<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 8, 1997
REGISTRATION NOS. 333-_____________
811-_____________
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.
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
Amendment No.
(Check Appropriate Box or Boxes)
----------------------------
SECURITY CAPITAL EUROPEAN 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 COPY TO:
<TABLE>
<CAPTION>
<S> <C> <C>
ANTHONY R. MANNO, JR. JEFFREY A. KLOPF DIANE E. AMBLER
SECURITY CAPITAL (US) MANAGEMENT SECURITY CAPITAL GROUP INCORPORATED KATHY KRESCH INGBER
GROUP INCORPORATED 125 LINCOLN AVENUE MAYER, BROWN & PLATT
11 SOUTH LASALLE STREET SANTA FE, NEW MEXICO 87501 2000 PENNSYLVANIA AVENUE, N.W.
CHICAGO, ILLINOIS 60603 WASHINGTON, D.C. 20006
(NAME AND ADDRESS OF AGENT FOR SERVICE)
</TABLE>
JEFFREY C. NELLESSEN
SECURITY CAPITAL (US) MANAGEMENT GROUP INCORPORATED
11 SOUTH LASALLE STREET
CHICAGO, ILLINOIS 60603
----------------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: From time to time after the
effective date of this registration statement.
It is proposed that this filing will become effective (check appropriate box):
<TABLE>
<CAPTION>
<S> <C>
_ immediately upon filing pursuant to paragraph (b). _ on (date) pursuant to paragraph (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 paragraph (a)(1). _ on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
_ this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
</TABLE>
RULE 24F-2 NOTICE
An indefinite number of shares of Common Stock of the Registrant are being
registered by this Registration Statement pursuant to Rule 24f-2 under the
Investment Company Act of 1940.
THE REGISTRANT HEREBY AMENDS THE REGISTRATION STATEMENT ON SUCH DATE OR DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), SHALL
DETERMINE.
<PAGE>
CROSS REFERENCE TABLE
Pursuant to Rule 495
Showing Location in Part A (Prospectus),
Part B (Statement of Additional Information), and
Part C (Other Information) of Registration Statement
Information Required by Form N-1A
PART A
------
<TABLE>
<CAPTION>
Item of Form N-1A Prospectus Caption
----------------- ------------------
<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis Cover Page
3. Condensed Financial Information Expenses
4. General Description of Registrant Cover Page
5. Management of SC-EURO Management of SC-EURO
5A. Management's Discussion of SC-EURO Performance Performance Information
6. Capital Stock and Other Securities Organization and Description
of Capital Stock
7. Purchase of Securities Being Offered Purchase of Shares
8. Redemption or Repurchase Redemption of Shares
9. Pending Legal Proceedings Not applicable
PART B
------
Statement of
Additional
Item of Form N-1A Information Caption
----------------- --------------------
10. Cover Page Cover Page
11. Table of Contents Cover Page
12. General Information and History Organization and Description
of Capital Stock
13. Investment Objectives and Policies Investment Objectives and Policies
14. Management of SC-EURO Management of SC-EURO
15. Control Persons and Principal Holders Organization and Description of Capital
Stock
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of
Additional
Item of Form N-1A Information Caption
----------------- -------------------
<S> <C> <C>
16. Investment Advisory and Other Services Management of SC-EURO; Portfolio
Transactions and Brokerage
17. Brokerage Allocation and Other Practices Management of SC-EURO; Portfolio
Transactions and Brokerage
18. Capital Stock and Other Securities Organization and Description of Capital
Stock
19. Purchase, Redemption and Pricing of Distribution Plan; Determination of Net
Securities being offered Asset Value; Redemption of Shares
20. Tax Status Taxation
21. Underwriters Distributor
22. Calculation of Performance Data Performance Information
23. Financial Statements Financial Statements
PART C
------
Item of Form N-1A Part C Caption
----------------- --------------
24. Financial Statements and Exhibits Financial Statements and Exhibits
25. Persons Controlled by or Under Persons Controlled by or Under
Common Control With Registrant Common Control With Registrant
26. Number of Holders of Securities Number of Holders of Securities
27. Indemnification Indemnification
28. Business and Other Connections of Business and Other Connections of
Investment Adviser Investment Adviser
29. Principal Underwriters Principal Underwriters
30. Location of Accounts and Records Location of Accounts and Records
31. Management Services Management Services
32. Undertakings Undertakings
33. Signatures Signatures
</TABLE>
<PAGE>
********************************************************************************
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
********************************************************************************
PROSPECTUS
- ----------
LOGO
11 SOUTH LASALLE STREET
CHICAGO, ILLINOIS 60603
Security Capital European Real Estate Shares Incorporated ("SC-EURO") is an
open-end, non-diversified, no-load, 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 equity securities of publicly-traded real estate companies organized
principally in European countries. Long-term, SC-EURO's objective is to achieve
top-quartile returns as compared with other mutual funds that invest in
publicly-traded real estate companies organized principally in European
countries, by integrating in-depth proprietary real estate market research with
sophisticated capital markets research and investment modeling techniques.
Security Capital (US) Management Group Incorporated ("SC (US) Management")
serves as both investment adviser and administrator to SC-EURO. Security Capital
(EU) Management Group S.A. ("SC (EU) Management") provides real estate research
and analytical services to SC (US) Management in connection with the management
of SC-EURO's investment portfolio.
By this Prospectus, SC-EURO is offering Class I shares. Class I shares are
offered to investors whose minimum investment is $250,000. See "Purchase of
Shares." SC-EURO also offers another class of shares which has different
expenses which would affect performance. Investors desiring to obtain
information about SC-EURO's other class of shares should call [1-800-_________]
(toll free) or ask their sales representatives or SC-EURO's distributor.
An investment in SC-EURO should not be the sole source of investment for a
shareholder. Rather, an investment in SC-EURO should be considered as part of an
overall portfolio strategy which includes fixed income and equity securities.
SC-EURO is designed for long-term investors, 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-EURO. A Statement of Additional Information
("SAI") dated [________, 1997,] containing additional and more detailed
information about SC-EURO has been filed with the Securities and Exchange
Commission (the "SEC") and is hereby incorporated by reference into this
Prospectus. It is available without charge and can be obtained by writing or
calling SC-EURO's Sub-Administrator at: [_______________],
INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE
REFERENCE.
THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY IN
ANY STATE OR JURISDICTION WHERE PROHIBITED BY LAW OR TO ANY FIRM OR INDIVIDUAL
TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
[ ________, 1997]
<PAGE>
TABLE OF CONTENTS
PAGE
----
Expenses........................................ 2
Investment Objectives and Policies.............. 4
Investment Strategy............................. 5
Hedging and Other Portfolio Strategies.......... 6
Risk Factors.................................... 8
Non-Diversified Status; Portfolio Turnover...... 10
Management of SC-EURO........................... 11
Investment Advisory Agreement and Research
Services Agreement.............................. 12
Administrator and Sub-Administrator............. 13
Distribution and Servicing Plan................. 14
Determination of Net Asset Value................ 14
Purchase of Shares.............................. 14
Redemption of Shares............................ 17
Dividends and Distributions..................... 19
Taxation........................................ 19
Organization and Description of Capital Stock... 20
Custodian and Transfer Agent.................... 21
Reports to Shareholders......................... 21
Performance Information......................... 21
Additional Information.......................... 22
<PAGE>
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
Shareholder transaction expenses are direct charges which are incurred when
shareholders buy or sell shares of SC-EURO.
ANNUAL SC-EURO OPERATING EXPENSES
The Class I shares of SC-EURO pay for certain expenses attributable to Class I
shares directly out of SC-EURO's Class I assets. These expenses are related to
management of SC-EURO, administration and other services. For example, SC-EURO
pays an advisory fee and an administrative fee to SC (US) Management. SC-EURO
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-EURO's Class
I assets to calculate SC-EURO'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-EURO and the portion of SC-EURO's operating expenses
that they might expect to bear indirectly. The numbers reflected below are based
on SC-EURO's projected expenses for its current fiscal period ending December
31, 1998, assuming that SC-EURO's average annual net assets for such fiscal year
are [$___ MILLION]. The actual expenses in future years may be more or less than
the numbers in the table, depending on a number of factors, including the actual
value of SC-EURO's assets.
FEE TABLE
Shareholder Transaction Expenses:
Maximum sales charge on purchases and reinvested distributions..... None
Redemption fee (1)................................................. None
Annual SC-EURO Operating Expenses (after expense waivers and/or
reimbursements, as a percentage of average net assets):
Management fees.................................................... .70%
12b-1 fees......................................................... .25%
Other expenses..................................................... .15%
Total SC-EURO operating expenses(2)................................ 1.10%
-------------
(1) SC-EURO's transfer agent charges a service fee of [$____] for each wire
redemption.
(2) SC (US) Management has committed to waive fees and/or reimburse expenses to
maintain SC-EURO's Class I total operating expenses, other than brokerage
fees and commissions, interest, taxes and other extraordinary expenses at no
more than 1.10% of the value of SC-EURO's average daily net assets for Class
I shares for the year ending December 31, 1998. SC-EURO estimates that
without such waiver and/or reimbursement, actual total fund operating
expenses would be 1.20% of the value of SC-EURO's Class I average daily net
assets.
2
<PAGE>
<TABLE>
<CAPTION>
EXAMPLES
ONE THREE
YEAR YEARS
------ ------
<S> <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 ........................... $_____ $_____
</TABLE>
[TO BE FILED BY AMENDMENT.]
3
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
SC-EURO's investment objective is to provide shareholders with above-average
total returns, including current income and capital appreciation, primarily
through investments in equity securities of publicly-traded real estate
companies organized principally in European countries. Long-term, SC-EURO's
objective is to achieve top-quartile results as compared to other mutual funds
that invest in publicly-traded real estate companies organized principally in
European countries, by integrating in-depth proprietary real estate market
research with sophisticated capital markets research and investment modeling
techniques. SC-EURO's investment objective is "fundamental" and cannot be
changed without approval of a majority of its outstanding voting securities.
None of SC-EURO's policies, other than its investment objective and the
investment restrictions described below, are fundamental; these non-fundamental
policies may be changed by SC-EURO's Board of Directors without shareholder
approval. There can be no assurance that SC-EURO's investment objective will be
achieved.
Under normal conditions, SC-EURO will invest at least 65% of its assets in the
equity securities of publicly-traded real estate companies located primarily in
European nations. Such equity securities will consist of (1) common stocks, (2)
rights or warrants to purchase common stocks, (3) securities convertible into
common stocks where the conversion feature represents, in SC (US) Management's
view, a significant element of the security's value, and (4) preferred stocks.
SC-EURO will invest only in real estate companies that derive at least 50% of
their revenues from the ownership, construction, financing, management or sale
of commercial, industrial or residential real estate and hotels or that have at
least 50% of their assets invested in such real estate. SC-EURO also may invest
in securities issued by real estate companies that are controlled by Security
Capital Group Incorporated ("Security Capital") or its affiliates.
SC-EURO may, from time to time, invest in debt securities of issuers in the
real estate industry. Debt securities purchased by SC-EURO will be rated no
lower than A by Moody's Investors Service, Inc. ("Moody's") or Standard & Poors
Corporation ("S&P") or, if not so rated, believed by SC (US) Management to be of
comparable quality, and may have an average weighted maturity of up to 30 years.
When, in the judgment of SC (US) Management, market or general economic
conditions justify a temporary defensive position, SC-EURO will deviate from its
investment objective and invest without limit in money market securities,
denominated in dollars or in the currency of any foreign country, issued by
entities organized in the U.S. or any foreign country, such as: short-term (less
than 12 months to maturity) and medium-term (not greater than five years to
maturity) obligations issued or guaranteed by the U.S. Government or the
government of a foreign country, their agencies or instrumentalities; finance
company and corporate commercial paper and other short-term corporate
obligations, in each case rated Prime-1 by Moody's, or A or better by S&P or, if
unrated, of comparable quality as determined by SC (US) Management; and
repurchase agreements with banks and broker-dealers with respect to such
securities. For temporary defensive purposes, SC-EURO also may invest up to 25%
of its total assets in obligations (including certificates of deposit, time
deposits and bankers' acceptances) of banks; provided that SC-EURO will limit
its investment in time deposits for which there is a penalty for early
withdrawal to 10% of its total assets.
SC-EURO is subject to certain investment restrictions that are fundamental
and, therefore, may not be changed without shareholder approval. Among other
things, SC-EURO will not invest more than 15% 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-
EURO's Board of Directors. If SC-EURO invests in securities issued by a real
estate company that is controlled by Security Capital Group or any of its
affiliates, such securities will be treated as illiquid
4
<PAGE>
securities. SC-EURO also may not invest directly in real estate. See SC-EURO's
SAI for further discussion of SC-EURO's fundamental investment restrictions.
SC-EURO was incorporated under Maryland law on December 4, 1997.
INVESTMENT STRATEGY
REAL ESTATE SECURITIES INDUSTRY OUTLOOK
SC (US) Management believes that the real estate industry throughout Europe
will experience the same fundamental transformation as experienced in the last
five years in the U.S., which will create significant opportunities. Direct
investment of equity capital in real estate will decrease further while
investments in publicly-traded real estate operating companies are increasing.
The aggregate equity market capitalization of real estate in Europe has
increased from $100 billion at December 31, 1992 to [$____] billion at [_______,
1997]. This increasing securitization of the real estate industry through
Europe, primarily in the form of real estate operating companies, 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.
A RESEARCH-DRIVEN TOP DOWN AND BOTTOM UP APPROACH
SC-EURO seeks to achieve top-quartile returns by investing primarily in
European real estate operating companies 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 top down real
estate market research and bottom up operating company cash flow modeling.
Top Down Real Estate Market Research. SC (US) Management is uniquely
positioned to access meaningful, proprietary real estate research collected at
the country market, city sub-market and property-specific level. Non-U.S.
country market research and analysis, which is provided to SC (US) Management by
SC (EU) Management and other operating professionals within the Security Capital
affiliate company network, assists SC (US) Management in identifying attractive
growth in country markets and real estate sectors. This research and analysis is
instrumental to SC (US) Management's ability to make investment decisions for
SC-EURO's portfolio and to identify country markets reaching a "marginal turning
point." The country market research conducted by SC-EURO 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 country market and city sub-market
basis and by product type. Specifically, primary country market research
evaluates normalized cash flow lease economics -- accounting for capital
costs -- to determine whether the core economy of a country market is expected
to improve, stabilize or decline. Only through disciplined real estate market
research does SC (US) Management believe it can identify country markets and/or
city sub-markets, and thus, real estate operating companies, with potential for
higher than average growth prospects.
Bottom Up Real Estate Operating Company Cash Flow Modeling. SC (US) Management
believes that analyzing the cash flow profile -- the quality and growth
potential -- of a real estate company, both historically and prospectively, is
another fundamental step toward identifying above-average growth opportunities.
SC (US) Management believes that cash flow is helpful in understanding a real
estate portfolio in that such calculation reflects cash flow from operations and
the real estate's ability to support interest payments and general operating
expenses before the impact of certain activities, such as gains or losses from
sales of real estate and changes in accounts receivable and accounts payable.
The real estate
5
<PAGE>
operating valuation models utilized by SC (US) Management integrate real estate
market research with analysis on specific real estate portfolios in order to
establish an independent value of the underlying sources of a real estate
company's cash flow. Certain models measure and compare the impact of specific
factors on cash flow growth expectations. The data from all valuation models is
ultimately integrated and reviewed in order to identify real estate operating
companies with significant potential for growth.
HEDGING AND OTHER PORTFOLIO STRATEGIES
SC-EURO also may from time to time use certain of the investment techniques
described below to achieve its objectives. Although these strategies are
regularly used by some investment companies and other institutional investors in
various markets, some of these strategies cannot at the present time be used to
a significant extent by SC-EURO in some of the markets in which SC-EURO will
invest and SC-EURO does not expect to use them extensively.
Repurchase Agreements. When SC-EURO acquires a security from a bank or a
registered broker-dealer, it may simultaneously enter into a repurchase
agreement, wherein the seller agrees to repurchase the security at a specified
time and price. The repurchase price is in excess of the purchase amount which
reflects an agreed-upon rate of return, and is not tied to the coupon rate on
the underlying security.
Borrowing. SC-EURO may borrow up to 33-1/3% of the value of its assets to
increase its holdings of portfolio securities. Under the Investment Company Act
of 1940, as amended ("1940 Act"), SC-EURO is required to maintain continuous
asset coverage of 300% with respect to such borrowings and to sell (within three
days) sufficient portfolio holdings to restore such coverage if it should
decline to less than 300% due to market fluctuations or otherwise, even if such
liquidations of SC-EURO's portfolio are disadvantageous from an investment
standpoint.
Loans of Portfolio Securities. SC-EURO may lend to broker-dealers portfolio
securities with an aggregate market value of up to one-third of its total
assets. Such loans must be secured by collateral (consisting of any combination
of cash, U.S. Government securities or irrevocable letters of credit) in an
amount at least equal (on a daily marked-to-market basis) to the current market
value of the securities loaned. SC-EURO may terminate the loans at any time and
obtain the return of the securities loaned within five business days. SC-EURO
will continue to receive any interest or dividends paid on the loaned securities
and will continue to have voting rights with respect to the securities.
Options on Securities and Stock Indices. In order to increase its return or to
hedge all or a portion of its portfolio investments, SC-EURO may write (i.e.,
sell) covered put and call options and purchase put and call options on
securities or stock indices that are traded on U.S. and foreign exchanges or in
the over-the-counter markets. An option on a security is a contract that gives
the purchaser the option, in return for the premium paid, the right to buy a
specified security (in the case of a call option) or to sell a specified
security (in the case of a put option) from or to the writer of the option at a
designated price during the term of the option. An option on a stock index gives
the purchaser of the option, in return for the premium paid, the right to
receive from the seller cash equal to the difference between the closing price
of the index and the exercise price of the option. SC-EURO may write a call or
put option only if the option is "covered." This means that so long as SC-EURO
is obligated as the writer of a call option, it will own the underlying
securities subject to the call, or hold a call at the same or lower exercise
price, for the same exercise period, and on the same securities as the written
call. A put is covered if SC-EURO maintains liquid assets with a value equal to
the exercise price in a segregated account or holds a put on the same underlying
security at an equal or greater exercise price. The value of the underlying
securities on which options may be written at any one time will not exceed 15%
of the total assets of SC-EURO. SC-EURO will not purchase put or
6
<PAGE>
call options if the aggregate premium paid for such options would exceed 5% of
its total assets at the time of purchase.
Forward Foreign Currency Contracts. SC-EURO may enter into forward foreign
currency exchange contracts ("forward contracts") to attempt to minimize the
risk to SC-EURO from adverse changes in the relationship between the U.S. dollar
and foreign currencies. A forward contract is an obligation to purchase or sell
a specified currency for an agreed price at a future date which is individually
negotiated and privately traded by currency traders and their customers. SC-EURO
will enter into forward contracts only under two circumstances. First, when SC-
EURO enters into a contract for the purchase or sale of a security denominated
in a foreign currency, it may desire to "lock in" the U.S. dollar price of the
security in relation to another currency by entering into a forward contract to
buy the amount of foreign currency needed to settle the transaction. Second,
when SC (US) Management believes that the currency of a particular foreign
country may suffer or enjoy a substantial movement against another currency, SC-
EURO may enter into a forward contract to sell or buy the amount of the former
foreign currency (or another currency which acts as a proxy for that currency)
approximating the value of some or all of SC-EURO's portfolio securities
denominated in such foreign currency. The second investment practice is in
general referred to as "cross-hedging." SC-EURO's forward transactions may call
for the delivery of one foreign currency in exchange for another foreign
currency and may at times not involve currencies in which its portfolio
securities are denominated.
Futures Contracts. For hedging purposes only, SC-EURO may buy and sell financial
futures contracts, stock and bond index futures contracts, and options on any of
the foregoing. A financial futures contract is an agreement between two parties
to buy or sell a specified debt security at a set price on a future date. An
index futures contract is an agreement to take or make delivery of an amount of
cash based on the difference between the value of the index at the beginning and
at the end of the contract period. A futures contract on a foreign currency is
an agreement to buy or sell a specified amount of a currency for a set price on
a future date.
When SC-EURO enters into a futures contract, it must make an initial deposit,
known as "initial margin," as a partial guarantee of its performance under the
contract. As the value of the security, index or currency fluctuates, either
party to the contract is required to make additional margin payments, known as
"variation margin," to cover any additional obligation it may have under the
contract. In addition, when SC-EURO enters into a futures contract, it will
segregate assets or "cover" its position in accordance with the 1940 Act. See
"Investment Objectives and Policies--Futures Contracts" in the SAI.
SC-EURO may not commit more than 5% of its total assets to initial margin
deposits on futures contracts. The value of the underlying securities on which
futures will be written at any one time may not exceed 25% of the total assets
of SC-EURO.
Depositary Receipts. SC-EURO may purchase sponsored or unsponsored American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") and Global
Depositary Receipts ("GDRs") (collectively, "Depositary Receipts"). ADRs are
Depositary Receipts typically used by a U.S. bank or trust company which
evidence ownership of underlying securities issued by a foreign corporation.
EDRs and GDRs are typically issued by foreign banks or trust companies, although
they also may be issued by U.S. banks or trust companies, and evidence ownership
of underlying securities issued by either a foreign or a United States
corporation. Generally, Depositary Receipts in registered form are designed for
use in the U.S. securities market and Depositary Receipts in bearer form are
designed for use in securities markets outside the United States. Depositary
Receipts may not necessarily be denominated in the same currency as the
underlying securities into which they may be converted.
7
<PAGE>
Short Sales. SC-EURO reserves the right to engage in short sale transactions in
securities listed on one or more foreign or U.S. securities exchanges. Short
selling involves the sale of borrowed securities. At the time a short sale is
effected, SC-EURO incurs an obligation to replace the security borrowed at
whatever its price may be at the time that SC-EURO 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-EURO 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-EURO may
also engage in short sales against the box, which involves selling a security
SC-EURO holds in its portfolio for delivery at a specified date in the future.
SC-EURO 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-EURO's net assets (taken at market value). See SC-EURO's SAI for further
discussion of short sales and short sales against the box.
RISK FACTORS
Shareholders should understand that all investments involve risk and there can
be no guarantee against loss resulting from an investment in SC-EURO, nor can
there be an assurance that SC-EURO's investment objectives will be attained. As
with any investment in securities, the value of, and income from, an investment
in SC-EURO can decrease as well as increase depending on a variety of factors
which may affect the values and income generated by SC-EURO's portfolio
securities, including general economic conditions and market factors. In
addition to the factors which affect the value of individual securities, a
shareholder may anticipate that the value of the shares of SC-EURO will
fluctuate with movements in the broader equity and bond markets. A decline in
the stock market of any country in which SC-EURO is invested may also be
reflected in declines in the price of shares of SC-EURO. Changes in currency
valuations will also affect the price of shares of SC-EURO. History reflects
both decreases and increases in worldwide stock markets and currency valuations,
and these may reoccur unpredictably in the future. The value of debt securities
held by SC-EURO generally will vary inversely with changes in prevailing
interest rates. Additionally, investment decisions made by SC (US) Management
will not always be profitable or prove to have been correct. SC-EURO is intended
as an investment vehicle for those investors seeking long term capital growth
and is not intended as a complete investment program.
Investment in Real Estate Securities. SC-EURO will not invest in real estate
directly, but only in securities issued by real estate companies. However,
SC-EURO 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 real estate 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.
Additionally, SC-EURO could conceivably own real estate directly as a result
of a default on debt securities that it owns. If SC-EURO has rental income or
income from the disposition of such real estate, the receipt of such income may
adversely affect its ability to retain its tax status as a regulated investment
company. See "Taxation."
Foreign Securities. Investors should consider carefully the substantial risks
involved in investing in securities issued by companies and governments of
foreign nations, which are in addition to the usual risks inherent in domestic
investments. There is the possibility of expropriation, nationalization or
confiscatory taxation,
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taxation of income earned in foreign nations or other taxes imposed with respect
to investments in foreign nations, foreign exchange controls (which may include
suspension of the ability to transfer currency from a given country), foreign
investment controls on daily stock market movements, default in foreign
government securities, political or social instability, or diplomatic
developments which could affect investments in securities of issuers in foreign
nations. In addition, in many countries there is less publicly available
information about issuers than is available in reports about companies in the
U.S. Foreign companies are not generally subject to uniform accounting and
auditing and financial reporting standards, and auditing practices and
requirements may not be comparable to those applicable to U.S. companies.
SC-EURO may encounter difficulties or be unable to vote proxies, exercise
shareholder rights, pursue legal remedies, and obtain judgments in foreign
courts. Also, most foreign countries withhold portions of income and dividends
at the source requiring investors to reclaim taxes withheld.
Brokerage commissions, custodial services and other costs relating to
investment in European countries are generally more expensive than in the U.S.
European securities markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Delays in settlement could result in
temporary periods when assets of SC-EURO are uninvested and no return is earned
thereon. The inability of SC-EURO to make intended security purchases due to
settlement problems could cause SC-EURO to miss attractive investment
opportunities. Inability to dispose of portfolio securities due to settlement
problems could result either in losses to SC-EURO due to subsequent declines in
value of the portfolio security or, if SC-EURO has entered into a contract to
sell the security, could result in possible liability to the purchaser.
In many foreign countries, there is less government supervision and regulation
of business and industry practices, stock exchanges, brokers and listed
companies than in the U.S. There is an increased risk, therefore, of uninsured
loss due to lost, stolen, or counterfeit stock certificates. In addition, the
foreign securities markets of many of the countries in which SC-EURO may invest
may also be smaller, less liquid, and subject to greater price volatility than
those in the U.S.
Prior governmental approval of foreign investments may be required under
certain circumstances in some developing countries, and the extent of foreign
investment in domestic companies may be subject to limitation in other
developing countries. Foreign ownership limitations also may be imposed by the
charters of individual companies in developing countries to prevent, among other
concerns, violation of foreign investment limitations.
Repatriation of investment income, capital and proceeds of sales by foreign
investors may require governmental registration and/or approval in some
developing countries. SC-EURO could be adversely affected by delays in or a
refusal to grant any required governmental registration or approval for such
repatriation.
Further, the economies of developing countries generally are heavily dependent
upon international trade and, accordingly, have been and may continue to be
adversely affected by trade barriers, exchange controls, managed adjustments in
relative currency values and other protectionist measures imposed or negotiated
by the countries with which they trade. These economies also have been and may
continue to be adversely affected by economic conditions in the countries with
which they trade.
SC-EURO usually effects currency exchange transactions on a spot (i.e., cash)
basis at the spot rate prevailing in the foreign exchange market. However, some
price spread on currency exchange (to cover service charges) will be incurred
when SC-EURO converts assets from one currency to another.
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<PAGE>
Repurchase Agreements. Under the 1940 Act, repurchase agreements are considered
to be loans collateralized by the underlying security and therefore will be
fully collateralized. However, if the seller should default on its obligation to
repurchase the underlying security, SC-EURO may experience delay or difficulty
in exercising its rights under the security and may incur a loss if the value of
the security should decline, as well as incur disposition costs in liquidating
the security.
Borrowing. SC-EURO may borrow to the extent permitted above. Borrowing may
exaggerate the effect on SC-EURO's net asset value of any increase or decrease
in the value of SC-EURO's portfolio securities. Money borrowed will be subject
to interest and other costs (which may include commitment fees and/or the cost
of maintaining minimum average balances) which may or may not exceed the income
received from the securities purchased with borrowed funds.
Futures and Options. Successful use of futures contracts and related options is
subject to special risk considerations. A liquid secondary market for any future
or options contract may not be available when a futures position is sought to be
closed. In addition, there may be an imperfect correlation between movements in
the securities or foreign currency on which the futures or options contract is
based and movements in the securities or currency in SC-EURO's portfolio.
Successful use of futures or options contracts is further dependent on SC (US)
Management's ability to correctly predict movements in the securities or foreign
currency markets and no assurance can be given that its judgment will be
correct. Successful use of options on securities or stock indices is subject to
similar risk considerations.
Depositary Receipts. Depositary Receipts may be issued pursuant to sponsored or
unsponsored programs. In sponsored programs, an issuer has made arrangements to
have its securities traded in the form of Depositary Receipts. In unsponsored
programs, the issuer may not be directly involved in the creation of the
program. Although regulatory requirements with respect to sponsored and
unsponsored programs are generally similar, in some cases it may be easier to
obtain financial information from an issuer that has participated in the
creation of a sponsored program. Accordingly, there may be less information
available regarding issuers of securities underlying unsponsored programs and
there may not be a correlation between such information and the market value of
the Depositary Receipts. Depositary Receipts also involve the risks of other
investments in foreign securities, as discussed above. For purposes of SC-EURO's
investment policies, SC-EURO's investment in Depositary Receipts will be deemed
to be investments in the underlying securities.
Other Risks. There are further risk considerations, including possible losses
through the holding of securities in domestic and foreign custodian banks and
depositories, described in the SAI.
NON-DIVERSIFIED STATUS; PORTFOLIO TURNOVER
SC-EURO intends to operate as a "non-diversified" investment company under the
1940 Act, which means SC-EURO 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-EURO intends to conduct its operations so as to qualify as a
"regulated investment company" for purposes of the Internal Revenue Code of
1986, as amended (the "Code"), which generally will relieve SC-EURO 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-EURO 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-EURO'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-EURO will not own more than 10% of the
outstanding voting securities of a single issuer. SC-EURO's investments in
securities issued by the U.S. Government, its agencies and instrumentalities are
not subject to these
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limitations. Because SC-EURO, as a non-diversified investment company, may
invest in a smaller number of individual issuers than a diversified investment
company, an investment in SC-EURO may present greater risk to an investor than
an investment in a diversified company.
SC-EURO anticipates that its annual portfolio turnover rate will not exceed
100%, but the turnover rate will not be a limiting factor when SC (US)
Management deems portfolio changes appropriate. The turnover rate may vary
greatly from year to year. An annual turnover rate of 100% occurs, for example,
when all of the securities held by SC-EURO are replaced one time 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-EURO. High
portfolio turnover may result in the realization of net short-term capital gains
by SC-EURO which, when distributed to shareholders, will be taxable as ordinary
income. See "Taxation."
MANAGEMENT OF SC-EURO
BOARD OF DIRECTORS
The overall management of the business and affairs of SC-EURO is vested with
the Board of Directors. The Board of Directors approves all significant
agreements between SC-EURO and persons or companies furnishing services to it,
including SC-EURO's agreements with SC (US) Management, its custodian and
transfer agent. The management of SC-EURO's day-to-day operations is delegated
to its officers and SC (US) Management, subject always to the investment
objectives and policies of SC-EURO and to general supervision by the Board of
Directors. Although SC-EURO 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-EURO's Articles of Incorporation. The three
Directors and [_____] officers of SC-EURO and their principal occupations are
set forth below.
<TABLE>
<S> <C>
Stephen F. Kasbeer Director; retired Senior Vice President for
Administration and Treasurer of Loyola University, Chicago.
Anthony R. Manno Jr. Chairman of the Board of Directors, Managing Director and
President; Managing Director and President of SC (US) Management.
George F. Keane Director; Chairman of the Board of Trigen Energy
Corporation; former Chief Executive of the Common Fund and Endowment Realty
Investors.
John H. Gardner, Jr. Managing Director; Managing Director of SC (US)
Management.
Andrew N. Walker Vice President.
Christophe Tanghe Vice President.
Jeremy Plummer Vice President.
Jeffrey C. Nellessen Vice President, Secretary and Treasurer; Vice
President, Secretary and Treasurer of SC (US) Management.
</TABLE>
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SC (US) MANAGEMENT
Security Capital (US) Management Group Incorporated ("SC (US) Management"),
with offices located at 11 South LaSalle Street, Chicago, Illinois 60603, has
been retained to provide investment advice, and, in general, to conduct the
management and investment program of SC-EURO under the overall supervision and
control of the Directors of SC-EURO. SC (US) Management was formed in December
1996, and is registered as an investment adviser with the SEC. Its principal
officers include Anthony R. Manno, Jr., Managing Director and President, and
John H. Gardner, Jr., Managing Director. SC (US) Management is a wholly-owned
subsidiary of Security Capital Group, a real estate research, investment and
management company.
SC (EU) MANAGEMENT
Security Capital (EU) Management Group S.A. ("SC (EU) Management") has been
retained by SC (US) Management to provide SC (US) Management with proprietary
real estate research and on-going analysis of opportunities for investment in
the equity securities of European issuers. SC (EU) Management is a corporation
organized under Belgian law and an indirect, wholly-owned subsidiary of Security
Capital Group.
INVESTMENT ADVISORY AGREEMENT AND
RESEARCH SERVICES AGREEMENT
Pursuant to an investment advisory agreement (the "Advisory Agreement"),
SC (US) Management furnishes a continuous investment program for SC-EURO's
portfolio, subject to the general supervision of SC-EURO's Board of Directors.
SC (US) Management also provides persons satisfactory to the Directors of
SC-EURO to serve as officers of SC-EURO. Such officers, as well as certain other
employees and Directors of SC-EURO, may be directors, officers, or employees of
SC (US) Management.
Under the Advisory Agreement, SC-EURO Class I shares pay SC (US) Management a
monthly management fee in an amount equal to .70% of the average daily net
assets of SC-EURO Class I shares (approximately .70% on an annual basis). Under
a separate agreement SC (US) Management has committed to waive fees and/or
reimburse expenses to maintain SC-EURO's Class I total operating expenses, other
than brokerage fees and commissions, interest, taxes and other extraordinary
expenses, at no more than 1.10% of the value of SC-EURO's 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-EURO 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) clerical,
accounting and other office costs, (d) costs of printing SC-EURO's prospectus
for existing shareholders and shareholder reports, (d) costs of maintaining
SC-EURO'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-EURO'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-EURO shares pays the portion of SC-EURO
expenses attributable to its operations.
SC (US) Management has entered into a research services agreement ("Research
Services Agreement") with SC (EU) Management pursuant to which SC (EU)
Management provides SC (US) Management with proprietary real estate research and
ongoing analysis of opportunities for investment in the equity securities
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<PAGE>
of European issuers. This research is analyzed by SC (US) Management in
identifying attractive growth in country markets and real estate sectors and is
instrumental to SC (US) Management's ability to make investment decisions for
SC-EURO's portfolio. SC (US) Management pays SC (EU) Management for the
provision of such research and analytical services. Payment of this fee is an
obligation of SC (US) Management and not a direct obligation of SC-EURO.
ADMINISTRATOR AND SUB-ADMINISTRATOR
SC (US) Management has also entered into a fund accounting and administration
agreement with SC-EURO (the "Administration Agreement") under which SC (US)
Management performs certain administrative functions for SC-EURO, including (i)
providing office space, telephone, office equipment and supplies for SC-EURO;
(ii) paying compensation of SC-EURO's officers for services rendered as such;
(iii) authorizing expenditures and approving bills for payment on behalf of
SC-EURO; (iv) supervising preparation of the periodic updating of SC-EURO's
Prospectus and SAI for existing shareholders; (v) supervising preparation of
quarterly reports to SC-EURO'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-EURO's investment portfolio and the publication of the net asset value of
SC-EURO's shares, earnings reports and other financial data; (vii) monitoring
relationships with organizations providing services to SC-EURO, including the
custodian ("Custodian"), transfer agent ("Transfer Agent") and printers; (viii)
providing trading desk facilities for SC-EURO; (ix) maintaining books and
records for SC-EURO (other than those maintained by the Custodian and Transfer
Agent) and preparing and filing of tax reports other than SC-EURO'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-EURO's Board of Directors, SC (US) Management has caused SC-EURO
to retain [_______] (the "Sub-Administrator") as sub-administrator under a
service agreement ("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-EURO's net asset value and preparing such figures for
publication, maintaining certain of SC-EURO's books and records that are not
maintained by SC (US) Management, or the Custodian, preparing financial
information for SC-EURO'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-EURO pays the
Sub-Administrator a monthly administration fee at the annual rate of [______%].
Under the Administration Agreement, SC (US) Management remains responsible for
monitoring and overseeing the performance by the Sub-Administrator of its
obligations to SC-EURO under the Sub-Administration Agreement, subject to the
overall authority of SC-EURO's Board of Directors. For its services under the
Administration Agreement, SC (US) Management receives a monthly fee from SC-EURO
at the annual rate of 0.2% of the value of the average daily net assets of the
Fund.
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DISTRIBUTION AND SERVICING PLAN
SC-EURO has adopted a Distribution and Servicing Plan ("Plan") with respect to
SC-EURO's Class I shares pursuant to Rule 12b-1 under the Investment Company Act
of 1940, as amended. Under the Plan, SC-EURO pays to Security Capital Markets
Group Incorporated in its capacity as principal distributor of SC-EURO's shares
(the "Distributor"), a monthly fee equal to, on an annual basis, .25% of the
value of SC-EURO's average daily net assets for Class I shares .
The Distributor may use the fee for services performed and expenses incurred
by the Distributor in connection with the distribution of Class I shares and for
providing certain services to Class I shareholders. The Distributor may pay
third parties in respect of these services such amount as it may determine. SC-
EURO understands that these third parties may also charge fees to their clients
who are beneficial owners of SC-EURO Class I shares in connection with their
client accounts. These fees would be in addition to any amounts which may be
received by them from the Distributor under the Plan.
See "Distribution Plan" in the Statement of Additional Information for a
listing of the types of expenses for which the Distributor and third parties may
be compensated under the Plan. If the fee received by the Distributor exceeds
its expenses, the Distributor may realize a profit from these arrangements. The
Plan is reviewed and is subject to approval annually by the Board of Directors.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of SC-EURO's Class I shares is determined as of
the scheduled closing time of the New York Stock Exchange ("NYSE") (generally
4:00 p.m., New York time) each day the NYSE is open for trading, by adding the
market value of all securities in SC-EURO's portfolio and other assets
represented by Class I shares, subtracting liabilities incurred or accrued
allocable to Class I shares, and dividing by the total number of SC-EURO's Class
I shares then outstanding, adjusted to the nearest whole cent. A security listed
or traded on a recognized stock exchange or quoted on a quotation system of a
national securities association is valued at its last sale price on the
principal exchange on which the security is traded. The value of a foreign
security is determined in its national currency as of the close of trading on
the foreign exchange on which it is traded or as of the scheduled closing time
of the NYSE (generally 4:00 p.m., New York time), if that is earlier, and that
value is then converted into its U.S. dollar equivalent at the foreign exchange
rate in effect at noon, New York time, on the day the value of the foreign
security is determined. If no sale is reported at that time, the mean between
the current bid and asked price is used. Occasionally, events which affect the
values of such securities and such exchange rates may occur between the times at
which they are determined and the close of the NYSE and will therefore not be
reflected in the computation of SC-EURO's net asset value. If events materially
affecting the value of such securities occur during such period, then these
securities will be valued at fair value as determined by the management and
approved in good faith by the Board of Directors. All other securities for which
over-the-counter market quotations are readily available are valued at the mean
between the current bid and asked price. Foreign securities that are not traded
on an exchange, securities for which market quotations are not readily available
and other assets are valued at fair value as determined by SC-EURO's management
and approved in good faith by the Board of Directors.
PURCHASE OF SHARES
Class I shares of SC-EURO are being offered to investors whose minimum
investment is $250,000. Class I shares of SC-EURO may be purchased through any
dealer which has entered into a sales agreement with the Distributor or
[____________], SC-EURO's Transfer Agent.
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<PAGE>
The minimum initial investment in SC-EURO 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-
EURO 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-EURO, 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
European Real Estate Shares Incorporated," to a securities dealer or the
Transfer Agent. If mailing to the Transfer Agent, please use the following
address: [________________________]. Overnight mail should be sent to the
following address: Security Capital European Real Estate Shares Incorporated,
[__________________]. SC-EURO 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-
EURO. 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-EURO 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 [$____] will be
charged. Such shareholder will also be responsible for any losses suffered by
SC-EURO as a result. Neither cash nor third-party checks will be accepted. All
applications to purchase shares are subject to acceptance by SC-EURO and are not
binding until so accepted. SC-EURO reserves the right to decline or accept a
purchase order application in whole or in part in its absolute discretion.
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<PAGE>
WIRE PURCHASES
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: [________________]
Credit: [________________]
Further Credit: Security Capital European Real Estate Shares
Incorporated (shareholder account number)
(shareholder name/account registration)
Please call [_____________] prior to wiring any funds to notify the Transfer
Agent that the wire is coming and to verify the proper wire instructions so that
the wire is properly applied when received. SC-EURO is not responsible for the
consequences of delays resulting from the banking or Federal Reserve wire
system.
TELEPHONE PURCHASES
Additional shares may be purchased by moving money from a shareholder's bank
account to his or her SC-EURO account. Only bank accounts held at domestic
financial institutions that are Automated Clearing House ("ACH") members can be
used for telephone transactions. In order for shares to be purchased at the net
asset value determined as of the close of regular trading on a given date, the
Transfer Agent must receive both the purchase order and payment by Electronic
Funds Transfer through the ACH System before the close of regular trading on
such date. Most transfers are completed within 3 business days. TELEPHONE
TRANSACTIONS MAY NOT BE USED FOR INITIAL PURCHASES OF CLASS I SHARES.
AUTOMATIC INVESTMENT PLAN
The Automatic Investment Plan allows regular, systematic investments in SC-
EURO Class I shares from a bank checking or NOW account. SC-EURO will reduce
the minimum initial investment to [$________] if a shareholder elects to use the
Automatic Investment Plan. To establish the Automatic Investment Plan, the
appropriate section in SC-EURO's application must be completed. The Automatic
Investment Plan can be set up with any financial institution that is a member of
the ACH. Under certain circumstances (such as discontinuation of the Automatic
Investment Plan before the minimum initial investment is reached, or, after
reaching the minimum initial investment, the account balance is reduced to less
than [$___]), SC-EURO reserves the right to close such account. Prior to closing
any account for failure to reach the minimum initial investment, SC-EURO 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-EURO has the right to close such account for failure to reach the
minimum initial investment. Such closing may occur in periods of declining share
prices.
Under the Automatic Investment Plan, a shareholder may choose to make
investments on the day of his or her choosing (or the next business day
thereafter) in amounts of $20,000 or more. There is no service fee
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<PAGE>
for participating in the Automatic Investment Plan. However, a service fee of
$20.00 will be deducted from a shareholder's SC-EURO account for any Automatic
Investment Plan purchase that does not clear due to insufficient funds or, if
prior to notifying SC-EURO 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 in SC-EURO 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 European 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-______________] 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-EURO 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-EURO 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-EURO 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________].
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-EURO reserves the right to limit the number of telephone redemptions by a
shareholder. Once made, telephone redemption requests may not be modified or
canceled.
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<PAGE>
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-EURO 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-EURO reserves the right to refuse a telephone
redemption request.
REDEMPTION BY MAIL
For most redemption requests, a shareholder need only furnish a written,
unconditional request to redeem his or her shares (or a fixed dollar amount) at
net asset value to SC-EURO's Transfer Agent: [__________]. Overnight mail
should be sent to Security Capital European Real Estate Shares Incorporated,
[__________________]. 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 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 [________________] 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 [$_________] service fee for wire
redemptions. Additional documentation may be requested from corporations,
executors, administrators, trustees, guardians, agents, or attorneys-in-fact.
SC-EURO 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-EURO. 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-EURO or Transfer Agent within the last 15 days and (iv) any redemption
request involving $100,000 or more. A signature guarantee may be obtained from
any eligible guarantor institution, as defined by the SEC. These institutions
include banks, savings associations, credit unions, brokerage firms and others.
OTHER REDEMPTION INFORMATION
Unless other instructions are given in proper form, a check for the proceeds
of a redemption will be sent to the shareholder's address of record. The
Custodian may benefit from the use of redemption proceeds until the redemption
check for such proceeds has cleared.
SC-EURO may suspend the right of redemption during any period when (i) trading
on the NYSE is restricted or the NYSE is closed, other than customary weekend
and holiday closings, or (ii) an emergency, as defined by rules adopted by the
SEC, exists making disposal of portfolio securities or determination of the
value of the net assets of SC-EURO not reasonably practicable.
18
<PAGE>
The proceeds of redemption may be more or less than the amount invested and,
therefore, a redemption may result in a gain or loss for federal income tax
purposes.
A shareholder's account may be terminated by SC-EURO on not less than 30 days'
notice (60 days, in the case of an Automatic Investment Plan account) if, at the
time of any redemption of shares in his or her account, the value of the
remaining shares in the account falls below [$________]. UPON ANY SUCH
TERMINATION, A CHECK FOR THE REDEMPTION PROCEEDS WILL BE SENT TO THE ACCOUNT OF
RECORD WITHIN SEVEN BUSINESS DAYS OF THE REDEMPTION. HOWEVER, IF A SHAREHOLDER
IS AFFECTED BY THE EXERCISE OF THIS RIGHT, HE OR SHE WILL BE ALLOWED TO MAKE
ADDITIONAL INVESTMENTS PRIOR TO THE DATE FIXED FOR REDEMPTION TO AVOID
LIQUIDATION OF THE ACCOUNT.
CONVERSION FEATURE
A Class I shareholder who fails to satisfy minimum account balance
requirements may elect to convert Class I shares to Class R shares. Class I
shares will be converted to Class R shares at the next determined net asset
value for Class I shares and Class R shares after the receipt by the distributor
of a written conversion request. SC-EURO does not charge a fee to process
conversions. SC-EURO 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-EURO Class I shareholders.
DIVIDENDS AND DISTRIBUTIONS
Dividends from SC-EURO's investment income will be declared and distributed
quarterly. SC-EURO intends to distribute net realized capital gains, if any, at
least annually although SC-EURO's Board of Directors may in the future determine
to retain net realized capital gains and not distribute them to shareholders.
For information concerning the tax treatment of SC-EURO's distribution policies
for SC-EURO and its shareholders, see "Taxation."
Distributions will automatically be paid in full and fractional shares of SC-
EURO 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-EURO, including the status of distributions
under applicable state or local law.
FEDERAL INCOME TAXES
SC-EURO intends to qualify to be taxed as a "regulated investment company"
under the Code. To the extent that SC-EURO distributes its taxable income and
net capital gains to its shareholders, qualification as a regulated investment
company relieves SC-EURO 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
19
<PAGE>
received by SC-EURO. A corporation's dividends-received deduction will be
disallowed unless the corporation holds shares in SC-EURO at least 46 days.
Furthermore, the dividends-received deduction will be disallowed to the extent a
corporation's investment in shares of SC-EURO is financed with indebtedness.
The excess of net long-term capital gains over the net short-term capital
losses realized and distributed by SC-EURO to its shareholders as capital gains
distributions is taxable to the shareholders as long-term capital gains,
irrespective of the length of time a shareholder may have held his or her stock.
Long-term capital gains distributions are not eligible for the dividends-
received deduction referred to above.
Under the current federal tax law, the amount of an income dividend or capital
gains distribution declared by SC-EURO 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-EURO
will have the effect of reducing the net asset value of such shares by the
amount of such dividend or distribution. Furthermore, a dividend or distribution
made shortly after the purchase of such shares by a shareholder, although in
effect a return of capital to that particular shareholder, would be taxable to
him or her as described above. If a shareholder held shares six months or less
and during that period received a distribution taxable to such shareholder as
long-term capital gain, any loss realized on the sale of such shares during such
six-month period would be a long-term capital loss to the extent of such
distribution.
A dividend or capital gains distribution with respect to shares of SC-EURO
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-EURO 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-EURO, or the Secretary of the Treasury notifies SC-EURO 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 in the SAI.
STATE AND LOCAL TAXES
SC-EURO distributions also may be subject to state and local taxes.
Shareholders should consult their own tax advisers regarding the particular tax
consequences of an investment in SC-EURO.
ORGANIZATION AND DESCRIPTION OF CAPITAL STOCK
SC-EURO was incorporated on December 4, 1997 under Maryland law. SC-EURO is
authorized to issue 50,000,000 shares of Common Stock, $.01 par value per share.
SC-EURO's Board of Directors may, without shareholder approval, increase or
decrease the number of authorized but unissued shares of SC-EURO's Common Stock
and reclassify and issue any unissued shares of SC-US. The Board of Directors
also may create additional series of shares with different investment
objectives, policies or restrictions without shareholder approval. Pursuant to
this authority, the Board of Directors of SC-EURO has authorized
20
<PAGE>
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-EURO
expenses.
Both classes of SC-EURO shares have equal dividend, distribution, liquidation
and voting rights. There are no conversion or preemptive rights in connection
with any shares of SC-EURO. Both classes of SC-EURO shares when duly issued will
be fully paid and nonassessable. The rights of the holders of shares of Class I
shares may not be modified except by the vote of a majority of all Class I
shares outstanding. Class I shareholders have exclusive voting rights with
respect to matters relating solely to Class I shares. Class I shareholders vote
separately from Class R shareholders on matters in which the interests of Class
I shareholders differ from the interests of Class R shareholders.
SC-EURO 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-EURO. SC-EURO will assist shareholders wishing to communicate with one
another for the purpose of requesting such a meeting.
CUSTODIAN AND TRANSFER AGENT
[______________], which has its principal business address at
[__________________], has been retained to act as Custodian of SC-EURO's
investments. [_______________], which has its principal business address at
[___________________], has been retained to serve as SC-EURO's Transfer Agent.
Neither [_____________] nor [_____________] have any part in deciding SC-EURO's
investment policies or which securities are to be purchased or sold for SC-
EURO's portfolio.
REPORTS TO SHAREHOLDERS
The fiscal year of SC-EURO ends on December 31 of each year. SC-EURO 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-EURO's independent accountants,
will be sent to shareholders each year.
PERFORMANCE INFORMATION
From time to time, SC-EURO may advertise its "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-EURO 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-EURO's Class I
shares and assumes that any income, dividends and/or capital gains distributions
made by SC-EURO during the period are reinvested in Class I shares of SC-EURO.
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-EURO'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-EURO'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-EURO also may use "aggregate" total return figures for various
periods, representing the cumulative change in value of an investment in SC-
EURO's Class I shares for the specific period (again reflecting changes in SC-
EURO'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
21
<PAGE>
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 SAI further
describes the methods used to determine SC-EURO's performance.
ADDITIONAL INFORMATION
Any shareholder inquiries may be directed to SC-EURO at the address or
telephone number listed on the cover page of this Prospectus. This Prospectus,
including the SAI which is incorporated by reference herein, does not contain
all the information set forth in the Registration Statement filed by SC-EURO
with the SEC under the Securities Act of 1933, as amended. Copies of the
Registration Statement may be obtained at a reasonable charge from the SEC or
may be examined, without charge, at the offices of the SEC in Washington, D.C.
or may be obtained from the SEC's worldwide web site at http://www.sec.gov.
22
<PAGE>
********************************************************************************
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
********************************************************************************
PROSPECTUS
- ----------
LOGO
----
11 SOUTH LASALLE STREET
CHICAGO, ILLINOIS 60603
Security Capital European Real Estate Shares Incorporated ("SC-EURO") is an
open-end, non-diversified, no-load, 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 equity securities of publicly-traded real estate companies organized
principally in European countries. Long-term, SC-EURO's objective is to achieve
top-quartile returns as compared with other mutual funds that invest in
publicly-traded real estate companies organized principally in European
countries, by integrating in-depth proprietary real estate market research with
sophisticated capital markets research and investment modeling techniques.
Security Capital (US) Management Group Incorporated ("SC (US) Management")
serves as both investment adviser and administrator to SC-EURO. Security Capital
(EU) Management Group S.A. ("SC (EU) Management") provides real estate research
and analytical services to SC (US) Management in connection with the management
of SC-EURO's investment portfolio.
By this Prospectus, SC-EURO is offering Class R shares. SC-EURO also offers
another class of shares which has different expenses which would affect
performance. Investors desiring to obtain information about SC-EURO's other
class of shares should call [1-800-________] (toll free) or ask their sales
representatives or SC-EURO's distributor. This Prospectus provides you with
information specific to the Class R shares of SC-EURO. It contains information
you should know before you invest in SC-EURO.
INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE
REFERENCE.
An investment in SC-EURO should not be the sole source of investment for a
shareholder. Rather, an investment in SC-EURO should be considered as part of an
overall portfolio strategy which includes fixed income and equity securities.
SC-EURO is designed for long-term investors, 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-EURO. A Statement of Additional Information
("SAI") dated [________, 1997,] containing additional and more detailed
information about SC-EURO has been filed with the Securities and Exchange
Commission (the "SEC") and is hereby incorporated by reference into this
Prospectus. It is available without charge and can be obtained by writing or
calling SC-EURO's Sub-Administrator at: [_______________],
THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
IN ANY STATE OR JURISDICTION WHERE PROHIBITED BY LAW OR TO ANY FIRM OR
INDIVIDUAL TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
[ ________, 1997 ]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Expenses............................................. 2
Investment Objectives and Policies................... 4
Investment Strategy.................................. 5
Hedging and Other Portfolio Strategies............... 6
Risk Factors......................................... 8
Non-Diversified Status; Portfolio Turnover........... 10
Management of SC-EURO................................ 11
Investment Advisory Agreement and Research Services
Agreement............................................ 12
Administrator and Sub-Administrator.................. 13
Distribution and Servicing Plan...................... 13
Determination of Net Asset Value..................... 14
Purchase of Shares................................... 14
Redemption of Shares................................. 17
Dividends and Distributions.......................... 19
Taxation............................................. 19
Organization and Description of Capital Stock........ 20
Custodian and Transfer Agent......................... 21
Reports to Shareholders.............................. 21
Performance Information.............................. 21
Additional Information............................... 22
</TABLE>
<PAGE>
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
Shareholder transaction expenses are direct charges which are incurred when
shareholders buy or sell shares of SC-EURO.
ANNUAL SC-EURO OPERATING EXPENSES
The Class R shares of SC-EURO pay for certain expenses attributable to Class R
shares directly out of SC-EURO's Class R assets. These expenses are related to
management of SC-EURO, administration and other services. For example, SC-EURO
pays an advisory fee and an administrative fee to SC (US) Management. SC-EURO
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-EURO's Class
R assets to calculate SC-EURO'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-EURO and the portion of SC-EURO's operating expenses
that they might expect to bear indirectly. The numbers reflected below are based
on SC-EURO's projected expenses for its current fiscal period ending December
31, 1998, assuming that SC-EURO's average annual net assets for such fiscal year
are [$___ MILLION]. The actual expenses in future years may be more or less than
the numbers in the table, depending on a number of factors, including the actual
value of SC-EURO's assets.
FEE TABLE
<TABLE>
<CAPTION>
<S> <C>
Shareholder Transaction Expenses:
Maximum sales charge on purchases and reinvested distributions................... None
Redemption fee(1)................................................................ None
Annual SC-EURO Operating Expenses (after expense waivers and/or reimbursements, as
a percentage of average net assets):
Management fees(2)............................................................... .70%
12b-1 fees....................................................................... .25%
Other expenses................................................................... .30%
Total SC-EURO operating expenses(2).............................................. 1.25%
</TABLE>
-------------
(1) SC-EURO's transfer agent charges a service fee of [$_______] for each wire
redemption.
(2) SC (US) Management has committed to waive fees and/or reimburse expenses to
maintain SC-EURO's Class R total operating expenses, other than brokerage
fees and commissions, taxes, interest and other extraordinary expenses, at
no more than 1.25% of the value of SC-EURO's Class R average daily net
assets for the year ending December 31, 1998.
2
<PAGE>
EXAMPLES
<TABLE>
<CAPTION>
ONE THREE
YEAR YEARS
---- -----
<S> <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
$ $
--- ---
</TABLE>
[TO BE FILED BY AMENDMENT]
3
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
SC-EURO's investment objective is to provide shareholders with above-average
total returns, including current income and capital appreciation, primarily
through investments in equity securities of publicly-traded real estate
companies organized principally in European countries. Long-term, SC-EURO's
objective is to achieve top-quartile results as compared to other mutual funds
that invest in publicly-traded real estate companies organized principally in
European countries, by integrating in-depth proprietary real estate market
research with sophisticated capital markets research and investment modeling
techniques. SC-EURO's investment objective is "fundamental" and cannot be
changed without approval of a majority of its outstanding voting securities.
None of SC-EURO's policies, other than its investment objective and the
investment restrictions described below, are fundamental; these non-fundamental
policies may be changed by SC-EURO's Board of Directors without shareholder
approval. There can be no assurance that SC-EURO's investment objective will be
achieved.
Under normal conditions, SC-EURO will invest at least 65% of its assets in the
equity securities of publicly-traded real estate companies located primarily in
European nations. Such equity securities will consist of (1) common stocks, (2)
rights or warrants to purchase common stocks, (3) securities convertible into
common stocks where the conversion feature represents, in SC (US) Management's
view, a significant element of the security's value, and (4) preferred stocks.
SC-EURO will invest only in real estate companies that derive at least 50% of
their revenues from the ownership, construction, financing, management or sale
of commercial, industrial or residential real estate and hotels or that have at
least 50% of their assets invested in such real estate. SC-EURO also may invest
in securities issued by real estate companies that are controlled by Security
Capital Group Incorporated ("Security Capital") or its affiliates.
SC-EURO may, from time to time, invest in debt securities of issuers in the
real estate industry. Debt securities purchased by SC-EURO will be rated no
lower than A by Moody's Investors Service, Inc. ("Moody's") or Standard & Poors
Corporation ("S&P") or, if not so rated, believed by SC (US) Management to be of
comparable quality, and may have an average weighted maturity of up to 30 years.
When, in the judgment of SC (US) Management, market or general economic
conditions justify a temporary defensive position, SC-EURO will deviate from its
investment objective and invest without limit in money market securities,
denominated in dollars or in the currency of any foreign country, issued by
entities organized in the U.S. or any foreign country, such as: short-term (less
than 12 months to maturity) and medium-term (not greater than five years to
maturity) obligations issued or guaranteed by the U.S. Government or the
government of a foreign country, their agencies or instrumentalities; finance
company and corporate commercial paper and other short-term corporate
obligations, in each case rated Prime-1 by Moody's, or A or better by S&P or, if
unrated, of comparable quality as determined by SC (US) Management; and
repurchase agreements with banks and broker-dealers with respect to such
securities. For temporary defensive purposes, SC-EURO also may invest up to 25%
of its total assets in obligations (including certificates of deposit, time
deposits and bankers' acceptances) of banks; provided that SC-EURO will limit
its investment in time deposits for which there is a penalty for early
withdrawal to 10% of its total assets.
SC-EURO is subject to certain investment restrictions that are fundamental
and, therefore, may not be changed without shareholder approval. Among other
things, SC-EURO will not invest more than 15% 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-EURO's Board of Directors. If SC-EURO invests in securities issued by a real
estate company that is controlled by Security Capital Group or any of its
affiliates, such securities will be treated as illiquid
4
<PAGE>
securities. SC-EURO also may not invest directly in real estate. See SC-EURO's
SAI for further discussion of SC-EURO's fundamental investment restrictions.
SC-EURO was incorporated under Maryland law on December 4, 1997.
INVESTMENT STRATEGY
REAL ESTATE SECURITIES INDUSTRY OUTLOOK
SC (US) Management believes that the real estate industry throughout Europe
will experience the same fundamental transformation as experienced in the last
five years in the U.S., which will create significant opportunities. Direct
investment of equity capital in real estate will decrease further while
investments in publicly-traded real estate operating companies are increasing.
The aggregate equity market capitalization of real estate in Europe has
increased from $100 billion at December 31, 1992 to [$____] billion at ________,
1997]. This increasing securitization of the real estate industry throughout
Europe, primarily in the form of real estate operating companies, 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.
A RESEARCH-DRIVEN TOP DOWN AND BOTTOM UP APPROACH
SC-EURO seeks to achieve top-quartile returns by investing primarily in
European real estate operating companies 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 top down real
estate market research and bottom up operating company cash flow modeling.
Top Down Real Estate Market Research. SC (US) Management is uniquely
positioned to access meaningful, proprietary real estate research collected at
the country market, city sub-market and property-specific level. Non-U.S.
country market research and analysis, which is provided to SC (US) Management by
SC (EU) Management and other operating professionals within the Security Capital
affiliate company network, assists SC (US) Management in identifying attractive
growth in country markets and real estate sectors. This research and analysis is
instrumental to SC (US) Management's ability to make investment decisions for
SC-EURO's portfolio and to identify country markets reaching a "marginal turning
point." The country market research conducted by SC-EURO 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 country market and city sub-market
basis and by product type. Specifically, primary country market research
evaluates normalized cash flow lease economics -- accounting for capital
costs -- to determine whether the core economy of a country market is expected
to improve, stabilize or decline. Only through disciplined real estate market
research does SC (US) Management believe it can identify country markets and/or
city sub-markets, and thus, real estate operating companies, with potential for
higher than average growth prospects.
Bottom Up Real Estate Operating Company Cash Flow Modeling. SC (US) Management
believes that analyzing the cash flow profile -- the quality and growth
potential -- of a real estate company, both historically and prospectively, is
another fundamental step toward identifying above-average growth opportunities.
SC (US) Management believes that cash flow is helpful in understanding a real
estate portfolio in that such calculation reflects cash flow from operations and
the real estate's ability to support interest payments and general operating
expenses before the impact of certain activities, such as gains or losses from
sales of real estate and changes in accounts receivable and accounts payable.
5
<PAGE>
The real estate operating valuation models utilized by SC (US) Management
integrate real estate market research with analysis on specific real estate
portfolios in order to establish an independent value of the underlying sources
of a real estate company's cash flow. Certain models measure and compare the
impact of specific factors on cash flow growth expectations. The data from all
valuation models is ultimately integrated and reviewed in order to identify real
estate operating companies with significant potential for growth.
HEDGING AND OTHER PORTFOLIO STRATEGIES
SC-EURO also may from time to time use certain of the investment techniques
described below to achieve its objectives. Although these strategies are
regularly used by some investment companies and other institutional investors in
various markets, some of these strategies cannot at the present time be used to
a significant extent by SC-EURO in some of the markets in which SC-EURO will
invest and SC-EURO does not expect to use them extensively.
Repurchase Agreements. When SC-EURO acquires a security from a bank or a
registered broker-dealer, it may simultaneously enter into a repurchase
agreement, wherein the seller agrees to repurchase the security at a specified
time and price. The repurchase price is in excess of the purchase amount which
reflects an agreed-upon rate of return, and is not tied to the coupon rate on
the underlying security.
Borrowing. SC-EURO may borrow up to 33-1/3% of the value of its assets to
increase its holdings of portfolio securities. Under the Investment Company Act
of 1940, as amended ("1940 Act"), SC-EURO is required to maintain continuous
asset coverage of 300% with respect to such borrowings and to sell (within three
days) sufficient portfolio holdings to restore such coverage if it should
decline to less than 300% due to market fluctuations or otherwise, even if such
liquidations of SC-EURO's portfolio are disadvantageous from an investment
standpoint.
Loans of Portfolio Securities. SC-EURO may lend to broker-dealers portfolio
securities with an aggregate market value of up to one-third of its total
assets. Such loans must be secured by collateral (consisting of any combination
of cash, U.S. Government securities or irrevocable letters of credit) in an
amount at least equal (on a daily marked-to-market basis) to the current market
value of the securities loaned. SC-EURO may terminate the loans at any time and
obtain the return of the securities loaned within five business days. SC-EURO
will continue to receive any interest or dividends paid on the loaned securities
and will continue to have voting rights with respect to the securities.
Options on Securities and Stock Indices. In order to increase its return or to
hedge all or a portion of its portfolio investments, SC-EURO may write (i.e.,
sell) covered put and call options and purchase put and call options on
securities or stock indices that are traded on U.S. and foreign exchanges or in
the over-the-counter markets. An option on a security is a contract that gives
the purchaser the option, in return for the premium paid, the right to buy a
specified security (in the case of a call option) or to sell a specified
security (in the case of a put option) from or to the writer of the option at a
designated price during the term of the option. An option on a stock index gives
the purchaser of the option, in return for the premium paid, the right to
receive from the seller cash equal to the difference between the closing price
of the index and the exercise price of the option. SC-EURO may write a call or
put option only if the option is "covered." This means that so long as SC-EURO
is obligated as the writer of a call option, it will own the underlying
securities subject to the call, or hold a call at the same or lower exercise
price, for the same exercise period, and on the same securities as the written
call. A put is covered if SC-EURO maintains liquid assets with a value equal to
the exercise price in a segregated account or holds a put on the same underlying
security at an equal or greater exercise price. The value of the underlying
securities on which options may be written at any one time will not exceed 15%
of the total assets of SC-EURO. SC-EURO will not purchase put or
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call options if the aggregate premium paid for such options would exceed 5% of
its total assets at the time of purchase.
Forward Foreign Currency Contracts. SC-EURO may enter into forward foreign
currency exchange contracts ("forward contracts") to attempt to minimize the
risk to SC-EURO from adverse changes in the relationship between the U.S. dollar
and foreign currencies. A forward contract is an obligation to purchase or sell
a specified currency for an agreed price at a future date which is individually
negotiated and privately traded by currency traders and their customers. SC-EURO
will enter into forward contracts only under two circumstances. First, when SC-
EURO enters into a contract for the purchase or sale of a security denominated
in a foreign currency, it may desire to "lock in" the U.S. dollar price of the
security in relation to another currency by entering into a forward contract to
buy the amount of foreign currency needed to settle the transaction. Second,
when SC (US) Management believes that the currency of a particular foreign
country may suffer or enjoy a substantial movement against another currency, SC-
EURO may enter into a forward contract to sell or buy the amount of the former
foreign currency (or another currency which acts as a proxy for that currency)
approximating the value of some or all of SC-EURO's portfolio securities
denominated in such foreign currency. The second investment practice is in
general referred to as "cross-hedging." SC-EURO's forward transactions may call
for the delivery of one foreign currency in exchange for another foreign
currency and may at times not involve currencies in which its portfolio
securities are denominated.
Futures Contracts. For hedging purposes only, SC-EURO may buy and sell financial
futures contracts, stock and bond index futures contracts, and options on any of
the foregoing. A financial futures contract is an agreement between two parties
to buy or sell a specified debt security at a set price on a future date. An
index futures contract is an agreement to take or make delivery of an amount of
cash based on the difference between the value of the index at the beginning and
at the end of the contract period. A futures contract on a foreign currency is
an agreement to buy or sell a specified amount of a currency for a set price on
a future date.
When SC-EURO enters into a futures contract, it must make an initial deposit,
known as "initial margin," as a partial guarantee of its performance under the
contract. As the value of the security, index or currency fluctuates, either
party to the contract is required to make additional margin payments, known as
"variation margin," to cover any additional obligation it may have under the
contract. In addition, when SC-EURO enters into a futures contract, it will
segregate assets or "cover" its position in accordance with the 1940 Act. See
"Investment Objectives and Policies--Futures Contracts" in the SAI.
SC-EURO may not commit more than 5% of its total assets to initial margin
deposits on futures contracts. The value of the underlying securities on which
futures will be written at any one time may not exceed 25% of the total assets
of SC-EURO.
Depositary Receipts. SC-EURO may purchase sponsored or unsponsored American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") and Global
Depositary Receipts ("GDRs") (collectively, "Depositary Receipts"). ADRs are
Depositary Receipts typically used by a U.S. bank or trust company which
evidence ownership of underlying securities issued by a foreign corporation.
EDRs and GDRs are typically issued by foreign banks or trust companies, although
they also may be issued by U.S. banks or trust companies, and evidence ownership
of underlying securities issued by either a foreign or a United States
corporation. Generally, Depositary Receipts in registered form are designed for
use in the U.S. securities market and Depositary Receipts in bearer form are
designed for use in securities markets outside the United States. Depositary
Receipts may not necessarily be denominated in the same currency as the
underlying securities into which they may be converted.
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Short Sales. SC-EURO reserves the right to engage in short sale transactions in
securities listed on one or more foreign or U.S. securities exchanges. Short
selling involves the sale of borrowed securities. At the time a short sale is
effected, SC-EURO incurs an obligation to replace the security borrowed at
whatever its price may be at the time that SC-EURO 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-EURO 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-EURO may
also engage in short sales against the box, which involves selling a security
SC-EURO holds in its portfolio for delivery at a specified date in the future.
SC-EURO 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-
EURO's net assets (taken at market value). See SC-EURO's SAI for further
discussion of short sales and short sales against the box.
RISK FACTORS
Shareholders should understand that all investments involve risk and there can
be no guarantee against loss resulting from an investment in SC-EURO, nor can
there be an assurance that SC-EURO's investment objectives will be attained. As
with any investment in securities, the value of, and income from, an investment
in SC-EURO can decrease as well as increase depending on a variety of factors
which may affect the values and income generated by SC-EURO's portfolio
securities, including general economic conditions and market factors. In
addition to the factors which affect the value of individual securities, a
shareholder may anticipate that the value of the shares of SC-EURO will
fluctuate with movements in the broader equity and bond markets. A decline in
the stock market of any country in which SC-EURO is invested may also be
reflected in declines in the price of shares of SC-EURO. Changes in currency
valuations will also affect the price of shares of SC-EURO. History reflects
both decreases and increases in worldwide stock markets and currency valuations,
and these may reoccur unpredictably in the future. The value of debt securities
held by SC-EURO generally will vary inversely with changes in prevailing
interest rates. Additionally, investment decisions made by SC (US) Management
will not always be profitable or prove to have been correct. SC-EURO is intended
as an investment vehicle for those investors seeking long term capital growth
and is not intended as a complete investment program.
Investment in Real Estate Securities. SC-EURO will not invest in real estate
directly, but only in securities issued by real estate companies. However,
SC-EURO 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 real estate 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.
Additionally, SC-EURO could conceivably own real estate directly as a result
of a default on debt securities that it owns. If SC-EURO has rental income or
income from the disposition of such real estate, the receipt of such income may
adversely affect its ability to retain its tax status as a regulated investment
company. See "Taxation."
Foreign Securities. Investors should consider carefully the substantial risks
involved in investing in securities issued by companies and governments of
foreign nations, which are in addition to the usual risks inherent in domestic
investments. There is the possibility of expropriation, nationalization or
confiscatory taxation,
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taxation of income earned in foreign nations or other taxes imposed with respect
to investments in foreign nations, foreign exchange controls (which may include
suspension of the ability to transfer currency from a given country), foreign
investment controls on daily stock market movements, default in foreign
government securities, political or social instability, or diplomatic
developments which could affect investments in securities of issuers in foreign
nations. In addition, in many countries there is less publicly available
information about issuers than is available in reports about companies in the
U.S. Foreign companies are not generally subject to uniform accounting and
auditing and financial reporting standards, and auditing practices and
requirements may not be comparable to those applicable to U.S. companies.
SC-EURO may encounter difficulties or be unable to vote proxies, exercise
shareholder rights, pursue legal remedies, and obtain judgments in foreign
courts. Also, most foreign countries withhold portions of income and dividends
at the source requiring investors to reclaim taxes withheld.
Brokerage commissions, custodial services and other costs relating to
investment in European countries are generally more expensive than in the U.S.
European securities markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Delays in settlement could result in
temporary periods when assets of SC-EURO are uninvested and no return is earned
thereon. The inability of SC-EURO to make intended security purchases due to
settlement problems could cause SC-EURO to miss attractive investment
opportunities. Inability to dispose of portfolio securities due to settlement
problems could result either in losses to SC-EURO due to subsequent declines in
value of the portfolio security or, if SC-EURO has entered into a contract to
sell the security, could result in possible liability to the purchaser.
In many foreign countries, there is less government supervision and regulation
of business and industry practices, stock exchanges, brokers and listed
companies than in the U.S. There is an increased risk, therefore, of uninsured
loss due to lost, stolen, or counterfeit stock certificates. In addition, the
foreign securities markets of many of the countries in which SC-EURO may invest
may also be smaller, less liquid, and subject to greater price volatility than
those in the U.S.
Prior governmental approval of foreign investments may be required under
certain circumstances in some developing countries, and the extent of foreign
investment in domestic companies may be subject to limitation in other
developing countries. Foreign ownership limitations also may be imposed by the
charters of individual companies in developing countries to prevent, among other
concerns, violation of foreign investment limitations.
Repatriation of investment income, capital and proceeds of sales by foreign
investors may require governmental registration and/or approval in some
developing countries. SC-EURO could be adversely affected by delays in or a
refusal to grant any required governmental registration or approval for such
repatriation.
Further, the economies of developing countries generally are heavily dependent
upon international trade and, accordingly, have been and may continue to be
adversely affected by trade barriers, exchange controls, managed adjustments in
relative currency values and other protectionist measures imposed or negotiated
by the countries with which they trade. These economies also have been and may
continue to be adversely affected by economic conditions in the countries with
which they trade.
SC-EURO usually effects currency exchange transactions on a spot (i.e., cash)
basis at the spot rate prevailing in the foreign exchange market. However, some
price spread on currency exchange (to cover service charges) will be incurred
when SC-EURO converts assets from one currency to another.
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Repurchase Agreements. Under the 1940 Act, repurchase agreements are considered
to be loans collateralized by the underlying security and therefore will be
fully collateralized. However, if the seller should default on its obligation to
repurchase the underlying security, SC-EURO may experience delay or difficulty
in exercising its rights under the security and may incur a loss if the value of
the security should decline, as well as incur disposition costs in liquidating
the security.
Borrowing. SC-EURO may borrow to the extent permitted above. Borrowing may
exaggerate the effect on SC-EURO's net asset value of any increase or decrease
in the value of SC-EURO's portfolio securities. Money borrowed will be subject
to interest and other costs (which may include commitment fees and/or the cost
of maintaining minimum average balances) which may or may not exceed the income
received from the securities purchased with borrowed funds.
Futures and Options. Successful use of futures contracts and related options is
subject to special risk considerations. A liquid secondary market for any future
or options contract may not be available when a futures position is sought to be
closed. In addition, there may be an imperfect correlation between movements in
the securities or foreign currency on which the futures or options contract is
based and movements in the securities or currency in SC-EURO's portfolio.
Successful use of futures or options contracts is further dependent on SC (US)
Management's ability to correctly predict movements in the securities or foreign
currency markets and no assurance can be given that its judgment will be
correct. Successful use of options on securities or stock indices is subject to
similar risk considerations.
Depositary Receipts. Depositary Receipts may be issued pursuant to sponsored or
unsponsored programs. In sponsored programs, an issuer has made arrangements to
have its securities traded in the form of Depositary Receipts. In unsponsored
programs, the issuer may not be directly involved in the creation of the
program. Although regulatory requirements with respect to sponsored and
unsponsored programs are generally similar, in some cases it may be easier to
obtain financial information from an issuer that has participated in the
creation of a sponsored program. Accordingly, there may be less information
available regarding issuers of securities underlying unsponsored programs and
there may not be a correlation between such information and the market value of
the Depositary Receipts. Depositary Receipts also involve the risks of other
investments in foreign securities, as discussed above. For purposes of SC-EURO's
investment policies, SC-EURO's investment in Depositary Receipts will be deemed
to be investments in the underlying securities.
Other Risks. There are further risk considerations, including possible losses
through the holding of securities in domestic and foreign custodian banks and
depositories, described in the SAI.
NON-DIVERSIFIED STATUS; PORTFOLIO TURNOVER
SC-EURO intends to operate as a "non-diversified" investment company under the
1940 Act, which means SC-EURO 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-EURO intends to conduct its operations so as to qualify as a
"regulated investment company" for purposes of the Internal Revenue Code of
1986, as amended (the "Code"), which generally will relieve SC-EURO 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-EURO 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-EURO'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-EURO will not own more than 10% of the
outstanding voting securities of a single issuer. SC-EURO's investments in
securities issued by the U.S. Government, its agencies and instrumentalities are
not subject to these
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limitations. Because SC-EURO, as a non-diversified investment company, may
invest in a smaller number of individual issuers than a diversified investment
company, an investment in SC-EURO may present greater risk to an investor than
an investment in a diversified company.
SC-EURO anticipates that its annual portfolio turnover rate will not exceed
100%, but the turnover rate will not be a limiting factor when SC (US)
Management deems portfolio changes appropriate. The turnover rate may vary
greatly from year to year. An annual turnover rate of 100% occurs, for example,
when all of the securities held by SC-EURO are replaced one time 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-EURO. High
portfolio turnover may result in the realization of net short-term capital gains
by SC-EURO which, when distributed to shareholders, will be taxable as ordinary
income. See "Taxation."
MANAGEMENT OF SC-EURO
BOARD OF DIRECTORS
The overall management of the business and affairs of SC-EURO is vested with
the Board of Directors. The Board of Directors approves all significant
agreements between SC-EURO and persons or companies furnishing services to it,
including SC-EURO's agreements with SC (US) Management, its custodian and
transfer agent. The management of SC-EURO's day-to-day operations is delegated
to its officers and SC (US) Management, subject always to the investment
objectives and policies of SC-EURO and to general supervision by the Board of
Directors. Although SC-EURO 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-EURO's Articles of Incorporation. The three
Directors and [_______] officers of SC-EURO and their principal occupations are
set forth below.
<TABLE>
<CAPTION>
<S> <C>
Stephen F. Kasbeer Director; retired Senior Vice President for
Administration and Treasurer of Loyola University,
Chicago.
Anthony R. Manno Jr. Chairman of the Board of Directors, Managing Director
and President; Managing Director and President of SC
(US) Management.
George F. Keane Director; Chairman of the Board of Trigen Energy
Corporation; former Chief Executive of the Common Fund
and Endowment Realty Investors.
John H. Gardner, Jr. Managing Director; Managing Director of SC (US)
Management.
Andrew N. Walker Vice President.
Christopher Tanghe Vice President.
Jeremy Plummer Vice President.
Jeffrey C. Nellessen Vice President, Secretary and Treasurer; Vice
President, Secretary and Treasurer of SC (US)
Management.
</TABLE>
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SC (US) MANAGEMENT
Security Capital (US) Management Group Incorporated ("SC (US) Management"),
with offices located at 11 South LaSalle Street, Chicago, Illinois 60603, has
been retained to provide investment advice, and, in general, to conduct the
management and investment program of SC-EURO under the overall supervision and
control of the Directors of SC-EURO. Its principal officers include Anthony R.
Manno Jr., Managing Director and President and John H. Gardner, Jr., Managing
Director. SC (US) Management was formed in December 1996, and is registered as
an investment adviser with the SEC. SC (US) Management is a wholly-owned
subsidiary of Security Capital Group, a real estate research, investment and
management company.
SC (EU) MANAGEMENT
Security Capital (EU) Management Group S.A. ("SC (EU) Management") has been
retained by SC (US) Management to provide SC (US) Management with proprietary
real estate research and on-going analysis of opportunities for investment in
the equity securities of European issuers. SC (EU) Management is a corporation
organized under Belgian law and an indirect, wholly-owned subsidiary of Security
Capital Group.
INVESTMENT ADVISORY AGREEMENT AND
RESEARCH SERVICES AGREEMENT
Pursuant to an investment advisory agreement (the "Advisory Agreement"), SC
(US) Management furnishes a continuous investment program for SC-EURO's
portfolio, subject to the general supervision of SC-EURO's Board of Directors.
SC (US) Management also provides persons satisfactory to the Directors of SC-
EURO to serve as officers of SC-EURO. Such officers, as well as certain other
employees and Directors of SC-EURO, may be directors, officers, or employees of
SC (US) Management.
Under the Advisory Agreement, SC-EURO Class R shares pay SC (US) Management a
monthly management fee in an amount equal to .70% of the average daily net
assets of SC-EURO Class R shares (approximately .70% on an annual basis). Under
a separate agreement SC (US) Management has committed to waive fees and/or
reimburse expenses to maintain SC-EURO's Class R total operating expenses, other
than brokerage fees and commissions, interest, taxes and other extraordinary
expenses, at no more than 1.25% of the value of SC-EURO's 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-EURO 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) clerical,
accounting and other office costs, (d) costs of printing SC-EURO's prospectus
for existing shareholders and shareholder reports, (d) costs of maintaining
SC-EURO'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, and (j) upon the approval of SC-EURO'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-EURO
shares pays the portion of SC-EURO expenses attributable to its operations.
SC (US) Management has entered into a research services agreement ("Research
Services Agreement") with SC (EU) Management pursuant to which SC (EU)
Management provides SC (US) Management with proprietary real estate research and
ongoing analysis of opportunities for investment in the equity securities of
European issuers. This research is analyzed by SC (US) Management in identifying
attractive growth in
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country markets and real estate sectors and is instrumental to SC (US)
Management's ability to make investment decisions for SC-EURO's portfolio. SC
(US) Management pays SC (EU) Management for the provision of such research and
analytical services. Payment of this fee is an obligation of SC (US) Management
and not a direct obligation of SC-EURO.
ADMINISTRATOR AND SUB-ADMINISTRATOR
SC (US) Management has also entered into a fund accounting and administration
agreement with SC-EURO (the "Administration Agreement") under which SC (US)
Management performs certain administrative functions for SC-EURO, including (i)
providing office space, telephone, office equipment and supplies for SC-EURO;
(ii) paying compensation of SC-EURO's officers for services rendered as such;
(iii) authorizing expenditures and approving bills for payment on behalf of
SC-EURO; (iv) supervising preparation of the periodic updating of SC-EURO's
Prospectus and SAI for existing shareholders; (v) supervising preparation of
quarterly reports to SC-EURO'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-EURO's investment portfolio and the publication of the net asset value of
SC-EURO's shares, earnings reports and other financial data; (vii) monitoring
relationships with organizations providing services to SC-EURO, including the
custodian ("Custodian"), transfer agent ("Transfer Agent") and printers; (viii)
providing trading desk facilities for SC-EURO; (ix) maintaining books and
records for SC-EURO (other than those maintained by the Custodian and Transfer
Agent) and preparing and filing of tax reports other than SC-EURO'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-EURO's Board of Directors, SC (US) Management has caused SC-EURO
to retain [__________] (the "Sub-Administrator") as sub-administrator under a
service agreement ("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-EURO's net asset value and preparing such figures for
publication, maintaining certain of SC-EURO's books and records that are not
maintained by SC (US) Management, or the Custodian, preparing financial
information for SC-EURO'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-EURO pays the
Sub-Administrator a monthly administration fee at the annual rate of [______%].
Under the Administration Agreement, SC (US) Management remains responsible for
monitoring and overseeing the performance by the Sub-Administrator of its
obligations to SC-EURO under the Sub-Administration Agreement, subject to the
overall authority of SC-EURO's Board of Directors. For its services under the
Administration Agreement, SC (US) Management receives a monthly fee from SC-EURO
at the annual rate of 0.2% of the value of the average daily net assets of the
Fund.
DISTRIBUTION AND SERVICING PLAN
SC-EURO has adopted a Distribution and Servicing Plan ("Plan") with respect to
SC-EURO's Class R shares pursuant to Rule 12b-1 under the Investment Company Act
of 1940, as amended. Under the Plan, SC-EURO pays to Security Capital Markets
Group Incorporated in its capacity as principal distributor of SC-EURO's shares
(the "Distributor"), a monthly fee equal to, on an annual basis, .25% of the
value of SC-EURO's average daily net assets for Class R shares.
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<PAGE>
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-EURO understands that these third parties may also charge fees to their
clients who are beneficial owners of SC-EURO Class R shares in connection with
their client accounts. These fees would be in addition to any amounts which may
be received by them from the Distributor under the Plan.
See "Distribution Plan" in the Statement of Additional Information for a
listing of the types of expenses for which the Distributor and third parties may
be compensated under the Plan. If the fee received by the Distributor exceeds
its expenses, the Distributor may realize a profit from these arrangements. The
Plan is reviewed and is subject to approval annually by the Board of Directors.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of SC-EURO's Class R shares is determined as
of the scheduled closing time of the New York Stock Exchange ("NYSE") (generally
4:00 p.m., New York time) each day the NYSE is open for trading, by adding the
market value of all securities in SC-EURO'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 of SC-EURO's Class
R shares then outstanding, adjusted to the nearest whole cent. A security listed
or traded on a recognized stock exchange or quoted on a quotation system of a
national securities association is valued at its last sale price on the
principal exchange on which the security is traded. The value of a foreign
security is determined in its national currency as of the close of trading on
the foreign exchange on which it is traded or as of the scheduled closing time
of the NYSE (generally 4:00 p.m., New York time), if that is earlier, and that
value is then converted into its U.S. dollar equivalent at the foreign exchange
rate in effect at noon, New York time, on the day the value of the foreign
security is determined. If no sale is reported at that time, the mean between
the current bid and asked price is used. Occasionally, events which affect the
values of such securities and such exchange rates may occur between the times at
which they are determined and the close of the NYSE and will therefore not be
reflected in the computation of SC-EURO's net asset value. If events materially
affecting the value of such securities occur during such period, then these
securities will be valued at fair value as determined by the management and
approved in good faith by the Board of Directors. All other securities for which
over-the-counter market quotations are readily available are valued at the mean
between the current bid and asked price. Foreign securities that are not traded
on an exchange, securities for which market quotations are not readily available
and other assets are valued at fair value as determined by SC-EURO's management
and approved in good faith by the Board of Directors.
PURCHASE OF SHARES
Class R shares of SC-EURO may be purchased through any dealer which has
entered into a sales agreement with Security Capital Markets Group Incorporated,
in its capacity as principal distributor of SC-EURO's shares (the
"Distributor"). [_____________], SC-EURO's Transfer Agent, may also accept
purchase applications.
The minimum initial investment in SC-EURO is $2,500. Subsequent investments in
the amount of at least $250 may be made by mail or by wire. For individual
retirement accounts and employee benefit plans qualified under Sections 401,
403(b)(7) or 457 of the Code, the minimum initial investment is $1,000. For
investors using the Automatic Investment Plan (described below), the minimum
investment is $250. These minimums can be changed or waived by SC-EURO at any
time. A shareholder will be given at least 30 days' notice of any increase in
the minimum dollar amount of subsequent investments.
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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-EURO 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-EURO, 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
European Real Estate Shares Incorporated," to a securities dealer or the
Transfer Agent. If mailing to the Transfer Agent, please use the following
address: [________________________]. Overnight mail should be sent to the
following address: Security Capital European Real Estate Shares Incorporated,
[__________________]. SC-EURO 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-EURO. 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-EURO 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 [$______] will be
charged. Such shareholder will also be responsible for any losses suffered by
SC-EURO as a result. Neither cash nor third-party checks will be accepted. All
applications to purchase shares are subject to acceptance by SC-EURO and are not
binding until so accepted. SC-EURO reserves the right to decline or accept a
purchase order application in whole or in part in its absolute discretion.
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WIRE PURCHASES
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: [________________]
Credit: [________________]
Further Credit: Security Capital European Real Estate Shares Incorporated
(shareholder account number)
(shareholder name/account registration)
Please call [_____________] prior to wiring any funds to notify the Transfer
Agent that the wire is coming and to verify the proper wire instructions so that
the wire is properly applied when received. SC-EURO is not responsible for the
consequences of delays resulting from the banking or Federal Reserve wire
system.
TELEPHONE PURCHASES
Additional shares may be purchased by moving money from a shareholder's bank
account to his or her SC-EURO 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-
EURO from a bank checking or NOW account. SC-EURO will reduce the minimum
initial investment to $250 if a shareholder elects to use the Automatic
Investment Plan. To establish the Automatic Investment Plan, the appropriate
section in SC-EURO's application must be completed. The Automatic Investment
Plan can be set up with any financial institution that is a member of the ACH.
Under certain circumstances (such as discontinuation of the Automatic Investment
Plan before the minimum initial investment is reached, or, after reaching the
minimum initial investment, the account balance is reduced to less than $500,
SC-EURO reserves the right to close such account. Prior to closing any account
for failure to reach the minimum initial investment, SC-EURO 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-EURO has the right to close such account for failure to reach the minimum
initial investment. Such closing may occur in periods of declining share prices.
Under the Automatic Investment Plan, a shareholder may choose to make
investments on the day of his or her choosing (or the next business day
thereafter) in amounts of $250 or more. There is no service fee
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for participating in the Automatic Investment Plan. However, a service fee of
[$_____] will be deducted from a shareholder's SC-EURO account for any Automatic
Investment Plan purchase that does not clear due to insufficient funds or if,
prior to notifying SC-EURO in writing or by telephone to terminate the plan, a
shareholder closes his or her bank account or in any manner prevents 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 in SC-EURO 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 European 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-______________] for complete wiring instructions.
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-EURO 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-EURO 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-EURO 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-________].
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-EURO reserves the right to limit the number of telephone redemptions by a
shareholder. Once made, telephone redemption requests may not be modified or
canceled.
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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-EURO 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-EURO reserves the right to refuse a telephone
redemption request.
REDEMPTION BY MAIL
For most redemption requests, a shareholder need only furnish a written,
unconditional request to redeem his or her shares (or a fixed dollar amount) at
net asset value to SC-EURO's Transfer Agent: [____________]. Overnight mail
should be sent to Security Capital European Real Estate Shares Incorporated,
[__________________]. 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 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 [________________] 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 [$_________] service fee for wire
redemptions. Additional documentation may be requested from corporations,
executors, administrators, trustees, guardians, agents, or attorneys-in-fact.
SC-EURO 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-EURO. 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-EURO 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-EURO may suspend the right of redemption during any period when (i) trading
on the NYSE is restricted or the NYSE 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-EURO 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-EURO on not less than 30 days'
notice (60 days, in the case of an Automatic Investment Plan account) if, at the
time of any redemption of 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), and $500 in the case of an
Automatic Investment Plan account. 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-EURO's investment income will be declared and distributed
quarterly. SC-EURO intends to distribute net realized capital gains, if any, at
least annually although SC-EURO's Board of Directors may in the future determine
to retain net realized capital gains and not distribute them to shareholders.
For information concerning the tax treatment of SC-EURO's distribution policies
for SC-EURO and its shareholders, see "Taxation."
Distributions will automatically be paid in full and fractional shares of SC-
EURO 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-EURO, including the status of distributions
under applicable state or local law.
FEDERAL INCOME TAXES
SC-EURO intends to qualify to be taxed as a "regulated investment company"
under the Code. To the extent that SC-EURO distributes its taxable income and
net capital gains to its shareholders, qualification as a regulated investment
company relieves SC-EURO 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-EURO.
A corporation's dividends-received deduction will be disallowed unless the
corporation holds shares in SC-EURO at least 46 days. Furthermore, the
dividends-received deduction will be disallowed to the extent a corporation's
investment in shares of SC-EURO is financed with indebtedness.
The excess of net long-term capital gains over the net short-term capital
losses realized and distributed by SC-EURO to its shareholders as capital gains
distributions is taxable to the shareholders as long-term capital gains,
irrespective of the length of time a shareholder may have held his or her stock.
Long-term capital gains distributions are not eligible for the dividends-
received deduction referred to above.
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Under the current federal tax law, the amount of an income dividend or capital
gains distribution declared by SC-EURO 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-EURO
will have the effect of reducing the net asset value of such shares by the
amount of such dividend or distribution. Furthermore, a dividend or distribution
made shortly after the purchase of such shares by a shareholder, although in
effect a return of capital to that particular shareholder, would be taxable to
him or her as described above. If a shareholder held shares six months or less
and during that period received a distribution taxable to such shareholder as
long-term capital gain, any loss realized on the sale of such shares during such
six-month period would be a long-term capital loss to the extent of such
distribution.
A dividend or capital gains distribution with respect to shares of SC-EURO
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-EURO 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-EURO, or the Secretary of the Treasury notifies SC-EURO 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 in the SAI.
STATE AND LOCAL TAXES
SC-EURO distributions also may be subject to state and local taxes.
Shareholders should consult their own tax advisers regarding the particular tax
consequences of an investment in SC-EURO.
ORGANIZATION AND DESCRIPTION OF CAPITAL STOCK
SC-EURO was incorporated on December 4, 1997 under Maryland law. SC-EURO is
authorized to issue 50,000,000 shares of Common Stock, $.01 par value per share.
SC-EURO's Board of Directors may, without shareholder approval, increase or
decrease the number of authorized but unissued shares of SC-EURO's Common Stock
and reclassify and issue any unissued shares of SC-US. The Board of Directors
also may create additional series of shares with different investment
objectives, policies or restrictions without shareholder approval. Pursuant to
this authority, the Board of Directors of SC-EURO has authorized the issuance of
two classes of shares; Class I shares and Class R shares. Class R shares offer
different services to shareholder and incur different expenses than Class I
shares. Each class pays its proportionate share of SC-EURO expenses.
Both classes of SC-EURO shares have equal dividend, distribution, liquidation
and voting rights. There are no conversion or preemptive rights in connection
with any shares of SC-EURO. Both classes of SC-EURO shares when duly issued will
be fully paid and nonassessable. The rights of the holders of shares of Class R
shares may not be modified except by the vote of a majority of all Class R
shares outstanding. Class R shareholders have exclusive voting rights with
respect to matters relating solely to Class R shares. Class
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R shareholders vote separately from Class R shareholders on matters in which the
interests of Class R shareholders differ from the interests of Class R
shareholders.
SC-EURO 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-EURO. SC-EURO will assist shareholders wishing to communicate with one
another for the purpose of requesting such a meeting.
CUSTODIAN AND TRANSFER AGENT
[________________], which has its principal business address at [__________],
has been retained to act as Custodian of SC-EURO's investments. [___________],
which has its principal business address at [________________], has been
retained to serve as SC-EURO's Transfer Agent. Neither [________________] nor
[________________] have any part in deciding SC-EURO's investment policies or
which securities are to be purchased or sold for SC-EURO's portfolio.
REPORTS TO SHAREHOLDERS
The fiscal year of SC-EURO ends on December 31 of each year. SC-EURO 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-EURO's independent accountants,
will be sent to shareholders each year.
PERFORMANCE INFORMATION
From time to time, SC-EURO may advertise its "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-EURO 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-EURO's Class R
shares and assumes that any income, dividends and/or capital gains distributions
made by SC-EURO during the period are reinvested in Class R shares of SC-EURO.
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-EURO'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-EURO'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-EURO also may use "aggregate" total return figures for various
periods, representing the cumulative change in value of an investment in
SC-EURO's Class R shares for the specific period (again reflecting changes in
SC-EURO'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 SAI further
describes the methods used to determine SC-EURO's performance.
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ADDITIONAL INFORMATION
Any shareholder inquiries may be directed to SC-EURO at the address or
telephone number listed on the cover page of this Prospectus. This Prospectus,
including the SAI which is incorporated by reference herein, does not contain
all the information set forth in the Registration Statement filed by SC-EURO
with the SEC under the Securities Act of 1933, as amended. 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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********************************************************************************
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION SHALL NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE
OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD
BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
********************************************************************************
LOGO
11 SOUTH LASALLE STREET
CHICAGO, ILLINOIS 60603
STATEMENT OF ADDITIONAL INFORMATION
[__________, 1997]
Security Capital European Real Estate Fund Incorporated ("SC-EURO") 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 equity
securities of publicly-traded real estate companies organized principally in
European countries. Long-term, SC-EURO's objective is to achieve top-quartile
total returns as compared with other mutual funds that invest in equity
securities of publicly-traded real estate companies organized principally in
European countries, by integrating in-depth proprietary real estate market
research with sophisticated capital markets research and investment modeling
techniques. Security Capital (US) Management Group Incorporated ("SC (US)
Management") serves as both investment adviser and administrator to SC-EURO.
Security Capital (EU) Management Group S.A. ("SC (EU) Management") provides real
estate research and analytical services to SC (US) Management in connection with
the management of SC-EURO's portfolio.
This Statement of Additional Information is not a prospectus and is authorized
for distribution only when preceded or accompanied by SC-EURO's prospectus dated
[________, 1997] (the "Prospectus"). This Statement of Additional Information
contains additional and more detailed information than that set forth in the
Prospectus and should be read in conjunction with the Prospectus, additional
copies of which may be obtained without charge by writing or calling SC-EURO's
Sub-Administrator,[____________] at [1-800-_____________].
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Objective and Policies 2
Risk Factors 5
Investment Restrictions 7
Management of SC-EURO 9
Distribution and Servicing Plan 16
Determination of Net Asset Value 17
Redemption of Shares 18
Portfolio Transactions and Brokerage 18
Taxation 19
Organization and Description of Capital Stock 22
Distributor 22
Custodian and Transfer Agent 23
Performance Information 23
Counsel and Independent Accountants 24
Financial Statements 25
</TABLE>
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The following provides additional information about SC-EURO's investment
policies and securities SC-EURO may purchase. This discussion supplements, and
should be read in conjunction with, the information regarding SC-EURO's
investment objectives and policies set forth in the Prospectus. Except as
otherwise provided below under "Investment Restrictions," SC-EURO's investment
policies are not fundamental and may be changed by SC-EURO's Board of Directors
without the approval of the shareholders; however, SC-EURO will not change its
investment policies without written notice to shareholders.
ILLIQUID SECURITIES
Foreign securities may be illiquid to the extent they cannot be freely traded,
such as when it is extremely unlikely or impossible for the securities to be
sold promptly at approximately the price at which they are valued, or when there
is an extended delay between the date of sale and the date on which the proceeds
are available to SC-EURO. These problems arise more frequently in emerging
markets than in developed foreign markets, typically as a result of one or more
of the following market characteristics: (1) physical, as opposed to book-entry,
securities environment; (2) lengthy or complicated registration process; (3)
relatively low market capitalization; (4) relatively large proportion of thinly
traded securities; (5) relatively short history of permitting foreign investors
to participate in the securities market; (6) incompletely developed or untested
securities, real estate or contract laws; or (7) repatriation restrictions or
currency controls.
If SC-EURO invests in securities issued by a real estate company that is
controlled by Security Capital Group Incorporated ("Security Capital") or any of
its affiliates (a "Security Capital controlled real estate company"), SC-EURO
may be considered an affiliate of the issuer of such securities and therefore an
underwriter as such term is defined in the Securities Act of 1933. SC-EURO's
ability to resell such securities without registration may, therefore, be
limited. In addition, because SC-EURO is an affiliate of Security Capital , SC-
EURO's purchases and sales of securities issued by a Security Capital controlled
U.S. 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-EURO'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 or any
of its affiliates (including SC-EURO), Security Capital or its affiliates, as
the case may be, will be required to disgorge such "profits" to the issuer of
such securities. Depending upon the timing of purchases and sales of securities
of such an issuer by Security Capital and its affiliates, in order to avoid
Security Capital or its affiliates (including SC-EURO) having to disgorge
"profits" to the issuer of such securities, SC-EURO 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-EURO to do so. As a result, SC-
EURO will treat such securities as illiquid securities.
SC (US) Management will monitor the liquidity of securities in SC-EURO'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).
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REPURCHASE AGREEMENTS
Repurchase agreements are contracts under which the buyer of a security
simultaneously commits to resell the security to the seller at an agreed-upon
price and date. Under a repurchase agreement, the seller is required to maintain
the value of the securities subject to the repurchase agreement at not less than
their repurchase price. SC (US) Management will monitor the value of such
securities daily to determine that the value equals or exceeds the repurchase
price. Repurchase agreements may involve risks in the event of default or
insolvency of the seller, including possible delays or restrictions upon SC-
EURO's ability to dispose of the underlying securities. SC-EURO will enter into
repurchase agreements only with parties who meet creditworthiness standards
approved by the Board of Directors, i.e., banks or broker-dealers which have
been determined by SC (US) Management to present no serious risk of becoming
involved in bankruptcy proceedings within the time frame contemplated by the
repurchase transaction.
FUTURES CONTRACTS
SC-EURO may purchase and sell financial futures contracts. Although some
financial futures contracts call for making or taking delivery of the underlying
securities, in most cases these obligations are closed out before the settlement
date. The closing of a contractual obligation is accomplished by purchasing or
selling an identical offsetting futures contract. Other financial futures
contracts by their terms call for cash settlements.
SC-EURO may also buy and sell index futures contracts with respect to any
stock or bond index traded on a recognized stock exchange or board of trade. An
index futures contract is a contract to buy or sell units of an index at a
specified future date at a price agreed upon when the contract is made. The
stock index futures contract specifies that no delivery of the actual stocks
making up the index will take place. Instead, settlement in cash must occur upon
the termination of the contract, with the settlement being the difference
between the contract price and the actual level of the stock index at the
expiration of the contract.
At the time SC-EURO purchases a futures contract, an amount of cash, U.S.
government securities, or other highly liquid debt securities equal to the
market value of the futures contract will be deposited in a segregated account
with the SC-EURO's custodian ("Custodian"). When writing a futures contract, SC-
EURO will maintain with its Custodian liquid assets that, when added to the
amounts deposited with a futures commission merchant or broker as margin, are
equal to the market value of the instruments underlying the contract.
Alternatively, SC-EURO may "cover" its position by owning the instruments
underlying the contract (or, in the case of an index futures contract, a
portfolio with a volatility substantially similar to that of the index on which
the futures contract is based), or holding a call option permitting SC-EURO to
purchase the same futures contract at a price no higher than the price of the
contract written by SC-EURO (or at a higher price if the difference is
maintained in liquid assets with SC-EURO's Custodian).
OPTIONS ON SECURITIES AND STOCK INDICES
SC-EURO may write covered call and put options and purchase call and put
options on securities or stock indices that are traded on U.S. and foreign
exchanges and in the over-the-counter markets.
An option on a security is a contract that gives the purchaser of the option,
in return for the premium paid, the right to buy a specified security (in the
case of a call option) or to sell a specified security (in the case of a put
option) from or to the writer of the option at a designated price during the
term of the option.
3
<PAGE>
An option on a securities index gives the purchaser of the option, in return
for the premium paid, the right to receive from the seller cash equal to the
difference between the closing price of the index and the exercise price of the
option.
SC-EURO may write a call or put option only if the option is "covered." A call
option on a security written by SC-EURO is covered if SC-EURO owns the
underlying security covered by the call or has an absolute and immediate right
to acquire that security without additional cash consideration (or for
additional cash consideration held in a segregated account by its Custodian)
upon conversion or exchange of other securities held in its portfolio. A call
option on a security is also covered if SC-EURO holds a call on the same
security and in the same principal amount as the call written where the exercise
price of the call held (a) is equal to or less than the exercise price of the
call written or (b) is greater than the exercise price of the call written if
the difference is maintained by SC-EURO in cash or high grade U.S. government
securities in a segregated account with its Custodian. A put option on a
security written by SC-EURO is "covered" if SC-EURO maintains cash or fixed-
income securities with a value equal to the exercise price in a segregated
account with its Custodian, or else holds a put on the same security and in the
same principal amount as the put written where the exercise price of the put
held is equal to or greater than the exercise price of the put written.
FOREIGN CURRENCY HEDGING TRANSACTIONS
In order to hedge against foreign currency exchange rate risks, SC-EURO may
enter into forward foreign currency exchange contracts and foreign currency
futures contracts, as well as purchase put or call options on foreign
currencies, as described below. SC-EURO may also conduct its foreign currency
exchange transactions on a spot (i.e., cash) basis at the spot rate prevailing
in the foreign currency exchange market.
SC-EURO may enter into forward foreign currency exchange contracts ("forward
contracts") to attempt to minimize the risk to SC-EURO from adverse changes in
the relationship between the U.S. dollar and foreign currencies. A forward
contract is an obligation to purchase or sell a specific currency for an agreed
price at a future date which is individually negotiated and privately traded by
currency traders and their customers. SC-EURO may enter into a forward contract,
for example, when it enters into a contract for the purchase or sale of a
security denominated in a foreign currency in order to "lock in" the U.S. dollar
price of the security. In addition, for example, when SC-EURO believes that a
foreign currency may suffer or enjoy a substantial movement against another
currency, it may enter into a forward contract to sell an amount of the former
foreign currency approximating the value of some or all of SC-EURO's portfolio
securities denominated in such foreign currency. This second investment practice
is generally referred to as "cross-hedging." Because in connection with SC-
EURO's forward contracts an amount of SC-EURO's assets equal to the amount of
the purchase will be held aside or segregated to be used to pay for the
commitment, SC-EURO will always have cash, cash equivalents or high quality debt
securities available sufficient to cover any commitments under these contracts
or to limit any potential risk. The segregated account will be marked-to-market
on a daily basis.
SC-EURO may purchase and write put and call options on foreign currencies for
the purpose of protecting against declines in the dollar value of foreign
portfolio securities and against increases in the dollar cost of foreign
securities to be acquired. As is the case with other kinds of options, however,
the writing of an option on foreign currency will constitute only a partial
hedge, up to the amount of the premium received, and SC-EURO could be required
to purchase or sell foreign currencies at disadvantageous exchange rates,
thereby incurring losses. The purchase of an option on foreign currency may
constitute an effective hedge against fluctuation in exchange rates although, in
the event of rate movements adverse to SC-EURO's position, SC-EURO may forfeit
the entire amount of the premium plus related transaction costs. Options on
foreign currencies to be written or purchased by SC-EURO will be traded on U.S.
and foreign exchanges or over-the-counter.
4
<PAGE>
SC-EURO may enter into exchange-traded contracts for the purchase or sale for
future delivery of foreign currencies ("foreign currency futures"). This
investment technique will be used only to hedge against anticipated future
changes in exchange rates which otherwise might adversely affect the value of
SC-EURO's portfolio securities or adversely affect the prices of securities that
SC-EURO intends to purchase at a later date. The successful use of currency
futures will usually depend on SC (US) Management's ability to forecast currency
exchange rate movements correctly. Should exchange rates move in an unexpected
manner, SC-EURO may not achieve the anticipated benefits of foreign currency
futures or may realize losses.
RISK FACTORS
FOREIGN SECURITIES
There may be less publicly available information about foreign companies
comparable to the reports and ratings published about companies in the U.S.
Accounting or financial reporting standards, and auditing practices are
generally not consistent among countries. As a result, foreign companies may be
subject to requirements that are not comparable to those applicable to other
foreign companies or to U.S. companies. Some foreign markets have substantially
less volume than the New York Stock Exchange ("NYSE") and securities of some
foreign companies are less liquid and more volatile than securities of
comparable U.S. companies. Commission rates in foreign countries, which are
generally fixed rather than subject to negotiation as in the U.S., are likely to
be higher. In many foreign countries there is less government supervision and
regulation of stock exchanges, brokers and listed companies than in the U.S.
Investments in companies domiciled in developing countries may be subject to
potentially higher risks than investments in developed countries. These risks
include (i) less social, political and economic stability; (ii) the small
current size of the markets for such securities and the currently low or
nonexistent volume of trading, which result in a lack of liquidity and in
greater price volatility; (iii) certain national policies which may restrict SC-
EURO's investment opportunities, including restrictions on investment in issuers
or industries deemed sensitive to national interests; (iv) foreign taxation; (v)
the absence of developed legal structures governing private or foreign
investment or allowing for judicial redress for injury to private real estate;
(vi) the absence, until recently in certain Eastern European countries, of a
capital market structure or market-oriented economy; (vii) fluctuations in
foreign currencies; and (viii) the possibility that recent favorable economic
developments in Eastern Europe may be slowed or reversed by unanticipated
political or social events in such countries.
In addition, developing countries have experienced substantial, and in some
periods extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have negative
effects on the economies and securities markets of certain countries. The
economies of certain developing countries also may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product, rate of inflation, currency depreciation, capital reinvestment,
resource self-sufficiency and balance of payments position.
SC-EURO endeavors to buy and sell foreign currencies on as favorable a basis
as practicable. Some price spread on currency exchange (to cover service
charges) may be incurred, particularly when SC-EURO changes investments from one
country to another or when proceeds of the sale of shares in U.S. dollars are
used for the purchase of securities in foreign countries. Also, some countries
may adopt policies which would prevent SC-EURO from transferring cash out of the
country or withhold portions of interest and dividends at the source. There is
the possibility of cessation of trading on national exchanges, expropriation,
nationalization or confiscatory taxation, withholding and other foreign taxes on
income or
5
<PAGE>
other amounts, foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country), default in foreign
government securities, political or social instability, or diplomatic
developments which could affect investments in securities of issuers in foreign
nations.
SC-EURO may be affected either unfavorably or favorably by fluctuations in the
relative rates of exchange between the currencies of different nations, by
exchange control regulations and by indigenous economic and political
developments. Some countries in which SC-EURO may invest may also have fixed or
managed currencies that are not free-floating against the U.S. dollar. Further,
certain currencies have experienced a steady devaluation relative to the U.S.
dollar. Any devaluations in the currencies in which SC-EURO's portfolio
securities are denominated may have a detrimental impact on SC-EURO. SC-EURO's
management endeavors to avoid unfavorable consequences and to take advantage of
favorable developments in particular nations where from time to time it places
SC-EURO's investments.
The exercise of this flexible policy may include decisions to purchase
securities with substantial risk characteristics and other decisions such as
changing the emphasis on investments from one nation to another and from one
type of security to another. Some of these decisions may later prove profitable
and others may not. No assurance can be given that profits, if any, will exceed
losses.
The Board of Directors considers at least annually the likelihood of the
imposition by any foreign government of exchange control restrictions which
would affect the liquidity of SC-EURO's assets maintained with custodians in
foreign countries, as well as the degree of risk from political acts of foreign
governments to which such assets may be exposed. The Board of Directors also
considers the degree of risk involved through the holding of portfolio
securities in domestic and foreign securities depositories. However, in the
absence of willful misfeasance, bad faith or gross negligence on the part of SC
(US) Management, any losses resulting from the holding of SC-EURO's portfolio
securities in foreign countries and/or with securities depositories will be at
the risk of the shareholders. No assurance can be given that SC-EURO's appraisal
of the risks will always be correct or that such exchange control restrictions
or political acts of foreign governments might not occur.
OPTIONS ON SECURITIES AND STOCK INDICES
SC-EURO will cover call options on stock indices by owning securities whose
price changes, in the opinion of SC (US) Management, are expected to be similar
to those of the index, or in such other manner as may be in accordance with the
rules of the exchange on which the option is traded and applicable laws and
regulations. Nevertheless, where SC-EURO covers a call option on a stock index
through ownership of securities, such securities may not match the composition
of the index. In that event, SC-EURO will not be fully covered and could be
subject to risk of loss in the event of adverse changes in the value of the
index. SC-EURO will cover put options on stock indices by segregating assets
equal to the option's exercise price, or in such other manner as may be in
accordance with the rules of the exchange on which the option is traded and
applicable laws and regulations.
SC-EURO will receive a premium from writing a put or call option, which
increases SC-EURO's gross income in the event the option expires unexercised or
is closed out at a profit. If the value of a security or an index on which SC-
EURO has written a call option falls or remains the same, SC-EURO will realize a
profit in the form of the premium received (less transaction costs) that could
offset all or a portion of any decline in the value of the portfolio securities
being hedged. If the value of the underlying security or index rises, however,
SC-EURO will realize a loss in its call option position, which will reduce the
benefit of any unrealized appreciation in SC-EURO's stock investments. By
writing a put option, SC-EURO assumes the risk of a decline in the underlying
security or index. To the extent that the price changes of the portfolio
securities being hedged correlate with changes in the value of the underlying
security or index, writing covered put options on securities or indices will
increase SC-EURO's losses in the event of a market decline, although such losses
will be offset in part by the premium received for writing the option.
6
<PAGE>
SC-EURO may also purchase put options to hedge its investments against a
decline in value. By purchasing a put option, SC-EURO will seek to offset a
decline in the value of the portfolio securities being hedged through
appreciation of the put option. If the value of SC-EURO's investments does not
decline as anticipated, or if the value of the option does not increase, SC-
EURO's loss will be limited to the premium paid for the option plus related
transaction costs. The success of this strategy will depend, in part, on the
accuracy of the correlation between the changes in value of the underlying
security or index and the changes in value of SC-EURO's security holdings being
hedged.
SC-EURO may purchase call options on individual securities to hedge against an
increase in the price of securities that SC-EURO anticipates purchasing in the
future. Similarly, SC-EURO may purchase call options to attempt to reduce the
risk of missing a broad market advance, or an advance in an industry or market
segment, at a time when SC-EURO holds uninvested cash or short-term debt
securities awaiting investment. When purchasing call options, SC-EURO will bear
the risk of losing all or a portion of the premium paid if the value of the
underlying security or index does not rise.
There can be no assurance that a liquid market will exist when SC-EURO seeks
to close out an option position. Trading could be interrupted, for example,
because of supply and demand imbalances arising from a lack of either buyers or
sellers, or the options exchange could suspend trading after the price has risen
or fallen more than the maximum specified by the exchange. Although SC-EURO may
be able to offset to some extent any adverse effects of being unable to
liquidate an option position, SC-EURO may experience losses as a result of such
inability.
FOREIGN CURRENCY HEDGING TRANSACTIONS
Forward contracts are not presently regulated by the Commodity Futures Trading
Commission ("CTFC"), however, the CFTC may in the future assert authority to
regulate forward contracts. In such event, SC-EURO's ability to utilize forward
contracts in the manner set forth above may be restricted. Forward contracts may
limit potential gain from a positive change in the relationship between the U.S.
dollar and foreign currencies. Unanticipated changes in currency prices may
result in poorer overall performance for SC-EURO than if it had not engaged in
such contracts.
Additional risks may be involved with SC-EURO's special investment techniques,
including borrowing for investment purposes. These risks are described under the
heading "Risk Factors" in the Prospectus.
INVESTMENT RESTRICTIONS
SC-EURO is subject to certain investment restrictions which are deemed
fundamental policies of SC-EURO. Such fundamental policies are those which
cannot be changed without the approval of the holders of a majority of SC-EURO's
outstanding shares which means the vote of (i) 67% or more of SC-EURO's shares
present at a meeting, if the holders of more than 50% of the outstanding shares
of SC-EURO are present or represented by proxy, or (ii) more than 50% of SC-
EURO's outstanding shares, whichever is less.
7
<PAGE>
SC-EURO may not:
1. Invest directly in real estate or interests in real estate (although it
may purchase securities secured by real estate or interests therein, or
issued by companies or investment trusts which invest in real estate or
interests therein); invest in interests (other than publicly issued
debentures or equity stock interests) in oil, gas or other mineral
exploration or development programs; or purchase or sell commodity contracts
(except futures contracts as described in SC-EURO's Prospectus);
2. Invest in any company for the purpose of exercising control or management;
3. Act as an underwriter or issue senior securities;
4. Loan money apart from the purchase of a portion of an issue of publicly
distributed bonds, debentures, notes and other evidences of indebtedness,
although SC-EURO may enter into repurchase agreements and lend its portfolio
securities;
5. Invest more than 15% of its net assets in illiquid securities, including
securities of foreign companies that are not listed on a foreign securities
exchange or a recognized U.S. exchange;
6. Borrow money, except that SC-EURO may borrow money from banks in an amount
not exceeding 33-1/3% of the value of SC-EURO's total assets (not including
the amount borrowed), or pledge, mortgage or hypothecate its assets for any
purpose, except to secure borrowings and then only to an extent not greater
than 15% of SC-EURO's total assets. SC-EURO may enter into repurchase
agreements and lend its portfolio securities. Arrangements with respect to
margin for futures contracts are not deemed to be a pledge of assets;
7. Participate on a joint or a joint and several basis in any trading account
in securities;
8. Invest more than 10% of its total assets in warrants. Warrants acquired in
units or attached to securities are not included in this restriction.
If a percentage restriction is met at the time of investment, a later increase
or decrease in the percentage due to a change in value of portfolio securities
or the amount of assets will not be considered a violation of any of the
foregoing restrictions. The investment restrictions do not preclude SC-EURO from
purchasing the securities of any issuer pursuant to the exercise of subscription
rights distributed to SC-EURO by the issuer, unless such purchase would result
in a violation of restriction 6.
8
<PAGE>
MANAGEMENT OF SC-EURO
The directors and officers of SC-EURO and their principal occupations during
the past five years are set forth below. Directors deemed to be "interested
persons" of SC-EURO for purposes of the Investment Company Act of 1940, as
amended ("1940 Act") are indicated by an asterisk.
<TABLE>
<CAPTION>
PRINCIPAL
OCCUPATIONS DURING
NAME AND ADDRESS OFFICE AGE THE PAST FIVE YEARS
<S> <C> <C> <C>
Stephen F. Kasbeer Director 72 Retired; Senior Vice President for
8 Bonanza Trail Administration and Treasurer of Loyola
Santa Fe, New Mexico 87505 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, 45 Managing Director of SC (US)
11 South LaSalle Street Managing Management since March 1997, where he
Chicago, Illinois 60603 Director and is responsible for overseeing all investment
President and capital allocation matters for SC(US)
Management's public market securities
activities and also responsible for company
and industry analysis, market strategy and
trading and reporting; from January 1995
to March 1997, he was Managing Director
of SC(US) Management, where he
performed the same functions. Mr. Manno
was a member of the Investment
Committee of Security Capital Group from
March 1994 to June 1996. Prior to joining
Security Capital, Mr. Manno was a
Managing Director of LaSalle Partners
Limited from March 1980 to March 1994.
Mr. Manno received his M.B.A. from the
University of Chicago Graduate School of
Business, an M.A. and a B.A. in
Economics from Northwestern University
and is a Certified Public Accountant.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
OCCUPATIONS DURING
NAME AND ADDRESS OFFICE AGE THE PAST FIVE YEARS
<S> <C> <C> <C>
George F. Keane Director 68 Chairman of the Board of Trigen Energy
7408 Eaton Court Corporation since 1994. As founding chief
University Park, Florida 34201 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, and as a
and Chairman of the Investment
Committee of the United Negro College
Fund. [EDUCATION]
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
OCCUPATIONS DURING
NAME AND ADDRESS OFFICE AGE THE PAST FIVE YEARS
<S> <C> <C> <C>
John H. Gardner, Jr. Vice President 43 Managing Director of SC (US)
11 South LaSalle Street Management Group since July, 1997.
Chicago, IL 60603 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.
Andrew N. Walker Vice President [ ] Vice President of Security Capital U.S.
[TO BE FILED BY AMENDMENT.] Realty ("SC-USREALTY") and Security
Capital (EU) Management Holdings S.A.
since March 1997 and located in London.
Prior thereto, from February 1995 to
February 1997, he was a European
property analyst for Paribas Capital
Markets; from May 1991 to January 1995,
he was a managing director of Institutional
Property Forecasting Services in the U.K.,
a privately-held real estate research firm in
England; and from February 1991 to May
1991, he was a property analyst with S.G.
Warburg Securities (Japan) Ltd.
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
OCCUPATIONS DURING
NAME AND ADDRESS OFFICE AGE THE PAST FIVE YEARS
<S> <C> <C> <C>
Christopher Tanghe Vice President [ ] Senior Vice President of SC-USREALTY
[TO BE FILED BY AMENDMENT.] and Security Capital (EU) Management
Holdings S.A. since July 1997. Prior
thereto, he was a Vice President at J.P.
Morgan Securities Limited in London with
responsibilities for real estate advisory and
investment banking activities in Europe.
Mr. Tanghe joined J.P. Morgan in 1986,
and was assigned to the New York,
London, Paris and Brussels offices of
Morgan Guaranty Trust Company.
Jeffrey C. Nellessen Secretary 36 Vice President and Controller of SC (US)
11 South LaSalle Street and Management since March 1997. Prior
Chicago, IL 60603 Treasurer 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
Certified Financial Planner. He received
his B.A. from the University of Wisconsin,
Madison.
</TABLE>
COMPENSATION OF DIRECTORS AND CERTAIN OFFICERS
The Directors of SC-EURO who are interested persons, as defined in the
Investment Company Act of 1940, as amended (the "1940 Act"), of SC-EURO (which
includes persons who are employees of SC (US) Management, or officers or
employees of any of its affiliates) receive no remuneration from SC-EURO. Each
of the other Directors is paid an annual retainer of $14,000, an additional
annual retainer of $500 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
and is reimbursed for the expenses of attendance at such meetings. The following
table sets forth information regarding estimated compensation of Directors by
SC-EURO for the fiscal year ending December 31, 1998.
12
<PAGE>
COMPENSATION TABLE
FISCAL YEAR ENDING DECEMBER 31, 1997
<TABLE>
<CAPTION>
PENSION OR
----------
RETIREMENT
---------- ESTIMATED
BENEFITS ----------
AGGREGATE ---------- ANNUAL TOTAL
------------ ACCRUED AS ---------- -----------------
COMPENSATION ---------- BENEFITS COMPENSATION
------------ PART OF ---------- -----------------
FROM ---------- UPON FROM SC-EURO
------------ SC-EURO ---------- -----------------
NAME OF PERSON, POSITION SC-EURO EXPENSES RETIREMENT PAID TO DIRECTORS
- ------------------------ ------------ ---------- ---------- -----------------
<S> <C> <C> <C> <C>
George F. Keane
Director..................................
Stephen F. Kasbeer
Director..................................
*Anthony R. Manno Jr.........................
Chairman, Managing Director and President
[TO BE FILED BY AMENDMENT.]
- -------------
</TABLE>
** "Interested person," as defined in the 1940 Act, of SC-EURO.
INVESTMENT ADVISORY AGREEMENT WITH SC (US) MANAGEMENT
SC-EURO has entered into an investment advisory agreement (the "Advisory
Agreement") with SC (US)Management Group Incorporated ("SC (US) Management"). SC
(US) Management, a registered investment adviser, was formed in December 1996
and specializes in the management of real estate securities portfolios. SC (US)
Management is an indirect wholly-owned subsidiary of Security Capital Group, a
Maryland corporation.
Pursuant to the Advisory Agreement, SC (US) Management furnishes a continuous
investment program for SC-EURO's portfolio. Under the Advisory Agreement, each
class of SC-EURO shares pays SC (US) Management a monthly management fee in an
amount equal to .70% of the value of the average daily net assets of that class
of SC-EURO shares (approximately .70% on an annual basis). Under a separate
sponsorship agreement, SC (US) Management has committed to waive fees and/or
reimburse expenses to maintain the total operating expenses, other than
brokerage fees and commissions, interest, taxes and other extraordinary expenses
of the Class I shares at no more than 1.10% of the value of the Class I average
daily net assets and the Class R shares at no more than 1.25% of the value of
the Class R average daily net assets for the year ending December 31, 1998.
SC (US) Management also provides SC-EURO with such personnel as SC-EURO may
from time to time request for the performance of clerical, accounting and other
office services, such as coordinating matters with the administrator
("Administrator"), the transfer agent ("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-EURO, may be employees of SC (US) Management or its affiliates. The cost to
SC-EURO of these services must be agreed to by SC-EURO and is intended to be no
higher than the actual cost to SC (US) Management or its affiliates of providing
the services. SC-EURO does not pay for services performed by officers of SC (US)
Management or its affiliates. SC-EURO may from time to time hire its own
employees or contract to have services performed by third parties, and the
management of SC-EURO intends to do so whenever it appears advantageous to SC-
EURO.
13
<PAGE>
In addition to the payments to SC (US) Management under the Advisory Agreement
described above, each class of SC-EURO pays 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-EURO's prospectus and
shareholder reports, (e) costs of maintaining SC-EURO'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 only), and (j)
upon the approval of SC-EURO'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-EURO shares pays the portion of SC-EURO expenses
attributable to its operations.
The Advisory Agreement was approved on [____________, 1997] by SC-EURO's
Directors, including a majority of the Directors who are not interested persons
(as defined in the 1940 Act) of SC-EURO or SC (US) Management and by the sole
initial shareholder of SC-EURO on [ ___________, 1997]. The Advisory Agreement
continues in effect until [ ___________, 1999] and will continue in effect from
year to year thereafter, provided that its continuance is specifically approved
prior to the initial expiration of the Advisory Agreement or annually
thereafter, as the case may be, by the Directors or by a vote of the
shareholders, and in either case by a majority of the Directors who are not
parties to the Advisory Agreement or interested persons of any such party, by
vote cast in person at a meeting called for the purpose of voting on such
approval.
The Advisory Agreement is terminable without penalty by SC-EURO 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. If the Advisory Agreement is terminated and no other affiliate
of Security Capital Group becomes the adviser to SC-EURO, SC (US) Management may
require SC-EURO to delete any reference to Security Capital in its name and
marketing material. 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.
The employees of SC (US) Management primarily responsible for identifying and
analyzing investments on behalf of SC-EURO are listed below. In addition, SC
(US) Management is entitled, pursuant to an arrangement with another wholly-
owned subsidiary of Security Capital Group, to the services of Mr. Gerios J.M.
Rovers whose principal occupations during the past five years are also set forth
below.
<TABLE>
<CAPTION>
PRINCIPAL
OCCUPATIONS DURING
NAME AND ADDRESS OFFICE THE PAST FIVE YEARS
[SC (US) MANAGEMENT EMPLOYEES TO BE FILED BY AMENDMENT.]
<S> <C> <C>
Gerios J.M. Rovers [TO BE FILED Mr. Rovers has served as Vice President of
[TO BE FILED BY AMENDMENT.] BY [NEWCO] since [___, 1997], where he is responsible
AMENDMENT.] for the development and implementation of portfolio
investment strategy. From July 1988 to April 1997,
Mr. Rovers was associated with GIM Algemeen
Vermogensbeheer and served as an associate director
and a portfolio manager of global real estate
securities on behalf of domestic and foreign clients.
Mr. Rovers graduated from the University of
Tilburg in The Netherlands.
</TABLE>
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<PAGE>
RESEARCH SERVICES AGREEMENT WITH SC (EU) MANAGEMENT
SC (US) Management has entered into a research services agreement ("Research
Services Agreement') with SC (EU) Management. SC (EU) Management was formed on
March 24, 1997 under Belgian law. SC (EU) Management is an indirect, wholly-
owned subsidiary of Security Capital Group. The officer of SC (EU) Management
responsible for providing real estate research services to SC (US) Management
and his principal occupations during the past five years are set forth below.
<TABLE>
<CAPTION>
PRINCIPAL
OCCUPATIONS DURING
NAME AND ADDRESS OFFICE THE PAST FIVE YEARS
<S> <C> <C>
W. Joseph Houlihan Managing Mr. Houlihan has served as a Managing
34 Boulevard de LaWoluwe Director Director of SC (EU) Management since April
Brussels, Belgium 1997 where he is responsible for overseeing
all investment and capital allocation
recommendations for SC (EU) Management's
public market securities activities, and also
responsible for company and industry analysis,
market strategy and trading and reporting.
Prior to joining Security Capital, Mr. Houlihan
was the Director of the Institutional Investment
Management Group and executive vice
president of GIM Algemeen Vermogensbeheer,
a prominent Dutch investment management
company, where he specialized in real estate
investments and was responsible for developing
GIM's real estate securities investment process
and client base. Prior to joining GIM, Mr.
Houlihan was a vice president at John G.
Wood and Associates, a diversified real estate
development and investment company located
in Florida, and with Chase Manhattan Bank's
trust department. Mr. Houlihan is an Advisory
Director of Security Capital US Realty and a
member of the Investment Property Forum.
Mr. Houlihan received his M.B.A. from the
University of Leuven, Belgium, and his B.S.
from New York University.
</TABLE>
ADMINISTRATOR AND SUB-ADMINISTRATOR
SC-EURO has also entered into a fund administration and servicing agreement
with SC (US) Management (the "Administration Agreement") under which SC (US)
Management performs certain administrative functions for SC-EURO, including (i)
providing office space, telephone, office equipment and supplies for SC-EURO;
(ii) paying compensation of SC-EURO's officers for services rendered as such;
(iii) authorizing expenditures and approving bills for payment on behalf of SC-
EURO; (iv) supervising preparation of the periodic updating of SC-EURO's
Prospectus and Statement of Additional Information for existing shareholders;
(v) supervising preparation of quarterly reports to SC-EURO's shareholders,
notices
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<PAGE>
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-EURO's investment portfolio and the
publication of the net asset value of SC-EURO's shares, earnings reports and
other financial data; (vii) monitoring relationships with organizations
providing services to SC-EURO, including the Custodian, Transfer Agent and
printers; (viii) providing trading desk facilities for SC-EURO; (ix) maintaining
books and records for SC-EURO (other than those maintained by the Custodian and
Transfer Agent) and preparing and filing of tax reports other than SC-EURO'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-EURO's Board of Directors, SC (US) Management has caused SC-EURO
to retain [_________________] as sub-administrator (the "Sub-Administrator")
under a service 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-EURO's net asset value and preparing such figures for
publication, maintaining certain of SC-EURO's books and records that are not
maintained by SC (US) Management, or the Custodian, preparing financial
information for SC-EURO'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-EURO pays the
Sub-Administrator a monthly administration fee at the annual rate of
[____________]. The Sub-Administrator also serves as the Transfer Agent. See
"Custodian and Transfer 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-EURO under the Sub-Administration Agreement, subject to the
overall authority of SC-EURO's Board of Directors. For its services under the
Administration Agreement, SC (US) Management receives a monthly fee from SC-EURO
at the annual rate of 0.2% of SC-EURO's average daily net assets.
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-EURO has adopted Distribution and Servicing
Plans with respect to the Class I and Class R shares ("Plans") pursuant to Rule
12b-1 under the 1940 Act. See "Distribution and Servicing Plan" in each
Prospectus. The Plans have been approved by a vote of the Board of Directors
with respect to the Class I and the Class R shares, including a majority of the
Directors who are not interested persons of SC-EURO 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-EURO 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-EURO is authorized to pay a distribution fee for
distribution activities in connection with the sale of shares and a service fee
for services provided which are necessary for the maintenance of shareholder
accounts. To the extent such fee exceeds the expenses of these distribution and
shareholder servicing activities, the Distributor may retain such excess as
compensation for its services and may realize a profit from these arrangements.
16
<PAGE>
The Plans are compensation plans which provide for the payment of a specified
distribution and service fee without regard to the distribution and service
expenses actually incurred by the Distributor with respect to one share. If the
Plans were to be terminated by the Board of Directors and no successor Plans
were to be adopted, the Directors would cease to make distribution and service
payments to the Distributor and the Distributor would be unable to recover the
amount of any of its unreimbursed distribution expenditures. However, the
Distributor does not intend to incur distribution and service expenses at a rate
that materially exceeds the rate of compensation received under the Plan.
The types of expenses for which the Distributor and third parties may be
compensated under the Plans include compensation paid to and expenses incurred
by their officers, employees and sales representatives, allocable overhead,
telephone and travel expenses, the printing of prospectuses and reports for
other than existing shareholders, preparation and distribution of sales
literature, advertising of any type and all other expenses incurred in
connection with activities primarily intended to result in the sale of shares.
Additional types of expenses covered by the Plans include responding to
shareholder inquiries and providing shareholders with information on their
investments.
Under the Plans, the Distributor will provide to the Board of Directors for
its review, and the Board will review at least quarterly, a written report of
the services provided and amounts expended by the Distributor under the Plans
and the purposes for which such services were performed and expenditures were
made.
The Plans were approved by the Board of Directors, including the disinterested
Directors, on [___________, 1997] and the Plan for Class I shares was approved
by SC-EURO's Class I shareholder on [_____________, 1997]. The Plans remain in
effect from year to year, provided such continuance is approved annually by a
vote of the Board of Directors, including a majority of the disinterested
Directors. The Plans may not be amended to increase materially the amount to be
spent for the services described therein as to the Class I and/or Class R shares
without approval of a majority of the outstanding Class I and/or Class R shares.
All material amendments of the Plan must also be approved by the Board of
Directors in the manner described above. The Plans may be terminated at any time
without payment of any penalty by a vote of a majority of the disinterested
Directors or by a vote of a majority of the outstanding Class I and/or Class R
shares. So long as a Plan is in effect, the selection and nomination of
disinterested Directors shall be committed to the discretion of the
disinterested Directors. The Board of Directors has determined that in their
judgment there is a reasonable likelihood that the Plans will benefit SC-EURO
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-EURO 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-
EURO to affect materially SC-EURO's net asset value. The New York Stock Exchange
is closed on Saturdays, Sundays, and on New Year's Day, Martin Luther King 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.
17
<PAGE>
REDEMPTION OF SHARES
Payment of the redemption price for shares redeemed, after deduction of the
redemption fee, may be made either in cash or in portfolio securities (selected
in the discretion of SC-EURO's Board of Directors and taken at their value used
in determining SC-EURO'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-EURO's Board of Directors believes that economic conditions exist
which would make such a practice detrimental to the best interests of SC-EURO.
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-EURO will not distribute in kind portfolio securities that are not
readily marketable.
SC-EURO has elected to be governed by Rule 18f-1 under the 1940 Act with
respect to the Class I shares, which obligates SC-EURO to redeem shares in cash,
with respect to any one Class I shareholder during any 90-day period, up to the
lesser of $250,000 or 1% of the net assets of SC-EURO at the beginning of such
period. Although redemptions in excess of this limitation would normally be paid
in cash, SC-EURO 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-EURO
as determined by the Board of Directors. In such circumstances, the securities
distributed would be valued as set forth in the Prospectus. Should SC-EURO
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-EURO and negotiation of its brokerage commission rates are
made by SC (US) Management. Transactions on U.S. stock exchanges and most
foreign exchanges involve the payment by SC-EURO of negotiated brokerage
commissions. Traditionally, commission rates have not been negotiated on stock
markets outside the U.S. In recent years, however, an increasing number of
overseas stock markets have adopted a system of negotiated rates, although a
number of markets continue to be subject to an established schedule of minimum
commission rates. There is generally no stated commission in the case of
securities traded in the over-the-counter market but the price paid by SC-EURO
usually includes an undisclosed dealer commission or mark-up. In certain
instances, SC-EURO 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-EURO on a
continuing basis. Accordingly, the cost of the brokerage commissions to SC-EURO
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-EURO 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-EURO. Research
and investment information is provided by these and other brokers at no cost to
SC
18
<PAGE>
(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-EURO. While this information may be useful in varying
degrees and may tend to reduce SC (US) Management's expenses, it is not possible
to estimate its value and in the opinion of SC (US) Management 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-
EURO and its shareholders. SC (US) Management may also take into account
payments made by brokers effecting transactions for SC (US) Management to other
persons on behalf of SC-EURO for services provided to it for which it would be
obligated to pay (such as custodial and professional fees). In addition, subject
to seeking best price and execution, SC (US) Management may consider sales of
shares of SC-EURO as a factor in the selection of brokers and dealers to enter
into portfolio transactions with SC-EURO.
TAXATION
TAXATION OF SC-EURO
SC-EURO intends to qualify annually and to elect to be treated as a regulated
investment company under the Code.
To qualify as a regulated investment company, SC-EURO must, among other
things: (a) derive in each taxable year at least 90% of its gross income from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of stock, securities or foreign currencies or
other income derived with respect to its business of investing in such stock,
securities or currencies; (b) derive less than 30% of its gross income from the
sale or other disposition of certain assets (namely, (i) stock or securities,
(ii) options, futures, and forward contracts (other than those on foreign
currencies), and (iii) foreign currencies (including options, futures, and
forward contracts on such currencies) not directly related to SC-EURO's
principal business of investing in stock or securities (or options and futures
with respect to stocks or securities)) held less than 3 months; (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-EURO'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-EURO'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-EURO 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-EURO 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-EURO 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
19
<PAGE>
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-EURO in
October, November or December with a record date in such a month and paid by SC-
EURO 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-EURO intends to make its
distributions in accordance with the calendar year distribution requirement .
DISTRIBUTIONS
Dividends paid out of SC-EURO's investment company taxable income will be
taxable to a U.S. shareholder as ordinary income. 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-EURO'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-EURO on the
reinvestment date. Shareholders will be notified annually as to the U.S. federal
tax status of distributions, and shareholders receiving distributions in the
form of additional shares will receive a report as to the net asset value of
those shares.
The portion of a SC-EURO distribution classified as a return of capital
generally is not taxable to SC-EURO shareholders, but it will reduce their tax
basis in their shares, which in turn would affect 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.
SALE OF SHARES
Upon the sale or other disposition of shares of SC-EURO, a shareholder may
realize a capital gain or loss which will be long-term or short-term, generally
depending upon the shareholder's holding period for the shares. Any loss
realized on a sale or exchange will be disallowed to the extent the shares
disposed of are replaced within a period of 61 days beginning 30 days before and
ending 30 days after disposition of the shares. In such a case, the basis of the
shares acquired will be adjusted to reflect the disallowed loss. Any loss
realized by a shareholder on a disposition of SC-EURO 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.
BACKUP WITHHOLDING
Except as described below, SC-EURO 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-EURO with their correct taxpayer identification number or to
make required certifications, or who have been notified by the Internal Revenue
Service 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.
20
<PAGE>
PASSIVE FOREIGN INVESTMENT COMPANIES
SC-EURO may invest in stocks of foreign companies that are classified under
the Code as passive foreign investment companies ("PFICs"). In general, a
foreign company is classified as a PFIC if at least one-half of its assets
constitute investment-type assets or 75% or more of its gross income is
investment-type income. Under the PFIC rules, an "excess distribution" received
with respect to PFIC stock is treated as having been realized ratably over the
period during which SC-EURO held the PFIC stock. SC-EURO itself will be subject
to tax on the portion, if any, of the excess distribution that is allocated to
SC-EURO's holding period in prior taxable years (and an interest factor will be
added to the tax, as if the tax had actually been payable in such prior taxable
years) even though SC-EURO distributes the corresponding income to shareholders.
Excess distributions include any gain from the sale of PFIC stock as well as
certain distributions from a PFIC. All excess distributions are taxable as
ordinary income.
SC-EURO may be able to elect alternative tax treatment with respect to PFIC
stock. Under one such election, SC-EURO generally would be required to include
in its gross income its share of the earnings of a PFIC on a current basis,
regardless of whether any distributions are received from the PFIC. If this
election is made, the special rules, discussed above, relating to the taxation
of excess distributions, would not apply. In addition, other elections may
become available that would affect the tax treatment of PFIC stock held by SC-
EURO. SC-EURO's intention to qualify annually as a regulated investment company
may limit its elections with respect to PFIC stock.
Because the application of the PFIC rules may affect, among other things, the
character of gains, the amount of gain or loss and the timing of the recognition
of income with respect to PFIC stock, as well as subject SC-EURO itself to tax
on certain income from PFIC stock, the amount that must be distributed to
shareholders, and which will be taxed to shareholders as ordinary income or
long-term capital gains, may be increased or decreased substantially as compared
to a mutual fund that does not invest in PFIC stock.
FOREIGN INCOME TAX
Investment income received by SC-EURO from sources within foreign countries
may be subject to foreign income taxes withheld at the source. The U.S. has
entered into tax treaties with many foreign countries which entitle SC-EURO to a
reduced rate of, or exemption from, taxes on such income. It is impossible to
determine the effective rate of foreign tax in advance since the amount of SC-
EURO's assets to be invested in various countries is not known.
If more than 50% of the value of SC-EURO's total assets at the close of each
taxable year consists of the stock or securities of foreign corporations, SC-
EURO may elect to "pass through" to SC-EURO's shareholders the amount of foreign
income taxes paid by SC-EURO (the "Foreign Tax Election"). Pursuant to the
Foreign Tax Election, shareholders will be required (i) to include in gross
income, even though not actually received, their respective pro-rata shares of
the foreign income taxes paid by SC-EURO that are attributable to any
distributions they receive; and (ii) either to deduct their pro-rata share of
foreign taxes in computing their taxable income, or to use it (subject to
various Code limitations) as a foreign tax credit against Federal income tax
(but not both). No deduction for foreign taxes may be claimed by a non-corporate
shareholder who does not itemize deductions or who is subject to alternative
minimum tax.
Generally, a credit for foreign taxes is subject to the limitation that it may
not exceed the shareholder's U.S. tax (determined without regard to the
availability of the credit) attributable to the shareholder's foreign source
taxable income. In determining the source and character of distributions
received from SC-EURO for this purpose, shareholders will be required to
allocate SC-EURO distributions according to the source of the income realized by
SC-EURO. SC-EURO's gains from the sale of stock and securities and certain
currency fluctuation gains and losses will generally be treated as derived from
U.S. sources. In addition,
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<PAGE>
the limitation on the foreign tax credit is applied separately to foreign source
"passive" income, such as dividend income. Because of these limitations,
shareholders may be unable to claim a credit for the full amount of their
proportionate shares of the foreign income taxes paid by SC-EURO.
OTHER TAXATION
SC-EURO shareholders may be subject to other taxes on their SC-EURO
distributions. Shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in SC-EURO.
ORGANIZATION AND DESCRIPTION OF CAPITAL STOCK
SC-EURO was incorporated on December 4, 1997 under Maryland law. SC-EURO is
authorized to issue 50,000,000 shares of common stock, $.01 par value per share
(the "Common Stock"). SC-EURO's shares have no preemptive, conversion, exchange
or redemption rights. Each share has equal voting, dividend, distribution and
liquidation rights. All shares of SC-EURO, when duly issued, will be fully paid
and nonassessable. Shareholders are entitled to one vote per share. All voting
rights for the election of Directors are noncumulative, which means that the
holders of more than 50% of the shares can elect 100% of the Directors then
nominated for election if they choose to do so and, in such event, the holders
of the remaining shares will not be able to elect any Directors. The foregoing
description is subject to the provisions contained in SC-EURO's Articles of
Incorporation and By-Laws which have been filed with the Securities and Exchange
Commission 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-EURO without shareholder approval. Pursuant to this authority, on
[_______, 1997], the Board of Directors adopted a Multiple Class Plan ("Plan")
under rule 18f-3 of the Investment Company Act of 1940, as amended, authorizing
SC-EURO to issue two classes of shares; Class I shares and Class R shares. In
accordance with the Plan, Class I shares are offered to investors whose initial
minimum investment is $250,000 and Class R shares are available for purchase by
all other investors. Class R shares and Class I shares offer different services
to shareholders and incur different expenses. Each call pays its proportionate
share of SC-EURO expenses.
At [__________, 1997], there were [______] Class I shares and no 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-EURO. Also,
as of that date, the following persons owned of record 5% or more of SC-EURO's
outstanding shares:
[TO BE FILED BY AMENDMENT.]
DISTRIBUTOR
Security Capital Markets Group Incorporated, an affiliate of SC (US)
Management, serves as the distributor of Class I shares without charge and as
the distributor of Class R shares pursuant to a Distribution and Servicing
Agreement dated [______, 1997] ("Agreement"). The Distributor is not obligated
to sell any specific amount of shares and will sell shares as agent for SC-EURO
on a best efforts continuous basis only against orders to purchase shares.
22
<PAGE>
CUSTODIAN AND TRANSFER AGENT
[_______________]which has its principal business at [_______________], has
been retained to act as Custodian of SC-EURO's investments. [_______________],
which has its principal business at [_______________], has been retained to act
as SC-EURO's transfer agent. Neither [_______________] nor [_______________]
determine the investment policies of SC-EURO or decide which securities SC-EURO
will buy or sell.
PERFORMANCE INFORMATION
From time to time, SC-EURO may quote SC-EURO's total return in advertisements
or in reports and other communications to shareholders. SC-EURO'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-EURO'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-EURO
with certain bank deposits or other investments that pay a fixed yield for a
stated period of time. Investors comparing SC-EURO's performance with that of
other mutual funds should give consideration to the quality and maturity of the
respective investment companies' portfolio securities.
AVERAGE ANNUAL TOTAL RETURN
SC-EURO'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-EURO's aggregate total return figures described in the Prospectus represent
the cumulative change in the value of an investment in SC-EURO for the specified
period and are computed by the following formula.
(ERV-P)
Aggregate Total Return = --------
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.
23
<PAGE>
YIELD
Quotations of yield for SC-EURO 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-EURO or in
advertising materials, SC-EURO 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-EURO may also compare the historical volatility of its
portfolio to the volatility of such indices during the same time periods.
(Volatility is a generally accepted barometer of the market risk associated with
a portfolio of securities and is generally measured in comparison to the stock
market as a whole--the beta--or in absolute terms--the standard deviation.)
COUNSEL AND INDEPENDENT ACCOUNTANTS
Legal matters in connection with the issuance of the shares of SC-EURO offered
hereby will be passed upon by Mayer, Brown & Platt, 2000 Pennsylvania Avenue,
N.W., Washington, D.C. 20006, which will rely as to certain matters of Maryland
law on an opinion of [_________].
[_________] have been appointed as independent accountants for SC-EURO.
24
<PAGE>
FINANCIAL STATEMENTS
[TO BE FILED BY AMENDMENT.]
25
<PAGE>
SECURITY CAPITAL EUROPEAN 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
European 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 31.3% of voting
securities
SCERF Incorporated Maryland Ownership by SC Realty of 100% of voting
securities
Security Capital U.S. Real Estate Maryland Ownership by SCERF Incorporated of 100%
Shares Incorporated of voting securities
SC European Real Estate Shares Maryland
Incorporated
Security Capital Preferred Growth Maryland Ownership by SC Realty of 100% of voting
Incorporated securities
Harbor Capital Incorporated Delaware
Development Services Trust
Security Capital Management Delaware Ownership by Group of 100% of voting
Incorporated securities
Belmont Corporation Delaware Ownership by Group 100% of voting
Security Capital BVI Holdings Maryland Ownership by Group of 100% of voting
Incorporated securities
Security Capital Investment Research Delaware Ownership by Group of 100% of voting
Incorporated ("Investment Research") securities
Security Capital Global Strategic Group Maryland Ownership by Investment Research of 100%
Incorporated of voting securities
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Security Capital Real Estate Research Maryland Ownership by Investment Research of 100%
Group Incorporated of voting securities
Security Capital Global Management Delaware Ownership by Investment Research of 100%
Group Incorporated of voting securities
SC Group Incorporated Texas Ownership by Group of 100% of voting
securities
Security Capital Markets Group Delaware Ownership by Group of 100% of voting
Incorporated securities
Strategic Hotel Capital Incorporated Delaware Ownership by Group of 49.65% of voting
securities
SHC Funding Incorporated Delaware Ownership by Group 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
SHC Westport Inn Delaware Ownership by Group of 49.65% of voting
securities
SHC Westport Plaza LLC Delaware Ownership by Group of 49.65% of voting
securities
SHC Mexico Holdings Incorporated Delaware
Security Capital (EU) Management Luxembourg Ownership by Group of 100% of voting
Holdings S.A. securities
Security Capital (EU) Holdings S.A. Luxembourg Ownership by Security Capital (EU)
Management Holdings S.A. of 100% of
voting securities
Security Capital (EU) Management Luxembourg Ownership by Security Capital (EU )Holdings
Group S.A S.A. of 100% of voting securities
Security Capital (EU) Management Luxembourg Ownership by Security Capital (EU)
S.A. Management Holdings S.A. of 100% of
voting securities
Security Capital Global Management S.A. United Kingdom 100% SC (EU) Management Holdings S.A.
Security Capital (UK) Management United Kingdom Ownership by Security Capital (EU)
Limited Management Holdings S.A. of 100% of
voting securities
Security Capital International Limited United Kingdom Security Capital (UK) Management Limited
owns 100% of voting securities
CarrAmerica Realty Corporation Maryland Ownership by US Realty of 37.2% of voting
securities
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Storage USA, Inc. Tennessee Ownership by US Realty of 33.8% of voting
securities
Regency Realty Corporation Florida Ownership by US Realty of 37.5% of voting
securities
Pacific Retail Trust Maryland Ownership by US Realty of 69.3% of voting
securities
Urban Growth Property Incorporated Delaware Ownership by US Realty of 99% of voting
securities
Urban Growth Property Trust Maryland Ownership by US Realty of 100% of voting
securities
LWP Associates LLC Maryland Ownership by US Realty of 99% of voting
securities
Van Wells Realty Company, LLC Maryland Ownership by US Realty of 99% of voting
securities
City Center Retail Trust Maryland Ownership by US Realty of 100% of voting
securities
City Center Retail Trust Developments, Delaware
L.P.
CCRT I Incorporated Delaware
CCRT II Incorporated Delaware
Parking Services International Incorporated Maryland Ownership by US Realty of 8.8% of voting
securities
NPC-1 Incorporated Maryland Ownership by US Realty of 100% of voting
securities
SC Communities Incorporated Delaware
Security Capital Industrial Trust Maryland Ownership by SC Realty of 44.1% 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
Security Capital Interim SARL Luxembourg Ownership by SCI of 100% of voting
securities
Logistar Interim II SARL Luxembourg Ownership by SCI of 100% of voting
securities
Logistar SARL Luxembourg
Logistar BV
Security Capital Logistar International Fund Luxembourg Ownership by SCI of 100% of voting
SCA securities
SCI Logistar Management SARL Luxembourg Ownership by SCI of 100% of voting
securities
CS Integrated LLC Delaware Ownership by SCI of 100% of voting
securities
Enterprise Refrigerated Services LLC Delaware Ownership by SCI of 100% of voting
securities
CS Integrated Retail Services LLC Delaware
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
CS Integrated-Texas Limited Partnership Delaware Ownership by SCI of 100% of voting
securities
CS Integrated Investment Management Delaware
LLC
CS Integrated Investments Southwest Delaware
LLC
SCI Logistics Services Incorporated Delaware Ownership by SCI of 100% of voting
securities
SCI Logistics Holdings LLC Delaware Ownership by SCI 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
SCI Client Services of Colorado Colorado
SCI IV, Inc. Delaware Ownership by SCI of 100% of voting
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 Alabama Ownership of 100% of voting securities
Trust 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 Delaware Sole general partnership interest owned by
Partnership 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
SCIT De Mexico SA DE CV
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 51.4% of voting
("Atlantic") securities
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
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--Alabama (1) Incorporated Maryland 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
Atlantic--Alabama (2) Incorporated Maryland Ownership by Atlantic of 100% of voting
securities
Security Capital Alabama Multifamily Alabama Ownership by Atlantic--Alabama (1)
Trust Incorporated and Atlantic--Alabama (2)
Incorporated of 100% of voting securities
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 Alabama Multifamily Trust Alabama
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 Delaware Sole general partnership interest owned by
Partnership SCA--North Carolina (1) Incorporated
SCA--Indiana Limited Partnership Delaware
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
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Security Capital Atlantic Multifamily Delaware Ownership by Atlantic of 100% of voting
Inc. securities
Security Capital Pacific Trust ("PTR") Maryland Ownership by SC Realty of 36.0% of voting
securities
SCG Realty Service Incorporated Delaware Ownership by PTR of 100% of voting
securities
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 3 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
Resident Advantage 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
PTR Multifamily Incorporated Delaware Ownership by PTR of 100% of voting
securities
PTR-California Holdings (1) Maryland Ownership by PTR of 100% of voting
Incorporated securities
PTR-California Holdings (2) Maryland 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
PTR-New Mexico (2) Incorporated Delaware Ownership by PTR of 100% of voting
securities
PTR Washington Holdings (1) Incorporated Maryland Ownership by PTR Development Services of
100% of voting securities
Homestead Village Incorporated Maryland Ownership by SC Realty (including its
subsidiaries) of 56.5% of voting securities
KC Homestead Village Missouri Ownership by Homestead Village
Redevelopment Corporation Incorporated of 100% of voting securities
Missouri Homestead Village Maryland Ownership by Homestead Village
Incorporated Incorporated of 100% of voting securities
Atlantic Homestead Village Limited Delaware Sole general partnership interest owned by
Partnership Atlantic Homestead Village (1) Incorporated
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
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 Village LP Delaware Ownership by Homestead Village(1) and
Homestead Village (2) 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 owned by
Partnership PTR Homestead Village (1) Incorporated
Homestead Alabama Incorporated Alabama Ownership by Homestead Village
Incorporated of 100% of voting securities
</TABLE>
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
Not applicable.
ITEM 27. INDEMNIFICATION.
Reference is made to Article Eighth of the Registrant's Articles of
Incorporation (filed herewith as Exhibit 1.)
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.
7
<PAGE>
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Security Capital (US) Management Group Incorporated ("SC (US) Management"), 11
South LaSalle Street, Chicago, Illinois 60603, provides investment advisory
services to institutional investors.
For information as to any other business, vocation or employment of a
substantial nature in which each Director or officer of the Registrant's
investment adviser has been engaged for his own account or in the capacity of
Director, officer, employee, partner or trustee, reference is made to Prospectus
and Statement of Additional Information contained in this registration
statement.
ITEM 29. PRINCIPAL UNDERWRITER.
(a) Security Capital Markets Group Incorporated ("SCMG"), the principal
distributor for the Registrant's securities, does not currently act as principal
underwriter or distributor for any other investment company.
(b) The table below sets forth certain information as to SCMG's Directors,
Officers and Control Persons:
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESSES* WITH UNDERWRITER WITH REGISTRANT
- ------------------- ---------------------------------- ---------------------
<S> <C> <C>
---- ---- ----
Lucinda G. Marker President None
K. Scott Cannon Director and Senior Vice President None
Jeffrey A. Klopf Director, Secretary, Senior Vice None
President
Gerard de Gunzburg Senior Vice President None
Robert H. Fippinger Vice President None
Alison C. Hefele Vice President None
Garett C. House Vice President None
Gerald R. Morgan, Jr. Assistant Controller None
Jayson C. Cyr Assistant Controller None
</TABLE>
[*ADDRESSES TO BE FILED BY AMENDMENT.]
(c) Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
Certain of the records described in Section 31(a) of the 1940 Act and the
Rules 17 CFR 270.31a-1 to 31a-3 promulgated thereunder, are maintained by SC-
EURO'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 [______________________].
8
<PAGE>
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 file an amendment to this Registration
Statement with certified financial statements showing the initial capital
received before accepting subscriptions from any person in excess of 25 if
Registrant proposes to raise its initial capital pursuant to Section 14(a)(3) of
the 1940 Act.
(b) Registrant hereby undertakes to file a post-effective amendment within
four to six months from the effective date of this Registration Statement under
the Securities Act of 1933. Registrant understands that such post-effective
amendment will contain reasonably current financial statements which need not be
certified by independent public accountants.
(c) 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.
(d) The Registrant hereby undertakes to promptly call a meeting of
shareholders for the purpose of voting upon the question of removal of any
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, as amended, relating to shareholder
communications.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this 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 8th day of December, 1997.
Security Capital European 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 Registration
Statement of Security Capital European Real Estate Shares Incorporated has been
signed below by the following persons in the capacities and on the 8th day of
December, 1997.
<TABLE>
<CAPTION>
Signature Capacity Date
- --------------------- --------------------------- ------------------
<S> <C> <C>
/s/ Anthony R. Manno, Jr.
- ------------------------- Principal Executive Officer December 8, 1997
Anthony R. Manno, Jr.
/s/ Jeffrey C. Nellessen
- ------------------------- Principal Financial Officer December 8, 1997
Jeffrey C. Nellessen
/s/ Jeffery C. Nellessen
- ------------------------- Comptroller December 8, 1997
Jeffery C. Nellessen
/s/ Anthony R. Manno, Jr.
- ------------------------- Director December 8, 1997
Anthony R. Manno, Jr.
/s/ Stephen F. Kasbeer
- ------------------------- Director December 8, 1997
Stephen F. Kasbeer
/s/ George F. Keane
- ------------------------- Director December 8, 1997
George F. Keane
</TABLE>
10
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -------------------------------------------------------------------
<S> <C>
1 Articles of Incorporation (To be filed by amendment.)
2 By-Laws (To be filed by amendment.)
5(a) Investment Advisory Contract (To be filed by amendment.)
5(b) Investment Sub-Advisory Contract (To be filed by amendment.)
5(c) Research Services Agreement (To be filed by amendment.)
6 Distribution Agreement (To be filed by amendment.)
8 Global Custody Agreement (To be filed by amendment.)
9(a) Accounting and Administration Agreement. (To be filed by
amendment.)
9(b) Mutual Funds Service Agreement (To be filed by amendment.)
10(a) Opinion and Consent of [________] regarding the legality of the
securities being issued. (To be filed by amendment.)
11(a) Consent of Arthur Andersen LLP (To be filed by amendment.)
11(b) Consent of Mayer, Brown & Platt
15 Rule 12b-1 Distribution and Shareholder Servicing Plan (To be filed
by amendment.)
17 Financial Data Schedule (To be filed by amendment.)
18 Rule 18f-3 Multiple Class Plan (To be filed by amendment.)
</TABLE>
__________
11
<PAGE>
EXHIBIT 11(b)
CONSENT OF
----------
MAYER, BROWN & PLATT
--------------------
We hereby consent to the reference to our firm under the caption "Counsel
and Independent Accountants" in the statement of additional information
comprising a part of the Form N-1A Registration Statement of Security Capital
European Real Estate Shares Incorporated, File No. 811-08533.
MAYER, BROWN & PLATT
/s/ Mayer, Brown & Platt
Washington, D.C.
December 8, 1997
