publicly
traded real estate companies in the retail sector.
Prior to joining SC (US) Management, Ms. Darnley
spent eleven years with JMB Institutional Realty
Corporation and Heitman/JMB most recently as a Vice
President in the Portfolio Management area. Ms.
Darnley received her B.S. in Business
Administration from the University of Colorado.
James D. Foster Associate of SC (US) Management responsible for
providing in-depth proprietary research on publicly
traded real estate companies in the hotel and the
healthcare sectors. Prior to joining SC (US)
Management, Mr. Foster was an account
10
<PAGE>
manager with the government securities clearance
division of the Bank of New York. Previously, Mr.
Foster was employed by the National Basketball
Association and the New York Yankees. Mr. Foster
received his from the University of Chicago
Graduate School of Business and his B.A. from Tufts
University.
INVESTMENT ADVISORY AGREEMENT
Certain other clients of SC (US) Management may have investment objectives
and policies similar to those of SC-US. SC (US) Management may, from time to
time, make recommendations which result in the purchase or sale of a particular
security by its other clients simultaneously with SC-US. If transactions on
behalf of more than one client during the same period increase the demand for
securities being sold, there may be an adverse effect on the price of such
securities. It is the policy of SC (US) Management to allocate advisory
recommendations and the placing of orders in a manner which is deemed equitable
by SC (US) Management to the accounts involved, including SC-US. When two or
more of the clients of SC (US) Management (including SC-US) are purchasing or
selling the same security on a given day through the same broker-dealer, such
transactions may be averaged as to price.
SC (US) Management's advice to SC-US with respect to purchases or sales of
securities issued by a Security Capital controlled real estate company may be
affected by sales or purchases by Security Capital Group Incorporated or its
affiliates of securities issued by the same issuer. Because SC-US is an
affiliate of Security Capital Group Incorporated, SC-US's purchases and sales of
securities issued by such an issuer may be netted against sales and purchases by
Security Capital Group Incorporated and any of its other affiliates of
securities of such issuer during the six months preceding or following SC-US's
"opposite way" transactions for purposes of Section 16 of the Exchange Act. If
such netting results in a profit to Security Capital Group Incorporated or any
of is affiliates (including SC-US), Security Capital Group Incorporated or its
affiliates, as the case may be, will be required to disgorge such "profits" to
the issuer of such securities. As a result, SC (US) Management's recommendations
to SC-US may be affected by SC (US) Management's desire to avoid SC-US or
Security Capital Group Incorporated or any of its other affiliates having to
disgorge profits to such issuer.
Pursuant to an amended investment advisory agreement dated December 16, 1997
(the "Advisory Agreement"), SC (US) Management furnishes a continuous investment
program for SC-US's portfolio, makes the day-to-day investment decisions for
SC-US, executes the purchase and sale orders for the portfolio transactions of
SC-US and generally manages SC-US's investments in accordance with the stated
policies of SC-US, subject to the general supervision of SC-US's Board of
Directors.
Under the Advisory Agreement, each class of SC-US shares pays SC (US)
Management a monthly management fee in an amount equal to 1/12th of .60% of the
value of the average daily net assets of that class of SC-US shares
(approximately .60% on an annual basis). Under a prior investment advisory
agreement, effective April 11, 1997 through December 14, 1997, ("Initial
Advisory Agreement"), pursuant to which SC (US) Management provided the same
advisory services as under the Advisory Agreement, the monthly management fee
was equal to 1/12th of .85% of the value of the average daily net assets of
SC-US (approximately .85% on an annual basis). Under the Initial Advisory
Agreement, SC (US) Management waived fees and/or reimbursed expenses to maintain
SC-US's total operating expenses, other than brokerage fees and commissions,
taxes, interest and other extraordinary expenses, at no more than 1.20% of the
value of the average daily net assets of SC- US for the year ending December 31,
1997 and agreed to reimburse SC-US or otherwise limit SC-US's expenses to the
extent required by expense limitations imposed by certain states. Under a
separate agreement, SC-US Management has agreed to waive advisory fees and/or
reimburse expenses to maintain the total operating expenses, other than
brokerage fees and commissions, interest, taxes and other extraordinary expenses
of SC-US's Class I shares at 1.00% of the value of SC-US's Class I average daily
net assets and SC-US's Class R shares at 1.15% of the value of SC-US's Class R
average daily net assets, for the year ending December 31, 1998. For the period
April 23, 1997 (the effective date of SC-US's initial registration
11
<PAGE>
statement) through December 31, 1997, SC (US) Management earned $607,727, net of
waivers of $30,443 for providing investment management services to SC-US.
SC (US) Management also provides SC-US with such personnel as SC-US may from
time to time request for the performance of clerical, accounting and other
office services, such as coordinating matters with the administrator, the
transfer agent and the custodian, which SC (US) Management is not required to
furnish under the Advisory Agreement. The personnel rendering these services,
who may act as officers of SC-US, may be employees of SC (US) Management or its
affiliates. The cost to SC-US of these services must be agreed to by SC-US and
is intended to be no higher than the actual cost to SC (US) Management or its
affiliates of providing the services. SC-US does not pay for services performed
by officers of SC (US) Management or its affiliates. SC-US may from time to time
hire its own employees or contract to have services performed by third parties,
and the management of SC-US intends to do so whenever it appears advantageous to
SC-US.
In addition to the payments to SC (US) Management under the Advisory
Agreement described above, each class of SC-US's shares pays for certain other
costs of its operations including: (a) administration , custodian and transfer
agency fees, (b) fees of Directors who are not affiliated with SC (US)
Management, (c) legal and auditing expenses, (d) costs of printing SC-US's
prospectus and shareholder reports, (e) costs of maintaining SC-US's existence,
(f) interest charges, taxes, brokerage fees and commissions, (g) costs of
stationery and supplies, (h) expenses and fees related to registration and
filing with federal and state regulatory authorities, (i) distribution fees
(Class R), and (j) upon the approval of SC-US's Board of Directors, costs of
personnel of SC-US Management or its affiliates rendering clerical, accounting
and other office services. Each class of SC-US's shares pays for the portion of
SC-US's expenses attributable to its operations.
The Advisory Agreement was approved on November 25, 1997 by SC-US's
Directors, including a majority of the Directors who are not interested persons
(as defined in the 1940 Act) of SC-US or SC (US) Management ("non-interested
Directors"), and by SC-US's shareholders on December 12, 1997. The Initial
Advisory Agreement had been approved by SC-US's Directors, including a majority
of the non-interested Directors on April 11, 1997 and by the unanimous written
consent of SC-US shareholders on that same date. The Advisory Agreement
continues in effect until December 16, 1999 and will continue in effect from
year to year thereafter, provided that its continuance is specifically approved
prior to the initial expiration of the Advisory Agreement or annually
thereafter, as the case may be, by the Directors or by a vote of the
shareholders, and in either case by a majority of the Directors who are not
parties to the Advisory Agreement or interested persons of any such party, by
vote cast in person at a meeting called for the purpose of voting on such
approval.
The Advisory Agreement is terminable without penalty by SC-US on sixty days'
written notice when authorized either by majority vote of its outstanding voting
securities or by a vote of a majority of its Directors, or by SC (US) Management
on sixty days' written notice, and will automatically terminate in the event of
its assignment. The Advisory Agreement provides that in the absence of willful
misfeasance, bad faith or gross negligence on the part of SC (US) Management, or
of reckless disregard of its obligations thereunder, SC (US) Management shall
not be liable for any action or failure to act in accordance with its duties
thereunder.
ADMINISTRATOR AND SUB-ADMINISTRATOR
SC-US has also entered into a fund administration and accounting agreement
with SC (US) Management (the "Administration Agreement") under which SC (US)
Management performs certain administrative functions for SC-US, including (i)
providing office space, telephone, office equipment and supplies for the Fund;
(ii) paying compensation of SC-US's officers for services rendered as such;
(iii) authorizing expenditures and approving bills for payment on behalf of SC-
US; (iv) supervising preparation of the periodic updating of SC-US's Prospectus
and Statement of Additional Information; (v) supervising preparation of
quarterly reports to SC-US's shareholders, notices of dividends, capital gains
distributions and tax credits, and attending to routine correspondence and other
communications with individual shareholders; (vi) supervising the daily pricing
of SC-US's investment portfolio and the publication of the net asset value of
SC-US's shares, earnings reports and other financial data; (vii) monitoring
12
<PAGE>
relationships with organizations providing services to SC-US, including SC-US's
custodian (the "Custodian"), transfer agent (the "Transfer Agent") and printers;
(viii) providing trading desk facilities for SC- US; (ix) maintaining books and
records for SC-US (other than those maintained by the Custodian and Transfer
Agent) and preparing and filing of tax reports other than SC-US's income tax
returns; and (x) providing executive, clerical and secretarial help needed to
carry out these responsibilities.
In accordance with the terms of the Administration Agreement and with the
approval of SC- US's Board of Directors, SC (US) Management has caused SC-US to
retain Firstar Trust Company (the "Sub-Administrator") as sub-administrator
under a fund administration and servicing agreement (the "Sub-Administration
Agreement").
Under the Sub-Administration Agreement, the Sub-Administrator has assumed
responsibility for performing certain of the foregoing administrative functions,
including determining the net asset value of each class of SC-US's shares and
preparing such figures for publication, maintaining certain of SC-US's books and
records that are not maintained by SC (US) Management as investment adviser, or
by the Custodian or Transfer Agent, preparing financial information for SC-US's
income tax returns, proxy statements, quarterly and annual shareholders reports,
and SEC filings, and responding to shareholder inquiries. Under the terms of the
Sub- Administration Agreement, SC-US pays the Sub-Administrator a monthly
administration fee at the annual rate of .06% of the first $200 million of
SC-US's average daily net assets, and at lower rates on SC-US's average daily
net assets in excess of that amount, subject to an annual minimum fee of
$30,000. For the period April 23, 1997 (the effective date of SC-US's initial
registration statement) through December 31, 1997, the Sub-Administrator earned
$47,791 for providing sub-administration services to SC-US. The
Sub-Administrator also serves as the Custodian and Transfer Agent. See
"Custodian and Transfer and Dividend Disbursing Agent."
Under the Administration Agreement, SC (US) Management remains responsible
for monitoring and overseeing the performance by the Sub-Administrator of its
obligations to SC-US under the Sub-Administration Agreement, subject to the
overall authority of SC-US's Board of Directors. For its services under the
Administration Agreement, SC (US) Management receives a monthly fee from SC-US
at the annual rate of .02% of the value of SC-US's average daily net assets. For
the period April 23, 1997 (the effective date of SC-US's initial registration
statement) through December 31, 1997, SC (US) Management earned $15,930 for
providing services to SC-US under the Administration Agreement.
The Administration Agreement is terminable by either party on sixty days'
written notice to the other. The Administration Agreement provides that in the
absence of willful misfeasance, bad faith or gross negligence on the part of SC
(US) Management, or of reckless disregard of its obligations thereunder, SC (US)
Management shall not be liable for any action or failure to act in accordance
with its duties thereunder.
DISTRIBUTION AND SERVICING PLANS
As described in the Prospectus, SC-US adopted Distribution and Servicing
Plans with respect to the Class I and Class R shares ("Plans") pursuant to Rule
12b-1 under the 1940 Act, effective December 16, 1997. See "Distribution and
Servicing Plan" in each Prospectus. The Plans have been approved by a vote of
the Board of Directors with respect to the Class I and the Class R shares,
including a majority of the Directors who are not interested persons of SC-US
and have no direct or indirect financial interest in the operation of the Plan
("disinterested Directors"), cast in person at a meeting called for the purposes
of voting on the Plan. The annual compensation payable by SC-US to Security
Capital Markets Group Incorporated ("Distributor") under each Plan is an amount
equal to .25% (on an annual basis) of the value of the average daily net assets
of the class of shares to which the Plan relates.
Under the Plans, SC-US is authorized to pay a distribution fee for
distribution activities in connection with the sale of shares and a service fee
for services provided which are necessary for the maintenance of shareholder
accounts. To the extent such fee exceeds the expenses of these distribution and
shareholder servicing activities, the
13
<PAGE>
Distributor may retain such excess as compensation for its services and may
realize a profit from these arrangements.
The Plans are compensation plans which provide for the payment of a
specified distribution and service fee without regard to the distribution and
service expenses actually incurred by the Distributor with respect to one share.
If the Plans were to be terminated by the Board of Directors and no successor
Plans were to be adopted, the Directors would cease to make distribution and
service payments to the Distributor and the Distributor would be unable to
recover the amount of any of its unreimbursed distribution expenditures.
However, the Distributor does not intend to incur distribution and service
expenses at a rate that materially exceeds the rate of compensation received
under the Plan.
The types of expenses for which the Distributor and third parties may be
compensated under the Plans include compensation paid to and expenses incurred
by their officers, employees and sales representatives, allocable overhead,
telephone and travel expenses, the printing of prospectuses and reports for
other than existing shareholders, preparation and distribution of sales
literature, advertising of any type and all other expenses incurred in
connection with activities primarily intended to result in the sale of shares.
Additional types of expenses covered by the Plans include responding to
shareholder inquiries and providing shareholders with information on their
investments. For the period December 16, 1997 through December 31, 1997, the
Distributor earned $12,396 for providing services under the Class I Plan and
$67.00 for providing services under the Class R Plan.
Under the Plans, the Distributor will provide to the Board of Directors for
its review, and the Board will review at least quarterly, a written report of
the services provided and amounts expended by the Distributor under the Plans
and the purposes for which such services were performed and expenditures were
made.
The Plans were approved by the Board of Directors, including the
disinterested Directors, on November 25, 1998 and by SC-US's Class I and Class R
shareholders on December 12, 1997. The Plans remain in effect from year to year,
provided such continuance is approved annually by a vote of the Board of
Directors, including a majority of the disinterested Directors. The Plans may
not be amended to increase materially the amount to be spent for the services
described therein as to the Class I and/or Class R shares without approval of a
majority of the outstanding Class I and/or Class R shares. All material
amendments of the Plan must also be approved by the Board of Directors in the
manner described above. The Plans may be terminated at any time without payment
of any penalty by a vote of a majority of the disinterested Directors or by a
vote of a majority of the outstanding Class I and/or Class R shares. So long as
a Plan is in effect, the selection and nomination of disinterested Directors
shall be committed to the discretion of the disinterested Directors. The Board
of Directors has determined that in their judgment there is a reasonable
likelihood that the Plans will benefit SC-US and the holders of its Class I and
Class R shares.
DETERMINATION OF NET ASSET VALUE
Net asset value per share for each class of shares is determined by SC-US on
each day the New York Stock Exchange is open for trading, and on any other day
during which there is a sufficient degree of trading in the investments of SC-US
to affect materially the Fund's net asset value. The New York Stock Exchange is
closed on Saturdays, Sundays, and on New Year's Day, Presidents' Day (the third
Monday in February), Good Friday, Memorial Day (the last Monday in May),
Independence Day, Labor Day (the first Monday in September), Thanksgiving Day
and Christmas Day (collectively, the "Holidays"). When any Holiday falls on a
Saturday, the Exchange is closed the preceding Friday, and when any Holiday
falls on a Sunday, the Exchange is closed the following Monday. No redemptions
will be made on Martin Luther King Day (the third Monday in January), Columbus
Day (the second Monday in October) and Veteran's Day, nor on any of the
Holidays.
Net asset value per share for each class is determined by adding the market
value of all securities in SC-US's portfolio and other assets represented by a
class, subtracting liabilities incurred or accrued that are allocable to the
class, and dividing by the total number shares of that class then outstanding.
Because of the differences in operating expenses incurred by each class, the per
share net asset value of each class will differ.
14
<PAGE>
For purposes of determining SC-US's net asset value per share for each
class, all assets and liabilities initially expressed in foreign currencies will
be converted into U.S. dollars at the mean of the bid and asked prices of such
currencies against the U.S. dollar last quoted by a major bank which is a
regular participant in the institutional foreign exchange markets or on the
basis of a pricing service which takes into account the quotes provided by a
number of such major banks.
REDEMPTION OF SHARES
Payment of the redemption price for shares redeemed may be made either in
cash or in portfolio securities (selected in the discretion of SC-US's Board of
Directors and taken at their value used in determining SC-US's net asset value
per share as described in the Prospectus under "Determination of Net Asset
Value"), or partly in cash and partly in portfolio securities. However, payments
will be made wholly in cash unless SC-US's Board of Directors believes that
economic conditions exist which would make such a practice detrimental to the
best interests of SC-US. If payment for shares redeemed is made wholly or partly
in portfolio securities, brokerage costs may be incurred by the investor in
converting the securities to cash. SC-US will not distribute in kind portfolio
securities that are not readily marketable.
SC-US has elected to be governed by Rule 18f-1 under the 1940 Act, which
obligates SC-US to redeem shares in cash, with respect to any one shareholder
during any 90-day period, up to the lesser of $250,000 or 1% of the net assets
of SC-US at the beginning of such period. Although redemptions in excess of this
limitation would normally be paid in cash, SC-US reserves the right to make
payments in whole or in part in securities or other assets in case of an
emergency, or if the payment of redemption in cash would be detrimental to the
existing shareholders of SC-US as determined by the board of directors. In such
circumstances, the securities distributed would be valued as set forth in the
Prospectus. Should SC-US distribute securities, a shareholder may incur
brokerage fees or other transaction costs in converting the securities to cash.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to the supervision of the Directors, decisions to buy and sell
securities for SC-US and negotiation of its brokerage commission rates are made
by SC (US) Management. Transactions on U.S. stock exchanges involve the payment
by SC-US of negotiated brokerage commissions. There is generally no stated
commission in the case of securities traded in the over-the-counter market but
the price paid by SC-US usually includes an undisclosed dealer commission or
mark-up. In certain instances, SC-US may make purchases of underwritten issues
at prices which include underwriting fees.
In selecting a broker to execute each particular transaction, SC (US)
Management will take the following into consideration: the best net price
available; the reliability, integrity and financial condition of the broker; the
size and difficulty in executing the order; and the value of the expected
contribution of the broker to the investment performance of SC-US on a
continuing basis. Accordingly, the cost of the brokerage commissions to SC-US in
any transaction may be greater than that available from other brokers if the
difference is reasonably justified by other aspects of the portfolio execution
services offered. Subject to such policies and procedures as the Directors may
determine, SC (US) Management shall not be deemed to have acted unlawfully or to
have breached any duty solely by reason of it having caused SC-US to pay a
broker that provides research services to SC (US) Management an amount of
commission for effecting a portfolio investment transaction in excess of the
amount of commission another broker would have charged for effecting that
transaction, if SC (US) Management determines in good faith that such amount of
commission was reasonable in relation to the value of the research service
provided by such broker viewed in terms of either that particular transaction or
SC (US) Management's ongoing responsibilities with respect to SC-US. Research
and investment information is provided by these and other brokers at no cost to
SC (US) Management and is available for the benefit of other accounts advised by
SC (US) Management and its affiliates, and not all of the information will be
used in connection with SC-US. While this information may be useful in varying
degrees and may tend to reduce SC (US) Management's expenses, it is not possible
to estimate its value and
15
<PAGE>
in the opinion of SC (US) Management it does not reduce SC (US) Management's
expenses in a determinable amount. The extent to which SC (US) Management makes
use of statistical, research and other services furnished by brokers is
considered by SC (US) Management in the allocation of brokerage business but
there is no formula by which such business is allocated. SC (US) Management does
so in accordance with its judgment of the best interests of SC-US and its
shareholders. SC (US) Management may also take into account payments made by
brokers effecting transactions for SC-US to other persons on behalf of SC-US for
services provided to it for which it would be obligated to pay (such as
custodial and professional fees). In addition, consistent with the Rules of Fair
Practice of the National Association of Securities Dealers, Inc., and subject to
seeking best price and execution, SC (US) Management may consider sales of
shares of SC-US as a factor in the selection of brokers and dealers to enter
into portfolio transactions with SC-US.
TAXATION
TAXATION OF SC-US
SC-US intends to qualify annually and to elect to be treated as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code").
To qualify as a regulated investment company, SC-US must, among other
things: (a) derive in each taxable year at least 90% of its gross income from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of stock, securities or foreign currencies or
other income derived with respect to its business of investing in such stock,
securities or currencies; (b) prior to January 1, 1998, derive less than 30% of
its gross income from the sale or other disposition of certain assets (namely,
(i) stock or securities, (ii) options, futures, and forward contracts (other
than those on foreign currencies), and (iii) foreign currencies (including
options, futures, and forward contracts on such currencies) not directly related
to SC- US's principal business of investing in stock or securities (or options
and futures with respect to stocks or securities)) held less than 3 months for
the year ending December 31, 1997; (c) diversify its holdings so that, at the
end of each quarter of the taxable year, (i) at least 50% of the market value of
SC-US's assets is represented by cash and cash items (including receivables),
U.S. Government securities, the securities of other regulated investment
companies and other securities, with such other securities of any one issuer
limited for the purposes of this calculation to an amount not greater than 5% of
the value of SC-US's total assets and not greater than 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
total assets is invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment
companies); and (d) distribute at least 90% of its investment company taxable
income (which includes, among other items, dividends, interest and net short-
term capital gains in excess of net long-term capital losses) each taxable year.
As a regulated investment company, SC-US generally will not be subject to
U.S. federal income tax on its investment company taxable income and net capital
gains (the excess of net long-term capital gains over net short-term capital
losses), if any, that it distributes to shareholders. SC-US intends to
distribute to its shareholders, at least annually, substantially all of its
investment company taxable income and net capital gains. Amounts not distributed
on a timely basis in accordance with a calendar year distribution requirement
are subject to a nondeductible 4% excise tax. To prevent imposition of the
excise tax, SC-US must distribute during each calendar year an amount equal to
the sum of (1) at least 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year, (2) at least 98% of its capital
gains in excess of its capital losses (adjusted for certain ordinary losses) for
the one-year period ending on October 31 of the calendar year, and (3) any
ordinary income and capital gains for previous years that was not distributed
during those years. A distribution will be treated as paid on December 31 of the
current calendar year if it is declared by SC-US in October, November or
December with a record date in such a month and paid by SC-US during January of
the following calendar year. Such distributions will be taxable to shareholders
in the calendar year in which the distributions are declared, rather than the
calendar year in which the distributions are received. To prevent application of
the excise tax, SC-US intends to make its distributions in accordance with the
calendar year distribution requirement.
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<PAGE>
DISTRIBUTIONS
Dividends paid out of SC-US's investment company taxable income will be
taxable to a U.S. shareholder as ordinary income. Because a portion of SC-US's
income may consist of dividends paid by U.S. corporations, a portion of the
dividends paid by SC-US may be eligible for the corporate dividends-received
deduction. Dividends paid by SC-US attributable to dividends received by SC-US
from REITs, however, are not eligible for such deduction. Distributions of net
capital gains, if any, designated as capital gain dividends are taxable as
long-term capital gains, regardless of how long the shareholder has held SC-US's
shares, and are not eligible for the dividends-received deduction. Shareholders
receiving distributions in the form of additional shares, rather than cash,
generally will have taxable income from the receipt of, and a cost basis in,
each such share equal to the net asset value of a share of SC-US on the
reinvestment date. Shareholders will be notified annually as to the U.S. federal
tax status of distributions, and shareholders receiving distributions in the
form of additional shares will receive a report as to the net asset value of
those shares.
The recently enacted Taxpayer Relief Act of 1997 (the "Taxpayer Relief Act")
made certain changes to the Code with respect to taxation of long-term capital
gains earned by taxpayers other than a corporation. In general and subject to
certain transition rules, the maximum tax rate for individual taxpayers on net
long-term capital gains (i.e., the excess of net long-term capital gain over net
short-term capital loss) is lowered to 20% for most assets held for more than 18
months at the time of disposition. Capital gains on the disposition of assets
held for more than one year and up to 18 months at the time of disposition will
be taxed as "mid-term gain" at a maximum rate of 28%. A lower rate of 18% will
apply after December 31, 2000 for assets held for more than 5 years. However,
the 18% rate applies only to assets acquired after December 31, 2000 unless the
taxpayer elects to treat an asset held prior to such date as sold for fair
market value on January 1, 2001. In the case of individuals whose ordinary
income is taxed at a 15% rate, the 20% rate for assets held for more than 18
months is reduced to 10% and the 18% rate for assets held for more than 5 years
is reduced to 8%. According to a notice recently issued by the Internal Revenue
Service, a regulated investment company such as SC-US is entitled to (but is not
required to) designate which portion of a capital gain distribution will be
taxed at a maximum rate of 20% and which portion will be taxed at a maximum rate
of 28%. If SC-US does not make such a designation, the capital gain will be
taxed at a maximum rate of 28%.
The portion of a SC-US distribution classified as a return of capital
generally is not taxable to SC-US shareholders, but it will reduce their tax
basis in their shares, which in turn would effect the amount of gain or loss
shareholders would realize on the sale or redemption of their shares. If a
return of capital distribution exceeds a shareholder's tax basis in his shares,
the excess is generally taxed as capital gain to the shareholder assuming the
shares are a capital asset.
REITs do not provide complete information about the taxability of their
distributions (i.e., how much of their distributions represent a return of
capital) until after the calendar year ends. As a result, SC-US may not be able
to determine how much of SC-US's annual distributions for a particular year are
taxable to shareholders until after the traditional January 31 deadline for
issuing Form 1099-DIV ("Form 1099"). SC-US in such circumstance may send to
shareholders amended Form 1099s after January 31 or may request permission from
the Internal Revenue Service for an extension permitting SC-US to send the Form
1099 in February.
SALE OF SHARES
Upon the sale or other disposition of shares of SC-US, a shareholder may
realize a capital gain or loss which will be long-term, mid-term or short-term,
generally depending upon the shareholder's holding period for the shares. Any
loss realized on a sale or exchange will be disallowed to the extent the shares
disposed of are replaced within a period of 61 days beginning 30 days before and
ending 30 days after disposition of the shares. In such a case, the basis of the
shares acquired will be adjusted to reflect the disallowed loss. Any loss
realized by a shareholder on a disposition of SC-US shares held by the
shareholder for six months or less will be treated as a long-term capital loss
to the extent of any distributions of net capital gains received by the
shareholder with respect to such shares.
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<PAGE>
INVESTMENTS IN REAL ESTATE INVESTMENT TRUSTS
SC-US may invest in real estate investment trusts ("REITs") that hold
residual interests in real estate mortgage investment conduits ("REMICs"). Under
Treasury regulations that have not yet been issued, but may apply retroactively,
a portion of SC-US's income from a REIT that is attributable to the REIT's
residual interest in a REMIC (referred to in the Code as an "excess inclusion")
will be subject to federal income tax in all events. These regulations are also
expected to provide that excess inclusion income of a regulated investment
company, such as SC-US, will be allocated to shareholders of the regulated
investment company in proportion to the dividends received by such shareholders,
with the same consequences as if the shareholders held the related REMIC
residual interest directly. In general, excess inclusion income allocated to
shareholders (i) cannot be offset by net operating losses (subject to a limited
exception for certain thrift institutions), (ii) will constitute unrelated
business taxable income to entities (including a qualified pension plan, an
individual retirement account, a 401(k) plan, a Keogh plan or other tax-exempt
entity) subject to tax on unrelated business income, thereby potentially
requiring such an entity that is allocated excess inclusion income, and
otherwise might not be required to file a tax return, to file a tax return and
pay tax on such income, and (iii) in the case of a foreign shareholder, will not
qualify for any reduction in U.S. federal withholding tax. In addition, if at
any time during any taxable year a "disqualified organization" (as defined in
the Code) is a record holder of a share in a regulated investment company, then
the regulated investment company will be subject to a tax equal to that portion
of its excess inclusion income for the taxable year that is allocable to the
disqualified organization, multiplied by the highest federal income tax rate
imposed on corporations. SC (US) Management does not intend on behalf of SC-US
to invest in REITs, a substantial portion of the assets of which consists of
residual interests in REMICs.
BACKUP WITHHOLDING
Except as described below, SC-US is required to withhold U.S. federal income
tax at the rate of 31% of all taxable distributions payable to shareholders who
fail to provide SC-US with their correct taxpayer identification number or to
make required certifications, or who have been notified by the IRS that they are
subject to backup withholding. Corporate shareholders and certain other
shareholders specified in the Code generally are exempt from such backup
withholding. Backup withholding is not an additional tax. Any amounts withheld
may be credited against the shareholder's U.S. federal income tax liability.
FOREIGN SHAREHOLDERS
U.S. taxation of a shareholder who, as to the United States, is a
nonresident alien individual, a foreign trust or estate, a foreign corporation
or foreign partnership ("foreign shareholder") depends on whether the income of
SC-US is "effectively connected" with a U.S. trade or business carried on by the
shareholder.
Income Not Effectively Connected. If the income from SC-US is not
"effectively connected" with a U.S. trade or business carried on by the foreign
shareholder, distributions of investment company taxable income will be subject
to a U.S. withholding tax of 30% (or lower treaty rate, except in the case of
any excess inclusion income allocated to the shareholder (see
"Taxation--Investments in Real Estate Investment Trusts," above)), which tax is
generally withheld from such distributions.
Distributions of capital gain dividends and any amounts retained by SC-US
which are designated as undistributed capital gains will not be subject to U.S.
withholding tax at the rate of 30% (or lower treaty rate) unless the foreign
shareholder is a nonresident alien individual and is physically present in the
United States for more than 182 days during the taxable year and meets certain
other requirements. However, this 30% withholding tax on capital gains of
nonresident alien individuals who are physically present in the United States
for more than the 182-day period only applies in exceptional cases because any
individual present in the United States for more than 182 days during the
taxable year is generally treated as a resident for U.S. income tax purposes; in
that case, he or she would be
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<PAGE>
subject to U.S. income tax on his or her worldwide income at the graduated rates
applicable to U.S. citizens, rather than the 30% U.S. withholding tax. In the
case of a foreign shareholder who is a nonresident alien individual, SC- US may
be required to withhold U.S. income tax at a rate of 31% of distributions of net
capital gains unless the foreign shareholder certifies his or her non-U.S.
status under penalties of perjury or otherwise establishes an exemption. See
"Taxation--Backup Withholding," above. If a foreign shareholder is a nonresident
alien individual, any gain such shareholder realizes upon the sale or exchange
of such shareholder's shares of SC-US in the United States will ordinarily be
exempt from U.S. tax unless (i) the gain is U.S. source income and such
shareholder is physically present in the United States for more than 182 days
during the taxable year and meets certain other requirements, or is otherwise
considered to be a resident alien of the United States, or (ii) at any time
during the shorter of the period during which the foreign shareholder held
shares of SC-US and the five year period ending on the date of the disposition
of those shares, SC-US was a "U.S. real property holding corporation" (and, if
the shares of SC-US are regularly traded on an established securities market,
the foreign shareholder held more than 5% of the shares of SC-US), in which
event the gain would be taxed in the same manner as for a U.S. shareholder as
discussed above and a 10% U.S. withholding tax would be imposed on the amount
realized on the disposition of such shares to be credited against the foreign
shareholder's U.S. income tax liability on such disposition. A corporation is a
"U.S. real property holding corporation" if the fair market value of its U.S.
real property interests equals or exceeds 50% of the fair market value of such
interests plus its interests in real property located outside the United States
plus any other assets used or held for use in a business. In the case of SC-US,
U.S. real property interests include interests in stock in U.S. real property
holding corporations (other than stock of a REIT controlled by U.S. persons and
holdings of 5% or less in the stock of publicly traded U.S. real property
holding corporations) and certain participating debt securities. SC-US does not
expect to be treated as a U.S. real property corporation under these rules, but
no assurances can be given.
Income Effectively Connected. If the income from SC-US is "effectively
connected" with a U.S. trade or business carried on by a foreign shareholder,
then distributions of investment company taxable income and capital gain
dividends, any amounts retained by SC-US which are designated as undistributed
capital gains and any gains realized upon the sale or exchange of shares of
SC-US will be subject to U.S. income tax at the graduated rates applicable to
U.S. citizens, residents and domestic corporations. Foreign corporate
shareholders may also be subject to the branch profits tax imposed by the Code.
The tax consequences to a foreign shareholder entitled to claim the benefits
of an applicable tax treaty may differ from those described herein. Foreign
shareholders are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in SC-US.
OTHER TAXATION
SC-US shareholders may be subject to state, local and foreign taxes on their
SC-US distributions. Shareholders are advised to consult their own tax advisers
with respect to the particular state and local tax consequences to them of an
investment in SC-US.
ORGANIZATION AND DESCRIPTION OF CAPITAL STOCK
Security Capital Employee REIT Fund Incorporated was incorporated under
Maryland law as SCERF Incorporated ("SCERF"), a wholly-owned subsidiary of
Security Capital Group Incorporated, on December 20, 1996. On January 23, 1997,
all the assets and liabilities of SCERF were transferred to Security Capital
REIT Fund Incorporated in a reorganization transaction. On December 16, 1997 its
name was changed to Security Capital U.S. Real Estate Shares Incorporated.
SC-US is authorized to issue 50,000,000 shares of common stock, $.01 par
value per share (the "Common Stock"). SC-US's shares have no preemptive,
conversion, exchange or redemption rights. Each share has equal voting,
dividend, distribution and liquidation rights. All shares of SC- US, when duly
issued, are fully paid and
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<PAGE>
nonassessable. Shareholders are entitled to one vote per share. All voting
rights for the election of Directors are noncumulative, which means that the
holders of more than 50% of the shares can elect 100% of the Directors then
nominated for election if they choose to do so and, in such event, the holders
of the remaining shares will not be able to elect any Directors. The foregoing
description is subject to the provisions contained in SC-US's Articles of
Incorporation and By-Laws which have been filed with the SEC as exhibits to the
registration statement of which this Statement of Additional Information is a
part.
The Board of Directors is authorized to reclassify and issue any unissued
shares of SC-US without shareholder approval and create additional series of
shares with different investment objectives, policies or restrictions. On
November 25, 1997, the Board of Directors adopted a Multiple Class Plan ("Plan")
under Rule 18f-3 of the Investment Company Act of 1940, as amended, authorizing
SC-US to issue two classes of shares: Class I shares and Class R shares. In
accordance with the Plan, Class I shares are offered to investors whose initial
minimum investment is $250,000 and Class R shares are available for purchase by
all other eligible investors. Class I shares and Class R shares offer different
services to shareholders and incur different expenses. Each class pays its
proportionate share of SC-US expenses.
At March 31, 1998, there were 9,755,880.323 Class I shares and 56,233.588
Class R shares outstanding. At such date the Directors and officers as a group
beneficially owned, directly or indirectly, including the power to vote or to
dispose of, less than 1% of the issued and outstanding shares of SC-US. Also as
of that date, the following persons owned of record 5% or more of SC-US's
outstanding shares:
<TABLE>
<CAPTION>
Name and Address of Amount and Nature
Title of Class Beneficial Owner of Beneficial Ownership Percent of Class
- -------------- ------------------- ----------------------- ----------------
<S> <C> <C> <C>
Class I SCREALTY Incorporated 9,646,032.884 98.54%
3753 Howard Hughes Parkway
Las Vegas, Nevada 89109-0952
Class R Charles Schwab & Co. Inc. 138,989.688 69.29%
101 Montgomery Street
San Francisco, California 94104-4122
Class R Dennis G. Lopez 20,116.795 10.03%
117 Beekman Street, 4E
New York, New York 10038-2001
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Name and Address of Amount and Nature
Title of Class Beneficial Owner of Beneficial Ownership Percent of Class
- -------------- ------------------- ----------------------- ----------------
<S> <C> <C> <C>
Class R Directors, Nominees and 12,093.258 6.03%
Executive Officers as a Group*/
--
</TABLE>
- --------------
(*) Anthony R. Manno Jr., Director, Chairman of the Board and President,
beneficially owns 4,863.813 Class R shares, John H. Gardner, Jr., Director,
beneficially owns 1,835.622 Class R shares, Jeffrey C. Nellessen, Vice
President, Secretary and Treasurer beneficially owns 1,135.228 Class R
shares and Kevin W. Bedell, Senior Vice President beneficially owns
4,258.595 Class R shares.
As of December 31, 1997, SCREALTY Incorporated owned 96.56% of the total
issued and outstanding shares of SC-US, which means that SCREALTY Incorporated
controls SC-US for purposes of the 1940 Act. The effect of SCREALTY
Incorporated's ownership of a controlling interest in SC-US is to dilute the
voting power of other SC-US shareholders.
DISTRIBUTOR
Security Capital Markets Group Incorporated, an affiliate of SC (US)
Management, serves as the distributor of SC-US's Class I shares and Class R
shares pursuant to a Distribution and Servicing Agreement dated December 16,
1997 ("Agreement"). The Distributor is not obligated to sell any specific amount
of shares and will sell shares, as agent for SC-US, on a best efforts continuous
basis only against orders to purchase shares.
The Agreement was approved by the Board of Directors, including a majority
of the disinterested Directors on November 25, 1997.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
Firstar Trust Company which has its principal business at 615 East Michigan
Street, Milwaukee, Wisconsin 53202 has been retained to act as Custodian of
SC-US's investments and as SC-US's transfer and dividend disbursing agent.
Firstar Trust Company does not determine the investment policies of SC-US or
decide which securities SC-US will buy or sell.
PERFORMANCE INFORMATION
From time to time, SC-US may quote SC-US's total return in advertisements
or in reports and other communications to shareholders. SC-US's performance will
vary from time to time depending upon market conditions, the composition of its
portfolio and its operating expenses. Consequently, any given performance
quotation should not be considered representative of SC- US's performance for
any specified period in the future. In addition, because performance will
fluctuate, it may not provide a basis for comparing an investment in SC-US with
certain bank deposits or other investments that pay a fixed yield for a stated
period of time. Investors comparing SC-US's performance with that of other
mutual funds should give consideration to the quality and maturity of the
respective investment companies' portfolio securities.
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<PAGE>
AVERAGE ANNUAL TOTAL RETURN
SC-US's "average annual total return" figures described in the Prospectus
are computed according to a formula. The formula can be expressed as follows:
P(1 + T)/n/ = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = Ending Redeemable Value of a hypothetical $1,000 investment
made at the beginning of a 1-, 5-, or 10-year period at the
end of a 1-, 5-, or 10-year period (or fractional portion
thereof), assuming reinvestment of all dividends and
distributions.
AGGREGATE TOTAL RETURNS
SC-US's aggregate total return figures described in the Prospectus represent
the cumulative change in the value of an investment in SC-US for the specified
period and are computed by the following formula.
Aggregate Total Return = (ERV-P)
------
P
Where: P = a hypothetical initial payment of $1,000.
ERV = Ending Redeemable Value of a hypothetical $1,000 investment
made at the beginning of the 1-, 5- or 10-year period at the
end of the 1-, 5- or 10-year period (or fractional portion
thereof), assuming reinvestment of all dividends and
distributions.
YIELD
Quotations of yield for SC-US will be based on all investment income per
share earned during a particular 30-day period (including dividends and
interest), less expenses accrued during the period ("net investment income") and
are computed by dividing net investment income by the maximum offering price per
share on the last day of the period, according to the following formula:
Yield = 2[(a-b + 1)/6/-1]
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = the maximum offering price per share on the last day of the
period.
In reports or other communications to shareholders of SC-US or in
advertising materials, SC- US may compare its performance with that of (i) other
mutual funds listed in the rankings prepared by Lipper Analytical Services,
Inc., publications such as Barron's, Business Week, Forbes, Fortune,
Institutional Investor, Kiplinger's Personal Finance, Money, Morningstar Mutual
Fund Values, The New York Times, The Wall Street Journal and USA Today or other
industry or financial publications or (ii) the Standard and Poor's Index of 500
Stocks, the Dow Jones Industrial Average and other relevant indices and industry
publications. SC-US may also compare the historical volatility of its portfolio
to the volatility of such indices during the same time periods. (Volatility is a
generally accepted
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<PAGE>
barometer of the market risk associated with a portfolio of securities and is
generally measured in comparison to the stock market as a whole--the beta--or in
absolute terms--the standard deviation.)
COUNSEL AND INDEPENDENT ACCOUNTANTS
Legal matters in connection with the issuance of the shares of SC-US offered
hereby will be passed upon by Mayer, Brown & Platt, 2000 Pennsylvania Ave., NW,
Washington, DC, 20006, which will rely as to certain matters of Maryland law on
Ballard Spahr Andrews & Ingersoll, LLP, Baltimore, Maryland.
Arthur Andersen LLP has been appointed as independent accountants for SC-US.
FINANCIAL STATEMENTS
The audited Financial Statements of Security Capital Employee REIT Fund
Incorporated for the period January 1, 1997 through December 31, 1997, are
included herein.
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<PAGE>
SECURITY CAPITAL U.S. REAL ESTATE SHARES INCORPORATED
SCHEDULE OF INVESTMENTS -- DECEMBER 31, 1997
================================================================================
<TABLE>
<CAPTION>
<S> <C> <C>
Shares Market Value
COMMON STOCK -- REAL ESTATE INVESTMENT TRUSTS (REITs) -- 96.7%
Office Properties -- 26.9%
589,240 Equity office Properties Trust $ 18,597,878
140,000 Prentiss Properties Trust 3,911,250
67,900 Crescent Real Estate Equities Company 2,673,563
80,300 Boston Properties, Inc. 2,654,919
65,000 Cornerstone Properties, Inc. 1,247,187
52,500 Cadillac Fairview Corporation # 1,233,750
28,400 Mack-Cali Realty Corporation 1,164,400
-------------
31,482,947
Multifamily -- 20.8%
187,700 Apartment Investment & Management Company 6,897,975
150,000 Essex Property Trust, Inc. 5,250,000
145,100 Charles E. Smith Residential Realty, Inc. 5,151,050
95,300 Equity Residential Properties Trust 4,818,606
57,000 Bay Apartment Communities, Inc. 2,223,000
-------------
24,340,631
</TABLE>
24
<PAGE>
<TABLE>
<S> <C> <C>
Hotel -- 14.9%
312,500 Innkeepers USA Trust 4,843,750
115,000 FelCor Suite Hotels, Inc. 4,082,500
40,000 ITT Corporation # 3,315,000
125,000 WHG Resorts & Casinos Inc. # 2,781,250
61,000 Capstar Hotel Company # 2,093,062
22,200 Homestead Village, Inc. # + 334,388
----------
17,449,950
</TABLE>
See notes to the financial statements.
25
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
Shares Market Value
<S> <C>
Storage -- 10.9%
323,200 Public Storage, Inc. $ 9,494,000
100,500 Storage Trust Realty 2,644,406
23,200 Shurgard Storage Centers, Inc. 672,800
------------
12,811,206
Regional Malls -- 8.0%
136,000 Urban Shopping Centers, Inc. 4,743,000
164,100 The Macerich Company 4,676,850
------------
9,419,850
Industrial -- 7.4%
163,000 Pacific Gulf Properties, Inc. 3,871,250
91,500 Liberty Property Trust 2,613,469
110,000 Catellus Development Corporation # 2,200,000
------------
8,684,719
Shopping Centers -- 5.5%
125,000 Developers Diversified Realty Corporation 4,781,250
46,500 Kimco Realty Corporation 1,639,125
------------
6,420,375
Factory Outlets -- 2.3%
70,000 Chelsea GCA Realty, Inc. 2,673,125
</TABLE>
26
<PAGE>
<TABLE>
<S> <C>
Total Common Stock-- Real Estate Investment
Trusts (REITs) (Cost $100,097,665) 113,282,803
</TABLE>
See notes to the financial statements.
27
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Principal Amount
<TABLE>
<S> <C> <C>
SHORT-TERM INVESTMENTS -- 0.3%
Variable Rate Demand Notes* -- 0.3%
$135,576 Warner-Lambert Co., 5.4890% $ 135,576
134,756 Johnson Controls, Inc. 5.3276% 134,756
120,436 General Mills, Inc., 5.3277% 120,436
5,138 Pitney Bowes, Inc., 5.3276% 5,138
------------
Total Short-Term Investments
(Cost $395,906) 395,906
------------
Total Investments-- 97.0% 113,678,709
(Cost $100,493,571)
Other Assets in Excess of
Liabilities -- 3.0% 3,553,475
============
NET ASSETS 100.0% $117,232,184
============
</TABLE>
28
<PAGE>
* Variable rate demand notes are considered short-term obligations and are
payable on demand. Interest rates change periodically on specified dates.
The rates listed are as of December 31, 1997.
# Non-income producing security.
+ An affiliate of the Fund.
See notes to the financial statements.
29
<PAGE>
SECURITY CAPITAL U.S. REAL ESTATE SHARES INCORPORATED
STATEMENT OF ASSETS AND LIABILITIES -- DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at market value
(cost $100,493,571) $113,678,709
Deferred organization costs 95,914
Receivable for investment securities sold 3,564,588
Dividends receivable 505,998
Interest receivable 18,954
Other assets 21,560
-------------
Total Assets $117,885,723
-------------
LIABILITIES:
Payable for investment securities purchased 479,854
Payable to investment adviser 64,882
Accrued expenses and other liabilities 108,803
-------------
Total Liabilities 653,539
-------------
NET ASSETS $117,232,184
NET ASSETS CONSIST OF:
Capital stock $101,731,755
Accumulated undistributed net realized
gain on investments 2,315,291
Net unrealized appreciation on investments 13,185,138
-------------
Total Net Assets $117,232,184
=============
CLASS I:
Net assets $116,560,328
Shares outstanding (50,000,000 shares
of $0.01 par value authorized) 9,755,880
Net asset value and redemption price
per share $11.95
CLASS R:
Net assets $671,856
Shares outstanding (50,000,000 shares
of $0.01 par value authorized) 56,234
Net asset value and redemption
price per share $11.95
</TABLE>
See notes to the financial statements.
30
<PAGE>
SECURITY CAPITAL U.S. REAL ESTATE SHARES INCORPORATED
STATEMENT OF OPERATIONS -- DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividend income $4,729,653
Interest income 141,838
-----------
Total investment income 4,871,491
===========
EXPENSES:
Investment advisory fee 652,224
Administration fee 65,044
Shareholder servicing and accounting costs 43,220
Custody fees 19,550
Federal and state registration 39,320
Professional fees 47,419
Reports to shareholders 10,140
Directors' fees and expenses 17,940
Amortization of organization costs 22,185
Distribution Expense-- Class I 12,396
Distribution Expense-- Class R 67
Other 2,640
-----------
Total expenses before reimbursement 932,145
Less: Reimbursement from Adviser-- Class I (30,276)
Less: Reimbursement from Adviser-- Class R (167)
-----------
Net expenses 901,702
-----------
NET INVESTMENT INCOME: 3,969,789
===========
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net realized gain on investments 8,063,795
Change in unrealized appreciation on investments 12,889,384
-----------
Net realized and unrealized gain on investments 20,953,179
===========
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $24,922,968
===========
</TABLE>
See notes to the financial statements.
31
<PAGE>
SECURITY CAPITAL U.S. REAL ESTATE SHARES INCORPORATED
STATEMENTS OF CHANGES IN NET ASSETS -- DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year December 20, 1996(1)
ended through
December 31, 1997 December 31, 1996
<S> <C> <C>
OPERATIONS:
Net investment income $3,969,789 $24,188
Net realized gain on investments 8,063,795 0
Change in unrealized appreciation
on investments 12,889,384 295,754
------------------------ ----------------------
Net increase in net assets resulting
from operations 24,922,968 319,942
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 92,737,305 9,926,736
Shares issued to holders in reinvestment --
of dividends 2,632,946
Cost of shares redeemed (3,558,444) --
------------------------ ----------------------
Net increase in net assets from capital 91,811,807 9,926,736
share transactions
DISTRIBUTIONS TO SHAREHOLDERS:/(2)/
From net investment income (3,626,176) --
DISTRIBUTIONS TO CLASS R
SHAREHOLDERS:/(2)/
</TABLE>
32
<PAGE>
<TABLE>
<S> <C> <C>
From net investment income (2,006) --
From net realized gains (31,388) --
------------------------ ----------------------
(33,394) --
DISTRIBUTIONS TO CLASS I
SHAREHOLDERS/(2)/
From net investment income (372,583) --
From net realized gains (5,717,116) --
------------------------ ----------------------
Subtotal (6,089,699) --
TOTAL INCREASE IN NET ASSETS 106,985,506 10,246,678
NET ASSETS:
Beginning of period 10,246,678 --
------------------------ ----------------------
End of period (including undistributed
net investment income of $0 and
$24,188, respectively) $117,232,184 $10,246,678
======================== ======================
</TABLE>
(1) Inception date.
(2) On December 16, 1997, the Fund's existing shareholders were split into
Class R and Class I shares based on the amount then invested in the Fund.
Distributions to shareholders from net investment income reflect activity
for the Fund for the period January 1, 1997 through December 16, 1997 and
for each respective class of shares for the period December 17, 1997
through December 31, 1997.
See notes to the financial statements.
SECURITY CAPITAL U.S. REAL ESTATE SHARES INCORPORATED
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended
December 31, 1997/(2)/ December 20, 1996/(1)/
-----------------------------------
through
Class I Class R December 31, 1996
------------------ --------------- ----------------------
<S> <C> <C> <C>
Per Share Data:
Net asset value, beginning of period $ 10.38 $10.38 $10.00
------------------ --------------- ----------------------
Income from investment operations:
Net investment income 0.46/(3)/ 0.46/(3)/ 0.02
Net realized and unrealized gain
on investments 2.11 2.11 0.36
------------------ --------------- ----------------------
Total from investment operations 2.57 2.57 0.38
------------------ --------------- ----------------------
Less distributions:
Dividends from net investment income (0.46) (0.46) --
Distributions from net realized gains (0.54) (0.54) --
------------------ --------------- ----------------------
Total distributions (1.00) (1.00) --
------------------ --------------- ----------------------
Net asset value, end of period $ 11.95 $ 11.95 $ 10.38
================ ============= ======================
Total return/(4)/ 25.20% 25.19% 3.77%
Supplemental data and ratios:
Net assets, end of period $116,560,328 $ 671,856 $10,246,678
------------------ --------------- ----------------------
Ratio of expenses to average net assets/(6)/ 0.94% 0.95% 0.00%
</TABLE>
33
<PAGE>
<TABLE>
<S> <C> <C> <C>
Ratio of net investment income to
average net assets/(5)//(6)/ 4.08% 4.07% 19.71%
Portfolio turnover rate/(7)/ 104.17% $ 104.17% 0.00%
Average commission rate paid per share (7) $ 0.0574 $ 0.0574 $ 0.0601
</TABLE>
(1) Inception date.
(2) On December 16, 1997, the Fund's existing shareholders were split into
Class R and Class I shares based on the amount then invested in the Fund.
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 the Fund'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 combined with the results of operations for each
applicable class for the period December 17, 1997 through December 31,
1997.
(3) Net investment income per share represents net investment income divided
by the average shares outstanding throughout the period.
(4) Not annualized for the period December 20, 1996 through December 31, 1996.
(5) Annualized for the period December 20, 1996 through December 31, 1996.
(6) Without expense reimbursements of $30,443 for the year ended December 31,
1997, the ratio of expenses to average net assets would have been 0.97%
and 0.98% for Class I and Class R, respectively, and the ratio of net
investment income to average net assets would have been 4.05% and 4.04%
for Class I and Class R, respectively.
(7) Portfolio turnover and average commission rate paid are calculated on the
basis of the Fund as a whole without distinguishing between the classes of
shares issued.
See notes to the financial statements.
SECURITY CAPITAL U.S. REAL ESTATE SHARES INCORPORATED
NOTES TO THE FINANCIAL STATEMENTS -- DECEMBER 31, 1997
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Security Capital U.S. Real Estate Shares Incorporated (the "Fund") is a Maryland
corporation, originally formed on December 20, 1996. The Fund is registered as a
non-diversified, no-load, open-end management investment company under the
Investment Company Act of 1940 (the "1940 Act"). The investment objective of the
Fund is to provide shareholders with above-average total returns, including
current income and capital appreciation, primarily through investments in real
estate securities in the United States. Long-term, the Fund'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.
34
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
The following is a summary of significant accounting policies consistently
followed by the Fund.
a) Investment Valuation -- Each day, securities are valued at the last sales
price from the principal exchange on which they are traded. Securities that have
not traded on the valuation date, or securities for which sales prices are not
generally reported, are valued at the mean between the last bid and asked
prices. Securities for which market quotations are not readily available are
valued at their fair values determined by, or under the direction of, the Board
of Directors. Temporary cash investments (those with remaining maturities of 60
days or less) are valued at amortized costs, which approximates market
value.
Because the Fund may invest a substantial portion of its assets in Real Estate
Investment Trusts ("REITs"), the Fund may be subject to certain risks associated
with direct investments in REITs. REITs may be affected by changes in the value
of their underlying properties and by defaults by borrowers and tenants. REITs
depend generally on their ability to generate cash flow to make distributions to
shareholders, and certain REITs have self-liquidation provisions by which
mortgages held may be paid in full and distributions of capital returns may be
made at any time.
b) Federal Income Taxes -- No provision for federal income taxes has been made
since the Fund has complied to date with the provisions of the Internal Revenue
Code available to regulated investment companies and intends to continue to so
comply in future years and to distribute investment company net taxable income
and net capital gains to shareholders.
c) Distributions to Shareholders -- Dividends from net investment income are
declared and paid quarterly. The Fund intends to distribute net realized capital
gains, if any, at least annually, although the Fund's Board of Directors may in
the future determine to retain realized capital gains and not distribute them to
shareholders.
Distributions will automatically be paid in full and fractional shares of the
Fund based on the net asset value per share at the close of business on the
payable date unless the shareholder has elected to have distributions paid in
cash.
The characterization of shareholder distributions for financial reporting
purposes is determined in accordance with income tax rules. Therefore, the
source of the Fund's distributions may be shown in the accompanying financial
statements as either from or in excess of net investment income or net realized
gain on investment transactions, or from paid-in-capital, depending on the type
of book/tax differences that may exist.
A portion of the dividend income recorded by the Fund is from distributions by
publicly traded REITs and such distributions for tax purposes may consist of
capital gains and return of capital. The actual return of capital and capital
gains portions of such distributions will be determined by formal notifications
from the REITs subsequent to the calendar year-end. Distributions received from
the REITs that are determined to be a return of capital are recorded by the Fund
as a reduction of the cost basis of the securities held. The character of such
distributions, for tax purposes, is determined by the Fund based on estimates
and information received by the Fund from the REITs.
35
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
d) Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
e) Other -- Investment and shareholder transactions are recorded on trade date.
The Fund determines the gain or loss realized from the investment transactions,
using the specific identification method for both financial reporting and
federal income tax purposes, by comparing the original cost of the security lot
sold with the net sales proceeds. It is the Fund's practice to first select for
sale those securities that have the highest cost and also qualify for long-term
capital gain or loss treatment for tax purposes. Dividend income is recognized
on the ex-dividend date or as soon as information is available to the Fund, and
interest income is recognized on an accrual basis. Generally accepted accounting
principles require that permanent financial reporting and tax differences be
reclassified to capital stock.
36
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
2. CAPITAL SHARE TRANSACTIONS
On December 16, 1997, the Fund's existing shareholders were split into Class R
and Class I shares based on the amount then invested in the Fund. Transactions
in shares of the Fund were as follows:
Period from 12/17/97 through 12/31/97:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amount Shares
----------------- ----------------
<S> <C> <C>
Class I Shares:
Reclassification of previous class $ 121,005,617 9,836,172
Shares sold -- --
Shares issued to holders in reinvestment of dividends 65,206 5,443
Shares redeemed (1,069,973) (85,735)
----------- --------
Net increase $ 120,000,850 9,755,880
----------------- ---------
Class R Shares:
Reclassification of previous class $ 658,057 53,492
Shares sold 2,500 208
Shares issued to holders in reinvestment of dividends 30,360 2,534
Shares redeemed
Net increase $ 690,917 56,234
======= ======
Period from 01/01/97 through 12/16/97:
- ------------------------------------------------------------- ----------------- ----------------
Amount Shares
----------------- ----------------
Previous Class:
</TABLE>
37
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Reclassification to Class I shares $ (121,005,617) (9,836,172)
Reclassification to Class R shares (658,057) (53,492)
Shares sold 92,734,805 8,890,183
Shares issued to holders in reinvestment of dividends 2,537,380 236,042
Shares redeemed (2,488,471) (223,984)
----------- ---------
Net (decrease) $ (28,879,960) (987,423)
----------------- ------------
Period from 12/20/96 through 12/31/96:
Shares sold $ 9,926,736 987,423
Shares issued to holders in reinvestment of dividends -- --
Shares redeemed
Net increase $ 9,926,736 987,423
------------------ -----------
</TABLE>
38
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of investments by the Fund for the year ended
December 31, 1997, were $177,958,403 and $95,319,551, respectively.
At December 31, 1997, gross unrealized appreciation and depreciation of
investments for tax purposes were as follows:
Appreciation $ 13,065,970
(Depreciation) (482,022)
---------
Net appreciation on investments $ 12,583,948
==========
At December 31, 1997, the cost of investments for federal income tax purposes
was $101,094,761.
4. INVESTMENT ADVISORY AND OTHER AGREEMENTS
The Fund has entered into an Investment Advisory Agreement with Security Capital
(US) Management Group Incorporated ("SC (US) Management"), formerly Security
Capital Investment Research Group Incorporated. Pursuant to its advisory
agreement with the Fund, the Investment Adviser is entitled to receive a fee,
calculated daily and payable monthly, at the annual rate of 0.60% as applied to
the Fund's daily net assets.
SC (US) Management voluntarily agrees to reimburse its management fee and other
expenses to the extent that total operating expenses (exclusive of interest,
taxes, brokerage commissions and other costs incurred in connection with the
purchase or sale of portfolio securities, and extraordinary items) exceed the
annual rate of 1.00% and 1.15% of the net assets of the Class I and Class R
Shares, respectively, computed on a daily basis, for the period December 17,
1997 through December 31, 1997. SC (US) Management had voluntarily agreed to
reimburse its management fee and other expenses to the extent the above
mentioned total operating expenses exceeded the annual rate of 1.20% of the net
assets of the Fund for the period April 15, 1997 through December 16, 1997.
SC (US) Management also serves as the Fund's administrator. SC (US) Management
intends to charge the Fund an administrative fee calculated daily and payable
monthly, at the annual rate of 0.02% of the Fund's average daily net
assets.
Firstar Trust Company, a subsidiary of Firstar Corporation, a publicly held bank
holding company, serves as custodian, transfer agent, sub-administrator and
accounting services agent for the Fund. Sub-administration fees will be
calculated daily and payable monthly, at an annual rate of 0.06% of the first
$200 million of the Fund's average daily net assets. Custodian, transfer agent
fees and accounting services will be charged by Firstar according to contractual
fee schedules agreed to by the Fund. All such expenses incurred through April
15, 1997 have been paid by SC (US) Management, which does not intend to seek
reimbursement from the Fund.
5. DISTRIBUTION AND SERVICING PLANS
The Fund has adopted plans with respect to the Class I and Class R shares
pursuant to Rule 12b-1 under the 1940 Act ("Plans"). Under the Plans, the Fund
pays to Security Capital Markets Group Incorporated in its capacity as principal
distributor of the Fund's shares (the "Distributor"), a monthly fee equal to, on
an annual basis, 0.25% of the value of each Class' average daily net assets.
39
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
The Distributor may use the fee for services performed and expenses incurred by
the Distributor in connection with the distribution of each Class' respective
shares and for providing certain services to each Class' respective
shareholders. The Distributor may pay third parties in respect of these services
such amount as it may determine. The Fund has made no payments pursuant to the
Plans for the year ended December 31, 1997.
40
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
6. FORMATION AND RE-ORGANIZATION
The Fund, formerly Security Capital Employee REIT Fund Incorporated, is a
Maryland corporation, originally formed on December 20, 1996, as SCERF
Incorporated ("SCERF"), a Maryland corporation. On January 23, 1997, all of the
assets and liabilities of SCERF were transferred to the Fund in a reorganization
(the "Reorganization") accounted for as a pooling of interests. The
Reorganization was a taxable event to SCERF and a capital gain of $1,002,746 was
realized for tax purposes. This capital gain will be included in the
consolidated income tax return of the sole shareholder of SCERF and will not
affect the Fund's tax status for 1997. This will result in a lower required
capital gain distribution for the Fund for calendar year 1997. As of December
31, 1997, $443,485 of the capital gain was realized for book purposes. As a
result, at December 31, 1997, the tax basis of securities held was $559,261
higher than their basis for financial reporting purposes.
The costs incurred in connection with the organization, initial registration and
public offering of shares, aggregating $118,099, have been paid by the Adviser.
The Fund will reimburse the Adviser. These costs are being amortized over the
period of benefit, but not to exceed sixty months from the Fund's commencement
of operations. The Adviser has voluntarily agreed to absorb the amortization
expenses in the Fund's first year. The amortization as of December 31, 1997 of
$22,185 will be reimbursed to the Fund.
41
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the board of directors and shareholders of
Security Capital U.S. Real Estate Shares Incorporated:
We have audited the accompanying statement of assets and liabilities of Security
Capital U.S. Real Estate Shares Incorporated (a Maryland corporation), including
the schedule of investments, as of December 31, 1997, and the related statement
of operations for the year then ended and the statement of changes in net assets
and financial highlights for the year then ended and the period from December
20, 1996 (date of inception) to December 31, 1996. These financial statements
and financial highlights are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Security Capital U.S. Real Estate Shares Incorporated as of December 31, 1997,
the results of its operations for the year then ended and the changes in its net
assets and financial highlights for the year then ended and the period from
December 20, 1996 (date of inception) to December 31, 1996, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
February 2, 1998
42
<PAGE>
SECURITY CAPITAL U.S. REAL ESTATE SHARES INCORPORATED
FORM N-1A
PART C -- OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements.
To be filed by amendment.
(b) Exhibits:
A list of exhibits filed herewith is contained on the Exhibit Index
which immediately precedes such exhibits and is incorporated herein by
reference.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Following is a list of entities that for purposes of the Investment Company
Act of 1940 are controlled by or under common control with Security Capital U.S.
Real Estate Shares Incorporated:
<TABLE>
<CAPTION>
Jurisdiction of
Name Organization Basis of Control
- ----------------------------------- --------------- ----------------------------------
<S> <C> <C>
Security Capital Group Incorporated ("Group") Maryland No entity controls Group
SC Realty Incorporated ("SC Realty") Nevada Ownership by Group of 100% of voting
securities
Security Capital Preferred Growth ("SCPG") Maryland Ownership by SC Realty of 12.86%
of voting securities
Harbor Capital Incorporated Delaware Ownership by SCPG of 100% of
voting securities
East Mixed-Use Realty Investors Trust Maryland Ownership by U.S. Realty of 50% of
voting securities
West Mixed-Use Realty Investors Trust Maryland Ownership by U.S. Realty of 50% of
voting securities
Midwest Mixed-Use Realty Investors Trust Maryland Ownership by U.S. Realty of 50% of
voting securities
Security Capital Global Capital Management Delaware Ownership by Group of 100% of
Group Incorporated ("Global Management") voting securities
SCERF Incorporated Maryland Ownership by SC Realty of 100% of
voting securities
Security Capital U.S. Real Estate Shares Maryland Ownership by SC Realty of
Incorporated 98% of voting securities
Security Capital EuroPacific Real Estate Maryland Ownership by SC Realty of 100% of
Shares Incorporated voting securities
</TABLE>
1
<PAGE>
<TABLE>
<S> <C> <C>
Security Capital Management Incorporated Delaware Ownership by Group of 100% of voting
securities
Belmont Corporation ("Belmont") Delaware Ownership by Group 100% of voting
securities
Belmont One Corporation ("Belmont One") Delaware Ownership by Belmont of 100% of voting
securities
Belmont Two Corporation ("Belmont Two") Delaware Ownership by Belmont of 100% of voting
securities
Belmont Village L.P. Delaware Ownership by Belmont One of 1%
general partnership interest and
ownership by Belmont Two of 99%
limited partnership interest
Security Capital BVI Holdings Incorporated Maryland Ownership by Group of 100% of voting
securities
SCGPB Incorporated British Virgin Ownership by Security Capital BVI
Islands Holdings of 100% of voting securities
Security Capital (US) Management Delaware Ownership by Global Management of
Group 100% of voting securities
Incorporated
Security Capital Global Strategic Group Maryland Ownership by Global Management of
Incorporated 100% of voting securities
Security Capital Real Estate Research Group Maryland Ownership by Global Management of
Incorporated 100% of voting securities
Security Capital Financial Services Delaware Ownership by Group of 100% of
voting securities
SC Group Incorporated Texas Ownership by Financial Services of
100% of voting securities
Coast Services Incorporated Maryland Ownership by SC Group Incorporated
of 100% of voting securities
Security Capital Markets Group Incorporated Delaware Ownership by Financial Services of
100% of voting securities
Strategic Hotel Capital Incorporated Delaware Ownership by Group of 49.65% of
voting securities
Strategic Hotel Funding LLC Delaware Ownership by Group of 1005% of
voting securities
ES Philadelphia Airport Joint Venture Pennsylvania Ownership by Strategic Hotel Funding
LLC of 90% of voting securities
GH Inn LLC Illinois Ownership by Strategic Hotel Funding
LLC of 50% of voting securities
Imobilaris National Mexicana, S.A. de C.V. Mexico Ownership by Propanmer South DC
C.U. of 99.99% of voting securities
Poydras Plaze Hotel Ventura Louisiana Ownership by Strategic Hotel Funding
LLC of 1% of voting securities
Propanmex S.A. de C.V. Mexico Ownership by SHC Mexico Holdings
Incorporated of 99.99% of voting
securities
SHC Burbank LLC Delaware Ownership by Strategic Hotel Funding
LLC of 100% of voting securities
</TABLE>
2
<PAGE>
<TABLE>
<S> <C> <C>
SHC Mortgage Incorporated Delaware Ownership by Strategic Hotel Funding
LLC of 100% of voting securities
SHC Paris - 1 LLC Delaware Ownership by Strategic Hotel Funding
LLC of 100% of voting securities
SHC Paris - 2 LLC Delaware Ownership by Strategic Hotel Funding
LLC of 100% of voting securities
SHC Paris - 3 LLC Delaware Ownership by Strategic Hotel Funding
LLC of 100% of voting securities
SHC Paris - 4 LLC Delaware Ownership by Strategic Hotel Funding
LLC of 100% of voting securities
SHCI Santa Monica Beach Hotel, L.C.C. Delaware Ownership by Strategic Hotel
Funding, L.L.C. of 100% of voting
securities
SHC Paris - 5 LLC Delaware Ownership by Strategic Hotel Funding
LLC of 100% of voting securities
SHC Paris - 6 LLC Delaware Ownership by Strategic Hotel Funding
LLC of 100% of voting securities
SHC Phoenix I LLC Delaware Ownership by Strategic Hotel Funding
LLC of 60.5% of voting securities
SHC Phoenix II LLC Delaware Ownership by Strategic Hotel Funding
LLC of 39.5% of voting securities
SHC Rancho LLC Delaware Ownership by Strategic Hotel Funding
LLC of 99% of voting securities
SHC San Francisco LLC Delaware Ownership by Strategic Hotel Capital
L.P. of 100% of voting securities
SHC Santa Clara LLC Delaware Ownership by Strategic Hotel Funding
LLC of 99% of voting securities
SHC Westward Look LLC Delaware Ownership by Strategic Hotel Funding
LLC of 100% of voting securities
Strategic Hotel Capital Limited
Partnership Delaware Ownership by Group of 100% of
voting securities
SHC Holdings LLC Delaware Ownership by Group of 49.65% of
voting securities
SHC Philadelphia LLC Delaware Ownership by Group of 49.65% of
voting securities
SHC Santa Clara LLC Delaware Ownership by Group of 49.65% of
voting securities
SHC Laguna Niguel LLC Delaware Ownership by Group of 49.65% of
voting securities
SHC Capitol LLC Delaware Ownership by Group of 49.65% of
voting securities
Westport Inn LLC Delaware Ownership by Group of 49.65% of
voting securities
Westport Plaza LLC Delaware Ownership by Group of 49.65% of
voting securities
SHC Mexico Holdings Incorporated Delaware Ownership by Group of 49.65% of
voting securities
</TABLE>
3
<PAGE>
<TABLE>
<S> <C> <C>
Security Capital (EU) Management Holdings Luxembourg Ownership by Group of 100% of voting
S.A. securities
Security Capital (EU) Management Group S.A Luxembourg Ownership by Security Capital
(EU)Holdings S.A. of 100% of voting
securities
Security Capital Global Management S.A. Luxembourg Ownership by Security Capital (EU)
Management Holdings S.A. of 100%
of voting securities
Security Capital (EU) Management S.A. Luxembourg Ownership by Group of 100% of
voting securities
Security Capital (UK) Management Limited United Kingdom Ownership by Security Capital (EU)
Management S.A. of 100% of voting
securities
Security Capital (EU) Holdings S.A. Luxembourg Ownership by Security Capital (UK)
Management Limited of 100% of voting
securities
Security Capital International Limited United Kingdom 100% Ownership by Security Capital
(UK) Management Limited
CarrAmerica Realty Corporation Maryland Ownership by US Realty of 44.1% of
voting securities
Storage USA, Inc. Tennessee Ownership by US Realty of 38.3% of
voting securities
Regency Realty Corporation Florida Ownership by US Realty of 47% of
voting securities
Pacific Retail Trust Maryland Ownership by US Realty of 74.2% of
voting securities
UGPT - Skypark, Inc. Delaware Ownership by Urban Growth Property
Trust of 99% of voting securities
Urban Growth Property Trust Maryland Ownership by US Realty of 100% of
voting securities
Urban Growth Property Limited Partnership Delaware Sole general partnership interest
owned by Urban Growth Property Trust
LWP Associates LLC Maryland Ownership by Urban Growth Property
Trust of 50% of voting securities
Van Wells Realty Company, LLC Maryland Ownership by Urban Growth Property
Trust of 50% of voting securities
City Center Retail Trust Maryland Ownership by US Realty of 99% of
voting securities
City Center Retail Trust/McCaffrey Delaware Sole general partnership interest
Developments, L.P. owned by City Center Retail Trust
CCRT I Incorporated Delaware Ownership by City Center Retail Trust
of 100% of voting securities
CCRT II Incorporated Delaware Ownership by City Center Retail Trust
of 100% of voting securities
CCRT McCaffery Developments LLC Delaware Ownership by CCRT/McCaffery
Develop-ments L.P. of 100% of
voting securities
</TABLE>
4
<PAGE>
<TABLE>
<S> <C> <C>
Parking Services International Maryland Ownership by US Realty of 9.4% of
Incorporated voting securities
NPC-1 Incorporated Maryland Ownership by Parking Services
International Incorporated of 100% of
voting securities
CWS Communities Trust Maryland Ownership by US Realty of 100% of
voting securities
CWS Communities L.P. Delaware Sole general partnership interest
owned by CWS Communities Trust
CWS Communities Incorporated Delaware Ownership by US Realty of 100% of
voting securities
CWS Management Services Incorporated Delaware Ownership by US Realty 100% of
voting shares
Security Capital Industrial Trust ("SCI") Maryland Ownership by SC Realty of 44.1% of
voting securities
International Industrial Investments Inc. Maryland Ownership by SCI of 100% of voting
securities
Security Capital Logistar International Delaware Ownership by SCI of 100% of voting
Incorporated securities
Security Capital Logistar Management Delaware Ownership by SCI of 100% of voting
Services Incorporated securities
Logistar - Netherlands I SARL Luxembourg Ownership by SCI of 100% of voting
securities
Logistar France SARL I Luxembourg Ownership by SCI of 100% of voting
securities
Logistar SARL Luxembourg Ownership by SCI of 100% of voting
securities
Logistar BV Luxembourg Ownership by SCI of 100% of voting
securities
Security Capital Logistar International Luxembourg Ownership by SCI of 100% of voting
Fund SCA securities
SCI Logistar Management SARL Luxembourg Ownership by SCI of 100% of voting
securities
Logistar Germany SARL Luxembourg Ownership by SCI of 100% of voting
securities
Logistar Italy SARL Luxembourg Ownership by SCI of 100% of voting
securities
Logistar Belgium SARL Luxembourg Ownership by SCI of 100% of voting
securities
Logistar Netherlands II SARL Luxembourg Ownership by SCI of 100% of voting
securities
Logistar U.K. SARL Luxembourg Ownership by SCI of 100% of voting
securities
Logistar Poland SARL Luxembourg Ownership by SCI of 100% of voting
securities
</TABLE>
5
<PAGE>
<TABLE>
<S> <C> <C>
Logistar Spain SARL Luxembourg Ownership by SCI of 100% of voting
securities
Logistar France SAS Netherlands Ownership by SCI of 100% of voting
securities
Logistar France SARL Netherlands Ownership by SCI of 100% of voting
securities
Logistar Netherlands SARL Netherlands Ownership by SCI of 100% of voting
securities
Logistar Czech Republic SARL Netherlands Ownership by SCI of 100% of voting
securities
Logistar France BV Netherlands Ownership by SCI of 100% of voting
securities
Logistar Spain BV Netherlands Ownership by SCI of 100% of voting
securities
CS Integrated LLC ("CSI") Delaware Ownership by SCI of 100% of voting
securities
Enterprise Refrigerated Services LLC Delaware Ownership by CSI of 100% of voting
securities
CS Integrated Retail Services LLC Delaware Ownership by CSI of 100% of voting
securities
CS Integrated-Texas Limited Partnership Delaware Ownership by CSI of 100% of voting
securities
CS Integrated Investment Management LLC Delaware Ownership by CSI of 100% of voting
securities
CS Integrated Investments Southwest LLC Delaware Ownership by CSI of 100% of voting
securities
SCI Logistics Services Incorporated Delaware Ownership by SCI of 95% of voting
securities
SCI Logistics Holdings LLC Delaware Ownership by CSI of 100% of voting
securities
1440 Goodyear Partners Texas Sole general partnership interest
owned by SCI
Red Mountain Joint Venture Texas Sole general partnership interest
owned by SCI
SCI Limited Partnership-I Delaware Sole general partnership interest
owned by SCI
SCI Limited Partnership-II Delaware Sole general partnership interest
owned by SCI
SCI Limited Partnership-III Delaware Sole general partnership interest
owned by SCI IV, Inc.
</TABLE>
6
<PAGE>
<TABLE>
<S> <C> <C>
SCI IV, Inc. Delaware Ownership by SCI of 100% of voting
securities
Security Capital Industrial Management Delaware Ownership by SCI of 100% of voting
Incorporated securities
SCI--Alabama (1) Incorporated Maryland Ownership by SCI of 100% of voting
securities
SCI--Alabama (2) Incorporated Maryland Ownership by SCI of 100% of voting
securities
Security Capital Alabama Industrial
Trust Alabama Ownership of 100% of voting
securities
by SCI--Alabama (1) Incorporated
and SCI--Alabama (2) Incorporated
SCI--North Carolina (1) Incorporated Maryland Ownership by SCI of 100% of voting
securities
SCI--North Carolina (2) Incorporated Maryland Ownership by SCI of 100% of voting
securities
SCI--North Carolina Limited Partnership Delaware Sole general partnership interest
owned by SCI--North Carolina (1)
Incorporated
SCI Houston Holdings Inc. Delaware Ownership by SCI of 100% of voting
securities
SCI Mexico Industrial Trust Maryland Ownership of SCI of 100% non-
voting preferred securities
SCI De Mexico SA DE CV Mexico Ownership by SCI-DS Mexico of
100% of voting securities
SCI Development Services Incorporated Delaware Ownership by SCI of 100% of voting
securities
SCI-DS Mexico Incorporated Maryland Ownership by SCI Development
Services 100% of voting securities
Security Capital Atlantic Incorporated Maryland Ownership by SC Realty of 49% of
("Atlantic") voting securities
SCG Realty Services Atlantic Incorporated Delaware Ownership by Atlantic of 100% of
voting securities
SCA Florida Holdings (1) Incorporated Florida Ownership by Atlantic of 100% of
voting securities
Atlantic Development Services Delaware Ownership by SCA of 100% of
preferred stock
Atlantic-Tennessee Limited Partnership Delaware Ownership by SCA (3) and SCA (4)of
100% of voting securities
SCA Tennessee (3) Incorporated Maryland Ownership by SCA of 100% of voting
securities
SCA Tennessee (4) Incorporated Maryland Ownership by SCA of 100% of voting
securities
</TABLE>
7
<PAGE>
<TABLE>
<S> <C> <C>
Atlantic--Alabama (3) Incorporated Delaware Ownership by Atlantic of 100% of
voting securities
Atlantic--Alabama (4) Incorporated Delaware Ownership by Atlantic of 100% of
voting securities
Atlantic Alabama Multifamily Trust Alabama Ownership of 100% of voting
securities by Atlantic--Alabama (3)
Incorporated and Atlantic--Alabama
(4) Incorporated
Atlantic--Alabama (5) Incorporated Delaware Ownership by Atlantic of 100% of
voting securities
Atlantic--Alabama (6) Incorporated Delaware Ownership by Atlantic of 100% of
voting securities
SCA Florida Holdings (2) Incorporated Delaware Ownership by Atlantic of 100% of
voting securities
SCA Alabama Multifamily Trust Alabama Ownership by Atlantic-Alabama (5)
Incorporated and Atlantic-Alabama (6)
Incorporated of 100% of voting
securities
SCA--South Carolina (1) Incorporated Maryland Ownership by Atlantic of 100% of
voting securities
SCA--North Carolina (1) Incorporated Maryland Ownership by Atlantic of 100% of
voting securities
SCA North Carolina (2) Incorporated Maryland Ownership by Atlantic of 100% of
voting securities
SCA North Carolina Limited Partnership Delaware Sole general partnership interest
owned by SCA--North Carolina (1)
Incorporated
SCA--Indiana Limited Partnership Delaware Sole general partnership interest
owned by SCA--North Carolina (1)
Incorporated
SCA--Tennessee Limited Partnership Delaware Sole general partnership interest
owned by SCA--Tennessee (1)
Incorporated
SCA--Tennessee (1) Incorporated Delaware Ownership by Atlantic of 100% of
voting securities
SCA--Tennessee (2) Incorporated Delaware Ownership by Atlantic of 100% of
voting securities
Security Capital Atlantic Multifamily
Inc. Delaware Ownership by Atlantic of 100% of
voting securities
Security Capital Pacific Trust ("PTR") Maryland Ownership by SC Realty of 36.0% of
voting securities
SCG Realty Services Incorporated Delaware Ownership by PTR of 100% of voting
securities
</TABLE>
8
<PAGE>
<TABLE>
<S> <C> <C>
SCP Nevada Holdings 1 Incorporated Nevada Ownership by PTR of 100% of voting
securities
SCP Utah Holdings 1 Incorporated Utah Ownership by PTR of 100% of voting
securities
SCP Utah Holdings 2 Incorporated Utah Ownership by PTR of 100% of voting
securities
SCP Utah Holdings 4 Incorporated Utah Ownership by PTR of 100% of voting
securities
SCP Utah Holdings 5 Incorporated Utah Ownership by PTR of 100% of voting
securities
PTR Multifamily Holdings Incorporated Delaware Ownership by PTR of 100% of voting
securities
Spectrum Apartment Locators Inc. Delaware Ownership by PTR of 100% of voting
securities
Las Flores Development Company Texas Ownership by PTR of 100% of voting
securities
PTR Holdings (Texas) Incorporated Texas Ownership by PTR of 100% of voting
securities
PTR-California Holdings (1) Maryland Ownership by PTR of 100% of voting
Incorporated securities
Delaware Ownership by PTR of 100% of voting
Archstone Financial Services, Inc. securities
PTR-California Holdings (2) Maryland Ownership by PTR of 100% of voting
Incorporated securities
PTR-California Holdings (3) Delaware Ownership by PTR of 100% of voting
Incorporated securities
PTR-New Mexico (1) Incorporated Delaware Ownership by PTR of 100% of voting
securities
PTR Development Services Delaware Ownership by PTR of 100% of
preferred stock
Homestead Village Incorporated Maryland Ownership by SC Realty (including its
subsidiaries) of 56.5% of voting
securities
KC Homestead Village Redevelopment Missouri Ownership by Homestead Village
Corporation Incorporated of 100% of voting
securities
Missouri Homestead Village Maryland Ownership by Homestead Village
Incorporated Incorporated of 100% of voting
securities
</TABLE>
9
<PAGE>
<TABLE>
<S> <C> <C>
Atlantic Homestead Village Limited Delaware Sole general partnership interest
Partnership owned by Atlantic Homestead Village (1)
Incorporated
Atlantic Homestead Village (1) Maryland Ownership by Homestead Village
Incorporated Incorporated of 100% of voting
securities
Atlantic Homestead Village (2) Maryland Ownership by Homestead Village
Incorporated Incorporated of 100% of voting
securities
PTR Homestead Village (1) Maryland Ownership by Homestead Village
Incorporated Incorporated of 100% of voting
securities
PTR Homestead Village (2) Maryland Ownership by Homestead Village
Incorporated Incorporated of 100% of voting
securities
Homestead Alabama Incorporated Alabama Ownership by Homestead Village of
100% of voting securities
BTW Incorporated Delaware Ownership by Homestead Village
Incorporated of 100% of voting
securities
Homestead Village Management Delaware Ownership by Homestead Village
Incorporated Incorporated of 100% of voting
securities
PTR Homestead Village Limited Delaware Sole general partnership interest
Partnership owned
by PTR Homestead Village (1)
Delaware Incorporated
BTW II Incorporated Ownership by Homestead Village
Incorporated of 100% of voting
Maryland securities
HVI Trust Ownership by Homestead Village
Incorporated of 100% of voting
securities
</TABLE>
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
TITLE OF CLASS NUMBER OF RECORD HOLDERS
Shares of Beneficial Interest at March 31, 1998
- ----------------------------- --------------------
<S> <C>
Class I Shares 9,788,870.369
Class R Shares 200,603.647
</TABLE>
ITEM 27. INDEMNIFICATION.
Reference is made to Article Eighth of the Registrant's Articles of
Incorporation, incorporated by reference to SC-US's Registration Statement on
Form N-1A (File Nos. 333-20649 and 811-8033), filed with the Securities and
Exchange Commission on January 29, 1997.
10
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant by the Registrant pursuant to its Articles of Incorporation, its
By-Laws or otherwise, the Registrant is aware that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and, therefore, is unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by directors, officers or
controlling persons of the Registrant in connection with the successful defense
of any act, suit or proceeding) is asserted by such directors, officers or
controlling persons in connection with shares being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issues.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Security Capital (US) Management Group Incorporated ("SC (US) Management"),
11 South LaSalle Street, Chicago, Illinois 60603, provides investment advisory
services to institutional investors.
For information as to any other business, vocation or employment of a
substantial nature in which each Director or officer of the Registrant's
investment adviser has been engaged for his own account or in the capacity of
Director, officer, employee, partner or trustee, reference is made to Prospectus
and Statement of Additional Information contained in this registration
statement.
11
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITER.
(a) Security Capital Markets Group Incorporated ("SCMG"), the principal
distributor for the Registrant's securities, does not currently act as principal
underwriter or distributor for any other investment company.
(b) The table below sets forth certain information as to SCMG's Directors,
Officers and Control Persons:
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT
---------------- ---------------- ---------------
<S> <C> <C>
Lucinda G. Marker*/ President None
K. Scott Canon**/ Director and Senior Vice President None
Jeffrey A. Klopf*/ Director, Secretary and Senior Vice None
President
Gerard de Gunzburg***/ Senior Vice President None
---
Donald E. Suter**/ Managing Director None
--
Robert H. Fippinger*/ Vice President None
-
Alison C. Hefele**/ Senior Vice President None
--
Garett C. House**/ Vice President None
--
Gerald R. Morgan, Jr.*/ Assistant Controller None
-
Jayson C. Cyr****/ Assistant Controller None
----
</TABLE>
*/ Principal business address is 125 Lincoln Avenue, Santa Fe, New Mexico,
87501.
**/ Principal business address is 11 South LaSalle Street, Chicago, Illinois
60609
***/ Principal business address is 399 Park Avenue, 23rd Floor, New York, NY
10022.
****/ Principal business address is 7777 Market Center Avenue, El Paso, Texas
79912.
(c) Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
Certain of the records described in Section 31(a) of the 1940 Act and the
Rules 17 CFR 270.31a-1 to 31a-3 promulgated thereunder, are maintained by
SC-US's Investment Adviser and Administrator, Security Capital (US) Management
Group Incorporated, 11 S. LaSalle Street, Chicago, Illinois 60603. The remainder
of such records are maintained by Firstar Trust Company, SC-US's
Sub-Administrator, 615 East Michigan Street, Milwaukee, Wisconsin 53202.
ITEM 31. MANAGEMENT SERVICES.
There are no management-related service contracts not discussed in Part A or
Part B.
ITEM 32. UNDERTAKINGS.
(a) Registrant hereby undertakes to furnish each person to whom a prospectus
is delivered with a copy of the Registrant's latest Annual Report to
Shareholders upon request and without charge.
12
<PAGE>
(b) The Registrant hereby undertakes to promptly call a meeting of
shareholders for the purpose of voting upon the question of removal of any
director or directors when requested in writing to do so by the record holders
of not less than 10 percent of the Registrant's outstanding shares and to assist
its shareholders in accordance with the requirements of Section 16(c) of the
Investment Company Act of 1940 relating to shareholder communications.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets the
requirements of Rule 485(b) for effectiveness of this amendment to its
Registration Statement and has caused this Post-Effective Amendment No. 5 to its
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Chicago, and State of Illinois on the 15th day
of April, 1998. No other material event requiring prospectus disclosure has
occurred since the latest of the three dates specified in Rule 485(b)(2).
Security Capital U.S. Real Estate Shares Incorporated
By: /s/ Anthony R. Manno Jr.
----------------------------------------
Anthony R. Manno Jr.
Chairman, Managing Director and President
Pursuant to the requirements of the Securities Act of 1933, this amended
Registration Statement of Security Capital U.S. Real Estate Shares Incorporated
has been signed below by the following persons in the capacities and on the
15th day of April, 1997.
<TABLE>
<CAPTION>
Signature Capacity Date
- -------------------------------- ------------------------------ -------------------------
<S> <C> <C>
/s/ Anthony R. Manno Jr. Chairman, Managing Director April 15, 1998
--------------------------
Anthony R. Manno Jr. and President
/s/ Jeffrey C. Nellessen Principal Financial Officer April 15, 1998
--------------------------
Jeffrey C. Nellessen
/s/ Jeffrey C. Nellessen Comptroller April 15, 1998
--------------------------
Jeffrey C. Nellessen
Director April , 1998
--------------------------
Stephen F. Kasbeer
/s/ Anthony R. Manno Jr. Director April 15, 1998
--------------------------
Anthony R. Manno Jr.
Director April , 1998
--------------------------
George F. Keane
/s/ Robert H. Abrams Director April 15, 1998
--------------------------
Robert H. Abrams
/s/ John H. Gardner, Jr. Director April 15, 1998
--------------------------
John H. Gardner, Jr.
</TABLE>
14
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------ -----------------------------------------------
<S> <C>
1* Articles of Incorporation.
2(a)* By-Laws.
2(b)*** Amended By-Laws.
5(a) Investment Advisory Contract.
5(b) Amended Investment Advisory Contract.
5(c) Sponsorship Agreement
6(a) General Distributor's Agreement.
6(b) Distribution and Servicing Agreement.
8 Custodian Agreement.
9(a) Transfer Agent Agreement.
9(b) Fund Accounting and Administration Agreement.
9(b)(i) Amended Fund Accounting and Administration Agreement.
9(c) Fund Accounting Servicing Agreement.
10(a)** Opinion and Consent of Mayer, Brown & Platt regarding the legality of
the securities being issued.
11(a) Consent of Mayer, Brown & Platt.
11(b) Consent of Ballard Spahr Andrews & Ingersoll.
11(c) Report of Independent Public Accountants
15(a)*** Rule 12b-1 Distribution and Service Plan for Class I Shares.
15(b)*** Rule 12b-1 Distribution and Service Plan for Class R Shares.
18*** Rule 18f-3 Multiple Class Plan.
27 Financial Data Schedule.
</TABLE>
_____________
*Incorporated herein by reference to Registrant's registration statement
on Form N-1A (File Nos. 333-20649 and 811-8033) filed with the Securities and
Exchange Commission on January 29, 1997.
**Incorporated herein by reference to Pre-Effective Amendment No. 2 to
Registrant's registration statement on Form N-1A (File Nos. 333-20649 and 811-
9033) filed with the Securities and Exchange Commission on April 21, 1997.
***Incorporated herein by reference to Post-Effective Amendment No. 4 to
Registrant's registration statement on Form N-1A (File Nos. 333-20649 and 811-
8033) filed with the Securities and Exchange Commission on December 17,
1997.
<PAGE>
EXHIBIT 5(a)
INVESTMENT ADVISORY AGREEMENT
Security Capital U.S. Real Estate Shares Incorporated
Amended and Restated December __, 1997
Security Capital (US) Management Group Incorporated
11 South LaSalle Street, Second Floor
Chicago, Illinois 60603
Dear Sirs:
We, the undersigned Security Capital U.S. Real Estate Shares Incorporated,
herewith confirm our agreement with you as follows:
1. We are an open-end, non-diversified management investment company.
Our Directors are authorized to reclassify and issue any unissued shares to any
number of additional classes or series (portfolios), each having its own
investment objective, policies and restrictions, without shareholder approval,
all as more fully described in our prospectus and statement of additional
information.
We propose to engage in the business of investing and reinvesting our
assets in securities of the type and in accordance with the limitations
specified in our Articles of Incorporation, By-Laws and any representations made
in our prospectus and statement of additional information, all in such manner
and to such extent as may from time to time be authorized by our Board of
Directors. We enclose copies of the documents listed above and will from time
to time furnish you with any amendments thereof.
<PAGE>
2. (a) We hereby employ you to manage the investment and reinvestment of
our assets as above specified and, without limiting the generality of the
foregoing, to provide management, investment, advisory and other services
specified below.
(b) You will make decisions with respect to all purchases and sales of
our portfolio securities. To carry out such decisions, you are hereby
authorized, as our agent and attorney-in-fact, for our account and at our risk
and in our name, to place orders for the investment and reinvestment of our
assets. In all purchases, sales and other transactions in our portfolio
securities you are authorized to exercise full discretion and act for us in the
same manner and with the same force and effect as we might or could do with
respect to such purchases, sales or other transactions, as well as with respect
to all other things necessary or incidental to the furtherance or conduct of
such purchases, sales or other transactions.
(c) You will report to our Board of Directors at each meeting thereof
all changes in our portfolio since the prior report, and will also keep us in
touch with important developments affecting our portfolio and on your own
initiative will furnish us from time to time with such information as you may
believe appropriate for this purpose, whether concerning the individual issuers
whose securities are included in our portfolio, the industries in which they
engage, or the conditions prevailing in the economy generally. You will also
furnish us with such statistical and analytical information with respect to our
portfolio securities as you may believe appropriate or as we reasonably may
request. In making such purchases and sales of our portfolio securities, you
will bear in mind the policies set from time to time by our Board of Directors
as well as the limitations imposed by our Articles of Incorporation, the
Investment
-2-
<PAGE>
Company Act of 1940 (the "Act") and the Securities Act of 1933, and of the
Internal Revenue Code of 1986, as amended, in respect of regulated investment
companies.
(d) It is understood that you will from time to time employ or
associate with yourselves such persons as you believe to be particularly fitted
to assist you in the execution of your duties hereunder, the cost of performance
of such duties to be borne and paid by you. No obligation may be incurred on
our behalf in any such respect. During the continuance of this Agreement at our
request you will provide us persons satisfactory to our Board of Directors to
serve as our officers.
3. We propose to retain the services of an administrator, which shall be
a firm acceptable to you, to administer all aspects of our operations except
those which are your responsibility pursuant to this Agreement. We will bear
the cost of and pay the fee of the administrator. Our initial Administrator
will be Security Capital (US) Management Group Incorporated.
4. It is further agreed that you shall pay the fees and expenses
associated with the printing and mailing of our prospectus and statement of
additional information, and any other sales literature, to parties other than
existing shareholders. We hereby confirm that, subject to the foregoing, we
shall be responsible and hereby assume the obligation for payment of all our
other expenses, including: (a) payment of the fee payable to you under
paragraph 6 hereof; (b) charges and expenses of our administrator, custodian,
transfer, and dividend disbursing agent; (c) fees of directors who are not your
affiliated persons; (d) legal and auditing expenses; (e) compensation of our
officers, Directors and employees who do not devote any part of their time to
your affairs or the affairs of your affiliates other than us; (f) costs of
printing our prospectuses
-3-
<PAGE>
and stockholder reports; (g) costs of proxy solicitation; (h) costs of
maintenance of corporate existence; (i) interest charges, taxes, brokerage fees
and commissions; (j) costs of stationery and supplies; (k) expenses and fees
related to registration and filing with the Securities and Exchange Commission
and with state regulatory authorities; and (l) upon the approval of the Board of
Directors, costs of your personnel or your affiliates rendering clerical,
accounting and other office services.
5. We shall expect of you, and you will give us the benefit of, your best
judgment and efforts in rendering these services to us, and we agree as an
inducement to your undertaking these services that you shall not be liable
hereunder for any mistake of judgment or in any event whatsoever, except for
lack of good faith, provided that nothing herein shall be deemed to protect, or
purport to protect, you against any liability to us or to our security holders
to which you would otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence in the performance of your duties hereunder, or by
reason of your reckless disregard of your obligations and duties hereunder.
6. In consideration of the foregoing we will pay you a monthly fee at an
annualized rate of .60 of 1% of the average daily net assets of each class of
shares. Such fee shall be payable in arrears on the last day of each calendar
month for services performed hereunder during such month. If this Agreement
terminates prior to the end of a month, such fee shall be prorated according to
the proportion which such portion of the month bears to the full month.
7. This Agreement shall become effective on the date it is approved by
the vote of a majority of the Company's outstanding voting securities, as
defined in the Act, and shall continue in effect until the second anniversary of
the date hereof and may be continued for
-4-
<PAGE>
successive twelve-month periods (computed from each January 1) with respect to
each portfolio provided that such continuance is specifically approved at least
annually by the Board of Directors or by majority vote of the holders of the
outstanding voting securities of such portfolio (as defined in the Act), and, in
either case, by a majority of the Board of Directors who are not interested
persons, as defined in the Act, of any party to this Agreement (other than as
Directors of our corporation), provided further, however, that if the
continuation of this Agreement is not approved, you may continue to render the
services described herein in the manner and to the extent permitted by the Act
and the rules and regulations thereunder. Upon the effectiveness of this
Agreement, it shall supersede all previous agreements between us covering the
subject matter hereof. This Agreement may be terminated at any time, without the
payment of any penalty, by vote of a majority of the outstanding voting
securities (as so defined) or by a vote of a majority of the Board of Directors
on 60 days' written notice to you, or by you on 60 days' written notice to us.
8. This Agreement may not be transferred, assigned, sold or in any manner
hypothecated or pledged by you and this Agreement shall terminate automatically
in the event of any such transfer, assignment, sale, hypothecation or pledge by
you. The terms "transfer", "assignment" and "sale" as used in this paragraph
shall have the meanings ascribed thereto by governing law and any interpretation
thereof contained in rules or regulations promulgated by the Securities and
Exchange Commission thereunder.
9. Except to the extent necessary to perform your obligations hereunder,
nothing herein shall be deemed to limit or restrict your right, or the right of
any of your officers, directors or employees, who may also be a Director,
officer or employee of ours, or persons otherwise
-5-
<PAGE>
EXHIBIT 5(b)
INVESTMENT ADVISORY AGREEMENT
Security Capital U.S. Real Estate Shares Incorporated
Amended and Restated December __, 1997
Security Capital (US) Management Group Incorporated
11 South LaSalle Street, Second Floor
Chicago, Illinois 60603
Dear Sirs:
We, the undersigned Security Capital U.S. Real Estate Shares Incorporated,
herewith confirm our agreement with you as follows:
1. We are an open-end, non-diversified management investment company.
Our Directors are authorized to reclassify and issue any unissued shares to any
number of additional classes or series (portfolios), each having its own
investment objective, policies and restrictions, without shareholder approval,
all as more fully described in our prospectus and statement of additional
information.
We engage in the business of investing and reinvesting our assets in
securities of the type and in accordance with the limitations specified in our
Articles of Incorporation, By-Laws and any representations made in our
prospectus and statement of additional information, all in such manner and to
such extent as may from time to time be authorized by our Board of Directors. We
enclose copies of the documents listed above and will from time to time furnish
you with any amendments thereof.
<PAGE>
2. (a) We hereby employ you to manage the investment and reinvestment of
our assets as above specified and, without limiting the generality of the
foregoing, to provide management, investment, advisory and other services
specified below.
(b) You will make decisions with respect to all purchases and sales of
our portfolio securities. To carry out such decisions, you are hereby
authorized, as our agent and attorney-in-fact, for our account and at our risk
and in our name, to place orders for the investment and reinvestment of our
assets. In all purchases, sales and other transactions in our portfolio
securities you are authorized to exercise full discretion and act for us in the
same manner and with the same force and effect as we might or could do with
respect to such purchases, sales or other transactions, as well as with respect
to all other things necessary or incidental to the furtherance or conduct of
such purchases, sales or other transactions.
(c) You will report to our Board of Directors at each meeting thereof
all changes in our portfolio since the prior report, and will also keep us in
touch with important developments affecting our portfolio and on your own
initiative will furnish us from time to time with such information as you may
believe appropriate for this purpose, whether concerning the individual issuers
whose securities are included in our portfolio, the industries in which they
engage, or the conditions prevailing in the economy generally. You will also
furnish us with such statistical and analytical information with respect to our
portfolio securities as you may believe appropriate or as we reasonably may
request. In making such purchases and sales of our portfolio securities, you
will bear in mind the policies set from time to time by our Board of Directors
as well as the limitations imposed by our Articles of Incorporation, the
Investment
-2-
<PAGE>
Company Act of 1940 (the "Act") and the Securities Act of 1933, and of the
Internal Revenue Code of 1986, as amended, in respect of regulated investment
companies.
(d) It is understood that you will from time to time employ or
associate with yourselves such persons as you believe to be particularly fitted
to assist you in the execution of your duties hereunder, the cost of performance
of such duties to be borne and paid by you. No obligation may be incurred on
our behalf in any such respect. During the continuance of this Agreement at our
request you will provide us persons satisfactory to our Board of Directors to
serve as our officers.
3. We propose to retain the services of an administrator, which shall be
a firm acceptable to you, to administer all aspects of our operations except
those which are your responsibility pursuant to this Agreement. We will bear
the cost of and pay the fee of the administrator. Our initial Administrator
will be Security Capital (US) Management Group Incorporated.
4. It is further agreed that you shall pay the fees and expenses
associated with the printing and mailing of our prospectus and statement of
additional information, and any other sales literature, to parties other than
existing shareholders. We hereby confirm that, subject to the foregoing, we
shall be responsible and hereby assume the obligation for payment of all our
other expenses, including: (a) payment of the fee payable to you under
paragraph 6 hereof; (b) charges and expenses of our administrator, custodian,
transfer, and dividend disbursing agent; (c) fees of directors who are not your
affiliated persons; (d) legal and auditing expenses; (e) compensation of our
officers, Directors and employees who do not devote any part of their time to
your affairs or the affairs of your affiliates other than us; (f) costs of
printing our prospectuses
-3-
<PAGE>
and stockholder reports; (g) costs of proxy solicitation; (h) costs of
maintenance of corporate existence; (i) interest charges, taxes, brokerage fees
and commissions; (j) costs of stationery and supplies; (k) expenses and fees
related to registration and filing with the Securities and Exchange Commission
and with state regulatory authorities; and (l) upon the approval of the Board of
Directors, costs of your personnel or your affiliates rendering clerical,
accounting and other office services.
5. We shall expect of you, and you will give us the benefit of, your best
judgment and efforts in rendering these services to us, and we agree as an
inducement to your undertaking these services that you shall not be liable
hereunder for any mistake of judgment or in any event whatsoever, except for
lack of good faith, provided that nothing herein shall be deemed to protect, or
purport to protect, you against any liability to us or to our security holders
to which you would otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence in the performance of your duties hereunder, or by
reason of your reckless disregard of your obligations and duties hereunder.
6. In consideration of the foregoing we will pay you a monthly fee at an
annualized rate of .60 of 1% of the average daily net assets of each class of
shares. Such fee shall be payable in arrears on the last day of each calendar
month for services performed hereunder during such month. If this Agreement
terminates prior to the end of a month, such fee shall be prorated according to
the proportion which such portion of the month bears to the full month.
7. This Agreement shall become effective on the date it is approved by
the vote of a majority of the Company's outstanding voting securities, as
defined in the Act, and shall continue in effect until the second anniversary of
the date hereof and may be continued for
-4-
<PAGE>
successive twelve-month periods (computed from each January 1) with respect to
each portfolio provided that such continuance is specifically approved at least
annually by the Board of Directors or by majority vote of the holders of the
outstanding voting securities of such portfolio (as defined in the Act), and, in
either case, by a majority of the Board of Directors who are not interested
persons, as defined in the Act, of any party to this Agreement (other than as
Directors of our corporation), provided further, however, that if the
continuation of this Agreement is not approved, you may continue to render the
services described herein in the manner and to the extent permitted by the Act
and the rules and regulations thereunder. Upon the effectiveness of this
Agreement, it shall supersede all previous agreements between us covering the
subject matter hereof. This Agreement may be terminated at any time, without the
payment of any penalty, by vote of a majority of the outstanding voting
securities (as so defined) or by a vote of a majority of the Board of Directors
on 60 days' written notice to you, or by you on 60 days' written notice to us.
8. This Agreement may not be transferred, assigned, sold or in any manner
hypothecated or pledged by you and this Agreement shall terminate automatically
in the event of any such transfer, assignment, sale, hypothecation or pledge by
you. The terms "transfer", "assignment" and "sale" as used in this paragraph
shall have the meanings ascribed thereto by governing law and any interpretation
thereof contained in rules or regulations promulgated by the Securities and
Exchange Commission thereunder.
9. Except to the extent necessary to perform your obligations hereunder,
nothing herein shall be deemed to limit or restrict your right, or the right of
any of your officers, directors or employees, who may also be a Director,
officer or employee of ours, or persons otherwise
-5-
<PAGE>
affiliated with us (within the meaning of the Act) to engage in any other
business or to devote time and attention to the management or other aspects of
any other business, whether of a similar or dissimilar nature, or to render
services of any kind to any other trust, corporation, firm, individual or
association.
10. This Agreement shall be construed in accordance with the laws of the
State of Illinois, provided, however, that nothing herein shall be construed as
being inconsistent with the Act.
If the foregoing is in accordance with your understanding, will you kindly
so indicate by signing and returning to us the enclosed copy hereof.
Very truly yours,
Security Capital U.S. Real Estate Shares
Incorporated
By:
-------------------------------------
Anthony R. Manno, Jr.
President
Agreed to and accepted as
of the date first set forth above
By:
-----------------------------------
-6-
<PAGE>
EXHIBIT 5(c)
SPONSORSHIP AGREEMENT
---------------------
SPONSORSHIP AGREEMENT (the "Agreement"), dated as of ______, 1997 by and
between Security Capital (US) Management Group Incorporated, a Delaware
corporation ("SC (US) Management") and Security Capital U.S. Real Estate Shares
Incorporated, a Maryland corporation ("Fund").
WHEREAS, the Fund is an open-end investment company registered under the
Investment Company Act of 1940, as amended (the "Act"); and
WHEREAS, SC (US) Management serves as investment adviser to the Fund
pursuant to an Amended and Restated Investment Advisory Agreement dated
December __, 1997 ("Advisory Agreement"), pursuant to which each class of the
Fund's shares pays SC (US) Management a monthly management fee in an amount
equal to 1/12 of .60% of the average daily net assets of that class
(approximately .60% on an annual basis) ("Advisory Fee"); and
WHEREAS, the Fund and the Sponsor desire to enter into an agreement
pursuant to which the Sponsor shall waive the Advisory Fee and/or reimburse the
Fund for operating expenses on the terms and conditions hereto set forth;
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein set forth, the parties covenant and agree as follows:
1. Duties of Sponsor. SC (US) Management hereby agrees that from the date
-----------------
hereof through December 31, 1998, SC (US) Management shall waive the Advisory
Fee and/or reimburse the Fund to the extent necessary to maintain the total
operating expenses (excluding brokerage fees and commissions, interest, taxes
and other extraordinary expenses) of: (i) Class I shares of the Fund at 1.00% of
the average daily net assets of the Class I shares; and (ii) Class R shares of
the Fund at 1.15% of the average daily net assets of the Class R shares.
2. Annual Review. The Sponsor will review its undertaking to waive the
-------------
Advisory Fee and/or reimburse the Fund as set forth in Paragraph 1 on an annual
basis. There is no assurance the Sponsor will continue to waive the Advisory Fee
and/or reimburse expenses beyond the specified period. The Sponsor shall notify
the Fund promptly of its annual determination with respect to the undertaking
hereunder.
3. Severability. If any provision of this Agreement shall be found to be
------------
invalid by a court decision, statute, rule or otherwise, the reminder of this
Agreement shall not be affected thereby.
4. Notice. Any notices under this Agreement shall be in writing addressed and
------
delivered personally (or by telecopy) or mailed postage-paid, to the other party
at such address as such other party may designate in accordance with this
paragraph for the receipt of such notice. Until
<PAGE>
further notice to the other party, it is agreed that the address of the SC (US)
Management and the Fund shall be 11 South LaSalle Street, Second Floor, Chicago,
Illinois 60603.
5. Miscellaneous. Each party agrees to perform such further actions and
-------------
execute such further documents as are necessary to effectuate the purposes
hereof. This Agreement shall be construed and enforced and interpreted in
accordance with and governed by the laws of the State of Illinois without
reference to principles of conflicts of law. The captions in this Agreement are
included for convenience only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed in any number of counterparts, each of which shall be
deemed to be an original, but such counterparts shall, together, constitute only
one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
SECURITY CAPITAL U.S. REAL ESTATE SHARES
INCORPORATED
By:
-----------------------------------------
SECURITY CAPITAL (US) MANAGEMENT GROUP
INCORPORATED
By:
-----------------------------------------
<PAGE>
EXHIBIT 6(a)
GENERAL DISTRIBUTOR'S AGREEMENT
BETWEEN
SECURITY CAPITAL EMPLOYEE REIT FUND INCORPORATED
AND
SECURITY CAPITAL MARKETS GROUP INCORPORATED
Date: April ___, 1997
SECURITY CAPITAL MARKETS GROUP INCORPORATED
Dear Sirs:
Security Capital Employee REIT Fund Incorporated, a Maryland corporation
(the "Fund"), is registered as an investment company under the Investment
Company Act of 1940 (the "1940 Act"), and an indefinite number of one or more
classes of its shares of common stock ("Shares") have been registered under the
Securities Act of 1933 (the "1933 Act") to be offered for sale to the public in
a continuous public offering in accordance with the terms and conditions set
forth in the Prospectus and Statement of Additional Information ("SAI") included
in the Fund's Registration Statement as it may he amended from time to time (the
"current Prospectus and/or SAI").
In this connection, the Fund desires that your firm (the "General
Distributor") act in a principal capacity as General Distributor for the sale
and distribution of Shares which have been registered as described above and of
any additional Shares which may become registered during the term of this
Agreement. You have advised the Fund that you are willing to act as such
General Distributor, and it is accordingly agreed by and between us as follows:
1. Appointment of the Distributor. The Fund hereby appoints you as the
------------------------------
sole General Distributor, pursuant to the aforesaid continuous public offering
of its Shares, and the Fund further agrees from and after the date of this
Agreement, that it will not, without your consent, sell or agree to sell any
Shares otherwise than through you, except (a) the Fund may itself sell Shares
without sales charge as an investment to the officers, trustees or directors and
bona fide present and former full-time employees of the Fund, the Fund's
Investment Adviser and affiliates thereof, and to other investors who are
identified in the current Prospectus and/or SAI as having the privilege to buy
Shares at net asset value; (b) the Fund may issue Shares in connection with a
merger, consolidation or acquisition of assets on such basis as may be
authorized or permitted under the 1940 Act; and (c) the Fund may issue Shares
for the reinvestment of dividends and other distributions of the Fund or of any
other fund if permitted by the current Prospectus and/or SAI; provided that in
no event as to any of the foregoing exceptions shall Shares be issued and sold
at less than the then-existing net asset value.
<PAGE>
2. Sale of Shares. You hereby accept such appointment and agree to use
--------------
your best efforts to sell Shares, provided, however, that when requested by the
Fund at any time because of market or other economic considerations or abnormal
circumstances of any kind, or when agreed to by mutual consent of the Fund and
the General Distributor, you will suspend such efforts. The Fund may also
withdraw the offering of Shares at any time when required by the provisions of
any statute, order, rule or regulation of any governmental body having
jurisdiction. It is understood that you do not undertake to sell all or any
specific number of Shares.
3. Sales Charge. Shares shall be sold by you at net asset value plus a
------------
front-end sales charge not in excess of 8.5% of the offering price, but which
front-end sales charge shall be proportionately reduced or eliminated for larger
sales and under other circumstances, in each case, on the basis set forth in the
Fund's current Prospectus and/or SAI. The redemption proceeds of Shares offered
and sold at net asset value with or without a front-end sales charge may be
subject to a redemption fee ("Redemption Fee") under the circumstances described
in the current Prospectus and/or SAI. You may reallow such portion of the
front-end sales charge to dealers or cause payment (which may exceed the front-
end sales charge, if any) of commissions to brokers through which sales are
made, as you may determine, and you may pay such amounts to dealers and brokers
on sales of Shares from your own resources (such dealers and brokers shall
collectively include all domestic or foreign institutions eligible to offer and
sell the Shares), and in the event the Fund has more than one class of Shares
outstanding, then you may impose a front-end sales charge and/or a Redemption
Fee on Shares of one class that is different from the charges imposed on Shares
of the Fund's other class(es), in each case, as set forth in the current
Prospectus and/or SAI, provided the front-end sales charge and Redemption Fee to
the ultimate purchaser do not exceed the respective levels set forth for such
category of purchaser in the Fund's current Prospectus and/or SAI.
4. Purchase of Shares.
------------------
(a) As General Distributor, you shall have the right to accept or
reject orders for the purchase of Shares at your discretion. Any
consideration which you may receive in connection with a rejected
purchase order will be returned promptly.
(b) You agree promptly to issue or to cause the duly appointed
transfer or shareholder servicing agent of the Fund to issue as
your agent confirmations of all accepted purchase orders and to
transmit a copy of such confirmations to the Fund. The net asset
value of all Shares which are the subject of such confirmations,
computed in accordance with the applicable rules under the 1940
Act, shall be a responsibility of the General Distributor to the
Fund to forward promptly after receipt of payment from the
originating dealer or broker (or investor, in the case of direct
purchases). In no event shall the General Distributor forward such
payment to the Fund later than permitted by applicable rules of
the National Association of Securities Dealers, Inc.
(c) If the originating dealer or broker shall fail to make timely
settlement of its purchase order in accordance with applicable
rules of the National Association of Securities Dealers, Inc., or
if a direct purchaser shall fail, at the Fund's direction, to make
good payment for Shares in a timely manner, you shall cancel such
purchase order. You agree promptly to reimburse the Fund for
losses suffered by it that are attributable to errors on your part
in relation to the effective date of
2
<PAGE>
accepted purchase orders, limited to the amount that such losses
exceed contemporaneous gains realized by the fund for either of
such reasons with respect to other purchase orders.
(d) In the case of a canceled purchase for the account of a directly
purchasing shareholder, the Fund agrees that if such investor
fails to make you whole for any loss you pay to the Fund on such
canceled purchase order, the Fund will reimburse you for such loss
to the extent of the aggregate redemption proceeds of any other
Shares of the Fund owned by such investor, on your demand that the
Fund exercise its right to claim such redemption proceeds. The
Fund shall register or cause to be registered all Shares sold by
you pursuant to the provisions hereof in such names and amounts as
you may request from time to time and the Fund shall issue or
cause to be issued certificates evidencing such Shares for
delivery by you or pursuant to your direction if and to the extent
that the shareholder account in question contemplates the issuance
of such certificates. All Shares when so issued and paid for,
shall be fully paid and non-assessable by the Fund (which shall
not prevent the imposition of any Redemption Fee that may apply)
to the extent set forth in the current Prospectus and/or SAI.
5. Repurchase of Shares.
--------------------
(a) In connection with the repurchase of Shares, you are appointed and
shall act as agent of the Fund. You are authorized, for so long as
you act as General Distributor of the Fund, to arrange for the
repurchase, from authorized dealers, certificated or
uncertificated Shares of the Fund on the basis of orders received
from each dealer ("authorized dealer") with which you have a
dealer agreement for the sale of Shares and permitting resales of
Shares by you, provided that such authorized dealer, at the time
of placing such resale order, shall represent (i) if such Shares
are represented by certificate(s), that certificate(s) for the
Shares to be repurchased have been delivered to it by the
registered owner with a request for the redemption of such Shares
executed in the manner and with the signature guarantee required
by the then-currently effective prospectus of the Fund, or (ii) if
such Shares are uncertificated, that the registered owner(s) has
delivered to the dealer a request for the redemption of such
Shares executed in the manner and with the signature guarantee
required by the then-currently effective prospectus of the Fund.
(b) You shall (a) have the right in your discretion to accept or
reject orders for the repurchase of Shares; (b) promptly transmit
confirmations of all accepted repurchase orders; and (c) transmit
a copy of such confirmation to the Fund, or, if so directed, to
any duly appointed transfer or shareholder servicing agent of the
Fund. In your discretion, you may accept repurchase requests made
by a financially responsible dealer which provides you with
indemnification in form satisfactory to you in consideration of
your acceptance of such dealer's request in lieu of the written
redemption request of the owner of the account; you agree that the
Fund shall be a third party beneficiary of such indemnification.
3
<PAGE>
(c) Upon receipt by the Fund or its duly appointed transfer or
shareholder servicing agent of any certificates) (if any has been
issued) for repurchased Shares and a written redemption request of
the registered owner(s) of such Shares executed in the manner and
bearing the signature guarantee required by the then-currently
effective Prospectus or SAI of the Fund, the Fund will pay or
cause its duly appointed transfer or shareholder servicing agent
promptly to pay to the originating authorized dealer the
redemption price of the repurchased Shares (other than repurchased
Shares subject to the provisions of part (d) of Section 5 of this
Agreement) next determined after your receipt of the dealer's
repurchase order.
(d) Notwithstanding the provisions of part (c) of Section 5 of this
Agreement, repurchase orders received from an authorized dealer
after the determination of the Fund's redemption price on a
regular business day will receive that day's redemption price if
the request to the dealer by its customer to arrange such
repurchase prior to the determination of the Fund's redemption
price that day complies with the requirements governing such
requests as stated in the current Prospectus and/or SAI.
(e) You will make every reasonable effort and take all reasonably
available measures to assure the accurate performance of all
services to be performed by you hereunder within the requirements
of any statute, rule or regulation pertaining to the redemption of
Shares of a regulated investment company and any requirements set
forth in the then-current Prospectus and/or SAI of the Fund. You
shall correct any error or omission made by you in the performance
of your duties hereunder of which you shall have received notice
in writing and any necessary substantiating data; and you shall
hold the Fund harmless from the effect of any errors or omissions
which might cause an over- or under-redemption of the Fund's
Shares and/or an excess or nonpayment of dividends, capital gains
distributions, or other distributions.
(f) In the event an authorized dealer initiating a repurchase order
shall fail to make delivery or otherwise settle such order in
accordance with the rules, at the Fund's direction, of the
National Association of Securities Dealers, Inc., you shall cancel
such repurchase order. In the event that any cancellation of a
Share repurchase order or any error in the timing of the
acceptance of a Share repurchase order shall result in a gain or
loss to the Fund, you agree promptly to reimburse the Fund for any
amount by which any loss shall exceed then existing gains so
arising.
6. 1933 Act Registration. The Fund has delivered to you a copy of its
---------------------
most recent draft of the Prospectus and SAI. The Fund agrees that it will use
its best efforts to complete such registration and, when such registration is
declared effective, to continue the effectiveness of the Registration Statement
under the 1933 Act. The Fund further agrees to prepare and file any amendments
to its Registration Statement as may be necessary and any supplemental data in
order to comply with the 1933 Act. The Fund will furnish you with a reasonable
number of copies of the Prospectus and SAI and any amendments thereto for use in
connection with the sale of Shares.
4
<PAGE>
7. 1940 Act Registration. The Fund is currently in the process of
---------------------
registering under the 1940 Act as an investment company, and, when such
registration is declared effective, it will use its best efforts to maintain
such registration and to comply with the requirements of the 1940 Act.
8. State Blue Sky Qualification. At your request, the Fund will take
----------------------------
such steps as may be necessary and feasible to qualify Shares for sale in
states, territories or dependencies of the United States, the District of
Columbia, the Commonwealth of Puerto Rico and in foreign countries, in
accordance with the laws thereof, and to renew or extend any such qualification;
provided, however, that the Fund shall not be required to qualify Shares or to
maintain the qualification of Shares in any jurisdiction where it shall deem
such qualification disadvantageous to the Fund.
9. Duties of Distributor. You agree that:
---------------------
(a) Neither you nor any of your officers will take any long or short
position in the Shares, but this provision shall not prevent you
or your officers from acquiring Shares for investment purposes
only; and
(b) You shall furnish to the Fund any pertinent information required
to be inserted with respect to you as General Distributor within
the purview of the Securities Act of 1933 in any reports or
registration required to be filed with any governmental authority;
and
(c) You will not make any representations inconsistent with the
information contained in the current Prospectus and/or SAI; and
(d) You shall maintain such records as may be reasonably required for
the Fund or its transfer or shareholder servicing agent to respond
to shareholder requests or complaints, and to permit the Fund to
maintain proper accounting records, and you shall make such
records available to the Fund and its transfer agent or
shareholder servicing agent upon request; and
(e) In performing under this Agreement, you shall comply with all
requirements of the Fund's current Prospectus and/or SAI and all
applicable laws, rules and regulations with respect to the
purchase, sale and distribution of Shares.
(f) You shall be responsible to reimburse the Fund for losses suffered
by it that are caused by reason of your willful misfeasance, bad
faith or gross negligence in the performance of your duties under
this Agreement.
10. Allocation of Costs. The Fund shall pay the cost of composition and
-------------------
printing of sufficient copies of its Prospectus and SAI as shall be required for
periodic distribution to its shareholders and the expense of registering Shares
for sale under federal securities laws.
11. Duration. This Agreement shall take effect on the date first written
--------
above, and shall supersede any and all prior General Distributor's Agreements by
and among the Fund and you. Unless earlier terminated pursuant to paragraph 12
hereof, this Agreement shall remain in effect for two years from the date of
execution hereof. This Agreement shall continue in effect from year to year
thereafter,
5
<PAGE>
provided that such continuance shall be specifically approved at least annually:
(a) by the Fund's Board of Directors or by vote of a majority of the voting
securities of the Fund; and (b) by the vote of a majority of the Directors, who
are not parties to this Agreement or "interested persons" (as defined in the
1940 Act) of any such person, cast in person at a meeting called for the purpose
of voting on such approval.
12. Termination. This Agreement may be terminated (a) by the General
-----------
Distributor at any time without penalty by giving sixty days' written notice
(which notice may be waived by the Fund); (b) by the Fund at any time without
penalty upon sixty days' written notice to the General Distributor (which notice
may be waived by the General Distributor); or (c) by mutual consent of the Fund
and the General Distributor, provided that such termination by the Fund shall be
directed or approved by the Board of Directors of the Fund or by the vote of the
holders of a "majority" of the outstanding voting securities of the Fund. In
the event this Agreement is terminated by the Fund, the General Distributor
shall be entitled to be paid the Redemption Fee under paragraph 3 hereof on the
redemption proceeds of Shares sold prior to the effective date of such
termination.
13. Assignment. This Agreement may not be amended or changed except in
----------
writing and shall be binding upon and shall enure to the benefit of the parties
hereto and their respective successors; however, this Agreement shall not be
assigned by either party and shall automatically terminate upon assignment.
14. Disclaimer of Shareholder Liability. The General Distributor
-----------------------------------
understands and agrees that the obligations of the Fund under this Agreement are
not binding upon any Director or shareholder of the Fund personally, but bind
only the Fund and the Fund's property; the General Distributor represents that
it has notice of the provisions of the Articles of Incorporation of the Fund
disclaiming Director and shareholder liability for acts or obligations of the
Fund.
15. Section Headings. The heading of each section is for descriptive
----------------
purposes only, and such headings are not to be construed or interpreted as part
of this Agreement.
If the foregoing is in accordance with your understanding, so indicate by
signing in the space provided below.
SECURITY CAPITAL EMPLOYEE REIT
FUND INCORPORATED
By:
-------------------------------
Anthony R. Manno, Jr.
President
Accepted:
SECURITY CAPITAL MARKETS GROUP
INCORPORATED
By:
----------------------------
6
<PAGE>
EXHIBIT 6(b)
DISTRIBUTION AND SERVICING AGREEMENT
This Distribution and Servicing Agreement, made this ___ day of
___________, 1998, by and between Security Capital Real Estate Mutual Funds
Incorporated, a Maryland corporation ("Fund") and Security Capital Markets Group
Incorporated, a _______ corporation, (the "Distributor").
WHEREAS, the Fund is registered with the Securities and Exchange
Commission as an open-end investment company under the Investment Company Act of
1940, as amended (the "1940 Act"), and issues registered shares of the Class I
and Class R common stock of Security Capital U.S. Real Estate Shares, Security
Capital European Real Estate Shares and Security Capital Short-Term Trading Real
Estate Shares for sale to the public under the Securities Act of 1933 (the "1933
Act") and various state securities laws; and
WHEREAS, the Fund has retained the Distributor as the principal underwriter
in connection with the offering and sale of the Class I and Class R shares of
Security Capital U.S. Real Estate Shares; and
WHEREAS, the Fund wishes to retain the Distributor as the principal
underwriter in connection with the offering and sale of Class I and Class R
shares ("Shares") of Security Capital European Real Estate Shares and Security
Capital Short-Term Real Estate Shares (each, a "Series") and to furnish certain
other services to the Series' Class I and Class R shareholders as specified in
this Agreement; and
WHEREAS, this Agreement has been approved by separate votes of the Fund's
Board of Directors and of its disinterested directors in conformity with
Section 15 of, and paragraph (b)(2) of Rule 12b-1 under, the 1940 Act; and
WHEREAS, the Distributor is willing to act as principal underwriter and to
furnish such services on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed as follows:
1. (a) The Fund hereby appoints the Distributor as principal
underwriter in connection with the offering and sale of the Class I and Class R
shares of Security Capital European Real Estate Shares and Security Capital
Short-Term Trading Real Estate Shares. The Distributor, as exclusive agent for
the Fund, and subject to applicable federal and state law and the Articles of
Incorporation and By-Laws of the Fund, shall: (1) provide services to the Fund
primarily intended to result in the sale of the Shares; (2) solicit orders for
the purchase of the Shares subject to such terms and conditions as the Fund may
specify; and (3) accept orders for the purchase of the Shares
<PAGE>
on behalf of the Fund (collectively, "Distribution Services"). The Distributor
shall comply with all applicable federal and state laws and offer the Shares of
the Fund on an agency or "best efforts" basis under which the Fund shall issue
only such Shares as are actually sold. The Distributor shall have the right to
use any list of shareholders of the Fund or the Fund or any other list of
investors which it obtains in connection with its provision of services under
this Agreement; provided, however, that the Distributor shall not sell or
knowingly provide such list or lists to any unaffiliated person without the
consent of the Fund's Board of Directors.
(b) The Distributor shall provide ongoing shareholder liaison
services, including responding to shareholder inquiries, providing shareholders
with information on their investments, and any other services now or hereafter
deemed to be appropriate subjects for the payments of "service fees" under Rule
2830 of the Conduct Rules of the National Association of Securities Dealers,
Inc. (collectively, "Shareholder Services").
2. The Distributor may enter into dealer agreements with registered and
qualified securities dealers it may select for the performance of Distribution
and Shareholder Services, and may enter into agreements with qualified dealers
and other qualified entities to perform record keeping and sub-accounting
services, the form of such agreements to be as mutually agreed upon and approved
by the Fund and the Distributor. In making such arrangements, the Distributor
shall act only as principal and not as agent for the Fund. No such dealer or
other entity is authorized to act as agent for the Fund in connection with the
offering or sale of Shares to the public or otherwise.
3. The public offering price of the Shares shall be the net asset value
per share of the outstanding Shares. The Fund or its administrator shall
furnish the Distributor with a statement of each computation of public offering
price and of the details entering into such computation.
4. As compensation for providing Distribution Services under this
Agreement, the Distributor shall receive from the Fund a distribution fee and a
service fee at the rates and under the terms and conditions of the Distribution
and Service Plan for Class I Shares and the Distribution and Service Plan for
Class R Shares (each, a "Plan") adopted by the Fund, as such Plans are in effect
from time to time, and subject to any further limitations on such fees as the
Fund's Board of Directors may impose. The Distributor may reallow any or all of
the distribution fee and service fee that it has received under this Agreement
to such dealers or sub-accountants as it may from time to time determine.
5. As used in this Agreement, the term "Registration Statement" shall
mean the registration statement most recently filed by the Fund with the
Securities and Exchange Commission and effective under the 1940 Act and 1933
Act, as such Registration Statement is amended by any amendments thereto at the
time in effect, and the terms "Prospectus" and "Statement of Additional
Information" shall mean, respectively, the form of prospectus and statement of
additional information with respect to the Fund filed by the Fund as part of the
Registration Statement, or as they may be amended from time to time.
2
<PAGE>
6. The Distributor shall print and distribute to prospective investors
Prospectuses, and shall print and distribute, upon request, to prospective
investors Statements of Additional Information, and may print and distribute
such other sales literature, reports, forms and advertisements in connection
with the sale of the Shares as comply with the applicable provisions of federal
and state law. In connection with such sales and offers of sale, the
Distributor and any dealer or subaccountant shall give only such information and
make only such statements or representations as are contained in the Prospectus,
Statement of Additional Information, or in information furnished in writing to
the Distributor by the Fund, and the Fund shall not be responsible in any way
for any other information, statements or representations given or made by the
Distributor, any dealer or sub-accountant, or their representatives or agents.
Except as specifically provided in this Agreement, the Fund shall bear none of
the expenses of the Distributor in connection with its offer and sale of the
Shares.
7. The Fund agrees at its own expense to register the Shares with the
Securities and Exchange Commission, state and other regulatory bodies, and to
prepare and file from time to time such Prospectuses, Statements of Additional
Information, amendments, reports and other documents as may be necessary to
maintain the Registration Statement. The Fund shall bear all expenses related
to preparing and typesetting such Prospectuses, Statements of Additional
Information, and other materials required by law and such other expenses,
including printing and mailing expenses, related to such Fund's communications
with persons who are shareholders of the Fund.
8. The Fund agrees to indemnify, defend and hold the Distributor, its
several officers and directors, and any person who controls the Distributor
within the meaning of Section 15 of the 1933 Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Distributor, its
officers or directors, or any such controlling person may incur, under the 1933
Act or under common law or otherwise, arising out of or based upon any alleged
untrue statement of a material fact contained in the Registration Statement or
arising out of or based upon any alleged omission to state a material fact
required to be stated or necessary to make the Registration Statement not
misleading, provided that in no event shall anything contained in this Agreement
be construed so as to protect the Distributor against any liability to the Fund
or its shareholders to which the Distributor would otherwise be subject by
reason of willful misfeasance, bad faith, or gross negligence in the performance
of its duties, or by reason of its reckless disregard of its obligations and
duties under this Agreement, and further provided that the Fund shall not
indemnify the Distributor for conduct set forth in paragraph 9.
9. The Distributor agrees to indemnify, defend and hold the Fund, its
several officers and directors, and any person who controls the Fund within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which the Fund, its officers or
directors, or any such controlling person may incur, under the 1933 Act or under
common law or otherwise, on account of any wrongful act of the Distributor or
any of its employees or arising out of or based upon any alleged untrue
statement of a material fact contained in information furnished in writing by
the
3
<PAGE>
Distributor to the Fund for use in the Registration Statement or arising out
of or based upon any alleged omission to state a material fact in connection
with such information required to be stated in the Registration Statement or
necessary to make such information not misleading. As used in this paragraph,
the term "employee" shall not include a corporate entity under contract to
provide services to the Fund or the Fund, or any employee of such a corporate
entity, unless such person is otherwise an employee of the Fund.
10. The Fund reserves the right at any time to withdraw all offerings of
the Shares of the Fund by written notice to the Distributor at its principal
office.
11. The Fund shall not issue certificates representing Shares unless
requested by a shareholder. If such request is transmitted through the
Distributor, the Fund will cause certificates evidencing the Shares owned to be
issued in such names and denominations as the Distributor shall from time to
time direct, provided that no certificates shall be issued for fractional
Shares.
12. The Distributor may at its sole discretion, directly or through
dealers, repurchase Shares offered for sale by the shareholders or dealers.
Repurchase of Shares by the Distributor shall be at the net asset value next
determined after a repurchase order has been received. The Distributor will
receive no commission or other remuneration for repurchasing Shares. At the end
of each business day, the Distributor shall notify by facsimile or in writing,
the Fund and the Fund's transfer agent, of the orders for repurchase of Shares
received by the Distributor since the last such report, the amount to be paid
for such Shares, and the identity of the shareholders or dealers offering Shares
for repurchase. Upon such notice, the Fund shall pay the Distributor such
amounts as are required by the Distributor for the repurchase of such Shares in
cash or in the form of a credit against moneys due the Fund from the Distributor
as proceeds from the sale of Shares. The Fund reserves the right to suspend
such repurchase right upon written notice to the Distributor. The Distributor
further agrees to act as agent for the Fund to receive and transmit promptly to
the Fund's transfer agent shareholder and dealer requests for redemption of
Shares.
13. The Distributor is an independent contractor and shall be agent for
the Fund only in respect to the sale and redemption of the Shares.
14. The services of the Distributor to the Fund under this Agreement are
not to be deemed exclusive, and the Distributor shall be free to render similar
services or other services to others so long as its services hereunder are not
impaired thereby.
15. The Distributor shall prepare reports for the Fund's Board of
Directors on a quarterly basis showing such information concerning expenditures
related to this Agreement as from time to time shall be reasonably requested by
the Board of Directors.
16. As used in this Agreement, the terms "assignment", "interested
person", and "majority of the outstanding voting securities" shall have the
meanings given to them by Section 2(a) of the 1940 Act, subject to such
exemptions as may be granted by the Securities and Exchange Commission by any
rule, regulation or order.
4
<PAGE>
17. This Agreement will become effective with respect to the Fund on the
date first written above and, unless sooner terminated as provided herein, will
continue in effect for one year from the above written date. Thereafter, if not
terminated, this Agreement shall continue in effect with respect to the Fund for
successive annual periods ending on the same date of each year, provided that
such continuance is specifically approved at least annually (i) by the Fund's
Board of Directors or (ii) by a vote of a majority of the outstanding Class I
and Class R voting securities of each Series (as defined in the 1940 Act),
provided that in either event the continuance is also approved by a majority of
the Fund's Directors who are not interested persons (as defined in the 1940 Act)
of any party to this Agreement, by vote cast in person at a meeting called for
the purpose of voting on such approval.
18. This Agreement is terminable with respect to a Series or in its
entirety without penalty, on not less than 60 days notice to the other party,
by: (i) the Fund's Board of Directors by a vote of the Directors who are not
interested persons of the Fund within the meaning of Section 2(a)(19) of the
1940 Act, and have no direct or indirect financial interest in the operation of
the Plans or in any agreement related to the Plans, including this Agreement;
(ii), by vote of a majority of the outstanding Class I and Class R voting
securities of the Series (as defined in the 1940 Act); (iii) by the
Distributor, or (iv) upon the mutual written consent of the Distributor and the
Fund. This Agreement will also automatically and immediately terminate in the
event of its assignment.
19. No provision of this Agreement may be changed, waived, discharged or
terminated orally, except by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought.
IN WITNESS WHEREOF, the parties hereto caused this Agreement
to be executed by their officers thereunto duly authorized.
Attest: SECURITY CAPITAL REAL ESTATE
MUTUAL FUNDS INCORPORATED
By: By:
---------------------------- ------------------------------
Attest: SECURITY CAPITAL MARKETS GROUP
INCORPORATED
By: By:
---------------------------- ------------------------------
5
<PAGE>
EXHIBIT 8
CUSTODIAN AGREEMENT
THIS AGREEMENT made on _________________, 1997 between Security Capital
Employee REIT Fund Incorporated; a Maryland Corporation (hereinafter called the
("Fund"), and FIRSTAR TRUST COMPANY, a corporation organized under the laws of
the State of Wisconsin (hereinafter called the "Custodian"),
WHEREAS, the Fund desires that its securities and cash shall be hereafter
held and administered by the Custodian pursuant to the terms of this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements herein made, the
Fund and Custodian agree as follows:
1. Definitions
-----------
The word "securities" as used herein includes stocks, shares, bonds,
debentures, notes, mortgages or other obligations, and any certificates,
receipts, warrants or other instruments representing rights to receive, purchase
or subscribe for the same, or evidencing or representing any other rights or
interests therein, or in any property or assets.
The words "officers' certificate" shall mean a request or direction or
certification in writing signed in the name of the Fund by any two of the
President, a Vice President, the Secretary and the Treasurer of the Fund, or any
other persons duly authorized to sign by the Board of Directors of the Fund.
The word "Board" shall mean Board of Directors of the Fund.
2. Names, Titles, and Signatures of the Fund's Officers
----------------------------------------------------
An officer of the Fund will certify to the Custodian the names and
signatures of those persons authorized to sign the officers' certificates
described in Section 1 hereof, and the names of the members of the Board of
Directors of the Fund, together with any changes which may occur from time to
time.
3. Additional Classes
------------------
The Fund is authorized to issue separate classes of shares of stock
representing interests in separate investment portfolios. The parties intend
that each portfolio established by the Fund, now or in the future, be covered by
the terms and conditions of this Agreement.
4. Receipt and Disbursement of Money
---------------------------------
A. The Custodian shall open and maintain a separate account or
accounts in the name of the Fund, subject only to draft or order by the
Custodian acting pursuant to the terms of this Agreement. Custodian shall hold
in such account or accounts, subject to the provisions hereof, all cash
<PAGE>
received by it from or for the account of the Fund. Custodian shall make
payments of cash to, or for the account of, the Fund from such cash only:
(a) for the purchase of securities for the portfolio of the Fund
upon the delivery of such securities to the Custodian,
registered in the name of the Funds or of the nominee of
Custodian referred to in Section 7 or in proper form for
transfer;
(b) for the purchase or redemption of shares of the common stock
of the Fund upon delivery thereof to the Custodian, or upon
proper instructions from the Fund;
(c) for the payment of interest, dividends, taxes, investment
adviser's fees or operating expenses (including, without
limitation thereto, fees for legal, accounting, auditing and
custodian services and expenses for printing and postage);
(d) for payments in connection with the conversion, exchange or
surrender of securities owned or subscribed to by the Fund
held by or to be delivered to the Custodian; or
(e) for other proper corporate purposes certified by resolution
of the Board of Directors of the Funds.
Before making any such payment, the Custodian shall receive (and may rely
upon) an officers' certificate requesting such payment and stating that it is
for a purpose permitted under the terms of items (a), (b), (c), or (d) of this
Subsection A, and also, in respect of item (e), upon receipt of an officers'
certificate specifying the amount of such payment, setting forth the purpose for
which such payment is to be made, declaring such purpose to be a proper
corporate purpose, and naming the person or persons to whom such payment is to
be made, provided, however, that an officers' certificate need not precede the
disbursement of cash for the purpose of purchasing a money market instrument, or
any other security with same or next-day settlement, if the President, a Vice
President, the Secretary or the Treasurer of the Fund issues appropriate oral or
facsimile instructions to the Custodian and an appropriate officers' certificate
is received by the Custodian within two business days thereafter.
B. The Custodian is hereby authorized to endorse and collect all
checks, drafts or other orders for the payment of money received by Custodian
for the account of the Fund.
C. The Custodian shall, upon receipt of proper instructions, make
federal funds available to the Fund as of specified times agreed upon from time
to time by the Fund and the Custodian in the amount of checks received in
payment for shares of the Fund which are deposited into the Fund's account.
5. Segregated Accounts
-------------------
Upon receipt of proper instructions, the Custodian shall establish and
maintain segregated account for and on behalf of the portfolio, into which
account may be transferred cash and/or securities.
2
<PAGE>
6. Transfer, Exchange, Redelivery, etc. of Securities
--------------------------------------------------
The Custodian shall have sole power to release or deliver any securities of
the Fund held by it pursuant to this Agreement. The Custodian agrees to
transfer, exchange or deliver securities held by it hereunder only:
(a) for sales of such securities for the account of the Fund upon
receipt by the Custodian of payment therefor;
(b) when such securities are called, redeemed or retired or otherwise
become payable;
(c) for examination by any broker selling any such securities in
accordance with "street delivery" custom;
(d) in exchange for, or upon conversion into, other securities alone
or other securities and cash whether pursuant to any plan of
merger, consolidation, reorganization, recapitalization or
readjustment, or otherwise;
(e) upon conversion of such securities pursuant to their terms into
other securities;
(f) upon exercise of subscription, purchase or other similar rights
represented by such securities;
(g) for the purpose of exchanging interim receipts or temporary
securities for definitive securities;
(h) for the purpose of redeeming in kind shares of common stock of the
Fund upon delivery thereof to the Custodian; or
(i) for other proper corporate purposes.
As to any deliveries made by the Custodian pursuant to items (a), (b), (d),
(e), (f), and (g), securities or cash receivable in exchange therefor shall be
deliverable to the Custodian.
Before making any such transfer, exchange or delivery, the Custodian shall
receive (and may rely upon) an officers' certificate requesting such transfer,
exchange or delivery, and stating that it is for a purpose permitted under the
terms of items (a), (b), (c), (d), (e), (f), (g), or (h) of this Section 6 and
also, in respect of item (i), upon receipt of an officers' certificate
specifying the securities to be delivered, setting forth the purpose for which
such delivery is to be made, declaring such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of such securities
shall be made, provided, however, that an officers' certificate need not precede
any such transfer, exchange or delivery of a money market instrument, or any
other security with same or nextday settlement, if the President, a Vice
President, the Secretary or the Treasurer of the Fund issues appropriate oral or
facsimile instructions to the Custodian and an appropriate officers' certificate
is received by the Custodian within two business days thereafter.
3
<PAGE>
7. Custodian's Acts Without Instructions
-------------------------------------
Unless and until the Custodian receives an officers' certificate to the
contrary, the Custodian shall: (a) present for payment all coupons and other
income items held by it for the account of the Fund which call for payment upon
presentation and hold the cash received by it upon such payment for the account
of the Fund; (b) collect interest and cash dividends received, with notice to
the Fund, for the account of the Fund; (c) hold for the account of the Fund
hereunder all stock dividends, rights and similar securities issued with respect
to any securities held by it hereunder; and (d) execute, as agent on behalf of
the Fund, all necessary ownership certificates required by the Internal Revenue
Code of 1986, as amended (the "Internal Revenue Code") or the regulations of the
United States Treasury Department issued thereunder or under the laws of any
state now or hereafter in effect, inserting the Fund name on such certificates
as the owner of the securities covered thereby, to the extent it may lawfully do
so.
8. Registration of Securities
--------------------------
Except as otherwise directed by an officers' certificate, the Custodian
shall register all securities, except such as are in bearer form, in the name of
a registered nominee of the Custodian as defined in the Internal Revenue Code
and any Regulations of the Treasury Department issued thereunder or in any
provision of any subsequent federal tax law exempting such transaction from
liability for stock transfer taxes, and shall execute and deliver all such
certificates in connection therewith as may be required by such laws or
regulations or under the laws of any state. The Custodian shall use its best
efforts to the end that the specific securities held by it hereunder shall be at
all times identifiable in its records.
The Fund shall from time to time furnish to the Custodian appropriate
instruments to enable the Custodian to hold or deliver in proper form for
transfer, or to register in the name of its registered nominee, any securities
which it may hold for the account of the Fund and which may from time to time be
registered in the name of the Fund.
9. Voting and Other Action
-----------------------
Neither the Custodian nor any nominee of the Custodian shall vote any of
the securities held hereunder by or for the account of the Fund, except in
accordance with the instructions contained in an officers' certificate. The
Custodian shall deliver, or cause to be executed and delivered, to the Fund all
notices, proxies and proxy soliciting materials with relation to such
securities, such proxies to be executed by the registered holder of such
securities (if registered otherwise than in the name of the Fund), but without
indicating the manner in which such proxies are to be voted.
10. Transfer Tax and Other Disbursements
------------------------------------
The Fund shall pay or reimburse the Custodian from time to time for any
transfer taxes payable upon transfers of securities made hereunder, and for all
other reasonable, necessary and proper disbursements and expenses made or
incurred by the Custodian in the performance of this Agreement.
The Custodian shall execute and deliver such certificates in connection
with securities delivered to it or by it under this Agreement as may be required
under the provisions of the Internal Revenue Code and any regulations of the
Treasury Department issued thereunder, or under the laws of any state, to exempt
from taxation any exemptible transfers and/or deliveries of any such securities.
4
<PAGE>
11. Concerning the Custodian
------------------------
The Custodian shall be paid as compensation for its services pursuant to
this Agreement such compensation as may from time to time be agreed upon in
writing between the two parties. Until modified in writing, such compensation
shall be as set forth in Exhibit A attached hereto.
The Custodian shall not be liable for any action taken in good faith upon
any certificate herein described or certified copy of any resolution of the
Fund's Board of Directors, and may rely on the genuineness of any such document
which it may in good faith believe to have been validly executed.
The Fund agrees to indemnify and hold harmless the Custodian and its
nominee from all taxes, charges, expenses, assessments, claims and liabilities
(including reasonable counsel fees) incurred or assessed against it or by its
nominee in connection with the performance of this Agreement, except such as may
arise from its or its nominee's own negligent action, negligent failure to act,
bad faith or willful misconduct. The Custodian is authorized to charge any
account of the Fund for such items.
In the event of any advance of cash for any purpose made by the Custodian
resulting from orders or instructions of the Fund, or in the event that the
Custodian or its nominee shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in connection with the performance
of this Agreement, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct, any property
at any time held for the account of the Fund shall be security therefore.
The Custodian agrees to indemnify and hold harmless the Fund from all
charges, expenses, assessments, and claims/liabilities (including reasonable
counsel fees) incurred or assessed against it in connection with the performance
of this Agreement, except such as may arise from the Fund's own negligent
action, negligent failure to act, or willful misconduct.
12. Subcustodians
-------------
The Custodian is hereby authorized to engage another bank or trust company
as (a "Subcustodian") for all or any part of the Fund's assets, so long as any
such bank or trust company is a bank or trust company organized under the laws
of any state of the United States, having an aggregate capital, surplus and
undivided profit, as shown by its last published report, of not less than Two
Million Dollars ($2,000,000) and provided further that, if the Custodian
utilizes the services of a Subcustodian, the Custodian shall remain fully liable
and responsible for any losses caused to the Fund by the Subcustodian as fully
as if the Custodian was directly responsible for any such losses under the terms
of this Agreement.
Notwithstanding anything contained herein, if the Fund requires the
Custodian to engage specific Subcustodians for the safekeeping and/or clearing
of assets, the Fund agrees to indemnify and hold harmless the Custodian from all
claims, expenses and liabilities incurred or assessed against it in connection
with the use of such Subcustodians in regard to the Fund's assets, except as may
arise from its own negligent action, negligent failure to act, bad faith or
willful misconduct.
5
<PAGE>
13. Reports by the Custodian
------------------------
The Custodian shall furnish the Fund periodically as agreed upon with a
statement summarizing all transactions and entries for the account of the Fund.
The Custodian shall furnish to the Fund, at the end of every month, a list of
the portfolio securities showing the aggregate cost of each issue. The books
and records of the Custodian pertaining to its actions under this Agreement
shall be open to inspection and audit at reasonable times by officers of, and of
auditors employed by, the Fund.
14. Termination or Assignment
-------------------------
This Agreement may be terminated by the Fund, or by the Custodian, on sixty
(60) days notice, given in writing and sent by registered mail to Custodian at
P.O. Box 2054, Milwaukee, Wisconsin 53201, or to the Fund at 11 South LaSalle
Street, Chicago, Illinois 60603 as the case may be. Upon any termination of
this Agreement, pending appointment of a successor to the Custodian or a vote of
the shareholders of the Fund to dissolve or to function without a custodian of
its cash, securities and other property, the Custodian shall not deliver cash,
securities or other property of the Fund to the Fund, but may deliver them to a
bank or trust company of its own selection, having an aggregate capital, surplus
and undivided profits, as shown by its last published report of not less than
Two Million Dollars ($2,000,000) as a custodian for the Fund to be held under
terms similar to those of this Agreement, provided, however, that Custodian
shall not be required to make any such delivery or payment until full payment
shall have been made by the Fund of all liabilities constituting a charge on or
against the properties then held by the Custodian or on or against the
Custodian, and until full payment shall have been made to the Custodian of all
its fees, compensation, costs and expenses, subject to the provisions of Section
10 of this Agreement.
This Agreement may not be assigned by the Custodian without the consent of
the Fund, authorized or approved by a resolution of its Board of Directors.
15. Deposits of Securities in Securities Depositories
-------------------------------------------------
No provision of this Agreement shall be deemed to prevent the use by the
Custodian of a central securities clearing agency or securities depository,
provided, however, that the Custodian and the central securities clearing agency
or securities depository meet all applicable federal and state laws and
regulations, and the Board of Directors of the Fund approves by resolution the
use of such central securities clearing agency or securities depository.
16. Records
-------
To the extent that the Custodian in any capacity prepares or maintains any
records required to be maintained and preserved by the Fund pursuant to the
provisions of the 1940 Act or the rules and regulations promulgated thereunder,
the Custodian agrees to make any such records available to the Fund upon request
and to preserve such records for the periods prescribed in Rule 31a-2 under the
1940 Act.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above-written by their respective officers
thereunto duly authorized.
Executed in several counterparts, each of which is an original.
Security Capital Employee Firstar Trust Company
REIT Fund Incorporated
By: By:
----------------------------- -----------------------------
Vice President
Attest:
By:
-----------------------------
Assistant Secretary
7
<PAGE>
EXHIBIT 9(a)
TRANSFER AGENT AGREEMENT
THIS AGREEMENT is made and entered into on this _______ day of
____________, 1997, by and between Security Capital Employee REIT Fund
Incorporated (hereinafter referred to as the "Fund") and Firstar Trust Company,
a corporation organized under the laws of the State of Wisconsin (hereinafter
referred to as the "Agent").
WHEREAS, the Fund, is an open-ended management investment company which is
registered under the Investment Company Act of 1940; as amended (the "Investment
Company Act"); and
WHEREAS, the Agent is a trust company and, among other things, is in the
business of administering transfer and dividend disbursing agent functions for
the benefit of its customers;
NOW, THEREFORE, the Fund and the Agent do mutually promise and agree as
follows:
1. Terms of Appointment; Duties of the Agent
-----------------------------------------
Subject to the terms and conditions set forth in this Agreement, the Fund
hereby employs and appoints the Agent to act as transfer agent and dividend
disbursing agent for the Fund and Agent agrees to render such services and to be
compensated therefor as herein provided.
The Agent shall perform all of the customary services of a transfer agent
and dividend disbursing agent, and as relevant, agent in connection with
accumulation, open account or similar plans (including without limitation any
periodic investment plan or periodic withdrawal program), including but not
limited to:
A. Receive orders for the purchase of shares, with prompt delivery, where
appropriate, of payment and supporting documentation to the Fund's
custodian;
B. Process purchase orders and issue the appropriate number of certificated
or uncertificated shares with such uncertificated shares being held in
the appropriate shareholder account;
C. Process redemption requests received in good order and, where relevant,
deliver appropriate documentation to the Fund's custodian;
D. Pay monies upon receipt from the Fund's custodian, where relevant in
accordance with the instructions of redeeming shareholders;
E. Process transfers of shares in accordance with the shareowner's
instructions;
<PAGE>
F. Process exchanges between funds within the same family of funds, if any;
G. Issue and/or cancel certificates as instructed; replace lost, stolen or
destroyed certificates upon receipt of satisfactory indemnification or
surety bond;
H. Prepare and transmit payments for dividends and distributions declared
by the Fund;
I. Make changes to shareholder records, including, but not limited to,
address changes in plans (i.e., systematic withdrawal, automatic
investment, dividend reinvestment, etc.);
J. Record the issuance of shares of the Fund and maintain, pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), Rule
17ad-10(e), a record of the total number of shares of the Fund that are
authorized, issued and outstanding;
K. Prepare shareholder meeting lists and, if applicable, mail, receive and
tabulate proxies;
L. Mail shareholder reports and prospectuses to current shareholders;
M. Prepare and file U.S. Treasury Department forms 1099 and other
appropriate information returns required with respect to dividends and
distributions for all shareholders;
N. Provide shareholder account information upon request and prepare and
mail confirmations and statements of account to shareholders for all
purchases, redemptions and other confirmable transactions as agreed upon
with the Fund; and
O. Provide a Blue Sky System which will enable the Fund to monitor the
total number of shares sold in each state.
2. Compensation
------------
The Fund agrees to pay the Agent for performance of the duties listed in
this Agreement; the fees set forth in Schedule A and reasonable out-of-
pocket expenses including but are not limited to the following: printing,
postage, forms, stationery, record retention, mailing, insertion,
programming, labels, shareholder lists and proxy expenses.
These fees and reimbursable expenses may be changed from time to time
subject to mutual written agreement between the Fund and the Agent.
The Fund agrees to pay all fees and reimbursable expenses within thirty
(30) business days following the mailing of the billing notice.
3. Representations of Agent
------------------------
The Agent represents and warrants to the Fund that:
A. It is a trust company duly organized, existing and in good standing
under the laws of Wisconsin;
<PAGE>
B. It is a registered transfer agent under the Exchange Act; Transfer Agent
shall provide a copy of the TA-1 Report to the Fund on an annual basis.
C. It is duly qualified to carry on its business in the state of Wisconsin;
D. It is empowered under applicable laws and by its charter and bylaws to
enter into and perform this Agreement;
E. All requisite corporate proceedings have been taken to authorize it to
enter and perform this Agreement;
F. It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.; and
G. It will comply with all applicable requirements of the Securities Act of
1933 and the Exchange Act, the Investment Company Act, as amended (the
"Security Act") and any laws, rules, and regulations of governmental
authorities having jurisdiction.
4. Representations of the Fund
---------------------------
The Fund represents and warrants to the Agent that:
A. The Fund is an open-ended investment company under the Investment
Company Act;
B. The Fund is a corporation organized, existing, and in good standing
under the laws of the State of Maryland;
C. The Fund is empowered under applicable laws and by its by-laws to enter
into and perform this Agreement;
D. All necessary proceedings required by the Fund's Articles of
Incorporation have been taken to authorize it to enter into and perform
this Agreement;
E. The Fund will comply with all applicable requirements of the Securities
Act and the Exchange Act, the Investment Company Act and any laws, rules
and regulations of governmental authorities having jurisdiction; and
F. A registration statement under the Securities Act is currently effective
and will remain effective with respect to all shares of the Fund being
offered for sale.
5. Covenants of Funds and Agent
----------------------------
The Fund shall furnish the Agent a certified copy of the resolution of the
Board of Directors of the Fund authorizing the appointment of the Agent and
the execution of this Agreement. The Fund shall provide to the Agent a copy
of the Fund's Articles of Incorporation, by-laws
<PAGE>
of the Fund, and all amendments thereto.
6. Indemnification; Remedies Upon Breach
-------------------------------------
The Agent shall act in good faith and exercise reasonable care in the
performance of its duties under this Agreement. The Agent shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the Fund
in connection with matters to which this Agreement relates, including losses
resulting from mechanical breakdowns or the failure of communication or power
supplies beyond the Agent's control, except a loss resulting from the Agent's
refusal or failure to comply with the terms of this Agreement or from bad faith,
negligence, or willful misconduct on its part in the performance of its duties
under this Agreement. Notwithstanding any other provision of this Agreement, the
Fund shall indemnify and hold harmless the Agent from and against any and all
claims, demands, losses, expenses, and liabilities (whether with or without
basis in fact or law) of any and every nature (including reasonable attorneys'
fees) which the Agent may sustain or incur or which may be asserted against the
Agent by any person arising out of any action taken or omitted to be taken by it
in performing the services hereunder (i) in accordance with the foregoing
standards, or (ii) in reliance upon any written or oral instruction provided to
the Agent by any duly authorized officer of the Fund, such duly authorized
officer to be included in a list of authorized officers furnished to the Agent
and as amended from time to time in writing by resolution of the Board of
Directors of the Fund.
Further, the Fund will indemnify and hold the Agent harmless against any
and all losses, claims, damages, liabilities or expenses (including reasonable
counsel fees and expenses) resulting from any claim, demand, action, or suit as
a result of the negligence of the Fund or the principal underwriter (unless
contributed to by the Agent's breach of this Agreement or other agreements
between the Fund and the Agent, or the Agent's own negligence or bad faith); or
as a result of the Agent acting upon telephone instructions relating to the
exchange or redemption of shares received by the Agent and reasonably believed
by the Agent under a standard of care customarily used in the industry to have
originated from the record owner of the subject shares; or as a result of acting
in reliance upon any genuine instrument or stock certificate signed,
countersigned, or executed by any person or persons authorized to sign,
countersign, or execute the same.
In the event of a mechanical breakdown or failure of communication or power
supplies beyond its control, the Agent shall take all reasonable steps to
minimize service interruptions for any period that such interruption continues
beyond the Agent's control. The Agent will make every reasonable effort to
restore any lost or damaged data and correct any errors resulting from such a
breakdown at the expense of the Agent. The Agent agrees that it shall, at all
times, have reasonable contingency plans with appropriate parties, making
reasonable provision for emergency use of electrical data processing equipment
to the extent appropriate equipment is available. Representatives of the Fund
shall be entitled to inspect the Agent's premises and operating capabilities at
any time during regular business hours of the Agent, upon reasonable notice to
the Agent.
Regardless of the above, the Agent reserves the right to reprocess and
correct administrative errors at its own expense.
In order that the indemnification provisions contained in this section
shall apply, it is
<PAGE>
understood that if in any case the Fund may be asked to indemnify or hold the
Agent harmless, the Fund shall be fully and promptly advised of all pertinent
facts concerning the situation in question, and it is further understood that
the Agent will use all reasonable care to notify the Fund promptly concerning
any situation which presents or appears likely to present the probability of
such a claim for indemnification against the Fund. The Fund shall have the
option to defend the Agent against any claim which may be the subject of this
indemnification. In the event that the Fund so elects, it will so notify the
Agent and thereupon the Fund shall take over complete defense of the claim, and
the Agent shall in such situation initiate no further legal or other expenses
for which it shall seek indemnification under this section. The Agent shall in
no case confess any claim or make any compromise in any case in which the Fund
will be asked to indemnify the Agent except with the Fund's prior written
consent.
The Agent shall indemnify and hold the Fund harmless from and against any
and all claims, demands, losses, expenses, and liabilities (whether with or
without basis in fact or law) of any and every nature (including reasonable
attorneys' fees) which may be incurred by or asserted against the Fund arising
out of any action taken or omitted to be taken by the Agent as a result of the
Agent's refusal or failure to comply with the terms of this Agreement, its bad
faith, negligence, or willful misconduct.
7. Confidentiality
---------------
The Agent agrees on behalf of itself and its employees to treat
confidentially all records and other information relative to the Fund and its
shareholders and shall not disclose such records and information to any other
party, except after prior notification to and approval in writing by the Fund,
which approval shall not be unreasonably withheld and may not be withheld where
the Agent may be exposed to civil or criminal contempt proceedings for failure
to comply after being requested to divulge such information by duly constituted
authorities.
8. Additional Classes
------------------
The Fund is authorized to issue separate classes of shares representing
interests in separate investment portfolios. The parties intend that each
portfolio established by the Fund, be covered by the terms and conditions of
this Agreement.
9. Records
-------
The Agent shall keep records relating to the services to be performed
hereunder, in the form and manner, and for such period as it may deem advisable
and is agreeable to the Fund but not inconsistent with the rules and regulations
of appropriate government authorities, in particular, Section 31 of The
Investment Company Act, and the rules thereunder. The Agent agrees that all
such records prepared or maintained by the Agent relating to the services to be
performed by the Agent hereunder are the property of the Fund and will be
preserved, maintained, and made available in accordance with such section and
rules of the Investment Company Act and will be promptly surrendered to the Fund
on and in accordance with its request.
<PAGE>
10. Wisconsin Law to Apply
----------------------
This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the state of
Wisconsin.
11. Amendment, Assignment, Termination and Notice
---------------------------------------------
A. This Agreement may be amended by the mutual written consent of the
parties.
B. This Agreement may be terminated upon sixty (60) day's written notice
given by one party to the other.
C. This Agreement and any right or obligation hereunder may not be
assigned by either party without the signed, written consent of the
other party.
D. Any notice required to be given by the parties to each other under the
terms of this Agreement shall be in writing, addressed and delivered,
or mailed to the principal place of business of the other party. If to
the Agent, such notice should to be sent to Firstar Trust Company, 615
East Michigan Street, Milwaukee, Wisconsin 53202. If to the Funds, such
notice should be sent to Daniel F. Miranda, Security Capital Employee
REIT Fund Incorporated, 11 South La Salle St., Chicago, Illinois 60603.
E. In the event that the Fund gives to the Agent its written intention to
terminate and appoint a successor transfer agent, the Agent agrees to
cooperate in the transfer of its duties and responsibilities to the
successor, including any and all relevant books, records and other data
established or maintained by the Agent under this Agreement.
F. Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be
paid by the Fund.
Security Capital Employee REIT Firstar Trust Company
Fund Incorporated
By: By:
------------------------- ----------------------------
Vice President
Attest:
------------------------
Assistant Secretary
<PAGE>
EXHIBIT 9(b)
FUND ACCOUNTING AND ADMINISTRATION AGREEMENT
THIS AGREEMENT made as of March ___, 1997 by and between Security Capital
Employee REIT Fund Incorporated, a Maryland corporation (the "Fund"), and
Security Capital Investment Research Group Incorporated, a Delaware corporation
(the "Administrator").
W I T N E S S E T H:
WHEREAS, the Fund is an open-end, management investment company; and
WHEREAS, the Fund wishes to retain the Administrator to provide certain
fund accounting and administration services with respect to the Fund and the
Administrator is willing to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints the Administrator to provide
-----------
fund accounting and administration services to the Fund, subject to the
supervision of the Board of Directors of the Fund (the "Board of Directors"),
for the period and on the terms set forth in this Agreement. The Administrator
accepts such appointment and agrees to furnish the services herein set forth in
return for the compensation as provided in Paragraph 4 of this Agreement. In
the event that the Fund establishes one or more additional portfolios with
respect to which it decides to retain the Administrator to act as administrator
hereunder, the Fund shall notify the Administrator in writing. If the
Administrator is willing to render such services to a new portfolio, they shall
so notify the Fund in writing whereupon such portfolio shall become a Fund
hereunder and shall be subject to the provisions of this Agreement to the same
extent as the Fund, except to the extent that said provisions (including those
relating to the compensation payable by the Fund) may be modified with respect
to such portfolio in writing by the Fund and the Administrator at the time of
the addition of such new portfolio.
2. Delivery of Documents. The Fund has furnished the Administrator with
---------------------
copies, properly certified or authenticated, of each of the following:
(a) Resolutions of the Fund's Board of Directors authorizing the
appointment of the Administrator to provide certain fund accounting and
administration services to the Fund and approving this Agreement;
(b) The Fund's Articles of Incorporation ("Charter");
(c) The Fund's Bylaws ("Bylaws");
(d) The most recent draft of the Fund's Registration Statement on
Form N-1A and when completed, the Fund will provide its most recent Prospectus
and Statement of Additional Information and all amendments and supplements
thereto (such Prospectus and Statement of Additional Information
<PAGE>
and supplements thereto, as presently in effect and as from time to time
hereafter amended and supplemented, herein called the "Prospectus").
The Fund will timely furnish the Administrator from time to time with
copies, properly certified or authenticated, of all amendments of or supplements
to the foregoing, if any.
3. Services and Duties. Subject to the supervision and control of the
-------------------
Fund's Board of Directors, the Administrator agrees to assist in supervising
aspects of the Fund's administrative operations, including but not limited to
the performance of the following specific services for the Fund:
(a) Provide office facilities (which may be in the offices of the
Administrator or a corporate affiliate of them, but shall be in such location as
the Fund shall reasonably approve) and the services of a principal financial
officer to be appointed by the Fund;
(b) Furnish statistical and research data, clerical services, and
stationery and office supplies;
(c) Keep and maintain all financial accounts and records (other than
those required to be maintained by the Fund's Custodian and Transfer Agent)
including without limit those required under Section 31(a) and Rule 3la-1 under
the Investment Company Act of 1940 (the "1940 Act");
(d) Compute, and transmit to the NASD service for the publication of
fund prices, the Fund's net asset value, net income and net capital gain (loss)
in accordance with the Fund's Prospectus and resolutions of its Board of
Directors;
(e) Compile data for, and prepare required reports and notices to
shareholders of record including, without limitation, proxy statements,
Semiannual and Annual Reports to shareholders;
(f) Compile data for, prepare for execution and file all reports or
other documents, including tax returns, required by Federal, state and other
applicable laws and regulations, including those required by applicable Federal
and state tax laws (other than those required to be filed by the Fund's
Custodian or Transfer Agent);
(g) Assist in developing and monitoring compliance procedures for the
Fund and any class or series thereof, including, without limitation, procedures
to monitor compliance with applicable law and regulations, the Fund's investment
objectives, policies and restrictions, its continued qualification as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code");
(h) Determine, together with the Fund's Board of Directors, the
jurisdictions in which the Fund's shares shall be registered or qualified for
sale and, in connection therewith, the Administrator shall be responsible for
the registration for sale and maintenance of the registrations of shares for
sale under the securities laws of any state. Payment of share registration fees
for qualifying or continuing the qualification of Fund shares or the Fund as a
dealer or broker, if applicable, shall be made by the Fund;
(i) Provide financial data requested by the Fund and its outside
counsel;
2
<PAGE>
(j) Perform such other duties related to the administration of the
Fund's operations as reasonably requested by the Board of Directors, from time
to time;
(k) Assist in the monitoring of regulatory and legislative
developments which may affect the Fund and, in response to such developments,
counsel and assist the Fund in routine regulatory examinations or investigations
of the Fund, and work with outside counsel to the Fund in connection with
regulatory matters or litigation.
In performing its duties as administrator of the Fund, the Administrator
(a) will act in accordance with the Fund's Charter, Bylaws, Prospectus,
Statement of Additional Information and the instructions and directions of the
Fund's Board of Directors and will conform to, and comply with, the requirements
of the 1940 Act and all other applicable Federal or state laws and regulations,
and (b) will consult with outside legal counsel to the Fund, as necessary or
appropriate.
The Administrator will preserve for the periods prescribed by Rule 31a-2
under the 1940 Act the records required to be maintained by Rule 31a-1 under
said Act in connection with the services required to be performed hereunder.
The Administrator further agrees that all such records which it maintains for
the Fund are the property of the Fund and further agrees to surrender promptly
to the Fund any of such records upon the Fund's request.
4. Fees; Expenses; Expense Reimbursement. For the services rendered
-------------------------------------
pursuant to this Agreement for the Fund, the Administrator shall be entitled to
a fee based on the average net assets of the Fund determined at the annual rate
outlined in Exhibit A and applied to the average daily net assets of the Fund.
Such fees are to be computed daily and paid monthly on the first business day of
the following month. Upon any termination of this Agreement before the end of
any month, the fee for such part of the month shall be prorated according to the
proportion which such period bears to the full monthly period and shall be
payable upon the date of termination of this Agreement.
For the purpose of determining fees payable to the Administrator, the value
of the Fund's net assets shall be computed as required by its Prospectus,
generally accepted accounting principles and resolutions of the Fund's Board of
Directors.
The Administrator will from time to time employ or associate with
themselves such person or persons as they may believe to be fitted to assist
them in the performance of this Agreement. Such person or persons may be
officers and employees who are employed by both the Administrator and the Fund.
The compensation of such person or persons for such employment shall be paid by
the Administrator and no obligation may be incurred on behalf of the Fund in
such respect.
The Administrator will bear all expenses in connection with the performance
of its services under this Agreement except as otherwise expressly provided
herein. Other expenses to be incurred in the operation of the Fund, including
taxes, interest, brokerage fees and commissions, if any, salaries and fees of
officers and directors who are not officers, directors shareholders or employees
of the Administrator, or the Fund's investment advisor or distributor for the
Fund, Securities and Exchange Commission fees and state Blue Sky qualification
fees, advisory and administration fees, charges of custodians, transfer and
divided disbursing agents' fees, certain insurance premiums including fidelity
bond premiums, outside auditing and legal expenses, costs of maintenance of
corporate existence, typesetting and printing of prospectuses for regulatory
purposes and for distribution to current shareholders of the Fund, costs of
3
<PAGE>
shareholders, reports and corporate meetings and any extraordinary expenses,
will be borne by the Fund, provided, however, that, except as provided in any
distribution plan adopted by the Fund, the Fund will not bear, directly or
indirectly, the cost of any activity which is primarily intended to result in
the distribution of shares of the Fund, and further provided that the
Administrator may utilize one or more independent pricing services, approved
from time to time by the Board of Directors of the Fund, to obtain securities
prices in connection with determining the net asset value of the Fund and that
the Fund will reimburse the Administrator for its share of the cost of such
services based upon its actual use of the services.
If in any fiscal year the Fund's aggregate expenses (as defined under the
securities regulations of any state having jurisdiction over the Fund) exceed
the expense limitations of any such state, the Administrator agrees to reimburse
the Fund for a portion of any such excess expense in an amount equal to the
proportion that the fee otherwise payable to the Administrator bear to the total
amount of investment advisory and administration fees otherwise payable by the
Fund. The expense reimbursement obligation of the Administrator is limited to
the amount of its fees hereunder for such fiscal year, provided, however, that
notwithstanding the foregoing, the Administrator shall reimburse the Fund for a
portion of any such excess expenses in an amount equal to the proportion that
the fees otherwise payable to the Administrator bear to the total amount of
investment advisory and administration fees otherwise payable by the Fund
regardless of the amount of fees paid to the Administrator during such fiscal
year to the extent that the securities regulations of any state having
jurisdiction over the Fund so require. Such expense reimbursement, if any, will
be estimated on daily basis, reconciled and paid on a monthly basis.
5. Proprietary and Confidential Information. The Administrator agrees on
----------------------------------------
behalf of itself and its employees to treat confidentially and as proprietary
information of the Fund all records and other information relative to the Fund's
prior, present or potential shareholders, and not to use such records and
information for any purpose other than performance of their responsibilities and
duties hereunder, except after prior notification to and approval in writing by
the Fund, which approval shall not be unreasonably withheld and may not be
withheld where the Administrator may be exposed to Civil or Criminal contempt
proceedings for failure to comply, when requested to divulge such information by
duly constituted authorities, or when so requested by the Fund.
6. Limitation of Liability. The Administrator shall not be liable for
-----------------------
any error of judgement or mistake of law or for any loss or expense suffered by
the Fund, in connection with the matters to which this Agreement relates, except
for a loss or expense resulting from willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement. Any person,
even though also an officer, director, partner, employee or agent of the
Administrator, who may be or become an officer, director, employee or agent of
the Fund, shall be deemed when rendering services to the Fund or acting on any
business of the Fund (other than services or business in connection with the
Administrator's duties hereunder) to be rendering such services to or acting
solely for the Fund and not as an officer, director, partner, employee or agent
or one under the control or direction of the Administrator even though paid by
them.
7. Terms. This Agreement shall become effective on the date first
-----
hereinabove written and, unless sooner terminated as provided herein, shall
continue in effect from year to year thereafter, provided such continuance is
specifically approved at least annually (i) by the Fund's Board of Directors or
(ii) by a vote of a majority (as defined in the 1940 Act) of the outstanding
voting securities of the Fund, provided that in either event the continuance is
also approved by the majority of the Fund's Board of Directors who
4
<PAGE>
are not interested persons (as defined in the 1940 Act) of any party to this
Agreement, by vote cast in person at a meeting called for the purpose of voting
on such approval. This Agreement is terminable, without penalty, by the Fund's
Board of Directors, by vote of a majority (as defined in the 1940 Act) of the
outstanding voting securities of such Fund, or by the Administrator, on not less
than sixty days, notice. This agreement shall automatically terminate upon its
assignment by the Administrator without the prior written consent of the Fund,
provided, however, that no such assignment shall release the Administrator from
its obligations under this Agreement.
8. Governing Law. This Agreement shall be governed by Illinois law.
-------------
9. Amendments. No provision of this Agreement may be changed,
----------
discharged, or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, discharge or termination is
sought.
10. Miscellaneous. The parties to this Agreement acknowledge and agree
-------------
that all liabilities arising, directly or indirectly, under this Agreement, of
any and every nature whatsoever, including without limitation, liabilities
arising in connection with any agreement of the Fund set forth herein to
indemnify any party to this Agreement or any other person, shall be satisfied
out of the assets of the Fund and that no director officer or shareholder of the
Fund shall be personally liable for any of the foregoing liabilities.
If a change or discharge is sought against the Fund, the instrument must be
signed by the Administrator.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the date indicated below.
SECURITY CAPITAL EMPLOYEE REIT
FUND INCORPORATED
ATTEST: By:
--------------------- -------------------------------------
(Title)
SECURITY CAPITAL INVESTMENT
RESEARCH GROUP INCORPORATED
ATTEST: By:
--------------------- -------------------------------------
(Title)
EFFECTIVE AS OF:
5
<PAGE>
EXHIBIT A
FUND ACCOUNTING AND FUND ADMINISTRATION
FEE SCHEDULE
FOR
SECURITY CAPITAL EMPLOYEE REIT FUND INCORPORATED
Annual Rate: .15% (15 basis points) of the average daily net assets of the
Fund billed monthly.
Note:
1. The annual rate is subject to a monthly minimum of $5,000.00.
2. Out-of-pocket expenses will be billed to the Fund separately.
6
<PAGE>
EXHIBIT 9(b)(i)
FUND ACCOUNTING AND ADMINISTRATION AGREEMENT
Amended and Restated December __, 1997
THIS AGREEMENT made as of December __, 1997 by and between Security
Capital U.S. Real Estate Shares Incorporated, a Maryland corporation (the
"Fund"), and Security Capital (US) Management Group Incorporated, a Delaware
corporation (the "Administrator").
W I T N E S S E T H:
WHEREAS, the Fund is an open-end, management investment company; and
WHEREAS, the Fund wishes to retain the Administrator to provide
certain fund accounting and administration services with respect to the Fund and
the Administrator is willing to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints the Administrator to
-----------
provide fund accounting and administration services to the Fund, subject to the
supervision of the Board of Directors of the Fund (the "Board of Directors"),
for the period and on the terms set forth in this Agreement. The Administrator
accepts such appointment and agrees to furnish the services herein set forth in
return for the compensation as provided in Paragraph 4 of this Agreement. In
the event that the Fund establishes one or more additional portfolios with
respect to which it decides to retain the Administrator to act as administrator
hereunder, the Fund shall notify the Administrator in writing. If the
Administrator is willing to render such services to a new portfolio, they shall
so notify the Fund in writing whereupon such portfolio shall become a Fund
hereunder and shall be subject to the provisions of this Agreement to the same
extent as the Fund, except to the extent that said provisions (including those
relating to the compensation payable by the Fund) may be modified with respect
to such portfolio in writing by the Fund and the Administrator at the time of
the addition of such new portfolio.
2. Delivery of Documents. The Fund has furnished the Administrator
---------------------
with copies, properly certified or authenticated, of each of the following:
<PAGE>
(a) Resolutions of the Fund's Board of Directors authorizing the
appointment of the Administrator to provide certain fund accounting and
administration services to the Fund and approving this Agreement;
(b) The Fund's Articles of Incorporation ("Charter");
(c) The Fund's By-Laws ("By-Laws");
(d) The most recent draft of the Fund's Registration Statement on
Form N-1A and when completed, the Fund will provide its most recent Prospectus
and Statement of Additional Information and all amendments and supplements
thereto (such Prospectus and Statement of Additional Information and supplements
thereto, as presently in effect and as from time to time hereafter amended and
supplemented, herein called the "Prospectus").
The Fund will timely furnish the Administrator from time to time with
copies, properly certified or authenticated, of all amendments of or supplements
to the foregoing, if any.
3. Services and Duties. Subject to the supervision and control of
-------------------
the Fund's Board of Directors, the Administrator agrees to assist in supervising
aspects of the Fund's administrative operations, including but not limited to
the performance of the following specific services for the Fund:
(a) Provide office facilities (which may be in the offices of the
Administrator or a corporate affiliate of them, but shall be in such location as
the Fund shall reasonably approve) and the services of a principal financial
officer to be appointed by the Fund;
(b) Furnish statistical and research data, clerical services, and
stationery and office supplies;
(c) Keep and maintain all financial accounts and records (other
than those required to be maintained by the Fund's Custodian and Transfer Agent)
including without limit those required under Section 31 (a) and Rule 31a-1 under
the Investment Company Act of 1940 (the "1940 Act");
(d) Compute, and transmit to the NASD service for the publication
of fund prices, the Fund's net asset value, net income and net capital gain
(loss) in accordance with the Fund's Prospectus and resolutions of its Board of
Directors;
-2-
<PAGE>
(e) Compile data for, and prepare required reports and notices to
shareholders of record including, without limitation, proxy statements,
Semiannual and Annual Reports to shareholders;
(f) Compile data for, prepare for execution and file all reports
or other documents, including tax returns, required by Federal, state and other
applicable laws and regulations, including those required by applicable Federal
and state tax laws (other than those required to be filed by the Fund's
Custodian or Transfer Agent);
(g) Assist in developing and monitoring compliance procedures for
the Fund and any class or series thereof, including, without limitation,
procedures to monitor compliance with applicable law and regulations, the Fund's
investment objectives, policies and restrictions, its continued qualification as
a regulated investment company under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code");
(h) Determine, together with the Fund's Board of Directors, the
jurisdictions in which the Fund's shares shall be registered or qualified for
sale and, in connection therewith, the Administrator shall be responsible for
the registration for sale and maintenance of the registrations of shares for
sale under the securities laws of any state. Payment of share registration fees
for qualifying or continuing the qualification of Fund shares or the Fund as a
dealer or broker, if applicable, shall be made by the Fund;
(i) Provide financial data requested by the Fund and its outside
counsel;
(j) Perform such other duties related to the administration of
the Fund's operations as reasonably requested by the Board of Directors, from
time to time;
(k) Assist in the monitoring of regulatory and legislative
developments which may affect the Fund and, in response to such developments,
counsel and assist the Fund in routine regulatory examinations or investigations
of the Fund, and work with outside counsel to the Fund in connection with
regulatory matters or litigation.
In performing its duties as administrator of the Fund, the
Administrator (a) will act in accordance with the Fund's Charter, By-Laws,
Prospectus, Statement of Additional Information and the instructions and
directions of the Fund's Board of Directors and will conform to, and comply
with, the requirements of the 1940 Act and all other applicable Federal
-3-
<PAGE>
or state laws and regulations, and (b) will consult with outside legal counsel
to the Fund, as necessary or appropriate.
The Administrator will preserve for the periods prescribed by Rule
31a-2 under the 1940 Act the records required to be maintained by Rule 31a-1
under said Act in connection with the services required to be performed
hereunder. The Administrator further agrees that all such records which it
maintains for the Fund are the property of the Fund and further agrees to
surrender promptly to the Fund any of such records upon the Fund's request.
4. Fees; Expenses; Expense Reimbursement. For the services rendered
-------------------------------------
pursuant to this Agreement for the Fund, the Administrator shall be entitled to
a fee based on the average net assets of each class of shares issued by the Fund
determined at the annual rate outlined in Exhibit A and applied to the average
daily net assets of each class of the Fund's shares. Such fees are to be
computed daily and paid monthly on the first business day of the following
month. Upon any termination of this Agreement before the end of any month, the
fee for such part of the month shall be prorated according to the proportion
which such period bears to the full monthly period and shall be payable upon the
date of termination of this Agreement.
For the purpose of determining fees payable to the Administrator, the value
of the Fund's net assets shall be computed as required by its Prospectus,
generally accepted accounting principles and resolutions of the Fund's Board of
Directors.
The Administrator will from time to time employ or associate with
themselves such person or persons as they may believe to be fitted to assist
them in the performance of this Agreement. Such person or persons may be
officers and employees who are employed by both the Administrator and the Fund.
The compensation of such person or persons for such employment shall be paid by
the Administrator and no obligation may be incurred on behalf of the Fund in
such respect.
The Administrator will bear all expenses in connection with the performance
of its services under this Agreement except as otherwise expressly provided
herein. Other expenses to be incurred in the operation of the Fund, including
taxes, interest, brokerage fees and commissions, if any, salaries and fees of
officers and directors who are not officers, directors shareholders or employees
of the Administrator, or the Fund's investment advisor or distributor for the
Fund, Securities and Exchange Commission fees and state Blue Sky qualification
fees,
-4-
<PAGE>
advisory and administration fees, charges of custodians, transfer and divided
disbursing agents' fees, certain insurance premiums including fidelity bond
premiums, outside auditing and legal expenses, costs of maintenance of corporate
existence, typesetting and printing of prospectuses for regulatory purposes and
for distribution to current shareholders of the Fund, costs of shareholders'
reports and corporate meetings and any extraordinary expenses, will be borne by
the Fund, provided, however, that, except as provided in any distribution plan
adopted by the Fund, the Fund will not bear, directly or indirectly, the cost of
any activity which is primarily intended to result in the distribution of shares
of the Fund, and further provided that the Administrator may utilize one or more
independent pricing services, approved from time to time by the Board of
Directors of the Fund, to obtain securities prices in connection with
determining the net asset value of each class of the Fund's shares and the Fund
will reimburse the Administrator for its share of the cost of such services
based upon its actual use of the services.
If in any fiscal year the Fund's aggregate expenses (as defined under the
securities regulations of any state having jurisdiction over the Fund) exceed
the expense limitations of any such state, the Administrator agrees to reimburse
the Fund for a portion of any such excess expense in an amount equal to the
proportion that the fee otherwise payable to the Administrator bear to the total
amount of investment advisory and administration fees otherwise payable by the
Fund. The expense reimbursement obligation of the Administrator is limited to
the amount of its fees hereunder for such fiscal year, provided, however, that
notwithstanding the foregoing, the Administrator shall reimburse the Fund for a
portion of any such excess expenses in an amount equal to the proportion that
the fees otherwise payable to the Administrator bear to the total amount of
investment advisory and administration fees otherwise payable by the Fund
regardless of the amount of fees paid to the Administrator during such fiscal
year to the extent that the securities regulations of any state having
jurisdiction over the Fund so require. Such expense reimbursement, if any, will
be estimated on a daily basis, reconciled and paid on a monthly basis.
5. Proprietary and Confidential Information. The Administrator agrees on
----------------------------------------
behalf of itself and its employees to treat confidentially and as proprietary
information of the Fund all records and other information relative to the Fund's
prior, present or potential shareholders, and not to use such records and
information for any purpose other than performance of their responsibilities and
duties hereunder, except after prior notification to and approval in writing by
-5-
<PAGE>
the Fund, which approval shall not be unreasonably withheld and may not be
withheld where the Administrator may be exposed to Civil or Criminal contempt
proceedings for failure to comply, when requested to divulge such information by
duly constituted authorities, or when so requested by the Fund.
6. Limitation of Liability. The Administrator shall not be liable for any
-----------------------
error of judgement or mistake of law or for any loss or expense suffered by the
Fund, in connection with the matters to which this Agreement relates, except for
a loss or expense resulting from willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement. Any person,
even though also an officer, director, partner, employee or agent of the
Administrator, who may be or become an officer, director, employee or agent of
the Fund, shall be deemed when rendering services to the Fund or acting on any
business of the Fund (other than services or business in connection with the
Administrator's duties hereunder) to be rendering such services to or acting
solely for the Fund and not as an officer, director, partner, employee or agent
or one under the control or direction of the Administrator even though paid by
them.
7. Terms. This Agreement shall become effective on the date first
-----
hereinabove written and, unless sooner terminated as provided herein, shall
continue in effect from year to year thereafter, provided such continuance is
specifically approved at least annually (i) by the Fund's Board of Directors or
(ii) by a vote of a majority (as defined in the 1940 Act) of the outstanding
voting securities of the Fund, provided that in either event the continuance is
also approved by the majority of the Fund's Board of Directors who are not
interested persons (as defined in the 1940 Act) of any party to this Agreement,
by vote cast in person at a meeting called for the purpose of voting on such
approval. This Agreement is terminable, without penalty, by the Fund's Board of
Directors, by vote of a majority (as defined in the 1940 Act) of the outstanding
voting securities of such Fund, or by the Administrator, on not less than sixty
days' notice. This agreement shall automatically terminate upon its assignment
by the Administrator without the prior written consent of the Fund, provided,
however, that no such assignment shall release the Administrator from its
obligations under this Agreement.
8. Governing Law. This Agreement shall be governed by Illinois law.
-------------
-6-
<PAGE>
9. Amendments. No provision of this Agreement may be changed,
----------
discharged, or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, discharge or termination is
sought.
10. Miscellaneous. The parties to this Agreement acknowledge and agree
-------------
that all liabilities arising, directly or indirectly, under this Agreement, of
any and every nature whatsoever, including without limitation, liabilities
arising in connection with any agreement of the Fund set forth herein to
indemnify any party to this Agreement or any other person, shall be satisfied
out of the assets of the Fund and that no director, officer or shareholder of
the Fund shall be personally liable for any of the foregoing liabilities.
If a change or discharge is sought against the Fund, the instrument must be
signed by the Administrator.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the date indicated below.
SECURITY CAPITAL U.S. REAL ESTATE
SHARES INCORPORATED
ATTEST: By:
------------------------------- ------------------------------
(Title)
SECURITY CAPITAL (US) MANAGEMENT
GROUP INCORPORATED
ATTEST: By:
------------------------------- ------------------------------
(Title)
EFFECTIVE AS OF:
-7-
<PAGE>
EXHIBIT A
FUND ACCOUNTING AND FUND ADMINISTRATION
FEE SCHEDULE
FOR
SECURITY CAPITAL U.S. REAL ESTATE SHARES INCORPORATED
Annual Rate: .02% (2 basis points) of the average daily net assets of the
Fund billed monthly.
-8-
<PAGE>
EXHIBIT 9(c)
FUND ACCOUNTING SERVICING AGREEMENT
This contract between Security Capital Employee REIT Fund Incorporated, a
Maryland corporation hereinafter called the "Fund" and Firstar Trust Company, a
Wisconsin corporation, hereinafter called "FTC," is entered into on this _____
day of ______________, 1997.
WHEREAS, the Fund is an open-ended management investment company registered
under the Investment Company Act of 1940; and
WHEREAS, ("FTC") is in the business of providing, among other things,
mutual fund accounting services to investment companies;
NOW, THEREFORE, the parties do mutually promise and agree as follows:
1. Services. FTC agrees to provide the following mutual fund accounting
--------
services to the Fund:
A. Portfolio Accounting Services:
(1) Maintain portfolio records on a trade date +1 basis using
security trade information communicated from the investment manager on
timely basis.
(2) For each valuation date, obtain prices from a pricing source
approved by the Board of Directors and apply those prices to the
portfolio positions in a manner consistent with the Fund's Prospectus
and Statement of Additional Information (Collectively, the
"Prospectus") as may be amended from time to time. For those
securities where market quotations are not readily available, the
Board of Directors shall approve, in good faith, the method for
determining the fair value for such securities.
(3) Identify interest and dividend accrual balances as of each
valuation date and calculate gross earnings on investments for the
accounting period.
(4) Determine gain/loss on security sales and identify them as
to short-short, short- or long-term status; account for periodic
distributions of gains or losses to shareholders and maintain
undistributed gain or loss balances as of each valuation date.
B. Expense Accrual and Payment Services:
(1) For each valuation date, calculate the expense accrual
amounts as directed by the Fund as to methodology, rate or dollar
amount.
(2) Record payments for Fund expenses upon receipt of written
authorization from the Fund.
<PAGE>
(3) Account for fund expenditures and maintain expense accrual
balances at the level of accounting detail, as agreed upon by FTC and
the Fund.
(4) Provide expense accrual and payment reporting.
C. Fund Valuation and Financial Reporting Services:
(1) Account for fund share purchases, sales, exchanges,
transfers, dividend reinvestments, and other fund share activity as
reported by the transfer agent on a timely basis.
(2) Apply equalization accounting as directed by the Fund.
(3) Determine net investment income (earnings) for the Fund as
of each valuation date. Account for periodic distributions of earnings
to shareholders and maintain undistributed net investment income
balances as of each valuation date.
(4) Maintain a general ledger for the Fund in the form as agreed
upon.
(5) Determine the net asset value of the Fund according to the
pricing, valuation and accounting policies and procedures set forth in
the Prospectus.
(6) Calculate per share net asset value, per share net earnings,
and other per share amounts reflective of fund operation at such time
as required by the nature and characteristics of the Fund.
(7) Communicate, at an agreed upon time, the per share price for
each valuation date to parties as agreed upon from time to time.
(8) Prepare monthly reports which document the adequacy of
accounting detail to support month-end ledger balances.
D. Tax Accounting Services:
(1) Maintain accounting records for the investment portfolio of
the Fund to support the tax reporting required for IRS-defined
regulated investment companies.
(2) Maintain tax lot detail for the investment portfolio.
(3) Calculate taxable gain/loss on security sales using the tax
lot relief method designated by the Fund.
(4) Provide the necessary financial information to support the
taxable components of income and capital gains distributions to the
transfer agent to support tax reporting to the shareholders.
2
<PAGE>
E. Compliance Control Services:
(1) Support reporting to regulatory bodies and support financial
statement preparation by making the fund accounting records available
to the Securities and Exchange Commission, and the outside auditors.
(2) Maintain accounting records according to the Investment
Company Act of 1940 and regulations provided thereunder.
2. Pricing of Securities. For each valuation date, obtain prices from a
---------------------
pricing source selected by FTC but approved by the Fund's Board of Directors and
apply those prices to the portfolio position in a manner consistent with the
Prospectus. For those securities where market quotations are not readily
available, the Fund's Board of Directors shall approve, in good faith, the
method for determining the fair value for such securities.
If the Fund desires to provide a price which varies from the pricing
source, the Fund shall promptly notify and supply FTC with the valuation of any
such security on each valuation date. All pricing changes made by the Fund will
be in writing and must specifically identify the securities to be changed by
CUSIP, name of security, new price or rate to be applied, and, if applicable,
the time period for which the new prices are effective.
3. Changes in Accounting Procedures. Any resolution passed by the Board
--------------------------------
of Directors that affects accounting practices and procedures under this
agreement shall be effective upon written receipt and acceptance by the FTC.
4. Changes in Equipment, Systems, Service, Etc. FTC reserves the right
--------------------------------------------
to make changes from time to time, as it deems advisable, relating to its
services, systems, programs, rules, operating schedules and equipment, so long
as such changes do not adversely affect the service provided to the Fund under
this Agreement and provided notice is given to the Fund describing such changes.
5. Compensation. FTC shall be compensated for providing the services set
------------
forth in this Agreement in accordance with the Fee Schedule attached hereto as
Exhibit A and as mutually agreed upon and amended from time to time.
6. Performance of Service.
----------------------
A. FTC shall exercise reasonable care in the performance of its
duties under this Agreement. FTC shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in
connection with matters to which this Agreement relates, including losses
resulting from mechanical breakdowns or the failure of communication or
power supplies beyond FTC's control, except a loss resulting from FTC's
refusal or failure to comply with the terms of this Agreement or from bad
faith, negligence, or willful misconduct on its part in the performance of
its duties under this Agreement. Notwithstanding any other provision of
this Agreement, the Fund shall indemnify and hold harmless FTC from and
against any and all claims, demands, losses, expenses, and liabilities
(whether with or without basis in fact or law) of any and every nature
(including reasonable attorneys' fees) which FTC may sustain or incur
or which
3
<PAGE>
may be asserted against FTC by any person arising out of any action taken
or omitted to be taken by it in performing the services hereunder (i) in
accordance with the foregoing standards, or (ii) in reliance upon any
written or oral instruction provided to FTC by any duly authorized officer
of the Fund, such duly authorized officer to be included in a list of
authorized officers furnished to FTC and as amended from time to time in
writing by resolution of the Fund's Board of Directors.
In the event of a mechanical breakdown or failure of communication or
power supplies beyond its control, FTC shall take all reasonable steps to
minimize service interruptions for any period that such interruption
continues beyond FTC's control. FTC will make every reasonable effort to
restore any lost or damaged data and correct any errors resulting from such
a breakdown at the expense of FTC. FTC agrees that it shall, at all times,
have reasonable contingency plans with appropriate parties, making
reasonable provision for emergency use of electrical data processing
equipment to the extent appropriate equipment is available. Representatives
of the Fund shall be entitled to inspect FTC's premises and operating
capabilities at any time during regular business hours of FTC, upon
reasonable notice to FTC.
Regardless of the above, FTC reserves the right to reprocess and
correct administrative errors at its own expense.
B. In order that the indemnification provisions contained in this
section shall apply, it is understood that if in any case the Fund may be
asked to indemnify or hold FTC harmless, the Fund shall be fully and
promptly advised of all pertinent facts concerning the situation in
question, and it is further understood that FTC will use all reasonable
care to notify the Fund promptly concerning any situation which presents or
appears likely to present the probability of such a claim for
indemnification against the Fund. The Fund shall have the option to defend
FTC against any claim which may be the subject of this indemnification. In
the event that the Fund so elects, it will so notify FTC and thereupon the
Fund shall take over complete defense of the claim, and FTC shall in such
situation initiate no further legal or other expenses for which it shall
seek indemnification under this section. FTC shall in no case confess any
claim or make any compromise in any case in which the Fund will be asked to
indemnify FTC except with the Fund's prior written consent.
C. FTC shall indemnify and hold the Fund harmless from and against
any and all claims, demands, losses, expenses, and liabilities (whether
with or without basis in fact or law) of any and every nature (including
reasonable attorney's fees) which may be asserted against the Fund by any
person arising out of any action taken or omitted to be taken by FTC as a
result of FTC's refusal or failure to comply with the terms of this
Agreement, its bad faith, negligence, or willful misconduct.
7. Records. FTC shall keep records relating to the services to be
-------
performed hereunder, in the form and manner, and for such period as it may deem
advisable and is agreeable to the Fund but not inconsistent with the rules and
regulations of appropriate government authorities, in particular, Section 31 of
The Investment Company Act and the rules thereunder. FTC agrees that all such
records prepared or maintained by FTC relating to the services to be performed
by FTC hereunder are the property of the
4
<PAGE>
Fund and will be preserved, maintained, and made available with such section and
rules of the Investment Company Act and will be promptly surrendered to the Fund
on and in accordance with its request.
8. Confidentiality. FTC shall handle in confidence all information
---------------
relating to the Fund's business, which is received by FTC during the course of
rendering any service hereunder.
9. Data Necessary to Perform Services. The Fund or its agent, which may
----------------------------------
be FTC, shall furnish to FTC the data necessary to perform the services
described herein at times and in such form as mutually agreed upon.
10. Notification of Error. The Fund will use its best efforts to notify
---------------------
FTC of any balancing or control error caused by FTC within three (3) business
days after receipt of any reports rendered by FTC to the Funds, or within three
(3) business days after discovery of any error or omission not covered in the
balancing or control procedure, or within three (3) business days of receiving
notice from any shareholder.
11. Additional Classes. In the event that the Fund establishes one or
------------------
more classes of shares with respect to which it desires to have FTC render
accounting services, under the terms hereof, it shall so notify FTC in writing,
and if FTC agrees in writing to provide such services, such services will be
subject to the terms and conditions of this agreement, and shall be maintained
and accounted for by FTC on a discrete basis. The Fund currently has one class
of common stock issued, which is intended to be covered by this Agreement.
12. Term of Agreement. This Agreement may be terminated by either party
-----------------
upon giving sixty (60) days prior written notice to the other party or such
shorter period as is mutually agreed upon by the parties. However, this
Agreement may be replaced or modified by a subsequent agreement between the
parties.
13. Duties in the Event of Termination. In the event that in connection
----------------------------------
with termination a successor to any of FTC's duties or responsibilities
hereunder is designated by the Fund by written notice to FTC, FTC will promptly,
upon such termination and at the expense of the Fund, transfer to such successor
all relevant books, records, correspondence and other data established or
maintained by FTC under this Agreement in a form reasonably acceptable to the
Fund (if such form differs from the form in which FTC has maintained the same,
the Fund shall pay any expenses associated with transferring the same to such
form), and will cooperate in the transfer of such duties and responsibilities,
including provision for assistance from FTC's personnel in the establishment of
books, records and other data by such successor.
14. Notices. Notices of any kind to be given by either party to the other
-------
party shall be in writing and shall be duly given if mailed or delivered as
follows: Notice to FTC shall be sent to Firstar Trust Company, 615 East Michigan
Street, Milwaukee, Wisconsin 53202, and notice to the Fund shall be sent to
Daniel F. Miranda, Security Capital Employee REIT Fund Incorporated, 11 South
LaSalle Street, Chicago, IL 60603.
15. Choice of Law. This Agreement shall be construed in accordance with
-------------
the laws of the State of Wisconsin.
5
<PAGE>
IN WITNESS WHEREOF, the due execution hereof on the date first above
written.
Security Capital Employee REIT Fund Firstar Trust Company
Incorporated
By
- ----------------------------------- ------------------------------------
Vice President
Attest:
By
------------------------------------
6
<PAGE>
EXHIBIT 11(a)
CONSENT OF
----------
MAYER, BROWN & PLATT
--------------------
We hereby consent to the reference to our firm under the caption "Counsel
and Independent Accountants" in the statement of additional information
comprising a part of Post-Effective Amendment No. 5 to the Form N-1A
Registration Statement of Security Capital U.S. Real Estate Shares Incorporated,
File Nos. 333-20649 and 811-8033.
MAYER, BROWN & PLATT
/s/ Mayer, Brown & Platt
Washington, D.C.
April 15, 1998
<PAGE>
EXHIBIT 11(b)
Ballard Spahr Andrews & Ingersoll, LLP
300 East Lombard Street
19th Floor
Baltimore, Maryland 21202-3268
410-528-5600
FAX: 410-528-5650
[email protected]
April 14, 1998
Security Capital U.S. Real Estate Shares Incorporated
11 South La Salle Street
Chicago, Illinois 60603
Re: Post-Effective Amendment No. 5 to the
Registration Statement on Form N-1A
Ladies and Gentlemen:
We hereby consent to the use of the name of our firm in the above-
referenced Amendment No. 5 to the Registration Statement under the caption
"Counsel and Independent Accountants." In giving this consent, we do not admit
we are within the category of persons whose consent is required by Section 7 of
the 1933 Act.
Very truly yours,
/s/ Ballard Spahr Andrews & Ingersoll, LLP
<PAGE>
EXHIBIT 11(c)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Board of Directors and Shareholders of
Security Capital U.S. Real Estate Shares Incorporated:
We have audited, in accordance with generally accepted auditing standards, the
statement of assets and liabilities of Security Capital U.S. Real Estate Shares
Incorporated (a Maryland corporation), including the schedule of investments, as
of December 31, 1997, and the related statement of operations for the year then
ended and the statement of changes in net assets and financial highlights for
the year then ended and the period from December 20, 1996 (date of inception) to
December 31, 1996 (which are presented separately herein) and expressed an
unqualified opinion on those statements. The information set forth in the
financial highlights for the period from April 23, 1997 (effective date of the
Fund's initial registration statement) through December 31, 1997, appearing on
page 4 of the Fund's prospectus (both Class I and Class R shares), is fairly
stated in all material respects in relation to the financial statements from
which it has been derived.
ARTHUR ANDERSEN LLP
Chicago, Illinois
February 2, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0001031659
<NAME> SECURITY CAPITAL US REAL ESTATE INC - I CLASS
<SERIES>
<NUMBER> 011
<NAME> 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>
<PAGE>
<ARTICLE> 6
<CIK> 0001031659
<NAME> SECURITY CAPITAL US REAL ESTATE INC - R CLASS
<SERIES>
<NUMBER> 012
<NAME> 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
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<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>
