Prospectus Supplement  to Prosepectus dated February 26, 1997
                           
                           
                           
                   2,740,000 Shares

                Avalon Properties, Inc.

                      Common Stock
                     _____________

     This Prospectus Supplement and the attached Prospectus
relate to the offering and sale of 2,740,000 shares of the common
stock, par value $.01 per share (the "Common Stock") of Avalon
Properties, Inc. to an institutional investor at a
purchase price of $27 3/8 per share, or an aggregate purchase
price of $75,007,500.  In connection with the sale of such shares
of Common Stock, the Company has agreed to pay fees equal to 2% of
the purchase price to PaineWebber Incorporated for its services as
a finder in connection with the shares to be sold in this
offering.

     The Company intends to use the net cash proceeds from the
sale of the Common Stock offered hereby, which are estimated to be
approximately $73,500,000, to retire indebtedness under the
Company's unsecured revolving credit facility, which matures on
March 31, 2000 and currently bears interest at LIBOR plus .80%
(presently 6.4875% per annum).  Any net proceeds not used to
retire such indebtedness will be used for general corporate
purposes.



The date of this Prospectus Supplement is April 10, 1997



PROSPECTUS
 
                                  $350,000,000
 
                            AVALON PROPERTIES, INC.                         LOGO
 
                                DEBT SECURITIES
                                PREFERRED STOCK
                                  COMMON STOCK
                                    WARRANTS
 
                                  -----------
 
  Avalon Properties, Inc. ("Avalon" or the "Company") may offer from time to
time in one or more series (i) unsecured debt securities ("Debt Securities"),
(ii) shares of preferred stock, $.01 par value per share ("Preferred Stock"),
(iii) shares of common stock, $.01 par value per share ("Common Stock"), or
(iv) warrants or other rights to purchase Preferred Stock or Common Stock
("Warrants"), with an aggregate public offering price of up to $350,000,000, in
amounts, at prices and on other terms to be determined at the time of offering.
The Debt Securities, Preferred Stock, Common Stock and Warrants (collectively,
the "Securities") may be offered separately or together, in separate series in
amounts, at prices and on terms to be set forth in one or more supplements to
this Prospectus (each a "Prospectus Supplement").
 
  The specific terms of the Securities for which this Prospectus is being
delivered will be set forth in the applicable Prospectus Supplement and will
include, where applicable: (i) in the case of Debt Securities, the specific
title, aggregate principal amount, ranking, currency, form (which may be
registered or bearer, or certificated or global), authorized denominations,
maturity, rate (or manner of calculation thereof) and time of payment of
interest, terms for redemption at the option of the Company or repayment at the
option of the holder, terms for sinking fund payments, terms for conversion
into Preferred Stock or Common Stock, covenants and any initial public offering
price; (ii) in the case of Preferred Stock, the specific designation and stated
value per share, any dividend, liquidation, redemption, conversion, voting and
other rights, and any initial public offering price; (iii) in the case of
Common Stock, any initial public offering price; and (iv) in the case of
Warrants, the duration, offering price, exercise price and detachability. In
addition, such specific terms may include limitations on direct or beneficial
ownership and restrictions on transfer of the Securities, in each case as may
be consistent with the Company's Articles of Incorporation or otherwise
appropriate to preserve the status of the Company as a real estate investment
trust ("REIT") for federal income tax purposes.
 
  The applicable Prospectus Supplement will also contain information, where
appropriate, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Securities
covered by such Prospectus Supplement.
 
  The Securities may be offered directly, through agents designated from time
to time by the Company or to or through underwriters or dealers. If any agents
or underwriters are involved in the sale of any of the securities, their names,
and any applicable purchase price, fee, commission or discount arrangement
between or among them, will be set forth, or will be calculable from the
information set forth, in an accompanying Prospectus Supplement. See "Plan of
Distribution." No Securities may be sold without delivery of a Prospectus
Supplement describing the method and terms of the offering of such Securities.
 
  Since the Company's initial public offering in November 1993, it has paid
regular quarterly dividends to holders of its Common Stock. The Common Stock is
listed on the New York Stock Exchange (the "NYSE") under the symbol "AVN." On
February 21, 1996, the reported last sale price of the Common Stock on the NYSE
was $27.25 per share.
 
                                  -----------
 
   SEE "RISK FACTORS" COMMENCING ON PAGE 3 FOR CERTAIN FACTORS THAT SHOULD BE
                      CONSIDERED BY PROSPECTIVE INVESTORS.
 
                                  -----------
 
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.
 
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
 
                                  -----------
 
                THE DATE OF THIS PROSPECTUS IS FEBRUARY 26, 1997.

 
                             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, proxy statements and other information with the
Securities and Exchange Commission (the "SEC" or the "Commission"). Such
reports, proxy statements and other information filed by the Company can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's Regional Offices at 7 World Trade Center, New York, New York
10048, and Northwestern Atrium Center, 500 West Madison Street, Chicago,
Illinois 60661-2511. Copies of such materials can be obtained upon written
request from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, at prescribed rates. In
addition, the Common Stock is listed on the New York Stock Exchange (the
"NYSE"), and such materials can be inspected and copied at the NYSE, 20 Broad
Street, New York, New York 10005.
 
  The Company files information electronically with the Commission, and the
Commission maintains a Web Site that contains reports, proxy and information
statements and other information regarding registrants (including the Company)
that file electronically with the Commission. The address of the Commission's
Web Site is (http://www.sec.gov).
 
  The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act of 1933, as amended (the "Securities Act") with
respect to the Securities. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in
the Registration Statement and the exhibits and financial schedules thereto,
certain parts of which are omitted in accordance with the rules and
regulations of the Commission. The Registration Statement, including exhibits
thereto, may be inspected and copied at the locations described above.
Statements contained in this Prospectus as to the contents of any document
referred to are not necessarily complete, and in each instance reference is
made to the copy of such document 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 previously filed by the Company with the Commission
pursuant to the Exchange Act are incorporated in this Prospectus by reference:
(i) the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995 (File No. 1-12452), (ii) the Company's Quarterly Reports on
Form 10-Q for the fiscal quarters ended March 31, June 30, and September 30,
1996, (iii) the Company's Current Reports on Form 8-K filed with the
Commission on October 23, December 4, December 5 and December 18, 1996, (iv)
the Company's proxy statement with respect to its Annual Meeting of
Stockholders held on May 7, 1996 and (v) the description of the Company's
Common Stock contained in the Company's Registration Statement on Form 8-A
declared effective by the Commission on November 11, 1993.
 
  All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering of all Securities shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents.
 
  Any statement contained herein or in a document incorporated or deemed to be
incorporated herein by reference shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein (or in an applicable Prospectus Supplement) or in any subsequently
filed document that is incorporated by reference herein modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed to constitute a part of this Prospectus or any Prospectus Supplement,
except as so modified or superseded.
 
  ANY PERSON RECEIVING A COPY OF THIS PROSPECTUS MAY OBTAIN, WITHOUT CHARGE,
UPON WRITTEN OR ORAL REQUEST, A COPY OF ANY OF THE DOCUMENTS INCORPORATED BY
REFERENCE HEREIN, EXCEPT FOR THE EXHIBITS TO SUCH DOCUMENTS. WRITTEN REQUESTS
SHOULD BE MAILED TO THOMAS J. SARGEANT, CHIEF FINANCIAL OFFICER, AVALON
PROPERTIES, INC., 5904 RICHMOND HIGHWAY, ALEXANDRIA, VIRGINIA 22303. TELEPHONE
REQUESTS MAY BE DIRECTED TO (703) 329-6300.
 
                                       2

 
                          FORWARD LOOKING STATEMENTS
 
  This Prospectus, including any related Prospectus Supplement and the
documents incorporated herein and therein by reference, contains forward-
looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Actual results or developments could differ materially from those
projected in such statements. Certain factors that might cause such a
difference include, but are not limited to, the following: development
opportunities may be abandoned; construction costs of a community may exceed
original estimates; construction and lease-up may not be completed on
schedule, resulting in increased debt service expense and construction costs
and reduced rental revenues; occupancy rates and rents may be adversely
affected by local economic and market conditions; financing may not be
available on favorable terms; the Company's cash flow may be insufficient to
meet required payments of principal and interest; and existing indebtedness
may not be able to be refinanced or the terms of such refinancing may not be
as favorable as the terms of existing indebtedness.
 
                                 RISK FACTORS
 
  An investment in the Securities involves various risks. Prospective
investors should carefully consider the following information in conjunction
with the other information contained or incorporated by reference in this
Prospectus and the applicable Prospectus Supplement before making a decision
to purchase any Securities.
 
RISKS OF DEVELOPMENT, CONSTRUCTION AND ACQUISITION ACTIVITIES
 
  The Company intends to actively continue development and construction of
multifamily apartment communities. There can be no assurance that the Company
will undertake to develop any particular site or that it will be able to
complete such development if it is undertaken. Risks associated with the
Company's development and construction activities include: development
opportunities may be abandoned; construction costs of a community may exceed
original estimates, possibly making the community uneconomical; occupancy
rates and rents at a newly completed community may not be sufficient to make
the community profitable; financing may not be available on favorable terms
for development of a community; and construction and lease-up may not be
completed on schedule, resulting in increased debt service expense and
construction costs. Development activities are also subject to risks relating
to the inability to obtain, or delays in obtaining, all necessary zoning,
land-use, building, occupancy, and other required governmental permits and
authorization.
 
  The Company intends to continue to acquire multifamily apartment communities
on a select basis. Acquisitions of multifamily communities entail risks that
investments will fail to perform in accordance with expectations. Estimates of
the costs of improvements to bring an acquired property up to standards
established for the market position intended for that property may prove
inaccurate.
 
  The Company anticipates that future developments and acquisitions will be
financed, in whole or in part, under lines of credit or other forms of secured
or unsecured financing or through the issuance of additional equity by the
Company. The use of equity financing, rather than debt, for future
developments or acquisitions could have a dilutive effect on the interests of
existing stockholders of the Company. If new developments are financed through
construction loans, there is a risk that, upon completion of construction,
permanent financing for newly developed communities may not be available or
may be available only on disadvantageous terms.
 
REAL ESTATE FINANCING RISKS
 
  No Limitation on Debt. The Company currently has a policy of incurring debt
only if upon such incurrence the ratio of debt to total market capitalization
(i.e., the total consolidated debt of the Company as a percentage of the
market value of issued and outstanding equity securities plus total
consolidated debt) would be 50% or less, but the organizational documents of
the Company do not contain any limitation on the amount of indebtedness the
Company may incur. Accordingly, the Company's Board of Directors could alter
or eliminate this policy.
 
 
                                       3

 
  Existing Debt Maturities, Balloon Payments and Refinancing Risks. The
Company is subject to the risks normally associated with debt financing,
including the risk that the Company's cash flow will be insufficient to meet
required payments of principal and interest. Because the Company anticipates
that only a small portion of the principal of the Company's indebtedness will
be repaid prior to maturity, it will be necessary for the Company to refinance
debt. Accordingly, there is a risk that existing indebtedness will not be able
to be refinanced or that the terms of such refinancing will not be as
favorable as the terms of the existing indebtedness.
 
  Risk of Rising Interest Rates. The Company has incurred and expects in the
future to incur floating rate indebtedness under credit facilities or in
connection with the construction of multifamily apartment communities, as well
as for other purposes. Accordingly, increases in interest rates would increase
the Company's interest costs (to the extent that the related indebtedness was
not protected by interest rate protection arrangements).
 
  Bond Compliance Requirements. Certain of the Company's multifamily apartment
communities are financed with obligations issued by various local government
agencies or instrumentalities, the interest on which is exempt from Federal
income taxation. These obligations are commonly referred to as "tax-exempt
bonds." Under the terms of tax-exempt bonds, the Company must comply with
various restrictions on the use of the properties, including that a percentage
of apartments be made available to low and middle income households. The bond
compliance requirements in effect, and the requirements of any future tax-
exempt bond financing utilized by the Company, may have the effect of limiting
the Company's income from properties subject to the financing. In addition,
certain of the tax-exempt bond financing documents require that a financial
institution (the "credit enhancer") guarantee payment of principal of, and
interest on, the bonds, which may take the form of a letter of credit, surety
bond, guarantee agreement or other additional collateral. If the credit
enhancer defaults in its credit enhancement obligations, or the Company is
unable to renew the applicable credit enhancement or otherwise post
satisfactory collateral, a default will occur under the applicable tax-exempt
bonds and the property could be foreclosed upon.
 
REAL ESTATE INVESTMENT RISKS
 
  General Risks. Real property investments are subject to varying degrees of
risk. If the Company's communities do not generate revenues sufficient to meet
operating expenses, including debt service and capital expenditures, the
Company's cash flow and ability to make distributions to its stockholders will
be adversely affected. A multifamily apartment community's revenues and value
may be adversely affected by the general economic climate; the local economic
climate (including the fiscal condition of the relevant governmental bodies);
local real estate conditions (such as oversupply of or reduced demand for
apartment homes); the perceptions by prospective residents of the safety,
convenience and attractiveness of the communities or neighborhoods in which
they are located and the quality of local schools and other amenities; the
ability of the owner to provide adequate management, maintenance and
insurance; and increased operating costs (including real estate taxes and
utilities). Certain significant expenditures associated with each equity
investment (such as mortgage payments, if any, real estate taxes, insurance
and maintenance costs) are generally not reduced when circumstances cause a
reduction in income from the investment.
 
  Dependence on Primary Markets. The Company's multifamily apartment
communities are located in the Mid-Atlantic and Northeast regions of the
United States and the Company's performance and its ability to perform its
obligations with respect to the Securities or make distributions to
stockholders could be adversely affected by economic and social conditions in
these geographic areas.
 
  Market Illiquidity. Equity real estate investments are relatively illiquid.
Such illiquidity will tend to limit the ability of the Company to vary its
portfolio promptly in response to changes in economic or other conditions. In
addition, the Internal Revenue Code of 1986, as amended (the "Code") limits
the Company's ability to sell properties held for fewer than four years, which
may affect the Company's ability to sell properties without adversely
affecting returns to its stockholders.
 
 
                                       4

 
  Competition. There are numerous housing alternatives that compete with the
Company's multifamily apartment communities in attracting residents. These
communities compete directly with other multifamily rental apartments and
single family homes or condominiums that are available for rent or purchase in
the markets in which the communities are located. In addition, other
competitors for development and acquisitions of properties, including other
REITs, may have greater resources than the Company.
 
  Operating Risks. The Company's multifamily apartment communities are subject
to all operating risks common to multifamily apartment communities in general.
Increases in unemployment or in the supply of apartment homes in the areas in
which the communities are located might adversely affect occupancy or rental
rates. Increases in operating costs due to inflation and other factors may not
necessarily be offset by increased rents. Residents may be unable or unwilling
to pay rent increases. Future enactment of rent control or rent stabilization
laws or other laws regulating multifamily housing may reduce rental revenue or
increase operating costs. If operating expenses increase, the local rental
market may limit the extent to which rents may be increased to meet increased
expenses without decreasing occupancy rates.
 
  Affordable Housing Laws. Certain of the Company's communities are, and will
be in the future, subject to Federal, state and local statutes or other
restrictions requiring that a percentage of apartments be made available to
low and middle income households. These laws and obligations, as well as any
changes thereto making it more difficult to meet such requirements, or a
reduction in or elimination of certain financing advantages available to those
persons satisfying such requirements, could adversely affect the Company's
profitability and its ability to develop certain communities in the future.
 
RISKS INVOLVED IN ACQUISITIONS THROUGH PARTNERSHIPS AND JOINT VENTURES
 
  Instead of purchasing properties directly, the Company may invest as a
partner or a co-venturer. Partnership or joint venture investments may, under
certain circumstances, involve risks not otherwise present, including the
possibility that the Company's partner or co-venturer might become bankrupt,
that such partner or co-venturer might at any time have economic or other
business interests or goals which are inconsistent with the business interests
or goals of the Company, and that such partner or co-venturer may be in a
position to take action contrary to the instructions or the requests of the
Company or contrary to the Company's policies or objectives, including the
Company's policy with respect to maintaining its qualification as a REIT. Such
investments may also have the potential risk of impasse on decisions because
neither the partner nor the co-venturer would have full control over the
partnership or joint venture. The Company will, however, seek to maintain
sufficient control of such partnerships or joint ventures to permit the
Company's objectives to be achieved. There is no limitation under the
Company's organizational documents as to the amount of available funds that
may be invested in partnerships or joint ventures.
 
CHANGES IN POLICIES WITHOUT STOCKHOLDER APPROVAL
 
  The investment, financing and borrowing policies of the Company and its
policies with respect to all other activities, including termination of
qualification as a REIT, growth, debt, capitalization, dividends and
operations, will be determined by the Board of Directors. Although the Board
of Directors has no present intention to do so, these policies may be amended
or revised at any time and from time to time at the discretion of the Board of
Directors without a vote of the stockholders of the Company. A change in these
policies could adversely affect the Company's financial condition, results of
operations or the market price of the Securities.
 
LIMITS ON CHANGES IN CONTROL
 
  Certain provisions contained in the Company's Amended and Restated Articles
of Incorporation (the "Articles of Incorporation") and the Company's Amended
and Restated Bylaws (the "Bylaws") and under Maryland law may have the effect
of discouraging a third party from making an acquisition proposal for the
Company and may thereby inhibit a change in control of the Company. For
example, such provisions may (i) deter tender offers for the Common Stock,
which offers may be attractive to the stockholders, or (ii) deter
 
                                       5

 
purchases of large blocks of Common Stock, thereby limiting the opportunity
for stockholders to receive a premium for their Common Stock over then-
prevailing market prices. These provisions include the following:
 
  Preferred Stock. The Articles of Incorporation authorize the Board of
Directors to issue up to 20 million shares of Preferred Stock (together with
the Common Stock, the "Voting Securities") and to establish the preferences
and rights (including the right to vote and the right to convert into Common
Stock) of any Preferred Stock issued.
 
  Ownership Limit. In order for the Company to maintain its qualification as a
REIT, not more than 50% in value of its outstanding Voting Securities may be
owned, directly or indirectly, by five or fewer individuals (as defined in the
Code). For the purpose of preserving the Company's REIT qualification, the
Articles of Incorporation, subject to certain exceptions, provide that no
holder may own, directly or indirectly, more than 9.8% of the outstanding
Voting Securities of the Company. Although the Board of Directors of the
Company presently has no intention to do so, the Board of Directors could
waive this restriction if it were satisfied, based upon the advice of tax-
counsel, that ownership in excess of this limit would not jeopardize the
Company's status as a REIT and the Board of Directors otherwise decided such
action would be in the best interests of the Company.
 
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT; OTHER TAX LIABILITIES
 
  The Company intends at all times to operate so as to qualify as a REIT under
the Code. Although management of the Company believes that the Company is
organized and operates in such a manner, no assurance can be given that the
Company qualifies or will remain qualified as a REIT. Qualification as a REIT
involves the application of highly technical and complex Code provisions for
which there are only limited judicial and administrative interpretations. The
determination of various factual matters and circumstances not entirely within
the Company's control may effect the Company's ability to qualify as a REIT.
If the Company fails to qualify as a REIT, it will be subject to Federal
income tax (including any applicable alternative minimum tax) on its taxable
income at regular corporate rates. In addition, unless entitled to relief
under certain statutory provisions, the Company will be disqualified from
treatment as a REIT for the four taxable years following the year during which
qualification is lost. The additional tax would significantly reduce the cash
flow available for distribution to stockholders.
 
POSSIBLE ENVIRONMENTAL LIABILITIES
 
  Under various Federal, state and local environmental laws, a current or
previous owner or operator of real estate may be required (typically
regardless of knowledge or responsibility) to investigate and clean up
hazardous or toxic substances or petroleum product releases at such property
and may be held liable to a governmental entity or to third parties for
property damage and for investigation and clean-up costs incurred by such
parties in connection with the contamination, which may be substantial. The
presence of such substances (or the failure to properly remediate the
contamination) may adversely effect the owner's ability to borrow against,
sell or rent such property.
 
COSTS OF COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT AND SIMILAR LAWS
 
  Under the Americans with Disabilities Act of 1990 (the "ADA"), all places of
public accommodation are required to meet certain Federal requirements related
to access and use by disabled persons. Although the Company believes that its
communities are substantially in compliance with present requirements of the
ADA, the Company may incur additional costs of complying with the ADA. A
number of additional Federal, state and local laws exist that also may require
modifications to the Company's communities, or restrict certain further
renovations thereof, with respect to access thereto by disabled persons. For
example, the Fair Housing Amendments Act of 1988 (the "FHAA") requires
apartment communities first occupied after March 13, 1990 to be accessible to
the handicapped. Noncompliance with the FHAA could result in the imposition of
fines or an award of damages to private litigants. The Company believes that
its communities that are subject to the FHAA
 
                                       6

 
are in compliance with such law. Additional legislation may impose further
burdens or restrictions on owners with respect to access by disabled persons.
The ultimate amount of the cost of compliance with the ADA or such legislation
is not currently ascertainable, and, while such costs are not expected to have
a material effect on the Company, such costs could be substantial.
 
POSSIBLE ADVERSE IMPACT OF MARKET CONDITIONS OF MARKET PRICE
 
  The market value of the Securities could be substantially affected by
general market conditions, including changes in interest rates. A continued
increase in market interest rates would lead purchasers of Debt Securities and
may lead purchasers of Common Stock or Preferred Stock to demand a higher
annual yield, which could adversely affect the market price of the outstanding
Common Stock and other Securities. Moreover, numerous other factors, such as
government regulatory action and changes in tax laws, could have a significant
impact on the future market price of the Common Stock or other Securities.
 
                                       7

 
                                  THE COMPANY
 
  Avalon Properties, Inc. (the "Company") is one of the largest developers,
owners and operators of institutional-quality multifamily apartment
communities in the Mid-Atlantic and Northeast regions of the United States,
with five offices located throughout its regions. The Company is a self-
administered and self-managed real estate investment trust (a "REIT"). At
February 1, 1997, the Company owned or had an ownership interest in 46
multifamily apartment communities containing a total of 13,822 apartment
homes. As of December 31, 1996, the Company's established communities had a
physical occupancy rate of 95.7%. In addition, at December 31, 1996, the
Company owned or had an ownership interest in 10 apartment communities under
construction, which the Company anticipates will contain a total of 3,337
apartment homes, with estimated completion dates from the first quarter of
1997 through the fourth quarter of 1998. As of December 31, 1996, the Company
owned land for one development community, and also owned rights to acquire 15
parcels of land.
 
                                USE OF PROCEEDS
 
  Unless otherwise described in the applicable Prospectus Supplement, the
Company intends to use the net proceeds from the sale of the Securities for
general corporate purposes, which may include the development or acquisition
of additional apartment communities, the repayment of outstanding debt or the
improvement of certain apartment communities already in the Company's
portfolio. The Company incurs debt from time to time in the ordinary course of
business in connection with the development, acquisition and improvement of
new or existing apartment communities, which debt may be refinanced with the
proceeds of the sale of Securities for which this Prospectus and a related
Prospectus Supplement are delivered.
 
                    RATIO OF EARNINGS TO FIXED CHARGES AND
   RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
 
  The Company's ratio of earnings to fixed charges for the years ended
December 31, 1996, 1995 and 1994 and the period November 18, 1993 through
December 31, 1993 was 2.36x, 2.37x, 3.60x and 3.29x, respectively.
 
  The Company's ratio of earnings to combined fixed charges and preferred
stock dividends for the years ended December 31, 1996, 1995 and 1994 and the
period November 18, 1993 through December 31, 1993 was 1.95x, 2.37x, 3.60x and
3.29x, respectively.
 
  For purposes of computing these ratios, earnings have been calculated by
adding fixed charges (excluding capitalized interest) to income (loss) before
income taxes and extraordinary items. Fixed charges consist of interest costs,
whether expensed or capitalized, the interest component of rental expense, and
the amortization of debt discounts and issue costs, whether expensed or
capitalized. Preferred stock dividends consist of dividends paid [or
payable??] on outstanding shares of preferred stock.
 
  Prior to completion of the Company's initial public offering on November 18,
1993, the Company's predecessor (the "Predecessor"), as a privately-held
entity, operated in a manner so as to minimize net taxable income. As a
result, the Predecessor had losses before extraordinary items for the period
January 1, 1993 through November 17, 1993 and its years ended December 31,
1992, 1991 and 1990. Consequently, the computation of the ratio of earnings to
fixed charges for such periods indicates that earnings were inadequate to
cover fixed charges by $7,359,000, $9,398,000, $14,462,000 and $17,609,000 for
the period January 1, 1993 through November 17, 1993 and the years ended
December 31, 1992, 1991 and 1990, respectively.
 
 
                                       8

 
                        DESCRIPTION OF DEBT SECURITIES
 
GENERAL
 
  The Debt Securities will be direct unsecured obligations of the Company and
may be either senior Debt Securities ("Senior Securities") or subordinated
Debt Securities ("Subordinated Securities"). The Debt Securities will be
issued under one or more indentures, each dated as of a date prior to the
issuance of the Debt Securities to which it relates. Senior Securities and
Subordinated Securities may be issued pursuant to separate indentures
(respectively, a "Senior Indenture" and a "Subordinated Indenture"), in each
case between the Company and a trustee (a "Trustee"), which may be the same
Trustee, and in the form that has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part, subject to such amendments or
supplements as may be adopted from time to time. The Senior Indenture and the
Subordinated Indenture, as amended or supplemented from time to time, are
sometimes hereinafter referred to collectively as the "Indentures." The
Indentures will be subject to and governed by the Trust Indenture Act of 1939,
as amended (the "TIA"). The statements made under this heading relating to the
Debt Securities and the Indentures are summaries of the anticipated provisions
thereof, do not purport to be complete and are qualified in their entirety by
reference to the Indentures and such Debt Securities.
 
  Capitalized terms used herein and not defined shall have the meanings
assigned to them in the applicable Indenture.
 
TERMS
 
  General. The indebtedness represented by the Senior Securities will rank
equally with all other unsecured and unsubordinated indebtedness of the
Company. The indebtedness represented by Subordinated Securities will be
subordinated in right of payment to the prior payment in full of the Senior
Debt of the Company as described under "--Subordination." The particular terms
of the Debt Securities offered by a Prospectus Supplement will be described in
the applicable Prospectus Supplement, along with any applicable modifications
of or additions to the general terms of the Debt Securities as described
herein and in the applicable Indenture and any applicable federal income tax
considerations. Accordingly, for a description of the terms of any series of
Debt Securities, reference must be made to both the Prospectus Supplement
relating thereto and the description of the Debt Securities set forth in this
Prospectus.
 
  Except as set forth in any Prospectus Supplement, the Debt Securities may be
issued without limit as to aggregate principal amount, in one or more series,
in each case as established from time to time by the Company or as set forth
in the applicable Indenture or in one or more indentures supplemental to such
Indenture. All Debt Securities of one series need not be issued at the same
time and, unless otherwise provided, a series may be reopened, without the
consent of the holders of the Debt Securities of such series, for issuance of
additional Debt Securities of such series.
 
  Each Indenture will provide that the Company may, but need not, designate
more than one Trustee thereunder, each with respect to one or more series of
Debt Securities. Any Trustee under an Indenture may resign or be removed with
respect to one or more series of Debt Securities and a successor Trustee may
be appointed to act with respect to such series. In the event that two or more
persons are acting as Trustee with respect to different series of Debt
Securities, each such Trustee shall be a Trustee of a trust under the
applicable Indenture separate and apart from the trust administered by any
other Trustee, and, except as otherwise indicated herein, any action described
herein to be taken by each Trustee may be taken by each such Trustee with
respect to, and only with respect to, the one or more series of Debt
Securities for which it is Trustee under the applicable Indenture.
 
  The following summaries set forth certain general terms and provisions of
the Indentures and the Debt Securities. The Prospectus Supplement relating to
the series of Debt Securities being offered will contain further terms of such
Debt Securities, including the following specific terms:
 
 
                                       9

 
    (1) The title of such Debt Securities and whether such Debt Securities
  are Senior Securities or Subordinated Securities;
 
    (2) The aggregate principal amount of such Debt Securities and any limit
  on such aggregate principal amount;
 
    (3) The price (expressed as a percentage of the principal amount thereof)
  at which such Debt Securities will be issued and, if other than the
  principal amount thereof, the portion of the principal amount thereof
  payable upon declaration of acceleration of the maturity thereof, or (if
  applicable) the portion of the principal amount of such Debt Securities
  that is convertible into Common Stock or Preferred Stock, or the method by
  which any such portion shall be determined;
 
    (4) If convertible, the terms on which such Debt Securities are
  convertible, including the initial conversion price or rate and the
  conversion period and any applicable limitations on the ownership or
  transferability of the Common Stock or Preferred Stock receivable on
  conversion;
 
    (5) The date or dates, or the method for determining such date or dates,
  on which the principal of such Debt Securities will be payable;
 
    (6) The rate or rates (which may be fixed or variable), or the method by
  which such rate or rates shall be determined, at which such Debt Securities
  will bear interest, if any;
 
    (7) The date or dates, or the method for determining such date or dates,
  from which any such interest will accrue, the dates on which any such
  interest will be payable, the record dates for such interest payment dates,
  or the method by which such dates shall be determined, the persons to whom
  such interest shall be payable, and the basis upon which interest shall be
  calculated if other than that of a 360-day year of twelve 30-day months;
 
    (8) The place or places where the principal of (and premium or Make-Whole
  Amount (as defined in the Indenture), if any) and interest, if any, on such
  Debt Securities will be payable, where such Debt Securities may be
  surrendered for conversion or registration of transfer or exchange and
  where notices or demands to or upon the Company in respect of such Debt
  Securities and the applicable Indenture may be served;
 
    (9) The period or periods, if any, within which, the price or prices at
  which and the other terms and conditions upon which such Debt Securities
  may, pursuant to any optional or mandatory redemption provisions, be
  redeemed, as a whole or in part, at the option of the Company;
 
    (10) The obligation, if any, of the Company to redeem, repay or purchase
  such Debt Securities pursuant to any sinking fund or analogous provision or
  at the option of a holder thereof, and the period or periods within which,
  the price or prices at which and the other terms and conditions upon which
  such Debt Securities will be redeemed, repaid or purchased, as a whole or
  in part, pursuant to such obligation;
 
    (11) If other than U.S. dollars, the currency or currencies in which such
  Debt Securities are denominated and payable, which may be a foreign
  currency or units of two or more foreign currencies or a composite currency
  or currencies, and the terms and conditions relating thereto;
 
    (12) Whether the amount of payments of principal of (and premium or Make-
  Whole Amount, if any) or interest, if any, on such Debt Securities may be
  determined with reference to an index, formula or other method (which
  index, formula or method may, but need not be, based on a currency,
  currencies, currency unit or units, or composite currency or currencies)
  and the manner in which such amounts shall be determined;
 
    (13) Whether the principal of (and premium or Make-Whole Amount, if any)
  or interest or Additional Amounts, if any, on the Debt Securities of the
  series are to be payable, at the election of the Company or a holder
  thereof, in a currency or currencies, currency unit or units or composite
  currency or currencies other than that in which such Debt Securities are
  denominated or stated to be payable, the period or periods within which,
  and the terms and conditions upon which, such election may be made, and the
  time and manner of, and identity of the exchange rate agent with
  responsibility for, determining the exchange rate between the
 
                                      10

 
  currency or currencies, currency unit or units or composite currency or
  currencies in which such Debt Securities are denominated or stated to be
  payable and the currency or currencies, currency unit or units or composite
  currency or currencies in which such Debt Securities are to be so payable;
 
    (14) Provisions, if any, granting special rights to the holders of Debt
  Securities of the series upon the occurrence of such events as may be
  specified;
 
    (15) Any deletions from, modifications of or additions to the Events of
  Default (as defined in the Indenture) or covenants of the Company with
  respect to Debt Securities of the series, whether or not such Events of
  Default or covenants are consistent with the Events of Default or covenants
  set forth herein;
 
    (16) Whether Debt Securities of the series are to be issuable as
  Registered Securities, Bearer Securities (with or without coupons) or both,
  any restrictions applicable to the offer, sale or delivery of Bearer
  Securities and the terms upon which Bearer Securities of the series may be
  exchanged for Registered Securities of the series and vice versa (if
  permitted by applicable laws and regulations), whether any Debt Securities
  of the series are to be issuable initially in temporary global form and
  whether any Debt Securities of the series are to be issuable in permanent
  global form with or without coupons and, if so, whether beneficial owners
  of interests in any such permanent global Security may exchange such
  interests for Debt Securities of such series and of like tenor of any
  authorized form and denomination and the circumstances under which any such
  exchanges may occur, if other than in the manner provided in the Indenture,
  and, if Registered Securities of the series are to be issuable as a Global
  Security (as defined), the identity of the depository for such series;
 
    (17) The date as of which any Bearer Securities of the series and any
  temporary Global Security representing outstanding Debt Securities of the
  series shall be dated if other than the date of original issuance of the
  first Security of the series to be issued;
 
    (18) The Person to whom any interest on any Registered Security of the
  series shall be payable, if other than the Person in whose name that
  Security (or one or more Predecessor Securities) is registered at the close
  of business on the Regular Record Date for such interest, the manner in
  which, or the Person to whom, any interest on any Bearer Security of the
  series shall be payable, if otherwise than upon presentation and surrender
  of the coupons appertaining thereto as they severally mature, and the
  extent to which, or the manner in which, any interest payable on a
  temporary Global Security on an Interest Payment Date will be paid if other
  than in the manner provided in the Indenture;
 
    (19) The applicability, if any, of the defeasance and covenant defeasance
  provisions of the Indenture to the Debt Securities of the series and any
  provisions in modification of, in addition to or in lieu of any of the
  provisions of Article Fourteen;
 
    (20) If the Debt Securities of such series are to be issuable in
  definitive form (whether upon original issue or upon exchange of a
  temporary Security of such series) only upon receipt of certain
  certificates or other documents or satisfaction of other conditions, then
  the form and/or terms of such certificates, documents or conditions;
 
    (21) If the Debt Securities of the series are to be issued upon the
  exercise of warrants, the time, manner and place for such Debt Securities
  to be authenticated and delivered;
 
    (22) Whether and under what circumstances the Company will pay Additional
  Amounts as contemplated by the Indenture on the Debt Securities of the
  series to any holder who is not a United States person (including any
  modification to the definition of such term) in respect of any tax,
  assessment or governmental charge and, if so, whether the Company will have
  the option to redeem such Debt Securities rather than pay such Additional
  Amounts (and the terms of any such option);
 
    (23) The obligation, if any, of the Company to permit the conversion of
  the Debt Securities of such series into the Company's Common Stock or
  Preferred Stock, as the case may be, and the terms and conditions upon
  which such conversion shall be effected (including, without limitation, the
  initial conversion price or rate, the conversion period, any adjustment of
  the applicable conversion price and any requirements relative to the
  reservation of such shares for purposes of conversion); and
 
 
                                      11

 
    (24) Any other terms of the series (which terms shall not be inconsistent
  with the provisions of this Indenture).
 
  If so provided in the applicable Prospectus Supplement, the Debt Securities
may be issued at a discount below their principal amount and provide for less
than the entire principal amount thereof to be payable upon declaration of
acceleration of the maturity thereof ("Original Issue Discount Securities").
In such cases, all material U.S. federal income tax, accounting and other
considerations applicable to Original Issue Discount Securities will be
described in the applicable Prospectus Supplement.
 
  Change of Control, Highly Leveraged Transactions and Similar
Transactions. Except as may be set forth in any Prospectus Supplement, the
Debt Securities will not contain any provisions that would limit the ability
of the Company to incur indebtedness or that would afford holders of any
series of Debt Securities protection in the event of a highly leveraged or
similar transaction, or in the event of a change of control, involving the
Company that may adversely affect holders of Debt Securities. To the extent
that any covenant or provision governing any series of Debt Securities that
would afford protection to holders of such series of Debt Securities in the
event of a highly leveraged or similar transaction or a change of control may
be (a) waived by the Board of Directors of the Company or the relevant Trustee
or (b) limited in its applicability in the event of a leveraged buy-out or
similar transaction initiated or supported by the Company, management of the
Company or any affiliate, the relevant Prospectus Supplement will describe
such provisions.
 
  Any Prospectus Supplement relating to a series of Debt Securities that is
subject to optional redemption, prepayment or conversion of such series of
Debt Securities upon the occurrence of a change of control or other similar
events will describe, to the extent applicable, the following:
 
    (1) the effect that such provisions may have in deterring mergers, tender
  offers or other takeover attempts, as well as any possible adverse effect
  on the market price of the Company's securities or its ability to obtain
  additional financing in the future;
 
    (2) the Company's obligation to comply with the requirements of Rule
  14(e)-1 under the Exchange Act and any other applicable securities laws in
  connection with such provisions and any related offers by the Company, and
  to the extent that a series of convertible Debt Securities are the subject
  of such Prospectus Supplement, the Company's obligation to comply with Rule
  13e-4;
 
    (3) whether the occurrence of the specified events may give rise to
  cross-defaults on other indebtedness resulting in effective subordination
  of the Company's obligation to make payments on such series of Debt
  Securities;
 
    (4) any legal or financial limitations on the Company's ability to
  repurchase the series of Debt Securities offered by such Prospectus
  Supplement upon the triggering of an "event risk" provision requiring such
  a repurchase or offer to repurchase;
 
    (5) the impact, if any, under the Indenture or other governing
  instruments of any failure to repurchase or offer to repurchase, including
  whether such failure following a change of control or similar event will
  (or would, after the lapse of time or giving of notice, or both) result in
  an event of default with respect to such series of Debt Securities;
 
    (6) that there can be no assurance that sufficient funds will be
  available to the Company to make any required repurchase at the time such
  "event risk" provision is triggered;
 
    (7) the material effect of any subordination of payment on such series of
  Debt Securities to other obligations of the Company or its subsidiaries
  that may be accelerated as a result of a change in control, fundamental
  change or "poison put" provision on such change in control, fundamental
  change or "poison put" provision and on such series of Debt Securities;
 
    (8) the material effect, if any, of any anti-takeover provision relating
  to the Company's equity securities on the Company's outstanding debt
  securities, including the series of Debt Securities offered by such
  Prospectus Supplement;
 
 
                                      12

 
    (9) to the extent that the term "change of control" includes the concept
  of "all or substantially all," how such concept is quantified or what is
  the established meaning of such concept under applicable law and the
  Indenture and, in the event that there is no definition or established
  meaning for such concept, the effect of such uncertainty on the ability of
  holders of such series of Debt Securities to determine when a "change of
  control" has occurred; and
 
    (10) other material effects and limitations of "change of control," as
  applicable to such series of Debt Securities, including whether "change of
  control" provisions will be triggered if a change in control of the
  Company's Board of Directors occurs as a result of a proxy contest
  involving solicitation of revocable proxies.
 
  The Company's Articles of Incorporation contain certain restrictions on
ownership and transfers of the Common Stock and Preferred Stock that are
designed to preserve its status as a REIT. Such restrictions may act to
prevent or hinder a change of control. See "Description of Capital Stock--
Common Stock" and "Restrictions on Transfers of Capital Stock." Reference is
made to the applicable Prospectus Supplement for information with respect to
any deletions from, modifications of, or additions to, the Events of Default
or covenants of the Company that are described below, including any addition
of a covenant or other provision providing event risk or similar protection.
 
DENOMINATION, INTEREST, REGISTRATION AND TRANSFER
 
  Unless otherwise described in the applicable Prospectus Supplement, the Debt
Securities of any series will be issuable in denominations of $1,000 and
integral multiples thereof.
 
  Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and applicable premium or Make-Whole Amount, if any) and
interest on any series of Debt Securities will be payable at the corporate
trust office of the applicable Trustee, the address of which will be stated in
the applicable Prospectus Supplement; provided that, at the option of the
Company, payment of interest may be made by check mailed to the address of the
person entitled thereto as it appears in the applicable register for such Debt
Securities or by wire transfer of funds to such person at an account
maintained within the United States.
 
  Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the holder on the applicable Regular Record
Date and may either be paid to the Person in whose name such Debt Security is
registered at the close of business on a special record date (the "Special
Record Date") for the payment of such Defaulted Interest to be fixed by the
Trustee, in which case notice thereof shall be given to the holder of such
Debt Security not less than 10 days prior to such Special Record Date, or may
be paid at any time in any other lawful manner, all as more completely
described in the applicable Indenture.
 
  Subject to certain limitations imposed upon Debt Securities issued in book-
entry form, the Debt Securities of any series will be exchangeable for any
authorized denomination of other Debt Securities of the same series and of a
like aggregate principal amount and tenor upon surrender of such Debt
Securities at the corporate trust office of the applicable Trustee or at the
office of any transfer agent designated by the Company for such purpose. In
addition, subject to certain limitations imposed upon Debt Securities issued
in book-entry form, the Debt Securities of any series may be surrendered for
conversion or registration of transfer or exchange thereof at the corporate
trust office of the applicable Trustee or at the office of any transfer agent
designated by the Company for such purpose. Every Debt Security surrendered
for conversion, registration of transfer or exchange must be duly endorsed or
accompanied by a written instrument of transfer, and the person requesting
such action must provide evidence of title and identity satisfactory to the
applicable Trustee or transfer agent. No service charge will be made for any
registration of transfer or exchange of any Debt Securities, but the Company
may require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith. If the applicable Prospectus
Supplement refers to any transfer agent (in addition to the applicable
Trustee) initially designated by the Company with respect to any series of
Debt Securities, the Company may at any time rescind the designation of any
such transfer agent or approve a change in the location through which any such
transfer
 
                                      13

 
agent acts, except that the Company will be required to maintain a transfer
agent in each place of payment for such series. The Company may at any time
designate additional transfer agents with respect to any series of Debt
Securities.
 
  Neither the Company nor any Trustee shall be required to (a) issue, register
the transfer of or exchange Debt Securities of any series during a period
beginning at the opening of business 15 days before selection of any Debt
Securities selected for redemption and ending at the close of business on the
day of mailing of the notice of redemption; (b) register the transfer of or
exchange any Debt Security, or portion thereof, so selected for redemption, in
whole or in part, except the unredeemed portion of any Debt Security being
redeemed in part; or (c) issue, register the transfer of or exchange any Debt
Security that has been surrendered for repayment at the option of the holder,
except the portion, if any, of such Debt Security not to be so repaid.
 
MERGER, CONSOLIDATION OR SALE OF ASSETS
 
  The Indentures will provide that the Company may, without the consent of the
holders of any outstanding Debt Securities, consolidate with, or sell, lease
or convey all or substantially all of its assets to, or merge with or into,
any other entity provided that (a) either the Company shall be the continuing
entity, or the successor entity (if other than the Company) formed by or
resulting from any such consolidation or merger or which shall have received
the transfer of such assets is organized under the laws of any domestic
jurisdiction and assumes the Company's obligations to pay principal of (and
premium or Make-Whole Amount, if any) and interest on all of the Debt
Securities and the due and punctual performance and observance of all of the
covenants and conditions contained in each Indenture; (b) immediately after
giving effect to such transaction and treating any indebtedness that becomes
an obligation of the Company or any subsidiary as a result thereof as having
been incurred by the Company or such subsidiary at the time of such
transaction, no Event of Default under the Indentures, and no event which,
after notice or the lapse of time, or both, would become such an Event of
Default, shall have occurred and be continuing; and (c) an officers'
certificate and legal opinion covering such conditions shall be delivered to
each Trustee.
 
CERTAIN COVENANTS
 
  Existence. Except as permitted under "--Merger, Consolidation or Sale of
Assets," the Indentures will require the Company to do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence, rights (by articles of incorporation, by-laws and statute) and
material franchises; provided, however, that the Company shall not be required
to preserve any right or franchise if its Board of Directors determines that
the preservation thereof is no longer desirable in the conduct of its
business.
 
  Maintenance of Properties. The Indentures will require the Company to cause
all of its material properties used or useful in the conduct of its business
or the business of any subsidiary to be maintained and kept in good condition,
repair and working order and supplied with all necessary equipment and will
cause to be made all necessary repairs, renewals, replacements, betterments
and improvements thereof, all as in the judgment of the Company may be
necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that
the Company and its subsidiaries shall not be prevented from selling or
otherwise disposing of their properties for value in the ordinary course of
business.
 
  Insurance. The Indentures will require the Company to cause each of its and
its subsidiaries' insurable properties to be insured against loss or damage at
least equal to their then full insurable value with insurers of recognized
responsibility and, if described in the applicable Prospectus Supplement,
having a specified rating from a recognized insurance rating service.
 
  Payment of Taxes and Other Claims. The Indentures will require the Company
to pay or discharge or cause to be paid or discharged, before the same shall
become delinquent, (a) all taxes, assessments and governmental charges levied
or imposed upon it or any subsidiary or upon the income, profits or property
of the Company or any subsidiary and (b) all lawful claims for labor,
materials and supplies which, if unpaid, might by
 
                                      14

 
law become a lien upon the property of the Company or any subsidiary;
provided, however, that the Company shall not be required to pay or discharge
or cause to be paid or discharged any such tax, assessment, charge or claim
whose amount, applicability or validity is being contested in good faith.
 
  Provision of Financial Information. Whether or not the Company is subject to
Section 13 or 15(d) of the Exchange Act, the Indentures will require the
Company, within 15 days of each of the respective dates by which the Company
would have been required to file annual reports, quarterly reports and other
documents with the Commission if the Company were so subject, to (a) transmit
by mail to all holders of Debt Securities, as their names and addresses appear
in the applicable register for such Debt Securities, promptly upon written
request and without cost to such holders, copies of the annual reports,
quarterly reports and other documents that the Company would have been
required to file with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act if the Company were subject to such sections, (b) file with the
applicable Trustee copies of the annual reports, quarterly reports and other
documents that the Company would have been required to file with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act if the Company
were subject to such Sections and (c) supply, promptly upon written request
and payment of the reasonable cost of duplication and delivery, copies of such
documents to any prospective holder.
 
  Additional Covenants. Any additional covenants of the Company with respect
to any series of Debt Securities will be set forth in the Prospectus
Supplement relating thereto.
 
EVENTS OF DEFAULT, NOTICE AND WAIVER
 
  Unless otherwise provided in the applicable Prospectus Supplement, each
Indenture will provide that the following events are "Events of Default" with
respect to any series of Debt Securities issued thereunder: (a) default in the
payment of any interest on or any Additional Amount payable in respect of any
Debt Security of such series when such interest or Additional Amount becomes
due and payable that continues for a period of 30 days; (b) default in the
payment of the principal of (or premium or Make-Whole Amount, if any, on) any
Debt Security of such series when due and payable; (c) default in making any
sinking fund payment as required for any Debt Security of such series; (d)
default in the performance, or breach, of any other covenant or warranty of
the Company in the Indenture with respect to the Debt Securities of such
series and continuance of such default or breach for a period of 60 days after
written notice as provided in the Indenture; (e) default under any bond,
debenture, note, mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any indebtedness for
money borrowed by the Company (or by any Subsidiary, the repayment of which
the Company has guaranteed or for which the Company is directly responsible or
liable as obligor or guarantor), having an aggregate principal amount
outstanding of at least $10,000,000, whether such indebtedness now exists or
shall hereafter be created, which default shall have resulted in such
indebtedness becoming or being declared due and payable prior to the date on
which it would otherwise have become due and payable, without such
indebtedness having been discharged, or such acceleration having been
rescinded or annulled, within a period of 10 days after written notice to the
Company as provided in the Indenture, provided, however, that such a default
on indebtedness which constitutes tax-exempt financing having an aggregate
principal amount outstanding not exceeding $25,000,000 that results solely
from a failure of an entity providing credit support for such indebtedness to
honor a demand for payment on a letter of credit shall not constitute an Event
of Default; (f) the entry by a court of competent jurisdiction of one or more
judgments, orders or decrees against the Company or any of its Subsidiaries in
an aggregate amount (excluding amounts covered by insurance) in excess of
$10,000,000 and such judgments, orders or decrees remain undischarged,
unstayed and unsatisfied in an aggregate amount (excluding amounts covered by
insurance) in excess of $10,000,000 for a period of 30 consecutive days; (g)
certain events of bankruptcy, insolvency or reorganization, or court
appointment of a receiver, liquidator or trustee of the Company or any
Significant Subsidiary; and (h) any other event of default provided with
respect to a particular series of Debt Securities. The term "Significant
Subsidiary" has the meaning ascribed to such term in Regulation S-X
promulgated under the Securities Act.
 
  If an Event of Default under any Indenture with respect to Debt Securities
of any series at the time outstanding occurs and is continuing, then in every
such case the applicable Trustee or the holders of not less
 
                                      15

 
than 25% in principal amount of the Debt Securities of that series will have
the right to declare the principal amount (or, if the Debt Securities of that
series are Original Issue Discount Securities or indexed securities, such
portion of the principal amount as may be specified in the terms thereof) of,
and premium or Make-Whole Amount, if any, on, all the Debt Securities of that
series to be due and payable immediately by written notice thereof to the
Company (and to the applicable Trustee if given by the holders). However, at
any time after such a declaration of acceleration with respect to Debt
Securities of such series has been made, but before a judgment or decree for
payment of the money due has been obtained by the applicable Trustee, the
holders of not less than a majority in principal amount of outstanding Debt
Securities of such series may rescind and annul such declaration and its
consequences if (a) the Company shall have deposited with the applicable
Trustee all required payments of the principal of (and premium or Make-Whole
Amount, if any) and interest on the Debt Securities of such series, plus
certain fees, expenses, disbursements and advances of the applicable Trustee
and (b) all Events of Default, other than the non-payment of accelerated
principal (or specified portion thereof and the premium or Make-Whole Amount,
if any), with respect to Debt Securities of such series have been cured or
waived as provided in such Indenture. The Indentures will also provide that
the holders of not less than a majority in principal amount of the outstanding
Debt Securities of any series may waive any past default with respect to such
series and its consequences, except a default (i) in the payment of the
principal of (or premium or Make-Whole Amount, if any) or interest on any Debt
Security of such series or (ii) in respect of a covenant or provision
contained in the applicable Indenture that cannot be modified or amended
without the consent of the holder of each outstanding Debt Security affected
thereby.
 
  The Indentures will require each Trustee to give notice to the holders of
Debt Securities within 90 days of a default under the applicable Indenture
unless such default shall have been cured or waived; provided, however, that
such Trustee may withhold notice to the holders of any series of Debt
Securities of any default with respect to such series (except a default in the
payment of the principal of (or premium or Make-Whole Amount, if any) or
interest on any Debt Security of such series or in the payment of any sinking
fund installment in respect of any Debt Security of such series) if specified
responsible officers of such Trustee consider such withholding to be in the
interest of such holders.
 
  The Indentures will provide that no holders of Debt Securities of any series
may institute any proceedings, judicial or otherwise, with respect to such
Indenture or for any remedy thereunder, except in the case of failure of the
applicable Trustee, for 60 days, to act after it has received a written
request to institute proceedings in respect of an Event of Default from the
holders of not less than 25% in principal amount of the outstanding Debt
Securities of such series, as well as an offer of indemnity reasonably
satisfactory to it. This provision will not prevent, however, any holder of
Debt Securities from instituting suit for the enforcement of payment of the
principal of (and premium or Make-Whole Amount, if any) and interest on such
Debt Securities at the respective due dates or redemption dates thereof.
 
  The Indentures will provide that, subject to provisions in each Indenture
relating to its duties in case of default, a Trustee will be under no
obligation to exercise any of its rights or powers under an Indenture at the
request or direction of any holders of any series of Debt Securities then
outstanding under such Indenture, unless such holders shall have offered to
the Trustee thereunder reasonable security or indemnity. The holders of not
less than a majority in principal amount of the outstanding Debt Securities of
any series (or of all Debt Securities then outstanding under an Indenture, as
the case may be) shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the applicable Trustee,
or of exercising any trust or power conferred upon such Trustee. However, a
Trustee may refuse to follow any direction which is in conflict with any law
or the applicable Indenture, which may involve such Trustee in personal
liability or which may be unduly prejudicial to the holders of Debt Securities
of such series not joining therein.
 
  Within 120 days after the close of each fiscal year, the Company will be
required to deliver to each Trustee a certificate, signed by one of several
specified officers of the Company, stating whether or not such officer has
knowledge of any default under the applicable Indenture and, if so, specifying
each such default and the nature and status thereof.
 
                                      16

 
MODIFICATION OF THE INDENTURES
 
  Modifications and amendments of an Indenture will be permitted to be made
only with the consent of the holders of not less than a majority in principal
amount of all outstanding Debt Securities issued under such Indenture affected
by such modification or amendment; provided, however, that no such
modification or amendment may, without the consent of the holder of each such
Debt Security affected thereby, (a) change the stated maturity of the
principal of, or any installment of interest (or premium or Make-Whole Amount,
if any) on, any such Debt Security; (b) reduce the principal amount of, or the
rate or amount of interest on, or any premium or Make-Whole Amount payable on
redemption of, any such Debt Security, or reduce the amount of principal of an
Original Issue Discount Security that would be due and payable upon
declaration of acceleration of the maturity thereof or would be provable in
bankruptcy, or adversely affect any right of repayment of the holder of any
such Debt Security; (c) change the place of payment, or the coin or currency,
for payment of principal of, premium or Make-Whole Amount, if any, or interest
on any such Debt Security; (d) impair the right to institute suit for the
enforcement of any payment on or with respect to any such Debt Security; (e)
reduce the above-stated percentage of outstanding Debt Securities of any
series necessary to modify or amend the applicable Indenture, to waive
compliance with certain provisions thereof or certain defaults and
consequences thereunder or to reduce the quorum or voting requirements set
forth in the applicable Indenture; or (f) modify any of the foregoing
provisions or any of the provisions relating to the waiver of certain past
defaults or certain covenants, except to increase the required percentage to
effect such action or to provide that certain other provisions may not be
modified or waived without the consent of the holder of such Debt Security.
 
  The holders of a majority in aggregate principal amount of the outstanding
Debt Securities of each series may, on behalf of all holders of Debt
Securities of that series, waive, insofar as that series is concerned,
compliance by the Company with certain restrictive covenants of the applicable
Indenture.
 
  Modifications and amendments of an Indenture will be permitted to be made by
the Company and the respective Trustee thereunder without the consent of any
holder of Debt Securities for any of the following purposes: (a) to evidence
the succession of another person to the Company as obligor under such
Indenture; (b) to add to the covenants of the Company for the benefit of the
holders of all or any series of Debt Securities or to surrender any right or
power conferred upon the Company in such Indenture; (c) to add events of
default for the benefit of the holders of all or any series of Debt
Securities; (d) to add or change any provisions of an Indenture to facilitate
the issuance of, or to liberalize certain terms of, Debt Securities in bearer
form, or to permit or facilitate the issuance of Debt Securities in
uncertificated form, provided that such action shall not adversely affect the
interests of the holders of the Debt Securities of any series in any material
respect; (e) to change or eliminate any provisions of an Indenture, provided
that any such change or elimination shall become effective only when there are
no Debt Securities outstanding of any series created prior thereto which are
entitled to the benefit of such provision; (f) to secure the Debt Securities;
(g) to establish the form or terms of Debt Securities of any series, including
the provisions and procedures, if applicable, for the conversion of such Debt
Securities into Common Stock or Preferred Stock; (h) to provide for the
acceptance of appointment by a successor Trustee or facilitate the
administration of the trusts under an Indenture by more than one Trustee; (i)
to cure any ambiguity, defect or inconsistency in an Indenture, provided that
such action shall not adversely affect the interests of holders of Debt
Securities of any series issued under such Indenture; or (j) to supplement any
of the provisions of an Indenture to the extent necessary to permit or
facilitate defeasance and discharge of any series of such Debt Securities,
provided that such action shall not adversely affect the interests of the
holders of the outstanding Debt Securities of any series.
 
  The Indentures will provide that in determining whether the holders of the
requisite principal amount of outstanding Debt Securities of a series have
given any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of holders of Debt
Securities, (a) the principal amount of an Original Issue Discount Security
that shall be deemed to be outstanding shall be the amount of the principal
thereof that would be due and payable as of the date of such determination
upon declaration of acceleration of the maturity thereof, (b) the principal
amount of any Debt Security denominated in a foreign currency that shall be
deemed Outstanding shall be the U.S. dollar equivalent, determined on the
issue date for
 
                                      17

 
such Debt Security, of the principal amount (or, in the case of an Original
Issue Discount Security, the U.S. dollar equivalent on the issue date of such
Debt Security of the amount determined as provided in (a) above), (c) the
principal amount of an indexed security that shall be deemed outstanding shall
be the principal face amount of such indexed security at original issuance,
unless otherwise provided with respect to such indexed security pursuant such
Indenture, and (d) Debt Securities owned by the Company or any other obligor
upon the Debt Securities or any affiliate of the Company or of such other
obligor shall be disregarded.
 
  The Indentures will contain provisions for convening meetings of the holders
of Debt Securities of a series. A meeting will be permitted to be called at
any time by the applicable Trustee, and also, upon request, by the Company or
the holders of at least 10% in principal amount of the outstanding Debt
Securities of such series, in any such case upon notice given as provided in
such Indenture. Except for any consent that must be given by the holder of
each Debt Security affected by certain modifications and amendments of an
Indenture, any resolution presented at a meeting or adjourned meeting duly
reconvened at which a quorum is present may be adopted by the affirmative vote
of the holders of a majority in principal amount of the outstanding Debt
Securities of that series; provided, however, that, except as referred to
above, any resolution with respect to any request, demand, authorization,
direction, notice, consent, waiver or other action that may be made, given or
taken by the holders of a specified percentage, which is less than a majority,
in principal amount of the outstanding Debt Securities of a series may be
adopted at a meeting or adjourned meeting or adjourned meeting duly reconvened
at which a quorum is present by the affirmative vote of the holders of such
specified percentage in principal amount of the outstanding Debt Securities of
that series. Any resolution passed or decision taken at any meeting of holders
of Debt Securities of any series duly held in accordance with an Indenture
will be binding on all holders of Debt Securities of that series. The quorum
at any meeting called to adopt a resolution, and at any reconvened meeting,
will be persons holding or representing a majority in principal amount of the
outstanding Debt Securities of a series; provided, however, that if any action
is to be taken at such meeting with respect to a consent or waiver which may
be given by the holders of not less than a specified percentage in principal
amount of the outstanding Debt Securities of a series, the persons holding or
representing such specified percentage in principal amount of the outstanding
Debt Securities of such series will constitute a quorum.
 
  Notwithstanding the foregoing provisions, the Indentures will provide that
if any action is to be taken at a meeting of holders of Debt Securities of any
series with respect to any request, demand, authorization, direction, notice,
consent, waiver and other action that such Indenture expressly provides may be
made, given or taken by the holders of a specified percentage in principal
amount of all outstanding Debt Securities affected thereby, or of the holders
of such series and one or more additional series: (a) there shall be no
minimum quorum requirement for such meeting, and (b) the principal amount of
the outstanding Debt Securities of such series that vote in favor of such
request, demand, authorization, direction, notice, consent, waiver or other
action shall be taken into account in determining whether such request,
demand, authorization, direction, notice, consent, waiver or other action has
been made, given or taken under such Indenture.
 
SUBORDINATION
 
  Unless otherwise provided in the applicable Prospectus Supplement,
Subordinated Securities will be subject to the following subordination
provisions.
 
  Upon any distribution to creditors of the Company in a liquidation,
dissolution or reorganization, the payment of the principal of and interest on
any Subordinated Securities will be subordinated to the extent provided in the
applicable Indenture in right of payment to the prior payment in full of all
Senior Debt (as defined below), but the obligation of the Company to make
payments of the principal of and interest on such Subordinated Securities will
not otherwise be affected. No payment of principal or interest will be
permitted to be made on Subordinated Securities at any time if a default on
Senior Debt exists that permits the holders of such Senior Debt to accelerate
its maturity and the default is the subject of judicial proceedings or the
Company receives notice of the default. After all Senior Debt is paid in full
and until the Subordinated Securities are paid in full, holders will be
subrogated to the rights of holders of Senior Debt to the extent that
distributions otherwise payable to holders have been applied to the payment of
Senior Debt. The Subordinated Indenture will not restrict
 
                                      18

 
the amount of Senior Indebtedness or other indebtedness of the Company and its
subsidiaries. As a result of these subordination provisions, in the event of a
distribution of assets upon insolvency, holders of Subordinated Indebtedness
may recover less, ratably, than general creditors of the Company.
 
  Senior Debt will be defined in the applicable Indenture as the principal of
and interest on, or substantially similar payments to be made by the Company
in respect of, the following, whether outstanding at the date of execution of
the applicable Indenture or thereafter incurred, created or assumed: (a)
indebtedness of the Company for money borrowed or represented by purchase-
money obligations, (b) indebtedness of the Company evidenced by notes,
debentures, or bonds, or other securities issued under the provisions of an
indenture, fiscal agency agreement or other agreement, (c) obligations of the
Company as lessee under leases of property either made as part of any sale and
leaseback transaction to which the Company is a party or otherwise, (d)
indebtedness of partnerships and joint ventures which is included in the
consolidated financial statements of the Company, (e) indebtedness,
obligations and liabilities of others in respect of which the Company is
liable contingently or otherwise to pay or advance money or property or as
guarantor, endorser or otherwise or which the Company has agreed to purchase
or otherwise acquire, and (f) any binding commitment of the Company to fund
any real estate investment or to fund any investment in any entity making such
real estate investment, in each case other than (1) any such indebtedness,
obligation or liability referred to in clauses (a) through (f) above as to
which, in the instrument creating or evidencing the same pursuant to which the
same is outstanding, it is provided that such indebtedness, obligation or
liability is not superior in right of payment to the Subordinated Securities
or ranks pari passu with the Subordinated Securities, (2) any such
indebtedness, obligation or liability which is subordinated to indebtedness of
the Company to substantially the same extent as or to a greater extent than
the Subordinated Securities are subordinated, and (3) the Subordinated
Securities. There will not be any restrictions in any Indenture relating to
Subordinated Securities upon the creation of additional Senior Debt.
 
  If this Prospectus is being delivered in connection with a series of
Subordinated Securities, the accompanying Prospectus Supplement or the
information incorporated herein by reference will set forth the approximate
amount of Senior Debt outstanding as of the end of the Company's most recent
fiscal quarter.
 
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
 
  Unless otherwise indicated in the applicable Prospectus Supplement, the
Company will be permitted, at its option, to discharge certain obligations to
holders of any series of Debt Securities issued under any Indenture that have
not already been delivered to the applicable Trustee for cancellation and that
either have become due and payable or will become due and payable within one
year (or scheduled for redemption within one year) by irrevocably depositing
with the applicable Trustee, in trust, funds in such currency or currencies,
currency unit or units or composite currency or currencies in which such Debt
Securities are payable in an amount sufficient to pay the entire indebtedness
on such Debt Securities in respect of principal (and premium or Make-Whole
Amount, if any) and interest to the date of such deposit (if such Debt
Securities have become due and payable) or to the stated maturity or
redemption date, as the case may be.
 
  The Indentures will provide that, unless otherwise indicated in the
applicable Prospectus Supplement, the Company may elect either (a) to defease
and be discharged from any and all obligations with respect to such Debt
Securities (except for the obligation to pay additional amounts, if any, upon
the occurrence of certain events of tax, assessment or governmental charge
with respect to payments on such Debt Securities and the obligations to
register the transfer or exchange of such Debt Securities, to replace
temporary or mutilated, destroyed, lost or stolen Debt Securities, to maintain
an office or agency in respect of such Debt Securities, to hold moneys for
payment in trust and, with respect to Subordinated Debt Securities which are
convertible or exchangeable, the right to convert or exchange) ("defeasance")
or (b) to be released from its obligations with respect to such Debt
Securities under the applicable Indenture (being the restrictions described
under "--Certain Covenants") or, if provided in the applicable Prospectus
Supplement, its obligations with respect to any other covenant, and any
omission to comply with such obligations shall not constitute an Event of
Default with respect to such Debt Securities ("covenant defeasance"), in
either case upon the irrevocable deposit by the Company with the applicable
Trustee, in trust, of an amount, in such currency or currencies, currency unit
or units or composite
 
                                      19

 
currency or currencies in which such Debt Securities are payable at stated
maturity, or Government Obligations (as defined below), or both, applicable to
such Debt Securities, which through the scheduled payment of principal and
interest in accordance with their terms will provide money in an amount
sufficient to pay the principal of (and premium or Make-Whole Amount, if any)
and interest on such Debt Securities, and any mandatory sinking fund or
analogous payments thereon, on the scheduled due dates therefor.
 
  Such a trust will only be permitted to be established if, among other
things, the Company has delivered to the applicable Trustee an opinion of
counsel (as specified in the applicable Indenture) to the effect that the
holders of such Debt Securities will not recognize income, gain or loss for
U.S. federal income tax purposes as a result of such defeasance or covenant
defeasance and will be subject to U.S. federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if such
defeasance or covenant defeasance had not occurred, and such opinion of
counsel, in the case of defeasance, will be required to refer to and be based
upon a ruling received from or published by the Internal Revenue Service or a
change in applicable United States federal income tax law occurring after the
date of the Indenture. In the event of such defeasance, the holders of such
Debt Securities would thereafter be able to look only to such trust fund for
payment of principal (and premium or Make-Whole Amount, if any) and interest.
 
  "Government Obligations" means securities that are (a) direct obligations of
the United States of America or the government which issued the foreign
currency in which the Debt Securities of a particular series are payable, for
the payment of which its full faith and credit is pledged or (b) obligations
of a person controlled or supervised by and acting as an agency or
instrumentality of the United States of America or such government which
issued the foreign currency in which the Debt Securities of such series are
payable, the payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America or such other
government, which, in either case, are not callable or redeemable at the
option of the issuer thereof, and shall also include a depository receipt
issued by a bank or trust company as custodian with respect to any such
Government Obligation or a specific payment of interest on or principal of any
such Government Obligation held by such custodian for the account of the
holder of a depository receipt, provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to
the holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depository receipt.
 
  Unless otherwise provided in the applicable Prospectus Supplement, if after
the Company has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any
series, (a) the holder of a Debt Security of such series is entitled to, and
does, elect pursuant to the applicable Indenture or the terms of such Debt
Security to receive payment in a currency, currency unit or composite currency
other than that in which such deposit has been made in respect of such Debt
Security, or (b) a Conversion Event (as defined below) occurs in respect of
the currency, currency unit or composite currency in which such deposit has
been made, the indebtedness represented by such Debt Security will be deemed
to have been, and will be, fully discharged and satisfied through the payment
of the principal of (and premium or Make-Whole Amount, if any) and interest on
such Debt Security as they become due out of the proceeds yielded by
converting the amount so deposited in respect of such Debt Security into the
currency, currency unit or composite currency in which such Debt Security
becomes payable as a result of such election or such cessation of usage based
on the applicable market exchange rate. "Conversion Event" means the cessation
of use of (i) a currency, currency unit or composite currency both by the
government of the country which issued such currency and for the settlement of
transactions by a central bank or other public institutions of or within the
international banking community, (ii) the ECU both within the European
Monetary System and for the settlement of transactions by public institutions
of or within the European Communities or (iii) any currency unit or composite
currency other than the ECU for the purposes for which it was established.
Unless otherwise provided in the applicable Prospectus Supplement, all
payments of principal of (and premium or Make-Whole Amount, if any) and
interest on any Debt Security that is payable in a foreign currency that
ceases to be used by its government of issuance shall be made in U.S. dollars.
 
 
                                      20

 
  In the event the Company effects covenant defeasance with respect to any
Debt Securities and such Debt Securities are declared due and payable because
of the occurrence of any of Event of Default other than the Event of Default
described in clause (d) under "--Events of Default, Notice and Waiver" with
respect to specified sections of an Indenture (which sections would no longer
be applicable to such Debt Securities) or described in clause (g) under "--
Events of Default, Notice and Waiver" with respect to any other covenant as to
which there has been covenant defeasance, the amount in such currency,
currency unit or composite currency in which such Debt Securities are payable,
and Government Obligations on deposit with the applicable Trustee, will be
sufficient to pay amounts due on such Debt Securities at the time of their
stated maturity but may not be sufficient to pay amounts due on such Debt
Securities at the time of the acceleration resulting from such of Event of
Default. However, the Company would remain liable to make payment of such
amounts due at the time of acceleration.
 
  The applicable Prospectus Supplement may further describe the provisions, if
any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
 
CONVERSION RIGHTS
 
  The terms and conditions, if any, upon which the Debt Securities are
convertible into Common Stock or Preferred Stock will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include
whether such Debt Securities are convertible into shares of Common Stock or
Preferred Stock, the conversion price (or manner of calculation thereof), the
conversion period, provisions as to whether conversion will be at the option
of the holders or the Company, the events requiring an adjustment of the
conversion price and provisions affecting conversion in the event of the
redemption of such Debt Securities and any restrictions on conversion,
including restrictions directed at maintaining the Company's REIT status.
 
BOOK-ENTRY SYSTEM
 
  The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities ("Global Securities") that will be
deposited with, or on behalf of, a depository (the "Depository") identified in
the Prospectus Supplement relating to such series. Global Securities, if any,
issued in the United States are expected to be deposited with the Depository
Trust Company, as Depository. Global Securities may be issued in fully
registered form and may be issued in either temporary or permanent form.
Unless and until it is exchanged in whole or in part for the individual Debt
Securities represented thereby, a Global Security may not be transferred
except as a whole by the Depository for such Global Security to a nominee of
such Depository or by a nominee of such Depository to such Depository or
another nominee of such Depository or by such Depository or any nominee of
such Depositor to a successor Depository or any nominee of such successor.
 
  The specific terms of the depository arrangement with respect to a series of
Debt Securities will be described in the Prospectus Supplement relating to
such series. The Company expects that unless otherwise indicated in the
applicable Prospectus Supplement, the following provisions will apply to
depository arrangements.
 
  The certificates representing the Notes will be issued in the form of one or
more fully registered global securities without coupons ("Global Securities").
It is expected that the Notes initially will be represented by a single
permanent global certificate in definitive fully registered form (the "Global
Note") and will be deposited with, or on behalf of, DTC and registered in the
name of Cede & Co., as nominee of DTC. Except under the circumstances
described in the accompanying Prospectus under the caption "Description of
Debt Securities-- Book-Entry System," the Notes will not be issuable in
definitive form. Unless and until it is exchanged in whole or in part for the
individual Notes represented thereby, interests in the Global Note may not be
transferred except as a whole by DTC to a nominee of DTC or by a nominee of
DTC to DTC or another nominee of DTC or by DTC or any nominee of DTC to a
successor depository or any nominee of such successor.
 
  DTC has advised the Company of the following information regarding DTC: DTC
is a limited purpose trust company created to hold securities for its
participating organizations (collectively, the "Participants" or "DTC's
 
                                      21

 
Participants") and to facilitate the clearance and settlement of transactions
in such securities between Participants through electronic book-entry changes
in the accounts of its Participants. DTC's Participants include securities
brokers and dealers, banks and trust companies, clearing corporations and
certain other organizations. Access to DTC's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively,
the "Indirect Participants" or "DTC's Indirect Participants") that clear
through or maintain a custodial relationship with a Participant, either
directly or indirectly. Persons who are not Participants may beneficially own
securities held by or on behalf of DTC only through DTC's Participants or
DTC's Indirect Participants.
 
  The Company expects that, pursuant to procedures established by DTC,
ownership of the Notes evidenced by the Global Note will be shown on, and the
transfer of ownership thereof will be effected only through, records
maintained by DTC (with respect to the interests of DTC's Participants), DTC's
Participants and DTC's Indirect Participants. Neither the Company nor the
Trustee will have any responsibility or liability for any aspect of the
records of DTC or for maintaining, supervising or reviewing any records of DTC
relating to the Notes. Holders are advised that the laws of some states
require that certain persons take physical delivery in definitive form of
securities that they own. Consequently, the ability to transfer Notes
evidenced by Global Securities will be limited to such extent.
 
  So long as the holder of the Global Note is the registered owner of any
Notes, the holder of the Global Note will be considered the sole holder under
the Indenture of any Notes evidenced by the Global Note. Beneficial owners of
Notes evidenced by the Global Note will not be considered the owners or
holders thereof under the Indenture for any purpose, including with respect to
the giving of any direction, instructions or approvals to the Trustee
thereunder. Accordingly, each person owning a beneficial interest in the
Global Note must rely on the procedures of DTC and, if such person is not a
Participant, on the procedures of the Participant through which such person
owns its interests, to exercise any rights of a holder under the Indenture.
The Company understands that, under existing industry practice, if it requests
any action of holders or if an owner of a beneficial interest in the Global
Note desires to give or take any action which a holder is entitled to give or
take under the Indenture, DTC would authorize the Participants holding the
relevant beneficial interest to give or take such action, and such
Participants would authorize beneficial owners through such Participants to
give or take such actions or would otherwise act upon the instructions of
beneficial owners holding through them.
 
  Payments in respect of the principal of, premium, if any, and interest on,
any Notes registered in the name of the holder of the Global Note on the
applicable record date will be payable by the Trustee to or at the direction
of the holder of the Global Note in its capacity as the registered holder
under the Indenture. Under the terms of the Indenture, the Company and the
Trustee may treat the persons in whose names Notes, including the Global Note,
are registered as the owners thereof for the purpose of receiving such
payments. Consequently, neither the Company nor the Trustee has or will have
any responsibility or liability for the payment of such amounts to beneficial
owners of Notes (including principal, premium, if any, and interest). The
Company believes, however, that it is currently the policy of DTC to
immediately credit the accounts of the relevant Participants with such
payments, in amounts proportionate to their respective holdings of beneficial
interests in the relevant security as shown on the records of DTC. Payments by
DTC's Participants and DTC's Indirect Participants to the beneficial owners of
Notes will be governed by standing instructions and customary practice and
will be the responsibility of DTC's Participants for DTC's Indirect
Participants.
 
  Neither the Company nor the Trustee will be liable for any delay by the
holder of the Global Note or DTC in identifying the beneficial owners of Notes
and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the holder of the Global Note or
DTC for all purposes. The rules applicable to DTC and its Participants are on
file with the Securities and Exchange Commission. See "Description of Debt
Securities--Book-Entry System" in the accompanying Prospectus for further
information concerning Notes issued in the form of Global Securities.
 
  If a Depository for any Debt Securities is at any time unwilling, unable or
ineligible to continue as depository and a successor depository is not
appointed by the Company within 90 days, the Company will issue
 
                                      22

 
individual Debt Securities in exchange for the Global Security representing
such Debt Securities. In addition, the Company may at any time and in its sole
discretion, subject to any limitations described in the Prospectus Supplement
relating to such Debt Securities, determine not to have any of such Debt
Securities represented by one or more Global Securities and in such event will
issue individual Debt Securities in exchange for the Global Security or
Securities representing such Debt Securities. Individual Debt Securities so
issued will be issued in denominations of $1,000 and integral multiple
thereof.
 
PAYMENT
 
  Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and applicable premium or Make-Whole Amount, if any) and
interest on any series of Debt Securities will be payable at the corporate
trust office of the Trustee, the address of which will be stated in the
applicable Prospectus Supplement; provided that, at the option of the Company,
payment of interest may be made by check mailed to the address of the person
entitled thereto as it appears in the applicable register for such Debt
Securities or by wire transfer of funds to such person at an account
maintained within the United States.
 
  All moneys paid by the Company to a paying agent or a Trustee for the
payment of the principal of or any premium, Make-Whole Amount or interest on
any Debt Security which remain unclaimed at the end of two years after such
principal, premium, Make-Whole Amount or interest has become due and payable
will be repaid to the Company, and the holder of such Debt Security thereafter
may look only to the Company for payment thereof.
 
                         DESCRIPTION OF CAPITAL STOCK
 
  The description of the Company's capital stock set forth below does not
purport to be complete and is qualified in its entirety by reference to the
Company's Articles of Incorporation and Bylaws, each as amended and restated,
copies of which are exhibits to the Registration Statement of which this
Prospectus is a part. See "Available Information."
 
GENERAL
 
  Under its Articles of Incorporation, the Company has authority to issue up
to 150 million shares of stock, consisting of 80 million shares of Common
Stock, par value $.01 per share, 50 million shares of "Excess Stock" (as
described under "Restrictions on Transfer" below), par value $.01 per share,
and 20 million shares of Preferred Stock, par value $.01 per share. Under
Maryland law, stockholders generally are not responsible for the corporation's
debts or obligations. At December 31, 1996 there were issued and outstanding
33,391,992 shares of Common Stock, 4,455,000 shares of Series A Cumulative
Redeemable Preferred Stock, par value $.01 per share, and 4,300,000 shares of
Series B Cumulative Redeemable Preferred Stock, par value $.01 per share. An
aggregate of an additional 1,952,500 shares of Common Stock have been reserved
for issuance under the 1993 Stock Option and Incentive Plan and the 1995
Equity Incentive Plan. The Common Stock is listed on the NYSE under the symbol
"AVN."
 
COMMON STOCK
 
  General. Subject to the preferential rights of any other shares or series of
stock and to the provisions of the Company's Articles of Incorporation
regarding Excess Stock, holders of shares of Common Stock are entitled to
receive dividends on Common Stock if, as and when authorized and declared by
the Board of Directors of the Company out of assets legally available therefor
and to share ratably in the assets of the Company legally available for
distribution to its stockholders in the event of its liquidation, dissolution
or winding-up after payment of, or adequate provision for, all known debts and
liabilities of the Company.
 
  Subject to the provisions of the Company's Articles of Incorporation
regarding Excess Stock, each outstanding share of Common Stock entitles the
holder to one vote on all matters submitted to a vote of
 
                                      23

 
stockholders, including the election of directors, and, except as otherwise
required by law or except as provided with respect to any other class or
series of stock, the holders of Common Stock will possess exclusive voting
power. There is no cumulative voting in the election of directors, which means
that the holders of a majority of the outstanding shares of Common Stock can
elect all of the directors then standing for election, and the holders of the
remaining shares of Common Stock will not be able to elect any directors.
 
  Holders of Common Stock have no conversion, sinking fund or redemption
rights, or preemptive rights to subscribe for any securities of the Company.
 
  The Company intends to furnish its stockholders with annual reports
containing audited consolidated financial statements and an opinion thereon
expressed by an independent public accounting firm and quarterly reports for
the first three quarters of each fiscal year containing unaudited financial
information.
 
  Subject to the provisions of the Company's Articles of Incorporation
regarding Excess Stock, all shares of Common Stock will have equal dividend,
distribution, liquidation and other rights, and will have no preference,
appraisal or exchange rights.
 
  Pursuant to the Maryland General Corporation Law ("MGCL"), a corporation
generally cannot dissolve, amend its Articles of Incorporation, merge, sell
all or substantially all of its assets, engage in a share exchange or engage
in similar transactions outside the ordinary course of business unless
approved by the affirmative vote of stockholders holding at least two-thirds
of the shares entitled to vote on the matter unless a lesser percentage (but
not less than a majority of all of the votes to be cast on the matter) is set
forth in the corporation's Articles of Incorporation. The Company's Articles
of Incorporation do not provide for a lesser percentage in such situations.
 
  Restrictions on Ownership. For the Company to qualify as a REIT under the
Code, not more than 50% in value of its outstanding capital stock may be
owned, directly or indirectly, by five or fewer individuals (as defined in the
Code to include certain entities) during the last half of a taxable year. To
assist the Company in meeting this requirement, the Company may take certain
actions to limit the beneficial ownership, directly or indirectly, by a single
person of the Company's outstanding equity securities. See "Restrictions on
Transfers of Capital Stock."
 
  Transfer Agent and Registrar. The transfer agent and registrar for the
Common Stock is Fleet Bank, National Association.
 
PREFERRED STOCK
 
  General. Shares of Preferred Stock may be issued from time to time, in one
or more series, as authorized by the Board of Directors of the Company. Prior
to issuance of shares of each series, the Board of Directors is required by
the MGCL and the Company's Articles of Incorporation to fix for each series,
subject to the provisions of the Company's Articles of Incorporation regarding
Excess Stock, the terms, preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends or other distributions,
qualifications and terms or conditions of redemption, as are permitted by
Maryland law. The Preferred Stock will, when issued, be fully paid and
nonassessable by the Company and will have no preemptive rights. The Board of
Directors could authorize the issuance of shares of Preferred Stock with terms
and conditions that could have the effect of discouraging a takeover or other
transaction that holders of Common Stock might believe to be in their best
interests or in which holders of some, or a majority, of the shares of Common
Stock might receive a premium for their shares over the then market price of
such shares of Common Stock.
 
  Terms. The following description of the Preferred Stock sets forth certain
general terms and provisions of the Preferred Stock to which any Prospectus
Supplement may relate. The statements below describing the Preferred Stock are
in all respects subject to and qualified in their entirety by reference to the
applicable
 
                                      24

 
provisions of the Company's Articles of Incorporation and Bylaws and any
applicable amendment to the Articles of Incorporation designating terms of a
series of Preferred Stock (a "Designating Amendment").
 
  Reference is made to the Prospectus Supplement relating to the Preferred
Stock offered thereby for specific terms, including:
 
    (1) The title and stated value of such Preferred Stock;
 
    (2) The number of shares of such Preferred Stock offered, the liquidation
  preference per share and the offering price of such Preferred Stock;
 
    (3) The dividend rate(s), period(s) and/or payment date(s) or method(s)
  of calculation thereof applicable to such Preferred Stock;
 
    (4) The date from which dividends on such Preferred Stock shall accrue,
  if applicable;
 
    (5) The procedures for any auction and remarketing, if any, for such
  Preferred Stock;
 
    (6) The provision for a sinking fund, if any, for such Preferred Stock;
 
    (7) The provision for redemption, if applicable, of such Preferred Stock;
 
    (8) Any listing of such Preferred Stock on any securities exchange;
 
    (9) The terms and conditions, if applicable, upon which such Preferred
  Stock will be convertible into Common Stock, including the conversion price
  (or manner of calculation thereof);
 
    (10) Any other specific terms, preferences, rights, limitations or
  restrictions of such Preferred Stock;
 
    (11) A discussion of federal income tax considerations applicable to such
  Preferred Stock;
 
    (12) The relative ranking and preference of such Preferred Stock as to
  dividend rights and rights upon liquidation, dissolution or winding up of
  the affairs of the Company;
 
    (13) Any limitations on issuance of any series of Preferred Stock ranking
  senior to or on a parity with such series of Preferred Stock as to dividend
  rights and rights upon liquidation, dissolution or winding up of the
  affairs of the Company; and
 
    (14) Any limitations on direct or beneficial ownership and restrictions
  on transfer, in each case as may be appropriate to preserve the status of
  the Company as a REIT.
 
  Rank. Unless otherwise specified in the Prospectus Supplement, the Preferred
Stock will, with respect to dividend rights and rights upon liquidation,
dissolution or winding up of the Company, rank (i) senior to all classes or
series of Common Stock of the Company, and to all equity securities ranking
junior to such Preferred Stock; (ii) on a parity with all equity securities
issued by the Company the terms of which specifically provide that such equity
securities rank on a parity with the Preferred Stock; and (iii) junior to all
equity securities issued by the Company the terms of which specifically
provide that such equity securities rank senior to the Preferred Stock. The
term "equity securities" does not include convertible debt securities.
 
  Dividends. Holders of the Preferred Stock of each series will be entitled to
receive, when, as and if declared by the Board of Directors of the Company,
out of assets of the Company legally available for payment, cash dividends at
such rates and on such dates as will be set forth in the applicable Prospectus
Supplement. Each such dividend shall be payable to holders of record as they
appear on the share transfer books of the Company on such record dates as
shall be fixed by the Board of Directors of the Company.
 
  Dividends on any series of the Preferred Stock may be cumulative or non-
cumulative, as provided in the applicable Prospectus Supplement. Dividends, if
cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Directors of the Company
fails to declare a dividend payable on a dividend payment date on any series
of the Preferred Stock for which dividends are non-cumulative, then the
holders of such series of the Preferred Stock will have no right to receive a
dividend in respect of the dividend period ending on such dividend payment
date, and the Company will have no obligation to pay the dividend accrued for
such period, whether or not dividends on such series are declared payable on
any future dividend payment date.
 
                                      25

 
  If Preferred Stock of any series is outstanding, no dividends will be
declared or paid or set apart for payment on any capital stock of the Company
or any other series ranking, as to dividends, on a parity with or junior to
the Preferred Stock of such series for any period unless (i) if such series of
Preferred Stock has a cumulative dividend, full cumulative dividends have been
or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof is set apart for such payment on the Preferred Stock
of such series for all past dividend periods and the then current dividend
period or (ii) if such series of Preferred Stock does not have a cumulative
dividend, full dividends for the then current dividend period have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof is set apart for such payment on the Preferred Stock of
such series. When dividends are not paid in full (or a sum sufficient for such
full payment is not so set apart) upon Preferred Stock of any series and the
shares of any other series of Preferred Stock ranking on a parity as to
dividends with the Preferred Stock of such series, all dividends declared upon
Preferred Stock of such series and any other series of Preferred Stock ranking
on a parity as to dividends with such Preferred Stock shall be declared pro
rata so that the amount of dividends declared per share of Preferred Stock of
such series and such other series of Preferred Stock shall in all cases bear
to each other the same ratio that accrued dividends per share on the Preferred
Stock of such series (which shall not include any accrual in respect of unpaid
dividends for prior dividend periods if such Preferred Stock does not have a
cumulative dividend) and such other series of Preferred Stock bear to each
other. No interest, or sum of money in lieu of interest, shall be payable in
respect of any dividend payment or payments on Preferred Stock of such series
which may be in arrears.
 
  Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Stock has a cumulative dividend, full cumulative
dividends on the Preferred Stock of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
is set apart for payment for all past dividend periods and the then current
dividend period, and (ii) if such series of Preferred Stock does not have a
cumulative dividend, full dividends on the Preferred Stock of such series have
been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof is set apart for payment for the then
current dividend period, no dividends (other than in shares of Common Stock or
other shares of capital stock ranking junior to the Preferred Stock of such
series as to dividends and upon liquidation) shall be declared or paid or set
aside for payment nor shall any other distribution be declared or made upon
the Common Stock, or any other capital shares of the Company ranking junior to
or on a parity with the Preferred Stock of such series as to dividends or upon
liquidation, nor shall any shares of Common Stock, or any other shares of
capital stock of the Company ranking junior to or on a parity with the
Preferred Stock of such series as to dividends or upon liquidation be
redeemed, purchased or otherwise acquired for any consideration (or any moneys
be paid to or made available for a sinking fund for the redemption of any such
shares) by the Company (except by conversion into or exchange for other
capital shares of the company ranking junior to the Preferred Stock of such
series as to dividends and upon liquidation).
 
  Any dividend payment made on shares of a series of Preferred Stock shall
first be credited against the earliest accrued but unpaid dividend due with
respect to shares of such series which remains payable.
 
  Redemption. If so provided in the applicable Prospectus Supplement, the
Preferred Stock will be subject to mandatory redemption or redemption at the
option of the Company, as a whole or in part, in each case upon the terms, at
the times and at the redemption prices set forth in such Prospectus
Supplement.
 
  The Prospectus Supplement relating to a series of Preferred Stock that is
subject to mandatory redemption will specify the number of shares of such
Preferred Stock that shall be redeemed by the Company in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon
(which shall not, if such Preferred Stock does not have a cumulative dividend,
include any accrual in respect of unpaid dividends for prior dividend periods)
to the date of redemption. The redemption price may be payable in cash or
other property, as specified in the applicable Prospectus Supplement. If the
redemption price for Preferred Stock of any series is payable only from the
net proceeds of the issuance of shares of capital stock of the Company, the
terms of such Preferred Stock may provide that, if no such shares of capital
stock shall have been issued or to the extent the net proceeds from any
issuance are insufficient to pay in full the aggregate redemption price then
due, such Preferred Stock shall
 
                                      26

 
automatically and mandatorily be converted into the applicable shares of
capital stock of the Company pursuant to conversion provisions specified in
the applicable Prospectus Supplement.
 
  Notwithstanding the foregoing, unless (a) if a series of Preferred Stock has
a cumulative dividend, full cumulative dividends on all shares of such series
of Preferred Stock shall have been or contemporaneously are declared and paid
or declared and a sum sufficient for the payment thereof set apart for payment
for all past dividend periods and the then current dividend period, and (b) if
a series of Preferred Stock does not have a cumulative dividend, full
dividends on all shares of the Preferred Stock of such series have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for payment for the then current dividend
period, no shares of such series of Preferred Stock shall be redeemed unless
all outstanding shares of Preferred Stock of such series are simultaneously
redeemed; provided, however, that the foregoing shall not prevent the purchase
or acquisition of Preferred Stock of such series to preserve the REIT status
of the Company or pursuant to a purchase or exchange offer made on the same
terms to holders of all outstanding shares of Preferred Stock of such series.
In addition, unless (i) if such series of Preferred Stock has a cumulative
dividend, full cumulative dividends on all outstanding shares of such series
of Preferred Stock have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment
for all past dividend periods and the then current dividend period, and (ii)
if such series of Preferred Stock does not have a cumulative dividend, full
dividends on the Preferred stock of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for the then current dividend period, the Company shall
not purchase or otherwise acquire directly or indirectly any shares of
Preferred Stock of such series (except by conversion into or exchange for
capital shares of the Company ranking junior to the Preferred Stock of such
series as to dividends and upon liquidation); provided, however, that the
foregoing shall not prevent the purchase or acquisition of shares of Preferred
Stock of such series to preserve the REIT status of the Company or pursuant to
a purchase or exchange offer made on the same terms to holders of all
outstanding shares of Preferred Stock of such series.
 
  If fewer than all of the outstanding shares of Preferred Stock of any series
are to be redeemed, the number of shares to be redeemed will be determined by
the Company and such shares may be redeemed pro rata from the holders of
record of such shares in proportion to the number of such shares held or for
which redemption is requested by such holder (with adjustments to avoid
redemption of fractional shares) or by lot in a manner determined by the
Company.
 
  Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Stock of
any series to be redeemed at the address shown on the share transfer books of
the Company. Each notice shall state: (a) the redemption date; (b) the number
of shares and series of the Preferred Stock to be redeemed; (c) the redemption
price; (d) the place or places where certificates for such Preferred Stock are
to be surrendered for payment of the redemption price; (e) that dividends on
the shares to be redeemed will cease to accrue on such redemption date; and
(f) the date upon which the holder's conversion rights, if any, as to such
shares shall terminate. If fewer than all the shares of Preferred Stock of any
series are to be redeemed, the notice mailed to each such holder thereof shall
also specify the number of shares of Preferred Stock to be redeemed from each
such holder. If notice of redemption of any Preferred Stock has been given and
if the funds necessary for such redemption have been set aside by the Company
in trust for the benefit of the holders of any Preferred Stock so called for
redemption, then from and after the redemption date dividends will cease to
accrue on such Preferred Stock, and all rights of the holders of such shares
will terminate, except the right to receive the redemption price.
 
  Liquidation Preference. Upon any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company, then, before any
distribution or payment shall be made to the holders of any Common Stock or
any other class or series of capital stock of the Company ranking junior to
the Preferred Stock in the distribution of assets upon any liquidation,
dissolution or winding up of the Company, the holders of each series of
Preferred Stock shall be entitled to receive out of assets of the Company
legally available for distribution to shareholders liquidating distributions
in the amount of the liquidation preference per share (set forth in the
applicable Prospectus Supplement), plus an amount equal to all dividends
accrued and unpaid thereon (which
 
                                      27

 
shall not include any accumulation in respect of unpaid noncumulative
dividends for prior dividend periods). After payment of the full amount of the
liquidating distributions to which they are entitled, the holders of Preferred
Stock will have no right or claim to any of the remaining assets of the
Company. In the event that, upon any such voluntary or involuntary
liquidation, dissolution or winding up, the available assets of the Company
are insufficient to pay the amount of the liquidating distributions on all
outstanding shares of Preferred Stock and the corresponding amounts payable on
all shares of other classes or series of capital stock of the Company ranking
on a parity with the Preferred Stock in the distribution of assets, then the
holders of the Preferred Stock and all other such classes or series of capital
stock shall share ratably in any such distribution of assets in proportion to
the full liquidating distributions to which they would otherwise be
respectively entitled.
 
  If liquidating distributions shall have been made in full to all holders of
Preferred Stock, the remaining assets of the Company shall be distributed
among the holders of any other classes or series of capital stock ranking
junior to the Preferred Stock upon liquidation, dissolution or winding up,
according to their respective rights and preferences and in each case
according to their respective number of shares. For such purposes, the
consolidation or merger of the Company with or into any other corporation,
trust or entity, or the sale, lease or conveyance of all or substantially all
of the property or business of the Company, shall not be deemed to constitute
a liquidation, dissolution or winding up of the Company.
 
  Voting Rights. Holders of the Preferred Stock will not have any voting
rights, except as set forth below or as otherwise from time to time required
by law or as indicated in the applicable Prospectus Supplement.
 
  Unless provided otherwise for any series of Preferred Stock, so long as any
shares of Preferred Stock of a series remain outstanding, the Company will
not, without the affirmative vote or consent of the holders of at least two-
thirds of the shares of such series of Preferred Stock outstanding at the
time, given in person or by proxy, either in writing or at a meeting (such
series voting separately as a class), (a) authorize or create, or increase the
authorized or issued amount of, any class or series of capital stock ranking
prior to such series of Preferred Stock with respect to payment of dividends
or the distribution of assets upon liquidation, dissolution or winding up or
reclassify any authorized capital stock of the Company into such shares, or
create, authorize or issue any obligation or security convertible into or
evidencing the right to purchase any such shares; or (b) amend, alter or
repeal the provisions of the Company's Articles of Incorporation or the
Designating Amendment for such series of Preferred Stock, whether by merger,
consolidation or otherwise (an "Event"), so as to materially and adversely
affect any right, preference, privilege or voting power of such series of
Preferred Stock or the holders thereof; provided, however, with respect to the
occurrence of any Event set forth in (b) above, so long as the Preferred Stock
remains outstanding with the terms thereof materially unchanged, taking into
account that upon the occurrence of an Event the Company may not be the
surviving entity, the occurrence of any such Event shall not be deemed to
materially and adversely affect such rights, preferences, privileges or voting
power of holders of Preferred Stock and provided further that (i) any increase
in the amount of the authorized Preferred Stock or the creation or issuance of
any other series of Preferred Stock, or (ii) any increase in the amount of
authorized shares of such series or any other series of Preferred Stock, in
each case ranking on a parity with or junior to the Preferred Stock of such
series with respect to payment of dividends or the distribution of assets upon
liquidation, dissolution or winding up, shall not be deemed to materially and
adversely affect such rights, preferences, privileges or voting powers.
 
  The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of such series of Preferred Stock shall
have been redeemed or called for redemption and sufficient funds shall have
been deposited in trust to effect such redemption.
 
  Conversion Rights. The terms and conditions, if any, upon which any series
of Preferred Stock is convertible into shares of Common Stock will be set
forth in the applicable Prospectus Supplement relating thereto. Such terms
will include the number of shares of Common Stock into which the shares of
Preferred Stock are convertible, the conversion price (or manner of
calculation thereof), the conversion period, provisions as to whether
conversion will be at the option of the holders of the Preferred Stock or the
Company, the events
 
                                      28

 
requiring an adjustment of the conversion price and provisions affecting
conversion in the event of the redemption of such series of Preferred Stock.
 
  Restrictions on Ownership. For the Company to qualify as a REIT under the
Internal Revenue Code of 1986, as amended (the "Code"), not more than 50% in
value of its outstanding capital stock may be owned, directly or indirectly,
by five or fewer individuals (as defined in the Code to include certain
entities) during the last half of a taxable year. To assist the Company in
meeting this requirement, the Company may take certain actions to limit the
beneficial ownership, directly or indirectly, by a single person of the
Company's outstanding equity securities, including any Preferred Stock of the
Company. Therefore, the Designating Amendment for each series of Preferred
Stock may contain provisions restricting the ownership and transfer of the
Preferred Stock. The applicable Prospectus Supplement will specify any
additional ownership limitation relating to a series of Preferred Stock. See
"Restrictions on Transfers of Capital Stock."
 
  Transfer Agent and Registrar. The transfer agent and registrar for the
Preferred Stock will be set forth in the applicable Prospectus Supplement.
 
                            DESCRIPTION OF WARRANTS
 
  The Company has no Warrants or other stock purchase rights outstanding
(other than options issued under the Company's 1993 Incentive and Stock Option
Plan and its 1995 Equity Incentive Plan). The Company may issue Warrants for
the purchase of Preferred Stock or Common Stock. Warrants may be issued
independently, together with any other Securities offered by any Prospectus
Supplement or through a dividend or other distribution to the Company's
stockholders and may be attached to or separate from such Securities. Warrants
may be issued under a warrant agreement (each, a "Warrant Agreement") to be
entered into between the Company and a warrant agent specified in the
applicable Prospectus Supplement (the "Warrant Agent"). The Warrant Agent will
act solely as an agent of the Company in connection with the Warrants of a
particular series and will not assume any obligation or relationship of agency
or trust for or with any holders or beneficial owners of Warrants. The
following sets forth certain general terms and provisions of the Warrants
offered hereby. Further terms of the Warrants and the applicable Warrant
Agreement will be set forth in the applicable Prospectus Supplement.
 
  The applicable Prospectus Supplement will describe the terms of the Warrants
in respect of which this Prospectus is being delivered, including, where
applicable, the following: (a) the title of such Warrants; (b) the aggregate
number of such Warrants; (c) the price or prices at which such Warrants will
be issued; (d) the designation, number and terms of the shares of Preferred
Stock or Common Stock purchasable upon exercise of such Warrants; (e) the
designation and terms of the other Securities, if any, with which such
Warrants are issued and the number of such Warrants issued with each such
Security; (f) the date, if any, on and after which such Warrants and the
related Preferred Stock or Common Stock, if any, will be separately
transferable; (g) the price at which each share of Preferred Stock or Common
Stock purchasable upon exercise of such Warrants may be purchased; (h) the
date on which the right to exercise such Warrants shall commence and the date
on which such right shall expire; (i) the minimum or maximum amount of such
Warrants which may be exercised at any one time; (j) information with respect
to book-entry procedures, if any; (k) a discussion of certain federal income
tax considerations; and (l) any other terms of such Warrants, including terms,
procedures and limitations relating to the transferability, exchange and
exercise of such Warrants.
 
                  RESTRICTIONS ON TRANSFERS OF CAPITAL STOCK
 
  For the Company to qualify as a REIT under the Code, among other things, not
more than 50% in value of its outstanding capital stock may be owned, directly
or indirectly, by five or fewer individuals (defined in the Code to include
certain entities) during the last half of a taxable year (other than the first
year), and such capital stock must be beneficially owned by 100 or more
persons during at least 335 days of a taxable year of 12 months (other than
the first year) or during a proportionate part of a shorter taxable year. See
"Federal Income
 
                                      29

 
Tax Considerations." To ensure that the Company remains a qualified REIT, the
Articles of Incorporation, subject to certain exceptions, provide that no
holder may own, or be deemed to own by virtue of the attribution provisions of
the Code, more than 9.8% (the "Ownership Limit") of the Company's capital
stock. The Board of Directors may waive the Ownership Limit if evidence
satisfactory to the Board of Directors and the Company's tax counsel is
presented that the changes in ownership will not then or in the future
jeopardize the Company's status as a REIT. Any transfer of capital stock or
any security convertible into capital stock that would create a direct or
indirect ownership of capital stock in excess of the Ownership Limit or that
would result in the disqualification of the Company as a REIT, including any
transfer that results in the capital stock being owned by fewer than 100
persons or results in the Company being "closely held" within the meaning of
Section 856(h) of the Code, shall be null and void, and the intended
transferee will acquire no rights to the capital stock. The foregoing
restrictions on transferability and ownership will not apply if the Board of
Directors determines that it is no longer in the best interests of the Company
to attempt to qualify, or to continue to qualify, as a REIT.
 
  Capital stock owned, or deemed to be owned, or transferred to a stockholder
in excess of the Ownership Limit will automatically be exchanged for shares of
Excess Stock that will be transferred, by operation of law, to the Company as
trustee of a trust for the exclusive benefit of the transferees to whom such
capital stock may be ultimately transferred without violating the Ownership
Limit. While the Excess Stock is held in trust, it will not be entitled to
vote, it will not be considered for purposes of any stockholder vote or the
determination of a quorum for such vote, and, except upon liquidation, it will
not be entitled to participate in dividends or other distributions. Any
dividend or distribution paid to a proposed transferee of Excess Stock prior
to the discovery by the Company that capital stock has been transferred in
violation of the provisions of the Company's Articles of Incorporation shall
be repaid to the Company upon demand. The Excess Stock is not treasury stock,
but rather constitutes a separate class of issued and outstanding stock of the
Company. The original transferee-stockholder may, at any time the Excess Stock
is held by the Company in trust, transfer the interest in the trust
representing the Excess Stock to any individual whose ownership of the capital
stock exchanged into such Excess Stock would be permitted under the Ownership
Limit, at a price not in excess of the price paid by the original transferee-
stockholder for the capital stock that was exchanged in Excess Stock.
Immediately upon the transfer to the permitted transferee, the Excess Stock
will automatically be exchanged for capital stock of the class from which it
was converted. If the foregoing transfer restrictions are determined to be
void or invalid by virtue of any legal decision, statute, rule or regulation,
then the intended transferee of any Excess Stock may be deemed, at the option
of the Company, to have acted as an agent on behalf of the Company in
acquiring the Excess Stock and to hold the Excess Stock on behalf of the
Company.
 
  In addition to the foregoing transfer restrictions, the Company will have
the right, for a period of 90 days during the time any Excess Stock is held by
the Company in trust, to purchase all or any portion of the Excess Stock from
the original transferee-stockholder for the lesser of the price paid for the
capital stock by the original transferee-stockholder or the market price (as
determined in the manner set forth in the Articles of Incorporation) of the
capital stock on the date the Company exercises its option to purchase. The
90-day period begins on the date on which the Company receives written notice
of the transfer or other event resulting in the exchange of capital stock for
Excess Stock.
 
  Each stockholder shall upon demand be required to disclose to the Company in
writing any information with respect to the direct, indirect and constructive
ownership of beneficial interests as the Board of Directors deems necessary to
comply with the provisions of the Code applicable to REITs, to comply with the
requirements of any taxing authority or governmental agency or to determine
any such compliance.
 
  This ownership limitation may have the effect of precluding acquisition of
control of the Company unless the Board of Directors determines that the
maintenance of REIT status is no longer in the best interests of the Company.
 
                                      30

 
                       FEDERAL INCOME TAX CONSIDERATIONS
 
  The Company believes it has operated, and the Company intends to continue to
operate, in such manner as to qualify as a REIT under the Code, but no
assurance can be given that it will at all times so qualify.
 
  The provisions of the Code pertaining to REITs are highly technical and
complex. The following is a brief and general summary of certain provisions
that currently govern the federal income tax treatment of the Company and its
stockholders. For the particular provisions that govern the federal income tax
treatment of the Company and its stockholders, reference is made to Sections
856 through 860 of the Code and the regulations thereunder. The following
summary is qualified in its entirety by such reference.
 
  Under the Code, if certain requirements are met in a taxable year, a REIT
generally will not be subject to federal income tax with respect to income
that it distributes to its stockholders. If the Company fails to qualify
during any taxable year as a REIT, unless certain relief provisions are
available, it will be subject to tax (including any applicable alternative
minimum tax) on its taxable income at regular corporate rates, which could
have a material adverse effect upon its stockholders and creditors.
 
  In any year in which the Company qualifies to be taxed as a REIT,
distributions made to its stockholders out of current or accumulated earnings
and profits will be taxed to stockholders as ordinary income except that
distributions of net capital gains designated by the Company as capital gain
dividends will be taxed as long-term capital gain income to the stockholders.
To the extent that distributions exceed current or accumulated earnings and
profits, they will constitute a return of capital, rather than dividend or
capital gain income, and will reduce the basis for the stockholder's
Securities with respect to which the distribution is paid or, to the extent
that they exceed such basis, will be taxed in the same manner as gain from the
sale of those Securities.
 
  Investors are urged to consult their own tax advisors with respect to the
appropriateness of an investment in the Securities offered hereby and with
respect to the tax consequences arising under federal law and the laws of any
state, municipality or other taxing jurisdiction, including tax consequences
resulting from such investor's own tax characteristics. In particular, foreign
investors should consult their own tax advisors concerning the tax
consequences of an investment in the Company, including the possibility of
United States income tax withholding on Company distributions.
 
                             PLAN OF DISTRIBUTION
 
  The Company may sell Securities to or through one or more underwriters or
dealers for public offering and sale by or through them, directly to one or
more individual, institutional or other purchasers, through agents or through
any combination of these methods of sale. Direct sales to investors may also
be accomplished through subscription rights distributed on a pro rata basis to
the Company's stockholders, which may or may not be transferable by such
stockholders. In connection with any distribution of subscription rights to
stockholders, if all of the underlying Securities are not subscribed for, the
Company may sell the unsubscribed Securities directly to third parties or may
engage the services of one or more underwriters, dealers or agents, including
standby underwriters, to sell the unsubscribed Securities to third parties.
 
  The distribution of the Securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, at
market prices prevailing at the time of sale or at prices related to such
prevailing market prices, or at negotiated prices (any of which may represent
a discount from the prevailing market prices).
 
  In connection with the sale of Securities, underwriters or agents may
receive compensation from the Company or from purchasers of Securities, for
whom they may act as agents, in the form of discounts, concessions, or
commissions. Underwriters may sell Securities to or through dealers, and such
dealers may receive compensation in the form of discounts, concessions, or
commissions from the underwriters and/or
 
                                      31

 
commissions from the purchasers for whom they may act as agents. Underwriters,
dealers, and agents that participate in the distribution of Securities may be
deemed to be underwriters, and any discounts or commissions they receive from
the Company, and any profit on the resale of Securities they realize may be
deemed to be underwriting discounts and commissions, under the Securities Act.
Any such underwriter or agent will be identified, and any such compensation
received from the Company will be described, in the applicable Prospectus
Supplement.
 
  Unless otherwise specified in the related Prospectus Supplement, each series
of Securities will be a new issue with no established trading market, other
than the Common Stock which is listed on the NYSE. Any shares of Common Stock
sold pursuant to a Prospectus Supplement will be listed on the NYSE, subject
to official notice of issuance. The Company may elect to list any series of
Debt Securities or Preferred Stock on an exchange, but is not obligated to do
so. It is possible that one or more underwriters may make a market in a series
of Securities, but will not be obligated to do so and may discontinue any
market making at any time without notice. Therefore, no assurance can be given
as to the liquidity of, or the trading market for, the Securities.
 
  Under agreements into which the Company may enter, underwriters will be, and
dealers and agents who participate in the distribution of Securities may be,
entitled to indemnification by the Company against certain liabilities,
including liabilities under the Securities Act.
 
  Underwriters, dealers and agents may engage in transactions with, or perform
services for, the Company in the ordinary course of business.
 
  If so indicated in the applicable Prospectus Supplement, the Company will
authorize dealers or other persons acting as the Company's agents to solicit
offers by certain institutions to purchase Securities from the Company at the
public offering price set forth in such Prospectus Supplement pursuant to
delayed delivery contracts ("Contracts") providing for payment and delivery on
the date or dates stated in such Prospectus Supplement. Each Contract will be
for an amount no less than, and the aggregate principal amounts of Securities
sold pursuant to Contracts shall be not less nor more than, the respective
amounts stated in the applicable Prospectus Supplement. Institutions with whom
Contracts, when authorized, may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions and other institutions, but will in all cases be
subject to the approval of the Company. Contracts will not be subject to any
conditions except (i) the purchase by an institution of the Securities covered
by its Contracts shall not at the time of delivery be prohibited under the
laws of any jurisdiction in the United States to which such institution is
subject, and (ii) if Securities are being sold to underwriters, the Company
shall have sold to such underwriters the total principal amount of the
Securities less the principal amount thereof covered by the Contracts. If in
conjunction with the sale of Securities to institutions under Contracts,
Securities are also being sold to the public, the consummation of the sale
under the Contracts shall occur simultaneously with the consummation of the
sale to the public. The underwriters and such other agents will not have any
responsibility in respect of the validity or performance of such contracts.
 
  In order to comply with the securities laws of certain states, if
applicable, the Securities offered hereby will be sold in such jurisdictions
only through registered or licensed brokers or dealers. In addition, in
certain states Securities may not be sold unless they have been registered or
qualified for sale in the applicable state or an exemption from the
registration or qualification requirement is available and is complied with.
 
  Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Securities offered hereby may not
simultaneously engage in market making activities with respect to the
Securities for a period of two business days prior to the commencement of such
distribution.
 
                                 LEGAL MATTERS
 
  Certain legal matters, including the legality of the Securities, will be
passed upon for the Company by Goodwin, Procter & Hoar LLP, Boston,
Massachusetts.
 
                                      32

 
                                    EXPERTS
 
  The consolidated financial statements and financial statement schedule of
Avalon Properties, Inc. as of December 31, 1995 and 1994 and for the years
ended December 31, 1995 and 1994 and the period November 18, 1993 through
December 31, 1993 and the combined financial statements of the Predecessor for
the period January 1, 1993 through November 17, 1993 included in the Company's
Annual Report on Form 10-K and the combined statement of revenue and certain
operating expenses of certain communities acquired during 1996 included in the
Current Report on Form 8-K, dated December 6, 1996, and incorporated by
reference herein, have been incorporated herein in reliance on the reports of
Coopers & Lybrand L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing.
 
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