BRE PROPERTIES INC /MD/
424B5, 1998-02-12
REAL ESTATE INVESTMENT TRUSTS
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<PAGE>
 
                                                Filed Pursuant to Rule 424(b)(5)
                                                Registration No. 333-24915
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. NEITHER   +
+THIS PROSPECTUS SUPPLEMENT NOR THE ACCOMPANYING PROSPECTUS SHALL CONSTITUTE   +
+AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE    +
+ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION   +
+OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE    +
+SECURITIES LAWS OF ANY SUCH STATE.                                            +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS SUPPLEMENT (Subject to Completion, Issued February 12, 1998)
(To Prospectus dated February 12, 1998)
                                  $
                              BRE Properties, Inc.
                                 % NOTES DUE
 
                                  ----------
                   Interest payable February 15 and August 15
                                  ----------
BRE  PROPERTIES, INC.  ("BRE"  OR THE  "COMPANY") IS  A  FULLY INTEGRATED  REAL
 ESTATE OPERATING  COMPANY WHICH  OWNS, ACQUIRES, DEVELOPS,  REHABILITATES AND
  MANAGES APARTMENT  COMMUNITIES IN 12  TARGETED METROPOLITAN MARKETS  IN THE
   WESTERN  UNITED  STATES.  AS  OF  NOVEMBER 30,  1997,  BRE'S  MULTIFAMILY
    PORTFOLIO  INCLUDED  73  COMPLETED  APARTMENT  COMMUNITIES   AGGREGATING
    18,329  UNITS IN CALIFORNIA,  ARIZONA, WASHINGTON, OREGON, NEVADA,  NEW
     MEXICO  AND UTAH  AND EIGHT  APARTMENT COMMUNITIES UNDER  DEVELOPMENT
      AGGREGATING APPROXIMATELY  2,445 UNITS. SEE  "RECENT DEVELOPMENTS."
       ON  THAT  DATE,  BRE   ALSO  OWNED  FIVE  COMMERCIAL  AND  RETAIL
        PROPERTIES  AND  HELD  LIMITED  PARTNERSHIP  INTERESTS  IN   TWO
         SHOPPING CENTERS AND ONE APARTMENT COMMUNITY. THE  COMPANY HAS
         ELECTED  TO  OPERATE AS  A REAL  ESTATE  INVESTMENT TRUST  (A
                   "REIT") FOR FEDERAL INCOME TAX PURPOSES.
 
                                  ----------
THE NOTES WILL  MATURE ON FEBRUARY 15,      . THE NOTES WILL  BE REDEEMABLE, IN
 WHOLE OR FROM TIME TO TIME IN PART,  AT THE OPTION OF THE COMPANY AT ANY TIME
 AT  A REDEMPTION PRICE  EQUAL TO  THE GREATER  OF (I)  100% OF THE  PRINCIPAL
  AMOUNT OF THE NOTES TO  BE REDEEMED AND (II) THE  SUM OF THE PRESENT VALUES
  OF  THE REMAINING  SCHEDULED  PAYMENTS OF  PRINCIPAL  AND INTEREST  THEREON
   (EXCLUSIVE OF INTEREST  ACCRUED TO THE DATE  OF REDEMPTION) DISCOUNTED TO
   THE  DATE OF REDEMPTION  ON A SEMIANNUAL  BASIS (ASSUMING A  360-DAY YEAR
    CONSISTING OF  TWELVE 30-DAY MONTHS)  AT THE TREASURY  RATE (AS DEFINED
    HEREIN) PLUS    BASIS POINTS, PLUS, IN EITHER CASE,  ACCRUED AND UNPAID
     INTEREST  ON THE  PRINCIPAL  AMOUNT  BEING REDEEMED  TO  THE  DATE OF
     REDEMPTION.   THE  NOTES  WILL  BE  REPRESENTED  BY  A   GLOBAL  NOTE
      REGISTERED  IN  THE NAME  OF  A  NOMINEE  OF  THE DEPOSITORY  TRUST
       COMPANY, AS DEPOSITARY (THE "DEPOSITARY"). BENEFICIAL INTERESTS IN
       THE  NOTES  WILL  BE SHOWN  ON,  AND  TRANSFERS  THEREOF WILL  BE
        EFFECTED ONLY THROUGH, RECORDS MAINTAINED BY THE PARTICIPANTS OF
        THE DEPOSITARY.  EXCEPT IN THE  LIMITED CIRCUMSTANCES DESCRIBED
         IN THE  PROSPECTUS, NOTES  IN CERTIFICATED  FORM  WILL NOT  BE
                    ISSUED IN EXCHANGE FOR THE GLOBAL NOTE.
 
                                  ----------
  SEE "RISK FACTORS" BEGINNING ON PAGE 4 OF THE ACCOMPANYING PROSPECTUS FOR A
     DISCUSSION OF CERTAIN FACTORS RELATING TO AN INVESTMENT IN THE NOTES.
 
                                  ----------
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
    SUPPLEMENT OR THE  PROSPECTUS. ANY REPRESENTATION TO THE  CONTRARY IS A
                               CRIMINAL OFFENSE.
 
                                  ----------
                     PRICE          % AND ACCRUED INTEREST
 
                                  ----------
 
<TABLE>
<CAPTION>
                                                   UNDERWRITING
                                        PRICE TO   DISCOUNTS AND   PROCEEDS TO
                                       PUBLIC (1) COMMISSIONS (2) COMPANY (1)(3)
                                       ---------- --------------- --------------
<S>                                    <C>        <C>             <C>
Per Note..............................         %            %              %
Total.................................  $             $              $
</TABLE>
- -----
  (1) Plus accrued interest from February   , 1998.
  (2) The Company has agreed to indemnify the several Underwriters against
      certain liabilities, including liabilities under the Securities Act of
      1933, as amended. See "Underwriting."
  (3) Before deducting expenses payable by the Company estimated at $100,000.
 
                                  ----------
  The Notes are offered, subject to prior sale, when, as and if accepted by the
Underwriters and subject to approval of certain legal matters by Brown & Wood
llp, counsel for the Underwriters. It is expected that delivery of the Notes
will be made on or about February  , 1998, through the book-entry facilities of
the Depositary, against payment therefor in immediately available funds.
                                  ----------
MORGAN STANLEY DEAN WITTER
                 BANCAMERICA ROBERTSON STEPHENS
                                            MERRILL LYNCH & CO.
                                                            SALOMON SMITH BARNEY
February   , 1998
<PAGE>
 
  NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE     % NOTES DUE     (THE
"NOTES") OFFERED HEREBY, NOR DO THEY CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY THE NOTES BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS NOR ANY
SALE OR OFFER MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF.
 
                               ----------------
 
  References in this Prospectus Supplement and the accompanying Prospectus to
the "Company" include BRE and its consolidated subsidiaries, unless otherwise
expressly stated or the context otherwise requires.
 
                               ----------------
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
                                                                            PAGE
                                                                            ----
                             PROSPECTUS SUPPLEMENT
<S>                                                                         <C>
The Company................................................................  S-3
Forward-Looking Statements.................................................  S-4
Recent Developments........................................................  S-6
Use of Proceeds............................................................ S-10
Capitalization............................................................. S-11
Selected Consolidated Financial and Other Data............................. S-12
Pro Forma Condensed Consolidated Financial Statements...................... S-14
Business and Properties.................................................... S-21
The Operating Company...................................................... S-28
Description of Notes....................................................... S-31
Underwriting............................................................... S-35
Legal Matters.............................................................. S-35
<CAPTION>
                                   PROSPECTUS
<S>                                                                         <C>
Available Information......................................................    2
Incorporation of Certain Documents by Reference............................    3
The Company................................................................    4
Risk Factors...............................................................    4
Ratios of Earnings to Fixed Charges........................................   15
Use of Proceeds............................................................   15
Selling Shareholder........................................................   16
Description of Debt Securities.............................................   16
Description of Preferred Shares............................................   34
Description of Depositary Shares...........................................   39
Description of Common Stock Warrants.......................................   42
Description of Common Shares...............................................   43
Restrictions on Transfers of Capital Stock; Redemption.....................   45
Federal Income Tax Considerations..........................................   46
Plan of Distribution.......................................................   56
Experts....................................................................   56
Legal Matters..............................................................   57
</TABLE>
 
                               ----------------
 
  CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE NOTES.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, THE NOTES IN THE OPEN MARKET. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE "UNDERWRITING."
 
                                      S-2
<PAGE>
 
                                  THE COMPANY
 
  BRE Properties, Inc. ("BRE" or the "Company"), a Maryland corporation, is a
fully integrated real estate operating company which owns, acquires, develops,
rehabilitates and manages apartment communities in 12 targeted metropolitan
markets in the western United States. As of November 30, 1997, BRE's
multifamily portfolio included 73 completed apartment communities aggregating
18,329 units in California, Arizona, Washington, Oregon, Nevada, New Mexico
and Utah and eight apartment communities under development aggregating
approximately 2,445 units. See "Recent Developments--TCR-West Transaction." On
that date, BRE also owned five commercial and retail properties and held
limited partnership interests in two shopping centers and one apartment
community.
 
  The Company's business objective is to become the preeminent owner,
developer and operator of apartment communities in key growth markets of the
western United States. To further this objective, the Company implemented a
strategic plan in 1996, many goals of which have been achieved, including the
establishment of internal property management, the disposition of
substantially all non-core, non-apartment assets and increased liquidity of
the Company's common stock, par value $.01 per share ("Common Shares"). In
addition, on November 18, 1997, the Company completed the acquisition of
certain assets and operations of Trammell Crow Residential located in the
western United States ("TCR-West"), which further advanced significant
objectives of the strategic plan. See "Recent Developments -- TCR-West
Transaction." As a result of the acquisition, BRE:
 
 .  Increased the number of completed multifamily units owned on the
   acquisition date from 13,543 to 18,329;
 
 .  Acquired eight apartment communities under development aggregating
   approximately 2,445 units;
 
 .  Added development, construction and third party management capabilities,
   creating fully-integrated multifamily real estate operations;
 
 .  Further strengthened and deepened the senior management team; and
 
 .Significantly increased the geographic diversification of the portfolio by
expanding from nine western markets to 12, establishing a critical mass of at
least 1,000 multifamily units in seven markets, which the Company believes
will enable it to achieve additional operating efficiencies.
 
   The Company believes that its future growth will be supported by the
continued implementation of its strategic plan. Key characteristics of the
plan are:
 
 .  A research-driven investment focus which includes:
 
  -- The acquisition and development of apartment communities in defined
     western United States markets;
 
  -- The balancing of its multifamily portfolio across western metropolitan
     markets with diverse economic and employment characteristics to reduce
     individual market risk;
 
  -- The selective sale of properties which management believes have reached
     maximum cash flow potential;
 
 .Utilization of the Company's fully-integrated multifamiliy operations to
continue to achieve operating efficiencies through internal property
management and to target attractive opportunities -- acquisition, development
or rehabilitation -- in each of its markets; and
 
 .The maintenance of a strong balance sheet to enhance financial flexibility.
 
                                      S-3
<PAGE>
 
  The following table summarizes certain information relating to the Company's
completed apartment communities as of November 30, 1997, after giving effect
to the TCR-West acquisition:
 
<TABLE>
<CAPTION>
                                               NUMBER OF   NUMBER  PERCENTAGE OF
   METROPOLITAN MARKET(1)                      PROPERTIES OF UNITS  TOTAL UNITS
   ----------------------                      ---------- -------- -------------
   <S>                                         <C>        <C>      <C>
   Phoenix....................................     12       3,082        17%
   San Francisco Bay Area.....................      9       2,960        16
   Los Angeles/Orange County..................     10       2,352        13
   San Diego..................................      9       1,899        10
   Tucson.....................................      9       1,836        10
   Seattle....................................      6       1,673         9
   Sacramento.................................      7       1,543         8
   Salt Lake City.............................      3         904         5
   Las Vegas..................................      4         814         5
   Albuquerque................................      2         646         4
   Portland...................................      2         620         3
                                                  ---      ------       ---
                                                   73      18,329       100%
                                                  ===      ======       ===
</TABLE>
- --------
(1) Does not include the Denver metropolitan market where the Company is
    currently developing a property and also acquired an apartment community
    in January 1998.
 
  All of the properties and operations acquired in the TCR-West acquisition
are held through newly-formed or newly-acquired subsidiaries of BRE. These
include BRE Property Investors LLC (the "Operating Company"), a Delaware
limited liability company which acquired properties with a book value of
approximately $430 million, and Blue Ravine Investors LLC ("Blue Ravine"), a
Delaware limited liability company which acquired a single property with a
book value of approximately $30 million. BRE is the sole managing member of
the Operating Company and, as of November 30, 1997, owned an approximately 70%
equity interest therein. The remaining equity interests in the Operating
Company (all of which will be exchangeable at the option of the holders
thereof, commencing on November 18, 1998, into Common Shares, or, at the
option of BRE, cash in an amount equal to the market value of such Common
Shares at the time of exchange) are owned by other, non-managing members of
the Operating Company. BRE also holds an approximately 88% equity interest in
and is the sole managing member of Blue Ravine. The equity interests issued by
Blue Ravine will be exchangeable for Common Shares (or at BRE's option, cash)
upon terms similar to those applicable to the Operating Company. It is
expected that Blue Ravine will be merged with and into the Operating Company,
with the Operating Company as the surviving entity, on or after November 30,
1998. Upon such merger, the equity interests issued by Blue Ravine will be
changed into a like number of equity interests in the Operating Company. See
"Recent Developments--TCR-West Transaction" and "The Operating Company."
 
  BRE's principal executive offices are located at 44 Montgomery Street, Suite
3600, San Francisco, California 94104-4602, and its telephone number is (415)
445-6530.
 
                          FORWARD-LOOKING STATEMENTS
 
  In addition to historical information, the information included and
incorporated by reference in this Prospectus Supplement and the accompanying
Prospectus contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended (the "Securities Act"), and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), such as those pertaining to the Company's capital resources, portfolio
performance and results of operations. Likewise, the pro forma financial
statements and other pro forma information included and incorporated by
reference in this Prospectus Supplement and in the accompanying Prospectus
also contain certain such forward-looking statements. In addition, all
statements regarding anticipated growth rates in target markets, anticipated
growth in the Company's
 
                                      S-4
<PAGE>
 
funds from operations and anticipated market conditions, demographics and
results of operations are forward-looking statements. Forward-looking
statements involve numerous risks and uncertainties and should not be relied
upon as predictions of future events, and there can be no assurance that the
events or circumstances reflected in such forward-looking statements will be
achieved or occur. Certain such forward-looking statements can be identified
by the use of forward-looking terminology such as "believes," "expects,"
"may," "will," "should," "seeks," "approximately," "intends," "plans," "pro
forma," "estimates," or "anticipates" or the negative thereof or other
variations thereof or comparable terminology, or by discussions of strategy,
plans or intentions. Such forward-looking statements are necessarily dependent
on assumptions, data or methods that may be incorrect or imprecise and they
may be incapable of being realized. The following factors, among others, could
cause actual results and future events to differ materially from those set
forth or contemplated in the forward-looking statements: defaults or non-
renewal of leases, increased interest rates and operating costs, failure to
obtain necessary outside financing, difficulties in identifying properties to
acquire and in effecting acquisitions, failure to successfully integrate
acquired properties and operations, risks and uncertainties affecting property
development and construction (including, without limitation, construction
delays, cost overruns, inability to obtain necessary permits and public
opposition to such activities), failure to qualify as a real estate investment
trust under the Internal Revenue Code of 1986, as amended (the "Code"),
environmental uncertainties, risks related to natural disasters, financial
market fluctuations, changes in real estate and zoning laws and increases in
real property tax rates. The success of the Company also depends upon economic
trends generally, including interest rates, income tax laws, governmental
regulation, legislation, population changes and those risk factors discussed
in the accompanying Prospectus under the heading "Risk Factors." Readers are
cautioned not to place undue reliance on forward-looking statements, which
reflect management's analysis only. The Company assumes no obligation to
update forward-looking statements. See also the Company's reports filed from
time to time with the Securities and Exchange Commission pursuant to the
Exchange Act.
 
                                      S-5
<PAGE>
 
                              RECENT DEVELOPMENTS
 
TCR-WEST TRANSACTION
 
  On November 18, 1997, the Company acquired certain real estate assets and
operations of TCR-West (the "TCR-West Transaction") for a purchase price of
approximately $462 million. The acquisition included 17 completed apartment
properties comprising 4,786 units located in California, Arizona, Utah and New
Mexico. The following table sets forth certain information regarding those
properties:
 
<TABLE>
<CAPTION>
                                                                         NUMBER
                                                                           OF
             PROPERTY                                      LOCATION      UNITS
             --------                                      --------      ------
     <S>                                              <C>                <C>
     Deer Valley..................................... San Rafael, CA       171
     Blue Rock Village I............................. Vallejo, CA          280
     Blue Rock Village II............................ Vallejo, CA          280
     Parkside Village................................ Riverside, CA        304
     Parkside Terrace................................ Santa Ana, CA        240
     Parkside Court.................................. Santa Ana, CA        210
     Overlook at Blue Ravine......................... Folsom, CA           400
     Pinnacle at South Mountain I.................... Phoenix, AZ          360
     Pinnacle at South Mountain II................... Phoenix, AZ          192
     Pinnacle at Union Hills......................... Phoenix, AZ          264
     Pinnacle Heights................................ Tucson, AZ           310
     Pinnacle Canyon................................. Tucson, AZ           225
     Pinnacle at Fort Union.......................... Salt Lake City, UT   160
     Pinnacle Reserve................................ Salt Lake City, UT   492
     Pinnacle Lakeside............................... Salt Lake City, UT   252
     Pinnacle at High Desert......................... Albuquerque, NM      430
     Pinnacle View................................... Albuquerque, NM      216
                                                                         -----
       Total.........................................                    4,786
                                                                         =====
</TABLE>
 
  In addition, the Company acquired eight apartment properties in various
stages of development. These development properties are expected to include
approximately 2,445 units and are located in Arizona, Colorado, Utah, New
Mexico and Nevada (the "Development Properties"). The Company expects to incur
an estimated $113 million to complete development and construction of the
Development Properties from November 1997 through 1999. For further
information concerning the properties acquired in the TCR-West Transaction,
see "Business and Properties--Development Properties"
 
  The Company also acquired TCR-West's development, construction and third
party management operations in the transaction, including approximately 600
new employees and three regional offices located in Arizona, California and
Utah. Prior to the acquisition, the Company was not engaged in the development
and construction of real estate properties or in the management of properties
owned by third parties.
 
  The total cost of the TCR-West Transaction (including closing costs but
excluding the value of any Development OC Units (as defined below) which may
be issued pursuant to such transaction) was approximately $462 million. The
Company financed the cost of the acquisition with bank borrowings of
approximately $160 million, the issuance of 3,713,331 Common Shares, 2,672,087
units and 152,500 performance units ("Performance OC Units") of the Operating
Company and Blue Ravine, and assumed debt of $126 million. Under the terms of
the transaction, up to an additional 627,594 development units ("Development
OC Units") in the Operating Company, subject to possible adjustment, may be
issued if certain completion schedule and budget objectives related to the
Development Properties are met in the future. See note (2) to the pro forma
condensed consolidated balance sheet under "Pro Forma Condensed Consolidated
Financial Statements" for further information regarding the Performance OC
Units and the Development OC Units. Pursuant to the terms of the transaction,
the Common Shares and the OC Units (as defined below) issued in the
transaction were valued
 
                                      S-6
<PAGE>
 
at $26.93 per Common Share and OC Unit. The units of the Operating Company and
Blue Ravine, including the Performance OC Units and the Development OC Units,
are hereinafter sometimes called "OC Units." The OC Units will be
exchangeable, commencing November 18, 1998, at the option of the holders
thereof for Common Shares (at a rate of one Common Share per OC Unit, subject
to adjustment under certain circumstances) or, at BRE's election, into an
equivalent amount of cash based on the value of the Common Shares at the time
of the exchange. Upon the merger of Blue Ravine into the Operating Company,
which is anticipated will occur on or after November 30, 1998, the OC Units
issued by Blue Ravine will be changed into a like number of OC Units of the
Operating Company. See "Risk Factors" in the accompanying Prospectus for a
discussion of certain risks associated with the TCR-West Transaction.
 
UNIT INVESTMENT TRUST TRANSACTION
 
  On December 23, 1997, the Company completed a private placement of 728,929
Common Shares to Legg Mason Unit Investment Trust Series 7, Legg Mason REIT
Trust, December 1997 Series, (the "Trust") for cash proceeds of approximately
$19.1 million. The Trust was formed to acquire the shares of nine domestic,
publicly-traded real estate investment trusts, including the Company. On
January 27, 1998, the Company filed a registration statement with the
Securities and Exchange Commission covering the resale of the Common Shares
issued to the Trust.
 
PROPERTY ACQUISITIONS
 
  On December 24, 1997, the Company acquired Arbor Pointe, which is a 240-unit
apartment community located in Sacramento, California, for a purchase price of
approximately $9 million. On January 30, 1998, the Company acquired The
Landing at Bear Creek, which is a 204-unit apartment community located in
Lakewood, Colorado, for a purchase price of approximately $18 million. These
acquisitions were financed with borrowings under the Company's Credit Facility
(as defined below under "Use of Proceeds").
 
CERTAIN 1997 FINANCIAL INFORMATION
 
  On January 15, 1998, the Company announced the following unaudited financial
information for the quarter and year ended December 31, 1997.
 
                                      S-7
<PAGE>
 
                                 BALANCE SHEETS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                       DECEMBER 31, DECEMBER 31,
                                                           1997         1996
                                                       ------------ ------------
                                                       (UNAUDITED)
<S>                                                    <C>          <C>
ASSETS
Investments in rental properties:
Multifamily...........................................  $1,248,012    $710,240
Commercial and retail.................................      11,929     103,528
Construction in progress..............................      84,202         --
Less: accumulated depreciation and amortization.......     (49,721)    (49,690)
                                                        ----------    --------
                                                         1,294,422     764,078
Investments in limited partnerships...................       2,780       2,621
                                                        ----------    --------
Real estate portfolio.................................   1,297,202     766,699
Mortgage loans, net...................................       4,871       9,716
Cash and short-term investments.......................       4,216         184
Funds held in escrow..................................      15,833         --
Other.................................................      19,776       7,115
                                                        ----------    --------
Total assets..........................................  $1,341,898    $783,714
                                                        ==========    ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Mortgage loans........................................  $  232,367    $114,985
Unsecured senior notes................................     123,000      73,000
Unsecured lines of credit.............................     186,000     124,000
Accounts payable and accrued expenses.................      16,970       7,615
                                                        ----------    --------
Total liabilities.....................................     558,337     319,600
Minority interest.....................................      76,066         --
Shareholders' equity
Common stock..........................................         417         329
Additional paid-in capital............................     707,078     463,785
                                                        ----------    --------
Total shareholders' equity............................     707,495     464,114
                                                        ----------    --------
Total liabilities and shareholders' equity............  $1,341,898    $783,714
                                                        ==========    ========
</TABLE>
 
                                      S-8
<PAGE>
 
                           STATEMENTS OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                       THREE MONTHS ENDED        YEAR ENDED
                                          DECEMBER 31,          DECEMBER 31,
                                     ----------------------- -------------------
                                        1997        1996        1997      1996
                                     ----------- ----------- ----------- -------
                                     (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S>                                  <C>         <C>         <C>         <C>
REVENUE
Rental income:
  Multifamily......................    $36,761     $24,498    $122,936   $77,834
  Commercial and retail............        373       3,601       5,742    15,301
Other income.......................      2,817       1,609       9,083     8,516
                                       -------     -------    --------   -------
Total revenue......................     39,951      29,708     137,761   101,651
EXPENSES
Real estate expenses:
  Multifamily......................    $13,329     $ 9,172    $ 44,049   $29,310
  Commercial and retail............        129         683         522     1,720
Depreciation and amortization......      5,303       3,904      17,938    13,283
Interest expense...................      6,261       5,106      21,606    16,325
General and administrative.........      1,188         831       4,301     3,999
                                       -------     -------    --------   -------
Total expenses.....................     26,210      19,696      88,416    64,637
Net income before gains on sales of
 real estate investments and
 minority interests................     13,741      10,012      49,345    37,014
Gains (losses) on sales of real
 estate investments................       (336)      3,247      27,824    52,825
                                       -------     -------    --------   -------
Income before minority interest....     13,405      13,259      77,169    89,839
Minority interest..................        972         --          972       --
                                       -------     -------    --------   -------
Net Income.........................    $12,433     $13,259    $ 76,197   $89,839
                                       =======     =======    ========   =======
Net income per outstanding Common
 Share:
Net income before gains on sales of
 real estate investments and
 minority interests................    $  0.35     $  0.30    $   1.37   $  1.21
Gains on sales of real estate
 investments.......................      (0.01)       0.10        0.77      1.73
                                       -------     -------    --------   -------
Net income per Common Share........    $  0.34     $  0.40    $   2.14   $  2.94
Funds from operations (1)..........    $19,044     $13,916    $ 67,283   $50,297
Weighted average Common Shares
 outstanding.......................     39,400      32,840      36,040    30,520
</TABLE>
- --------
(1) See note (4) under "Selected Consolidated Financial and Other Data" for
    information regarding the computation of funds from operations ("FFO").
 
                                      S-9
<PAGE>
 
  Commencing with the year ended December 31, 1997, the Company will report
earnings per share ("EPS") giving effect to the Financial Accounting Standards
Board's Statement of Financial Standards No. 128 (the "Statement"). Under the
Statement, EPS is calculated on a weighted average basis based on the assumed
conversion of options, OC Units and other dilutive securities. As calculated
under the Statement, the Company's net income per Common Share for the year
ended December 31, 1997 was $2.13.
 
                                USE OF PROCEEDS
 
  The net proceeds to be received by the Company from the sale of the Notes
offered hereby are estimated to be approximately $99.2 million. The Company
intends to use such net proceeds to repay indebtedness outstanding under the
Company's Credit Facility. As of February 4, 1998, borrowings of approximately
$175 million were outstanding under the Credit Facility and approximately $29
million of borrowings were also outstanding under the Company's $35 million
unsecured line of credit with Sanwa Bank (the "Sanwa Line of Credit").
Borrowings under the Credit Facility were used to pay the cash portion of the
purchase price in the TCR-West Transaction, to finance other acquisitions and,
to a lesser extent, as part of the Company's cash management program.
 
  In order to fund the cash payable at the closing of the TCR-West
Transaction, the Company arranged a new $265 million unsecured line of credit
(the "Credit Facility") with Bank of America National Trust and Savings
Association ("BofA"). The Credit Facility replaced the Company's then existing
$115 million line of credit with BofA. The Credit Facility may be used for
acquisitions and development of apartment projects and for general working
capital purposes. The Credit Facility is scheduled to mature on July 10, 2000.
The Credit Facility carries an interest rate based on the Company's credit
rating and, as of the date of this Prospectus Supplement, borrowings
thereunder bore interest at the London InterBank Offer Rate ("LIBOR") plus
0.70%. Repayment of the Credit Facility has been guaranteed by the Operating
Company and it is anticipated that Blue Ravine will also guarantee borrowings
under the Credit Facility. The Operating Company has also guaranteed repayment
of borrowings under the Sanwa Line of Credit. See "The Operating Company--
Capital and Capital Accounts" and "Description of Notes--General."
 
                                     S-10
<PAGE>
 
                                CAPITALIZATION
 
  The following table sets forth the unaudited consolidated capitalization of
the Company (i) as of September 30, 1997, (ii) on a pro forma basis as of
September 30, 1997 as if the TCR-West Transaction had been consummated on that
date, and (iii) on such pro forma basis and as further adjusted to give effect
to the offering made hereby and the application of the estimated net proceeds
therefrom to repay indebtedness outstanding under the Credit Facility. The
table should be read in conjunction with the Consolidated Financial Statements
and Notes thereto incorporated into the accompanying Prospectus by reference
to the Company's Annual Report on Form 10-K for the year ended December 31,
1996, as amended (the "1996 Form 10-K"), and the Company's Quarterly Reports
on Form 10-Q for the quarters ended March 31, June 30, and September 30, 1997,
the pro forma financial statements and other information set forth herein
under "Pro Forma Condensed Consolidated Financial Statements," and the
information set forth herein under "Recent Developments--Certain 1997
Financial Information." In particular, the following pro forma information is
subject to a number of estimates, assumptions and other uncertainties and does
not purport to be indicative of the actual capitalization that would have
occurred had the transactions and events reflected therein in fact occurred on
the date specified or to be indicative of the Company's capitalization as of
any future date.
 
<TABLE>
<CAPTION>
                                               AS OF SEPTEMBER 30, 1997
                                             -------------------------------
                                                                   PRO FORMA
                                                                      AS
                                              ACTUAL  PRO FORMA    ADJUSTED
                                             -------- ---------    ---------
                                                (UNAUDITED, DOLLARS IN
                                                      THOUSANDS)
<S>                                          <C>      <C>          <C>
Indebtedness:
  Unsecured lines of credit................. $ 34,000 $ 193,352(1) $  94,177(1)
  Notes due 2007............................   50,000    50,000       50,000
  Notes offered hereby......................      --        --       100,000
  Unsecured notes payable...................   73,000    73,000       73,000
  Mortgage loans payable....................  112,710   238,529      238,529
                                             -------- ---------    ---------
Total indebtedness..........................  269,710   554,881      555,706
                                             -------- ---------    ---------
Minority interest...........................      --     76,066       76,066
Shareholders' equity:
  Preferred Stock, $0.01 par value per
   share, 10,000,000 shares authorized, no
   shares issued or outstanding.............      --        --           --
  Common Shares, $0.01 par value per share,
   100,000,000 authorized, 37,035,680 issued
   and outstanding actual, 40,749,011 issued
   and outstanding, pro forma and pro
   forma as adjusted(2).....................      370       407          407
  Additional paid-in capital................  482,378   582,341      582,341
  Accumulated net income in excess of
   cumulative dividends.....................  102,954   102,954      102,954
                                             -------- ---------    ---------
Total shareholders' equity .................  585,702   685,702      685,702
                                             -------- ---------    ---------
Total capitalization........................ $855,412 1,316,649    1,317,474
                                             ======== =========    =========
</TABLE>
- --------
(1) As of Febuary 4, 1998, approximately $204 million of indebtedness was
    outstanding under the Credit Facility and the Sanwa Line of Credit.
 
(2) Excludes, as of September 30, 1997, (i) 4,444,356 Common Shares issuable
    under the Company's stock option and dividend reinvestment plans and (ii)
    on a pro forma basis at that date, 3,452,181 Common Shares reserved for
    issuance upon exchange of OC Units which were issued or may be issued in
    connection with the TCR-West Transaction.
 
                                     S-11
<PAGE>
 
                SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
 
  The following selected financial and other data have been derived from the
historical financial statements of the Company and should be read in
conjunction with the Consolidated Financial Statements and Notes thereto and
pro forma data included herein and in the Company's filings under the Exchange
Act incorporated by reference in the accompanying Prospectus and the
information included herein under "Recent Developments-- Certain 1997
Financial Information." Data for the nine months ended September 30, 1997 does
not purport to be indicative of future results. Except as expressly stated in
note (3) below, none of the selected financial and other data set forth below
gives effect to the TCR-West Transaction (which occurred on November 18, 1997)
and prospective investors should be aware that, as a result of such
transaction, the Company's results of operations and financial condition for
future periods will not necessarily be comparable to its historical results of
operations and financial condition.
 
<TABLE>
<CAPTION>
                                                                             NINE MONTHS ENDED
                                     YEAR ENDED DECEMBER 31,                   SEPTEMBER 30
                          -------------------------------------------------  ------------------
                            1992      1993      1994      1995      1996       1996      1997
                          --------  --------  --------  --------  ---------  --------  --------
                                                                                (UNAUDITED)
                            (IN THOUSANDS, EXCEPT PER SHARE DATA AND OTHER INFORMATION)
<S>                       <C>       <C>       <C>       <C>       <C>        <C>       <C>
OPERATING DATA
Revenues................  $ 39,829  $ 49,806  $ 56,970  $ 65,387  $ 101,651  $ 71,943  $ 97,811
Real estate expenses....    11,191    15,230    17,256    21,540     31,030    21,175    31,115
                          --------  --------  --------  --------  ---------  --------  --------
Net operating income....    28,638    34,576    39,714    43,847     70,621    50,768    66,696
Interest expense........     6,074     5,656     5,599     7,973     16,325    11,219    15,344
Depreciation expense....     4,787     6,097     7,080     7,864     13,283     9,379    12,635
General and
 administrative
 expenses...............     3,239     3,292     4,469     4,221      3,999     3,167     3,114
Provision for investment
 loss...................       --        --        --      2,000        --
Net gain on sales of
 investments............    14,199       506     1,646       221     52,825    49,578    28,160
                          --------  --------  --------  --------  ---------  --------  --------
Net income..............  $ 28,737  $ 20,037  $ 24,212  $ 22,010  $  89,839  $ 76,581  $ 63,763
                          ========  ========  ========  ========  =========  ========  ========
BALANCE SHEET DATA (AT
 END OF PERIOD)
Investment in rental
 property, at cost......  $252,239  $310,003  $373,676  $371,438  $ 816,389  $775,870  $888,618
Total assets............   231,477   293,628   343,853   354,895    783,714   740,288   866,083
Total indebtedness......    80,155    45,416    97,169   112,290    311,985   272,383   269,710
Shareholders' equity....   148,164   245,156   243,436   239,248    464,114   460,642   585,702
Common stock
 outstanding............    15,842    21,833    21,851    21,942     32,880    32,818    37,036
OTHER DATA
Cash provided by
 operating activities...  $ 23,412  $ 24,121  $ 31,063  $ 27,068  $  47,887  $ 36,532  $ 31,420
Cash used in investing
 activities.............   (27,072)  (57,430)  (66,740)   (3,820)  (132,082)  (89,811)  (46,279)
Cash (used in) provided
 by financing
 activities.............    (2,239)   42,216    25,821   (11,077)    68,322    36,452    15,550
Interest coverage(1)....      4.2x      5.5x      6.3x      5.0x       4.1x      4.2x      4.1x
Fixed charge
 coverage(2)............      3.7x      5.0x      5.2x      4.4x       3.7x      3.8x      3.6x
Ratio of earnings to
 fixed charges(3).......      3.4x      4.4x      5.0x      4.0x       3.2x      3.4x      3.3x
FUNDS FROM OPERATIONS
Net income..............  $ 28,737  $ 20,037  $ 24,212  $ 22,010  $  89,839  $ 76,581  $ 63,763
Plus: depreciation of
 real estate............     4,787     6,097     7,080     7,864     13,283     9,379    12,635
Provision for investment
 losses.................       --        --        --      2,000        --        --        --
Less: Net gain on sales
 of investments.........   (14,199)     (506)   (1,646)     (221)   (52,825)  (49,578)  (28,160)
                          --------  --------  --------  --------  ---------  --------  --------
Funds from
 operations(4)..........  $ 19,325  $ 25,628  $ 29,646  $ 31,653  $  50,297  $ 36,382  $ 48,238
                          ========  ========  ========  ========  =========  ========  ========
OTHER INFORMATION (AT
 END OF PERIOD)
Total completed
 apartment communities..         8        13        21        23         53        52        56(5)
Total number of
 completed apartment
 units..................     2,334     3,442     5,067     5,475     12,212    11,572    13,543(5)
</TABLE>
- --------
(1) Interest coverage represents net income, less net gain on sales of
    investments, plus the provision for investment loss, interest expense, and
    depreciation, divided by interest expense.
 
(2) Fixed charge coverage represents net income, less net gain on sales of
    investments, plus the provision for investment loss, interest expense, and
    depreciation, divided by the sum of interest expense and scheduled
    principal payments on debt.
 
                                     S-12
<PAGE>
 
(3) For the purposes of computing these ratios, earnings have been calculated
    by adding fixed charges to income before net gains (losses) on sales of
    investments. Fixed charges consist of interest costs (including
    capitalized interest), amortization of debt expense and one-third of the
    rental expense, which is deemed to be the interest component of rental
    expense. Assuming that the TCR-West Transaction, the offering of the Notes
    made hereby and the application of the estimated net proceeds therefrom to
    repay indebtedness as described above under "Use of Proceeds" had occurred
    on January 1, 1996, the ratio of earnings to fixed charges on a pro forma
    basis would have been 2.4x for the nine months ended September 30, 1997
    and 2.5x for the year ended December 31, 1996. The foregoing pro forma
    information does not purport to represent the actual ratios of earnings to
    fixed charges that would have occurred had the TCR-West Transaction and
    the offering of the Notes and the application of the estimated net
    proceeds therefrom in fact occurred on the date specified, nor does it
    purport to be indicative of ratios of earnings to fixed charges that may
    be achieved in the future. The foregoing pro forma information is subject
    to a number of estimates, assumptions and other uncertainties and should
    be read in conjunction with the pro forma financial statements and other
    information set forth herein under "Pro Forma Condensed Consolidated
    Financial Statements."
 
(4) Management considers funds from operations ("FFO") to be an appropriate
    supplemental measure of the performance of an equity REIT because it is
    predicated on cash flow analyses which facilitate an understanding of the
    operating performances of the Company's properties without giving effect
    to non-cash items such as depreciation. FFO is defined by the National
    Association of Real Estate Investment Trusts, Inc. as net income (loss)
    (computed in accordance with generally accepted accounting principles)
    excluding gains or losses from debt restructuring and sales of property,
    plus depreciation and amortization of real estate assets. FFO does not
    represent cash generated from operating activities in accordance with
    generally accepted accounting principles, and therefore should not be
    considered as a substitute for net income as a measure of results of
    operations or for cash flow from operations as a measure of liquidity.
    Additionally, the application and calculation of FFO by other REITs may
    vary materially from that of the Company, and therefore the Company's FFO
    and the FFO of other REITs may not be directly comparable.
 
(5) Totals do not reflect the November 18, 1997 completion of the TCR-West
    Transaction. At November 30, 1997, the Company's multifamily portfolio
    included 73 completed apartment communities aggregating 18,329 units and
    eight apartment communities under development aggregating approximately
    2,445 units.
 
                                     S-13
<PAGE>
 
             PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
  The accompanying unaudited pro forma condensed consolidated balance sheet is
presented as if the TCR-West Transaction had been consummated on September 30,
1997. The accompanying unaudited pro forma condensed consolidated statements
of operations are presented as if the TCR-West Transaction had been
consummated on January 1, 1996 and include the historical operating results of
the 17 completed properties acquired in the TCR-West Transaction.
 
  The pro forma balance sheet assumes that in consideration for the 17
completed properties, eight Development Properties and other assets acquired
in the TCR-West Transaction, 3,713,331 Common Shares valued at approximately
$100 million in the aggregate (assuming a market price of $26.93 per Common
Share) were issued, $160 million of cash was paid (financed primarily by
borrowings under the Credit Facility), $126 million in debt was assumed and OC
Units (including Performance OC Units but excluding OC Units issued to the
Company and Development OC Units) valued at approximately $76 million in the
aggregate (assuming a market price of $26.93 per OC Unit) were issued. The OC
Units issued to parties other than the Company are reflected in the
accompanying pro forma condensed consolidated financial statements as minority
interests. The consideration does not include up to a maximum of 627,594
Development OC Units valued at approximately $17 million (assuming a market
price of $26.93 per OC Unit) which are issuable only if certain completion
schedule and budget objectives related to the Development Properties are met
in the future. Such consideration will be recorded when, and if, it becomes
probable that the criteria will be met, and the issuance of such Development
OC Units will be reflected in the Company's financial statements using the
market price of the Common Shares into which the Development OC Units are
exchangeable at the time such Development OC Units become issuable.
 
  The TCR-West Transaction will be accounted for as an acquisition by the
Company under the purchase method of accounting in accordance with Accounting
Principles Board Opinion No. 16. Accordingly, the purchase price for the
portfolio was allocated among development and completed properties based on
their estimated relative fair market values. Each asset acquired by TCR-West
during the periods covered by the unaudited pro forma statements of operations
was assumed to have been acquired by the Company at the same time as TCR-West
acquired the asset and, as a result, the accompanying unaudited pro forma
condensed statements of operations do not reflect the results of operations of
all of the acquired properties for the entire periods covered by such
financial statements. It is assumed that the consideration for the purchase
price of each asset was comprised of cash, Common Shares and OC Units in the
same relative proportions as that in the final acquisition price for all
properties, and that the value of the Common Shares and OC Units issued in the
transaction was $26.93 per Common Share and OC Unit .
 
  This data further assumes that the Company distributed at least 95% of its
taxable income and met all other requirements to qualify as a REIT and,
therefore, incurred no federal or state income tax expense during the period
from January 1, 1996 through September 30, 1997. In the opinion of the
Company, all material adjustments necessary to reflect the effects of the TCR-
West Transaction have been made.
 
  The pro forma condensed consolidated financial statements are unaudited and
are subject to a number of estimates, assumptions and other uncertainties.
They are presented for informational purposes only and do not purport to be
indicative of the actual financial position or results of operations that
would have occurred had the transactions and events reflected therein in fact
occurred on the dates specified, nor do such financial statements purport to
be indicative of the results of operations or financial condition that may be
achieved by the Company in the future.
 
  The pro forma condensed consolidated financial statements should be read in
conjunction with, and are qualified in their entirety by, the respective
historical financial statements and notes thereto of the Company and of
certain multifamily properties of TCR-West incorporated by reference in the
accompanying Prospectus. Except for the historical information contained
herein, these unaudited pro forma financial statements contain forward-looking
statements regarding the Company and property performance, and are based on
the Company's current expectations and judgment. Actual results could vary
materially depending on a number of risks and uncertainties, including those
described herein under "Forward-Looking Statements" and in the accompanying
Prospectus under "Risk Factors." The Company assumes no liability to update
this information.
 
                                     S-14
<PAGE>
 
                 PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
 
                               SEPTEMBER 30, 1997
                    (UNAUDITED, DOLLAR AMOUNTS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                       PRO FORMA
                                          COMPANY     TRANSACTION     COMPANY
                                       HISTORICAL(1) ADJUSTMENTS(2)  PRO FORMA
                                       ------------- --------------  ----------
                ASSETS
                ------
<S>                                    <C>           <C>             <C>
Equity investments in real estate,
 net..................................   $823,991       $384,607 (3) $1,208,598
Construction in progress..............        --          74,389 (3)     74,389
Cash..................................        875           (875)(2)        --
Other assets..........................     41,217          7,187 (3)     48,404
                                         --------       --------     ----------
  Total assets........................   $866,083       $465,308     $1,331,391
                                         ========       ========     ==========
<CAPTION>
             LIABILITIES
             -----------
<S>                                    <C>           <C>             <C>
Accounts payable and other
 liabilities..........................     10,671          4,071 (3)     14,742
Mortgages.............................    112,710        125,819 (2)    238,529
Unsecured notes payable...............    157,000        159,352 (2)    316,352
                                         --------       --------     ----------
  Total liabilities...................    280,381        289,242        569,623
                                         --------       --------     ----------
Minority interest.....................        --          76,066 (2)     76,066
<CAPTION>
         SHAREHOLDERS' EQUITY
         --------------------
<S>                                    <C>           <C>             <C>
Common Shares.........................        370             37 (2)        407
Additional paid-in capital............    585,332         99,963 (2)    685,295
                                         --------       --------     ----------
  Total shareholder's equity..........    585,702        100,000        685,702
                                         --------       --------     ----------
  Total liabilities and shareholders'
   equity.............................   $866,083       $465,308     $1,331,391
                                         ========       ========     ==========
</TABLE>
 
                                      S-15
<PAGE>
 
                PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
 
                       PRO FORMA TRANSACTION ADJUSTMENTS
 
(1) Historical balance sheet of the Company as of September 30, 1997.
 
(2) Adjustments to record the consideration in the TCR-West Transaction in
    accordance with the purchase method of accounting, based upon a purchase
    price of approximately $462 million, calculated using a value of $26.93
    per Common Share and OC Unit, as follows (in thousands):
 
<TABLE>
     <S>                                                               <C>
     Issuance of Common Shares of the Company......................... $100,000
     Assumption of mortgage and other notes payable...................  125,819
     Borrowings under the Credit Facility.............................  156,640
     Cash paid to fund purchase.......................................      875
     Cash paid to fund direct property acquisition costs, including
      title, legal and environmental due diligence, from borrowings
      under the Credit Facility.......................................    2,712
     OC Units issued in exchange for property contributed by minority
      members of the Operating Company and Blue Ravine................   76,066
                                                                       --------
     Basis in acquired assets......................................... $462,112
                                                                       ========
</TABLE>
 
  The above excludes up to a maximum of 627,594 Development OC Units issuable
  if certain completion schedule and budget objectives related to the
  Development Properties are achieved; whether these criteria will in fact be
  achieved cannot be determined at this time. The minority interest component
  above includes (assuming a value of $26.93 per OC Unit) approximately
  $72 million of OC Units issued in the transaction and approximately $4
  million of Performance OC Units which will be issuable upon the Development
  Properties achieving certain construction, leasing and retention of
  management goals. In the opinion of management, the goals with respect to
  the Development Properties will likely be attained and therefore the
  related Performance OC Units are accounted for as if issued. Distributions
  on the Performance OC Units are accrued currently but will not be paid
  until such units are issued.
 
  The Company expects to incur an estimated $113 million from November 1997
  through 1999 to complete the construction of the eight Development
  Properties. However, no assurance can be given that the actual cost of
  completing these properties will not exceed the estimated amount.
 
(3) The purchase price is allocated as follows (in thousands):
 
<TABLE>
     <S>                                                               <C>
     Equity investments in real estate, net........................... $384,607
     Construction in progress.........................................   74,389
     Other assets.....................................................    7,187
     Accounts payable and other liabilities...........................   (4,071)
                                                                       --------
     Total purchase price allocation.................................. $462,112
                                                                       ========
</TABLE>
 
                                     S-16
<PAGE>
 
            PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
 
                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
        (UNAUDITED, DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                                          PRO FORMA
                                COMPANY      TCR-WEST    TRANSACTION     COMPANY
                             HISTORICAL(1) HISTORICAL(2) ADJUSTMENTS    PRO FORMA
                             ------------- ------------- -----------    ---------
<S>                          <C>           <C>           <C>            <C>
Revenues:
  Rental...................    $ 91,544       $23,313     $    --       $114,857
  Other....................       6,267         1,599        1,237 (4)     9,103
                               --------       -------     --------      --------
    Total revenues.........      97,811        24,912        1,237       123,960
                               --------       -------     --------      --------
Expenses:
  Real estate expenses.....      31,115         9,709         (511)(5)    40,313
  Depreciation and
   amortization............      12,635           --         5,518 (6)    18,153
  Interest.................      15,344           --         7,849 (7)    23,193
  General and
   administrative..........       3,114           --           702 (8)     3,816
                               --------       -------     --------      --------
    Total expenses.........      62,208         9,709       13,558        85,475
                               --------       -------     --------      --------
Income before gains on
 sales of investments in
 rental properties and
 minority interest in
 consolidated subsidiaries.      35,603        15,203      (12,321)       38,485
Net gain on sales of
 investments in rental
 properties................      28,160           --           --         28,160
                               --------       -------     --------      --------
Income before minority
 interest in consolidated
 subsidiaries..............      63,763        15,203      (12,321)       66,645
Minority interest in
 consolidated subsidiaries.         --            --           700 (9)       700
                               --------       -------     --------      --------
    Net income.............    $ 63,763       $15,203     $(13,021)     $ 65,945
                               ========       =======     ========      ========
Earnings per share and
 share equivalent:
Income before gains on
 sales of investments in
 rental properties and
 minority interest in
 consolidated subsidiaries.    $   1.02           --           --       $   0.96
Net gain on sales of
 investments in rental
 properties................    $   0.81           --           --       $   0.70
                               --------                                 --------
Earnings per share and
 share equivalent..........    $   1.83           --           --       $   1.66
                               ========                                 ========
Weighted average shares and
 share equivalents
 outstanding(10)...........      34,790           --         5,198        39,988
                               ========                   ========      ========
Funds from Operations:
Net income.................    $ 63,763       $15,203     $(13,021)     $ 65,945
Less: net gain on sale of
 investments...............     (28,160)          --           --        (28,160)
Plus: depreciation and
 amortization..............      12,635           --         5,518        18,153
Plus: minority interest....         --            --           700           700
                               --------       -------     --------      --------
Funds from operations(11)..    $ 48,238       $15,203     $ (6,803)     $ 56,638
                               ========       =======     ========      ========
</TABLE>
 
                                      S-17
<PAGE>
 
            PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
 
                      FOR THE YEAR ENDED DECEMBER 31, 1996
        (UNAUDITED, DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                                          PRO FORMA
                                COMPANY      TCR-WEST    TRANSACTION   COMPANY
                             HISTORICAL(1) HISTORICAL(3) ADJUSTMENTS   PRO FORMA
                             ------------- ------------- -----------   ---------
<S>                          <C>           <C>           <C>           <C>
Revenues:
  Rental...................     $93,135       $18,420      $   --      $111,555
  Other....................       8,516         1,223        1,649 (4)   11,388
                                -------       -------      -------     --------
    Total revenues.........     101,651        19,643        1,649      122,943
                                -------       -------      -------     --------
Expenses:
  Real estate expenses.....      31,030         8,179         (472)(5)   38,737
  Depreciation and
   amortization............      13,283           --         4,368 (6)   17,651
  Interest.................      16,325           --         6,334 (7)   22,659
  General and
   administrative..........       3,999           --           885 (8)    4,884
                                -------       -------      -------     --------
    Total expenses.........      64,637         8,179       11,115       83,931
                                -------       -------      -------     --------
Income before gains on
 sales of investments in
 rental properties and
 minority interest in
 consolidated subsidiaries.      37,014        11,464       (9,466)      39,012
Net gain on sales of
 investments in rental
 properties................      52,825           --           --        52,825
                                -------       -------      -------     --------
Income before minority
 interest in consolidated
 subsidiaries..............      89,839        11,464       (9,466)      91,837
Minority interest in
 consolidated subsidiaries.         --            --           447 (9)      447
                                -------       -------      -------     --------
    Net income.............     $89,839       $11,464      $(9,913)    $ 91,390
                                =======       =======      =======     ========
Earnings per share and
 share equivalents:
Income before gains on
 sales of investments in
 rental properties and
 minority interest in
 consolidated subsidiaries.     $  1.21                                $   1.16
Net gain on sales of
 investments in rental
 properties................     $  1.73                                $   1.57
                                -------                                --------
Earnings per share and
 share equivalent..........     $  2.94                                $   2.73
                                =======                                ========
Weighted average shares and
 share equivalents
 outstanding(10)...........      30,520                      3,078       33,598
                                =======                    =======     ========
Funds from Operations:
Net income.................     $89,839       $11,464      $(9,913)    $ 91,390
Less: net gain on sales of
 investments...............     (52,825)          --           --       (52,825)
Plus: depreciation and
 amortization..............      13,283           --         4,368       17,651
Plus: minority interest....         --            --           447          447
                                -------       -------      -------     --------
Funds from operations(11)..     $50,297       $11,464      $(5,098)    $ 56,663
                                =======       =======      =======     ========
</TABLE>
 
                                      S-18
<PAGE>
 
           PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
 
                       PRO FORMA TRANSACTION ADJUSTMENTS
 
(1) Historical operating results of the Company for the periods indicated.
 
(2) Historical operating results of the multifamily properties of TCR-West for
    the nine months ended September 30, 1997.
 
(3) Historical operating results of the multifamily properties of TCR-West for
    the year ended December 31, 1996.
 
(4) Represents management fees, net of expense, for third party property
    management activities, assuming all clients consented to continue the
    contracts under the Company. This assumption constitutes forward-looking
    information and there can be no assurance that TCR-West's former clients
    will consent to the Company's assuming the duties of property manager,
    which would result in a decline in management fees. See "Forward-Looking
    Statements." In addition, management contracts are generally terminable by
    the clients upon 30 days notice. See "Risk Factors--Risks of Third Party
    Management Business" in the accompanying Prospectus.
 
(5) Net decrease in real estate expenses as a result of the TCR-West
    Transaction are assumed as follows:
 
<TABLE>
<CAPTION>
                                                      NINE MONTHS
                                                         ENDED      YEAR ENDED
                                                     SEPTEMBER 30, DECEMBER 31,
                                                         1997          1996
                                                     ------------- ------------
     <S>                                             <C>           <C>
     Operating expense decrease due to
      internalization of TCR-West property
      management....................................     $(309)       $(296)
     Net additional cost of insurance for TCR-West
      properties, including earthquake risk.........        74           72
     Construction related expenditures expensed by
      TCR-West which would have been capitalized
      under the Company's accounting policy.........      (458)        (471)
     Property tax increase due to California
      Proposition 13 reassessments of TCR-West
      properties acquired by the Company............       182          223
                                                         -----        -----
     Pro forma adjustment...........................     $(511)       $(472)
                                                         =====        =====
</TABLE>
 
  The foregoing data constitutes forward-looking information as to the cost
  and availability of earthquake and other insurance, the increases in
  property taxes and the decreases in property management expense. See
  "Forward-Looking Statements." The actual results could vary materially from
  these assumed results depending upon, among other items, the ability of the
  Company to integrate its operations with the businesses acquired from TCR-
  West, as well as market and regulatory conditions and certain of the
  matters discussed in the accompanying Prospectus under "Risk Factors."
 
(6) Increase in depreciation expense provided on the cost basis of the
    properties acquired from TCR-West at the Company's purchase price.
    Depreciation expense is provided for the actual period during which
    TCR-West owned the asset and the asset was in operation. Accordingly,
    actual depreciation expense when all of the completed multi-family
    properties acquired from TCR-West are included for a full twelve months of
    operations will be substantially higher. In addition, the increase in
    depreciation expense does not reflect any depreciation expense for the
    multi-family properties acquired from TCR-West which are under
    development. Depreciation was calculated utilizing an estimated useful
    life of 40 years and a cost basis of approximately $460 million (allocated
    80% to buildings and improvements in accordance with the Company's
    accounting policies) as follows:
 
<TABLE>
<CAPTION>
                                                     NINE MONTHS
                                                        ENDED      YEAR ENDED
                                                    SEPTEMBER 30, DECEMBER 31,
                                                        1997          1996
                                                    ------------- ------------
     <S>                                            <C>           <C>
     Pro forma depreciation expense on cost of
      depreciable assets acquired..................    $5,518        $4,368
                                                       ------        ------
     Pro forma adjustment..........................    $5,518        $4,368
                                                       ======        ======
</TABLE>
 
                                     S-19
<PAGE>
 
           PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
 
                PRO FORMA TRANSACTION ADJUSTMENTS--(CONTINUED)
 
 
(7) Increase in interest expense as follows:
 
<TABLE>
<CAPTION>
                                                       NINE MONTHS
                                                          ENDED      YEAR ENDED
                                                      SEPTEMBER 30, DECEMBER 31,
                                                          1997          1996
                                                      ------------- ------------
     <S>                                              <C>           <C>
     Interest expense on TCR-West loans assumed.....     $ 4,912      $ 4,126
     Capitalized interest on qualified construction
      expenditures for the period during which
      properties were under development.............      (3,754)      (2,537)
     Additional interest on borrowings under the
      Credit Facility at an assumed interest rate of
      6.60% ........................................       6,691        4,745
                                                         -------      -------
     Pro forma adjustment...........................     $ 7,849      $ 6,334
                                                         =======      =======
</TABLE>
 
  A portion of the Credit Facility borrowings incurred to finance the TCR
  West Transaction will be repaid with the net proceeds from the Notes
  offered hereby. It is anticipated that the Notes will have an interest rate
  higher than the assumed interest rate on the borrowings being repaid.
 
(8) Increases in general and administrative costs are assumed as follows:
 
<TABLE>
<CAPTION>
                                                       NINE MONTHS
                                                          ENDED      YEAR ENDED
                                                      SEPTEMBER 30, DECEMBER 31,
                                                          1997          1996
                                                      ------------- ------------
   <S>                                                <C>           <C>
     Additional costs to manage larger portfolio and
      administer the Operating Company..............      $702          $885
                                                          ----          ----
     Pro forma adjustment...........................      $702          $885
                                                          ====          ====
</TABLE>
 
  The foregoing data constitutes forward-looking information as to the costs
  associated with administrating a larger portfolio and the Operating Company
  itself. See "Forward-Looking Statements." Actual results could vary
  materially depending on, among other things, the ability of the Company to
  integrate its operations with the businesses acquired from TCR-West, as
  well as market and regulatory conditions and certain of the other factors
  described in the accompanying Prospectus under "Risk Factors."
 
(9) Represents the allocable earnings on 2,824,587 OC Units and Performance OC
    Units (described above) held by the minority members of the Operating
    Company and Blue Ravine. Each asset acquired by TCR-West during the
    periods covered by the unaudited pro forma statements of operations was
    assumed to have been acquired by the Company at the same time as TCR-West
    acquired the asset, and the acquisition cost (including cash, debt, Common
    Shares, OC Units and Performance OC Units) paid by the Company for each
    such asset is assumed to be in the same relative composition as in the
    final actual purchase price for the 17 completed properties. Includes
    earnings associated with Performance OC Units because cash distributions
    will be accrued on such units as if they were issued and because the
    construction, leasing and retention of management goals for their issuance
    will, in the opinion of management, likely be met. Such Performance OC
    Units are assumed to have been issued at January 1, 1996.
 
(10) Net income per share is based upon the average weighted number of shares
     and share equivalents associated with property operations assumed
     outstanding during the period. OC Units are assumed to be common stock
     equivalents. Commencing November 18, 1998, OC Units will be exchangeable
     for Common Shares at a rate of one OC Unit per Common Share, subject to
     adjustment under certain circumstances.
 
(11) See Note (4) to "Selected Consolidated Financial and Other Data" for
     information concerning funds from operations.
 
                                     S-20
<PAGE>
 
                            BUSINESS AND PROPERTIES
 
GENERAL
 
  BRE Properties, Inc. is a fully integrated real estate operating company
which owns, acquires, develops, rehabilitates and manages apartment
communities in twelve targeted metropolitan markets in the western United
States. As of November 30, 1997, BRE's multifamily portfolio included 73
completed apartment communities aggregating 18,329 units in California,
Arizona, Washington, Oregon, Nevada, New Mexico and Utah and eight apartment
communities under development aggregating approximately 2,445 units. See
"Recent Developments--TCR-West Transaction" and "--Property Acquisitions." On
that date, BRE also owned five commercial and retail properties and held
limited partnership interests in two shopping centers and one apartment
community.
 
  The Company's business objective is to become the preeminent owner,
developer and operator of apartment communities in key growth markets of the
western United States. To further this objective, the Company implemented a
strategic plan in 1996, many goals of which have been achieved, including the
establishment of internal property management, the disposition of
substantially all non-core, non-apartment assets and increased liquidity of
the Common Shares. In addition, on November 18, 1997, the Company completed
the acquisition of certain assets and operations of TCR-West, which further
advanced significant objectives of the strategic plan. See "Recent
Developments -- TCR-West Transaction." As a result of the acquisition, BRE:
 
 .  Increased the number of completed multifamily units owned on the
   acquisition date from 13,543 to 18,329;
 
 .  Acquired eight apartment communities under development aggregating
   approximately 2,445 units;
 
 .  Added development, construction and third party management capabilities,
   creating fully-integrated multifamily real estate operations;
 
 .  Further strengthened and deepened the senior management team; and
 
 .  Significantly increased the geographic diversification of the portfolio by
   expanding from nine western markets to 12, establishing a critical mass of
   at least 1,000 multifamily units in seven markets, which the Company
   believes will enable it to achieve additional operating efficiencies.
 
   The Company believes that its future growth will be supported by the
continued implementation of its strategic plan. Key characteristics of the
plan are:
 
 .  A research-driven investment focus which includes:
 
  -- The acquisition and development of apartment communities in defined
     western United States markets;
 
  -- The balancing of its multifamily portfolio across western metropolitan
     markets with diverse economic and employment characteristics to reduce
     individual market risk;
 
  -- The selective sale of properties which management believes have reached
     maximum cash flow potential;
 
 .Utilization of the Company's fully-integrated multifamiliy operations to
continue to achieve operating efficiencies through internal property
management and to target attractive opportunities -- acquisition, development
or rehabilitation -- in each of its markets; and
 
 .  The maintenance of a strong balance sheet to enhance financial flexibility.
 
  All of the properties and operations acquired in the TCR-West Transaction
are held through newly-formed or newly-acquired subsidiaries of BRE. These
include the Operating Company, which acquired properties with a book value of
approximately $430 million, and Blue Ravine, which acquired a single property
with a book value of approximately $30 million. BRE is the sole managing
member of the Operating Company and, as of November 30, 1997, owned
approximately 70% of the outstanding OC Units of the Operating Company. The
remaining OC Units of the Operating Company (all of which will be exchangeable
at the option of the holders thereof, commencing on November 18, 1998, into
Common Shares or, at the option of BRE, cash in an
 
                                     S-21
<PAGE>
 
amount equal to the market value of such Common Shares at the time of
exchange) are owned by other, non-managing members of the Operating Company.
BRE also holds approximately 88% of the outstanding OC Units in and is the
sole managing member of Blue Ravine. The OC Units issued by Blue Ravine will
be exchangeable for Common Shares (or at BRE's option, cash) upon terms
similar to those applicable to the Operating Company. It is expected that Blue
Ravine will be merged with and into the Operating Company, with the Operating
Company as the surviving entity, on or after November 30, 1998. Upon such
merger, the OC Units issued by Blue Ravine will be changed into a like number
of OC Units of the Operating Company. See "Recent Developments--TCR-West
Transaction" and "The Operating Company."
 
INVESTMENT FOCUS
 
  BRE's research-driven investment focus seeks to identify markets in the
western United States that exhibit strong demographic and economic trends. The
Company has focused its investment in the western United States because based
on its current research the Company believes that its targeted western markets
will outperform the nation as a whole in employment growth and multifamily
household formations, which it believes will provide the Company with
significant growth potential.
 
  Properties are selected for purchase based on proximity to major employment
and transportation centers and opportunities to increase cash flow by
upgrading property management, marketing or physical attributes. The Company
does not limit its investment focus to a single multifamily property type;
rather it selects those assets that it believes present opportunities for
increased levels of cash flow. In the eleven months ended November 30, 1997,
the Company added through acquisition (in addition to the TCR-West
Transaction) approximately 6,177 completed apartment units, representing
approximately $527 million in assets, to its portfolio. As a result of the
TCR-West Transaction, the Company acquired approximately 2,445 additional
apartment units under various stages of construction or development with a
book value of approximately $74 million and an estimated cost to complete of
$113 million to be incurred from November 1997 through 1999.
 
  To create long-term shareholder value, the Company believes that investment
decisions should be driven by extensive research and risk-management
considerations. BRE employs a full-time Director of Research who evaluates
potential markets based on the following considerations, among others:
inventory size, new construction, supply constraints, and economic and
demographic changes affecting residential demand. The objective of in-house
research is to balance the Company's portfolio across western metropolitan
markets with diverse economic and employment characteristics to reduce
individual market risk.
 
  The Company believes that dispositions play a critical role in its overall
strategy. From time to time, the Company, based on its extensive research,
selects properties for sale that it believes have reached maximum cash flow
potential. Proceeds generated by such sales are typically reinvested into
properties that it believes have greater long-term cash flow growth prospects.
 
INTERNAL PROPERTY MANAGEMENT
 
  All of the Company's multifamily properties are managed internally. The
Company has a regional management structure with eight local offices to serve
its target markets. By hiring experienced Divisional and Regional Property
Managers at the local level, BRE believes it can more readily respond to
changes in local market conditions and better serve its local resident
populations. The Company supports its management personnel with information
systems which track leasing, rent collection, expense activity and turnover at
each of its communities. The Regional Property Managers develop and implement
an annual business plan for each asset which:
 
  .    Focuses on the growth of rental income and other revenues with the
       objective of keeping rental rates at or above those of competitive
       properties;
 
  .    Focuses on maintaining high physical and economic occupancy by
       integrating local market knowledge and surveys with market research
       prepared by the Company's Director of Research;
 
 
                                     S-22
<PAGE>
 
  .    Provides amenities and services designed to enhance revenues from
       target resident profiles; and,
 
  .    Controls expenses and allocates resources in order to increase the
       operating margins of each asset.
 
  The plan for each asset may include selected renovations and improvements to
undermanaged acquisition properties or to properties that are currently
underperforming their submarkets.
 
BALANCE SHEET STRENGTH AND FINANCIAL ACCOUNTING POLICIES
 
  The Company's goal is to manage its capital structure prudently in order to
enhance its financial flexibility. To promote this goal, BRE maintains
conservative debt coverage ratios. For the nine months ended September 30,
1997, the Company had a fixed charge coverage ratio of 3.6:1 and an interest
coverage ratio of 4.1:1 (both calculated as described under "Selected
Consolidated Financial and Other Data"); as adjusted to give effect to the
TCR-West Transaction on a pro forma basis as if the TCR-West Transaction had
occurred on January 1, 1996, such ratios would be 3.1:1 and 3.4:1,
respectively. See note (3) under "Selected Consolidated Financial and Other
Data" and "Pro Forma Condensed Consolidated Financial Statements" for certain
cautionary information regarding pro forma data. In addition, the Company
follows conservative accounting policies with respect to the treatment of
recurring operating expenses. For example, the replacement costs for carpet,
window coverings and appliances are charged to current operating periods and
are not capitalized.
 
  The Company intends to manage its balance sheet in order to maintain
investment grade senior debt ratings, which enhances the Company's flexibility
in the capital markets. However, the ratings on the Company's indebtedness
will depend upon, among other things, its results of operations and financial
condition and there can be no assurance that the Company will be able to
maintain investment grade senior debt ratings in the future.
 
 
                                     S-23
<PAGE>
 
                              COMPLETED PROPERTIES
                           (AS OF NOVEMBER 30, 1997)
 
<TABLE>
<CAPTION>
                                         NUMBER
PROPERTIES BY                              OF    YEAR     YEAR     MORTGAGE        PHYSICAL   RENTABLE
METROPOLITAN MARKET           CITY       UNITS   BUILT  ACQUIRED INDEBTEDNESS    OCCUPANCY(1)  SQ. FT.
- -------------------      --------------- ------ ------- -------- ------------    ------------ ---------
<S>                      <C>             <C>    <C>     <C>      <C>             <C>          <C>
APARTMENTS
CALIFORNIA
 SAN FRANCISCO BAY AREA
  Verandas.............. Union City        282     1989   1993   $11,739,836          99%       199,152
  Sharon Green.......... Menlo Park        296     1970   1971    18,612,534          95%       321,944
  Foster's Landing...... Foster City       490     1987   1996                        97%       414,918
  Promontory Point...... San Ramon         400     1992   1996                        89%       337,064
  Red Hawk Ranch........ Fremont           453     1995   1997                        98%       404,034
  Lakeshore Landing..... Foster City       308     1988   1997                        95%       223,772
  Deer Valley........... San Rafael        171     1996   1997                        93%       167,492
  Blue Rock Village I... Vallejo           280     1986   1997    12,895,000          94%       223,936
  Blue Rock Village II.. Vallejo           280     1988   1997    14,500,000          93%       223,936
                                         -----                   -----------                  ---------
   Total San Francisco Bay Area......... 2,960                   $57,747,370                  2,516,248
                                         =====                   ===========                  =========
 SAN DIEGO
  Canyon Villas......... Chula Vista       183     1981   1996                        98%       179,043
  Lakeview Village...... Spring Valley     300     1985   1996                        98%       246,932
  Countryside Village... El Cajon           96     1989   1996                        99%        70,980
  Montanosa............. San Diego         472     1990   1992   $16,700,017          96%       352,248
  Cimmaron.............. San Diego         184     1986   1993    12,743,850          96%       146,472
  Hacienda.............. San Diego         192     1986   1993              (2)       97%       148,624
  Westpark.............. San Diego          96     1986   1993              (2)       99%        71,760
  Terra Nova Villas..... Chula Vista       232     1985   1994     9,240,000          94%       185,440
  Winchester............ San Diego         144     1987   1994                        98%       112,744
                                         -----                   -----------                  ---------
   Total San Diego...................... 1,899                   $38,683,867                  1,514,243
                                         =====                   ===========                  =========
 LOS ANGELES/ORANGE COUNTY
  Park Glenn............ Camarillo         150     1963   1996                        97%       108,255
  Santa Paula Village... Santa Paula        56     1970   1996                        96%        35,000
  Windrush Village...... Colton            366     1985   1996                        95%       308,000
  The Summit............ Chino Hills       125     1989   1996                        98%        98,420
  Candlewood North...... Northridge        189  1964/95   1996                        96%       165,890
  Village Green......... La Habra          272     1971   1972                        99%       175,508
  Sycamore Valley....... Fountain Valley   440     1969   1996                        96%       413,616
  Parkside Village...... Riverside         304     1987   1997   $ 9,173,442          95%       266,816
  Parkside Terrace...... Santa Ana         240     1987   1997     9,583,832          97%       194,040
  Parkside Court........ Santa Ana         210     1986   1997     8,064,035          96%       169,050
                                         -----                   -----------                  ---------
   Total LA/Orange County............... 2,352                   $26,821,309                  1,934,595
                                         =====                   ===========                  =========
 SACRAMENTO
  Hazel Ranch........... Fair Oaks         208     1985   1996                        97%       156,464
  Rocklin Gold.......... Rocklin           121     1990   1996                        98%       117,238
  Shaliko............... Rocklin           151     1990   1996                        99%       153,974
  Quail Chase........... Folsom             90     1990   1996                        97%        83,100
  Canterbury Downs...... Roseville         173     1993   1996                        97%       155,000
  Selby Ranch........... Sacramento        400  1971/74   1986   $12,194,979          96%       396,442
  Overlook at Blue
  Ravine................ Folsom            400     1991   1997                        99%       386,256
                                         -----                   -----------                  ---------
   Total Sacramento..................... 1,543                   $12,194,979                  1,448,474
                                         =====                   ===========                  =========
</TABLE>
 
 
                                      S-24
<PAGE>
 
<TABLE>
<CAPTION>
                                     NUMBER
PROPERTIES BY                          OF    YEAR     YEAR     MORTGAGE     PHYSICAL   RENTABLE
METROPOLITAN MARKET         CITY     UNITS   BUILT  ACQUIRED INDEBTEDNESS OCCUPANCY(1)  SQ. FT.
- -------------------      ----------- ------ ------- -------- ------------ ------------ ---------
<S>                      <C>         <C>    <C>     <C>      <C>          <C>          <C>
ARIZONA
 PHOENIX
  Los Senderos.......... Phoenix       120     1980    1996                    95%        98,884
  Shadow Bend........... Scottsdale    108     1982    1996                    94%        99,256
  Brentwood............. Phoenix       224     1980    1996                    96%       153,089
  Park Scottsdale....... Scottsdale    128     1979    1996                    98%       100,520
  Posada del Este....... Phoenix       148     1981    1996                    96%       128,152
  Fairway Crossings..... Phoenix       310     1985    1996                    95%       293,540
  Scottsdale Cove....... Scottsdale    316  1992/94    1991                    97%       189,840
  Arcadia Cove ......... Phoenix       432     1996    1996                    97%       366,780
  Newport Landing ...... Glendale      480  1987/96 1995/96                    97%       383,160
  Pinnacle at South
   Mountain I........... Phoenix       360     1996    1997  $ 15,496,749      98%       360,000
  Pinnacle at South
   Mountain II.......... Phoenix       192     1996    1997    10,647,171      98%       204,432
  Pinnacle at Union
   Hills................ Phoenix       264     1997    1997                    94%       265,648
                                     -----                   ------------              ---------
   Total Phoenix.................... 3,082                   $ 26,143,920              2,643,301
                                     =====                   ============              =========
 TUCSON
  Hacienda del Rio...... Tucson        248     1983    1994  $  5,481,945      96%       152,504
  Colonia del Rio....... Tucson        176     1985    1994     5,132,621      95%       177,760
  Springhill............ Tucson        224     1987    1994     5,193,299      94%       175,520
  Casas Lindas.......... Tucson        144     1987    1994                    97%       150,080
  Camino Seco Village... Tucson        168     1984    1995     4,121,196      95%       150,892
  Oracle Village........ Tucson        144     1983    1994     4,085,685      94%       129,336
  Fountain Plaza........ Tucson        197     1975    1994     3,080,306      96%       107,294
  Pinnacle Heights...... Tucson        310     1995    1997                    96%       307,840
  Pinnacle Canyon....... Tucson        225     1996    1997    11,567,782      96%       228,931
                                     -----                   ------------              ---------
   Total Tucson..................... 1,836                   $ 38,662,834              1,580,157
                                     =====                   ============              =========
WASHINGTON
 SEATTLE
  Parkwood.............. Mill Creek    240     1989    1989                    98%       256,256
  Shadowbrook........... Redmond       352     1986    1987                    98%       274,504
  Citywalk.............. Seattle       102     1988    1988                    95%        90,672
  Thrasher's Mill....... Bothell       214     1988    1996                    95%       165,386
  Ballinger Commons..... Seattle       485     1989    1996                    95%       407,253
  The Park at Dashpoint. Federal Way   280     1989    1997                    92%       264,552
                                     -----                                             ---------
   Total Seattle.................... 1,673                                             1,458,623
                                     =====                                             =========
OREGON
 PORTLAND
  Brookdale Glen........ Portland      354     1985    1993                    94%       271,040
  Berkshire Court....... Wilsonville   266     1996    1996                    94%       231,968
                                     -----                                             ---------
   Total Portland...................   620                                               503,008
                                     =====                                             =========
NEVADA
 LAS VEGAS
  Cypress Springs II.... Las Vegas     144     1993    1996                    99%       126,840
  Tango................. Las Vegas     136     1990    1996  $  4,088,499      97%       117,056
  Desert Lakes.......... Las Vegas     184     1991    1996                    96%       188,360
  Talavera.............. Las Vegas     350     1996    1997                    97%       353,724
                                     -----                   ------------              ---------
   Total Las Vegas..................   814                   $  4,088,499                785,980
                                     =====                   ============              =========
</TABLE>
 
                                      S-25
<PAGE>
 
<TABLE>
<CAPTION>
                                        NUMBER
PROPERTIES BY                             OF   YEAR    YEAR     MORTGAGE         PHYSICAL    RENTABLE
METROPOLITAN MARKET           CITY      UNITS  BUILT ACQUIRED INDEBTEDNESS     OCCUPANCY(1)  SQ. FT.
- -------------------      -------------- ------ ----- -------- -------------    ------------ ----------
<S>                      <C>            <C>    <C>   <C>      <C>              <C>          <C>
UTAH
 SALT LAKE CITY
  Pinnacle at Fort
   Union................ Salt Lake City    160 1997    1997                         97%        161,536
  Pinnacle Reserve...... Salt Lake City    492 1997    1997                        (3)         490,440
  Pinnacle Lakeside..... Salt Lake City    252 1985    1997   $   9,182,613         93%        249,000
                                        ------                -------------                 ----------
   Total Salt Lake City................    904                $   9,182,613                    900,976
                                        ======                =============                 ==========
NEW MEXICO
 ALBUQUERQUE
  Pinnacle at High
   Desert............... Albuquerque       430 1995    1997                         96%        441,490
  Pinnacle View......... Albuquerque       216 1985    1997                         92%        193,882
                                        ------                                              ----------
   Total Albuquerque...................    646                                                 635,372
                                        ======                                              ==========
TOTAL APARTMENTS--
 MAJORITY OWNED......... 73 Properties  18,329                $213,525,391 (4)              15,920,977
                                        ======                =============                 ==========
</TABLE>
 
<TABLE>
<CAPTION>
                                                                                 MORTGAGE
PROPERTIES BY                                             YEAR                 INDEBTEDNESS    PHYSICAL
METROPOLITAN MARKET       PROPERTY TYPE         CITY      BUILT YEAR ACQUIRED (IN THOUSANDS) OCCUPANCY(1)
- -------------------      ---------------    ------------- ----- ------------- -------------- ------------
 
OTHER PROPERTIES
<S>                      <C>                <C>           <C>   <C>           <C>            <C>
  Vista Village Center.. Shopping Center    Valencia, CA  1989      1996           --             85%
  Westbar............... Shopping Center(5) Phoenix, AZ   1973      1995           --             99%
  Metro Village......... Shopping Center(5) Phoenix, AZ   1975      1980           --             93%
  Santa Ana ............ Industrial         Santa Ana, CA 1985      1996           --            100%
  Hawthorne/Del Amo .... Retail             Torrance, CA  1985      1996           --            100%
  Buenaventura Med.
   Clinic............... Medical            Ventura, CA   1960      1996           --            100%
  Valencia Medical
   Center............... Medical            Valencia, CA  1985      1996           --             89%
  Chateau de Ville...... Apartment(5)       Anaheim, CA   1970      1970           --             95%
</TABLE>
- -------
(1) For multifamily properties, physical occupancy is calculated by dividing
    the total occupied units by the total units in the portfolio. For
    commercial properties, physical occupancy is calculated by dividing the
    total occupied square footage by the total rentable square footage.
 
(2) These properties are also security for the loan shown on the Cimmarron
    property.
(3) This property was in lease-up at November 30, 1997, and, accordingly, is
    excluded from the physical occupancy data.
(4) Excludes $19 million in mortgage indebtedness secured by Pinnacle at Towne
    Centre, a property under development.
(5) Property held in a partnership where the Company is a minority partner.
    The Company sold this partnership interest in February 1998.
 
                                     S-26
<PAGE>
 
                            DEVELOPMENT PROPERTIES
                           (AS OF NOVEMBER 30, 1997)
 
  The following table sets forth data with respect to the Company's eight
multifamily properties which are currently under construction. Completion of
the Development Properties is subject to a number of risks and uncertainties,
including construction delays and cost overruns. No assurance can be given
that these properties will be completed or, if completed, that they will be
completed by the estimated dates or for the estimated amounts set forth in the
table below or that they will contain the number of proposed units set forth
in the table below.
 
 
<TABLE>
<CAPTION>
                                                                   ESTIMATED
                                                                   ADDITIONAL
                                                                    COST TO
                                            PROPOSED              COMPLETE (AT ESTIMATED ESTIMATED
                                             NUMBER    INVESTMENT NOVEMBER 30,   TOTAL   COMPLETION
PROPERTY NAME(1)             LOCATION      OF UNITS(2) TO DATE(3)    1997)       COST       DATE
- ----------------          --------------- ------------ ---------- ------------ --------- ----------
                                                             (DOLLARS IN MILLIONS)
<S>                       <C>             <C>          <C>        <C>          <C>       <C>
Pinnacle at Towne
 Centre.................  Phoenix, AZ          350       $16.7       $ 13.3     $ 30.0    3Q/1998
Pinnacle Terrace........  Chandler, AZ         300       $ 7.5       $ 13.1     $ 20.6    3Q/1998
Pinnacle at Hunter's
 Glen...................  Thornton, CO         264       $ 5.6       $ 14.2     $ 19.8    4Q/1998
Pinnacle at West
 Flamingo...............  Las Vegas, NV        324       $10.4       $ 15.8     $ 26.2    1Q/1999
Pinnacle Estates........  Albuquerque, NM      294       $ 7.9       $ 14.9     $ 22.8    3Q/1998
Pinnacle at High Resort.  Rio Rancho, NM       301       $ 7.9       $ 14.9     $ 22.8    3Q/1998
Pinnacle at Sand Hill...  Orem, UT             288       $ 9.7       $ 13.1     $ 22.8    2Q/1998
Pinnacle at Clearfield..  Clearfield, UT       324       $ 8.7       $ 14.1     $ 22.8    4Q/1998
                                             -----       -----       ------     ------
 Total..................                     2,445       $74.4       $113.4     $187.8
                                             =====       =====       ======     ======
</TABLE>
- --------
(1) These properties were acquired by the Company on November 18, 1997 in the
    TCR-West Transaction.
 
(2) Proposed number of units. No units had been completed as of November 30,
    1997.
 
(3) Represents the allocation by the Company of the purchase price of the TCR-
    West portfolio among the properties acquired, based on their estimated
    relative fair market values.
 
                                     S-27
<PAGE>
 
                             THE OPERATING COMPANY
 
  The Operating Company is organized as a limited liability company under the
Delaware Limited Liability Company Act (the "Act") and pursuant to the terms
of the Amended and Restated Limited Liability Company Agreement dated as of
November 18, 1997 (the "LLC Agreement"). BRE is the sole managing member of
the Operating Company and, as of November 30, 1997, held approximately 70% of
the outstanding OC Units. The remaining OC Units of the Operating Company are
held by third parties as non-managing members.
 
  The Operating Company and Blue Ravine were formed for the purpose of
acquiring properties in the TCR-West Transaction. Pursuant to this
transaction, the Operating Company acquired ten properties directly and six
properties through subsidiaries, while Blue Ravine acquired one property
directly. It is anticipated that, on or after November 30, 1998, Blue Ravine
will be merged into the Operating Company, whereupon the OC Units in Blue
Ravine will become OC Units in the Operating Company. Blue Ravine is governed
by an Amended and Restated Limited Liability Company Agreement with terms
substantially similar to the LLC Agreement.
 
  A summary of certain provisions of the LLC Agreement is set forth below. The
summary does not purport to be complete and is qualified in its entirety by
reference to applicable provisions of the Act and the complete LLC Agreement,
which is included as an exhibit to the Company's Current Report on Form 8-K
filed on December 18, 1997 which is incorporated by reference as an exhibit to
the registration statement of which the accompanying Prospectus is a part.
 
MANAGEMENT AND OPERATIONS
 
  Subject to the terms of the LLC Agreement and the Act, BRE, as the sole
managing member of the Operating Company, has the exclusive right and power to
manage the Operating Company and the non-managing members have no authority to
transact business for, or participate in the management activities or
decisions of, the Partnership.
 
  Under the terms of the LLC Agreement, the Operating Company is required to
maintain certain debt service coverage, debt-to-asset and other financial
ratios intended to protect the members' rights to receive distributions. In
addition, with respect to certain tax-exempt financing for certain completed
properties, the Operating Company is restricted from prepaying its debt or
taking certain other specified actions which could have adverse tax
consequences for the members. Further, BRE, as the managing member, is
restricted from taking certain other specified actions--either absolutely or
without the consent of a majority in interest of the non-managing members (or
of the non-managing members affected thereby)--including, but not limited to,
any actions that would make it impossible to carry out the business of the
Operating Company, or that would subject a non-managing member to liability as
a managing member, or that would cause the Operating Company to institute
bankruptcy proceedings or confess a judgment, or that would prohibit or
restrict a member from exercising its rights to exchange OC Units for Common
Shares.
 
  Further, BRE may not, without the consent of a majority in interest of the
non-managing members, (i) dispose of any of the properties held by the
Operating Company in a taxable sale or exchange prior to respective dates
which are specified in the LLC Agreement for each of the properties, ranging
from one to ten years from November 18, 1997, or (ii) dissolve the Operating
Company other than incident to a Termination Transaction (as defined in "--
Removal or Withdrawal of BRE as Managing Member; Transferability of BRE's
Interests" below), even if such a disposition or dissolution would be in the
best interest of the Company.
 
CAPITAL AND CAPITAL ACCOUNTS
 
  Each member of the Operating Company has a capital account, which will be
increased by the amounts of any additional capital contributions to the
Operating Company made by the member and all net income and gain allocated to
the member, and will be decreased by the amounts of all distributions made to
the member and all net loss allocated to the member.
 
 
                                     S-28
<PAGE>
 
  If the Operating Company requires additional funds, for the acquisition or
development of additional properties or for any other purpose, such funds may
be raised, at the election and in the discretion of BRE, by selling additional
membership interests or by incurring or assuming debt upon such terms as BRE
deems appropriate. See also "--Distributions and Allocations" below regarding
the obligation of BRE to make capital contributions under certain
circumstances. As of November 30, 1997, BRE had outstanding loans to the
Operating Company and Blue Ravine aggregating $46 million, and repayment of
loans made by BRE to the Operating Company and Blue Ravine is subordinate to
the payment of the Priority Distribution (as defined below) to members other
than BRE.
 
  In connection with the TCR-West Transaction, the Operating Company
guaranteed all borrowings outstanding from time to time under the Company's
$265 million Credit Facility, and it is anticipated that Blue Ravine will also
guarantee borrowings under the Credit Facility. The Operating Company has also
guaranteed all borrowings outstanding under the Sanwa Line of Credit. See "Use
of Proceeds" and "Capitalization."
 
DISTRIBUTIONS AND ALLOCATIONS
 
  All of the Operating Company's Available Cash (as defined below) must be
distributed quarterly: first, to members (other than BRE) until each member
has received, cumulatively on a per OC Unit basis, distributions equal to the
cumulative dividends declared with respect to one Common Share over the
corresponding period (subject to adjustment from time to time as applicable to
account for stock dividends, stock splits and similar transactions affecting
the Common Shares) (the "Priority Distribution"); and second, the balance to
BRE.
 
  If the Operating Company's Available Cash (as defined below) in any
quarterly period is insufficient to permit distribution of the full amount of
the Priority Distribution for that quarter, BRE is required to make a capital
contribution to the Operating Company in an amount equal to the lesser of (i)
the amount necessary to permit the full Priority Distribution or (ii) an
amount equal to the sum of any capital expenditures made by the Operating
Company plus the sum of any payments made by the Operating Company on account
of any loans to or investments in, or any guarantees of the obligations of,
BRE or its affiliates for that quarterly period.
 
  Upon dissolution of the Operating Company, all net liquidation proceeds of
the Operating Company (after payment of or reservation for all liabilities and
claims) will be distributed in accordance with the positive balances in the
members' capital accounts, after adjusting the capital accounts for all net
income or net loss allocable to the members through the date of dissolution.
 
  "Available Cash" means (a) the sum of (1) the Operating Company's net income
or loss, (2) depreciation and all other non-cash charges to the extent
deducted in determining the net income or loss, (3) any reduction in the
reserves, (4) the excess, if any, of the net cash proceeds from the sale,
exchange, disposition, financing or refinancing, of property over the gain (or
loss) recognized, and (5) all other cash received or any net amounts borrowed
and not included in net income or net loss, less (b) the sum of (1) all
principal debt payments, (2) capital expenditures, (3) investments in any
entity (including loans), (4) all other expenditures and payments not deducted
in determining net income or loss, (5) any amount included in determining net
income or loss that was not actually received, and (6) any increase of
reserves.
 
EXCHANGE RIGHTS
 
  Beginning November 18, 1998, the OC Units are exchangeable for Common Shares
at a rate of one Common Share for each OC Unit exchanged (with the exchange
ratio subject to adjustment in the event of stock splits, stock dividends,
issuance of certain rights, certain extraordinary distributions and similar
events affecting the Common Shares) or, at BRE's election, cash in an amount
equal to the market value at the time of the exchange of the Common Shares
issuable upon such exchange. Whether to issue Common Shares or cash in
exchange for OC Units is an election made by BRE in its sole discretion,
subject only to such restrictions as may be imposed by its Articles of
Incorporation, applicable law, or other instruments.
 
                                     S-29
<PAGE>
 
REGISTRATION RIGHTS
 
  BRE has an effective registration statement covering the resale of the
3,713,331 Common Shares issued in the TCR-West Transaction and has agreed to
file a registration statement covering the resale of the Common Shares which
may be issued in connection with the TCR-West Transaction upon the exchange of
OC Units. BRE has agreed to use reasonable efforts to keep such registration
statements continuously effective, so long as BRE remains eligible to use Form
S-3, (i) until two years from the effective date, with respect to the
registration statement for the 3,713,331 Common Shares, and (ii) until the
earlier of the tenth anniversary of the effective date of the registration
statement or the date upon which less than 10% of the OC Units issued pursuant
to the TCR-West Transaction are outstanding, with respect to the Common Shares
issued in exchange for such OC Units. If BRE becomes ineligible to use Form S-
3 before its registration obligations otherwise terminate, the holders of such
OC Units and the 3,713,331 Common Shares will have certain demand and "piggy
back" registration rights.
 
REMOVAL OR WITHDRAWAL OF BRE AS MANAGING MEMBER; TRANSFERABILITY OF BRE'S
INTERESTS
 
  BRE may not be removed as the managing member by the non-managing members,
with or without cause, other than with its consent. BRE may not voluntarily
withdraw from the Operating Company or transfer all or any portion of its
interest in the Operating Company without the consent of all of the non-
managing members, except in certain limited circumstances, such as a sale of
all or substantially all of BRE's assets, or any merger, consolidation or
other combination by BRE with or into another person, or any reclassification,
recapitalization or change of BRE's outstanding equity interests (a
"Termination Transaction").
 
  BRE may engage in a Termination Transaction if all holders of OC Units
either will receive, or will have the right to elect to receive, for each OC
Unit an amount of cash, securities or other property equal to the amount that
would have been paid to the holder if, immediately prior to consummation of
the Termination Transaction, the OC Unit had been exchanged for Common Shares
(see "--Exchange Rights" above). In addition, if in connection with a
Termination Transaction, a purchase, tender or exchange offer shall have been
made to and accepted by the holders of more than 50% of the outstanding Common
Shares, the LLC Agreement further provides that each holder of OC Units will
receive, or will have the right to elect to receive, the greatest amount of
cash, securities or other property which such holder would have received had
it exercised its right to exchange OC Units for Common Shares immediately
prior to the expiration of such purchase, tender or exchange offer and had
thereupon accepted such purchase, tender or exchange offer.
 
TERM; DISSOLUTION
 
  The term of the Operating Company will continue until September 25, 2012
unless extended by unanimous agreement of the members or earlier terminated
pursuant to the terms of the LLC Agreement.
 
  The Operating Company will be dissolved and its affairs wound up upon the
earliest of: (i) the expiration of its term; (ii) the termination of BRE as
managing member due to its withdrawal, dissolution or bankruptcy unless,
within 90 days, a majority in interest of the remaining members elect to
continue the business and appoint a substitute managing member; (iii) after
September 30, 2012, an election to dissolve the Operating Company made by the
managing member; (iv) entry of a decree of judicial dissolution of the
Operating Company pursuant to the provisions of the Act; (v) after September
30, 2012, the sale of all or substantially all of the Operating Company's
assets and properties for cash or marketable securities; (vi) the incapacity
of the managing member unless a majority in interest of the remaining members
elect to continue the business and appoint a substitute managing member; or
(vii) the exchange for Common Shares of all of the OC Units other than those
held by BRE. Any proceeds from the dissolution or liquidation of the Operating
Company shall be applied in the following order of priority: (a) to pay (or
make provision for the payment of) the debts of the Operating Company; (b) to
satisfy the Operating Company's debts and liabilities to the managing member;
(c) to satisfy the Operating Company's debts and liabilities to the non-
managing members; and then (d) to the members of the Operating Company,
including any non-management members holding OC Units, in accordance with
their respective positive capital account balances, after giving effect to all
contributions, distributions and allocations for all periods.
 
                                     S-30
<PAGE>
 
                             DESCRIPTION OF NOTES
 
  The following description of certain terms of the Notes offered hereby
supplements and, to the extent inconsistent therewith, replaces the
description of the general terms and provisions of the Debt Securities set
forth in the accompanying Prospectus. The following statements relating to the
Notes and the Indenture (as defined below) are summaries of certain provisions
contained therein and do not purport to be complete. Such statements are
qualified by reference to the provisions of the Notes and the Indenture,
including the definitions therein of certain terms. Unless otherwise expressly
stated or the context otherwise requires, all references to the "Company"
appearing under this caption "Description of Notes" and under the caption
"Description of Debt Securities" in the accompanying Prospectus shall mean BRE
Properties, Inc., excluding the Operating Company and its other consolidated
subsidiaries. Other capitalized terms used herein but not otherwise defined
shall have the meanings given to them in the accompanying Prospectus or, if
not defined in the Prospectus, in the Indenture referred to below.
 
  The Notes constitute Debt Securities (which are more fully described in the
accompanying Prospectus), to be issued pursuant to an indenture (the
"Indenture") between the Company and Chase Manhattan Bank and Trust Company,
National Association, as successor trustee (the "Trustee"). The terms of the
Notes include those provisions contained in the Indenture and those made part
of the Indenture by reference to the Trust Indenture Act of 1939, as amended
(the "TIA"). The Notes are subject to all such terms, and investors are
referred to the Indenture and the TIA for a statement thereof.
 
GENERAL
 
  The Notes will be a separate series of Debt Securities under the Indenture,
limited in aggregate principal amount to $100,000,000. Such series may not be
reopened for the issuance of additional Debt Securities of such series. The
Notes will be unsecured and unsubordinated obligations of the Company and will
rank on a parity in right of payment with all other unsecured and
unsubordinated indebtedness of the Company from time to time outstanding.
 
  The Notes will be obligations exclusively of the Company. Although the
Company owns a majority of its consolidated assets itself, rather than through
subsidiaries, a substantial portion of its consolidated assets (amounting to
approximately 39% of its total consolidated assets at November 30, 1997) are
held by the Operating Company and other subsidiaries. Accordingly, the cash
flow of the Company and the consequent ability to service its debt, including
the Notes, are partially dependent on the earnings of such subsidiaries and
the Notes will be effectively subordinated to all existing and future
indebtedness, guarantees and other liabilities of such subsidiaries. On a pro
forma basis as of September 30, 1997, after giving effect to the TCR-West
Transaction, the offering of the Notes made hereby and the application of the
estimated net proceeds therefrom as if such transactions had occurred on that
date, the Company's subsidiaries (including the Operating Company) would have
had total long-term liabilities (excluding intercompany liabilities) of
approximately $153 million (consisting entirely of mortgage indebtedness). In
addition, the Operating Company has guaranteed amounts due under the Company's
Credit Facility and the Sanwa Line of Credit, and it is anticipated that Blue
Ravine also will guarantee amounts due under the Credit Facility. Likewise,
the Operating Company, Blue Ravine and other subsidiaries of the Company may
from time to time guarantee other indebtedness of the Company. The Notes will
also be effectively subordinated to any secured indebtedness of the Company to
the extent of any collateral pledged as security therefor. On a pro forma
basis as of September 30, 1997, after giving effect to the TCR-West
Transaction, the offering of the Notes made hereby and the application of the
estimated net proceeds therefrom as if such transactions had occurred on that
date, the Company (excluding its subsidiaries) would have had unsecured senior
indebtedness (including the Notes) aggregating approximately $317 million and
mortgage indebtedness aggregating approximately $86 million, and, in addition,
would have guaranteed approximately $46 million of indebtedness assumed by
certain of its subsidiaries in the TCR-West Transaction. See "Use of Proceeds"
and "Capitalization" herein and "Risk Factors--Real Estate Financing Risks--
Additional Debt" and "Risk Factors--Real Estate Financing Risks--Terms of
Certain Indebtedness" in the accompanying Prospectus. Although the covenants
described in the accompanying Prospectus under "Description of Debt
Securities--Certain Covenants" and the financial covenants in the LLC
Agreement described under "The
 
                                     S-31
<PAGE>
 
Operating Company--Management and Operations" will impose certain limitations
on the incurrence of additional indebtedness, both the Company and its
subsidiaries will retain the ability to incur substantial additional secured
and unsecured indebtedness in the future.
 
  The Notes will be issued only in fully registered form without coupons, in
denominations of $1,000 and integral multiples thereof. The Notes will be
evidenced by a global Note (the "Global Note") in book-entry form, except
under the limited circumstances described in the accompanying Prospectus under
"Description of Debt Securities--Global Securities." The Global Note will be
registered in the name of a nominee of The Depository Trust Company, as
depositary for the Notes. Notices or demands to or upon the Company in respect
of the Notes and the Indenture may be served and, in the event that Notes are
issued in definitive certificated form, Notes may be surrendered for payment,
registration of transfer or exchange, at the office or agency of the Company
maintained for such purpose in the Borough of Manhattan, The City of New York,
which shall initially be the office of the Trustee, which on the date of this
Prospectus Supplement is located at Chase Manhattan Bank and Trust Company,
National Association, Corporate Trust Securities Window, 55 Water Street, Room
234, North Building, New York, New York 10041.
 
INTEREST AND MATURITY
 
  The Notes will mature on February 15,    (the "Maturity Date"). The Notes
are not subject to any sinking fund provisions.
 
  The Notes will bear interest at the rate per annum set forth on the cover
page of this Prospectus Supplement from February   , 1998 or from the most
recent date to which interest has been paid or duly provided for, payable
semi-annually in arrears on each February 15 and August 15 (the "Interest
Payment Dates"), commencing August 15, 1998, to the persons in whose names the
Notes are registered at the close of business on the February 1 or August 1
(the "Regular Record Dates"), as the case may be, immediately prior to such
Interest Payment Dates, regardless of whether any such Regular Record Date is
a Business Day. Interest on the Notes will be computed on the basis of a 360-
day year of twelve 30-day months.
 
  If any Interest Payment Date, any Redemption Date (as defined below), the
Maturity Date, or any other day on which the principal of or premium, if any,
or interest on a Note becomes due and payable falls on a day that is not a
Business Day, the required payment shall be made on the next Business Day as
if it were made on the date such payment was due and no interest shall accrue
on the amount so payable for the period from and after such Interest Payment
Date, Redemption Date, Maturity Date or other date, as the case may be.
 
REDEMPTION AT THE OPTION OF THE COMPANY
 
  The Notes will be redeemable, in whole or from time to time in part, at the
option of the Company on any date (a "Redemption Date"), at a redemption price
equal to the greater of (i) 100% of the principal amount of the Notes to be
redeemed and (ii) the sum of the present values of the remaining scheduled
payments of principal and interest thereon (exclusive of interest accrued to
such Redemption Date) discounted to such Redemption Date on a semiannual basis
(assuming a 360-day year consisting of twelve 30-day months) at the Treasury
Rate plus    basis points, plus, in either case, accrued and unpaid interest
on the principal amount being redeemed to such Redemption Date; provided that
installments of interest on Notes which are due and payable on an Interest
Payment Date falling on or prior to the relevant Redemption Date shall be
payable to the holders of such Notes, or one or more Predecessor Debt
Securities, registered as such at the close of business on the relevant
Regular Record Date according to their terms and the provisions of the
Indenture.
 
  "Treasury Rate" means, with respect to any Redemption Date for the Notes,
(i) the yield, under the heading which represents the average for the
immediately preceding week, appearing in the most recently published
statistical release designated "H.15(519)" or any successor publication which
is published weekly by the Board of Governors of the Federal Reserve System
and which establishes yields on actively traded United States Treasury
securities adjusted to constant maturity under the caption "Treasury Constant
Maturities," for the maturity corresponding to the Comparable Treasury Issue
(if no maturity is within three months before or after the Maturity Date,
yields for the two published maturities most closely corresponding to the
Comparable Treasury Issue shall be determined and the Treasury Rate shall be
interpolated or extrapolated from such yields
 
                                     S-32
<PAGE>
 
on a straight line basis, rounding to the nearest month) or (ii) if such
release (or any successor release) is not published during the week preceding
the calculation date or does not contain such yields, the rate per annum equal
to the semi-annual equivalent yield to maturity of the Comparable Treasury
Issue, calculated using a price for the Comparable Treasury Issue (expressed
as a percentage of its principal amount) equal to the Comparable Treasury
Price for such Redemption Date. The Treasury Rate shall be calculated on the
third Business Day preceding the Redemption Date.
 
  "Comparable Treasury Issue" means the United States Treasury security
selected by the Independent Investment Banker as having a maturity comparable
to the remaining term of the Notes to be redeemed that would be utilized, at
the time of selection and in accordance with customary financial practice, in
pricing new issues of corporate debt securities of comparable maturity to the
remaining term of the Notes.
 
  "Independent Investment Banker" means Morgan Stanley & Co. Incorporated or ,
if such firm is unwilling or unable to select the Comparable Treasury Issue,
an independent investment banking institution of national standing appointed
by the Trustee after consultation with the Company.
 
  "Comparable Treasury Price" means with respect to any Redemption Date for
the Notes (i) the average of four Reference Treasury Dealer Quotations for
such Redemption Date, after excluding the highest and lowest such Reference
Treasury Dealer Quotations, or (ii) if the Trustee obtains fewer than four
such Reference Treasury Dealer Quotations, the average of all such quotations.
 
  "Reference Treasury Dealer" means each of Morgan Stanley & Co. Incorporated,
BancAmerica Robertson Stephens, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, and Salomon Brothers Inc and their respective successors;
provided, however, that if any of the foregoing shall cease to be a primary
U.S. Government securities dealer in New York City (a "Primary Treasury
Dealer"), the Company will substitute therefor another Primary Treasury
Dealer.
 
  "Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer and any Redemption Date, the average, as determined by the
Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m., New
York City time, on the third Business Day preceding such Redemption Date.
 
  Notice of any redemption by the Company will be mailed at least 30 days but
not more than 60 days before any Redemption Date to each holder of Notes to be
redeemed. If less than all the Notes are to be redeemed at the option of the
Company, the Trustee shall select, in such manner as it shall deem fair and
appropriate, the Notes to be redeemed in whole or in part.
 
  Unless the Company defaults in payment of the redemption price, on and after
any Redemption Date interest will cease to accrue on the Notes or portions
thereof called for redemption.
 
COVENANTS; DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
 
  Reference is made to the section titled "Description of Debt Securities--
Certain Covenants" in the accompanying Prospectus for a description of certain
covenants applicable to the Notes. In addition, the discharge, defeasance and
covenant defeasance provisions of the Indenture described under "Description
of Debt Securities--Discharge, Defeasance and Covenant Defeasance" in the
accompanying Prospectus will apply to the Notes; such covenant defeasance will
be applicable with respect to the covenants described in the accompanying
Prospectus under "Description of Debt Securities--Certain Covenants" (except
that the Company shall remain subject to the covenant to preserve and keep in
full force and effect its corporate existence, except as permitted as
described under "Description of Debt Securities--Merger, Consolidation or
Sale" in the accompanying Prospectus).
 
                                     S-33
<PAGE>
 
  Except as described under "Description of Debt Securities--Certain
Covenants" and "Description of Debt Securities--Merger, Consolidation or Sale"
in the accompanying Prospectus, the Indenture does not contain any provisions
that would afford holders of the Notes protection in the event of (i) a highly
leveraged or similar transaction involving the Company, (ii) a change of
control or in the management of the Company, or (iii) a reorganization,
restructuring, merger or similar transaction involving the Company that may
adversely affect the holders of the Notes. In addition, subject to the
limitations set forth under "Description of Debt Securities--Merger,
Consolidation or Sale" in the accompanying Prospectus, the Company may, in the
future, enter into certain transactions such as the sale of all or
substantially all of its assets or the merger or consolidation of the Company
with another entity that could increase the amount of the Company's
indebtedness or otherwise adversely affect its financial condition or results
of operations, which may have an adverse affect on the Company's ability to
service its indebtedness, including the Notes.
 
  The Company has no present intention of engaging in a highly leveraged or
similar transaction involving the Company. In addition, certain restrictions
on ownership and transfers of the Company's capital stock designed to preserve
its status as a REIT may act to prevent or hinder any such transaction or
change of control. In addition, a highly leveraged or similar transaction may
violate the terms of the Company's outstanding debt instruments and permit the
lenders to declare all borrowings thereunder to be due and payable
immediately, which would likely have a material adverse effect on the Company.
In particular, the Company currently has outstanding borrowings of $73 million
under two loan agreements which, among other things, (i) contain a covenant
which requires the Company to maintain an investment grade rating for its
long-term unsecured debt and (ii) define "events of default" to include the
acquisition by any person of either (x) 20% or more of the Company's
outstanding shares or securities (or other securities convertible into such
securities) or (y) 10% or more of the Company's outstanding shares or
securities (or other securities convertible into such securities) if such
acquisition results in any change of the board of directors of the Company or
any change in the management of the Company or any of its assets. In the event
that the Company fails to maintain an investment grade rating for its long-
term unsecured debt or if such an event of default occurs, whether as a result
of a highly leveraged transaction or otherwise, the lender may declare all
borrowings under such loan agreements to be due and payable immediately. See
"Risk Factors--Real Estate Financing Risks-Terms of Certain Indebtedness" in
the accompanying Prospectus.
 
                                     S-34
<PAGE>
 
                                 UNDERWRITING
 
  Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the
Underwriters named below have severally agreed to purchase and the Company has
agreed to sell to them, severally, the respective principal amount of Notes
set forth opposite their respective names below:
 
<TABLE>
<CAPTION>
                                                                PRINCIPAL AMOUNT
   UNDERWRITERS                                                     OF NOTES
   ------------                                                 ----------------
   <S>                                                          <C>
   Morgan Stanley & Co. Incorporated...........................
   BancAmerica Robertson Stephens..............................
   Merrill Lynch, Pierce, Fenner & Smith
            Incorporated.......................................
   Salomon Brothers Inc........................................
                                                                     ------
                                                                     $
                                                                     ======
</TABLE>
 
  The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Notes are subject to the
approval of certain legal matters by their counsel and to certain other
conditions. The Underwriters are committed to take and pay for all of the
Notes offered hereby if any are taken.
 
  The Underwriters propose to offer part of the Notes directly to the public
at the public offering price set forth on the cover page of this Prospectus
Supplement and part to certain dealers at a price that represents a concession
not in excess of       % of the principal amount of the Notes. Any Underwriter
may allow, and such dealers may reallow, a concession not in excess of       %
of the principal amount of the Notes to certain other dealers. After the
initial offering of the Notes, the offering price and other selling terms may
from time to time be varied by the Underwriters.
 
  The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
 
  The Company does not intend to apply for listing of the Notes on a national
securities exchange, but has been advised by the Underwriters that they
presently intend to make a market in the Notes as permitted by applicable laws
and regulations. The Underwriters are not obligated, however, to make a market
in the Notes and any such market making may be discontinued at any time at the
sole discretion of any Underwriter. Accordingly, no assurance can be given as
to the liquidity of, or trading market for, the Notes.
 
  In order to facilitate the offering of the Notes, the Underwriters may
engage in transactions that stabilize, maintain or otherwise affect the price
of the Notes. Specifically, the Underwriters may overallot in connection with
the offering, creating a short position in the Notes for their own account. In
addition, to cover overallotments or to stabilize the price of the Notes, the
Underwriters may bid for, and purchase, the Notes in the open market. Finally,
the Underwriters may reclaim selling concessions allowed to an Underwriter or
a dealer for distributing the Notes in the offering, if the Underwriters
repurchase previously distributed Notes in transactions to cover syndicate
short positions, in stabilization transactions or otherwise. Any of these
activities may stabilize or maintain the market price of the Notes above
independent market levels. The Underwriters are not required to engage in
these activities, and may end any of these activities at any time.
 
  The Company intends to use the net proceeds from the sale of the Notes
offered hereby to repay indebtedness outstanding under the Credit Facility.
Bank of America National Trust and Savings Association, an affiliate of
BancAmerica Robertson Stephens, one of the Underwriters, is the lender under
the Credit Facility.
 
                                 LEGAL MATTERS
 
  The legality of the Notes offered hereby will be passed upon by Piper &
Marbury l.l.p., Baltimore, Maryland on behalf of the Company. Certain tax
matters will be passed upon by Farella Braun & Martel LLP, San Francisco,
California. Brown & Wood llp, San Francisco, California, will act as counsel
for the Underwriters.
 
 
                                     S-35
<PAGE>
 
PROSPECTUS
 
                                 $300,000,000
 
                             BRE PROPERTIES, INC.
 
             DEBT SECURITIES, PREFERRED SHARES, DEPOSITARY SHARES,
                    COMMON STOCK WARRANTS AND COMMON STOCK
 
  BRE Properties, Inc. (the "Company") may from time to time offer in one or
more series (i) its unsecured debt securities (the "Debt Securities"), which
may be senior debt securities ("Senior Debt Securities") or subordinated debt
securities ("Subordinated Debt Securities"), (ii) shares of its Preferred
Stock, $0.01 par value ("Preferred Shares"), (iii) depositary shares
("Depositary Shares") representing fractional interests in Preferred Shares,
(iv) warrants ("Common Stock Warrants") to purchase shares of its Common
Stock, $0.01 par value ("Common Shares"), or (v) Common Shares, on terms to be
determined at the time or times of offering. The Debt Securities, Preferred
Shares, Depositary Shares, Common Stock Warrants and Common Shares which may
be offered by the Company (collectively, the "Company Offered Securities"),
may be offered, separately or together, in separate classes or series, in
amounts, at prices and on terms to be set forth in a supplement to this
Prospectus (a "Prospectus Supplement"). A selling shareholder also may offer
from time to time Common Shares (the "Resale Shares") on terms to be
determined at the time or times of such offering or offerings. The prices, the
amounts and other terms of such offering or offerings will be set forth in the
applicable Prospectus Supplement. The aggregate public offering price of the
Resale Shares and the Company Offered Securities (together, the "Offered
Securities") will not exceed $300,000,000, and the number of Resale Shares
will not exceed 650,000.
 
  The specific terms of the Offered Securities in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include, when applicable: (i) in the case of Debt
Securities, the specific title, aggregate principal amount, 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 thereof, terms for sinking fund
payments, terms for conversion into Preferred Shares or Common Shares, and the
public offering price; (ii) in the case of Preferred Shares, the specific
series, title and stated value, any dividend, liquidation, redemption,
conversion, voting and other rights, and the public offering price; (iii) in
the case of Depositary Shares, the whole or fractional Preferred Shares
represented by each such Depositary Share and the public offering price; (iv)
in the case of Common Stock Warrants, the duration, public offering price,
exercise price and detachability features, if applicable; and (v) in the case
of Common Shares, the public offering price. In addition, such specific terms
may include limitations on direct or beneficial ownership and restrictions on
transfer of the Offered Securities, in each case as may be 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, when
applicable, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Offered
Securities covered by that Prospectus Supplement.
 
  The Offered 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 Offered
Securities, their names and any applicable purchase price, fee, commission or
discount arrangement will be set forth in or will be calculable from the
information set forth in the applicable Prospectus Supplement. No Offered
Securities may be sold without delivery of the applicable Prospectus
Supplement describing the method and terms of the offering of those Offered
Securities. The Company will not receive any of the proceeds from the sale of
the Resale Shares. See "Plan of Distribution" for possible indemnification
arrangements with underwriters, dealers and agents.
 
                                ---------------
 
  PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE MATTERS SET FORTH UNDER
"RISK FACTORS" BEGINNING ON PAGE 4 OF THIS PROSPECTUS.
 
                                ---------------
 
 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 date of this Prospectus is February 12, 1998
<PAGE>
 
  NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS OR AN APPLICABLE PROSPECTUS
SUPPLEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING
SHAREHOLDER (AS DEFINED BELOW) OR ANY UNDERWRITER, DEALER OR AGENT. THIS
PROSPECTUS AND ANY APPLICABLE PROSPECTUS SUPPLEMENT DO NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY OR
THEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT NOR ANY SALE MADE HEREUNDER OR
THEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THEREOF.
 
                             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 "Commission"). Such reports, proxy
statements and other information filed by the Company with the Commission in
accordance with the Exchange Act can be inspected and copied at the
Commission's Public Reference Section, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following regional offices of the Commission: Seven
World Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can be
obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, the
Commission maintains a home page on the Internet that contains such
information with respect to registrants that file electronically such as the
Company at http://www.sec.gov. The Company's Common Shares are listed on the
New York Stock Exchange and similar information concerning the Company can be
inspected and copied at the offices of the New York Stock Exchange, Inc., 20
Broad Street, New York, New York 10005.
 
  The Company has filed with the Commission a registration statement (as the
same may be amended from time to time, the "Registration Statement") (of which
this Prospectus is a part) under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Offered Securities. This Prospectus
does not contain all of the information set forth in the Registration
Statement, certain portions of which have been omitted as permitted by the
rules and regulations of the Commission. Statements contained in this
Prospectus as to the contents of any contract or other document do not purport
to be complete, and in each instance reference is made to the copy of such
contract or other document filed or incorporated by reference as an exhibit to
the Registration Statement, each such statement being qualified in all
respects by such reference and the exhibits and schedules thereto. For further
information regarding the Company and the Offered Securities, reference is
hereby made to the Registration Statement and such exhibits and schedules,
which may be obtained from the Commission at its principal office in
Washington, D.C. upon payment of the fees prescribed by the Commission.
 
                                       2
<PAGE>
 
                INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
 
  The documents listed below have been filed by the Company with the
Commission and are incorporated herein by reference:
 
    a. Report on Form 10-K for the fiscal year ended December 31, 1996, as
       amended by the Report on Form 10-K/A filed on April 25, 1997.
 
    b. Reports on Form 10-Q for the fiscal quarters ended March 31, June 30
       and September 30, 1997, filed on April 25, August 12 and November 14,
       1997, respectively.
 
    c. Current Report on Form 8-K filed on January 14, 1997, as amended by
       the Current Report on Form 8-K/A filed on February 13, 1997, and the
       Current Report on Form 8-K/A filed on April 23, 1997.
 
    d. Current Report on Form 8-K/A filed on April 23, 1997, amending the
       Current Report on Form 8-K/A filed on December 10, 1996, and the
       Current Report on Form 8-K filed on October 15, 1996.
 
    e. Current Report on Form 8-K/A filed on April 23, 1997, amending the
       Current Report on Form 8-K/A filed on May 21, 1996, and the Current
       Report on Form 8-K filed on April 1, 1996.
 
    f. Current Report on Form 8-K filed on April 25, 1997.
 
    g. Current Report on Form 8-K filed on June 12, 1997.
 
    h. Current Report on Form 8-K filed on June 23, 1997.
 
    i. Current Report on Form 8-K filed on September 3, 1997, as amended by
       the Current Report on Form 8-K/A filed on October 30, 1997.
 
    j. Current Report on Form 8-K filed on October 15, 1997.
 
    k. Current Report on Form 8-K filed on November 24, 1997.
 
    l. Current Report on Form 8-K filed on December 18, 1997.
 
  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 the Offered Securities shall be deemed
to be incorporated by reference in this Prospectus and to be part hereof from
the date of filing of such documents.
 
  Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein (or in the applicable Prospectus Supplement) or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
 
  The Company hereby undertakes to provide without charge to each person to
whom this Prospectus has been delivered, upon the written or oral request of
such person, a copy of any and all documents incorporated by reference in this
Prospectus (other than exhibits to such documents unless such exhibits are
specifically incorporated by reference in such documents). Requests for such
copies should be directed to BRE Properties, Inc., 44 Montgomery Street, Suite
3600, California 94104-4602, Attn: Charles Wingard, Director of Financial
Reporting, telephone number (415) 445-6530.
 
                                       3
<PAGE>
 
                                  THE COMPANY
 
  BRE Properties, Inc., a Maryland corporation (the "Company" or "BRE"), is a
self-administered and self-managed real estate investment trust which owns,
acquires, develops, rehabilitates and manages apartment communities and other
income producing properties in the western United States. At November 30,
1997, BRE's portfolio included 73 completed apartment communities aggregating
18,329 units, and five commercial and retail properties. Of these properties,
40 were located in California, 21 in Arizona, six in Washington, four in
Nevada, three in Utah, two in Oregon and two in New Mexico. As of that date,
BRE's portfolio also included eight apartment communities under development
aggregating approximately 2,445 units in Arizona, Colorado, New Mexico, Nevada
and Utah. As of November 30, 1997, these properties (excluding properties
under development) contained, in the aggregate, approximately 18.4 million net
rentable square feet of improvements owned by the Company. In addition, at
November 30, 1997, the Company held limited partnership interests in two
shopping centers located in Arizona and one apartment community located in
California. In November 1997, the Company completed the acquisition (the "TCR-
West Transaction") of certain properties (the "TCR-West Properties") and
operations of Trammell Crow Residential located in the western United States
("TCR-West"). A substantial portion of the properties acquired in the TCR-West
Transaction are held by BRE Property Investors LLC (the "Operating Company"),
a Delaware limited liability company, of which the Company is the sole
managing member. BRE's principal executive offices are located at 44
Montgomery Street, Suite 3600, San Francisco, California 94104-4602, and its
telephone number is (415) 445-6530.
 
                                 RISK FACTORS
 
  Prospective investors should carefully consider, among other factors, the
matters described below before purchasing any of the Offered Securities. The
Company cautions the reader that this list of factors does not purport to be
exhaustive.
 
  All references in this Prospectus to shareholders of the Company include
holders of Common Shares and holders of any Preferred Shares and Depositary
Shares which may be issued by the Company, and all references to distributions
to shareholders include dividends and other distributions payable to holders
of Common Shares and any such Preferred Shares and Depositary Shares.
 
REAL ESTATE INVESTMENT RISKS
 
 General
 
  Real property investments are subject to varying degrees of risk. The yields
available from equity investments in real estate depend upon the amount of
revenues generated and expenses incurred. If properties do not generate
revenues sufficient to meet operating expenses, including debt service and
capital expenditures, the Company's results of operations and ability to make
distributions to its shareholders and to pay amounts due on its Debt
Securities will be adversely affected. The performance of the economy in each
of the areas in which the properties are located affects occupancy, market
rental rates and expenses and, consequently, has an impact on the revenues
from the properties and their underlying values. The financial results of
major local employers also may have an impact on the revenues and value of
certain properties.
 
  Revenues from properties may be further adversely affected by a variety of
factors, including the general economic climate, local conditions in the areas
in which properties are located, such as oversupply of space or a reduction in
the demand for rental space, the attractiveness of the properties to residents
or users, competition from other available space, the ability of the Company
to provide adequate facilities maintenance, services and amenities, and
insurance premiums and real estate taxes. The Company's revenues would also be
adversely affected if residents or users were unable to pay rent or the
Company was unable to rent apartments or commercial properties on favorable
terms. If the Company were unable to promptly relet or renew the leases for a
significant number of apartment units or commercial properties, or if the
rental rates upon such renewal or reletting were significantly lower than
expected rates, then the Company's funds from operations would, and ability to
make expected distributions to shareholders
 
                                       4
<PAGE>
 
and to pay amounts due on its Debt Securities may, be adversely affected.
There is also a risk that as leases on the properties expire, residents or
users will vacate or enter into new leases on terms that are less favorable to
the Company. Operating costs, including real estate taxes, insurance and
maintenance costs, and mortgage payments, if any, do not, in general, decline
when circumstances cause a reduction in income from a property. If a property
is mortgaged to secure payment of indebtedness, and the Company is unable to
meet its mortgage payments, a loss could be sustained as a result of
foreclosure on the property. In addition, revenues from properties and real
estate values are also affected by such factors as applicable laws, including
tax laws, interest rate levels and the availability of financing.
 
  In the normal course of business, the Company typically evaluates potential
acquisitions, enters into non-binding letters of intent, and may, at any time,
enter into contracts to acquire and may acquire additional properties.
However, no assurance can be given that the Company will have the financial
resources to make suitable acquisitions or that properties that satisfy the
Company's investment policies will be available for acquisition. Acquisitions
of properties entail risks that investments will fail to perform in accordance
with expectations. Such risks may include that construction costs may exceed
original estimates, possibly making a project uneconomical, financing may not
be available on favorable terms or at all and construction and lease-up may
not be completed on schedule. 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. In addition, there are
general real estate investment risks associated with any new real estate
investment. Although the Company undertakes an evaluation of the physical
condition of each new investment before it is acquired, certain defects or
necessary repairs may not be detected until after the investment is acquired,
which could significantly increase the Company's total acquisition costs and
which could have a material adverse effect on the Company and its ability to
make distributions to shareholders and to pay amounts due on its Debt
Securities. Any statements included in or incorporated by reference in this
Prospectus or any Prospectus Supplement pertaining to anticipated growth rates
in target markets, anticipated growth in the Company's funds from operations
and anticipated market conditions, demographics or results of operations
constitute forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act and there can be no
assurance that such anticipated events or circumstances will be achieved or
will occur due to, among other things, the factors described under "Risk
Factors."
 
 Illiquidity of Real Estate and Reinvestment Risk
 
  Real estate investments are relatively illiquid and, therefore, tend to
limit the ability of the Company to adjust its portfolio in response to
changes in economic or other conditions. Additionally, the Internal Revenue
Code of 1986, as amended (the "Code") places certain limits on the number of
properties a REIT may sell without adverse tax consequences. To effect its
current operating strategy, the Company has in the past raised, and will seek
to continue to raise additional acquisition funds, both through outside
financing and through the orderly disposition of commercial and retail
properties, and, depending upon interest rates, current acquisition
opportunities and other factors, generally to reinvest the proceeds in
multifamily properties. In this respect, in the markets the Company has
targeted for future acquisition of multifamily properties, there is
considerable buying competition from other real estate companies, many of whom
may have greater resources, experience or expertise than the Company. In many
cases, this competition for acquisition properties has resulted in an increase
in property prices and a decrease in property yields. Due to the relatively
low capitalization rates currently prevailing in the pricing of potential
acquisitions of multifamily properties which meet the Company's investment
criteria, no assurance can be given that the proceeds realized from the
disposition of commercial and retail properties can be reinvested to produce
economic returns comparable to those being realized from the properties
disposed of, or that the Company will be able to acquire properties meeting
its investment criteria. To the extent that the Company is unable to reinvest
proceeds from the disposition of commercial and retail properties, or if
properties acquired with such proceeds produce a lower rate of return than the
properties disposed of, such results may have a material adverse effect on the
Company and its ability to make distributions to shareholders and to pay
amounts due on its Debt Securities. In addition, a delay in reinvestment of
such proceeds may have a material adverse effect on the Company and its
ability to make distributions to shareholders and to pay amounts due on its
Debt Securities.
 
 
                                       5
<PAGE>
 
  The Company may seek to structure future dispositions as tax-free exchanges,
where appropriate, utilizing the nonrecognition provisions of Section 1031 of
the Code to defer income taxation on the disposition of the exchanged
property. For an exchange of such properties to qualify for tax-free treatment
under Section 1031 of the Code, certain technical requirements must be met.
For example, both the property exchanged and the property acquired must be
held for use in a trade or business or for investment, and the property
acquired must be identified within 45 days, and must be acquired within 180
days, after the transfer of the exchanged property. If the technical
requirements of Section 1031 of the Code are not met, then the exchanged
property will be treated as sold in a taxable transaction for a sales price
equal to the fair market value of the property received, in which event a
distribution of cash to the shareholders may be required to avoid a corporate-
level income tax on the resulting capital gain. Given the competition for
properties meeting the Company's investment criteria, it may be difficult for
the Company to identify suitable properties within the foregoing time frames
in order to meet the requirements of Section 1031. Even if a suitable tax-
deferred exchange can be structured, as noted above, no assurance can be given
that the proceeds of any of these dispositions will be reinvested to produce
economic returns comparable to those currently being realized from the
properties which were disposed of.
 
 Competition
 
  All of the properties currently owned by the Company are located in
developed areas. There are numerous other multifamily properties and real
estate companies, many of which have greater financial and other resources
than the Company, within the market area of each of the properties which will
compete with the Company for tenants and development and acquisition
opportunities. The number of competitive multifamily properties and real
estate companies in such areas could have a material effect on (i) the
Company's ability to rent the apartments and the rents charged and (ii)
development and acquisition opportunities. The activities of these competitors
could cause the Company to pay a higher price for a new property than it
otherwise would have paid or may prevent the Company from purchasing a desired
property at all, which could have a material adverse effect on the Company and
its ability to make distributions to shareholders and to pay amounts due on
its Debt Securities.
 
 Geographic Concentration; Dependence on Western United States Regions
 
  The Company's portfolio is principally located in the San Francisco Bay
Area, the Denver area, San Diego, Tucson, Phoenix, Seattle, Portland, Los
Angeles/Orange County, Sacramento, Las Vegas, Albuquerque and Salt Lake City.
The Company's performance could be adversely affected by economic conditions
in, and other factors relating to, these geographic areas, including supply
and demand for apartments in these areas, zoning and other regulatory
conditions and competition from other properties and alternative forms of
housing. In that regard, certain of these areas (particularly the
Los Angeles/Orange County and San Diego metropolitan areas) have in the recent
past experienced economic recessions and depressed conditions in the local
real estate markets. To the extent general economic or social conditions in
any of these areas deteriorate or any of these areas experiences natural
disasters, the value of the portfolio, the Company's results of operations and
its ability to make distributions to shareholders and to pay amounts due on
its Debt Securities could be materially adversely affected.
 
 Risks of Development, Construction and Acquisition Activities
 
  Pursuant to the TCR-West Transaction, the Company acquired eight apartment
properties in various stages of development (the "Development Properties").
Prior to the acquisition, the Company was not engaged in the development and
construction of real estate properties.
 
  The Company intends to actively pursue development and construction of
multifamily apartment communities, including the Development Properties. There
can be no assurance that the Company will complete development of the
Development Properties or any other development project which may be
undertaken by the Company. As a general matter, property development and
construction projects typically have a higher, and sometimes substantially
higher, level of risk than the acquisition of existing properties. Risks
associated with the Company's development and construction activities may
include the following: development opportunities may be abandoned;
construction costs of multifamily apartment communities may exceed original
estimates, possibly
 
                                       6
<PAGE>
 
making the communities uneconomical; occupancy rates and rents at newly
completed communities may not be sufficient to make the communities
profitable; financing for the construction and development of projects may not
be available on favorable terms or at all; construction and lease-up may not
be completed on schedule; and expenses of operating a completed community may
be higher than anticipated. In addition, development and construction
activities, regardless of whether or not they are ultimately successful,
typically require a substantial portion of management's time and attention.
Development and construction 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
authorizations.
 
  The Company also intends to continue actively to acquire multifamily
apartment communities. Acquisitions of multifamily apartment 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. In addition, there are general investment risks
associated with any new real estate investment. In that regard, the properties
acquired in the TCR-West Transaction were acquired on an "as is" basis,
meaning that the properties were acquired without warranty by the sellers.
Likewise, due to the competitive nature of the bidding process for the TCR-
West Properties, the Company was able to perform only a limited investigation
with respect to the TCR-West Properties prior to acquiring them. Both of these
factors increased the risks associated with acquiring the TCR-West Properties.
 
  The Company anticipates that future developments and acquisitions will be
financed, in whole or in part, under various construction loans, lines of
credit, other forms of secured or unsecured financing or through the issuance
of additional equity by the Company. The Company expects periodically to
review its financing options regarding the appropriate mix of debt and equity
financing. Equity, rather than debt, financing of future developments or
acquisitions could have a dilutive effect on the interests of existing
shareholders of the Company. Similarly, financing future developments and
acquisitions with debt entails certain risks, including those described below
under "--Real Estate Financing Risks." In addition, if new development
properties are financed through construction loans, there is a risk that, upon
completion of construction, permanent financing for such properties may not be
available or may be available only on disadvantageous terms or that the cash
flow from new properties will be insufficient to cover debt service. If a
newly developed or acquired property is unsuccessful, the Company's losses may
exceed its investment in the property. Any of the foregoing could have a
material adverse effect on the Company and its ability to make distributions
to shareholders and to pay amounts due on its Debt Securities.
 
 Risks Relating to Growth Strategy
 
  Pursuant to the TCR-West Transaction, the Company acquired 17 completed
apartment communities aggregating 4,786 units and eight Development Properties
aggregating approximately 2,445 units. This significant increase in the size
of the Company's operations after the acquisition has substantially increased
the demands placed upon the Company's management, including demands resulting
from the need to integrate the accounting systems, management information
systems and other operations acquired from TCR with those of the Company.
Likewise, the Company added approximately 600 persons previously employed by
TCR and its affiliates, which has also significantly increased the demands
upon the Company's management. Failure to effectively integrate the operations
of the acquired properties, operations and employees with those of the Company
could have a material adverse effect on the Company and its ability to make
distributions to shareholders and to pay amounts due on its Debt Securities.
 
  A substantial portion of the Company's growth over the last several years
has been attributable to acquisitions. Further, a principal component of the
Company's strategy is to continue to grow in a controlled manner in both
existing and new markets by acquiring and developing new properties. The
Company's future growth will be dependent upon a number of factors, including
the Company's ability to identify acceptable properties for acquisition and
development, complete acquisitions and developments on favorable terms,
successfully integrate acquired and newly developed properties, and obtain
financing to support expansion. There can be no assurance that the Company
will be successful in implementing its growth strategy, that growth will
continue at historical
 
                                       7
<PAGE>
 
levels or at all, or that any expansion will improve operating results. The
failure to identify, acquire, develop, and integrate new properties
effectively could have a material adverse effect on the Company and its
ability to make distributions to shareholders and to pay amounts due on its
Debt Securities.
 
 Restrictions in the Operations of the Operating Company
 
  A substantial portion of the properties acquired in the TCR-West Transaction
are held by the Operating Company, a limited liability company. BRE is the
sole managing member of the Operating Company and, as of November 30, 1997,
held approximately a 70% equity interest therein. The remaining equity
interests in the Operating Company are held by third parties as non-managing
members.
 
   Under the terms of the limited liability company agreement governing the
operations of the Operating Company (the "LLC Agreement"), the Operating
Company is required to maintain certain debt service coverage, debt-to-asset
and other financial ratios intended to protect the members' rights to receive
distributions. In addition, with respect to certain tax-exempt financing for
certain completed properties, the Operating Company is restricted from
prepaying its debt or taking certain other specified actions which could have
adverse tax consequences for the members. Further, the Company, as the
managing member, is restricted from taking certain other specified actions --
either absolutely or without the consent of a majority in interest of the non-
managing members (or of the non-managing members affected thereby) --
including, but not limited to, any actions that would make it impossible to
carry out the business of the Operating Company, or that would subject a non-
managing member to liability as a managing member, or that would cause the
Operating Company to institute bankruptcy proceedings or confess a judgment,
or that would prohibit or restrict a member from exercising its rights to
exchange units in the Operating Company for Common Shares. Any such
requirement to maintain financial ratios and any such restrictions on the
actions of the Operating Company and its managing member could have a material
adverse effect on the Company and its ability to make distributions to
shareholders and to pay amounts due on its Debt Securities.
 
  Further, under the terms of the LLC Agreement, the Operating Company may
not, without the consent of a majority in interest of the non-managing
members, (i) dispose of any of the properties held by the Operating Company in
a taxable sale or exchange prior to respective dates which are specified in
the LLC Agreement for each of the properties, ranging from one to ten years
from November 18, 1997, or (ii) dissolve the Operating Company other than in
certain limited circumstances specified in the LLC Agreement, such as a sale
of all or substantially all of the Company's assets, or any merger,
consolidation or other combination by the Company with or into another person,
or reclassification, recapitalization or change of the Company's outstanding
equity interests. These restrictions on the Company's ability to dispose of a
significant portion of its properties and to dissolve the Operating Company,
even when such a disposition or dissolution of the Operating Company would be
in the best interest of the Company, could have a material adverse effect on
the Company and its ability to make distributions to shareholders and to pay
amounts due on its Debt Securities.
 
  The Operating Company also must distribute all Available Cash (as defined in
the LLC Agreement) on a quarterly basis: first, to members (other than BRE)
until each member has received, cumulatively on a per Operating Company unit
basis, distributions equal to the cumulative dividends declared with respect
to one Common Share over the corresponding period (subject to adjustment from
time to time as applicable to account for stock dividends, stock splits and
similar transactions affecting the Common Shares) (the "Priority
Distribution"); and second, the balance to BRE.
 
  If the Operating Company's Available Cash in any quarterly period is
insufficient to permit distribution of the full amount of the Priority
Distribution for that quarter, BRE is required to make a capital contribution
to the Operating Company in an amount equal to the lesser of (i) the amount
necessary to permit the full Priority Distribution or (ii) an amount equal to
the sum of any capital expenditures made by the Operating Company plus the sum
of any payments made by the Operating Company on account of any loans to or
investments in, or any guarantees of the obligations of, BRE or its affiliates
for that quarterly period. The Operating Company's
 
                                       8
<PAGE>
 
obligation to make Priority Distributions and BRE's obligation to make
additional capital contributions to the Operating Company under such
circumstances could have a material adverse effect on the Company and its
ability to make distributions to shareholders and to pay amounts due on its
Debt Securities.
 
  In addition, BRE may not be removed as the managing member of the Operating
Company by the non-managing members, with or without cause, other than with
its consent. BRE may not voluntarily withdraw from the Operating Company or
transfer all or any portion of its interest in the Operating Company without
the consent of all of the non-managing members, except in certain limited
circumstances, such as a sale of all or substantially all of BRE's assets, or
any merger, consolidation or other combination by BRE with or into another
person, or any reclassification, recapitalization or change of BRE's
outstanding equity interests. Such restrictions on the withdrawal of BRE as
the managing member of the Operating Company, and on BRE's ability to transfer
its interest in the Operating Company, could have a material adverse effect on
the Company and its ability to make distributions to shareholders and to pay
amounts due on its Debt Securities.
 
 Uninsured Loss; Limited Coverage
 
  The Company carries comprehensive liability, fire, extended coverage and
rental loss insurance with respect to its properties with certain policy
specifications, limits and deductibles. While the Company currently carries
flood and earthquake insurance for its properties with an aggregate annual
limit of $100 million, subject to substantial deductibles, no assurance can be
given that such coverage will continue to be available on acceptable terms or
at an acceptable cost, or at all, in the future, or if obtained, that the
limits of those policies will cover the full cost of repair or replacement of
covered properties. In addition, there may be certain extraordinary losses
(such as those resulting from civil unrest) that are not generally insured (or
fully insured against) because they are either uninsurable or not economically
insurable. Should an uninsured or underinsured loss occur to a property, the
Company could be required to use its own funds for restoration or lose all or
part of its investment in, and anticipated revenues from, the property and
would continue to be obligated on any mortgage indebtedness on the property.
Any such loss could have a material adverse effect on the Company and its
ability to make distributions to shareholders and to pay amounts due on its
Debt Securities.
 
 Risks Associated with Survey Exceptions to Certain Title Insurance Policies
 
  Although the Company believes that prior owners of the TCR-West Properties
in the past obtained surveys of those properties, the Company did not obtain
updated surveys when it acquired the TCR-West Properties. Because updated
surveys of the TCR-West Properties were not obtained, the title insurance
policies obtained by the Company for those properties contain exceptions for
matters which an updated survey might have disclosed. Such matters might
include such things as boundary encroachments, unrecorded easements or similar
matters which would have been reflected on a survey. Moreover, because no
updated surveys were prepared for those properties, there can be no assurance
that the title insurance policies in fact cover the entirety of the real
property, buildings, fixtures, and improvements which the Company believes
they cover, any of which could have a material adverse effect on the Company
and its ability to make distributions to shareholders and to pay amounts due
on its Debt Securities.
 
 Change in Laws
 
  Increases in real estate taxes and income, service and transfer taxes cannot
always be passed through to residents or users in the form of higher rents,
and may adversely affect the Company's cash available for distribution and its
ability to make distributions to shareholders and to pay amounts due on its
Debt Securities. Similarly, changes in laws increasing the potential liability
for environmental conditions existing on properties or increasing the
restrictions on discharges or other conditions, as well as changes in laws
affecting development, construction and safety requirements, may result in
significant unanticipated expenditures, which could have a material adverse
effect on the Company and its ability to make distributions to shareholders
and to pay amounts due on its Debt Securities. In addition, future enactment
of rent control or rent stabilization laws or other laws regulating
multifamily housing may reduce rental revenues or increase operating costs.
 
                                       9
<PAGE>
 
 Laws Benefiting Disabled Persons
 
  A number of federal, state and local laws (including the Americans with
Disabilities Act) and regulations exist that may require modifications to
existing buildings or restrict certain renovations by requiring improved
access to such buildings by disabled persons and may require other structural
features which add to the cost of buildings under construction. Legislation or
regulations adopted in the future may impose further burdens or restrictions
on the Company with respect to improved access by disabled persons. The costs
of compliance with these laws and regulations may be substantial, and limits
or restrictions on construction or completion of certain renovations may limit
implementation of the Company's investment strategy in certain instances or
reduce overall returns on its investments, which could have a material adverse
effect on the Company and its ability to make distributions to shareholders
and to pay amounts due on its Debt Securities. The Company reviews its
properties periodically to determine the level of compliance and, if
necessary, takes appropriate action to bring such properties into compliance.
The Company's management believes, based on property reviews to date, that the
costs of such compliance should not have a material adverse effect on the
Company. Such conclusions are based upon currently available information and
data, and no assurance can be given that further review and analysis of the
Company's properties, or future legal interpretations or legislative changes,
will not significantly increase the costs of compliance.
 
 Risks of Assumed Liabilities
 
  In the TCR-West Transaction, pursuant to a contribution agreement (the
"Contribution Agreement") the Company (i) acquired the TCR-West Properties
either by acquiring title to the properties and related assets (plus
assumption of certain associated contractual obligations, warranties and
guarantees) or, as to certain TCR-West Properties, by acquiring all of the
ownership interests in the partnerships or limited liability companies which
held such properties, and (ii) assumed certain loans secured by the TCR-West
Properties. Under the terms of the transaction, the Company has not expressly
agreed to assume any liabilities other than the assumed loans and the
contractual obligations, warranties and guarantees referenced above. However,
as a matter of law, the Company automatically assumed all of the liabilities
(known, unknown or contingent) of the partnerships and limited liability
companies whose ownership interests were acquired by the Company, potentially
including liabilities unrelated to the properties conveyed pursuant to such
transfer. Moreover, even in cases where title to the properties and related
assets (rather than ownership interests therein) was acquired by the Company,
the legal doctrine of successor liability may give creditors of and claimants
against the prior owners the right to hold the Company responsible for
liabilities which arose with respect to such properties prior to their
acquisition by the Company, whether or not such liabilities were expressly
assumed by the Company under the terms of the transaction.
 
  As a result of the foregoing, there can be no assurance that the Company
will not be subject to liabilities and claims relating to the TCR-West
Properties arising from events which occurred or circumstances which existed
prior to the acquisition of those properties by the Company, which could have
a material adverse effect on the Company and its ability to make distributions
to shareholders and to pay amounts due on its Debt Securities. In that regard,
the terms of the TCR-West Transaction do not provide for the Company to be
indemnified against any such liabilities and claims. See "--Limited
Indemnification" below.
 
 Limited Indemnification
 
  The Company acquired the TCR-West Properties on an "as is" basis, meaning
that the properties were acquired without warranty from the sellers. As a
result, the Company has no recourse against the sellers for matters relating
to the properties or the transaction, except to the limited extent described
below.
 
  The terms of the TCR-West Transaction provide the Company with only limited
indemnification with respect to claims or liabilities that might arise out of
the transaction or actions taken by the sellers before the closing.
Specifically, certain Trammell Crow Residential entities and related parties
who are signatories to the Contribution Agreement (the "TCR Parties") have
agreed to indemnify the Company and its affiliates only against claims arising
out of (i) any inaccuracy in the investment representations of any TCR Party
or certain
 
                                      10
<PAGE>
 
representations about employment matters, or any failure of a TCR Party to
comply with any agreement with respect thereto, (ii) any breach by a TCR Party
of its fiduciary duties (including duties of disclosure) to any other person
in connection with the transaction, or (iii) any document filed by or on
behalf of a TCR Party or any affiliate with a governmental agency or prepared
or distributed in connection with the transaction (including any document
distributed in connection with the solicitation of consents by the TCR Parties
for the TCR-West Transaction) (provided, however, that the foregoing does not
apply to the information supplied by the Company or the Operating Company in
writing specifically for inclusion or incorporation by reference in any such
document or to any document prepared or filed by the Company or the Operating
Company). The Company has no recourse against the TCR Parties with respect to
any claims which are not within the specific coverage of the indemnity
provisions.
 
  In addition, in the event that the Company is entitled to indemnification,
the terms of the TCR-West Transaction significantly limit the amount which the
Company would be entitled to recover. Specifically, the Company's sole
recourse under a claim for indemnity is the right to reduce the number of
Development OC Units (as defined below) which the Company might otherwise be
required to deliver in connection with the TCR-West Transaction. A maximum of
up to 627,594 Development OC Units are issuable, each of which will be
exchangeable, commencing November 18, 1998, at the option of the holders
thereof for Common Shares (at the rate of one Common Share per Development OC
Unit, subject to adjustment under certain circumstances) or, at the Company's
election, into an equivalent amount of cash based on the value of the Common
Shares at the time of exchange. For purposes of determining the reduction in
the number of Development OC Units in the event of a claim for indemnity, the
Development OC Units will be deemed to have a value equal to the average of
the closing prices of a Common Share on the New York Stock Exchange for the
fifteen consecutive trading days concluding on the fifth trading day preceding
the day of the reduction. The TCR Parties' indemnification obligations (and
such obligations of the Company and the Operating Company, as described below)
are limited, in the aggregate, to an amount which, as of any date, is obtained
by multiplying the number of Development OC Units which have not been
distributed by the lower of (i) $26.93 or (ii) the average of the closing
prices of a Common Share on the New York Stock Exchange for the fifteen
consecutive trading days concluding on the fifth trading day preceding such
date.
 
  The "Development OC Units" are equity interests in the Operating Company
which will be issued to the TCR Parties if certain completion schedule and
budget objectives are met for the Development Properties. The Company
currently anticipates that all of the Development OC Units will either be
awarded or will become ineligible for award by the end of 1999. Accordingly,
there can be no assurance that the amount of any claim for indemnity will be
made at a time when a sufficient amount or any of the Development OC Units
remain available for set-off or that, even if the full number of Development
OC Units is available, that the value of those units will be sufficient to
fully cover the claim for indemnity.
 
  There can be no assurance that the Company will not be confronted in the
future with claims by third parties relating to the TCR-West Transaction or to
the activities of the TCR Parties or the operations of the TCR-West Properties
and matters related thereto prior to the closing of the transaction. Likewise,
there can be no assurance that the properties acquired in the TCR-West
Transaction will meet the Company's expectations. Accordingly, the limited
scope of the indemnification could have a material adverse effect on the
Company and its ability to make distributions to shareholders and to pay
amounts due on its Debt Securities. See "--Risks of Assumed Liabilities,"
above.
 
  The Company and the Operating Company have also provided a limited indemnity
to the TCR Parties. Under the terms of the Contribution Agreement, the Company
and the Operating Company have agreed to indemnify the TCR Parties and their
affiliates against claims arising out of (i) any inaccuracy in certain
representations made by the Company about the registration rights it agreed to
provide to the TCR Parties who become shareholders of the Company or
unitholders of the Operating Company, or any failure by the Company to fulfill
its obligations under terms of the transaction, or (ii) any material
misstatement or omission in the information statement provided to the TCR
Parties with respect to the Company, the Operating Company, the Common Shares
or units of the Operating Company. The Company's indemnification obligations
are limited to
 
                                      11
<PAGE>
 
an amount equal to the value of the remaining Development OC Units outstanding
from time to time, calculated in the same manner as the limit on the
indemnification obligations of the TCR Parties, as described above.
Notwithstanding the limit upon the Company's indemnification obligations, if
claims within the coverage of the indemnity provisions were brought against
the Company, it could be required to incur costs in defending against or
satisfying the claims, which could have a material adverse effect on the
Company and its ability to make distributions to shareholders and to pay
amounts due on its Debt Securities.
 
 Potential Litigation Related to the TCR-West Transaction
 
  Over the last several years, business reorganizations involving the
conversion of partnerships into REITs, the combination of several partnerships
into a single entity and the combination of multiple REITs into a single REIT
have given rise to investor lawsuits. If any lawsuits were filed in connection
with the TCR-West Transaction, whether by any of the TCR Parties or other
persons, such lawsuits could require the Company to incur costs in defending
such lawsuits or to pay any judgment awards or make settlement payments, any
of which could have a material adverse effect on the Company and its ability
to make distributions to shareholders and to pay amounts due on its Debt
Securities.
 
REAL ESTATE FINANCING RISKS
 
 Debt Financing and Maturities
 
  The Company is subject to the normal risks associated with debt financing,
including the risk that the Company's cash flow will be insufficient to meet
required payments of principal and interest, the risk that indebtedness on its
properties, or unsecured indebtedness, will not be able to be renewed, repaid
or refinanced when due or that the terms of any renewal or refinancing will
not be as favorable as the terms of such indebtedness. If the Company were
unable to refinance its indebtedness on acceptable terms, or at all, the
Company might be forced to dispose of one or more of the properties on
disadvantageous terms, which might result in losses to the Company, which
losses could have a material adverse effect on the Company and its ability to
make distributions to shareholders and to pay amounts due on its Debt
Securities. Furthermore, if a property is mortgaged to secure payment of
indebtedness and the Company is unable to meet mortgage payments, the
mortgagee could foreclose upon the property, appoint a receiver and receive an
assignment of rents and leases or pursue other remedies, all with a consequent
loss of revenues and asset value to the Company. Foreclosures could also
create taxable income without accompanying cash proceeds, thereby hindering
the Company's ability to meet the REIT distribution requirements of the Code.
 
 Risk of Rising Interest Rates
 
  The Company has incurred and expects in the future to incur indebtedness
which bears interest at a variable rate. 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), which could have a material adverse effect on the Company and
its ability to make distributions to shareholders and to pay amounts due on
its Debt Securities or cause the Company to be in default under certain debt
instruments (including its Debt Securities). In addition, an increase in
market interest rates may lead holders of the Company's Common Shares to
demand a higher yield on their shares from distributions by the Company, which
could adversely affect the market price for the Common Shares.
 
 Additional Debt
 
  The Company currently funds acquisition opportunities partially through
borrowings (including its lines of credit) as well as from other sources such
as sales of non-core properties. The organizational documents of the Company
do not contain any limitation on the amount of indebtedness that the Company
may incur. Accordingly, the Company could become more highly leveraged,
resulting in an increase in debt service, which could have a material adverse
effect on the Company and its ability to make distributions to shareholders
and to pay amounts due on its Debt Securities and in an increased risk of
default on its obligations.
 
                                      12
<PAGE>
 
 Terms of Certain Indebtedness
 
  At September 30, 1997, the Company had outstanding borrowings of $73 million
under two loan agreements which, among other things, (i) contain a covenant
which requires the Company to maintain an investment grade rating for its
long-term unsecured debt and (ii) define "events of default" to include the
acquisition by any person of either (x) 20% or more of the Company's
outstanding shares or securities (or other securities convertible into such
securities) or (y) 10% or more of the Company's outstanding shares or
securities (or other securities convertible into such securities) if such
acquisition results in any change of the board of directors of the Company or
any change in the management of the Company or any of its assets. In the event
that the Company fails to maintain an investment grade rating for its long-
term unsecured debt or if such an event of default occurs, the lender may
declare all borrowings under such loan agreements to be due and payable
immediately, which could have a material adverse effect on the Company and its
ability to make distributions to shareholders and to pay amounts due on its
Debt Securities.
 
ENVIRONMENTAL RISKS
 
  Under various federal, state and local laws, ordinances and regulations, a
current or previous owner or operator of real estate may be liable for the
costs of removal or remediation of certain hazardous or toxic substances in,
on, around or under such property. Such laws often impose such liability
without regard to whether the owner or operator knew of, or was responsible
for, the presence of such hazardous or toxic substances. The presence of, or
failure to remediate properly, such substances may adversely affect the
owner's or operator's ability to sell or rent the affected property or to
borrow using such property as collateral. Persons who arrange for the disposal
or treatment of hazardous or toxic substances may also be liable for the costs
of removal or remediation of such substances at a disposal or treatment
facility, whether or not such facility is owned or operated by such person.
Certain environmental laws impose liability for release of asbestos-containing
materials into the air, and third parties may also seek recovery from owners
or operators of real properties for personal injury associated with asbestos-
containing materials and other hazardous or toxic substances. The operation
and subsequent removal of certain underground storage tanks are also regulated
by federal and state laws. In connection with the current or former ownership
(direct or indirect), operation, management, development and/or control of
real properties, the Company may be considered an owner or operator of such
properties or as having arranged for the disposal or treatment of hazardous or
toxic substances and, therefore, may be potentially liable for removal or
remediation costs, as well as certain other costs, including governmental
fines, and claims for injuries to persons and property.
 
  The Company's current policy is to obtain a Phase I environmental study on
each property it seeks to acquire and to proceed accordingly. No assurance can
be given, however, that the Phase I environmental studies or other
environmental studies undertaken with respect to any of the Company's current
or future properties will reveal all or the full extent of potential
environmental liabilities, that any prior owner or operator of a property did
not create any material environmental condition unknown to the Company, that a
material environmental condition does not otherwise exist as to any one or
more of such properties or that environmental matters will not have a material
adverse effect on the Company and its ability to make distributions to
shareholders and to pay amounts due on its Debt Securities. The Company
currently carries no insurance for environmental liabilities.
 
  Certain environmental laws impose liability on a previous owner of property
to the extent that hazardous or toxic substances were present during the prior
ownership period. A transfer of the property does not relieve an owner of such
liability. Thus, the Company may have liability with respect to properties
previously sold by its predecessors.
 
RISKS OF THIRD PARTY MANAGEMENT BUSINESS
 
 Possible Termination of Management Contracts
 
  As part of the TCR-West Transaction, the Company also acquired TCR-West's
third party management contracts. A wholly-owned subsidiary of the Company
(the "Management Company") was organized to undertake this business.
 
  Risks associated with the management of properties owned by third parties
include the risk that the management contracts (which are generally cancelable
upon a sale of the property or, in many cases, upon 30 days' notice) will be
terminated by the property owner or will be lost in connection with a sale of
such property,
 
                                      13
<PAGE>
 
that contracts may not be renewed upon expiration or may not be renewed on
terms consistent with current terms, and that the rental revenues upon which
management fees are based will decline as a result of general real estate
market conditions or market factors affecting specific properties, resulting
in decreased management fee income. As a result, there can be no assurance
that the Management Company will perform in accordance with the Company's
expectations.
 
 Possible Adverse Consequences of REIT Status on the Business of the
Management Company
 
  Certain requirements for REIT qualifications may in the future limit the
Company's ability to increase third party management operations conducted and
related services offered by the Management Company without jeopardizing the
Company's qualifications as a REIT. See "Federal Income Tax Considerations--
Third Party Management Income."
 
RANKING OF SECURITIES
 
  All of the Common Shares, Preferred Shares and Debt Securities offered
hereby will be obligations exclusively of the Company. Because a significant
portion of the operations of the Company is conducted through its
subsidiaries, including the Operating Company, the cash flow of the Company
and the consequent ability to make distributions and other payments on its
equity securities, including Common Shares and any Preferred Shares, and to
service its debt, including the Debt Securities, will be partially dependent
upon the earnings of such subsidiaries and the distribution of those earnings
to the Company, or upon loans or other payments of funds made by such
subsidiaries to the Company. In addition, debt or other agreements of the
Company's subsidiaries may impose restrictions that affect, among other
things, the ability of the Company's subsidiaries to pay dividends or make
other distributions or loans to the Company.
 
  Likewise, a substantial portion of the Company's consolidated assets are
owned by its subsidiaries, effectively subordinating the Debt Securities to
all existing and future liabilities, including indebtedness, trade payables,
lease obligations and guarantees, of the Company's subsidiaries. Therefore,
the Company's rights and the rights of its creditors, including the holders of
Debt Securities, to participate in the assets of any subsidiary upon the
latter's liquidation or reorganization will be subject to the prior claims of
such subsidiary's creditors, except to the extent that the Company may itself
be a creditor with recognized claims against the subsidiary, in which case the
claims of the Company would still be effectively subordinate to any security
interests in or mortgages or other liens on the assets of such subsidiary and
would be subordinate to any indebtedness of such subsidiary senior to that
held by the Company.
 
PROVISIONS WHICH COULD LIMIT A CHANGE IN CONTROL OR DETER A TAKEOVER
 
  In order to maintain its qualification as a REIT, not more than 50% in value
of the outstanding capital stock of the Company may be owned, actually or
constructively, by five or fewer individuals (as defined in the Code to
include certain entities). In order to protect the Company against risk of
losing its status as a REIT due to a concentration of ownership among its
shareholders, the articles of incorporation of the Company provide, among
other things, that if the Board of Directors determines, in good faith, that
direct or indirect ownership of the Company's Common Shares have or may become
concentrated to an extent that would prevent the Company from qualifying as a
REIT, the Board of Directors may prevent the transfer of the Common Shares or
call for redemption (by lot or other means affecting one or more shareholders
selected in the sole discretion of the Board of Directors) of a number of
Common Shares sufficient in the opinion of the Board of Directors to maintain
or bring the direct or indirect ownership of the Common Shares into conformity
with the requirements for maintaining REIT status. These limitations may have
the effect of precluding acquisition of control of the Company by a third
party without consent of the Board of Directors.
 
  In addition, certain other provisions contained in the Company's articles of
incorporation and bylaws, as well as its shareholder rights plan, 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 Common Shares which
offers may be attractive to the shareholders, or (ii) deter purchases of large
blocks of Common Shares, thereby limiting the opportunity for shareholders to
receive a premium for their Common Shares over then-prevailing market prices.
 
 
                                      14
<PAGE>
 
TAX RISKS
 
 Tax Liabilities as a Consequence of Failure to Qualify as a REIT
 
  Although management believes that the Company is organized and is operating
so as to qualify as a REIT under the Code, no assurance can be given that the
Company has in fact operated or will be able to continue to operate in a
manner so as to qualify or remain so qualified. Qualification as a REIT
involves the application of highly technical and complex Code provisions for
which there are only limited judicial or administrative interpretations and
the determination of various factual matters and circumstances not entirely
within the Company's control. For example, in order to qualify as a REIT, at
least 95% of the Company's taxable gross income in any year must be derived
from qualifying sources and the Company must make distributions to
shareholders aggregating annually at least 95% of its REIT taxable income
(excluding net capital gains). Thus, to the extent Third Party Management
Income (as defined in "Federal Income Tax Considerations--Third Party
Management Income") represents 5% or more of the Company's gross income in any
taxable year, the Company will not satisfy the 95% income test and may fail to
qualify as a REIT, unless certain relief provisions apply, and, even if those
relief provisions apply, a tax would be imposed with respect to excess net
income, any of which could have a material adverse effect on the Company and
its ability to make distributions to shareholders and to pay amounts due on
its Debt Securities. See "Federal Income Tax Considerations--Third Party
Management Income" and "Federal Income Tax Considerations--Income Tests."
Additionally, to the extent the Operating Company or any of the Subsidiary
Entities (as defined in "Federal Income Tax Considerations--Requirements for
Qualification") are determined to be taxable as a corporation, the Company
would not qualify as a REIT, which could have a material adverse effect on the
Company and its ability to make distributions to shareholders and to pay
amounts due on its Debt Securities. See "Federal Income Tax Considerations--
Federal Income Tax Aspects of the Operating Company and the Subsidiary
Entities." Finally, no assurance can be given that new legislation, new
regulations, administrative interpretations or court decisions will not change
the tax laws with respect to qualification as a REIT or the federal income tax
consequences of such qualification.
 
  If the Company fails to qualify as a REIT, the Company will be subject to
federal income tax (including any applicable alternative minimum tax) on its
taxable income at corporate rates, which would likely have a material adverse
effect on the Company and its ability to make distributions to shareholders
and to pay amounts due on its Debt Securities. In addition, unless entitled to
relief under certain statutory provisions, the Company would also be
disqualified from treatment as a REIT for the four taxable years following the
year during which qualification is lost. This treatment would reduce funds
available for investment or distributions to security holders because of the
additional tax liability to the Company for the year or years involved. In
addition, distributions to shareholders would no longer be required to be
made. To the extent that distributions to shareholders would have been made in
anticipation of qualifying as a REIT, the Company might be required to borrow
funds or to liquidate certain of its investments to pay the applicable tax.
 
                      RATIO OF EARNINGS TO FIXED CHARGES
 
  The Company's ratio of earnings to fixed charges for the nine months ended
September 30, 1997 and the years ended December 31, 1996, 1995, 1994, 1993,
and 1992 was 3.3x, 3.2x, 4.0x, 5.0x, 4.4x, and 3.4x, respectively. For the
purposes of computing these ratios, earnings have been calculated by adding
fixed charges to income before net gains (losses) on sales of investments.
Fixed charges consist of interest costs (including capitalized interest),
amortization of debt expense and one-third of the rental expense, which is
deemed to be the interest component of such rental expense.
 
                                USE OF PROCEEDS
 
  Unless otherwise described in the applicable Prospectus Supplement for any
offering of securities, the Company intends to use the net proceeds from the
sale of the Company Offered Securities for general corporate purposes, which
may include the acquisition of properties or interests therein (including
using the net proceeds
 
                                      15
<PAGE>
 
for possible portfolio or asset acquisitions or in business combinations) as
suitable opportunities arise, the expansion and improvement of certain
properties in the Company's portfolio and the repayment of indebtedness. The
Company will not receive any of the proceeds from the sale of the Resale
Shares by the Selling Shareholder.
 
                              SELLING SHAREHOLDER
 
  As of April 8, 1997, State Farm Insurance Companies Employee Retirement
Trust (the "Selling Shareholder") beneficially owned 942,570 Common Shares, of
which up to 650,000 Resale Shares may be offered hereby. The amount of the
Resale Shares which may be offered by the Selling Shareholder from time to
time for its account and the percentage of the class to be owned by the
Selling Shareholder after the completion of such offering or offerings will be
set forth in the applicable Prospectus Supplement. On May 14, 1997, the
Selling Shareholder sold 650,000 Resale Shares in a public offering pursuant
to a Prospectus Supplement. In addition, as of April 8, 1997, State Farm
Mutual Automobile Insurance Company ("State Farm") beneficially owned
3,226,388 Common Shares. The Selling Shareholder is a retirement plan
administered by State Farm for the benefit of its employees. The trustees of
the Selling Shareholder are vested with the responsibility for investing the
assets of the Selling Shareholder. The Selling Shareholder and State Farm each
expressly disclaims beneficial ownership of the Common Shares owned by the
other.
 
                        DESCRIPTION OF DEBT SECURITIES
 
  The Debt Securities will be direct unsecured obligations of the Company and
may be either senior Debt Securities ("Senior Debt Securities") or
subordinated Debt Securities ("Subordinated Debt Securities"). The Debt
Securities will be issued under one or more indentures. Senior Debt Securities
and Subordinated Debt Securities will 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. The Senior Indenture and the Subordinated
Indenture, as amended or supplemented from time to time, are sometimes
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 certain anticipated provisions thereof, do not
purport to be complete and are qualified in their entirety by reference to the
forms of Indentures and such Debt Securities, which have been or will be
included or incorporated by reference to exhibits to the Registration
Statement of which this Prospectus is a part and are or will be available as
described above under "Available Information."
 
  The following description of Debt Securities sets forth certain general
terms and provisions of the series of Debt Securities to which any Prospectus
Supplement may relate. Certain other specific terms of any particular series
of Debt Securities will be described in the applicable Prospectus Supplement.
The terms of the Debt Securities offered by any Prospectus Supplement may
differ from the terms set forth below, in which case the terms set forth below
shall be deemed to have been superseded to the extent of any different terms
set forth in such Prospectus Supplement.
 
  Capitalized terms used herein and not defined shall have the meanings
assigned to them in the applicable form of Indenture. As used in this
"Description of Debt Securities," all references to the "Company" shall mean
BRE Properties, Inc., excluding, unless otherwise expressly stated or the
context shall otherwise require, its subsidiaries.
 
GENERAL
 
  The Debt Securities will be direct, unsecured obligations of the Company.
Each Indenture will provide that the Debt Securities issued thereunder may be
issued without limit as to aggregate principal amount, in one or more series,
in each case as established from time to time in or pursuant to authority
granted by a resolution of the Board of Directors of the Company or as
established in one or more indentures supplemental to the applicable
Indenture.
 
                                      16
<PAGE>
 
The terms of any Debt Securities within any series may differ from the terms
of any other Debt Securities in such series. 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 issuances of additional Debt Securities of such series. (See
Section 301 of the forms of Indenture.) Any Trustee under either Indenture may
resign or be removed with respect to one or more series of Debt Securities
issued under such Indenture, and a successor Trustee may be appointed to act
with respect to such series.
 
  Reference is made to each Prospectus Supplement for the specific terms of
the series of Debt Securities being offered thereby, including:
 
    (1) The title of such Debt Securities and whether such Debt Securities
  will be Senior Debt Securities or Subordinated Debt Securities;
 
    (2) The aggregate principal amount of such Debt Securities and any limit
  on such aggregate principal amount;
 
    (3) If other than 100% of the principal amount thereof, the portion of
  the principal amount of such Debt Securities payable upon declaration of
  acceleration of the maturity thereof or (if applicable) the portion of the
  principal amount of such Debt Securities which is convertible into Common
  Shares or other equity securities of the Company, or the method by which
  any such portion shall be determined;
 
    (4) If such Debt Securities are convertible, any limitation on the
  ownership or transferability of the Common Shares or other equity
  securities of the Company into which such Debt Securities are convertible
  in connection with the preservation of the Company's status as a REIT;
 
    (5) The date or dates, or the method for determining the 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 the date or dates,
  from which any such interest will accrue, the Interest Payment Dates on
  which any such interest will be payable, the Regular Record Dates for such
  Interest Payment Dates, or the method by which such Regular Record Dates
  shall be determined, the Person 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 (i) the principal of (and premium, if any)
  or interest, if any, on such Debt Securities will be payable, (ii) such
  Debt Securities may be surrendered for conversion (if applicable) or
  registration of transfer or exchange, and (iii) 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 within which, the price or prices at which, and
  the terms and conditions upon which, such Debt Securities may be redeemed,
  as a whole or in part, at the option of the Company, if the Company is to
  have such an option;
 
    (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,
  or the date or dates on which, the price or prices at which and the 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, if any)
  or interest, if any, on such Debt Securities may be determined with
  reference to an index, formula or other method (which index,
 
                                      17
<PAGE>
 
  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) Any additions to, modifications of or deletions from the terms of
  such Debt Securities with respect to the Events of Default or covenants set
  forth in the applicable Indenture;
 
    (14) Whether such Debt Securities will be issued in certificated or book-
  entry form;
 
    (15) Whether such Debt Securities will be in registered or bearer form or
  both and, if and to the extent in registered form, the denominations
  thereof if other than $1,000 and any integral multiple thereof and, if and
  to the extent in bearer form, the denominations thereof if other than
  $5,000 and terms and conditions relating thereto;
 
    (16) The applicability, if any, of the defeasance and covenant defeasance
  provisions of the applicable Indenture;
 
    (17) The terms, if any, upon which such Debt Securities may be
  convertible into Common Shares or other equity securities of the Company
  (and the class thereof) and the terms and conditions upon which such
  conversion will be effected, including, without limitation, the initial
  conversion price or rate and the conversion period;
 
    (18) The circumstances, if any, under which the Company will pay
  Additional Amounts on such Debt Securities in respect of any tax,
  assessment or governmental charge and, if so, whether the Company will have
  the option to redeem such Debt Securities in lieu of making such payment;
  and
 
    (19) Any other terms of such Debt Securities.
 
  The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
("Original Issue Discount Securities"). Any material U.S. federal income tax,
accounting and other considerations applicable to Original Issue Discount
Securities will be described in the applicable Prospectus Supplement.
 
  Except as hereinafter set forth under the captions "Certain Covenants--
Aggregate Debt Test," "--Maintenance of Total Unencumbered Assets," "--Debt
Service Test" and "--Secured Debt Test," which relate solely to the Senior
Indenture and the Senior Debt Securities issued thereunder, neither Indenture
will contain any provision that would limit the ability of the Company to
incur indebtedness or that will afford Holders of Debt Securities protection
in a highly leveraged or similar action involving the Company or in the event
of a change of control of the Company. However, certain restrictions on
ownership and transfers of the Company's Common Shares and the Company's other
equity securities designed to preserve its status as a REIT may act to prevent
or hinder a change of control. See "Description of Common Shares."
 
DENOMINATIONS, INTEREST, REGISTRATION AND TRANSFER
 
  Unless otherwise described in the applicable Prospectus Supplement, the
registered Debt Securities of any series will be issuable in denominations of
$1,000 and integral multiples of $1,000. (See Section 302 of the forms of
Indenture.)
 
  Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and premium, if any) and interest, if any, on any series of Debt
Securities will be payable at the office or agency maintained by the Company
for such purpose; 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 Security Register or by transfer of funds to such
Person at an account maintained within the United States. (See Sections 301,
305, 306, 307 and 1002 of the forms of Indenture.)
 
  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
 
                                      18
<PAGE>
 
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 applicable Trustee, notice of which 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. (See Section 307 of the forms of
Indenture.)
 
  Subject to certain limitations applicable to Debt Securities issued in book-
entry form, the Debt Securities of any series will be exchangeable for other
Debt Securities of the same series and of a like aggregate principal amount
and tenor of different authorized denominations upon surrender of such Debt
Securities at the office or agency maintained by the Company for such purpose.
In addition, subject to certain limitations applicable to Debt Securities
issued in book-entry form, the Debt Securities of any series may be
surrendered for conversion (if applicable) or registration of transfer thereof
at the office or agency maintained by the Company for such purpose. Every Debt
Security surrendered for conversion (if applicable), registration of transfer
or exchange must be duly endorsed or accompanied by a written instrument of
transfer. 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. (See Section 305 of the forms of Indenture.) If the applicable
Prospectus Supplement refers to any transfer agent 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 at which any such transfer 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. (See Section 1002 of the forms
of Indenture.)
 
  Neither the Company nor any Trustee will be required (i) to issue, register
the transfer of or exchange Debt Securities of any series if such Debt
Securities may be among those selected for redemption during a period
beginning at the opening of business 15 days before selection of Debt
Securities of that series to be redeemed and ending at the close of business
on (A) if such Debt Securities are issuable only in registered form, the day
of the mailing of the relevant notice of redemption or (B) if such Debt
Securities are issuable in bearer form, the day of the first publication of
the relevant notice of redemption or, if such Debt Securities are also
issuable in registered form and there is no publication, the day of the
mailing of the relevant notice of redemption; (ii) to register the transfer of
or exchange any Debt Security in registered form, or portion thereof, called
for redemption, except the unredeemed portion of any Debt Security being
redeemed in part; (iii) to exchange any Debt Security in bearer form so
selected for redemption except in exchange for a Debt Security in registered
form which is simultaneously surrendered for redemption; or (iv) to issue,
register the transfer of or exchange any Debt Security which 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. (See Section 305 of the forms
of Indenture.)
 
MERGER, CONSOLIDATION OR SALE
 
  Each Indenture will provide that the Company will not, in any transaction or
series of related transactions, consolidate with, or sell, lease, assign,
transfer or otherwise convey all or substantially all of its assets to, or
merge with or into, any other Person unless (i) either the Company shall be
the continuing corporation, or the successor Person (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 a corporation organized and
existing under the laws of the United States of America, any state thereof or
the District of Columbia and shall expressly assume, by supplemental indenture
delivered to the Trustee, the due and punctual payment of the principal of
(and premium, if any) and interest, if any, on all of the outstanding Debt
Securities issued under such Indenture and the due and punctual performance
and observance of all of the other covenants and conditions contained in such
outstanding Debt Securities and such Indenture; (ii) immediately after giving
effect to such transaction and treating any Debt (including Acquired Debt)
which becomes an obligation of the Company or any of its Subsidiaries 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 applicable
Indenture, and no event which, after notice or the lapse of time or both,
would
 
                                      19
<PAGE>
 
become such an Event of Default, shall have occurred and be continuing; and
(iii) an officers' certificate and legal opinion concerning such conditions
shall be delivered to the relevant Trustee. In the event that the Company is
not the continuing corporation, then, for purposes of clause (ii) of the
preceding sentence, the successor corporation shall be deemed to be the
"Company" referred to in such clause (ii). (See Sections 801 and 803 of the
forms of Indenture).
 
  Upon any such merger, consolidation, sale, assignment, transfer, lease or
conveyance in which the Company is not the continuing corporation, the
successor corporation formed by such consolidation or into which the Company
is merged or to which such sale, assignment, transfer, lease or other
conveyance is made shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under the relevant Indenture with the
same effect as if such successor corporation had been named as the Company
therein and thereafter (except in the case of a lease) the Company shall be
released from its obligations under such Indenture and the Debt Securities.
 
CERTAIN COVENANTS
 
  The Senior Indenture will contain the following covenants:
 
  Aggregate Debt Test. The Company will not, and will not cause or permit any
of its Subsidiaries to, incur any Debt (including, without limitation,
Acquired Debt) if, immediately after giving effect to the incurrence of such
Debt and the application of the proceeds therefrom on a pro forma basis, the
aggregate principal amount of all outstanding Debt of the Company and its
Subsidiaries (determined on a consolidated basis in accordance with generally
accepted accounting principles) is greater than 60% of the sum of (without
duplication) (i) the Total Assets of the Company and its Subsidiaries as of
the last day of the then most recently ended fiscal quarter and (ii) the
aggregate purchase price of any real estate assets or mortgages receivable
acquired, and the aggregate amount of any securities offering proceeds
received (to the extent such proceeds were not used to acquire real estate
assets or mortgages receivable or used to reduce Debt), by the Company or any
of its Subsidiaries since the end of such fiscal quarter, including the
proceeds obtained from the incurrence of such additional Debt, determined on a
consolidated basis in accordance with generally accepted accounting
principles.
 
  Debt Service Test. The Company will not, and will not cause or permit any of
its Subsidiaries to, incur any Debt (including, without limitation, Acquired
Debt) if the ratio of Consolidated Income Available for Debt Service to the
Annual Debt Service Charge for the period consisting of the four consecutive
fiscal quarters most recently ended prior to the date on which such additional
Debt is to be incurred shall have been less than 1.5:1 on a pro forma basis
after giving effect to the incurrence of such Debt and the application of the
proceeds therefrom, and calculated on the assumption that (i) such Debt and
any other Debt (including, without limitation, Acquired Debt) incurred by the
Company or any of its Subsidiaries since the first day of such four-quarter
period had been incurred, and the application of the proceeds therefrom
(including to repay or retire other Debt) had occurred, on the first day of
such period, (ii) the repayment or retirement of any other Debt of the Company
or any of its Subsidiaries since the first day of such four-quarter period had
occurred on the first day of such period (except that, in making such
computation, the amount of Debt under any revolving credit facility, line of
credit or similar facility shall be computed based upon the average daily
balance of such Debt during such period) and (iii) in the case of any
acquisition or disposition by the Company or any of its Subsidiaries of any
asset or group of assets, in any such case with a fair market value
(determined in good faith by the Company's Board of Directors) in excess of $1
million, since the first day of such four-quarter period, whether by merger,
stock purchase or sale or asset purchase or sale or otherwise, such
acquisition or disposition had occurred as of the first day of such period
with the appropriate adjustments with respect to such acquisition or
disposition being included in such pro forma calculation. If the Debt giving
rise to the need to make the foregoing calculation or any other Debt incurred
after the first day of the relevant four-quarter period bears interest at a
floating rate then, for purposes of calculating the Annual Debt Service
Charge, the interest rate on such Debt shall be computed on a pro forma basis
as if the average rate which would have been in effect during the entire such
four-quarter period had been the applicable rate for the entire such period.
 
 
                                      20
<PAGE>
 
  Secured Debt Test. The Company will not, and will not cause or permit any of
its Subsidiaries to, incur any Debt (including, without limitation, Acquired
Debt) secured by any Lien on any property or assets of the Company or any of
its Subsidiaries, whether owned on the date of the Indenture or thereafter
acquired, if, immediately after giving effect to the incurrence of such Debt
and the application of the proceeds therefrom on a pro forma basis, the
aggregate principal amount (determined on a consolidated basis in accordance
with generally accepted accounting principles) of all outstanding Debt of the
Company and its Subsidiaries which is secured by any Lien on any property or
assets of the Company or any of its Subsidiaries is greater than 40% of the
sum of (without duplication) (i) the Total Assets of the Company and its
Subsidiaries as of the last day of the then most recently ended fiscal quarter
and (ii) the aggregate purchase price of any real estate assets or mortgages
receivable acquired, and the aggregate amount of any securities offering
proceeds received (to the extent such proceeds were not used to acquire real
estate assets or mortgages receivable or used to reduce Debt), by the Company
or any of its Subsidiaries since the end of such fiscal quarter, including the
proceeds obtained from the incurrence of such additional Debt, determined on a
consolidated basis in accordance with generally accepted accounting
principles.
 
  Maintenance of Total Unencumbered Assets. The Company will, and will cause
its Subsidiaries to, have at all times Total Unencumbered Assets of not less
than 150% of the aggregate principal amount of all outstanding Unsecured Debt
of the Company and its Subsidiaries, determined on a consolidated basis in
accordance with generally accepted accounting principles.
 
  The Subordinated Indenture will not contain any of the covenants described
above and will not contain any other limitation on the amount of Debt of any
kind which the Company or its Subsidiaries may incur. Neither Indenture will
limit the amount of dividends or other distributions which the Company may pay
to its shareholders.
 
  Each Indenture will contain the following covenants:
 
  Existence. Except as permitted under the provisions of such Indenture
described in "Merger, Consolidation or Sale" the Company will do or cause to
be done all things necessary to preserve and keep in full force and effect its
corporate existence, rights (charter and statutory) and franchises; provided,
however, that the Company will 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 and that the loss
thereof is not disadvantageous in any material respect to the Holders of the
Debt Securities outstanding under the relevant Indenture.
 
  Maintenance of Properties. The Company will cause all of its 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 will not be
prevented from selling or otherwise disposing of for value their respective
properties in the ordinary course of business.
 
  Insurance. Each Indenture will require the Company to, and to cause each of
its Subsidiaries to, keep in force upon all of its properties and operations
policies of insurance carried with responsible companies in such amounts and
covering all such risks as shall be customary in the industry in accordance
with prevailing market conditions and availability.
 
  Payment of Taxes and Other Claims. The Company will pay or discharge or
cause to be paid or discharged, before the same shall become delinquent, (i)
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 (ii) all lawful claims for labor, materials and supplies
which, if unpaid, might by law become a lien upon the property of the Company
or any Subsidiary, provided, however, that the Company will not be required to
pay or
 
                                      21
<PAGE>
 
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 by appropriate proceedings.
 
  Provision of Financial Information. Whether or not the Company is subject to
Section 13 or 15(d) of the Exchange Act, for so long as any Debt Securities
are outstanding, the Company will, to the extent permitted under the Exchange
Act, file with the Commission the annual reports, quarterly reports and other
documents which the Company would have been required to file with the
Commission pursuant to such Section 13 or 15(d) if the Company were so
subject, on or prior to the respective dates (the "Required Filing Dates") by
which the Company would have been so required so to file such documents. The
Company will also in any event (x) within 15 days after each Required Filing
Date (i) transmit by mail to all Holders of Debt Securities, as their names
and addresses appear in the relevant Security Register, without cost to such
Holders, copies of the annual reports, quarterly reports and other documents
which 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 (ii) file with the applicable Trustee copies of
the annual reports, quarterly reports and other documents which 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 (y)
if filing such documents by the Company with the Commission is not permitted
under the Exchange Act, promptly upon written request and payment of the
reasonable cost of duplication and delivery, supply copies of such documents
to any prospective Holder of Debt Securities under the relevant Indenture.
 
  Definitions. As used herein,
 
  "Acquired Debt" means Debt of a Person (i) existing at the time such Person
is merged or consolidated with or into, or becomes a Subsidiary of, the
Company or (ii) assumed by the Company or any of its Subsidiaries in
connection with the acquisition of assets from such Person. Acquired Debt
shall be deemed to be incurred on the date the acquired Person is merged or
consolidated with or into, or becomes a Subsidiary of, the Company or the date
of the related acquisition, as the case may be.
 
  "Annual Debt Service Charge" means, for any period, the interest expense of
the Company and its Subsidiaries for such period (including, without
duplication, (i) all amortization of debt discount, (ii) all accrued interest,
(iii) all capitalized interest, and (iv) the interest component of capitalized
lease obligations), determined on a consolidated basis in accordance with
generally accepted accounting principles.
 
  "Consolidated Income Available for Debt Service" for any period means
Consolidated Net Income of the Company and its Subsidiaries for such period,
plus amounts which have been deducted and minus amounts which have been added
for (without duplication) (i) interest expense on Debt, (ii) provision for
taxes based on income, (iii) amortization of debt discount and deferred
financing costs, (iv) provisions for gains and losses on sales or other
dispositions of properties and other investments, (v) property depreciation
and amortization, (vi) the effect of any non-cash items resulting from a
change in accounting principles in determining Consolidated Net Income, and
(vii) amortization of deferred charges, all determined on a consolidated basis
in accordance with generally accepted accounting principles.
 
  "Consolidated Net Income" for any period means the amount of net income (or
loss) of the Company and its Subsidiaries for such period, excluding (without
duplication) (i) extraordinary items and (ii) the portion of net income (but
not losses) of the Company and its Subsidiaries allocable to minority
interests in unconsolidated Persons to the extent that cash dividends or
distributions have not actually been received by the Company or one of its
Subsidiaries, all determined on a consolidated basis in accordance with
generally accepted accounting principles.
 
  "Debt" means, with respect to any Person, any indebtedness of such Person,
whether or not contingent, in respect of (i) borrowed money or evidenced by
bonds, notes, debentures or similar instruments, (ii) indebtedness secured by
any Lien on any property or asset owned by such Person, but only to the extent
of the lesser of (x) the amount of indebtedness so secured and (y) the fair
market value (determined in good faith by the board of
 
                                      22
<PAGE>
 
directors of such Person or, in the case of the Company or a Subsidiary, by
the Company's Board of Directors) of the property subject to such Lien, (iii)
reimbursement obligations, contingent or otherwise, in connection with any
letters of credit actually issued or amounts representing the balance deferred
and unpaid of the purchase price of any property except any such balance that
constitutes an accrued expense or trade payable, or (iv) any lease of property
by such Person as lessee which is required to be reflected on such Person's
balance sheet as a capitalized lease in accordance with generally accepted
accounting principles, and also includes, to the extent not otherwise
included, any obligation of such Person to be liable for, or to pay, as
obligor, guarantor or otherwise (other than for purposes of collection in the
ordinary course of business), Debt of the types referred to above of another
Person (it being understood that Debt shall be deemed to be incurred by such
Person whenever such person shall create, assume, guarantee or otherwise
become liable in respect thereof).
 
  "Executive Group" means, collectively, those individuals holding the offices
of Chairman, Vice Chairman, President, Chief Executive Officer, Chief
Operating Officer or any Vice President of the Company.
 
  "Lien" means any mortgage, deed of trust, lien, charge, pledge, security
interest, security agreement, or other encumbrance of any kind.
 
  "Subsidiary" means (i) a corporation, partnership, joint venture, limited
liability company or other Person the majority of the shares, if any, of the
non-voting capital stock or other equivalent ownership interests of which
(except directors' qualifying shares) are at the time directly or indirectly
owned by the Company and/or any other Subsidiary or Subsidiaries, and the
majority of the shares of the voting capital stock or other equivalent
ownership interests of which (except directors' qualifying shares) are at the
time directly or indirectly owned by the Company, any other Subsidiary or
Subsidiaries, and/or one or more individuals of the Executive Group (or, in
the event of death or disability of any of such individuals, his/her
respective legal representatives(s), or such individuals' successors in office
as an officer of the Company), and (ii) any Person the accounts of which are
consolidated with the accounts of the Company.
 
  "Total Assets" means the sum of (without duplication) (i) Undepreciated Real
Estate Assets and (ii) all other assets (excluding accounts receivable and
intangibles) of the Company and its Subsidiaries, all determined on a
consolidated basis in accordance with generally accepted accounting
principles.
 
  "Total Unencumbered Assets" means the sum of (without duplication) (i) those
Undepreciated Real Estate Assets which are not subject to a Lien securing Debt
and (ii) all other assets (excluding accounts receivable and intangibles) of
the Company and its Subsidiaries not subject to a Lien securing Debt, all
determined on a consolidated basis in accordance with generally accepted
accounting principles.
 
  "Undepreciated Real Estate Assets" means, as of any date, the cost (original
cost plus capital improvements) of real estate assets of the Company and its
Subsidiaries on such date, before depreciation and amortization, all
determined on a consolidated basis in accordance with generally accepted
accounting principles.
 
  "Unsecured Debt" means Debt of the Company or any of its Subsidiaries which
is not secured by a Lien on any property or assets of the Company or any of
its Subsidiaries.
 
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: (i) default for 30
days in the payment of any interest on or any Additional Amounts payable in
respect of any Debt Security of such series; (ii) default in the payment of
any principal of (or premium, if any, on) any Debt Security of such series at
its Maturity; (iii) default in making any sinking fund payment as required for
any Debt Security of such series; (iv) default in the performance of any other
covenant or warranty of the Company contained in the applicable Indenture
(other than a covenant or warranty included in such Indenture solely for the
benefit of a series of Debt Securities other than such series), continued for
60 days after written notice as
 
                                      23
<PAGE>
 
provided in such Indenture; (v) default under any bond, note, debenture or
other evidence of indebtedness of the Company or any of its Subsidiaries or
under any mortgage, indenture or other instrument under which there may be
issued or by which there may be secured or evidenced any indebtedness of the
Company or any of its Subsidiaries which results in the acceleration of such
indebtedness in an aggregate principal amount exceeding $20,000,000 or which
constitutes a failure to pay at maturity or other scheduled payment date
(after expiration of any applicable grace period) such indebtedness in an
aggregate principal amount exceeding $20,000,000, but only if such
indebtedness is not discharged or such acceleration is not rescinded or
annulled within 10 days after notice to the Company by the Trustee or to the
Company and the Trustee by the Holders of at least 10% in aggregate principal
amount of the Outstanding Debt Securities of such series; (vi) certain events
of bankruptcy, insolvency or reorganization with respect to the Company or of
any Significant Subsidiary; and (vii) any other Event of Default provided with
respect to that series of Debt Securities. (See Section 501 of the forms of
Indenture.) The term "Significant Subsidiary" means any Subsidiary which is a
significant subsidiary (as defined in Regulation S-X promulgated under the
Securities Act as in effect on January 1, 1996) of the Company.
 
  If an Event of Default under any Indenture with respect to Debt Securities
of any series issued thereunder at the time outstanding occurs and is
continuing, then in every such case the applicable Trustee or the Holders of
not less than 25% in principal amount of the Outstanding Debt Securities of
that series may 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
all of 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, 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 (i)
the Company shall have deposited with the applicable Trustee all required
payments of the principal of (and premium, if any) and interest, if any, on
the Debt Securities of such series (other than amounts which have become due
and payable as a result of such acceleration), plus certain fees, expenses,
disbursements and advances of such Trustee and (ii) all Events of Default
(other than the nonpayment of accelerated principal (or specified portion
thereof), premium, if any, and interest) with respect to Debt Securities of
such series have been cured or waived as provided in such Indenture. (See
Section 502 of the forms of 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 (x) in the payment of the
principal of (or premium, if any) or interest, if any, on any Debt Security of
such series or (y) 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 of such series affected thereby.
(See Section 513 of the forms of Indenture.)
 
  The Indentures will require each Trustee to give notice to the Holders of
Debt Securities issued thereunder within 90 days of a default under the
applicable Indenture known to such Trustee, unless such default shall have
been cured or waived; provided, however, that such Trustee may withhold notice
to the Holders of any such series of Debt Securities of any default with
respect to such series (except a default in the payment of the principal of
(or premium, if any) or interest, if any, 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 a Responsible Officer of such Trustee determines
such withholding to be in the interest of such Holders. (See Section 601 of
the forms of Indenture.)
 
  The Indentures will provide that no Holder of Debt Securities of any series
issued thereunder may institute any proceeding, judicial or otherwise, with
respect to such Indenture or for any remedy thereunder, except in the case of
the 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 reasonable
indemnity. (See Section 507 of the forms of Indenture.) 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, if any) and
interest, if any, on such Debt Securities held by that Holder at the
respective due dates thereof. (See Section 508 of the forms of Indenture.)
 
 
                                      24
<PAGE>
 
  The Indentures will provide that, subject to provisions to each Indenture
relating to its duties in case of default, a Trustee thereunder is 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. (See Section 602 of
the forms of Indenture.) The Holders of not less than a majority in principal
amount of the Outstanding Debt Securities of any series shall have the right
to direct the time, method and place of conducting any proceeding for any
remedy available to such 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. (See Section 512 of the forms of Indenture.)
 
  Within 120 days after the close of each fiscal year, the Company must
deliver to the relevant Trustee a certificate, signed by one of several
specified officers of the Company, stating whether or not such officer has
knowledge of any noncompliance under the applicable Indenture and, if so,
specifying such noncompliance and the nature and status thereof. (See Section
1014 of the form of Senior Indenture and Section 1011 of the form of
Subordinated Indenture.)
 
MODIFICATION OF THE FORMS OF INDENTURE
 
  Modifications and amendments of an Indenture may be made only with the
consent of the Holders of not less than a majority in principal amount of all
Outstanding Debt Securities of each series issued thereunder which are
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, (i) change the Stated Maturity of the
principal of, or any installment of interest, if any, (or premium, if any) on,
any such Debt Security, (ii) reduce the principal amount of, or the rate or
amount of interest on, or any amount of premium payable on 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 the Holder of any such Debt Security to repayment of such Debt
Security at such Holder's option, (iii) change the Place of Payment, or the
coin or currency, for payment of principal of (or premium, if any) or
interest, if any, on any such Debt Security, (iv) impair the right to
institute suit for the enforcement of any payment on or with respect to any
such Debt Security, (v) reduce the percentage in principal amount of
Outstanding Debt Securities of any series necessary to modify or amend the
applicable Indenture with respect to such Debt Securities, 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, (vi) 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, or (vii) make any change that
adversely affects the right, if any, to convert or exchange any Debt Security
for equity securities of the Company or other securities or property in
accordance with the terms of any such Debt Security. (See Section 902 of the
forms of Indenture.)
 
  Each Indenture provides that the Holders of not less than a majority in
principal amount of Outstanding Debt Securities of any series issued
thereunder have the right to waive compliance by the Company with certain
covenants in the Indenture applicable to such series, including those
described in the section of this Prospectus captioned "Description of Debt
Securities--Certain Covenants." (See Section 1013 of the form of Senior
Indenture and Section 1011 of the form of Subordinated Indenture.)
 
  Modifications and amendments of an Indenture may be made by the Company and
the applicable Trustee without the consent of any Holder of Debt Securities
issued thereunder for any of the following purposes: (i) to evidence the
succession of another Person to the Company as obligor under such Indenture;
(ii) to add to the covenants of the Company for the benefit of the Holders of
all or any series of Debt Securities issued thereunder or to surrender any
right or power conferred upon the Company in such Indenture; (iii) to add
Events of Default for the benefit of the Holders of all or any series of Debt
Securities issued thereunder; (iv) to add or change any
 
                                      25
<PAGE>
 
provisions of such Indenture to facilitate the issuance of Debt Securities
issued thereunder in bearer form, or to permit or facilitate the issuance of
such Debt Securities in uncertificated form, provided that such action shall
not adversely affect the interests of the Holders of such Debt Securities of
any series in any material respect; (v) to change or eliminate any provision
of such Indenture, provided that no such change or elimination shall become
effective with respect to the Outstanding Debt Securities of any series issued
thereunder which were first issued prior to the date of such change or
elimination and which are entitled to the benefit of such provision; (vi) to
secure the Debt Securities issued thereunder; (vii) to establish the form or
terms of Debt Securities of any series issued thereunder, including the
provisions and procedures, if applicable, for the conversion of such Debt
Securities into Common Shares or Preferred Shares of the Company; (viii) to
provide for the acceptance of appointment by a successor Trustee or to
facilitate the administration of the trusts under such Indenture by more than
one Trustee; (ix) to cure any ambiguity, defect or inconsistency in such
Indenture or to make any other provisions with respect to matters or questions
arising thereunder, provided that such action shall not adversely affect the
interests of Holders of Outstanding Debt Securities of any series issued
thereunder in any material respect; or (x) to supplement any of the provisions
of such Indenture to the extent necessary to permit or facilitate defeasance,
covenant defeasance and discharge of any series of Debt Securities issued
thereunder, provided that such action shall not adversely affect the interests
of the Holders of the Debt Securities of any series issued thereunder in any
material respect. (See Section 901 of the forms of Indenture.)
 
  The Indentures will provide that in determining whether the Holders of the
requisite principal amount of Outstanding Debt Securities of a series issued
thereunder have given any request, demand, authorization, direction, notice,
consent or waiver thereunder or whether a quorum is present at a meeting of
Holders of such Debt Securities, (i) 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, (ii)
the principal amount of a 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 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 (i)
above), (iii) 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 to such Indenture, and (iv) 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. (See Section 101 of the
forms of Indenture.)
 
  The Indentures will contain provisions for convening meetings of the Holders
of Debt Securities of a series issued thereunder. (See Section 1501 of the
forms of Indenture.) A meeting may 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 the applicable Indenture. (See
Section 1502 of the forms of Indenture.) Except for any consent that must be
given by the Holder of each Debt Security affected by certain modifications
and amendments of such 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 or more than a majority, in principal amount of the Outstanding Debt
Securities of a series may be adopted at a 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 the applicable 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, which is less or
 
                                      26
<PAGE>
 
more than a majority, 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. (See Section 1504 of the forms of Indenture.)
 
  Notwithstanding the provisions described above, 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 or other action that the applicable 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 by the Holders of a specified percentage in principal amount of
the Outstanding Debt Securities of such series and one or more additional
series: (i) there shall be no minimum quorum requirement for such meeting and
(ii) the principal amount of the Outstanding Debt Securities of such series
that are entitled to 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. (See Section 1504 of the forms of Indenture.)
 
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
 
  Unless otherwise indicated in the applicable Prospectus Supplement, upon
request of the Company any Indenture shall cease to be of further effect with
respect to any series of Debt Securities issued thereunder specified in such
Company request (except as to certain limited provisions of such Indenture
which shall survive) when either (i) all Debt Securities of such series have
been delivered to the Trustee for cancellation (subject to certain exceptions)
or (ii) all Debt Securities of such series have become due and payable or will
become due and payable within one year (or, if redeemable, are scheduled for
redemption within one year) and the Company has irrevocably deposited 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, 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.
 
  Each Indenture provides that, unless otherwise provided in the applicable
Prospectus Supplement, the Company may elect with respect to any series of
Debt Securities issued thereunder either (i) to defease and be discharged from
any and all obligations with respect to such Debt Securities (except, among
other things, 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 and to hold moneys for payment in
trust) ("defeasance") (see Section 1402 of the forms of Indenture) or (ii) to
be released from its obligations with respect to such Debt Securities under
the applicable covenants described above under the caption "Certain Covenants"
(except that the Company shall remain subject to the covenant to preserve and
keep in full force and effect its corporate existence, except as permitted
under the provisions described under "Merger, Consolidation or Sale") and, if
provided pursuant to Section 301 of such Indenture, its obligations with
respect to any other covenants applicable to the Debt Securities of such
series, and any omission to comply with such obligations shall not constitute
a default or an Event of Default with respect to such Debt Securities
("covenant defeasance") (see Section 1403 of the forms of Indenture), 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 currency or currencies in which such Debt Securities are
payable at Stated Maturity or, if applicable, upon redemption, 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, if any) and interest, if any, on such Debt
Securities, and any mandatory sinking fund or analogous payments thereon, on
the scheduled due dates therefor or the applicable redemption date, as the
case may be.
 
 
                                      27
<PAGE>
 
  Such a trust may only be established if, among other things, (i) 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, must refer to and be based upon a ruling of the Internal Revenue
Service or a change in applicable United States federal income tax law
occurring after the date of such Indenture; (ii) if the cash and Government
Obligations deposited are sufficient to pay the outstanding Debt Securities of
such series provided such Debt Securities are redeemed on a particular
redemption date, the Company shall have given the applicable Trustee
irrevocable instructions to redeem such Debt Securities on such date; and
(iii) no Event of Default or event which with notice or lapse of time or both
would become an Event of Default with respect to Debt Securities of such
series shall have occurred and shall be continuing on the date of, or, solely
in the case of Events of Default described in clause (vi) of the first
paragraph under "--Events of Default, Notice and Waiver" above, during the
period ending on the 91st day after the date of, such deposit into trust. (See
Section 1404 of the forms of Indenture.)
 
  "Government Obligations" means securities which are (i) 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 (ii) 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. (See Section 101 of the forms of Indenture.)
 
  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, (i) the Holder of a Debt Security of such series is entitled to, and
does, elect 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 (ii) 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
shall be deemed to have been, and will be, fully discharged and satisfied
through the payment of the principal of (and premium, if any) and interest, if
any, on such Debt Security as it becomes 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 Conversion Event. (See
Section 1405 of the forms of Indenture.) "Conversion Event" means the
cessation of use of (a) 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 institution of or
within the international banking community, (b) the ECU both within the
European Monetary System and for the settlement of transactions by public
institutions of or within the European Community or (c) any currency unit or
composite currency other than the ECU for the purposes for which it was
established. Unless otherwise described in the applicable Prospectus
Supplement, all payments of principal of (and premium, if any) and interest,
if any, on any Debt Security that are payable in a Foreign Currency that
ceases to be used by its government of issuance shall be made in U.S. dollars.
 
 
                                      28
<PAGE>
 
  In the event the Company effects covenant defeasance with respect to the
Debt Securities of any series and such Debt Securities are declared due and
payable because of the occurrence of any Event of Default (other than an Event
of Default with respect to any covenant as to which there has been covenant
defeasance), the amount of monies and Government Obligations deposited with
the applicable Trustee to effect such covenant defeasance may not be
sufficient to pay amounts due on such Debt Securities at the time of their
Stated Maturity or at the time of the acceleration resulting from such Event
of Default. In any such event, 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.
 
RANKING OF DEBT SECURITIES
 
  The Senior Debt Securities will be unsecured unsubordinated obligations of
the Company and will rank on a parity in right of payment with all other
unsecured and unsubordinated indebtedness of the Company. The Subordinated
Debt Securities will be unsecured obligations of the Company and will be
subordinated in right of payment to all existing and future Senior
Indebtedness (as defined below) of the Company. See "Subordination of
Subordinated Securities."
 
  The Debt Securities are obligations exclusively of the Company. Because a
significant portion of the operations of the Company is conducted through its
subsidiaries, including the Operating Company, the cash flow of the Company
and the consequent ability to service its debt, including the Debt Securities,
are partially dependent on the earnings of such subsidiaries and the Debt
Securities will be effectively subordinated to all existing and future
indebtedness and other liabilities of such subsidiaries. See "Risk Factors--
Ranking of Securities" Although the Senior Indentures will, if any Senior
Securities are issued, impose limitations on the incurrence of additional
indebtedness, both the Company and its subsidiaries will retain the ability to
incur substantial additional indebtedness.
 
SUBORDINATION OF SUBORDINATED SECURITIES
 
  The payment of the principal of (and premium, if any) and interest, if any,
on the Subordinated Debt Securities will be subordinated as set forth in the
Subordinated Indenture in right of payment to the prior payment of all Senior
Indebtedness of the Company whether outstanding on the date of the
Subordinated Indenture or thereafter incurred. (See Section 1701 of the
Subordinated Indenture.)
 
  "Senior Indebtedness" is defined in the Subordinated Indenture to mean (i)
the principal of (and premium, if any) and unpaid interest, if any, on
indebtedness for money borrowed or evidenced by a bond, note, debenture or
similar instrument, (ii) purchase money and similar obligations, (iii)
obligations under capital leases, (iv) guarantees, assumptions or purchase
commitments relating to, or other transactions as a result of which the
Company is responsible for the payment of, indebtedness and obligations of
others of the types referred to in clauses (i) through (iii) above, (v)
renewals, extensions and refunding of any such indebtedness or obligations,
(vi) interest in respect of any such indebtedness or obligations accruing
after the commencement of any insolvency or bankruptcy proceedings and (vii)
obligations associated with derivative products such as interest rate and
currency exchange contracts, foreign exchange contracts, commodity contracts,
and similar arrangements, unless, in each case, the instrument by which the
Company incurred, assumed or guaranteed the indebtedness or obligations
described in clauses (i) through (vii) expressly provides that such
indebtedness or obligation is subordinate or junior in right of payment to all
other indebtedness of the Company or is not senior in right of payment to the
Subordinated Debt Securities or ranks pari passu with or subordinate to the
Subordinated Debt Securities in right of payment. At September 30, 1997, the
Company had approximately $157,000,000 of Senior Debt outstanding. There are
no restrictions in the Subordinated Indenture upon the incurrence of
additional Senior Indebtedness.
 
 
                                      29
<PAGE>
 
  The Subordinated Indenture will provide that, in the event (i) of any
distribution of assets of the Company upon any dissolution, winding up,
liquidation or reorganization of the Company, whether in bankruptcy,
insolvency, reorganization or receivership proceeding or upon an assignment
for the benefit of creditors or any other marshaling of the assets and
liabilities of the Company or otherwise, except a distribution in connection
with a merger or consolidation or a conveyance or transfer of all or
substantially all of the properties of the Company which complies with the
requirements of Article Eight of the Subordinated Indenture (described above
under "Merger, Consolidation or Sale") or (ii) that a default shall have
occurred and be continuing with respect to the payment of principal of (or
premium, if any) or interest on any Senior Indebtedness, or (iii) that the
principal of the Subordinated Debt Securities of any series issued under the
Subordinated Indenture (or in the case of Original Issue Discount Securities,
the portion of the principal amount thereof referred to in Section 502 of the
form of Subordinated Indenture) shall have been declared due and payable
pursuant to Section 502 of the form of Subordinated Indenture, and such
declaration shall not have been rescinded and annulled as provided in said
Section 502, then:
 
    (1) in a circumstance described in the foregoing clause (i) or (ii), the
  holders of all Senior Indebtedness, and in the circumstance described in
  the foregoing clause (iii), the holders of all Senior Indebtedness
  outstanding at the time the principal of such Subordinated Debt Securities
  issued under the Subordinated Indenture (or in the case of Original Issue
  Discount Securities, such portion of the principal amount) shall have been
  so declared due and payable, shall first be entitled to receive payment of
  the full amount due thereon in respect of principal (premium, if any),
  interest and Additional Amounts, or provision shall be made for such
  payment in money or money's worth, before the Holders of any of the
  Subordinated Debt Securities are entitled to receive any payment on account
  of the principal of (or premium, if any) or interest, if any, on or any
  Additional Amount in respect of the indebtedness evidenced by the
  Subordinated Debt Securities;
 
    (2) any payment by, or distribution of assets of, the Company of any kind
  or character, whether in cash, property or securities (other than certain
  subordinated debt securities of the Company issued in a reorganization or
  readjustment), to which the Holder of any of the Subordinated Debt
  Securities would be entitled except for the subordination provisions of
  Article Seventeen of the Subordinated Indenture shall be paid or delivered
  by the person making such payment or distribution directly to the holders
  of Senior Indebtedness (as provided in clause (1) above), or on their
  behalf, ratably according to the aggregate amount remaining unpaid on
  account of such Senior Indebtedness, to the extent necessary to make
  payment in full of all Senior Indebtedness (as provided in clause (1)
  above) remaining unpaid after giving effect to any concurrent payment or
  distribution (or provisions therefor) to the holders of such Senior
  Indebtedness, before any payment or distribution is made to or in respect
  of the Holders of the Subordinated Debt Securities; and
 
    (3) in the event that, notwithstanding the foregoing, any payment by, or
  distribution of assets of, the Company of any kind or character is received
  by the Holders of any of the Subordinated Debt Securities issued under the
  Subordinated Indenture before all Senior Indebtedness is paid in full such
  payment or distribution shall be paid over to the holders of such Senior
  Indebtedness or on their behalf, ratably as aforesaid, for application to
  the payment of all such Senior Indebtedness remaining unpaid until all such
  Senior Indebtedness shall have been paid in full, after giving effect to
  any concurrent payment or distribution (or provisions therefor) to the
  holders of such Senior Indebtedness.
 
  By reason of such subordination in favor of the holders of Senior
Indebtedness in the event of insolvency, certain general creditors of the
Company, including holders of Senior Indebtedness, may recover more, ratably,
than the Holders of the Subordinated Debt Securities.
 
CONVERTIBLE DEBT SECURITIES
 
  If set forth in the applicable Prospectus Supplement, Debt Securities of any
series may be convertible into Common Shares or other securities of the
Company ("Convertible Debt Securities") on the terms and subject to the
conditions set forth in such Prospectus Supplement.
 
                                      30
<PAGE>
 
  The applicable Prospectus Supplement may set forth limitations on the
ownership or conversion of Convertible Debt Securities intended to protect the
Company's status as a REIT for federal income tax purposes.
 
  Reference is made to the sections captioned "Description of Common Shares,"
"Description of Preferred Shares" and "Description of Depositary Shares" for a
general description of securities which may be issued upon the conversion of
Convertible Debt Securities, including a description of certain restrictions
on the ownership of the Common Shares and the Preferred Shares.
 
GLOBAL SECURITIES
 
  The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities (each, a "Global Security") that will be
deposited with, or on behalf of, The Depository Trust Company, New York, New
York ("DTC"), or such other depository as may be identified in the applicable
Prospectus Supplement. Global Securities may be issued in either registered or
bearer form and in either temporary or permanent form. Unless otherwise
provided in such Prospectus Supplement, Debt Securities that are represented
by a Global Security will be issued in any authorized denomination and will be
issued in registered or bearer form.
 
  The Company anticipates that any Global Securities will be deposited with,
or on behalf of DTC, and that such Global Securities will be registered in the
name of Cede & Co., DTC's nominee. The Company further anticipates that the
following provisions will apply to the depository arrangements with respect to
any such Global Securities. Any additional or differing terms of the
depository arrangements will be described in the Prospectus Supplement
relating to a particular series of Debt Securities issued in the form of
Global Securities.
 
  So long as DTC or its nominee is the registered owner of a Global Security,
DTC or its nominee, as the case may be, will be considered the sole Holder of
the Debt Securities represented by such Global Security for all purposes under
the applicable Indenture. Except as described below, owners of beneficial
interests in a Global Security will not be entitled to have Debt Securities
represented by such Global Security registered in their names, will not
receive or be entitled to receive physical delivery of Debt Securities in
certificated form and will not be considered the owners or Holders thereof
under the applicable Indenture. The laws of some states require that certain
purchasers of securities take physical delivery of such securities in
certificated form; accordingly, such laws may limit the transferability of
beneficial interests in a Global Security.
 
  Unless otherwise specified in the applicable Prospectus Supplement, each
Global Security of any series will be exchangeable for certificated Debt
Securities of the same series only if (i) DTC notifies the Company that it is
unwilling or unable to continue as depository or DTC ceases to be a clearing
agency registered under the Exchange Act (if so required by applicable law or
regulation) and, in either case, a successor depository is not appointed by
the Company within 90 days after the Company receives such notice or becomes
aware of such ineligibility, (ii) the Company in its sole discretion
determines that the Global Securities shall be exchangeable for certificated
Debt Securities or (iii) there shall have occurred and be continuing an Event
of Default under the Indenture with respect to the Debt Securities of such
series and beneficial owners representing a majority in aggregate principal
amount of such Debt Securities represented by Global Securities advise DTC to
cease acting as depository. Upon any such exchange, owners of a beneficial
interest in the Global Security or Securities will be entitled to physical
delivery of individual Debt Securities in certificated form of like tenor,
terms and rank, equal in principal amount to such beneficial interest, and to
have such Debt Securities in certificated form registered in the names of the
beneficial owners, which names are expected to be provided by DTC's relevant
Participants (as identified by DTC) to the applicable Trustee. Unless
otherwise described in the applicable Prospectus Supplement, Debt Securities
so issued in certificated form will be issued in denominations of $1,000 or
any integral multiple thereof, and will be issued in registered form only,
without coupons.
 
  The following is based on information furnished to the Company:
 
  DTC will act as securities depository for the Debt Securities. The Debt
Securities will be issued as fully registered securities registered in the
name of Cede & Co. (DTC's partnership nominee). One fully registered
 
                                      31
<PAGE>
 
Debt Security certificate will be issued with respect to each $200 million (or
such other amount as shall be permitted by DTC from time to time) of principal
amount of the Debt Securities of a series, and an additional certificate will
be issued with respect to any remaining principal amount of such series.
 
  DTC is a limited purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations ("Direct Participants"). DTC is
owned by a number of its Direct Participants and by the New York Stock
Exchange, Inc., the American Stock Exchange, Inc. and the National Association
of Securities Dealers, Inc. Access to the DTC system is also available to
others, such as securities brokers and dealers, and banks and trust companies
that clear through or maintain a custodial relationship with a Direct
Participant, either directly or indirectly ("Indirect Participants"). The
rules applicable to DTC and its Participants are on file with the Commission.
 
  Purchases of Debt Securities under the DTC system must be made by or through
Direct Participants, which will receive a credit for the Debt Securities on
DTC's records. The ownership interest of each actual purchaser of each Debt
Security ("Beneficial Owner") is in turn recorded on the Direct and Indirect
Participants' records. A Beneficial Owner does not receive written
confirmation from DTC of its purchase, but is expected to receive a written
confirmation providing details of the transaction, as well as periodic
statements of its holdings, from the Direct or Indirect Participant through
which such Beneficial Owner entered into the transaction. Transfers of
ownership interests in Debt Securities are accomplished by entries made on the
books of Direct and Indirect Participants acting on behalf of Beneficial
Owners. Beneficial Owners do not receive certificates representing their
ownership interests in Debt Securities, except under the circumstances
described above.
 
  To facilitate subsequent transfers, the Debt Securities are registered in
the name of DTC's nominee, Cede & Co. The deposit of the Debt Securities with
DTC and their registration in the name of Cede & Co. will effect no change in
beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of
the Debt Securities; DTC records reflect only the identity of the Direct
Participants to whose accounts Debt Securities are credited, which may or may
not be the Beneficial Owners. The Participants remain responsible for keeping
account of their holdings on behalf of their customers.
 
  Delivery of notices and other communications by DTC to Direct Participants,
by Direct Participants to Indirect Participants, and by Direct Participants
and Indirect Participants to Beneficial Owners are governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect from time to time.
 
  Neither DTC nor Cede & Co. consents or votes with respect to the Debt
Securities. Under its usual procedures, DTC mails a proxy (an "Omnibus Proxy")
to the issuer as soon as possible after the record date. The Omnibus Proxy
assigns Cede & Co.'s consenting or voting rights to those Direct Participants
to whose accounts the Debt Securities are credited on the record date
(identified on a list attached to the Omnibus Proxy).
 
  Principal payments, premium payments, if any, and interest payments, if any,
on the Debt Securities will be made to DTC. DTC's practice is to credit Direct
Participants' accounts on the payment date in accordance with their respective
holdings as shown on DTC's records unless DTC has reason to believe that it
will not receive payment on the payment date. Payments by Direct and Indirect
Participants to Beneficial Owners are governed by standing instructions and
customary practices, as is the case with securities held for the accounts of
customers in bearer form or registered in "street name" and are the
responsibility of such Direct and Indirect Participants and not of DTC, the
applicable Trustee or the Company, subject to any statutory or regulatory
requirements as
 
                                      32
<PAGE>
 
may be in effect from time to time. Payment of principal (and premium, if any)
and interest, if any, to DTC is the responsibility of the Company or the
applicable Trustee, disbursement of such payments to Direct Participants is
the responsibility of DTC, and disbursement of such payments to the Beneficial
Owners is the responsibility of Direct and Indirect Participants.
 
  If applicable, redemption notices shall be sent to Cede & Co. If less than
all of the Debt Securities of a series represented by Global Securities are
being redeemed, DTC's practice is to determine by lot the amount of the
interest of each Direct Participant in such issue to be redeemed.
 
  To the extent that any Debt Securities provide for repayment or repurchase
at the option of the Holders thereof, a Beneficial Owner shall give notice of
any option to elect to have its interest in the Global Security repaid by the
Company, through its Participant, to the applicable Trustee, and shall effect
delivery of such interest in a Global Security by causing the Direct
Participant to transfer the Participant's interest in the Global Security or
Securities representing such interest, on DTC's records, to such Trustee. The
requirement for physical delivery of Debt Securities in connection with a
demand for repayment will be deemed satisfied when the ownership rights in the
Global Security or Securities representing such Debt Securities are
transferred by Direct Participants on DTC's records.
 
  DTC may discontinue providing its services as securities depository with
respect to the Debt Securities at any time by giving reasonable notice to the
Company or the applicable Trustee. Under such circumstances, in the event that
a successor securities depository is not appointed, Debt Security certificates
are required to be printed and delivered as described above.
 
  The Company may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depository). In that event,
Debt Security certificates will be printed and delivered as described above.
 
  The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company believes to be reliable, but
the Company takes no responsibility for the accuracy thereof.
 
  None of the Company, the applicable Trustee or any applicable paying agent
will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial interests in a Global
Security, or for maintaining, supervising or reviewing any records relating to
such beneficial interest.
 
                                      33
<PAGE>
 
                        DESCRIPTION OF PREFERRED SHARES
 
  The following description of Preferred Shares sets forth certain general
terms and provisions of the Preferred Shares to which any Prospectus
Supplement may relate, does not purport to be complete and is qualified in its
entirety by reference to the Company's Amended and Restated Articles of
Incorporation (the "Articles") and by the provisions of the form of articles
supplementary pursuant to which the terms of the Preferred Shares of any
series will be established, which have been or will be included or
incorporated by reference as exhibits to the Registration Statement of which
this Prospectus is a part and are or will be available as described above
under "Available Information." Certain other specific terms will be described
in the applicable Prospectus Supplement. The terms of the Preferred Shares
offered in any Prospectus Supplement may differ from the terms set forth
below, in which case the terms set forth below shall be deemed to have been
superseded to the extent of any different terms set forth in such Prospectus
Supplement.
 
GENERAL
 
  Under the Articles, the Board of Directors has the authority to issue up to
10,000,000 Preferred Shares, $0.01 par value per share. No Preferred Shares
were outstanding as of the date of this Prospectus. Preferred Shares may be
issued from time to time in one or more series, as authorized by the Board of
Directors of the Company and without any action or approval of shareholders of
the Company. Prior to the issuance of shares of such series, the Board of
Directors is required by the Maryland General Corporation Law and the Articles
to fix for each series, subject to the provisions of the Articles, the terms,
rights, restrictions and qualifications, including any preferences, conversion
or other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms or conditions of redemption, as are permitted by
Maryland law. The Preferred Shares offered in any Prospectus Supplement will,
when issued, be fully paid and nonassessable and will have no preemptive
rights.
 
  The issuance of Preferred Shares, while providing flexibility in connection
with possible financings, acquisitions and other corporate purposes, could,
among other things, adversely affect the voting powers and other rights and
interests of holders of Common Shares and, under certain circumstances, could
make it more difficult for a third party to gain control of the Company and
could have the effect of delaying or preventing an attempted takeover of the
Company.
 
TERMS
 
  Reference is made to the Prospectus Supplement relating to the Preferred
Shares offered thereby for specific terms, including:
 
    (1) The class, series and title of such Preferred Shares;
 
    (2) The number of shares of such Preferred Shares offered, the
  liquidation preference per share and the offering price of such Preferred
  Shares;
 
    (3) The dividend rate or rates, period or periods and payment date or
  dates or method of calculation thereof applicable to such Preferred Shares,
  and whether dividends will be cumulative or non-cumulative;
 
    (4) The date from which dividends on such Preferred Shares shall accrue,
  if applicable;
 
    (5) The procedures for any auction or remarketing of such Preferred
  Shares;
 
    (6) The provision for any sinking fund for such Preferred Shares;
 
    (7) The provision for redemption, if applicable, of such Preferred
  Shares;
 
    (8) Any listing of such Preferred Shares on any securities exchange;
 
    (9) Any terms and conditions upon which such Preferred Shares will be
  convertible into Common Shares of the Company, including the conversion
  price (or manner of calculation thereof);
 
    (10) Whether interests in such Preferred Shares will be represented by
  Depositary Shares;
 
                                      34
<PAGE>
 
    (11) Any other specific terms, preferences, rights, limitations or
  restrictions of or on such Preferred Shares;
 
    (12) A discussion of federal income tax considerations applicable to such
  Preferred Shares;
 
    (13) The relative ranking and preferences of such Preferred Shares 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
Shares of any series 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 Shares with respect to dividend rights or
rights upon liquidation, dissolution or winding up of the Company; (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 Shares with respect to dividend rights or rights upon liquidation,
dissolution or winding up of the Company; and (iii) junior to all equity
securities issued by the Company which the terms of such Preferred Shares
specifically provide rank senior to the Preferred Shares with respect to
dividend rights or rights upon liquidation, dissolution or winding up of the
Company. The term "equity securities" does not include convertible debt
securities.
 
DIVIDENDS
 
  Holders of the Preferred Shares 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 Shares 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 Shares for which dividends are non-cumulative, then the
holders of such series of the Preferred Shares 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.
 
  If Preferred Shares of any series are outstanding, no full dividends will be
declared or paid or set apart for payment on any capital stock of the Company
of any other series ranking, as to dividends, on a parity with or junior to
the Preferred Shares of such series for any period unless (i) if such series
of Preferred Shares 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 Shares of such series for all past dividend periods and the then
current dividend period or (ii) if such series of Preferred Shares 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 Shares 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 Shares of
any series and the shares of any other series of Preferred Shares ranking on a
parity as to dividends with the Preferred Shares of such series, all dividends
declared upon Preferred Shares of such series and any other series of
Preferred Shares ranking on a parity as to dividends with such Preferred
Shares shall be declared pro rata so that the amount of dividends declared per
share of Preferred Shares of such series and such other series of Preferred
Shares shall in all cases bear to each
 
                                      35
<PAGE>
 
other the same ratio that accrued dividends per share on the Preferred Shares
of such series (which shall not include any accumulation in respect of unpaid
dividends for prior dividend periods if such Preferred Shares does not have a
cumulative dividend) and such other series of Preferred Shares 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 Shares of such series
which may be in arrears.
 
  Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Shares has a cumulative dividend, full cumulative
dividends on the Preferred Shares 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 Shares
does not have a cumulative dividend, full dividends on the Preferred Shares 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 Common Shares or
other shares of capital stock ranking junior to the Preferred Shares of such
series as to dividends and upon liquidation, dissolution and winding up) shall
be declared or paid or set aside for payment nor shall any other distribution
be declared or made upon the Common Shares, or any other capital stock of the
Company ranking junior to or on a parity with the Preferred Shares of such
series as to dividends or upon liquidation, dissolution or winding up, nor
shall any Common Shares, or any other shares of capital stock of the Company
ranking junior to or on a parity with the Preferred Shares of such series as
to dividends or upon liquidation, dissolution or winding up 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 stock
of the Company ranking junior to the Preferred Shares of such series as to
dividends and upon liquidation, dissolution and winding up).
 
  Any dividend payment made on shares of a series of Preferred Shares 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 Shares
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 Shares that is
subject to mandatory redemption will specify the number of shares of such
Preferred Shares 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 Shares do not have a cumulative dividend,
include any accumulation 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 Shares 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 Shares 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 Shares shall 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 (i) if a series of Preferred Shares
has a cumulative dividend, full cumulative dividends on all shares of such
series of Preferred Shares 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 (ii) if a series of Preferred Shares does not have a cumulative
dividend, full dividends on all shares of the Preferred Shares 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 Shares shall be
redeemed
 
                                      36
<PAGE>
 
unless all outstanding shares of Preferred Shares of such series are
simultaneously redeemed; provided, however, that the foregoing shall not
prevent the purchase or acquisition of Preferred Shares 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
Shares of such series. In addition, unless (i) if such series of Preferred
Shares has a cumulative dividend, full cumulative dividends on all outstanding
shares of such series of Preferred Shares 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 Shares does not have a cumulative
dividend, full dividends on the Preferred Shares 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 Preferred Shares of such series (except by conversion into or
exchange for capital shares of the Company ranking junior to the Preferred
Shares of such series as to dividends and upon liquidation, dissolution and
winding up); provided, however, that the foregoing shall not prevent the
purchase or acquisition of shares of Preferred Shares 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
Shares of such series.
 
  If fewer than all of the outstanding shares of Preferred Shares 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 any other equitable 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 Shares
of any series to be redeemed at the address shown on the stock transfer books
of the Company. Each notice shall state: (i) the redemption date; (ii) the
number of shares and series of the Preferred Shares to be redeemed; (iii) the
redemption price; (iv) the place or places where certificates for such
Preferred Shares are to be surrendered for payment of the redemption price;
(v) that dividends on the shares to be redeemed will cease to accrue on such
redemption date; and (vi) 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 Shares of any series are to be redeemed, the notice mailed to each
such holder thereof shall also specify the number of Preferred Shares to be
redeemed from each such holder. If notice of redemption of any Preferred
Shares 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 Shares so called for redemption, then from and after the redemption
date dividends will cease to accrue on such Preferred Shares, 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 Shares or any other class or series of
capital stock of the Company ranking junior to the Preferred Shares of any
series in the distribution of assets upon any liquidation, dissolution or
winding up of the Company, the holders of such series of Preferred Shares
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, if any, set forth in the applicable
Prospectus Supplement, plus an amount equal to all dividends accrued and
unpaid thereon (which, in the case of Preferred Shares for which dividends are
noncumulative, shall not include any accumulation in respect of unpaid
dividends for prior dividend periods). After payment of the full amount of the
liquidating distributions to which they are entitled, the holders of Preferred
Shares 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 Shares of any series and the corresponding
amounts payable on all shares of other classes or series of capital stock of
the Company ranking on a parity with such Preferred Shares in the
 
                                      37
<PAGE>
 
distribution of assets, then the holders of such Preferred Shares 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 Shares of any series, the remaining assets of the Company shall be
distributed among the holders of any other classes or series of capital stock
ranking junior to such Preferred Shares upon liquidation, dissolution or
winding up, according to their respective rights and preferences. 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 Shares 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 Shares, so long as any
shares of Preferred Shares of such 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 Shares outstanding at the
time, given in person or by proxy, either in writing or at a meeting (such
series voting separately as a class), (i) 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 Shares 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 (ii) amend, alter or
repeal the provisions of the Articles or the designating amendment for such
series of Preferred Shares, 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 Shares or the holders
thereof, provided, however, that (x) any increase in the amount of the
authorized Preferred Shares or the creation or issuance of any other series of
Preferred Shares, or (y) any increase in the amount of authorized shares of
such series or any other series of Preferred Shares, in each case ranking on a
parity with or junior to the Preferred Shares of such series with respect to
payment of dividends and the distribution of assets upon liquidation,
dissolution and 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 Shares 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 Shares
is convertible into Common Shares or any other class or series of capital
stock of the Company will be set forth in the applicable Prospectus Supplement
relating thereto. Such terms will include the number of Common Shares or any
other class or series of capital stock of the Company into which the shares of
Preferred Shares 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 Shares or the
Company, the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption of such series
of Preferred Shares.
 
 
                                      38
<PAGE>
 
RESTRICTIONS ON OWNERSHIP
 
  The Preferred Shares are subject to certain restrictions on transfer, and
are subject to redemption (at redemption prices to be specified in the
applicable Prospectus Supplement) at the option of the Company, to the extent
the Board of Directors deems necessary to permit the Company to comply with
the REIT provisions of the Code. See "Restrictions on Transfers of Capital
Stock; Redemption." In addition, the applicable Prospectus Supplement may set
forth additional restrictions on transfer and related provisions applicable to
the Preferred Shares offered thereby intended to permit the Company to comply
with such provisions.
 
TRANSFER AGENT
 
  The transfer agent and registrar for the Preferred Shares will be set forth
in the applicable Prospectus Supplement.
 
                       DESCRIPTION OF DEPOSITARY SHARES
 
GENERAL
 
  The Company may issue receipts ("Depositary Receipts") for Depositary
Shares, each of which will represent a fractional interest of a share of a
particular series of Preferred Shares, as specified in the applicable
Prospectus Supplement. Preferred Shares represented by Depositary Shares will
be deposited under a separate Deposit Agreement (each, a "Deposit Agreement")
among the Company, the depositary named therein (such depositary or its
successor, the "Preferred Shares Depositary") and the holders from time to
time of the Depositary Receipts. Subject to the terms of the Deposit
Agreement, each owner of a Depositary Receipt will be entitled, in proportion
to the fractional interest of a share of the particular series of Preferred
Shares represented by the Depositary Shares evidenced by such Depositary
Receipt, to all the rights and preferences of the Preferred Shares represented
by such Depositary Shares (including dividend, voting, conversion, redemption
and liquidation rights).
 
  The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the
issuance and delivery of the Preferred Shares by the Company to the Preferred
Shares Depositary, the Company will cause the Preferred Shares Depositary to
issue, on behalf of the Company, the Depositary Receipts. The following
description of certain terms of any Deposit Agreement and the related
Depositary Shares and Depositary Receipts does not purport to be complete, and
is qualified in its entirety by reference to the form of Deposit Agreement
(including the form of Depositary Receipt) which has been or will be filed or
incorporated by reference as an exhibit to the Registration Statement of which
this Prospectus is a part and is or will be available as described below under
"Available Information."
 
  The terms of the Depositary Shares offered in any Prospectus Supplement may
differ from the terms set forth below, in which case the terms set forth below
shall be deemed to have been superseded to the extent of any different terms
set forth in such Prospectus Supplement.
 
DIVIDENDS AND OTHER DISTRIBUTIONS
 
  The Preferred Shares Depositary will distribute all cash dividends or other
cash distributions received with respect to the Preferred Shares to the record
holders of the Depositary Receipts evidencing the related Depositary Shares in
proportion to the number of such Depositary Receipts owned by such holders,
subject to certain obligations of holders to file proofs, certificates and
other information and to pay certain charges and expenses to the Preferred
Shares Depositary.
 
  In the event of a distribution other than in cash, the Preferred Shares
Depositary will distribute property received by it to the record holders of
Depositary Receipts entitled thereto, subject to certain obligations of
 
                                      39
<PAGE>
 
holders to file proofs, certificates and other information and to pay certain
charges and expenses to the Preferred Shares Depositary, unless the Preferred
Shares Depositary determines that it is not feasible to make such
distribution, in which case the Preferred Shares Depositary may, with the
approval of the Company, sell such property and distribute the net proceeds
from such sale to such holders.
 
WITHDRAWAL OF SHARES
 
  Upon surrender of the Depositary Receipts at the corporate trust office of
the Preferred Shares Depositary (unless the related Depositary Shares have
previously been called for redemption), the holder thereof will be entitled to
delivery at such office, to or upon such holder's order, of the number of
whole or fractional Preferred Shares and any money or other property
represented by the Depositary Shares evidenced by such Depositary Receipts.
Holders of Depositary Receipts will be entitled to receive whole or fractional
shares of the related Preferred Shares on the basis of the proportion of
Preferred Shares represented by each Depositary Share as specified in the
applicable Prospectus Supplement, but holders of such Preferred Shares will
not thereafter be entitled to receive Depositary Shares therefor. If the
Depositary Receipts delivered by the holder evidence a number of Depositary
Shares in excess of the number of Depositary Shares representing the number of
Preferred Shares to be withdrawn, the Preferred Shares Depositary will deliver
to such holder at the same time a new Depositary Receipt evidencing such
excess number of Depositary Shares.
 
REDEMPTION OF DEPOSITARY SHARES
 
  Whenever the Company redeems Preferred Shares held by the Preferred Shares
Depositary, the Preferred Shares Depositary will redeem as of the same
redemption date the number of Depositary Shares representing the Preferred
Shares so redeemed, provided the Company shall have paid in full to the
Preferred Shares Depositary the redemption price of the Preferred Shares to be
redeemed plus an amount equal to any accrued and unpaid dividends (or, with
respect to Preferred Shares as to which dividends are non-cumulative,
dividends for the current dividend period only) thereon to the date fixed for
redemption. The redemption price per Depositary Share will be equal to the
applicable fraction of the redemption price and any other amounts per share
payable with respect to the Preferred Shares. If less than all the Depositary
Shares are to be redeemed, the Depositary Shares to be redeemed will be
selected by the Preferred Shares Depositary by lot or in such other manner as
the Preferred Share Depositary deems equitable.
 
  After the date fixed for redemption, the Depositary Shares so called for
redemption will no longer be deemed to be outstanding and all rights of the
holders of the Depositary Receipts evidencing the Depositary Shares so called
for redemption will cease, except the right to receive any moneys payable upon
such redemption and any money or other property to which the holders of such
Depositary Receipts were entitled upon such redemption upon surrender thereof
to the Preferred Shares Depositary.
 
VOTING OF THE UNDERLYING PREFERRED SHARES
 
  Upon receipt of notice of any meeting at which the holders of the Preferred
Shares are entitled to vote, the Preferred Shares Depositary will mail the
information contained in such notice of meeting to the record holders of the
Depositary Receipts evidencing the Depositary Shares which represent such
Preferred Shares. Each record holder of Depositary Receipts evidencing
Depositary Shares on the record date (which will be the same date as the
record date for the Preferred Shares) will be entitled to instruct the
Preferred Shares Depositary as to the exercise of the voting rights pertaining
to the amount of Preferred Shares represented by such holder's Depositary
Shares. The Preferred Shares Depositary will vote the amount of Preferred
Shares represented by such Depositary Shares in accordance with such
instructions, and the Company will agree to take all reasonable action which
may be deemed necessary by the Preferred Shares Depositary in order to enable
the Preferred Shares Depositary to do so. The Preferred Shares Depositary will
abstain from voting the amount of Preferred Shares represented by such
Depositary Shares to the extent it does not receive specific instructions from
the holders of Depositary Receipts evidencing such Depositary Shares.
 
                                      40
<PAGE>
 
LIQUIDATION PREFERENCE
 
  In the event of liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, each holder of a Depositary Receipt will be
entitled to the applicable fraction of the liquidation preference accorded
each Preferred Share represented by the Depositary Share evidenced by such
Depositary Receipt, as set forth in the applicable Prospectus Supplement.
 
CONVERSION OF PREFERRED SHARES
 
  The Depositary Shares, as such, are not convertible into Common Shares or
any other securities or property of the Company. Nevertheless, if so specified
in the applicable Prospectus Supplement relating to an offering of Depositary
Shares, the Depositary Receipts may be surrendered by holders thereof to the
Preferred Shares Depositary with written instructions to the Preferred Shares
Depositary to instruct the Company to cause conversion of the Preferred Shares
represented by the Depositary Shares evidenced by such Depositary Receipts
into whole Common Shares, other Preferred Shares of the Company or other
shares of capital stock, and the Company has agreed that upon receipt of such
instructions and any amounts payable in respect thereof, it will cause the
conversion thereof utilizing the same procedures as those provided for
delivery of Preferred Shares to effect such conversion. If the Depositary
Shares evidenced by a Depositary Receipt are to be converted in part only, one
or more new Depositary Receipts will be issued for any Depositary Shares not
to be converted. No fractional Common Shares will be issued upon conversion,
and if such conversion will result in a fractional share being issued, an
amount will be paid in cash by the Company equal to the value of the
fractional interest based upon the closing price of the Common Shares on the
last business day prior to the conversion.
 
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
 
  The form of Depositary Receipt evidencing the Depositary Shares which
represent the Preferred Shares and any provision of the Deposit Agreement may
at any time be amended by agreement between the Company and the Preferred
Shares Depositary. However, any amendment that materially and adversely alters
the rights of the holders of Depositary Receipts will not be effective unless
such amendment has been approved by the existing holders of at least a
majority of the Depositary Shares evidenced by the Depositary Receipts then
outstanding.
 
  The Deposit Agreement may be terminated by the Company upon not less than 30
days' prior written notice to the Preferred Shares Depositary if (i) such
termination is to preserve the Company's status as a REIT or (ii) holders of a
majority of the outstanding Depositary Receipts issued thereunder consent to
such termination, whereupon the Preferred Shares Depositary shall deliver or
make available to each holder of Depositary Receipts, upon surrender of the
Depositary Receipts held by such holder, such number of whole or fractional
Preferred Shares as are represented by the Depositary Shares evidenced by such
Depositary Receipts. In addition, the Deposit Agreement will automatically
terminate if (i) all outstanding Depositary Shares shall have been redeemed,
(ii) there shall have been a final distribution in respect of the related
Preferred Shares in connection with any liquidation, dissolution or winding up
of the Company and such distribution shall have been distributed to the
holders of Depositary Receipts evidencing the Depositary Shares representing
such Preferred Shares or (iii) each related Preferred Share shall have been
converted into capital stock of the Company not so represented by Depositary
Shares.
 
CHARGES OF PREFERRED SHARES DEPOSITARY
 
  The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of the Deposit Agreement. In addition, the
Company will pay the fees and expenses of the Preferred Shares Depositary in
connection with the performance of its duties under the Deposit Agreement.
However, holders of Depositary Receipts will pay the fees and expenses of the
Preferred Shares Depositary for any duties requested by such holders to be
performed which are outside of those expressly provided for in the Deposit
Agreement.
 
 
                                      41
<PAGE>
 
RESIGNATION AND REMOVAL OF DEPOSITARY
 
  The Preferred Shares Depositary may resign at any time by delivering to the
Company notice of its election to do so, and the Company may at any time
remove the Preferred Shares Depositary, any such resignation or removal to
take effect upon the appointment of a successor Preferred Shares Depositary. A
successor Preferred Shares Depositary must be appointed within 60 days after
delivery of the notice of resignation or removal and must be a bank or trust
company having its principal office in the United States and having a combined
capital and surplus of at least $50,000,000.
 
MISCELLANEOUS
 
  The Preferred Shares Depositary will forward to holders of Depositary
Receipts any reports and communications from the Company which are received by
the Preferred Shares Depositary with respect to the related Preferred Shares.
 
  Neither the Preferred Shares Depositary nor the Company will be liable if,
by law or any circumstances beyond its control, it is prevented from or
delayed in performing its obligations under the Deposit Agreement. The
obligations of the Company and the Preferred Shares Depositary under the
Deposit Agreement will be limited to performing their duties thereunder in
good faith and without gross negligence or willful misconduct, and the Company
and the Preferred Shares Depositary will not be obligated to prosecute or
defend any legal proceeding in respect of any Depositary Receipts, Depositary
Shares or Preferred Shares represented thereby unless reasonably satisfactory
indemnity is furnished. The Company and the Preferred Shares Depositary may
rely on written advice of counsel or accountants, or information provided by
persons presenting Preferred Shares represented thereby for deposit, holders
of Depositary Receipts or other persons believed to be competent to give such
information, and on documents believed to be genuine and signed by a proper
party.
 
  If the Preferred Shares Depositary shall receive conflicting claims,
requests or instructions from any holders of Depositary Receipts, on the one
hand, and the Company, on the other hand, the Preferred Shares Depositary
shall be entitled to act on such claims, requests or instructions received
from the Company.
 
                     DESCRIPTION OF COMMON STOCK WARRANTS
 
  The Company may issue Common Stock Warrants for the purchase of Common
Shares. Common Stock Warrants may be issued independently or together with any
other Company Offered Securities offered by any Prospectus Supplement and may
be attached to or separate from such Company Offered Securities. Each series
of Common Stock Warrants will be issued under a separate 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 Common Stock Warrants of such series and will not assume
any obligation or relationship of agency or trust for or with any holders or
beneficial owners of Common Stock Warrants. The following sets forth certain
general terms and provisions of the Common Stock Warrants offered hereby.
Further terms of the Common Stock Warrants and the applicable Warrant
Agreements will be set forth in the applicable Prospectus Supplement.
 
  The following description of certain terms of any Common Stock Warrants and
the related Warrant Agreement does not purport to be complete and is qualified
in its entirety by reference to the form of Warrant Agreement (including the
form of Common Stock Warrant) which has been or will be filed or incorporated
by reference as an exhibit to the Registration Statement of which this
Prospectus is a part and which is or will be available as described under
"Available Information."
 
  The terms of the Common Stock Warrants offered in any Prospectus Supplement
may differ from the terms set forth below, in which case the terms set forth
below shall be deemed to have been superseded to the extent of any different
terms set forth in such Prospectus Supplement.
 
 
                                      42
<PAGE>
 
  The applicable Prospectus Supplement will describe the terms of the Common
Stock Warrants in respect of which such Prospectus Supplement is being
delivered, including, where applicable, the following: (i) the title of such
Common Stock Warrants; (ii) the aggregate number of such Common Stock
Warrants; (iii) the price or prices at which such Common Stock Warrants will
be issued; (iv) the number of Common Shares purchasable upon exercise of such
Common Stock Warrants; (v) the designation and terms of the other Company
Offered Securities with which such Common Stock Warrants are issued and the
number of such Common Stock Warrants issued with each such Company Offered
Security; (vi) whether such Common Stock Warrants will be attached to any
other Company Offered Securities and the date, if any, on and after which such
Common Stock Warrants and the related Company Offered Securities will be
separately transferable; (vii) the price at which each Common Share
purchasable upon exercise of such Common Stock Warrants may be purchased;
(viii) the date on which the right to exercise such Common Stock Warrants
shall commence and the date on which such right shall expire; (ix) if
applicable, the minimum or maximum amount of such Common Stock Warrants which
may be exercised at any one time; (x) information with respect to book-entry
procedures, if any; and (xi) any other terms of such Common Stock Warrants,
including terms, procedures and limitations relating to the exchange and
exercise of such Common Stock Warrants.
 
  Reference is made to the section captioned "Description of Common Shares"
for a general description of the Common Shares to be acquired upon the
exercise of the Common Stock Warrants, including a description of certain
restrictions on the ownership of Common Shares. Common Shares that may be
acquired upon the exercise of Common Stock Warrants directly or constructively
held by an investor will be deemed by the Company to be outstanding (i) at the
time of acquisition of the Common Stock Warrants, and (ii) prior to the
exercise of the Common Stock Warrants, for purposes of determining the
percentage ownership of Common Shares held by such investor.
 
                         DESCRIPTION OF COMMON SHARES
 
GENERAL
 
  The following description of the Common Shares sets forth certain general
terms and provisions of the Common Shares to which any Prospectus Supplement
may relate, including a Prospectus Supplement providing that Common Shares
will be issuable upon conversion of Debt Securities or Preferred Shares of the
Company or upon the exercise of Common Stock Warrants issued by the Company.
The statements below describing the Common Shares, the Rights (as defined
below) and the Rights Agreement (as defined below) do not purport to be
complete and are in all respects subject to and qualified in their entirety by
reference to the applicable provisions of the Articles, the Bylaws and the
Rights Agreement dated as of August 14, 1989 (the "Rights Agreement") between
the Company and Chase Mellon Shareholder Services L.L.C. ("Chase Mellon")
(formerly Chemical Trust Company of California), as successor rights agent, as
supplemented, copies of which have been filed or incorporated by reference as
exhibits to the Registration Statement of which this Prospectus is a part and
are available as described above under "Available Information."
 
  The Articles authorize the issuance of up to 100,000,000 Common Shares,
$0.01 par value. As of December 31, 1997, there were 41,738,704 Common Shares
issued and outstanding. In addition, as of December 31, 1997, there were
2,800,900 Common Shares reserved for issuance upon the exercise of options
under the Company's stock option plans and 1,383,801 Common Shares were
reserved for issuance under the Company's Dividend Reinvestment Plan. As of
December 31, 1997, there were 3,452,181 shares of Common Shares reserved for
issuance upon exchange of the units in the Operating Company and the units of
a certain other subsidiary of the Company which were issued or may be issued
in connection with the TCR-West Transaction. The Common Shares are listed on
the New York Stock Exchange under the symbol "BRE." Chase Mellon is the
transfer agent and registrar of the Common Shares.
 
  Holders of Common Shares are entitled to receive dividends ratably, when, as
and if declared by the Board of Directors of the Company, out of assets of the
Company legally available for payment, subject to any preferential rights of
any outstanding Preferred Shares. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Company, the holders of Common
Shares are entitled to share ratably in any assets of the Company available
for distribution to shareholders after payment of or provision for all
liabilities
 
                                      43
<PAGE>
 
of the Company and any amounts owing in respect of any outstanding Preferred
Shares. The Common Shares offered in any Prospectus Supplement will not have
preemptive or conversion rights.
 
  Holders of Common Shares are entitled to one vote for each share held on all
matters submitted to a vote of the holders of Common Shares and, except as
otherwise required by law or as provided by the express provisions of any
series of Preferred Shares, the holders of the Common Shares will exclusively
possess all voting power of the shareholders of the Company. Holders of Common
Shares do not have cumulative voting rights in the election of directors.
 
  As described above under "Description of Preferred Shares," the Board of
Directors may, without the approval of the shareholders of the Company, from
time to time authorize the issuance of one or more series of Preferred Shares
with such rights, restrictions and other terms as may be determined by the
Board of Directors. The issuance of Preferred Shares, while providing
flexibility in connection with possible financings, acquisitions and other
corporate purposes, could, among other things, adversely affect the voting
powers and other rights and interests of holders of Common Shares and, under
certain circumstances, could make it more difficult for a third party to gain
control of the Company and could have the effect of delaying or preventing an
attempted takeover of the Company.
 
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION AND BYLAWS
 
  Several provisions of the Articles and Bylaws may have the effect of
deterring a takeover of the Company. These provisions include (i) the
requirement that 70% of the outstanding shares of voting stock approve certain
mergers, sales of assets or other business combinations with shareholders
owning 10% or more of then outstanding voting shares, unless the transaction
is recommended by a majority of the disinterested directors or meets certain
fair price criteria, (ii) a requirement that directors of the Company may be
removed by the shareholders only for "cause" and that vacancies in the Board
of Directors may be filled only by action of the remaining directors, (iii)
the requirement that 70% of the outstanding shares of voting stock approve
amendments to certain provisions of the Articles, (iv) the classification of
the Company's Board of Directors into three classes serving staggered three-
year terms, (v) a prohibition on certain stock repurchases by the Company from
a holder of 5% or more of the outstanding voting shares for a price exceeding
fair market value unless certain conditions are met, and (vi) a requirement
that shareholder action without a meeting be taken by unanimous written
consent.
 
  Maryland law imposes certain restrictions on business combinations with a
greater than ten percent shareholder unless a company's charter states that it
has elected not to be governed by such provisions. The Company has made such
an election in the Articles and therefore is not subject to such provisions.
 
  Maryland law eliminates the voting rights of any shares of voting stock held
by a person to the extent such shares exceed 20% of the outstanding voting
stock of the company, and permits a company to redeem any such shares at the
fair value of the stock, unless a company's charter states that it has elected
not to be governed by such provisions. The Company has made such an election
in the Articles and therefore is not subject to such provisions.
 
SHAREHOLDER RIGHTS PLAN
 
  On August 14, 1989, the Company's Board of Directors declared a dividend
distribution to shareholders of record on September 7, 1989 of one common
share purchase right (a "Right") for each outstanding Common Share. Each Right
entitled the holder to purchase from the Company one Common Share at a cash
purchase price of $90.00 per share, subject to adjustment. Following the
Company's stock dividend of one Common Share for each Common Share outstanding
in June 1996, such cash purchase price was adjusted to $45.00 per share,
subject to adjustment. The terms of the Rights are set forth in the Rights
Agreement. The Rights are not exercisable until the Distribution Date referred
to below and will expire at the close of business on September 7, 1999, unless
earlier redeemed by the Company as described below (the "Final Expiration
Date").
 
 
                                      44
<PAGE>
 
  Until the Distribution Date (or earlier redemption or expiration of the
Rights), (i) the Rights will be issued with newly issued Common Shares and
(ii) the Rights will be evidenced by the Common Share certificates and the
transfer of Common Share certificates will also constitute the transfer of the
Rights associated with such Common Shares. As soon as practicable after the
Distribution Date, Rights certificates will be mailed to holders of record of
the Common Shares as of the close of business on the Distribution Date.
 
  The Rights will separate from the Common Shares and a Distribution Date (as
defined in the Rights Agreement) will occur, in general, upon the earlier of
(i) 10 days following a public announcement that a person (an "Acquiring
Person") has acquired 32% or more of the outstanding Common Shares (the "Stock
Acquisition Date"), (ii) 10 business days following the commencement of a
tender or exchange offer for 40% or more of the outstanding Common Shares or
(iii) 10 business days after the Board of Directors determines that a person
has become an "Adverse Person" (as defined in the Rights Agreement).
 
  In the event that, among other things, (i) the Company survives a merger or
business combination with an Acquiring Person or an Adverse Person without any
exchange of its outstanding Common Shares for other securities, cash or
property, (ii) any person becomes the owner of 40% or more of the then
outstanding Common Shares, (iii) an Acquiring Person or an Adverse Person
engages in one of a number of self-dealing transactions set forth in the
Rights Agreement, or (iv) during such time as there is an Acquiring Person or
an Adverse Person, an event occurs which results in such person's ownership
interest being increased by more than 1%, each Right will entitle the holder
to receive, upon exercise, Common Shares having a value equal to two times the
exercise price of the Right. In the event that, at any time following the
Stock Acquisition Date or the date on which the Board of Directors determines
that a person is an Adverse Person, (i) the Company is acquired in a merger or
other business combination, (ii) the Company survives a merger or business
combination in which Common Shares are exchanged for other securities, cash or
property or (iii) 50% or more of the Company's assets or earning power is sold
or transferred, each Right will entitle the holder to receive, upon exercise,
common shares of the acquiring person having a value equal to two times the
exercise price of the Right.
 
  In general, the Company may redeem the Rights in whole, but not in part, at
a price of $.01 per Right, at any time until ten days following the earlier of
the Stock Acquisition Date, the date on which a person is determined to be an
Adverse Person or the Final Expiration Date.
 
  The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
without conditioning the offer on redemption of the Rights by the Board of
Directors or on the acquisition by such person or group of a substantial
number of Rights.
 
            RESTRICTIONS ON TRANSFERS OF CAPITAL STOCK; REDEMPTION
 
  The Articles provide that any shareholder must, upon demand, disclose to the
Board of Directors of the Company in writing such information with respect to
its direct and indirect ownership of the shares of the Company's stock as the
Board of Directors deems necessary to permit the Company to comply (or to
verify compliance) with the REIT provisions of the Code, and the regulations
promulgated thereunder or the requirements of any other taxing authority. The
Articles further provide that, if the Board of Directors in good faith
determines that direct or indirect ownership of shares of the Company's stock
has or may become concentrated to an extent that would prevent the Company
from qualifying as a REIT (See "Federal Income Tax Considerations"), the Board
of Directors is authorized to prevent the transfer of stock or to call for
redemption (by lot or by other means affecting one or more shareholders
selected in the sole discretion of the Board of Directors) of a number of
shares of stock sufficient in the opinion of the Board of Directors to
maintain or bring the direct or indirect ownership of the Company's stock into
conformity with the requirements for maintaining REIT status. If Common Shares
are called for redemption, the redemption price shall be (i) the last reported
sale price of the shares on the last business day prior to the redemption date
on the principal national securities exchange on which the shares are listed
or admitted to trading, (ii) if the shares are not so listed or admitted to
trading but are reported in the Nasdaq system, the last sale price on the last
business day prior to the
 
                                      45
<PAGE>
 
redemption date, or if there is no sale on such day then at the last bid price
on such day as reported in the Nasdaq National Market, (iii) if the shares are
not so reported or listed or admitted to trading, the mean between the highest
bid and lowest asked prices on such last business day as reported by the
National Quotation Bureau Incorporated or a similar organization selected by
the Board of Directors for such purpose, or (iv) if not determined by the
foregoing methods, as determined in good faith by the Board of Directors. From
and after the date fixed for redemption by the Board of Directors, the holder
of any shares of stock so called for redemption will cease to be entitled to
dividends, distributions, voting rights and other benefits with respect to
such shares, excepting only the right to payment of the redemption price
without interest.
 
  The Bylaws provide that, whenever it is determined by the Board of Directors
to be reasonably necessary to protect the REIT tax status of the Company, the
Board of Directors may require a statement or affidavit from each holder or
proposed transferee of shares of stock setting forth the number of shares
already owned by such holder or transferee or any related person. The Bylaws
further provide that if, in the opinion of the Board of Directors, which will
be conclusive upon any proposed transferor or transferee of shares, any
proposed transfer would jeopardize the status of the Company as a REIT under
the Code, the Board of Directors may refuse to permit such transfer; that any
attempt to transfer as to which the Board of Directors has refused its
permission will be void and of no effect to transfer any legal or beneficial
interest in the shares; and that all contracts for the sale or other transfer
of shares are subject to these restrictions.
 
  These provisions may have the effect of preventing acquisition of control of
the Company unless the Board of Directors determines that maintenance of REIT
status is no longer in the best interests of the Company.
 
                       FEDERAL INCOME TAX CONSIDERATIONS
 
  The following is a discussion of the material federal income tax
considerations to the Company and its security holders relating to the Offered
Securities and the treatment of the Company as a REIT. It is not intended to
represent a detailed description of the federal income tax consequences
applicable to a particular security holder of the Company in view of a
security holder's particular circumstances, or to certain types of security
holders (including insurance companies, tax-exempt organizations, financial
institutions or broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) subject to special treatment under
the federal income tax laws. The discussion in this section is based on
current provisions of the Code, current and proposed Treasury Regulations,
court decisions and other administrative rulings and interpretations, all of
which are subject to change either prospectively or retroactively. There can
be no assurance that any such change, future Code provision or other legal
authority will not alter significantly the tax considerations described
herein.
 
  EACH PROSPECTIVE PURCHASER IS URGED TO CONSULT HIS OWN TAX ADVISOR,
REGARDING THE SPECIFIC TAX CONSEQUENCES, IN VIEW OF SUCH PROSPECTIVE
PURCHASER'S INDIVIDUAL CIRCUMSTANCES, OF THE PURCHASE, OWNERSHIP AND SALE OF
THE OFFERED SECURITIES, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER
TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP AND SALE AND OF POTENTIAL CHANGES
IN APPLICABLE TAX LAWS.
 
GENERAL
 
  Effective as of its formation on May 22, 1970, the Company has elected to be
taxed as a real estate investment trust under Code Sections 856 through 860.
The Company believes that it is organized and is operating in such a manner as
to qualify for taxation as a REIT under the Code. The Company intends to
continue to operate in such a manner, but no assurance can be given that it
will operate in a manner so as to qualify or remain qualified as a REIT.
 
 
                                      46
<PAGE>
 
  In the opinion of Farella Braun & Martel LLP, based on certain assumptions
and representations, the Company was reorganized in Delaware in 1987 in
conformity with the requirements for qualification as a "Real Estate
Investment Trust" under the Code, and the Company has qualified as a REIT for
its fiscal year ended July 31, 1995, its short taxable year ended December 31,
1995 and its taxable year ended December 31, 1996 (the years, to the best
knowledge of counsel, that are still subject to audit by the Internal Revenue
Service), and the Company is organized and operates in a manner that will
enable it to qualify to be taxed as a REIT under the Code for its taxable year
ending December 31, 1997 and thereafter provided the Company continues to meet
the asset composition, source of income, shareholder diversification,
distributions, record keeping, and other requirements of the Code necessary
for the Company to qualify as a REIT. It must be emphasized that this opinion
is based on various assumptions and is conditioned upon certain
representations made by the Company as to factual matters including, but not
limited to, those set forth below in this discussion of "Federal Income Tax
Considerations" and those concerning the Company's business and properties as
set forth and incorporated by reference in this Prospectus. Moreover, such
qualification and taxation as a REIT depends upon the Company's ability to
meet, through actual annual operating results, distribution levels and
diversity of stock ownership, and the various qualification tests imposed
under the Code discussed below the results of which will not be reviewed by
Farella Braun & Martel LLP. Accordingly, no assurance can be given that the
actual results of the Company's operations for any particular taxable year
will satisfy such requirements. See "Failure to Qualify."
 
TAXATION OF THE COMPANY
 
  A REIT, such as the Company, generally will not be subject to federal
corporate income tax on its taxable income that is currently distributed to
its shareholders. This treatment substantially eliminates the "double
taxation" (at the corporate and shareholder levels) that generally results
from an investment in a corporation. However, the Company will be subject to
federal income tax in several ways, including the following: First, the
Company will be taxed at regular corporate rates on any undistributed REIT
taxable income, including undistributed net capital gains. Second, under
certain circumstances, the Company may be subject to the "alternative minimum
tax." Third, if the Company has: (i) net income from the sale or other
disposition of "foreclosure property" which is held primarily for sale to
customers in the ordinary course of business or (ii) other non-qualifying
income from foreclosure property, it will be subject to tax on such income at
the highest corporate rate. Fourth, if the Company has net income from
"prohibited transactions" (which are, in general, certain sales or other
dispositions of property held primarily for sale to customers in the ordinary
course of business other than foreclosure property), such income will be
subject to a 100% corporate level tax. Fifth, if the Company should fail to
satisfy the 75% gross income test or the 95% gross income test (each discussed
below) but has nonetheless maintained its qualification as a REIT by
satisfying certain other requirements, it will be subject to a 100% tax on an
amount equal to the gross income attributable to the greater of the amount by
which the Company fails the 75% or 95% test, multiplied by a fraction intended
to reflect the Company's profitability. Sixth, if the Company should fail to
distribute during each calendar year at least the sum of: (i) 85% of its REIT
ordinary income for such year, (ii) 95% of its REIT capital gain net income
for such year and (iii) any undistributed taxable income from prior periods,
it will be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. Seventh, if the Company
acquires any asset from a C corporation (i.e., generally a corporation subject
to full corporate-level tax) in a transaction in which the basis of the asset
in the Company's hands is determined by reference to the basis of the asset
(or any other property) in the hands of the C corporation, and the Company
recognizes gain on the disposition of such asset during the ten-year period
beginning on the date the asset was acquired by the Company, then the excess
of (i) the fair market value of such asset as of the beginning of such period
over (ii) the Company's adjusted basis in such asset as of the beginning of
such period will be subject to tax at the highest regular corporate tax rate.
 
REQUIREMENTS FOR QUALIFICATION
 
  A REIT is defined in the Code as a corporation, trust or association: (i)
which is managed by one or more trustees or directors; (ii) the beneficial
ownership of which is evidenced by transferable shares or by transferable
 
                                      47
<PAGE>
 
certificates of beneficial interest; (iii) which would be taxable as a
domestic corporation, but for Code Sections 856 through 859; (iv) which is
neither a financial institution nor an insurance company subject to certain
provisions of the Code; (v) the beneficial ownership of which is held by 100
or more persons; (vi) not more than 50% in value of the outstanding stock of
which is owned during the last half of each taxable year, directly or
indirectly, by or for five or fewer individuals (as defined in the Code to
include certain entities); and (vii) which meets certain income and asset
tests described below. Conditions (i) through (iv) above must be met during
the entire taxable year and condition (v) must be met during at least 335 days
of a taxable year of 12 months, or during a proportionate part of a taxable
year of less than 12 months. However, conditions (v) and (vi) do not apply
until after the first taxable year for which an election is made to be taxed
as a REIT.
 
  With respect to its taxable years ending before January 1, 1998, in order to
maintain its election to be taxed as a REIT, the Company must also maintain
certain records and request certain information from its shareholders designed
to disclose the actual ownership of its stock. The Company believes that it
has complied and will comply with these requirements.
 
  In the case of a REIT that is a partner in a partnership or a member in a
limited liability company ("LLC"), the REIT Provisions provide that the REIT
is deemed to own its proportionate share of the assets of the partnership or
LLC based on the REIT's capital interest in the partnership or LLC and is
deemed to be entitled to the income of the partnership or LLC attributable to
such proportionate share (unless specifically stated otherwise or the context
otherwise requires, the discussion under this section "Federal Income Tax
Considerations" relating to partnerships and the partners thereof also applies
to LLCs and the members thereof). In addition, the character of the assets and
gross income of the partnership shall retain the same character in the hands
of the REIT for purposes of satisfying the gross income tests and the asset
tests, described below. Similar treatment applies with respect to lower-tier
partnerships which the REIT indirectly owns through its interests in higher-
tier partnerships. Thus, the Company's proportionate share of the assets,
liabilities and items of income of the Operating Company and the other
partnerships and limited liability companies in which the Company owns a
direct or indirect interest (collectively, the "Subsidiary Entities"), will be
treated as assets, liabilities and items of income of the Company for purposes
of applying the gross income tests and the asset tests described below,
provided that the Operating Company and the Subsidiary Entities are treated as
partnerships for federal income tax purposes. See "Federal Income Tax Aspects
of the Operating Company and the Subsidiary Entities" below.
 
INCOME TESTS
 
  In order to maintain qualification as a REIT, the Company annually must
satisfy three gross income requirements. First, at least 75% of the Company's
gross income (excluding gross income from prohibited transactions) for each
taxable year must be derived directly or indirectly from investments relating
to real property or mortgages on real property (including "rents from real
property" and, in certain circumstances, interest) or from certain types of
temporary investments. Second, at least 95% of the Company's gross income
(excluding gross income from prohibited transactions) for each taxable year
must be derived from such real property investments, dividends, interest and
gain from sale or disposition of stock or securities (or from any combination
of the foregoing). Third, for the Company's taxable years beginning prior to
January 1, 1998, short-term gain from the sale or other disposition of stock
or securities, gain from prohibited transactions and gain on the sale or other
disposition of real property held for less than four years (apart from
involuntary conversions and sales of foreclosure property) must represent less
than 30% of the Company's gross income (including gross income from prohibited
transactions) for each taxable year.
 
  Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in
whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "rents from
real property" solely by reason of being based on a fixed percentage or
percentages of receipts or sales. Second, the Code provides that rents
received from a tenant will not qualify as "rents from real property" in
satisfying the gross income tests if the REIT, or an owner of
 
                                      48
<PAGE>
 
10% or more of the REIT, directly or constructively owns 10% or more of such
tenant (a "Related Party Tenant"). Third, if rent attributable to personal
property leased in connection with a lease of real property is greater than
15% of the total rent received under the lease, then the portion of rent
attributable to such personal property will not qualify as "rents from real
property." Finally, a REIT may provide services to its tenants and the income
will qualify as "rents from real property" only if the services are of a type
that a tax-exempt organization can provide to its tenants without causing its
rental income to be unrelated business taxable income under the Code. Services
that would give rise to unrelated business taxable income if provided by a
tax-exempt organization ("Prohibited Services") must be provided by an
"independent contractor" who is adequately compensated and from whom the REIT
does not derive any income. Payments received by a REIT for services furnished
(whether or not rendered by an independent contractor) that are not
customarily provided to tenants in properties of a similar class in the
geographic market in which the REIT's property is 1ocated will not qualify as
"rents from real property." For the Company's taxable years beginning on or
after January 1, 1998, the provision of Prohibited Services by the Company in
connection with a lease of real property will not cause the rent to fail to
qualify as "rents from real property" unless the amount treated as received
for the Prohibited Services exceeds l% of all amounts received or accrued
during the taxable year directly or indirectly by the Company with respect to
such property. The Company does not and will not charge rent for any property
that is based in whole or in part on the income or profits of any person
(except by reason of being based on a percentage of receipts or sales, as
described above), and the Company does not and will not rent any personal
property (other than personal property leased in connection with the lease of
real property, the amount of which is less than 15% of the total rent received
under the lease). The Company directly performs services under certain of its
leases, but such services should not be considered Prohibited Services.
 
  To the extent that the performance of any services provided by the Company
would cause amounts received from its tenants to be excluded from "rents from
real property," the Company intends to hire independent contractors from whom
the Company will derive no revenue in connection with such services.
 
  The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends
in whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "interest"
solely by reason of being based on a fixed percentage or percentages of
receipts or sales.
 
  For the Company's taxable years beginning prior to January 1, 1998, any
gross income derived from a prohibited transaction will be taken into account
in applying the 30% income test necessary to qualify as a REIT. The net income
from a prohibited transaction is subject to a 100% tax. The Company believes
that no asset directly or indirectly owned by it is held for sale to customers
and that the sale of any such property will not be in the ordinary course of
business of the Company, the Operating Company or the Subsidiary Entities.
 
  If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such
year if it is entitled to relief under certain provisions of the Code. These
relief provisions generally will be available if the Company's failure to meet
such tests was attributable to reasonable cause and not to willful neglect,
the Company attaches a schedule of the sources of its income to its return,
and any incorrect information on the schedule was not attributable to fraud
with intent to evade tax. It is not possible, however, to determine whether,
in all circumstances, the Company would be entitled to the benefit of those
relief provisions. As discussed above in "--General," even if those relief
provisions apply, a tax would be imposed with respect to excess net income.
 
THIRD PARTY MANAGEMENT INCOME
 
  In connection with the TCR-West Transaction, the Company acquired certain
management contracts (which were immediately contributed to the Management
Company, a newly created "qualified REIT subsidiary," as defined in the Code)
whereby, in return for various fees, the Company is obligated to provide
management services related to properties that are not owned directly or
indirectly by the Company ("Third Party Management Income"). The Third Party
Management Income will not qualify under either 75% or 95% gross
 
                                      49
<PAGE>
 
income test described above. However, the Company does not believe that the
receipt of this income will cause the Company to fail to satisfy one or both
of the 75% or 95% gross income tests for the current or any future taxable
year as this income, along with other non-qualifying income, is expected to
represent less than 5% of the Company's gross income in any taxable year.
 
  Inadvertent failure to satisfy the 75% and 95% gross income tests may not
disqualify the Company as a REIT if, as discussed above, certain relief
provisions apply. See "--Income Tests."
 
ASSET TESTS
 
  At the close of each quarter of its taxable year, the Company must also
satisfy three tests relating to the nature of its assets. First, at least 75%
of the value of the Company's total assets must be represented by interests in
real property, interests in mortgages on real property to the extent the
mortgage balance does not exceed the value of the associated real property,
shares in other REITs, cash, cash items, government securities and certain
securities attributable to temporary investment of new capital. Second, not
more than 25% of the Company's total assets may be represented by securities
other than those in the 75% asset class. Third, of the investments included in
the 25% asset class, the value of any one issuer's securities owned by the
Company may not exceed 5% of the value of the Company's total assets and the
Company may not own more than 10% of any one issuer's outstanding voting
securities.
 
  As set forth above, the ownership of more than 10% of the voting securities
of any one issuer by a REIT is prohibited by the asset tests. However, the
Company owns stock in certain subsidiaries that are, in the opinion of Farella
Braun & Martel LLP (based on certain representations by the Company),
"qualified REIT subsidiaries" as defined in the Code, and as "qualified REIT
subsidiaries," such subsidiaries are not treated as separate corporations for
federal income tax purposes. Thus, the Company's ownership of stock of a
"qualified REIT subsidiary" will not cause the Company to fail the asset
tests.
 
ANNUAL DISTRIBUTION REQUIREMENTS
 
  In order to qualify as a REIT, the Company is required to distribute
dividends (other than capital gain dividends) to its shareholders each year in
an amount at least equal to: (i) the sum of (a) 95% of the Company's "REIT
taxable income" (computed without regard to the dividends paid deduction and
the Company's net capital gain) and (b) 95% of the net income (after tax), if
any, from foreclosure property, minus (ii) the sum of certain items of non-
cash income. To the extent that the Company does not distribute all of its net
capital gain or distributes at least 95%, but less than 100%, of its "REIT
taxable income," as adjusted, it will be subject to tax thereon at regular
ordinary and capital gains corporate tax rates. Furthermore, if the Company
fails to distribute during each calendar year at least the sum of: (i) 85% of
its REIT ordinary income for such year, (ii) 95% of its REIT capital gain
income for such year and (iii) any undistributed taxable income from prior
periods, the Company will be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed (including for
this purpose as amounts distributed, amounts taxed at regular ordinary and
capital gains corporate tax rates). The Company intends to make timely
distributions sufficient to satisfy these annual distribution requirements.
 
  It is possible that the Company, from time to time, may not have sufficient
cash or other liquid assets to meet the 95% distribution requirement because
of timing differences between (i) the actual receipt of income and the actual
payment of deductible expenses and (ii) the inclusion of such income and
deduction of such expenses in arriving at the taxable income of the Company.
In the event that such timing differences occur, in order to meet the 95%
distribution requirement the Company may find it necessary to arrange for
short-term, or possibly long-term, borrowings or to pay dividends in the form
of taxable stock dividends.
 
  Under certain circumstances, the Company may be able to rectify a failure to
meet the distribution requirement for a certain year by paying "deficiency
dividends" to shareholders in a later year, which may be included in the
Company's deduction for dividends paid for the earlier year. Thus, the Company
may be able to
 
                                      50
<PAGE>
 
avoid being taxed on amounts distributed as deficiency dividends. However, the
Company will be required to pay interest based upon the amount of any
deduction taken for deficiency dividends.
 
FAILURE TO QUALIFY
 
  If the Company fails to qualify for taxation as a REIT in any taxable year,
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable corporate alternative minimum tax) on its taxable
income at regular corporate rates. Distributions to shareholders in any year
in which the Company fails to qualify will not be deductible by the Company
nor will they be required to be made by the Company. In such event, to the
extent of current and accumulated earnings and profits, all distributions to
shareholders will be taxable as ordinary income, and, subject to certain
limitations, a corporate distributee may be eligible for the dividends
received deduction. Unless entitled to relief under specific statutory
provisions, the Company will also be disqualified from taxation as a REIT for
the four taxable years following the year during which qualification was lost.
Whether the Company would be entitled to such statutory relief cannot be
foreseen.
 
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS
 
  As long as the Company qualifies as a REIT, distributions made to its
taxable domestic shareholders out of current or accumulated earnings and
profits (and not designated as capital gain dividends) will result in ordinary
income to such shareholders. Corporate shareholders will not be entitled to
the "dividends received" deduction. Distributions that are designated as
capital gain dividends will be taxed as long-term capital gains (to the extent
they do not exceed the Company's actual net capital gain for the taxable year)
without regard to the period for which the shareholder has held its shares.
However, corporate shareholders may be required to treat up to 20% of certain
capital gain dividends as ordinary income. Distributions by the Company in
excess of its current and accumulated earnings and profits will not be taxable
to a shareholder to the extent that such distributions do not exceed the
adjusted basis of the shareholder's shares, but rather, will be a non-taxable
reduction in a shareholder's adjusted basis in such shares to the extent
thereof and thereafter will be taxed as capital gain.
 
  Any dividend declared by the Company in October, November or December of any
year payable to a shareholder of record on a specified date in any such month
will be treated as both paid by the Company and received by the shareholder on
or before December 31 of such year, provided that the dividend is actually
paid by the Company by January 31 of the following calendar year.
 
  Shareholders may not include any net operating losses or capital losses of
the Company in their individual income tax returns. In general, any loss upon
the sale or exchange of shares by a shareholder who has held such shares for
six months or less (after applying certain holding period rules) will be
treated as a long-term capital loss to the extent distributions from the
Company are required to be treated by such shareholder as long-term capital
gain.
 
  If the Company elects to retain, rather than distribute as a capital gain
dividend, its net long-term capital gains, the Company would pay tax on such
retained net long-term capital gains. In addition, for taxable years of the
Company beginning an or after January 1, 1998, to the extent designated by the
Company, a taxable domestic shareholder generally would (i) include its
proportionate share of such undistributed long-term capital gains in computing
its long-term capital gains in its return for its taxable year in which the
last day of the Company's taxable year falls (subject to certain limitations
as to the amount so includible), (ii) be deemed to have paid the capital gains
tax imposed on the Company on the designated amounts included in such taxable
domestic shareholder's long-term capital gains, (iii) receive a credit or
refund for such amount of tax deemed paid by it, (iv) increase the adjusted
basis of its shares by the difference between the amount of such includible
gains and the tax deemed to have been paid by it, and (v) in the case of a
taxable corporate shareholder, appropriately adjust its earnings and profits
for the retained capital gains in accordance with Treasury Regulations to be
prescribed by the IRS.
 
                                      51
<PAGE>
 
BACKUP WITHHOLDING
 
  The Company will report to its domestic shareholders and to the IRS the
amount of dividends paid during each calendar year, and the amount of tax
withheld, if any. Under the backup withholding rules, a shareholder may be
subject to backup withholding at the rate of 31% with respect to dividends
paid unless such holder: (i) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact, or (ii) provides
a taxpayer identification number, certifies to no loss of exemption from
backup withholding, and otherwise complies with applicable requirements of the
backup withholding rules. A shareholder that does not provide the Company with
a correct taxpayer identification number may also be subject to penalties
imposed by the IRS. Any amount paid as backup withholding will be creditable
against the shareholder's income tax liability. In addition, the Company may
be required to withhold a portion of capital gain distributions to any
shareholders who fail to certify their non-foreign status to the Company. See
"Taxation of Foreign Shareholders."
 
TAXATION OF PENSION TRUSTS
 
  For purposes of the "five or fewer" test described above, beneficiaries of a
domestic pension trust that owns shares in the Company generally will be
treated as owning such shares in proportion to their actuarial interests in
the trust. Generally, a tax-exempt investor that holds Common Shares as an
investment and is exempt from tax on its investment income will not be subject
to tax on distributions paid by the Company. However, if such tax-exempt
investor is treated as having purchased Common Shares with borrowed funds,
some or all of its distributions from the Common Shares will be subject to
tax. Amounts distributed by the Company to a tax-exempt pension trust
generally do not constitute "unrelated business taxable income" ("UBTI") to
such trust unless the trust owns more than ten percent of the Company's Common
Shares, in which case a portion of such amounts distributed may be treated as
UBTI.
 
TAXATION OF FOREIGN SHAREHOLDERS
 
  The rules governing United States federal income taxation of nonresident
alien individuals or foreign corporations, foreign partnerships and other
foreign shareholders (collectively, "Non-U.S. Shareholders") are complex and
no attempt is made herein to provide more than a summary of such rules. In
addition, this discussion is based on current law, which is subject to change,
and assumes that the Company qualifies for taxation as a REIT. Prospective
Non-U.S. Shareholders should consult with their own tax advisors to determine
the impact of federal, state and local income tax laws with regard to an
investment in the Common Shares, including any reporting requirements.
 
  It is currently anticipated that the Company will qualify as a "domestically
controlled REIT" (i.e., a REIT in which at all times during a specified
testing period less than 50% of the value of the capital stock of which is
owned directly or indirectly by Non-U.S. Shareholders) and therefore gain from
the sale of Common Shares by a Non-U.S. Shareholder generally will not be
subject to United States taxation unless such gain is treated as "effectively
connected" with the Non-U.S. Shareholder's United States trade or business. As
the Common Shares are publicly traded, there can be no assurance that the
Company will always qualify as a "domestically controlled REIT."
 
  If the Company ceases to be a "domestically controlled REIT," gain arising
from the sale or exchange by a Non-U.S. Shareholder of Common Shares would be
subject to United States taxation under the Foreign Investment in Real
Property Tax Act of 1980 ("FIRPTA") as a sale of a "United States real
property interest" unless the Common Shares are "regularly traded" (as defined
by applicable Treasury regulations) on an established securities market (e.g.,
the New York Stock Exchange) and the selling Non-U.S. Shareholder held no more
than 5% (after applying certain constructive ownership rules) of the Common
Shares during the shorter of (i) the period during which the taxpayer held
such shares or (ii) the 5-year period ending on the date of the disposition of
such shares. If gain on the sale or exchange of Common Shares were subject to
taxation under FIRPTA, the Non-U.S. Shareholder would be subject to regular
United States income tax with respect to such gain in the same manner as a
domestic shareholder (subject to any applicable alternative minimum tax, a
special
 
                                      52
<PAGE>
 
alternative minimum tax in the case of nonresident alien individuals and the
possible application of the 30% branch profits tax in the case of foreign
corporation), and the purchaser of the stock would be required to withhold and
remit to the IRS 10% of the purchase price. The 10% withholding tax will not
apply if the Common Shares are "regularly traded" in an established securities
market.
 
  Notwithstanding the foregoing, gain from the sale or exchange of Common
Shares not otherwise subject to United States taxation will be taxable to a
Non-U.S. Shareholder if (i) investment in the Common Shares is effectively
connected with the Non-U.S. Shareholder's United States trade or business (or,
if an income tax treaty applies, is attributable to a United States permanent
establishment of the Non-U.S. Shareholder), in which case the Non-U.S.
Shareholder will be subject to the same treatment as domestic shareholders
with respect to such gain (except that a shareholder that is a foreign
corporation may also be subject to the 30% branch profits tax, as discussed
below), or (ii) the Non-U.S. Shareholder is a resident alien individual who is
present in the United States for 183 days or more during the taxable year and
has a "tax home" in the United States, in which case the nonresident alien
individual will be subject to a 30% tax on the individual's capital gains.
 
  Distributions that are not attributable to gain from the sale or exchange by
the Company of United States real property interests (and are not designated
as capital gain dividends) ("Non-Capital Distributions") will be treated as
dividends of ordinary income to the extent that they are made out of current
or accumulated earnings and profits of the Company. Such distributions
generally will be subject to a United States withholding tax equal to 30% of
the gross amount of the distribution, subject to reduction or elimination
under an applicable income tax treaty. However, if dividends from the
investment in the Common Shares are treated as "effectively connected" with
the Non-U.S. Shareholder's conduct of a United States trade or business, such
dividends will be subject to regular U.S. income taxation (foreign
corporations may also be subject to the 30% branch profits tax). The Company
will withhold United States income tax at the rate of 30% on the gross amount
of any Non-Capital Distributions paid to a Non-U.S. Shareholder unless: (i) a
lower treaty rate applies and the Non-U.S. Shareholder files certain
information evidencing its entitlement to such lower treaty rate, or (ii) the
Non-U.S. Shareholder files an IRS Form 4224 with the Company claiming that the
distribution is "effectively connected" income. Distributions which exceed
current and accumulated earnings and profits of the Company will not be
taxable to the extent that they do not exceed the adjusted basis of shares,
but rather will reduce (but not below zero) the adjusted basis of such shares.
To the extent that such distributions exceed the adjusted basis of a Non-U.S.
Shareholder's Common Shares, they generally will give rise to United States
tax liability if the Non-U.S. Shareholder would otherwise be subject to tax on
gain from the sale or disposition of his shares in the Company, as described
above. Because the Company will withhold 30% (or lower treaty rate) of all
Non-Capital Distributions, to the extent the Company makes distributions in
excess of its earnings and profits, generally the amount withheld will exceed
a Non-U.S. Shareholder's U.S. tax liability on such distributions and such
shareholder can seek a refund from the IRS to the extent the amount withheld
on its distributions exceeds its U.S. tax liability.
 
  Distributions by the Company to a Non-U.S. Shareholder that are attributable
to gain from sales or exchanges by the Company of a United States real
property interest are subject to income and withholding tax under the
provisions of FIRPTA. Under FIRPTA, those distributions, if any, which are
treated as gain recognized from the sale of a United States real property
interest, are taxed as income "effectively connected" with a United States
business. Non-U.S. Shareholders would thus be taxed at the normal capital gain
rates applicable to U.S. shareholders (subject to the applicable alternative
minimum tax and a special alternative minimum tax for nonresident alien
individuals). Also, distributions subject to FIRPTA may be subject to a 30%
branch profits tax in the hands of a foreign corporate shareholder not
entitled to treaty exemption. The Company will withhold 35% of any
distribution to a Non-U.S. Shareholder that could be designated by the Company
as a capital gain dividend. This amount is creditable against the Non-U.S.
Shareholder's FIRPTA tax liability. A refund may be available if the amount
withheld exceeds the Non-U.S. Shareholder's federal tax liability.
 
  Distributions that are designated by the Company at the time of distribution
as capital gains dividends (other than those arising from the disposition of a
United States real property interest) generally will not be subject to United
States federal income taxation, unless (i) investment in the Common Shares is
effectively connected with
 
                                      53
<PAGE>
 
the Non-U.S. Shareholder's United States trade or business (or, if an income
tax treaty applies, is attributable to a United States permanent establishment
of the Non-U.S. Shareholder), in which case the Non-U.S. Shareholder will be
subject to the same treatment as domestic shareholders with respect to such
gain (except that a shareholder that is a foreign corporation may also be
subject to the 30% branch profits tax, as discussed above), or (ii) the Non-
U.S. Shareholder is a resident alien individual who is present in the United
States for 183 days or more during the taxable year and has a "tax home" in
the United States, in which case the nonresident alien individual will be
subject to a 30% tax on the individual's capital gains.
 
  On October 6, 1997, the IRS issued final Treasury Regulations concerning the
withholding of tax and information reporting for certain amounts paid to non-
resident individuals and foreign corporations. These new withholding rules
significantly change the current withholding regime. However, in general,
these new rules apply only to payments made after December 31, 1998.
Prospective purchasers should consult their tax advisors concerning the
impact, if any, of these new Treasury Regulations.
 
FEDERAL INCOME TAX ASPECTS OF THE OPERATING COMPANY AND THE SUBSIDIARY
ENTITIES
 
  As a result of the TCR-West Transaction, a portion of the Company's assets
are held indirectly through the Operating Company and the Subsidiary Entities.
 
  The Operating Company and the Subsidiary Entities involve special tax
considerations, including the possibility of a challenge by the IRS of the
status of any of such partnerships or LLCs as a partnership (as opposed to an
association taxable as a corporation) for federal income tax purposes. Under
recently finalized Treasury Regulations pertaining to entity classification,
the Company believes that the Operating Company and Subsidiary Entities will
be classified as partnerships for federal income tax purposes. Nevertheless,
if any of such partnerships or LLCs were to be treated as a corporation, such
entity would be subject to an entity level tax on its income. Such an entity
level tax is likely to substantially reduce the amount of cash available for
distribution to the Company's shareholders and to holders of Debt Securities.
In addition, if the Operating Company or any of the Subsidiary Entities were
to be taxable as a corporation, the Company would not qualify as a REIT, which
could have a material adverse effect on the Company and its ability to make
distributions to shareholders and to pay amounts due on its Debt Securities.
 
TAX ALLOCATIONS WITH RESPECT TO CONTRIBUTED PROPERTIES
 
  Pursuant to Section 704(c) of the Code, income, gain, loss and deduction
attributable to appreciated or depreciated property that is contributed to a
partnership in exchange for an interest in the partnership, must be allocated
in a manner such that the contributing partner is charged with, or benefits
from, respectively, the unrealized gain or unrealized loss associated with the
property at the time of the contribution. The amount of such unrealized gain
or unrealized loss is generally equal to the difference between the fair
market value of the contributed property at the time of contribution and the
adjusted tax-basis of such property at the time of contribution (a "Book-Tax
Difference"). Such allocations are solely for federal income tax purposes and
do not affect the book capital accounts or other economic or legal
arrangements among the partners. The Operating Company was formed by way of
contributions of property by TCR-West. Consequently, allocations with respect
to such contributed property must be made in a manner consistent with Code
Section 704(c).
 
  In general, the Company will be allocated higher amounts of depreciation
deductions for tax purposes than such deductions would be if determined on a
pro rata basis. In addition, in the event of the disposition of any of the
contributed assets which have a Book-Tax Difference, all income attributable
to such Book-Tax Difference will generally be allocated to the property-
contributing members and the Company will generally be allocated only its
share of capital gains attributable to appreciation, if any, occurring after
the contribution of such assets to the Operating Company. This will tend to
eliminate the Book-Tax Difference over the life of the Operating Company.
However, the special allocation rules of Section 704(c) do not always entirely
eliminate the Book-Tax Difference on an annual basis or with respect to a
specific taxable transaction such as a sale. Thus, the carryover basis of the
contributed assets in the hands of the Operating Company will cause the
Company to be allocated
 
                                      54
<PAGE>
 
lower depreciation and other deductions, and possible amounts of taxable
income in the event of a sale of such contributed assets in excess of the
economic or book income allocated to it as a result of such sale. This may
cause the Company to recognize taxable income in excess of cash proceeds,
which might adversely affect the Company's ability to comply with the REIT
distribution requirements. See "Annual Distribution Requirements."
 
  The Treasury Regulations under Code Section 704(c) allow partnerships to use
any reasonable method of accounting for Book-Tax Differences so that the
contributing partner receives the tax benefits and burdens of any built-in
gain or loss associated with the contributed property. Book-Tax Differences
associated with the Operating Company will be allocated pursuant to the
"traditional method" as described in the applicable Treasury Regulations. Use
of the "traditional method" may result in distributions to Company
shareholders being comprised of a greater portion of taxable income rather
than a return of capital.
 
PARTNERSHIP ANTI-ABUSE RULE
 
  The IRS has published regulations that provide an anti-abuse rule (the
"Anti-Abuse Rule") under the partnership provisions of the Code (the
"Partnership Provisions"). Under the Anti-Abuse Rule, if a partnership is
formed or availed of in connection with a transaction a principal purpose of
which is to reduce substantially the present value of the partners, aggregate
federal tax liability in a manner that is inconsistent with the intent of the
Partnership Provisions, the IRS can recast the transaction for federal tax
purposes to achieve tax results that are consistent with the intent of the
Partnership Provisions. This analysis is to be made based on all facts and
circumstances. The Anti-Abuse Rule states that the intent of the Partnership
Provisions incorporates the following requirements: (i) the partnership must
be bona fide and each partnership transaction or series of related
transactions must be entered into for a substantial business purpose; (ii) the
form of each partnership transaction must be respected under substance over
form principles; and (iii) with certain exceptions, the tax consequences under
the Partnership Provisions to each partner of partnership operations and the
transactions between the partner and the partnership must accurately reflect
the partner's economic agreement and clearly reflect the partner's income.
 
  The Company believes that its indirect ownership of certain assets through
its interest in the Operating Company and the Subsidiary Entities is not
inconsistent with the intent of the Partnership Provisions and that,
therefore, the IRS should not be able to invoke the Anti-Abuse Rule to recast
the structure of the Company for federal income tax purposes. However, no
assurance can be given that the IRS or a court will concur with such opinion.
 
  The Anti-Abuse Rule also provides that, unless a provision of the Code or
the Treasury Regulations prescribes the treatment of a partnership as an
entity, in whole or in part, and that treatment and the ultimate tax results,
taking into account all the relevant facts and circumstances, are clearly
contemplated by that provision, the IRS can treat a partnership as an
aggregate of its partners, in whole or in part, as appropriate to carry out
the purpose of any provision of the Code or the Treasury Regulations.
Treatment of the Operating Company or any of the Subsidiary Entities, in whole
or in part, as an aggregate rather than an entity is unlikely to materially
change the federal tax consequences to any partner. In addition, the REIT
Provisions generally treat a partnership as an aggregate rather than an entity
for purposes of applying the REIT Requirements. Therefore, the Anti-Abuse Rule
should not have a material adverse effect on the federal income tax
consequences to any partner or on the ability of the Company to qualify as a
REIT.
 
OTHER TAX CONSEQUENCES
 
  The Company and its shareholders may be subject to state or local taxation
in various jurisdictions, including those in which it or they transact
business or reside. The state and local tax treatment of the Company and its
shareholders may not conform to the federal income tax consequences discussed
above. Prospective shareholders should consult their own tax advisors
regarding the effect of state and local tax laws on an investment in the
Company.
 
 
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<PAGE>
 
                             PLAN OF DISTRIBUTION
 
  The Company or the Selling Shareholder may sell the Offered Securities to
one or more underwriters for public offering and sale by them or may sell the
Offered Securities to investors directly or through agents or through dealers
or through a combination of any such methods of sale. Any such underwriter or
agent involved in the offer and sale of the Offered Securities will be named
in the applicable Prospectus Supplement.
 
  Underwriters may offer and sell the Offered Securities at a fixed price or
prices, which may be changed, or from time to time at market prices prevailing
at the time of sale or at prices related to the prevailing market prices at
the time of sale, or at negotiated prices. The Company or the Selling
Shareholder also may, from time to time, authorize agents to offer and sell
the Offered Securities upon the terms and conditions set forth in an
applicable Prospectus Supplement. In connection with the sale of Offered
Securities, underwriters and agents may be deemed to have received
compensation from the Company or the Selling Shareholder, as applicable, in
the form of discounts or commissions and may also receive commissions from
purchasers of Offered Securities for whom they may act as agents. Underwriters
may sell Offered Securities to or through dealers, and such dealers may
receive compensation in the form of discounts, concessions from the
underwriters or commissions from the purchasers for whom they may act as
agent.
 
  Any compensation paid by the Company or the Selling Shareholder to
underwriters or agents in connection with the offering of Offered Securities
and any discounts, concessions or commissions allowed by underwriters to
participating dealers will be set forth in the applicable Prospectus
Supplement. Underwriters, dealers and agents participating in the distribution
of the Offered Securities may be deemed to be underwriters, and any discounts
and commissions received by them and any profit realized by them on resale of
the Offered Securities may be deemed to be underwriting discounts and
commissions under the Securities Act. Underwriters, dealers and agents may be
entitled, under agreements entered into with the Company or the Selling
Shareholder, to indemnification against and contribution toward certain civil
liabilities, including liabilities under the Securities Act.
 
  If so indicated in the applicable Prospectus Supplement, the Company may
authorize underwriters or other persons acting as the Company's agents to
solicit offers by certain institutions to purchase Offered Securities from the
Company pursuant to delayed delivery contracts ("Contracts") providing for
payment and delivery on such future date or dates stated in such Prospectus
Supplement. Each Contract will be for an amount not less than, and the
aggregate amount of the Offered Securities sold pursuant to Contracts shall be
not less or 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 Offered 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 the Offered Securities are being sold to underwriters, the Company
shall have sold to such underwriters the total amount of the Offered
Securities less the amount thereof covered by Contracts.
 
  Certain of the underwriters, dealers and agents and their affiliates may
engage in transactions with and perform services for the Company, the Selling
Shareholder and their respective subsidiaries in the ordinary course of
business.
 
                                    EXPERTS
 
  The financial statements and related financial schedule of BRE Properties,
Inc. appearing in BRE Properties, Inc.'s Annual Report on Form 10-K for the
year ended December 31, 1996, as amended, have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon included
therein and incorporated herein by reference. The statement of gross income
and direct operating expenses of Promontory Point
 
                                      56
<PAGE>
 
Apartments for the year ended December 31, 1996, appearing in BRE Properties,
Inc.'s Current Report on Form 8-K/A filed on February 13, 1997, as amended,
has been audited by Ernst & Young LLP, as set forth in their report thereon
included therein and incorporated herein by reference. The statement of gross
income and direct operating expenses of Foster's Landing Apartments for the
year ended December 31, 1995, appearing in BRE Properties, Inc.'s Current
Report on Form 8-K/A filed on December 10, 1996, as amended, has been audited
by Ernst & Young LLP, as set forth in their report thereon included therein
and incorporated herein by reference. The statement of gross income and direct
operating expenses of Red Hawk Ranch for the year ended December 31, 1996,
appearing in BRE Properties, Inc.'s Current Report on Form 8-K filed on April
25, 1997, has been audited by Ernst & Young LLP, as set forth in there report
thereon included therein and incorporated herein by reference. The statement
of gross income and direct operating expenses of Lakeshore Landing Apartments
for the year ended December 31, 1996, appearing in the Company's Current
Report on Form 8-K/A filed on October 30, 1997, has been audited by Ernst &
Young LLP, as set forth in their report thereon included therein and
incorporated herein by reference. The statement of gross income and direct
operating expenses of certain TCR-West multifamily properties for the year
ended December 31, 1996, appearing in the Company's Current Report on Form 8-K
filed on November 24, 1997, has been audited by Ernst & Young LLP, as set
forth in their report thereon included therein and incorporated herein by
reference. Such financial statements and schedule referred to above are
incorporated herein by reference in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
 
                                 LEGAL MATTERS
 
  The validity of the Offered Securities as well as certain legal matters
described under "Federal Income Tax Considerations" will be passed upon for
the Company by Farella Braun & Martel LLP, San Francisco, California. Brown &
Wood llp, San Francisco, California, will act as counsel for any underwriters
or agents.
 
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