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File Pursuant to Rule 424(b)(3)
Registration No. 333-42043
PROSPECTUS
STORAGE TRUST REALTY
DIVIDEND REINVESTMENT AND SHARE PURCHASE PLAN
COMMON SHARES OF BENEFICIAL INTEREST, $.0L PAR VALUE
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Storage Trust Realty (the "Company") is offering its shareholders and other
investors the opportunity to purchase its Common Shares of Beneficial
Interest, $.0l par value ("Common Shares") pursuant to the Company's Dividend
Reinvestment and Share Purchase Plan (the "Plan"). The Plan allows
shareholders to automatically reinvest all or a portion of cash dividends that
the Company may declare without brokerage commissions or other expense. The
Plan also provides a method for all investors to purchase Common Shares
directly from the Company at current market prices without brokerage
commissions or other expense.
Participants in the Plan may:
. Automatically reinvest cash dividends on the Common Shares (or preferred
shares, if outstanding) held in their name and on all Common Shares held
for them in the Plan, which may be priced at a discount from market prices
(determined in accordance with the Plan) on the dividend payment date
ranging from 0% to 5%.
. Make additional investments as often as once a month, which may be priced
at a discount from market prices (determined in accordance with the Plan)
on the Investment Date (defined below) ranging from 0% to 5%, by sending a
check or money order to the Plan administrator. For shareholders of record,
these optional investments must be for at least $100 and no more than
$5,000 in any one month. Optional cash investments in excess of $5,000 may
be made with permission of the Company, which may be priced at a discount
from market prices (determined in accordance with the Plan) on the relevant
Investment Date ranging from 0% to 5%.
. Make automatic monthly investments, which may be priced at a discount from
market prices (determined in accordance with the Plan) on the relevant
Investment Date ranging from 0% to 5%, by authorizing electronic funds
transfers from participants' banking or checking accounts. For shareholders
of record, automated funds transfers may be for as little as $100 per
month, but in no case for more than $5,000 per month.
. Deposit share certificates for safekeeping, withdraw any or all Common
Shares from safekeeping or instruct the Plan agent to sell some or all of
the Common Shares held in a Plan account on their behalf.
Common Shares will be purchased by the Administrator (defined below)
directly from the Company or in open market or privately negotiated
transactions, as determined from time to time by the Company to fulfill
requirements for the Plan. At present, the Company expects that Common Shares
generally will be purchased directly from the Company.
Common Shares purchased directly from the Company pursuant to an optional
cash investment of more than $5,000 (with permission of the Company) may be
priced at a discount from market prices (determined in accordance with the
Plan) ranging from 0% to 5%. This discount, if offered, may be adjusted by the
Company in its discretion at any time. No discount will be available for
Common Shares purchased in the open market or in privately negotiated
transactions.
Persons who are not already shareholders of record may make an initial
purchase of Common Shares directly from the Company, at current market prices,
in any amount between $250 and $5,000. Once a Plan account has been
established, dividends may automatically be reinvested and optional monthly
investments may be made within the guidelines described above.
Shareholders who have their Common Shares registered in "street-name" may
also participate in the Plan to the extent that their bank, broker or other
custodian has procedures in place that will allow them to do so.
The Chase Manhattan Bank, or such successor administrator as the Company may
designate, is the administrator of the Plan (the "Administrator") and acts as
agent for participants. Certain of the administrative support will be provided
to the Administrator by ChaseMellon Shareholder Services, LLC, a registered
transfer agent.
This Prospectus relates to 1,000,000 Common Shares offered for purchase
under the Plan. It should be retained for future reference. The Company's
Common Shares are presently listed for trading on the New York Stock Exchange
under the symbol SEA. In order to maintain its qualification as a real estate
investment trust for federal income tax purposes, the Company's Declaration of
Trust imposes limitations on the number of Common Shares of capital stock that
may be owned by any single person or affiliated group. See "The Plan--
Restrictions on Ownership of Common Shares."
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.
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The date of this Prospectus is April 15, 1998.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and
other information can be inspected and copied at the Public Reference Section
maintained by the Commission at Room 1024, 450 Fifth Street, NW, Washington,
D.C. 20549; Chicago Regional Office, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661; and New York Regional Office, 7 World Trade Center,
New York, New York 10048. Such reports, proxy statements and other information
concerning the Company can also be inspected at the offices of the New York
Stock Exchange, 20 Broad Street, New York, New York 10005. Such reports, proxy
statements and other information concerning the Company can also be accessed
on the Commission's web site at http://www.sec.gov.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon their written or oral request, a copy of
any or all of the documents incorporated herein by reference (other than
exhibits to such documents). Written requests for such copies should be
addressed to 2407 Rangeline Street, Columbia, MO 65202, Attn: Controller--
External Reports, telephone number (573) 499-4799.
The Company has filed with the Commission a registration statement on Form
S-3 (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the Common Shares offered
hereby. For further information with respect to the Company and the Common
Shares offered hereby, reference is made to the Registration Statement and
exhibits thereto. Statements contained in this Prospectus as to the contents
of any contract or other documents are not necessarily complete, and in each
instance, reference is made to the copy of such contract or documents filed as
an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company under the Exchange Act with the
Commission are incorporated in this Prospectus by reference and are made a
part hereof:
1. The Company's Annual Report on Form 10-K (File no. 1-13462), for the
year ended December 31, 1997.
2. The Company's Current Reports on Form 8-K (File no. 1-13462) dated March
20, 1998 (two reports).
3. The description of the Common Shares contained in the Company's
registration statement (File no. 33-83016) on Form S-11 dated November
8, 1994.
Each document filed subsequent to the date of this Prospectus pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act and prior to termination
of the offering of the Common Shares to which this Prospectus relates shall be
deemed to be incorporated by reference in this Prospectus and shall be part
hereof from the date of filing of such document. Any statement contained
herein or in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained in this Prospectus (in the
case of a statement in a previously filed document incorporated or deemed to
be incorporated by reference herein or in any other subsequently filed
document that is also incorporated or deemed to be incorporated by reference
herein) modifies or supersedes such statement. Any such statement so modified
or superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus. Subject to the foregoing, all
information appearing in this Prospectus is qualified in its entirety by the
information appearing in the documents incorporated by reference.
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THE COMPANY
The Company was formed as a Maryland real estate investment trust ("REIT") on
July 12, 1994 to continue the self-storage business of Burnam Holding Companies
Co. ("BHC") and certain of its affiliates (collectively, the "Predecessor
Company") in owning, operating and managing self-storage facilities. The
Company and its subsidiaries commenced operations effective with the completion
of the Company's initial public offering on November 16, 1994. As of December
31, 1997, the Company owned 187 self-storage facilities in 16 states and was a
partner in two joint ventures that owned two operating self-storage facilities.
The Company's executive offices are located at 2407 Rangeline Street,
Columbia, MO 65202 and its telephone number is (573) 499-4799.
USE OF PROCEEDS
The Company does not know the number of Common Shares that will ultimately be
purchased from the Company pursuant to the Plan, or the prices at which such
Common Shares will be purchased. The proceeds from purchases of Common Shares
from the Company under the Plan will be used to continue the Company's real
estate acquisition, development and investment activities and for general
corporate purposes. Pending such uses, net proceeds may be invested temporarily
in short-term investments consistent with the Company's investment policies and
qualification as a REIT.
THE PLAN
SUMMARY OF THE PLAN
The purpose of the Plan is to provide Company shareholders and other
investors with a convenient and economical way to purchase Common Shares, to
systematically build their investment through automatic dividend reinvestment
and optional cash investments and to sell some or all of their Common Shares
when they wish to do so, either through the Plan Administrator or through a
broker of their choice.
The Plan also provides a convenient and economical way for the Company to
obtain new equity capital each month to continue its investment opportunities
and for general corporate purposes. Participants in the Plan receive full
investment of their dividends and optional cash payment because they are not
required to pay brokerage commissions or other expenses in connection with the
purchase of Common Shares under the Plan (except with respect to optional cash
payments if the Common Shares are purchased in the open market) and because the
Plan permits fractional Common Shares as well as whole Common Shares to be
purchased. Additionally, Common Shares purchased directly from the Company
under the Plan may be priced at a discount from market prices (determined in
accordance with the Plan) on the Investment Date ranging from 0% to 5%. There
is no limit on the amount of dividends which may be reinvested under the Plan.
The Plan also provides the Company a means of raising additional capital
through the direct sale of Common Shares to shareholders or other investors
making optional cash investments. Common Shares purchased directly from the
Company under the Plan pursuant to a Request for Waiver may, at the option of
the Company, be issued at a discount to the market price without payment of
brokerage commissions. Initially, optional cash investments of less than $5,000
will not be subject to a discount, but the Company reserves the right to grant
a discount in the future. The maximum amount of any optional cash purchases
under the Plan is $5,000 per month, unless permission is obtained from the
Company.
Disadvantages of participation in the Plan include the inability of
participants to know the price of Common Shares purchased under the Plan until
the purchase is actually made, the possibility of delays in withdrawals
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from the Plan or in execution of sales of Common Shares held through the Plan,
the inability of participants to pledge Common Shares held through the Plan,
and additional complexity in keeping records of share transactions for tax
purposes. Also, the reinvestment of dividends does not relieve participants of
any income taxes that may be payable (or required to be withheld) on dividends.
See "Federal Income Tax Considerations Relating to the Plan", "Federal Income
Tax Considerations Relating to the Company's Treatment as a REIT--Taxation of
Shareholders" and "Certain United States Tax Considerations for Non-U.S.
Shareholders."
The Plan is intended for the benefit of investors in the Company and not for
individuals or investors who engage in transactions which may cause aberrations
in the price or trading volume of Common Shares. From time to time, financial
intermediaries may engage in positioning transactions, such as short sales of
Common Shares, in order to benefit from the discount from the market price of
the Common Shares acquired through the reinvestment of dividends under the
Plan. Such transactions may cause fluctuations in the trading volume of the
Common Shares. Although the Company believes it is possible that such
transactions may occur, the Company does not currently expect such transactions
to occur to a significant extent. The Company reserves the right to modify,
suspend or terminate participation in the Plan by otherwise eligible persons in
order to eliminate practices which are not consistent with the purposes of the
Plan. The following description constitutes the Plan.
ADMINISTRATION OF THE PLAN
The Plan will be administered by The Chase Manhattan Bank or such successor
administrator as the Company may designate (the "Administrator"). The
Administrator acts as agent for Participants, keeps records of the accounts of
Participants, sends regular account statements to Participants, and performs
other duties relating to the Plan. Common Shares purchased for each Participant
under the Plan will be held by the Administrator and will be registered in the
name of the Administrator or its nominee on behalf of the Participants, unless
and until a Participant requests that a stock certificate for all or part of
such Common Shares be issued. Correspondence with the Administrator should be
sent to:
ChaseMellon Shareholder Services Or if using overnight courier
P.O. Box 3338 service:
South Hackensack, NJ 07606-1938 ChaseMellon Shareholder Services
Attn: Investor Services
Overpeck Centre
85 Challenger Road
Ridgefield Park, NJ 07660
HOW TO ENROLL
Any person or entity, whether or not a holder of record of Common Shares, is
eligible to participate in the Plan, provided that such person or entity
fulfills the prerequisites for participation described below. In addition,
participation in the Plan by persons or entities who are citizens or residents
of a country other than the United States, its territories and possessions must
not violate local laws applicable to the Company or the participant governing
such matters as taxes, currency and exchange controls, stock registration,
foreign investments and related matters.
After being furnished with a copy of this Prospectus, eligible applicants may
join the Plan in the following manner:
. Existing shareholders of record can sign up for the automatic dividend
reinvestment feature (either full or partial reinvestment) of the Plan at
any time by signing and returning a completed Enrollment Form to the
Administrator. The dividend reinvestment feature will take effect
immediately, as long as enrollment forms
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are received before the dividend record date (dividend record dates normally
occur on approximately the fifteenth day of March, June, September and
December, as established by the Company's board of trustees). Existing
shareholders of record can also use the Enrollment Form to make optional
cash investments in Common Shares of any amount between $100 and $5,000.
Checks and money orders should be made payable to The Chase Manhattan Bank
and sent directly to the Administrator.
. The Enrollment Form allows those who are not shareholders of record of the
Company to make initial cash investments for any amount between $250 and
$5,000, by enclosing a check or money order with the Form. Checks and money
orders should be made payable to The Chase Manhattan Bank and sent directly
to the Administrator.
. Participants may also enroll in the Automatic Cash Investment Program. The
enrollment form for this program must be accompanied by a voided bank check
or deposit slip for the account from which the participant authorizes the
Administrator to draw the funds. Once the form is received and processed
(which normally takes approximately two weeks) funds will automatically be
deducted from the designated account approximately three business days prior
to the 15th day of the month and will be invested on the 15th day of the
month or, if this occurs on a weekend or holiday, the next business day. For
shareholders of record, automated funds transfers may be for as little as
$100 per month, but in no case for more than $5,000 per month.
. Optional cash investments in excess of $5,000 may be made with permission of
the Company. (See Optional Cash Investments on page 7.)
Beneficial owners of Common Shares whose Common Shares are registered in
names other than their own (for instance, in the name of a broker, bank,
nominee or other record holder) must either arrange participation with the
broker, bank, nominee or other record holder or have their Common Shares
transferred into their own names. The Company reserves the right to refuse to
permit a broker, bank, nominee or other record holder to participate in the
Plan if the terms of such participation would in the Company's judgment result
in excessive cost or burden to the Company or endanger the Company's status as
a REIT. The Company also reserves the right to exclude from participation in
the Plan persons who utilize the Plan to engage in short-term trading
activities which cause aberrations in the composite trading volume or price of
the Common Shares.
The Company may also permit holders of any series of preferred shares it may
issue to reinvest dividends from such preferred shares in Common Shares through
the Plan on the same terms and conditions as applicable to reinvestment of
Common Share dividends. The Company does not have any preferred shares
outstanding at this time.
Any Participant who returns a properly executed Enrollment Form to the
Administrator without electing a dividend reinvestment option will be enrolled
as having made no dividend reinvestment.
PURCHASE PROCEDURES, PRICES AND CUSTODY OF COMMON SHARES
If Common Shares are being acquired for the Plan directly from the Company,
dividends will be invested on the payment date during a month in which a cash
dividend is paid. Common Shares to be purchased by the Administrator directly
from the Company pursuant to optional cash payments will be purchased on an
"Investment Date." The "Investment Period" is a period of twelve Trading Days,
where, in the case of optional cash payments not exceeding $5,000, the last
Trading Day (a day on which the NYSE is open for business) of the Investment
Period is the relevant Investment Date and where, in the case of optional cash
payments exceeding $5,000 pursuant to a Request for Waiver which has been
granted by the Company, each Trading Day
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of the Investment Period is an Investment Date. A schedule of the anticipated
Investment Period dates for the remainder of 1998 and 1999 is set forth on
Schedule A, subject to change at the Company's discretion (for future periods,
the Company will provide participants a schedule of the relevant dates).
Accordingly, for optional cash payments not exceeding $5,000, the entire
investment will be made on the Investment Date which is the last Trading Day of
the Investment Period. For optional cash payments exceeding $5,000 pursuant to
a Request for Waiver which has been granted by the Company, 1/12 of the
investment will be made on each Investment Date of the Investment Period.
Initial and optional cash payments (except those permitted by the Company
exceeding $5,000) must be received at least two business days prior to the
regularly scheduled Investment Date in order to be invested with that month's
investment. Any funds received after the deadline will be invested with the
next monthly investment. No interest will be paid on any funds held by the
Administrator between Investment Dates. Accordingly, participants are urged to
time their investments so that they will be received by the Administrator
shortly before, but not after, the Investment Date or to enroll in the
Automatic Funds Transfer Option which assures the most timely transfer of funds
to the Administrator.
If Common Shares are being acquired through dividend reinvestment for the
Plan through open market or in privately negotiated transactions, the Company
will pay the dividends to the Administrator on the subject dividend payment
date. The Administrator will apply all such dividends as soon as practicable on
or after the dividend payment date, but in no event later than 10 trading days
after the dividend payment date.
Common Shares to be purchased by the Administrator on the open market or in
privately negotiated transactions with third parties pursuant to optional cash
payments will begin on the last Investment Date of the relevant Investment
Period and will be completed no later than 30 days after that date, except
where completion at a later date is necessary or advisable under any applicable
securities laws or regulations.
The price of Common Shares acquired through the Plan as a result of the
reinvestment of dividends will be 100% of the average of the high and low
prices reported by the New York Stock Exchange for the dividend payment date,
less a discount from such amount varying from 0% to 5% if the Company has
established a discount. The price of all other Common Shares acquired through
the Plan (except those optional cash payments permitted by the Company
exceeding $5,000) will be the average of the high and low prices reported by
the New York Stock Exchange for the Investment Date, less a discount from such
amount varying from 0% to 5% if the Company has established a discount. In the
case of an optional cash payment exceeding $5,000 and approved by the Company
pursuant to a Request for Waiver, the purchase price of Common Shares purchased
on each Investment Date in the relevant Investment Period with 1/12 of such
optional cash payment will be the average of the daily high and low sale prices
of the Common Shares on the NYSE for the relevant Investment Date, less a
discount from such amount varying from 0% to 5% if the Company has established
a discount for such Investment Period.
Cash payments will not be accepted by the Administrator if a participant
imposes any restrictions with respect to the number of Common Shares to be
purchased (other than electing a partial dividend reinvestment), the price at
which Common Shares are to be purchased, the timing of a purchase or what the
Participant's balance will be following a purchase. In addition, the
Administrator cannot purchase Common Shares for a Participant without advance
payment, nor can it refund any part of a participant's cash payment unless a
written request for a refund is received by the Administrator at least two
business days before the applicable Investment Period. It is not possible for
the Administrator to tell a participant in advance how much money to send for
the purchase of a full or fractional share because the per share price will not
be known until the Common Shares are purchased.
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All or a portion of the dividends paid on Common Shares held in a
Participant's Plan account may be reinvested pursuant to the Plan. If any
dividend or cash payment is not sufficient to purchase a whole Common Share, a
fractional share equivalent will be credited to a participant's account and
will earn a proportionate share of future dividends.
A Participant in the Plan will also be permitted to instruct the
Administrator not to reinvest dividends on the Common Shares in the
Participant's Plan account but rather to forward such dividends to the
Participant by check or direct deposit to the Participant's bank account. Any
instructions to stop reinvesting dividends or to resume reinvesting dividends
should be given in the form of a letter to the Administrator and will only be
effective for a particular Common Share dividend if received by the
Administrator on or before the applicable dividend record date.
No interest will be paid on any funds held by the Administrator in a Plan
account.
A Participant may also deposit Common Shares currently held by the
Participant or by other custodians to a Plan account. This relieves a Plan
Participant of the expense and risk of loss, theft or destruction from holding
share certificates, or of having them in several locations, and can provide
consolidated statements of investment activities and holdings in the Company's
Common Shares. A Participant wishing to deposit Common Shares should send the
applicable certificates, unendorsed, to the Administrator by registered or
certified mail, at the address specified above, together with a cover letter
instructing the Administrator to hold the Common Shares in safekeeping. There
is no charge for this service.
OPTIONAL CASH INVESTMENTS
All registered holders, including brokers, banks and nominees with respect to
Common Shares registered in their name on behalf of beneficial owners that have
submitted signed Enrollment Forms are eligible to make optional cash
investments at any time.
A broker, bank or nominee, as holder on behalf of a beneficial owner, may
utilize an Enrollment Form for optional cash investments unless it holds the
Common Shares in the name of a securities depository. In that event, the
optional cash investment must be accompanied by a Broker and Nominee Form ("B/N
Form").
The B/N Form provides the sole means whereby a broker, bank or other nominees
holding Common Shares on behalf of beneficial owners in the name of a
securities depository may make optional cash investment on behalf of such
beneficial owners. In such case, the broker, bank or other nominee must use a
B/N Form for transmitting optional cash investments on behalf of the beneficial
owners. A B/N Form must be delivered to the Administrator each time that such
broker, bank or the nominee transmits optional cash investments on behalf of
the beneficial owners. B/N forms will be furnished by the Administrator upon
request.
Other interested investors that are not shareholders of the Company, but have
submitted Enrollment Forms, are also eligible to make an initial investment in
Common Shares through an optional cash investment.
The Administrator will apply optional cash investments permitted by the
Company in excess of $5,000 for which good funds are received on or before the
first business day before the Investment Period to the purchase of Common
Shares in the next following Investment Period, or if Common Shares are
acquired on the open market or in privately negotiated transactions, beginning
on the last Investment Date of such Investment Period and ending no later than
30 days after that date, except where completion at a later date is necessary
or advisable under any applicable securities laws or regulations.
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No interest will be earned on optional cash investment held pending
investment. The Company suggests therefore that any optional cash investments
in excess of $5,000 a participant wishes to make pursuant to a Request for
Waiver be sent so as to reach the Administrator as close as possible to the
first business day preceding the relevant Investment Period. Any questions
regarding these dates should be directed to the Administrator.
All optional cash investments received by the Administrator after the close
of business on the last business day immediately preceding the first day of the
Investment Period and before the next succeeding Investment Date may promptly
be returned to the Participant without interest.
Participants should be aware that since investments under the Plan are made
as of specified dates, one may lose any advantage that otherwise might be
available from being able to select the timing of an investment. Neither the
Company nor the Administrator can assure a profit or protect against a loss on
Common Shares purchased under the Plan.
All optional cash investments made by check should be made payable to The
Chase Manhattan Bank and mailed to the Administrator. Other forms of payment,
such as wire transfers, may be made, but only if approved in advance by the
Administrator. Inquiries regarding other forms of payments and all other
inquiries should be directed to the Administrator.
For any Investment Date, optional cash investments made by shareholders of
record of the Company are subject to a minimum of $100 and a maximum of $5,000
and optional cash investments made by interested investors who are not then
shareholders of record of the Company are subject to a minimum initial
investment of $250 and a maximum of $5,000. Optional cash investments of less
than the allowable monthly minimum amount and that portion of any optional cash
investment that exceeds the allowable monthly maximum amount will be returned
promptly to Participants without interest, except as noted below.
Optional cash investments in excess of $5,000 per month may be made only
pursuant to a Request for Waiver accepted by the Company. Participants who wish
to submit an optional cash investment in excess of $5,000 for any Investment
Date must obtain the prior written approval of the Company and a copy of such
written approval must accompany any such optional cash investment. A Request
for Waiver should be directed to the Company via facsimile at (573) 442-5554,
Attn: Controller, External Reports, telephone number (573) 499-4799. The
Company has sole discretion to grant any approval for optional cash investments
in excess of the allowable maximum amount. In deciding whether to approve a
Request for Waiver, the Company will consider relevant factors including, but
not limited to, whether the Plan is then acquiring newly issued Common Shares
directly from the Company or acquiring Common Shares in the open market or in
privately negotiated transactions from third parties, the Company's need for
additional funds, the attractiveness of obtaining such additional funds through
the sale of Common Shares as compared to other sources of funds, the purchase
price likely to apply to any sale of Common Shares, the Participant submitting
the request, the extent and nature of such Participant's prior participation in
the Plan, the number of Common Shares held of record by such Participant and
the aggregate amount of optional cash investments in excess of $5,000 for which
amount of optional cash investments in excess of $5,000 for which Requests for
Waiver have been submitted by all Participants. If Requests for Waiver are
submitted for any Investment Period for an aggregate amount in excess of the
amount the Company is then willing to accept, the Company may honor such
requests in order of receipt, pro rata or by any other method that the Company
determines to be appropriate. With regard to optional cash investments made
pursuant to a Request for Waiver, the Plan does not provide for a predetermined
maximum limit on the amount that a participant may invest or on the number of
Common Shares that may be purchased pursuant to a Request for Waiver.
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The Company reserves the right to modify, suspend or terminate participation
in the Plan by otherwise eligible registered holders or beneficial owners of
Commons Shares for any reason whatsoever including elimination of practices
that are not consistent with the purposes of the plan.
The Company may establish for any Investment Period a minimum price (the
"Threshold Price") applicable to optional cash investments made pursuant to
Requests for Waiver. At least three business days prior to the first day of the
applicable Investment Period, the Company will determine whether to establish a
Threshold Price, and if a Threshold Price is established, its amount, and will
so notify the Administrator (see Schedule A). This determination will be made
by the Company in its discretion after a review of current market conditions,
the level of participation in the plan, and current and projected capital
needs.
If established for any Investment Period, the Threshold Price will be stated
as a dollar amount that the average of the high and low sale prices of the
Common Shares on the NYSE for each Trading Day of the relevant Investment
Period must equal or exceed. If no sales occur on any Trading Day of an
Investment Period, the average of the high and low sale prices of the Common
Shares on that Trading Day will be assumed to be less than the Threshold Price.
In the event that the Threshold Price is not satisfied for a Trading Day in the
Investment Period, then no investment will occur on that Investment Date.
In addition, a portion of each optional cash investment will be returned for
each Trading Day of an Investment Period in which the Threshold Price is not
satisfied. The returned amount will equal one-twelfth of the total amount of
such optional cash investment (not just the amount exceeding $5,000) for each
Trading Day that the Threshold Price is not satisfied. Thus, for example, if
the Threshold Price is not satisfied for three of the twelve Trading Days in a
Pricing Period, 3/12 (i.e., 25%) of such optional cash investment will be
returned to the Participant by check (or wire transfer, if payment was received
by wire transfer) without interest.
The establishment of the Threshold Price and the possible return of a portion
of the investment applies only to optional cash investments made pursuant to a
Request for Waiver. Setting a Threshold Price for an Investment Period shall
not affect the setting of a Threshold Price for any subsequent Investment
Period. For any particular month, the Company may waive its right to set a
Threshold Price. Neither the Company nor the Administrator shall be required to
provide any written notice to Participants as to the Threshold Price for any
Investment Period. Participants may, however, ascertain whether a Threshold
Price has been set or waived for any given Investment Period by telephoning the
Controller, External Reports at (573) 499-4799. Each month, at least three
business days prior to the first day of the applicable Investment Period, the
Company may establish a discount from the market price applicable to optional
cash investments made pursuant to a Request for Waiver. Such discount (the
"Waiver Discount") may be between 0% and 5% of the relevant market price on
each Investment Date in the Investment Period as described above under
"Purchase Procedures, Prices and Custody of Common Shares" and may vary each
month, but once established will apply uniformly to all optional cash
investments made pursuant to a Request for Waiver for that month. The Waiver
Discount will be established in the Company's sole discretion after a review of
current market conditions, the level of participation in the Plan, and current
and projected capital needs. Participants may obtain the Waiver Discount
applicable to the next Investment Period by telephoning the Controller,
External Reports at (573) 499-4799. Setting a Waiver Discount for a particular
month shall not affect the setting of a Waiver discount for any subsequent
month. The Waiver Discount will apply to the entire optional cash investment
and not just the portion of such investment that exceeds $5,000. The Waiver
Discount will apply only to optional cash investments of $5,000 or more, but
the Company reserves the right to establish, in the future, a discount from the
market price for optional cash investments of $5,000 or less.
SALES OF COMMON SHARES THROUGH THE PLAN
Participants may instruct the Administrator to sell some or all of their
Common Shares by notifying the Administrator in writing or by using the form
included with account statements.
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The Administrator will sell Common Shares through a registered broker dealer
within five business days after receipt of a proper written notice and will
remit a check for the proceeds of such sale, less applicable brokerage
commissions, service charges and any taxes. Common Shares to be sold may be
commingled with those of other participants requesting sale of their Common
Shares, and the proceeds to each participant will be based on the average price
for all Common Shares sold during the day of sale. Participants should
understand that the price of the Common Shares may go down as well as up
between the date a request to sell is received and the date the sale is
executed. The Plan does not offer the ability for participants to specify
either the dates or the prices at which Common Shares are to be sold through
the Administrator.
If a request to sell Common Shares is received on or after the record date
for a dividend, any cash dividend paid on such Common Shares will be
reinvested. The request to sell Common Shares will then be processed as soon as
practicable after the dividend is reinvested and the additional Common Shares
are credited to the participant's account.
WITHDRAWALS AND TRANSFERS OF COMMON SHARES FROM THE PLAN
Participants may instruct the Administrator in writing to issue share
certificates for some or all of the Common Shares they have in the Plan, either
by letter or by using the form provided with account statements. Participants
may also instruct the Administrator in the same manner to transfer Common
Shares to one or more persons. All transfers must be for one full share or more
and will be subject to the same legal requirements as the transfer of share
certificates, including a requirement for signature guarantees. There is no
charge for these services.
Participants who wish to stop reinvesting their dividends through the Plan
but leave their Common Shares in the custody of the Administrator for
convenience, or to avoid the risk of loss, theft or destruction of their
certificates, may stop reinvesting dividends without withdrawing from the Plan
by sending a letter instructing the Administrator to stop reinvesting
dividends. See "Purchase Procedures, Prices and Custody of Common Shares"
above.
If a request to withdraw or transfer Common Shares is received on or after
the record date for a dividend, any cash dividend paid on such Common Shares
will be reinvested. The request to withdraw or transfer Common Shares will then
be processed as soon as practicable after the dividend is reinvested and the
additional Common Shares are credited to the participant's account.
VOTING OF COMMON SHARES
Plan participants will receive proxy materials covering the Common Shares in
the Plan and any Common Shares they may hold in certificate form. Common Shares
will be voted only as participants or their duly authorized representatives
instruct.
SHARE DIVIDENDS, SPLITS AND SUBSCRIPTION RIGHTS
Any share dividend or share split that may be declared by the Company will be
automatically credited to a participant's Plan account. In the event that the
Company makes subscription rights to purchase additional Common Shares or other
securities available to the holders of its Common Shares, the Administrator
will sell the rights accruing to all Common Shares held by the Administrator
for Plan participants and will apply the net proceeds of such sale to the
purchase of Common Shares prior to or with the next monthly Common Share
investment. The Company will, however, inform participants in advance of any
subscription offer so that a participant who does not want the Administrator to
sell such rights and invest the proceeds can transfer all
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Common Shares held under the Plan to the participant's own name by a given
date. This will permit the participant to personally exercise, transfer or sell
the rights on such Common Shares. Any such request must be received by the
Administrator at least three business days before the record date for
distribution of the rights.
TERMINATION OF REINVESTMENT OF DIVIDENDS
A participant may terminate reinvestment of dividends through the Plan by
writing to the Administrator. A participant may request (1) that the
Administrator send all dividends to the participant by check and continue to
hold the participant's Common Shares in the Plan account, (2) that the
Administrator discontinue any automatic withdrawals of funds and purchase of
Common Shares, (3) that a certificate be issued for all full Common Shares held
for such participant's account and a check be issued for the proceeds from the
sale of any fractional share equivalent, or (4) that all full Common Shares and
any fractional share equivalent held for such participant's account be sold and
a check issued for the net proceeds, less any applicable transfer tax. If such
a request is received on or after the record date for a dividend, any cash
dividend paid on that account will be reinvested for the account. The request
will then be processed as soon as practicable after the dividend is reinvested
and the additional Common Shares are credited to the participant's account.
There will be no cost to a participant with respect to termination of a
participant's reinvestment of dividends through the Plan other than the
brokerage costs described above under "Sales of Common Shares Through the Plan"
with respect to any Common Shares sold.
If a participant in the Plan does not own at least one whole share registered
in the Participant's name or held through the Plan, the Participant's
participation in the Plan may be terminated. The Company may also terminate the
Plan or any Participant's participation in the Plan after written notice in
advance mailed to such Participant at the address appearing on the
Administrator's records. Participants whose participation in the Plan has been
terminated will receive certificates for whole Common Shares held in their
accounts and a check for the cash value of any fractional share held in any
Plan account so terminated.
RESPONSIBILITIES OF THE COMPANY AND THE ADMINISTRATOR UNDER THE PLAN
Neither the Company nor the Administrator will be liable for any good faith
act or for any good faith failure to act, including any claim or liability
arising from failure to terminate a Participant's account upon such
participant's death, for the prices at which Common Shares are purchased for a
Participant's account or for fluctuations in the market value of the Common
Shares. Neither the Administrator, the Company nor any agent for either shall
have any duties, responsibilities or liabilities except such as are expressly
set forth in the Plan. Since the Company has delegated responsibility for
administering the Plan to the Administrator, the Company specifically disclaims
any responsibility for any of the Administrator's actions or inactions in
connection with the administration of the Plan. None of the trustees, officers
or shareholders of the Company shall have any personal liability under the
Plan. Any such limited liability provisions do not extend to violations of the
federal securities laws.
The Company's obligation to offer, issue or sell Common Shares under the Plan
is subject to the Company's obtaining any necessary approval, authorization and
consent from any regulatory authorities having jurisdiction over the issuance
and sale of the Common Shares. The Company may elect not to offer or sell
Common Shares under the Plan to persons residing in any jurisdiction where, in
the sole discretion of the Company, the burden or expense of compliance with
applicable blue sky or securities laws make that offer or sale impracticable or
inadvisable.
The Company reserves the right to modify, suspend or terminate the Plan at
any time. The Company established the discount from current market value for
dividend reinvestment after a review of market conditions,
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the desired level of participation in the Plan, requirements of the federal tax
laws in connection with the Company's continued status as a REIT, the terms of
similar plans maintained by other companies in the REIT industry, and the
Company's current and projected capital needs. The Company may increase or
decrease the discount from current market value for dividend reinvestment or
establish such a discount for optional cash purchases, without any requirement
of shareholder or participant approval, based on the same factors. Participants
in the Plan will be notified of any suspension, termination or significant
modification of the Plan. The Administrator may terminate the participation of
any account by written notice to the participant and to the Company. The
Company reserves the right to terminate any person's participation in the Plan
at any time and to establish additional requirements with respect to
participation in the Plan by brokers, banks and others acting in a
representative capacity on behalf of owners or prospective owners of Common
Shares. The Company reserves the right to interpret and regulate the Plan at
its discretion.
The risk to participants is the same as with any other investment in Common
Shares of the Company. Participants must recognize that neither the Company nor
the Administrator can in any way assure a profit or protect against a loss to a
participant on Common Shares purchased under the Plan.
The Company takes no position on whether current shareholders or other
investors should participate in the Plan.
RESTRICTIONS ON OWNERSHIP OF COMMON SHARES
For the Company to qualify as a REIT for federal income tax purposes, no more
than 50% in value of its outstanding capital Common Shares may be owned,
directly or indirectly, by five or fewer individuals (as defined in the law to
include certain entities) during the last half of a taxable year or during a
proportionate part of a shorter taxable year, and the Common Shares must also
be beneficially owned by 100 or more persons during at least 335 days of a
taxable year or during a proportionate part of a shorter taxable year. Because
the Company expects to continue to qualify as a REIT, the Amended and Restated
Declaration of Trust of the Company contains a restriction intended to ensure
compliance with these requirements which authorizes, but does not require, the
board of trustees to refuse to give effect to a transfer of Common Shares
which, in its opinion, might jeopardize the status of the Company as a REIT.
This provision also renders null and void any purported acquisition of Common
Shares which would result in the disqualification of the Company as a REIT. The
provision also gives the board of trustees the authority to take such actions
as it deems advisable to enforce the provision. Such actions might include, but
are not limited to, refusing to give effect to, or seeking to enjoin, a
transfer which might jeopardize the Company's status as a REIT. The provision
also requires any shareholder to provide the Company such information regarding
his direct and indirect ownership of Common Shares as the Company may
reasonably require.
FEDERAL INCOME TAX CONSIDERATIONS RELATING TO THE PLAN
Participants are encouraged to consult their personal tax advisors with
specific reference to their own tax situations and potential changes in the
applicable law as to all federal, state, local, foreign and other tax matters
in connection with the reinvestment of distributions and purchase of Common
Shares acquired under the Plan and character, amount and tax treatment of any
gain or loss realized on the disposition of Common Shares. The following is a
brief summary of the material federal income tax considerations applicable to
the Plan, is for general information only, and is not tax advice.
In the case of Common Shares purchased by the Administrator from the Company
pursuant to reinvestment of distributions, a Participant will be treated for
federal income tax purpose as having received a distribution
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equal to the fair market value, as of the Investment Date, of the Common Shares
purchased with reinvested distributions. Any discount will be treated as being
part of the distribution received. With respect to Common Shares purchased by
the Administrator out of distributions from the Company in open market
transactions or in negotiated transactions with third parties, the Internal
Revenue Service has indicated in somewhat similar situations that the amount of
distribution received by a Participant would include the fair market value of
the Common Shares purchased with reinvested distributions and a pro-rata share
of any brokerage commissions or other related charges ("Commissions") paid by
the Company in connection with the Administrator's purchase of the Common
Shares on behalf of the participant. The Internal Revenue Service also has
indicated in somewhat similar situations that a Participant who makes an
optional cash purchase of Common Shares under the Plan will be treated as
having received a distribution equal to the excess (if any) of the fair market
value on the Investment Date of such Common Shares over the amount of the
optional cash payment made by the participant. Also, if the Common Shares are
acquired by the Administrator in an open market transaction or in a negotiated
transaction with third parties, then the Internal Revenue Service may assert
that a Participant will be treated as receiving a distribution equal to the
pro-rata share of any Commissions paid by the Company on behalf of the
Participant. While the matter is not free from doubt, the Company intends to
take the position that administrative expenses of the Plan paid by the Company
are not constructive distributions to Participants. The amount to be invested
for a Participant with reinvested cash distributions will be reduced by any
amount the Company is required to withhold for federal income tax purposes. For
more information concerning taxation of the distributions described above, see
"Federal Income Tax Considerations Relating to the Company's Treatment as a
REIT--Taxation of Shareholders" and "Certain United States Tax Considerations
for Non-U.S. Shareholders," below.
In Private Letter Ruling 9750033 the Internal Revenue Service held that a
shareholder who participated in both the dividend reinvestment and stock
purchase aspects of a dividend reinvestment and cash option purchase plan
offered by a REIT under which stock could be acquired at a discount, would be
treated in the case of a cash option purchase as having received at the time of
the purchase a distribution from the REIT of the discount amount which was
taxable to the shareholder in the manner described above, but a shareholder who
participated solely in the cash purchase part of the plan would not be treated
as having received a distribution of the discount amount and, therefore, would
realize no income upon purchase attributable to the discount. Although not
specifically discussed in the ruling, it seems likely that even if the only
dividends reinvested in stock by a shareholder who participated in the cash
purchase part of the plan were dividends on the stock which the shareholder had
purchased under the plan, the Internal Revenue Service would have concluded
that such shareholder should be treated as receiving a distribution equal to
the discount on the purchased shares which was taxable in the manner described
above. Private letter rulings are not considered precedent by the Internal
Revenue Service and no assurance can be given that the Internal Revenue Service
would take this position with respect to other transactions, including those
under the Plan.
A Participant's tax basis in his or her Common Shares acquired under the Plan
will generally include the total amount of distributions a Participant is
treated as receiving (as described above), plus the amount of the optional cash
payment in the case of optional cash purchases. A Participant's holding period
in such Common Shares generally begins on the day following the date on which
such Common Shares are credited to the Participant's Plan account.
A gain or loss may also be recognized upon a Participant's disposition of
Common Shares received from the Plan. The amount of any such gain or loss will
be the difference between the amount realized (generally the amount of cash
received) for the whole or fractional Common Shares and the tax basis of such
Common Shares. Generally, gain or loss recognized on the disposition of Common
Shares acquired under the Plan will be treated for federal income tax purposes
as a capital gain or loss.
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FEDERAL INCOME TAX CONSIDERATIONS
RELATING TO THE COMPANY'S TREATMENT AS A REIT
The Company and its affiliates constitute a self-administered and self-
managed REIT engaged in the self-storage business. The Company and its
affiliates own, manage, lease, acquire and develop self-storage facilities
("Facilities"). The business of the Company is operated through Storage Trust
Properties, L.P. (the "Operating Partnership") and Storage Realty Management
Co. (the "Subsidiary Company"). Substantially all of the Company's assets and
interest in self-storage facilities are held by, and all of its operations are
conducted through, the Operating Partnership. The Company is the sole general
partner of, and thereby controls the operations of, the Operating Partnership.
The remaining ownership interests in the Operating Partnership (the "Units")
are primarily held by certain owners of the predecessor company, (collectively,
"Original Investors"), and certain former owners of assets acquired by the
Operating Partnership subsequent to the Company's initial public offering of
Common Shares. The Subsidiary Company manages Facilities owned by unrelated
third parties and conducts various other businesses, such as the sale of locks
and packaging supplies, the processing of customer property insurance and the
rental of trucks at various Facilities.
The following is a description of the material Federal income tax
consequences to the company and its shareholders of the treatment of the
company as a REIT. The discussion is general in nature and not exhaustive of
all possible tax considerations, nor does the discussion give a detailed
description of any state, local, or foreign tax considerations. The discussion
does not discuss all aspects of Federal income tax law that may be relevant to
a prospective shareholder in light of his particular circumstances or to
certain types of shareholders (including insurance companies, financial
institutions or broker-dealers, tax exempt organizations, foreign corporations
and persons who are not citizens or residents of the United States) subject to
special treatment under the federal income tax laws.
THIS DISCUSSION IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING, AND
EACH PROSPECTIVE INVESTOR IS ADVISED TO CONSULT WITH ITS TAX ADVISOR REGARDING
THE SPECIFIC TAX CONSEQUENCES TO IT OF THE PURCHASE, OWNERSHIP AND SALE OF THE
OFFERED SECURITIES, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP AND SALE, AND OF POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
If certain detailed conditions imposed by the REIT provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), are met, entities, such as the
Company, that invest primarily in real estate and that otherwise would be
treated for federal income tax purposes as corporations, are generally not
taxed at the corporate level on their "REIT taxable income" that is currently
distributed to shareholders. This treatment substantially eliminates the
"double taxation" (i.e., at both the corporate and shareholder levels) that
generally results from the use of corporations.
If the Company fails to qualify as a REIT in any year, however, it will be
subject to Federal income taxation as if it were a domestic corporation, and
its shareholders will be taxed in the same manner as shareholders of ordinary
corporations. In this event, the Company could be subject to potentially
significant tax liabilities, and therefore the amount of cash available for
distribution to its shareholders would be reduced or eliminated.
The Company has elected REIT status effective for the taxable year ended
December 31, 1994, and the Board of Trustees of the Company believes that the
Company has operated and expects that the Company will continue to operate in a
manner that has enabled the Company to qualify as a REIT and will permit the
Company to maintain its REIT status in each taxable year thereafter. There can
be no assurance, however, that this belief
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or expectation will be fulfilled, since qualification as a REIT depends on the
Company continuing to satisfy numerous asset, income and distribution tests
described below, which in turn will be dependent in part on the Company's
operating results.
TAXATION OF THE COMPANY
General. In any year in which the Company qualifies as a REIT it will not, in
general, be subject to Federal income tax on that portion of its REIT taxable
income or capital gain which is distributed to shareholders. The Company may,
however, be subject to tax at normal corporate rates upon any taxable income or
capital gain not distributed.
Notwithstanding its qualification as a REIT, the Company may also be subject
to taxation in certain other circumstances. If the Company should fail to
satisfy either the 75% or the 95% gross income test (as discussed below), and
nonetheless maintains its qualification as a REIT because certain other
requirements are met, it will be subject to a 100% tax on the greater of the
amount by which the company fails either the 75% or the 95% test, multiplied by
a fraction intended to reflect the Company's profitability. The Company will
also be subject to a tax of 100% on net income from any prohibited transaction
as described below, and if the Company has (i) net income from the sale or
other disposition of foreclosure property which is held primarily for sale to
customers in the ordinary course of business or (ii) other non-qualifying
income from foreclosure property, it will be subject to tax on such income from
foreclosure property at the highest corporate rate. In addition, if the Company
should fail to distribute during each calendar year at least the sum of (i) 85%
of its REIT ordinary income for such year, (ii) 95% of its REIT capital gain
net income for such year, and (iii) any undistributed taxable income from prior
years, the Company would be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed. For taxable years
beginning after August 5, 1997, the Taxpayer Relief Act of 1997 (the "1997
Act") permits a REIT, with respect to undistributed net capital gains it
received during the taxable year, to designate in a notice mailed to
shareholders within 60 days of the end of the taxable year (or in a notice
mailed with its annual report for the taxable year) such amount of such gains
which its shareholders are to include in their taxable income as long-term
capital gains. Thus, if the Company made this designation, the shareholders of
the Company would include in their income as long-term capital gains their
proportionate share of the undistributed net capital gains as designated by the
Company, and the Company would have to pay the tax on such gains within 30 days
after the close of its taxable year. Each shareholder of the Company would be
deemed to have paid such shareholders share of the tax paid by the Company on
such gains, which tax would be credited or refunded to the shareholder. A
shareholder would increase his tax basis in his Company stock by the difference
between the amount of gain to the holder resulting from the designation less
the holders credit or refund for the tax paid by the Company. The Company may
also be subject to the corporate alternative minimum tax, as well as tax in
certain situations not presently contemplated. The Subsidiary Company will be
taxed on its income at regular corporate rates. The Company will use the
calendar year both for Federal income tax purposes and for financial reporting
purposes.
In order to qualify as a REIT, the Company must meet, among others, the
following requirements:
Share Ownership Tests. The Common Shares must be held by a minimum of 100
persons for at least 335 days in each taxable year (or a proportional number of
days in any short taxable year). In addition, at all times during the second
half of each taxable year, no more than 50% in value of the outstanding Common
Shares may be owned, directly or indirectly and by applying certain
constructive ownership rules, by five or fewer individuals, which for this
purpose includes certain tax-exempt entities. However, for purposes of this
test, any Common Shares of beneficial interest held by a qualified domestic
pension or other retirement trust will be treated as held directly by its
beneficiaries in proportion to the actuarial interest in such trust rather than
by such
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trust. Under the 1997 Act, for taxable years beginning after August 5, 1997, if
the Company complies with the Treasury Regulations for ascertaining its actual
ownership and did not know, or exercising reasonable diligence would not have
reason to know, that more than 50% in value of its outstanding Common Shares of
stock were held, actually or constructively, by five or fewer individuals, then
the Company will be treated as meeting such requirement. These share ownership
requirements need not be met until the second taxable year of the Company for
which a REIT election is made.
In order to attempt to ensure compliance with the foregoing share ownership
tests, the Company has placed certain restrictions on the transfer of its
Common Shares to prevent additional concentration of share ownership. Moreover,
to evidence compliance with these requirements, under Treasury regulations the
Company must maintain records which disclose the actual ownership of its Common
Shares. In fulfilling its obligations to maintain record, the Company must and
will demand written statements each year from the record holders of designated
percentages of its Common Shares disclosing the actual owners of such Common
Shares (as prescribed by Treasury regulations). A list of those persons failing
or refusing to comply with such demand must be maintained as a part of the
Company's records. A shareholder failing or refusing to comply with the
Company's written demand must submit with his tax return a similar statement
disclosing the actual ownership of Company Common Shares of beneficial interest
and certain other information. In addition, the Declaration of Trust provides
restrictions regarding the transfer of its Common Shares of beneficial interest
that are intended to assist the Company in continuing to satisfy the share
ownership requirements.
Asset Tests. At the close of each quarter of the Company's taxable year, the
Company must satisfy two tests relating to the nature of its assets (with
"assets" being determined in accordance with generally accepted accounting
principles). First, at least 75% of the value of the Company's total assets
must be represented by interests in real property, interests in mortgages on
real property, Common Shares in other REITS, cash, cash items, government
securities and qualified temporary investments. Second, although the remaining
25% of the Company's assets generally may be invested without restriction,
securities in this class may not exceed (i) in the case of securities of any
one non-government issuer, 5% of the value of the Company's total assets or
(ii) 10% of the outstanding voting securities of any one such issuer. Where the
Company invests in a partnership (such as the Operating Partnership), it will
be deemed to own a proportionate share of the partnerships assets. See "--Tax
Aspects of the Company's Investments in Partnerships--General." Accordingly,
the Company's investment in the Facilities through its interest in the
Operating Partnership is intended to constitute an investment in qualified
assets for purposes of the 75% asset test.
The Operating Partnership owns 100% of the non-voting preferred stock and 5%
of the voting stock of the Subsidiary Company. By virtue of its partnership
interest in the Operating Partnership, the Company is deemed to own its pro
rata share of the assets of the Operating Partnership, including the securities
of the Subsidiary Company, as described above. Because the Operating
Partnership owns only 5% of the voting securities of the Subsidiary Company,
and the preferred stock's approval right is limited to certain fundamental
corporate actions that could adversely affect the preferred stock as a class,
the 10% limitation on holdings of voting securities of any one issuer should
not be exceeded.
Based upon its analysis of the total estimated value of the Subsidiary
Company stock owned by the Operating Partnership relative to the estimated
value of the total assets owned by the Operating Partnership and the other
assets of the Company, the Company believes that the Company's pro rata share
of the stock of the Subsidiary Company owned by the Operating Partnership does
not exceed, on the date of this Prospectus, 5% of the value of the Company's
total assets. This 5% limitation must be satisfied not only as of the date the
Company (directly or through the Operating Partnership) acquired securities of
the Subsidiary Company, but also at the end of any quarter in which the Company
increases its interest in the Subsidiary Company or so acquires other
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property. In this respect, if the holder of a right to exchange Units for
Common Shares exercises such rights, the Company will thereby increase its
proportionate (indirect) ownership interest in the Subsidiary Company, thus
requiring the Company to meet the 5% test in any quarter in which such
conversion option is exercised. A similar result will follow in the case of any
exchange of Units by Operating Partnership or Subsidiary Company employees that
they received pursuant to the option plan established by the Company. Although
the Company plans to take steps to ensure that it satisfies the 5% value test
for any quarter with respect to which retesting is to occur, there can be no
assurance that such steps will always be successful or will not require a
reduction in the Operating Partnerships overall interest in the Subsidiary
Company.
Gross Income Tests. There are currently three separate percentage tests
relating to the sources of the Company's gross income which must be satisfied
for each taxable year. For purposes of these tests, where the Company invests
in a partnership, the Company will be treated as receiving its share of the
income and loss of the partnership, and the gross income of the partnership
will retain the same character in the hands of the Company as it has in the
hands of the partnership. See "--Tax Aspects of the Company's Investments in
Partnerships--General" below. The three tests are as follows:
The 75% Test. At least 75% of the Company's gross income for the table year
must be "qualifying income." Qualifying income generally includes (i) rents
from real property (except as modified below); (ii) interest on obligations
secured by mortgages on, or interests in, real property; (iii) gains from the
sale or other disposition of interests in real property and real estate
mortgages, other than gain from property held primarily for sale to customers
in the ordinary course of the Company's trade or business ("dealer property");
(iv) dividends or other distributions on Common Shares in other REITS, as well
as gain from the sale of such Common Shares; (v) abatements and refunds of real
property taxes; (vi) income from the operation, and gain from the sale, of
property acquired at or in lieu of a foreclosure of the mortgage secured by
such property ("foreclosure property"); (vii) commitment fees received for
agreeing to make loans secured by mortgages on real property or to purchase or
lease real property; and (viii) certain qualified temporary investment income
attributable to the investment of new capital received by the Company in
exchange for its Common Shares during the one-year period following the receipt
of such capital.
Rents received from a customer will not, however, qualify as rents from real
property in satisfying the 75% test (or the 95% gross income test described
below) if the Company, or an owner of 10% or more of the Company, directly or
constructively owns 10% or more of such tenant. In addition, if rent
attributable to personal property leased in connection with a lease of real
property is greater than 15% of the total rent received under the lease, then
the portion of rent attributable to such personal property will not qualify as
rents from real property. Moreover, an amount received or accrued will not
qualify as rents from real property (or as interest income) for purposes of the
75% and 95% gross income tests if it is based in whole or in part on the income
or profits of any person, although an amount received or accrued generally will
not be excluded from "rents from real property" solely by reason of being based
on a fixed percentage or percentages of receipt or sales. Finally, for rents
received to qualify as rents from real property for purposes of the 75% and 95%
gross income tests, the Company generally must not operate or manage the
property or furnish or render services to tenants, other than through an
"independent contractor" from whom the Company derives no income, except that
the "independent contractor" requirement does not apply to the extent that the
services provided by the Company are "usually or customarily rendered" in
connection with the rental of space for occupancy only, or are not otherwise
considered "rendered to the occupant for his convenience." For taxable years
beginning after August 5, 1997, a REIT is permitted to render a de minimis
amount of impermissible services to tenants, or in connection with the
management of property, and still treat amounts received with respect to that
property as rent from real property. The amount received or accrued by the REIT
during a taxable year for impermissible services with respect to a
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property may not exceed one percent of all amounts received or accrued by the
REIT directly or indirectly from the property during the taxable year. The
amount received for any service (or management operation) for this purpose
shall be deemed to be not less than 150% of the direct cost of the REIT in
furnishing or rendering the service (or providing the management or operation).
The Company intends to monitor its operations in the context of these
standards so as to satisfy the 75% and 95% gross income tests. The Operating
Partnership provides certain services at the Facilities it owns and may provide
certain services at any newly acquired self-storage facilities of the Operating
Partnership. The Company believes for purposes of the 75% and 95% gross income
tests, that the services provided at such facilities and any other services and
amenities provided by the Operating Partnership or its agents with respect to
such facilities are and will continue to be of the type usually or customarily
rendered in connection with the rental of space for occupancy only. The Company
intends that services that cannot be provided directly by the Operating
Partnership, the subsidiary Company or other agents will be performed by
independent contractors.
The 95% Test. In addition to deriving 75% of its gross income from the
sources listed above, at least 95% of the Company's gross income for the
taxable year must be derived from the above-described qualifying income, or
from dividends, interest, or gains from the sale or other disposition of stock
or other securities that are not dealer property. Dividends and interest on any
obligations not collateralized by an interest in real property are included for
purposes of the 95% test, but not for purposes of the 75% test. The Company
intends to closely monitor its non-qualifying income and anticipates that non-
qualifying income from its other activities will not result in the Company
failing to satisfy either the 75% or 95% gross income test. The Operating
Partnership owns partnership interests in certain joint ventures which own
certain Facilities. No assurance can be given that such partnerships will not
realize non-qualifying income, in which case the Operating partnerships
distributive share of such income would be non-qualifying income.
For purposes of determining whether the Company complies with the 75% and the
95% gross income tests, gross income does not include income from prohibited
transactions. A "prohibited transaction" is a sale of dealer property
(excluding foreclosure property); however, it does not include a sale of
property if such property is held by the company for at least four years and
certain other requirements (relating to the number of properties sold in a
year, their tax bases, and the cost of improvements made thereto) are
satisfied. See "--Taxation of the Company--General" and "--Tax Aspects of the
Company's Investments in Partnerships--Sale of the Facilities."
The Company believes that, for purposes of both the 75% and the 95% gross
income tests, its investment in the facilities through the Operating
Partnership will in major part give rise to qualifying income in the form of
rents, and that gains on sales of the Facilities, or of the Company's interest
in the Operating Partnership, generally will also constitute qualifying income.
Even if the Company fails to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, it may still qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions will generally be available if: (i) the Company's failure to comply
was due to reasonable cause and not to willful neglect; (ii) the Company
reports the nature and amount of each item of its income included in the tests
on a schedule attached to its tax return; and (iii) any incorrect information
on this schedule is not due to fraud with intent to evade tax. If these relief
provisions apply, however, the Company will nonetheless be subject to a 100%
tax on the greater of the amount by which it fails whether the 75% or 95% gross
income test, multiplied by a fraction intended to reflect the Company's
profitability.
The 30% Test. The Company must derive less than 30% of its gross income for
each taxable year from the sale or other disposition of (i) real property held
for less than four years (other than foreclosure property and
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involuntary conversions); (ii) stock or securities (including an interest rate
swap or cap agreement) held for less than one year; and (iii) property in a
prohibited transaction. The Company does not anticipate that it will have
difficulty in complying with this test. However, if extraordinary circumstances
were to occur that give rise to dispositions of self-storage facilities held
for less than four years (for example, on account of the inability to obtain
refinancing), the 30% test could become an issue. The 30% gross income test has
been repealed by the 1997 Act for taxable years beginning after August 5, 1997.
Annual Distribution Requirements. In order to qualify as a REIT, the Company
is required to distribute dividends (other than capital gain dividends) to its
shareholders each year in an amount at least equal to (A) the sum of (i) 95% of
the Company's REIT taxable income (computed without regard to the dividends
paid deduction and the Company's net capital gain) and (ii) 95% of the net
income (after tax), if any, from foreclosure property, minus (B) the sum of
certain items of non-cash income. For taxable years beginning after August 5,
1997, the 1997 Act (i) expands the class of non-cash income that is excluded
from the distribution requirement to include income from the cancellation of
indebtedness and (ii) extends the treatment of original issue discount ("OID")
(over cash and the fair market value of property received on the instrument) as
such non-cash income to OID instruments generally and for REITs, like the
Company, that use an accrual method of accounting. Such distributions must be
paid in the taxable year to which they relate, or in the following taxable year
if declared before the Company timely files its tax return for such year and if
paid on or before the first regular dividend payment after such declaration. To
the extent that the Company does not distribute all of its net capital gain or
distributes at least 95%, but less than 100% of its REIT taxable income, as
adjusted, it will be subject to tax on the undistributed amount at regular
capital gains or ordinary corporate tax rates, as the case may be. For taxable
years beginning after August 5, 1997, the 1997 Act permits a REIT, with respect
to undistributed net capital gains it received during the taxable year to
designate in a notice mailed to shareholders within 60 days of the end of the
taxable year (or in a notice mailed with its annual report for the taxable
year) such amount of such gains which its shareholders are to include in their
taxable income as long-term capital gains. Thus, if the Company made this
designation, the shareholders of the Company would include in their income as
long-term capital gains their proportionate share of the undistributed net
capital gains as designated by the Company, and the Company would have to pay
the tax on such gains within 30 days after the close of its taxable year. Each
shareholder of the Company would be deemed to have paid such shareholder's
share of the tax paid by the Company on such gains, which tax would be credited
or refunded to the shareholder. A shareholder would increase his tax basis in
his Company stock by the difference between the amount of gain to the holder
resulting from the designation less the holders credit or refund for the tax
paid by the Company.
The Company intends to make timely distributions sufficient to satisfy the
annual distribution requirements described in the first sentence of the
preceding paragraph. In this regard, the Partnership Agreement of the Operating
Partnership (the "Partnership Agreement") authorizes the Company, as a general
partner, to take such steps as may be necessary to cause the Operating
Partnership to distribute to its partners an amount sufficient to permit the
Company to meet these distribution requirements. It is possible that the
Company may not have sufficient cash or other liquid assets to meet the 95%
distribution requirement, due to timing differences between the actual receipt
of income and actual payment of expenses on the one hand, and the inclusion of
such income and deduction of such expenses in computing the Company's REIT
taxable income on the other hand; due to the Operating Partnership's inability
to control cash distributions with respect to any properties as to which it
does not have decision making control; or for other reasons. To avoid a problem
with the 95% distribution requirement, the Company will closely monitor the
relationship between its REIT taxable income and cash flow and, if necessary,
intends to borrow funds (or cause the Operating Partnership or other affiliates
to borrow funds) in order to satisfy the distribution requirement. However,
there can be no assurance that such borrowing would be available at such time.
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If the Company fails to meet the 95% distribution requirement as a result of
an adjustment to the Company's tax return by the Internal Revenue Service, the
Company may retroactively cure the failure by paying a deficiency dividend
(plus applicable penalties and interest) within a specified period.
Failure to Qualify. If the Company fails to qualify for taxation as a REIT in
any taxable year and the relief provisions do not apply, the Company will be
subject to tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates. Distributions to shareholders in any
year in which the Company fails to qualify as a REIT will not be deductible by
the Company, nor generally will they be required to be made under the Code. In
such event, to the extent of current and accumulated earnings and profits, all
distributions to shareholders will be taxable as ordinary income, and, subject
to certain limitations in the Code, corporate distributees may be eligible for
the dividends received deduction. Unless entitled to relief under specific
statutory provisions, the company also will be disqualified from re-electing
taxation as a REIT for the four taxable years following the year during which
qualification was lost.
TAX ASPECTS OF THE COMPANY'S INVESTMENTS IN PARTNERSHIPS
General. The Company holds a partnership interest in the Operating
Partnership. In addition, the Operating Partnership owns partnership interests
in several joint venture partnerships which own certain Facilities. In general,
a partnership is a "pass-through" entity which is not subject to Federal income
tax. Rather, partners are allocated their proportionate Common Shares of the
items of income, gain, loss, deduction and credit of a partnership, and are
potentially subject to tax thereon, without regard to whether the partners
receive a distribution from the partnership. The Company will include its
proportionate share of the foregoing partnership items for purposes of the
various REIT gross income tests and in the computation of its REIT taxable
income. See "--Taxation of the Company--General" and "--Gross Income Tests."
Each partner's share of a partnership's tax attributes is determined in
accordance with the Partnership Agreement, although the allocations will be
adjusted for tax purposes if they do not comply with the technical provisions
of Code Section 704 (b) and the regulations thereunder. The Operating
Partnership's allocations of tax attributes are intended to comply with these
provisions. Notwithstanding these allocation provisions, for purposes of
complying with the gross incomes tests discussed above, the Company will be
deemed to have received a share of the income of the Partnership based on its
capital interest in the Operating Partnership.
Also, any resultant increase in the Company's REIT taxable income from its
interest in the Operating Partnership (whether or not a corresponding cash
distribution is also received from the Operating Partnership will increase its
distribution requirements (see "--Taxation of the Company--Annual Distribution
Requirements"), but will not be subject to Federal income tax in the hands of
the Company provided that an amount equal to such income is distributed by the
Company to its shareholders. Moreover, for purposes of the REIT asset tests
(see "--Taxation of the Company--Asset Tests"), the Company will include its
proportionate share of assets held by the Operating Partnership (including the
Operating Partnership's share of assets held through its interests in the joint
venture partnerships).
Entity Classification. The Company's interest in the Operating Partnership
involves special tax considerations, including the possibility of a challenge
by the Service of the status of the Operating Partnership as a partnership (as
opposed to an association taxable as a corporation for federal income tax
purposes). If the Operating Partnership were to be treated as an association,
it would be taxable as a corporation and therefore subject to an entity-level
tax on its income. In such a situation, the character of the Company's assets
and items of gross income would change, which would preclude the Company from
satisfying the REIT asset tests and the REIT gross income tests (see "--
Taxation of the Company--Asset Tests" and "--Gross Income Tests"), which
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in turn would prevent the Company from qualifying as a REIT. (See "--Taxation
of the Company--Failure to Qualify" above, for a discussion of the effect of
the Company's failure to meet such tests.) A similar result could occur if any
of the joint venture partnerships in which the Operating Partnership owns a
partnership interest were classified as associations taxable as corporations.
Tax Allocations with Respect to the Facilities. Pursuant to Section 704 (c)
of the Code, income, gain, loss and deduction attributable to appreciated or
depreciated property that is contributed to a partnership in exchange for an
interest in the partnership (such as certain of the Facilities or interests
therein), must be allocated in a manner such that the contributing partner is
charged with, or benefits from, respectively, the unrealized gain or unrealized
loss associated with the property at the time of the contribution. The amount
of such unrealized gain or unrealized loss is generally equal to the difference
between the fair market value of the contributed property at the time of
contribution, and the adjusted tax basis of such property at the time of
contribution (a "Book-Tax Difference"). Such allocations are solely for Federal
income tax purposes and do not affect the book capital accounts or other
economic arrangements among the partners. The formation of the Operating
Partnership included contributions of appreciated property (including certain
of the Facilities or interests therein). Consequently, the Partnership
Agreement requires certain allocations to be made in a manner consistent with
Section 704 (c) of the Code.
In general, certain contributors of certain of the Facilities or interests
therein will be allocated lower amounts of depreciation deductions for tax
purposes and increased taxable income and gain on sale by the Operating
Partnership on the contributed assets (including certain of such Facilities).
This will tend to eliminate the Book-Tax Difference over the life of the
Operating Partnership. However, the special allocation rules of Section 704 (c)
do not always entirely rectify the Book-Tax Difference on an annual basis or
with respect to a specific taxable transaction such as a sale or a deemed sale,
and accordingly variations from normal Section 704 (c) principles may arise,
which could result in the allocation of additional taxable income to the
Company in excess of corresponding cash proceeds in certain circumstances.
Treasury regulations issued under Section 704 (c) of the Code provide
partnerships with a choice of several methods of accounting for Book-Tax
Differences, including retention of the method under current law. The Operating
Partnership and the Company will use the traditional method for making
allocations under Section 704 (c) with respect to the existing Facilities.
With respect to any property purchased by the Operating Partnership
subsequent to the admission of the Company to the Operating Partnership as well
as certain Facilities acquired in taxable transactions, in general, such
property will initially have a tax basis equal to its fair market value and
Section 704 (c) of the Code will not apply.
Sale of the Facilities. The Company's share of any gain realized by the
Operating Partnership on the sale of any dealer property generally will be
treated as income from a prohibited transaction that is subject to a 100%
penalty tax. See "Taxation of the Company--General and Gross Income Tests--the
95% Test." Under existing law, whether property is dealer property is a
question of fact that depends on all the facts and circumstances with respect
to the particular transaction. The Operating Partnership intends to hold (and,
to the extent within its control, to have any joint venture in which the
Operating Partnership is a partner so hold) the Facilities for investment with
a view to long-term appreciation, to engage in the business of acquiring,
owning, operating and developing the Facilities and other self-storage
facilities, and to make such occasional sales of the Facilities and other
facilities acquired subsequent to the date hereof as are consistent with the
Company's investment objectives. Based upon the Company's investment
objectives, the Company believes that overall the Facilities should not be
considered dealer property and that the amount of income from prohibited
transactions, if any, will not be material.
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TAXATION OF SHAREHOLDERS
Taxation of Taxable Domestic Shareholders. As long as the Company qualifies
as a REIT, distributions made to the Company's taxable domestic shareholders
out of current or accumulated earnings and profits (and not designated as
capital gain dividends) will be taken into account by them as ordinary income
and will not be eligible for the dividends received deduction of corporations.
Distributions (and for tax years beginning after August 5, 1997, undistributed
amounts) that are designated as capital gain dividends will be taxed as long-
term capital gains (to the extent they do not exceed the Company's actual net
capital gain for the taxable year) without regard to the period for which the
shareholder has held its Common Shares of beneficial interest of the Company.
However, corporate shareholders may be required to treat up to 20% of certain
capital gain dividends as ordinary income. To the extent that the Company
makes distributions in excess of current and accumulated earnings and profits,
these distributions are treated first as a tax-free return of capital to the
shareholder, reducing the tax basis of a shareholder's Common Shares by the
amount of such excess distribution (but not below zero), with distributions in
excess of the shareholder's tax basis being taxed as capital gains (if the
Common Shares are held as a capital asset). In addition, any dividend declared
by the Company in October, November or December of any year and payable to a
shareholder of record on a specific date in any such month shall be treated as
both paid by the Company and received by the shareholder on December 31 of
such year, provided that the dividend is actually paid by the Company during
January of the following calendar year. Shareholders may not include in their
individual income tax returns any net operating losses or capital losses of
the Company. Federal income tax rules may also require that certain minimum
tax adjustments and preferences be apportioned to Company shareholders.
The 1997 Act made certain changes to the Code with respect to taxation of
long-term capital gains earned by taxpayers other than a corporation. In
general, for sales made after July 29, 1997, the maximum tax rate for
individual taxpayers on capital gains is lowered to 20% for most assets if the
asset was held for more than 18 months at the time of disposition. Capital
gains on the disposition of assets on or after July 29, 1997 held for more
than one year and up to 18 months at the time of disposition will be taxed as
"mid-term gain" at a maximum rate of 28%. Also, so called "unrecaptured
section 1250 gain" is subject to a maximum federal income tax rate of 25%.
"Unrecaptured section 1250 gain" generally includes the long-term capital gain
realized on the sale after July 28, 1997 of a real property asset described in
Section 1250 of the Code which the taxpayer has held for more than 18 months,
but not in excess of the amount of depreciation (less the gain, if any,
treated as ordinary income under Code Section 1250) taken on such asset. A
rate of 18% instead of 20% will apply after December 31, 2000 for assets held
for more than 5 years. However, the 18% rate applies only to assets acquired
after December 31, 2000 unless the taxpayer elects to treat an asset held
prior to such date as sold for fair market value on January 1, 2001. In the
case of individuals whose ordinary income is taxed at a 15% rate, the 20% rate
is reduced to 10% and the 10% rate for assets held for more than 5 years is
reduced to 8%.
The Internal Revenue Service in Notice 97-59, 1997-45 I.R.B. 1, recently
indicated that in their view, consistent with pending legislation (see H.R.
2645, 105th Cong. Section 5 (d)(1997)), the new capital gain provisions of the
1997 Act generally may be applied by separating long-term capital gains and
losses into a (i) 28% tax rate group for gains and losses on assets held for
more than 12 months but not more than 18 months and disposed of after July 28,
1997, and certain other assets, (ii) 25% tax rate group for gain which is
"unrecaptured section 1250 gain" and (iii) 20% tax rate group for gains and
losses on most assets held for more than 18 months and disposed of after July
28, 1997. In general, capital gain in the 28% tax rate group (10% for
taxpayers subject to a maximum 15% rate) is reduced by (x) capital losses in
that group, (y) net short-term capital losses (i.e. the excess of capital
losses over capital gains from assets held for 12 months or less at the time
of their disposition) and (z) long-term loss carryovers. If such losses exceed
the gains in that group the excess first
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reduces unrecaptured Section 1250 gain (if any) and any remaining excess next
reduces net gain in the 20% group (if any). A net loss for the 20% group is
used first to reduce net gain from the 28% group, then to reduce gain from the
25% group.
In addition, the Internal Revenue Service in Notice 97-64, 1997-47 I.R.B. 1,
describes temporary regulations to be issued concerning the applicability of
the new capital gain rules for REIT capital gain distributions and provides
guidance for REITs and their shareholders which must be used until further
guidance is issued. Notice 97-64 generally provides that if a REIT designates a
dividend as a capital gain dividend for a taxable year ending on or after May
7, 1997, the REIT may also designate the capital gain dividend in whole or in
part as a 20% rate gain distribution includable by a non-corporate shareholder
as long-term capital gain in the shareholder's 20% group, an unrecaptured
section 1250 gain distribution includable by the shareholder in the
shareholder's 25% rate group or a 28% rate gain distribution includable by the
shareholder in the shareholder's 28% group, depending, in general, on the
respective portions of net capital gain of the REIT which are includable by the
REIT in each group, determined as though the REIT was an individual whose
income is subject to a marginal tax rate of at least 28%. If a REIT does not
make additional designations of a capital gain dividend by tax rate group, the
capital gain dividend constitutes a 28% rate gain distribution includable by a
non-corporate shareholder in a shareholder's 28% rate group.
Shareholders of the Company should consult their tax advisor with regard to
(i) the application of the changes made by the 1997 Act with respect to
taxation of capital gains and capital gain dividends and (ii) to state, local
and foreign taxes on capital gains.
In general, any loss upon a sale or exchange of Common Shares by a
shareholder who has held such Common Shares for six months or less (after
applying certain holding period rules) will be treated as a long-term capital
loss, to the extent of distributions, including any designated undistributed
amounts for tax years beginning after August 5, 1997 (see "Taxation of the
Company--Annual Distribution Requirements"), from the Company required to be
treated by such shareholder as long-term capital gains.
Backup Withholding. The Company will report to its domestic shareholders and
to the Service the amount of dividends paid for each calendar year, and the
amount of tax withheld, if any, with respect thereto. Under the backup
withholding rules, a shareholder may be subject to backup withholding at the
rate of 31% with respect to dividends paid unless such shareholder (i) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact or (ii) provides a taxpayer identification number,
certifies as to no loss of exemption from backup withholding, and otherwise
complies with applicable requirements of the backup withholding rules. A
shareholder that does not provide the Company with its correct taxpayer
identification number may also be subject to penalties imposed by the Internal
Revenue Service. Any amount paid as backup withholding is available as a credit
against the shareholder's income tax liability. In addition, the Company may be
required to withhold a portion of capital gain distributions made to any
shareholders who fail to certify their non-foreign status to the company. See
"Certain United States Tax Considerations for Non-U.S. Shareholders--
Distributions from the Company--Capital Gain Dividends" below.
The New Treasury Regulations with respect to withholding, information
reporting and backup withholding, as defined and described below (see CERTAIN
UNITED STATES TAX CONSIDERATIONS FOR NON-U.S. SHAREHOLDERS--Distributions from
the Company--Ordinary Dividends and CERTAIN UNITED STATES TAX CONSIDERATIONS
FOR NON-U.S. SHAREHOLDERS--Information Reporting and Backup Withholding),
generally do not significantly alter the substantive backup withholding and
information requirements described above. As promulgated, the New Treasury
Regulations are generally effective with respect to payments made after
December 31, 1998 but the Internal Revenue Service has announced that the
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New Treasury Regulations will be amended to be effective generally for payments
made after December 31, 1999 subject to certain transition rules.
Taxation of Tax-Exempt Shareholders. The Internal Revenue Service has issued
a revenue ruling in which it held that amounts distributed by a REIT to a tax-
exempt employees' pension trust do not constitute unrelated business taxable
income ("UBTI"). Subject to the discussion below regarding a "pension-held
REIT", based upon such ruling and the statutory framework of the Code,
distributions by the Company to a shareholder that is a tax-exempt entity
should not constitute UBTI, provided that the tax-exempt entity has not
financed the acquisition of its Common Shares with acquisition indebtedness
within the meaning of the Code, that the Common Shares are not otherwise used
in an unrelated trade or business of the tax-exempt entity, and that the
Company, consistent with its present intent does not hold a residual interest
in a REMIC.
However, if any pension or other retirement trust that qualifies under
Section 401(a) of the code (qualified pension trust) holds more than 10% by
value of the interests in a "pension-held REIT" at any time during a taxable
year, a portion of the dividends paid to the qualified pension trust by such
REIT may constitute UBTI. For these purposes, a "pension-held REIT" is defined
as a REIT if (i) such REIT would not have qualified as a REIT but for the
provisions of the Code which look through such a qualified pension trust in
determining ownership of Common Shares of the REIT and (ii) at least one
qualified pension trust holds more than 25% by value of the interests of such
REIT or one or more qualified pension trusts (each owning more than a 10%
interest by value in the REIT) hold in the aggregate more than 50% by value of
the interests in such REIT. The Company does not expect to be a "pension-held
REIT."
OTHER TAX CONSIDERATIONS
Subsidiary Company. The income of the Subsidiary Company is subject to
federal and state income tax at full corporate rates, and the Subsidiary
Company cannot claim a deduction for the dividends it pays to its shareholders,
including the Company. To the extent that the Subsidiary Company pays federal,
state or local taxes, it will have less cash available to distribute to its
shareholders, thereby reducing cash available for distribution by the Company
to its shareholders. The Subsidiary Company will attempt to minimize the amount
of such taxes, but there can be no assurance whether or the extent to which
measures taken to minimize taxes will be successful.
Possible Legislative or Other Actions Affecting Tax Consequences. Prospective
shareholders should recognize that the present Federal income tax treatment of
investment in the Company may be modified by legislative, judicial or
administrative action at any time and that any such action may affect
investments and commitments previously made. The rules dealing with Federal
income taxation are constantly under review by persons involved in the
legislative process and by the Internal Revenue Service and the Treasury
Department, resulting in revisions of regulations and revised interpretations
of established concepts as well as statutory changes. No assurance can be given
as to the form or content (including with respect to effective dates) of any
tax legislation which may be enacted. Revisions in Federal tax laws and
interpretations thereof could adversely affect the tax consequences of
investment in the Company.
In particular, the Treasury Department promulgated regulations on December
29, 1994 that would permit the Internal Revenue Service to recharacterize
transactions involving partnerships purporting to create tax advantages
inconsistent with the intent of the partnership provisions of the Code. The
intended application of these regulations is uncertain. Nonetheless, although
the matter is not free from doubt, it is believed that these regulations will
not adversely affect the Company's ability to qualify as a REIT.
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The Clinton Administration's current revenue proposals would amend the Code
to prohibit a REIT from holding stock possessing more than 10% of the vote or
value of all classes of stock of a corporation, in place of the current rule
which just prohibits a REIT from owning more than 10% of the voting securities
of a corporation. The proposal would be effective with respect to stock
acquired on or after the date of first committee action. In addition, under
this proposal, to the extent that a REIT's stock ownership of a company is
grandfathered by virtue of the effective date, that grandfathered status would
terminate if the company subsequently engaged in a trade or business that it
was not engaged in on the date of first committee action or acquired
substantial new assets on or after that date. Thus, the Company's present
ownership of the stock of the Subsidiary Company would not be affected even if
this proposal is enacted in its current form, unless the Subsidiary Company
engages in a trade or business that it is not engaged in on the date of first
committee action or acquired substantial new assets on or after that date.
State and Local Taxes. The Company and its shareholders may be subject to
state or local taxation, and the Company and the Operating Partnership may be
subject to state or local tax withholding requirements, in various
jurisdictions, including those in which it or they transact business or
reside. The state and local tax treatment of the Company and its shareholders
may not conform to the Federal income tax consequences discussed above.
Consequently, prospective shareholders should consult their own tax advisors
regarding the effect of state and local tax laws on an investment in Common
Shares.
CERTAIN UNITED STATES TAX CONSIDERATIONS
FOR NON-U.S. SHAREHOLDERS
The following is a discussion of certain anticipated U.S. Federal income and
U.S. Federal estate tax consequences of the ownership and disposition of
Common Shares of beneficial interest applicable to Non-U.S. Shareholders of
such Common Shares. A "Non-U.S. Shareholder" is (i) any individual who is
neither a citizen nor resident of the United States, (ii) any corporation or
partnership other than a corporation or partnership created or organized in
the United States or under the laws of the United States or any state thereof
or under the laws of the District of Columbia unless in the case of a
partnership, Treasury Regulations provide otherwise, (iii) an estate whose
non-U.S. source income which is not effectively connected to a U.S. trade or
business is not includable in U.S. federal gross income or (iv) a trust that
is not a "U.S. Trust." A U.S. Trust is (i) for taxable years beginning after
December 31, 1996, or if the trustee of a trust elects to apply the following
definition to an earlier taxable year ending after August 20, 1996, a trust
if, and only if, (a) a court within the United States is able to exercise
primary supervision over the administration of the trust and (b) one or more
U.S. persons has the authority to control all substantial decisions of the
trust and (ii) for all other taxable years, any trust the income of which is
subject to U.S. federal income taxation regardless of its source. The
discussion is based on current law and is for general information only. The
discussion does not address other aspects of U.S. Federal taxation other than
income and estate taxation or all aspects of U.S. Federal income and estate
taxation. The discussion does not consider any specific facts or circumstances
that may apply to a particular Non-U.S. Shareholder.
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE
U.S. FEDERAL, STATE, LOCAL AND NON-U.S. INCOME, ESTATE AND OTHER TAX
CONSEQUENCES OF HOLDING AND DISPOSING OF COMMON SHARES OF BENEFICIAL INTEREST.
DISTRIBUTIONS FROM THE COMPANY
Ordinary Dividends. The portion of dividends received by Non-U.S.
Shareholders payable out of the Company's earnings and profits that are not
attributable to capital gains of the Company and that are not
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effectively connected with a U.S. trade or business of the Non-U.S.
Shareholders payable out of the Company's earnings and profits that are not
attributable to capital gains of the Company and that are not effectively
connected with a U.S. trade or business of the Non-U.S. Shareholder will be
subject to U.S. withholding tax at the rate of 30% (unless reduced by treaty or
the Non-U.S. Shareholder files an Internal Revenue Service Form 4224 with the
Company certifying that the investment to which the distribution relates is
effectively connected to a United States trade or business of such Non-U.S.
Shareholder). Under certain limited circumstances, the amount of tax withheld
may be refundable, in whole or in part, because of the tax status of certain
partners or beneficiaries of Non-U.S. Shareholders that are either foreign
partnership or foreign estate or trusts. In general, Non-U.S. Shareholders will
not be considered engaged in a U.S. trade or business solely as a result of
their ownership of Common Shares of beneficial interest. In cases where the
dividend income from a Non-U.S. Shareholders investment in Common Shares of
beneficial interest is (or is treated as) effectively connected with the Non-
U.S. Shareholders conduct of a U.S. trade or business, the Non-U.S. Shareholder
generally will be subject to U.S. tax at graduated rates in the same manner as
U.S. Shareholders are taxed with respect to such dividends (and may also be
subject to the 30% branch profits tax (unless reduced by treaty) in the case of
a Non-U.S. Shareholder that is a foreign corporation).
Under currently applicable Treasury regulations withholding agents are
required to determine the applicable withholding rate pursuant to the
appropriate tax treaty, and withhold the appropriate amount. New Treasury
Regulations (the "New Treasury Regulations") published in the Federal Register
on October 14, 1997, which have been adopted, and as promulgated are generally
effective with respect to payments made after December 31, 1998, will require
Non-U.S. Shareholders to file a Form W-8 to obtain the benefit of any
applicable tax treaty providing for a lower rate of withholding tax on
dividends paid after December 31, 1998. Such form will require a representation
by the holder as to foreign status, the holder's name and permanent residence
address, the basis for a reduced withholding rate (e.g., the relevant tax
treaty) and other pertinent information, to be certified by such holder under
penalties of perjury. Such information is subject to being reported to the
Internal Revenue Service. A permanent resident address for this purpose
generally is the address in the country where the person claims to be a
resident for the purpose of the country's income tax. If the beneficial holder
is a corporation, then the address is where the corporation maintains its
principal office in its country of incorporation. The New Treasury Regulations
also provide special rules to determine whether, for purposes of determining
the applicability of a tax treaty and for purposes of the 30% withholding tax
described above, dividends paid to a Non-U.S. Shareholder that is an entity
should be treated as paid to the entity or those holding an interest in that
entity. In particular, in the case of a foreign partnership, the certification
requirement will generally be applied to the partners of the partnership. In
addition, the New Treasury Regulations will also require the partnership to
provide certain information, including a United States taxpayer identification
number, and will provide look-through rules for tiered partnerships. A Non-U.S.
Shareholder that is eligible for a reduced rate of U.S. withholding tax
pursuant to an income tax treaty may obtain a refund of any excess amount
withheld by filing an appropriate claim for refund with the Internal Revenue
Service. The Internal Revenue Service recently announced its intention to amend
the New Treasury Regulations to extend the effective date to those payments
made after December 31, 1999. The New Treasury Regulations contain detailed
rules governing tax certifications during the transition period prior to and
immediately following the effectiveness of the New Treasury Regulations. The
discussion under this heading and under "Information Reporting and Backup
Withholding," below, is not intended to be a complete discussion of the
provisions of the New Treasury Regulations, and prospective purchasers of the
Notes are urged to consult their tax advisors concerning the tax consequences
of their acquiring, holding and disposing of the Notes in light of the New
Treasury Regulations.
Capital Gain Dividends. Under the Foreign Investment in Real Property Tax Act
of 1980 ("FIRPTA"), any distribution made by the Company to a Non-U.S.
Shareholder, to the extent attributable to gains from
26
<PAGE>
dispositions of United States Real Property Interests ("USRPIs") by the Company
("USRPI Capital Gains"), will be considered effectively connected with a U.S.
trade or business of the Non-U.S. Shareholder and subject to U.S. income tax at
the rates applicable to U.S. individuals or corporations, without regard to
whether such distribution is designated as a capital gain dividend. In
addition, the Company will be required to withhold tax equal to 35% of the
amount of such distribution to the extent it constitutes USRPI Capital Gains.
Such distribution may also be subject to the 30% branch profits tax (unless
reduced by treaty) in the case of a Non-U.S. Shareholder that is a foreign
corporation.
Non-Dividend Distributions. Any distributions by the Company that exceed both
current and accumulated earnings and profits of the Company will not be taxed
as either ordinary dividends or capital gain dividends. See "Federal Income Tax
Considerations--Taxation of Shareholders--Taxation of Taxable Domestic
Shareholders." However, if it cannot be determined at the time a distribution
is made whether or not such distribution will be in excess of current and
accumulated earnings and profits, the distribution will be subject to
withholding. Should this occur, the Non-U.S. Shareholder may seek a refund of
over withholding from the Service once it is subsequently determined that such
distribution was, in fact, in excess of current and accumulated earnings and
profits of the Company.
DISPOSITIONS OF COMMON SHARES
Unless the Common Shares constitute USRPIs, a sale or exchange of Common
Shares of beneficial interest by a Non-U.S. Shareholder generally will not be
subject to U.S. taxation under FIRPTA. The Common Shares will not constitute
USRPIs if the Company is a "domestically controlled REIT." A domestically
controlled REIT is a REIT in which, at all times during a specified testing
period, less than 50% in value of its Common Shares is held directly or
indirectly by Non-U.S. Shareholders. It is currently anticipated that the
Company will be a domestically controlled REIT and, therefore, that the sale of
Common Shares will not be subject to taxation under FIRPTA. No assurance can be
given that the Company will continue to be a domestically controlled REIT.
If the Company does not constitute a domestically controlled REIT, a Non-U.S.
Shareholder's sale or exchange of Common Shares generally will still not be
subject to tax under FIRPTA as a sale of USRPIs provided that (i) the Company's
Common Shares are "regularly traded" (as defined by applicable Treasury
regulations) on an established securities market (e.g., the NYSE, on which the
Common Shares are listed) and (ii) the selling Non-U.S. Shareholder held 5% or
less of the Company's outstanding Common Shares at all times during a specified
testing period.
If gain on the sale or exchange of Common Shares were subject to taxation
under FIRPTA, the Non-U.S. Shareholder would be subject to U.S. income tax at
the rates applicable to U.S. individuals or corporations, and the purchaser of
Common Shares could be required to withhold 10% of the purchase price and remit
such amount to the Service. The branch profits tax would not apply to such
sales or exchanges.
Capital gains not subject to FIRPTA will nonetheless be taxable in the United
States to a Non-U.S. Shareholder in two cases: (i) if the Non-U.S. Shareholders
investment in Common Shares is effectively connected with a U.S. trade or
business conducted by such Non-U.S. Shareholder, the Non-U.S. Shareholder will
be subject to the same treatment as U.S. Shareholders with respect to such gain
or (ii) if the Non-U.S. Shareholder is a nonresident alien individual who \was
present in the United States for 183 days or more during the taxable year and
has a "tax home" in the United States, the nonresident alien individual will be
subject to 30% tax on the individual's capital gain (unless reduced or
eliminated by treaty).
27
<PAGE>
FEDERAL ESTATE TAX
Common Shares owned or treated as owned by an individual who is not a
citizen or "resident" (as specifically defined for U.S. Federal estate tax
purposes) of the United States at the time of death will be includable in the
individual's gross estate for U.S. Federal estate tax purposes, unless an
applicable estate tax treaty provides otherwise. Such individual's estate may
be subject to U.S. Federal estate tax on the property includable in the estate
for U.S. Federal estate tax purposes.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company must report annually to the Internal Revenue Service and to each
Non-U.S. Shareholder the amount of dividends (including any capital gain
dividends) paid to, and the tax withheld with respect to, each Non-U.S.
Shareholder. These reporting requirements apply regardless of whether
withholding was reduced or eliminated by an applicable tax treaty. Copies of
these returns may also be made available under the provisions of a specific
treaty or agreement with the tax authorities in the country in which the Non-
US. Shareholder resides.
U.S. backup withholding (which generally is imposed at the rate of 31% on
certain payments to persons that fail to furnish the information required
under the U.S. information reporting requirements) and information reporting
will generally not apply to dividends (including any capital gain dividends)
paid on Common Shares of beneficial interest to a Non-U.S. Shareholder at an
address outside the United States. The New Treasury Regulations referred to
under "--Distributions from the Company--Ordinary Dividends," in general,
would similarly require a Non-U.S. Shareholder to provide the Form W-8
previously referred to in order for dividends paid after December 31, 1998 to
be exempt from backup withholding and information reporting.
The payment of the proceeds from the disposition of Common Shares to or
through a U.S. office of a broker will be subject to information reporting and
backup withholding unless the owner, under penalties of perjury, certifies,
among other things, its status as a Non-U.S. Shareholder, or otherwise
establishes an exemption. The payment of the proceeds from the disposition of
Common Shares to or through a non-U.S. office of a Non-U.S. office of a broker
which is (i) a U.S. person, (ii) a "controlled foreign corporation" for U.S.
Federal income tax purposes or (iii), a foreign person 50% or more of whose
gross income for certain periods is derived from a U.S. trade or business,
information reporting (but not backup withholding) will apply unless the
broker has documentary evidence in its files that the holder is a Non-U.S.
Shareholder (and the broker has no actual knowledge to the contrary) and
certain other conditions are met, or the holder otherwise establishes an
exemption. Under the New Treasury Regulations, a payment of the proceeds from
the disposition of Common Shares to or through such broker will be subject to
backup withholding if such broker has actual knowledge that the holder is a
U.S. person.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will be refunded or credited against the Non-U.S.
Shareholder's U.S. Federal income tax liability, provided that required
information is furnished to the Internal Revenue Service.
In general, the New Treasury Regulations do not significantly alter the
substantive backup withholding and information reporting requirements
described above. As noted above, the Internal Revenue Service has announced
that the New Treasury Regulations will be amended to be effective generally
for payments after December 31, 1999, subject to certain transition rules.
These backup withholding and information reporting rules are currently under
review by the Treasury Department, and their application to Common Shares of
beneficial interest is subject to change.
28
<PAGE>
PLAN OF DISTRIBUTION AND UNDERWRITERS
Except to the extent the Administrator purchases Common Shares in open market
transactions, the Common Shares acquired under the Plan will be sold directly
by the Company to the Plan. The Company may sell Common Shares to persons
(including brokers or dealers) who, in connection with any resales of such
shares, may be deemed to be underwriters. Such shares, including Common Shares
acquired pursuant to Requests for Waivers granted with respect to the optional
cash investment feature of the Plan, may be resold in market transactions
(including coverage of short positions) on any national securities exchange on
which the Common Shares trade or in privately negotiated transactions. The
Common Shares are currently listed on the New York Stock Exchange. Under
certain circumstances, it is expected that a portion of the Common Shares
available for issuance under the Plan will be issued pursuant to such waivers.
The difference between the price such persons pay to the Company for Common
Shares acquired under the Plan and the price at which such Common Shares are
resold may be deemed to constitute underwriting commissions received by such
persons in connection with such transactions.
Subject to the availability of Common Shares registered for issuance under
the Plan, there is no total maximum number of shares that can be issued
pursuant to the reinvestment of dividends.
Except with respect to open market purchases of Common Shares relating to
reinvested dividends or optional cash purchases, the Company will pay any and
all brokerage commissions and related expenses incurred in connection with
purchases of Common Shares under the Plan. Upon withdrawal by a Participant
from the Plan by the sale of Common Shares held under the Plan, the Participant
will receive the proceeds of such sale less any related brokerage commissions,
service charges and any applicable transfer taxes.
From time to time, financial intermediaries, including brokers and dealers,
may engage in positioning transactions in order to benefit from the discount
from the market price of the Common Shares acquired through the reinvestment of
dividends under the Plan. Such transactions may cause fluctuations in the
trading volume of the Common Shares. Persons who acquire Common Shares through
the Plan and resell them shortly before or after acquiring them (including
coverage of short positions), under certain circumstances, may be participating
in a distribution of securities that would require compliance with Regulation M
under the Exchange Act, as amended, and may be considered to be underwriters
within the meaning of the Securities Act. The Plan is intended for the benefit
of investors in the Company and not for individuals or investors who engage in
transactions which may cause aberrations in the price or trading volume of the
Common Shares. The Company has no arrangements or understandings, formal or
informal, with any person relating to the distribution of Common Shares to be
received pursuant to the Plan. The Company will not extend to any financial
intermediary participating in the Plan any rights or privileges other than
those to which such person would be entitled as a participant or prospective
participant in the Plan, nor will the Company enter into any agreement with any
such person regarding such person's purchase of Common Shares or any resale or
distribution thereof.
LEGAL OPINIONS
The legality of the securities offered hereby is being passed upon for the
Company by Mayer, Brown & Platt, Chicago, Illinois.
EXPERTS
The consolidated financial statements and related schedule of Storage Trust
Realty appearing in Storage Trust Realty's Annual Report (Form 10-K) for the
year ended December 31, 1997 have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon included therein
and incorporated herein by reference in reliance upon such reports given upon
the authority of such firm as experts in accounting and auditing.
29
<PAGE>
SCHEDULE A
DIVIDEND REINVESTMENTS (1):
<TABLE>
<CAPTION>
DIVIDEND RECORD DIVIDEND PAYMENT
DATE DATE
------------------ -----------------
<S> <C>
June 15, 1998 July 15, 1998
September 15, 1998 October 15, 1998
December 15, 1998 December 29, 1998
March 15, 1999 April 15, 1999
June 15, 1999 July 15, 1999
September 15, 1999 October 15, 1999
December 15, 1999 December 29, 1999
</TABLE>
OPTIONAL CASH PAYMENTS PERMITTED BY THE COMPANY EXCEEDING $5,000:
<TABLE>
<CAPTION>
THRESHOLD PRICE
AND WAIVER
DISCOUNT SET OPTIONAL CASH INVESTMENT PERIOD
DATE PAYMENT DUE DATE COMMENCEMENT DATE INVESTMENT DATE
--------------- ---------------- ----------------- ---------------
<S> <C> <C> <C>
April 24, 1998 April 28, 1998 April 29, 1998 May 15, 1998
May 22, 1998 May 27, 1998 May 28, 1998 June 15, 1998
June 25, 1998 June 29, 1998 June 30, 1998 July 17, 1998
July 27, 1999 July 29, 1998 July 30, 1998 August 17, 1998
August 24, 1998 August 26, 1998 August 27, 1998 September 15, 1998
September 28,
1998 September 30, 1998 October 1, 1998 October 19, 1998
October 26, 1998 October 28, 1998 October 29, 1998 November 16, 1998
November 23,
1998 November 25, 1998 November 27, 1998 December 15, 1998
December 23,
1998 December 28, 1998 December 29, 1998 January 15, 1999
January 25, 1999 January 27, 1999 January 28, 1999 February 16,1999
February 22,
1999 February 24, 1999 February 25, 1999 March 15, 1999
March 26, 1999 March 30, 1999 March 31, 1999 April 19, 1999
April 26, 1999 April 28, 1999 April 29, 1999 May 17, 1999
May 24, 1999 May 26, 1999 May 27, 1999 June 15, 1999
June 25, 1999 June 29, 1999 June 30, 1999 July 19, 1999
July 26, 1999 July 28, 1999 July 29, 1999 August 16, 1999
August 24, 1999 August 26, 1999 August 27, 1999 September 15, 1999
September 28,
1999 September 30, 1999 October 1, 1999 October 19, 1999
October 25, 1999 October 27, 1999 October 28, 1999 November 15, 1999
November 23,
1999 November 26, 1999 November 29, 1999 December 15, 1999
</TABLE>
- --------
(1) The dates indicated are those expected to be applicable under the Plan with
respect to future dividends, if and when declared by the Board of Trustees.
The actual record and payment dates will be determined by the Board of
Trustees.
30
<PAGE>
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NO DEALER, SALESMAN OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCOR-
PORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIR-
CUMSTANCE, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE FACTS
SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SO-
LICITATION.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 2
Incorporation of Certain Documents by Reference........................... 2
The Company............................................................... 3
Use of Proceeds........................................................... 3
The Plan.................................................................. 3
Summary of the Plan...................................................... 3
Administration of the Plan............................................... 4
How to Enroll............................................................ 4
Purchase Procedures, Prices and Custody Of Common Shares................. 5
Optional Cash Investments................................................ 7
Sales of Common Shares Through the Plan.................................. 9
Withdrawals and Transfers of Common Shares From the Plan................. 10
Voting of Common Shares.................................................. 10
Share Dividends, Splits and Subscription Rights.......................... 10
Termination of Reinvestment of Dividends................................. 11
Responsibilities of the Company and the Administrator Under the Plan..... 11
Restrictions on Ownership of Common Shares............................... 12
Federal Income Tax Considerations Relating to the Plan.................... 12
Federal Income Tax Considerations Relating to the Company's Treatment as a
REIT..................................................................... 14
Taxation of the Company.................................................. 15
Tax Aspects of the Company's Investments in Partnerships................. 20
Taxation of Shareholders................................................. 22
Other Tax Considerations................................................. 24
Certain United States Tax Considerations for Non-U.S. Shareholders........ 25
Distributions from the Company........................................... 25
Dispositions of Common Shares............................................ 27
Federal Estate Tax....................................................... 28
Information Reporting and Backup Withholding............................. 28
Plan of Distribution and Underwriters..................................... 29
Legal Opinions............................................................ 29
Experts................................................................... 29
Schedule A................................................................ 30
</TABLE>
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- -------------------------------------------------------------------------------
DIVIDEND REINVESTMENT
AND
SHARE PURCHASE PLAN
-----------------
PROSPECTUS
-----------------
1,000,000 COMMON SHARES
OF BENEFICIAL INTEREST
STORAGE TRUST REALTY
APRIL 15, 1998
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