DEVELOPERS DIVERSIFIED REALTY CORP
S-3, 1999-02-17
REAL ESTATE INVESTMENT TRUSTS
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<PAGE>   1
 
   AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 17, 1999
 
                                                     REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------
 
                                    FORM S-3
 
                             REGISTRATION STATEMENT
 
                                     UNDER
 
                           THE SECURITIES ACT OF 1933
                            ------------------------
 
                   DEVELOPERS DIVERSIFIED REALTY CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
<TABLE>
<S>                                                          <C>
                            OHIO                                                      34-1723097
      (STATE OR OTHER JURISDICTION OF INCORPORATION OR                   (I.R.S. EMPLOYER IDENTIFICATION NO.)
                       ORGANIZATION)
</TABLE>
 
                              34555 CHAGRIN BLVD.
                           MORELAND HILLS, OHIO 44022
                                 (440) 247-4700
  (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
                   REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
                            ------------------------
 
                          SCOTT A. WOLSTEIN, PRESIDENT
                   DEVELOPERS DIVERSIFIED REALTY CORPORATION
                              34555 CHAGRIN BLVD.
                           MORELAND HILLS, OHIO 44022
                                 (440) 247-4700
 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
                             OF AGENT FOR SERVICE)
                            ------------------------
 
                                   COPIES TO:
 
<TABLE>
<S>                                                       <C>
                  ALBERT T. ADAMS, ESQ                                   THOMAS R. SMITH, JR., ESQ.
                 BAKER & HOSTETLER LLP                                        BROWN & WOOD LLP
               3200 NATIONAL CITY CENTER                                   ONE WORLD TRADE CENTER
                 1900 EAST NINTH STREET                                          58TH FLOOR
                 CLEVELAND, OHIO 44114                                    NEW YORK, NEW YORK 10048
                     (216) 621-0200                                            (212) 839-5300
</TABLE>
 
    APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement as determined by
market conditions.
 
    If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box.  [ ]
 
    If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box.  [X]
    If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.  [ ]
 
    If this Form is a post-effective amendment filed pursuant to Rule 462(b)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.  [ ]
 
    If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.  [X]
 
                        CALCULATION OF REGISTRATION FEE
 
<TABLE>
<CAPTION>
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                                                                  PROPOSED MAXIMUM
                   TITLE OF EACH CLASS OF                        AGGREGATE OFFERING            AMOUNT OF
               SECURITIES TO BE REGISTERED(1)                       PRICE(2)(3)             REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------
<S>                                                           <C>                       <C>
Debt Securities.............................................
Preferred Shares, without par value(4)......................
Depositary Shares representing Preferred Shares, without par
value(4)(5).................................................        $750,000,000              $208,500(7)
Common Shares, without par value(6).........................
Common Share Warrants.......................................
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
 
(1) Offered Securities registered hereunder may be sold separately, together or
    as units with other Offered Securities registered hereunder.
 
(2) In U.S. Dollars or the equivalent thereof denominated in one or more foreign
    currencies or units of two or more foreign currencies or composite
    currencies (such as European Currency Units).
 
(3) Estimated solely for purposes of calculating the registration fee. No
    separate consideration will be received for Common Shares or Preferred
    Shares that are issued upon conversion of Debt Securities, Preferred Shares
    or Depositary Shares registered hereunder as the case may be. The aggregate
    maximum offering price of all Offered Securities issued pursuant to this
    Registration Statement will not exceed $750,000,000.
 
(4) Such indeterminate number of Preferred Shares and Depositary Shares
    representing Preferred Shares as may from time to time be issued at
    indeterminate prices or upon conversion of Debt Securities. "Preferred
    Shares" include (i) Class A Cumulative Preferred Shares, without par value,
    (ii) Class B Cumulative Preferred Shares, without par value, (iii) Class C
    Cumulative Preferred Shares, without par value, (iv) Class D Cumulative
    Preferred Shares, without par value, (v) Class E Cumulative Preferred
    Shares, without par value, and (vi) Noncumulative Preferred Shares, without
    par value.
 
(5) To be represented by Depositary Receipts representing an interest in all or
    a specified portion of a Preferred Share.
 
(6) Such indeterminate number of Common Shares as may from time to time be
    issued at indeterminate prices or upon conversion of Debt Securities,
    Preferred Shares or Depositary Shares registered hereunder or upon exercise
    of the Common Share Warrants registered hereunder, as the case may be.
 
(7) Calculated pursuant to Rule 457(o) of the rules and regulations under the
    Securities Act of 1933, as amended.
                            ------------------------
 
    THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>   2
 
WE WILL AMEND AND COMPLETE THE INFORMATION IN THIS PROSPECTUS. ALTHOUGH WE ARE
PERMITTED BY U.S. FEDERAL SECURITIES LAWS TO OFFER THESE SECURITIES USING THIS
PROSPECTUS, WE MAY NOT SELL THEM OR ACCEPT YOUR OFFER TO BUY THEM UNTIL THE
DOCUMENTATION FILED WITH THE SEC RELATING TO THESE SECURITIES HAS BEEN DECLARED
EFFECTIVE BY THE SEC. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES
OR OUR SOLICITATION OF YOUR OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION
WHERE THAT WOULD NOT BE PERMITTED OR LEGAL.
 
                 SUBJECT TO COMPLETION, DATED FEBRUARY 17, 1999
 
PROSPECTUS
 
                                  $750,000,000
 
                   DEVELOPERS DIVERSIFIED REALTY CORPORATION
 
 DEBT SECURITIES, PREFERRED SHARES, DEPOSITARY SHARES, COMMON SHARES AND COMMON
                                 SHARE WARRANTS
 
     Developers Diversified Realty Corporation may offer, from time to time, in
one or more series or classes and in amounts, at prices and on terms that it
will determine at the time of offering, with an aggregate public offering price
of up to $750,000,000:
 
          - unsecured debt securities which may be either senior debt securities
            or subordinated debt securities;
 
          - whole or fractional preferred shares;
 
          - preferred shares represented by depositary shares;
 
          - common shares, without par value; or
 
          - warrants to purchase common shares.
 
     We will provide the specific terms of these securities in supplements to
this prospectus. You should read this prospectus and the applicable supplement
carefully before you invest.
 
     Our common shares are listed on the New York Stock Exchange under the
symbol "DDR." The last reported sale price of our common shares on the New York
Stock Exchange on February 16th, 1999 was $15 5/16 per share.
 
     Beginning on page 3, we have set forth several "Risk Factors" that you
should consider. You should read the entire prospectus carefully before you make
your investment decision.
                            ------------------------
 
     We impose certain restrictions on the ownership of our common and preferred
shares so that we can maintain our qualification as a real estate investment
trust. You should read the information under the headings "Description of
Preferred Shares -- Restrictions on Ownership" and "Description of Common
Shares -- Restrictions on Ownership" in this prospectus for a description of
those restrictions.
 
     NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
 
                THE DATE OF THIS PROSPECTUS IS FEBRUARY   , 1999
<PAGE>   3
 
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
 
     WE HAVE NOT AUTHORIZED ANY DEALER, SALESMAN OR OTHER PERSON TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS OR ANY APPLICABLE SUPPLEMENT TO
THIS PROSPECTUS. YOU MUST NOT RELY UPON ANY INFORMATION OR REPRESENTATION NOT
CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS OR ANY APPLICABLE
SUPPLEMENT TO THIS PROSPECTUS AS IF WE HAD AUTHORIZED IT. THIS PROSPECTUS AND
ANY APPLICABLE PROSPECTUS SUPPLEMENT DO NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED
SECURITIES TO WHICH THEY RELATE. NOR DO THIS PROSPECTUS AND ANY ACCOMPANYING
PROSPECTUS SUPPLEMENT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. YOU SHOULD NOT ASSUME
THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS OR ANY APPLICABLE PROSPECTUS
SUPPLEMENT IS CORRECT ON ANY DATE AFTER THEIR RESPECTIVE DATES, EVEN THOUGH THIS
PROSPECTUS OR A SUPPLEMENT IS DELIVERED OR SECURITIES ARE SOLD ON A LATER DATE.
 
                               TABLE OF CONTENTS
 
<TABLE>
<S>                                                           <C>
Forward-Looking Information.................................    3
Risk Factors................................................    3
About This Prospectus.......................................    8
Where You Can Find More Information.........................    8
Incorporation of Certain Documents by Reference.............    8
The Company.................................................   10
Summary Selected Consolidated Financial Data................   11
Use of Proceeds.............................................   13
Description of Debt Securities..............................   13
Description of Preferred Shares.............................   38
Description of Depositary Shares............................   48
Description of Common Shares................................   52
Description of Common Share Warrants........................   54
Certain Anti-Takeover Provisions of Ohio Law................   55
Federal Income Tax Considerations...........................   56
Ratio of Earnings to Fixed Charges and Ratio of Earnings to
  Combined Fixed Charges and Preferred Share Dividends......   71
Plan of Distribution........................................   72
Experts.....................................................   73
Legal Matters...............................................   74
</TABLE>
 
                                        2
<PAGE>   4
 
                          FORWARD-LOOKING INFORMATION
 
     This prospectus and the applicable prospectus supplement include and
incorporate by reference forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended. We intend those forward-looking statements to be covered by
the safe harbor provisions for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995. Forward-looking statements are
generally identifiable by use of the words "believe," "expect," "intend,"
"anticipate," "plan," "estimate," "project" or similar expressions. Our ability
to predict results or the actual effect of future plans or strategies is
inherently uncertain. Actual results could differ materially from those in
forward-looking statements because of, among other reasons, the factors
described under the caption "Risk Factors." We undertake no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise.
 
                                  RISK FACTORS
 
     Prospective investors should consider carefully, among other factors, the
matters described below before purchasing our securities.
 
THERE ARE RISKS INHERENT IN OUR REAL ESTATE INVESTMENTS
 
     The Economic Performance and Value of Our Centers Depend on Many
Factors. The economic performance and value of our real estate holdings can be
affected by many factors, including the following:
 
     - changes in national, regional and local economic climates;
 
     - local conditions, such as an oversupply of space or a reduction in demand
       for real estate in the area;
 
     - the attractiveness of our properties to tenants;
 
     - competition from other available space; and
 
     - increased operating costs.
 
     Our Real Estate Development Activities May Not Be Profitable. We intend to
continue to actively pursue shopping center development projects, including the
expansion of existing centers. Our current projects, including partnership and
joint venture investments, generally require the expenditure of capital and
various forms of government and other approvals. We cannot be sure that we will
always receive government and other approvals. Consequently, we cannot be sure
that any projects will be completed or that they will be profitable.
 
     We Depend on Rental Income from Real Property. Substantially all of our
income is derived from rental income from real property. As a result, our income
and funds for distribution would be negatively affected if a significant number
of our tenants were unable to meet their obligations to us or if we were unable
to lease a significant amount of space in our properties on economically
favorable lease terms. We cannot be sure that any tenant whose lease expires
will renew that lease or that we will be able to re-lease space on economically
advantageous terms.
 
                                        3
<PAGE>   5
 
     Our Real Estate Investments Contain Environmental Risks. Under various
federal, state and local laws, ordinances and regulations, we may be considered
an owner or operator of real property or to have arranged for the disposal or
treatment of hazardous or toxic substances. As a result, we could become liable
for the costs of removal or remediation of certain hazardous substances released
on or in our property. We could also be liable for other costs that relate to
hazardous or toxic substances (including governmental fines and injuries to
persons and property). We could incur liability whether or not we knew of, or
were responsible for, the presence of the hazardous or toxic substances.
 
WE RELY ON MAJOR TENANTS
 
     As of October 1, 1998, the annualized base rental revenues from Wal-Mart
and Kmart stores represented 5.8% and 4.2%, respectively, of the aggregate
annualized shopping center base rental revenues from the properties we owned or
had an interest in. These percentages include anchor tenant leases signed as of
October 1, 1998 relating to approximately 320,000 square feet, under which some
of the tenants have not yet occupied the subject space or commenced rental
payments.
 
     We could be adversely affected if either Wal-Mart or Kmart files for
bankruptcy, becomes insolvent or experiences a significant downturn in its
business. In addition, we could be adversely affected if either Wal-Mart or
Kmart does not renew its leases as they expire.
 
     We could also be adversely affected by a downturn in the business of
another major tenant. However, as of October 1, 1998, we received no more than
2.7% of our annualized shopping center base rental revenues from any other
single tenant.
 
PROPERTY OWNERSHIP THROUGH PARTNERSHIPS AND JOINT VENTURES COULD LIMIT OUR
CONTROL OF THOSE INVESTMENTS.
 
     Partnership or joint venture investments may involve risks not otherwise
present for investments made solely by us, including the possibility that our
partners or co-venturers might become bankrupt, that our partners or
co-venturers might at any time have different interests or goals than we do, and
that our partners or co-venturers may take action contrary to our instructions,
requests, policies or objectives, including our policy with respect to
maintaining the qualification of Developers Diversified Realty Corporation as a
REIT. Other risks of joint venture investments include impasse on decisions,
such as a sale, because neither our partner or co-venturers nor us would have
full control over the partnership or joint venture. There is no limitation under
our organizational documents as to the amount of funds that may be invested in
partnerships or joint ventures.
 
OUR ACQUISITION, DEVELOPMENT AND CONSTRUCTION ACTIVITIES COULD RESULT IN LOSSES
 
     We intend to acquire existing retail properties to the extent that the
suitable acquisitions can be made on advantageous terms. Acquisitions of
commercial properties entail risks, such as the risks that we may not be in a
position or have the opportunity in the future to make suitable property
acquisitions on advantageous terms and that our investments will fail to perform
as expected. Many of the properties that we acquire require significant
additional investment and upgrades and are subject to the risk that estimates of
the cost of improvements to bring such properties up to standards established
for the intended market position may prove inaccurate.
 
                                        4
<PAGE>   6
 
     We also intend to continue the selective development and construction of
retail properties in accordance with our development and underwriting policies
as opportunities arise. Our development and construction activities include the
risks that:
 
     - we may abandon development opportunities after expending resources to
       determine feasibility;
 
     - construction costs of a project may exceed our original estimates;
 
     - occupancy rates and rents at a newly completed property may not be
       sufficient to make the property profitable;
 
     - financing may not be available to us on favorable terms for development
       of a property;
 
     - we may not complete construction and lease-up on schedule, resulting in
       increased debt service expense and construction costs.
 
     Our development activities are also subject to risks relating to the
inability to obtain, or delays in obtaining, all necessary zoning, land-use,
building, occupancy and other required governmental permits and authorizations.
If any of the above events occur, the ability to pay distributions to our
shareholders and service our indebtedness could be adversely affected. In
addition, new development activities, regardless of whether or not they are
ultimately successful, typically require a substantial portion of management's
time and attention.
 
OUR ARTICLES OF INCORPORATION CONTAIN LIMITATIONS ON ACQUISITION AND CHANGE IN
CONTROL
 
     Our Amended and Restated Articles of Incorporation (the "Articles")
prohibit any person from owning more than 5% of our outstanding common shares.
That restriction is likely to discourage third parties from acquiring control of
us without consent of our Board of Directors even if a change in control was in
the best interests of shareholders.
 
OUR ORGANIZATIONAL DOCUMENTS DO NOT LIMIT INCURRENCE OF DEBT
 
     Our organizational documents do not contain any limitation on the amount or
percentage of indebtedness we may incur. However, our senior indenture and
credit agreements that govern certain of our outstanding indebtedness do contain
limits on our ability to incur additional indebtedness.
 
OUR FAILURE TO QUALIFY AS A REIT WOULD HAVE SERIOUS ADVERSE CONSEQUENCES TO OUR
SHAREHOLDERS
 
     We intend to operate so as to qualify as a real estate investment trust (a
"REIT") under the Internal Revenue Code. We believe that we have been organized
and have operated in a manner which would allow us to qualify as a REIT under
the Internal Revenue Code beginning with our taxable year ended December 31,
1993. However, it is possible that we have been organized or have operated in a
manner which would not allow us to qualify as a REIT, or that our future
operations could cause us to fail to qualify. We must satisfy numerous
requirements (some on an annual and quarterly basis) established under highly
technical and complex Internal Revenue Code provisions to qualify as a REIT.
There are limited judicial and administrative interpretations of these tax
provisions. Our status as a REIT also involves the determination of various
factual matters and circumstances not entirely within our control. For example,
in order to qualify as a REIT,
 
                                        5
<PAGE>   7
 
at least 95% of our gross income in any year must be derived from qualifying
sources, and we must pay dividends to shareholders aggregating annually at least
95% of our REIT taxable income (determined without regard to the dividends paid
deduction and by excluding capital gains). Legislation, new regulations,
administrative interpretations or court decisions could significantly change the
tax laws with respect to qualification as a REIT or the federal income tax
consequences of such qualification. However, we are not aware of any pending tax
legislation that would adversely affect our ability to operate as a REIT.
 
     If we fail to qualify as a REIT in any taxable year, we will be subject to
federal income tax (including any applicable alternative minimum tax) on our
taxable income at regular corporate rates. Unless we are entitled to relief
under certain statutory provisions, we would be disqualified from treatment as a
REIT for the four taxable years following the year during which we lost
qualification. If we lose our REIT status, our net earnings available for
investment or distribution to shareholders would be significantly reduced for
each of the years involved. In addition, we would no longer be required to make
distributions to shareholders. See "Certain Federal Income Tax
Considerations -- Failure to Qualify."
 
WE PAY SOME TAXES
 
     Even if we qualify as a REIT, we will be subject to certain federal, state
and local taxes on our income and property. See "Certain Federal Income Tax
Considerations -- Other Tax Consequences."
 
WE COULD BE ADVERSELY AFFECTED BY REQUIRED PAYMENT OF DEBT OR OF RELATED
INTEREST
 
     We are generally subject to the risks associated with debt financing. These
risks include:
 
     - the risk that our cash flow will not satisfy required payments of
       principal and interest;
 
     - the risk that we cannot refinance existing indebtedness on our properties
       as necessary or that the terms of the refinancing will be less favorable
       to us than the terms of existing debt; and
 
     - the risk that necessary capital expenditures for purposes such as
       reletting space cannot be financed on favorable terms.
 
If a property is mortgaged to secure payment of indebtedness and we cannot pay
the mortgage payments, we may have to surrender the property to the lender with
a consequent loss of any prospective income and equity value from such property.
 
OUR ABILITY TO INCREASE OUR DEBT COULD ADVERSELY AFFECT OUR CASH FLOW.
 
     At December 31, 1998, we had outstanding debt of approximately $1 billion.
If we were to become more highly leveraged, our cash needs to fund debt service
would increase accordingly. Such an increase could adversely affect our
financial condition and results of operations. In addition, increased leverage
could increase the risk of default on our debt obligations, which could reduce
our cash available for distribution and our asset values.
 
                                        6
<PAGE>   8
 
OUR FINANCIAL CONDITION COULD BE ADVERSELY AFFECTED BY FINANCIAL COVENANTS
 
     Our credit facilities and the indentures under which our senior and
subordinated unsecured indebtedness is issued contain certain financial and
operating covenants, including, among other things, certain coverage ratios, as
well as limitations on our ability to incur secured and unsecured indebtedness,
sell all or substantially all of our assets and engage in mergers and
consolidations and certain acquisitions. Foreclosure on mortgaged properties or
an inability to refinance existing indebtedness would likely have a negative
impact on our financial condition and results of operations.
 
OUR ABILITY TO CONTINUE TO OBTAIN PERMANENT FINANCING CANNOT BE ASSURED.
 
     In the past, we have financed acquisitions and development activities in
part with proceeds from our credit facilities with The First National Bank of
Chicago and National City Bank. This financing has been, and may continue to be,
replaced by permanent financing. However, we may not be able to obtain permanent
financing for future acquisitions or development activities on acceptable terms.
If market interest rates were to increase at a time when amounts were
outstanding under the credit facility or if other variable rate debt was
outstanding, our debt interest costs would increase, causing potentially adverse
effects on our financial conditions and results of operations.
 
RISK OF IMPACT OF YEAR 2000 ISSUE ON OUR OPERATIONS AND FINANCIAL RESULTS
 
     Some of our older computer programs were written using two digits rather
than four to define the applicable year. As a result, those computer programs
have time-sensitive software that recognizes a date using "00" as the year 1900
rather than the year 2000. This could cause a system failure or miscalculation
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, or engage in similar normal business
activities.
 
     Our year 2000 project is estimated to be completed not later than September
30, 1999, which is prior to any anticipated impact on our operating system.
Additionally, we have received assurances from our contractors that all of our
building management and mechanical systems are currently year 2000 compliant or
will be made compliant prior to any impact on those systems. However, we cannot
guarantee that all contractors will comply with their assurances and therefore
we may not be able to determine year 2000 compliance of those contractors. At
that time, we will determine the extent to which we will be able to replace
non-compliant contractors. We believe that, with modifications to existing
software and conversion to new software, the year 2000 issue will not pose
significant operational problems for our computer systems. However, if
modifications and conversions are not made, or are not completed timely, the
year 2000 issue could have a material impact on our operations.
 
     To date, we have expended approximately $40,000 and expect to expend an
additional $70,000 in connection with upgrading building management, mechanical
and computer systems. The costs of the project and the date on which we believe
we will complete the year 2000 modifications are based on our management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources and other factors.
However, there can be no guarantee that these estimates will be achieved and
actual result could differ materially from those anticipated. Specific factors
that might cause material differences include, but are not limited to the
 
                                        7
<PAGE>   9
 
availability and costs of personnel trained in this area, the ability to located
and correct all relevant computer codes, and similar uncertainties.
 
                             ABOUT THIS PROSPECTUS
 
     This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission using a "shelf" registration process. Under
this shelf process, we may sell any combination of our debt securities, common
shares, preferred shares, depositary shares and common share warrants described
in this prospectus in one or more offerings up to a total dollar amount of
$750,000,000. This prospectus provides you with a general description of the
securities we may offer. Each time we sell securities, we will provide a
prospectus supplement that will contain specific information about the terms of
that offering. The prospectus supplement may also add, update or change
information contained in this prospectus. You should read both this prospectus
and the applicable prospectus supplement together with additional information
described under the heading "Where You Can Find More Information."
 
     Unless otherwise indicated or unless the context requires otherwise, all
references in this prospectus to "we," "us," "our" or the "Company" mean
Developers Diversified Realty Corporation and all entities owned or controlled
by Developers Diversified Realty Corporation. When we refer to our "Articles" we
mean Developers Diversified Realty Corporation's Amended and Restated Articles
of Incorporation.
 
                      WHERE YOU CAN FIND MORE INFORMATION
 
     We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission (the "SEC"). You may
read and copy any document we file with the SEC at the SEC's public reference
rooms at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's
regional offices at Seven World Trade Center, 13th Floor, New York, New York
10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. The SEC also maintains a web site
that contains reports, proxy and information statements, and other information
regarding registrants that file electronically with the SEC
(http://www.sec.gov). You can inspect reports and other information we file at
the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New
York 10005.
 
     We have filed a registration statement of which this prospectus is a part
and related exhibits with the SEC under the Securities Act of 1933, as amended
(the "Securities Act"). The registration statement contains additional
information about us and the securities. You may inspect the registration
statement and exhibits without charge at the office of the SEC or at one of the
SEC's public reference rooms listed above or at the SEC's web site listed above,
and you may obtain copies from the SEC at prescribed rates.
 
                INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
 
     The SEC allows us to "incorporate by reference" the information contained
in documents we file with the SEC, which means that we can disclose important
information to you by referring to those documents. The information incorporated
by reference is an important part of this prospectus. Any statement contained in
a document which is
 
                                        8
<PAGE>   10
 
incorporated by reference in this prospectus is automatically updated and
superseded if information contained in this prospectus, or information that we
later file with the SEC, modifies or replaces that information. We incorporate
by reference the following documents we filed with the SEC:
 
          a. Our Annual Report on Form 10-K for the fiscal year ended December
     31, 1997;
 
          b. The description of our common shares contained in our Registration
     Statement on Form 8-A dated January 26, 1993;
 
          c. Our Quarterly Reports on Form 10-Q for the fiscal quarters ended
     March 31, 1998, June 30, 1998, and September 30, 1998;
 
          d. Our Current Reports on Form 8-K dated:
 
             (i) February 25, 1998 and filed on April 7, 1998 (as amended by
        Amendment No. 1 on Form 8-K/A dated February 25, 1998 and filed on April
        23, 1998);
 
             (ii) April 28, 1998 and filed on June 24, 1998;
 
             (iii) July 1, 1998 and filed on July 14, 1998;
 
             (iv) July 16, 1998 and filed on July 31, 1998;
 
             (v) August 5, 1998 and filed on August 11, 1998;
 
             (vi) September 10, 1998 and filed on December 8, 1998 and
 
             (vii) January 15, 1999 and filed on January 29, 1999.
 
     Any documents we file pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act after the date of this prospectus and prior to the termination of
the offering of the securities to which this prospectus relates will
automatically be deemed to be incorporated by reference in this prospectus and a
part of this prospectus from the date of filing such documents.
 
     To receive a free copy of any of the documents incorporated by reference in
this prospectus (other than exhibits, unless they are specifically incorporated
by reference in any such documents), call or write Developers Diversified Realty
Corporation, 34555 Chagrin Boulevard, Moreland Hills, Ohio 44022, Attention Joan
U. Allgood, Vice President and General Counsel, telephone number (440) 247-4700.
We also maintain a web site that contains additional information about us and
provides an electronic means of communicating with our officers and employees
(http://www.ddrc.com).
 
     You should rely only on the information incorporated by reference or set
forth in this prospectus or the applicable prospectus supplement. We have not
authorized anyone else to provide you with different information. We may only
use this prospectus to sell securities if it is accompanied by a prospectus
supplement. We are offering these securities only in states where the offer is
permitted. You should not assume that the information in this prospectus or the
applicable prospectus supplement is accurate as of any date other than the dates
on the front of these documents.
 
                                        9
<PAGE>   11
 
                                  THE COMPANY
 
     We are a self-managed real estate investment trust (a "REIT") that was
formed in November 1992 by the principals of the entities comprising the
Developers Diversified Group ("DDG") to continue the business of DDG by
acquiring, developing, redeveloping, owning, leasing and managing shopping
centers and business centers. We believe that our portfolio of shopping center
properties is one of the largest (measured by amount of total gross leasable
area ("GLA")) currently held by any publicly traded REIT. Our executive offices
are located at 34555 Chagrin Boulevard, Moreland Hills, Ohio 44022, and our
telephone number is (440) 247-4700.
 
                                       10
<PAGE>   12
 
                  SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA
 
     The following table sets forth selected historical consolidated financial
data for the Company. The following information should be read in conjunction
with the Consolidated Financial Statements and notes thereto and Management's
Discussion and Analysis, included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1997 and its Quarterly Report on Form 10-Q for
the nine-month period ended September 30, 1998, incorporated by reference in
this prospectus.
 
<TABLE>
<CAPTION>
                                           NINE MONTHS
                                              ENDED
                                          SEPTEMBER 30,                   YEAR ENDED DECEMBER 31,
                                       -------------------   --------------------------------------------------
                                         1998       1997       1997       1996       1995      1994      1993
                                       --------   --------   --------   --------   --------   -------   -------
                                                         (IN THOUSANDS EXCEPT PER SHARE DATA)
<S>                                    <C>        <C>        <C>        <C>        <C>        <C>       <C>
Operating Data:
  Revenues from rental operations....  $165,782   $120,992   $169,040   $130,905   $107,805   $81,974   $54,531
  Expenses:
    Rental operation expenses........    43,023     33,055     47,017     35,123     28,069    22,802    16,863
    Depreciation and amortization....    31,638     23,509     32,313     25,062     21,865    16,211    10,393
    Interest expense.................    41,917     25,460     35,558     29,888     29,595    21,423    15,060
                                       --------   --------   --------   --------   --------   -------   -------
        Total........................   116,578     82,024    114,888     90,073     79,529    60,436    42,316
                                       --------   --------   --------   --------   --------   -------   -------
    Income from operations...........    49,204     38,968     54,152     40,832     28,276    21,538    12,215
    Equity in net income (loss) of
      joint ventures.................    10,323      8,535     10,893      8,710        486      (186)     (347)
    Minority equity interests........    (1,628)      (787)    (1,049)        --         --        --        --
    Gain (loss) on sales of real
      estate.........................       (36)     3,526      3,526         --        300        --       122
    Non-recurring charges (1)........        --         --         --         --         --        --    (2,641)
                                       --------   --------   --------   --------   --------   -------   -------
    Income before extraordinary
      item...........................    57,863     50,242     67,522     49,542     29,062    21,352     9,349
    Extraordinary items (2)..........      (882)        --         --         --     (3,557)     (216)     (731)
                                       --------   --------   --------   --------   --------   -------   -------
    Net income.......................  $ 56,981   $ 50,242   $ 67,522   $ 49,542   $ 25,505   $21,136   $ 8,618
                                       ========   ========   ========   ========   ========   =======   =======
  Net income applicable to common
    shareholders.....................  $ 43,872   $ 39,592   $ 53,322   $ 35,342   $ 24,250   $21,136   $ 8,618
                                       ========   ========   ========   ========   ========   =======   =======
Per share data: (3)
  Earnings per share data -- Basic
    Income before extraordinary
      items..........................  $    .79   $    .78   $   1.03   $    .84   $    .74   $   .68   $   .41
    Net income.......................  $    .78   $    .78   $   1.03   $    .84   $    .65   $   .67   $   .38
    Weighted average number of common
      shares.........................    56,500     50,844     51,760     42,294     37,560    31,612    22,766
  Earnings per share data -- Diluted
    Income before extraordinary
      item...........................  $    .76   $    .77   $   1.03   $    .84   $    .74   $   .67   $   .41
    Net income.......................  $    .75   $    .77   $   1.03   $    .84   $    .64   $   .67   $   .38
    Weighted average number of common
      shares.........................    57,855     51,872     52,124     42,372     37,818    31,832    22,788
  Cash distributions per common
    share............................  $  .9825   $   .945   $   1.26   $   1.20   $   1.08   $   .96   $   .71
Company GLA (square feet at end of
  period)............................    32,095     24,371     25,190     21,104     19,932    13,773    10,358
Percent of Company GLA leased........      95.9%      96.0%      96.1%      94.8%      95.8%     97.2%     96.5%
Number of shopping centers and
  business center properties
  including those owned through joint
  ventures (at end of period)........       159        121        123        112        113        91        76
</TABLE>
 
- ---------------
 
(1) The non-recurring charges relate to costs incurred in connection with the
    transfer to the Company of its initial portfolio as part of the Company's
    initial public offering (primarily transfer taxes and title insurance
    costs).
 
(2) The extraordinary items relate to debt prepayment fees and write-off of
    deferred finance costs.
 
                                       11
<PAGE>   13
 
(3) Effective August 3, 1998, the Company executed a two-for-one stock split for
    shareholders of record on July 27, 1998. All per share information and
    number of common shares outstanding reflects the stock split. Earnings per
    share data is reflected for all years utilizing SFAS 128.
 
<TABLE>
<CAPTION>
                                 SEPTEMBER 30,                             DECEMBER 31,
                            -----------------------   ------------------------------------------------------
                               1998         1997         1997        1996       1995       1994       1993
                            ----------   ----------   ----------   --------   --------   --------   --------
                                                             (IN THOUSANDS)
<S>                         <C>          <C>          <C>          <C>        <C>        <C>        <C>
Balance Sheet Data:
  Real estate, before
    accumulated
    depreciation..........  $1,857,746   $1,242,178   $1,325,742   $991,647   $848,373   $686,890   $459,049
  Real estate, net........   1,665,984    1,078,625    1,154,005    849,608    728,333    586,839    375,183
  Advances to and
    investments in joint
    ventures..............     231,835      122,996      136,267    106,796     83,190      8,710      9,078
  Total assets............   1,986,705    1,230,753    1,391,918    975,126    830,060    611,116    395,942
  Total debt..............     975,178      523,569      668,521    478,432    405,726    394,435    184,534
  Shareholders' equity....     840,124      652,440      669,050    469,336    404,161    203,058    197,118
  Total Market Equity
    (1)...................   1,117,803    1,083,142    1,208,800    954,728    714,443    502,440    455,366
</TABLE>
 
- ---------------
 
(1) Represents number of common shares and operating partnership units
    outstanding multiplied by the last reported sale price of the common shares
    on the NYSE Composite Tape on the respective dates plus preferred shares at
    liquidation value.
 
                                       12
<PAGE>   14
 
                                USE OF PROCEEDS
 
     Unless we indicate otherwise in an applicable prospectus supplement, we
intend to use the net proceeds from the sale of debt securities, preferred
shares, depositary shares, common shares or common share warrants for general
corporate purposes. Our general corporate purposes may include:
 
          (1) the acquisition or development of properties (including using the
     net proceeds for possible portfolio or asset acquisitions or in business
     combinations or joint ventures) as suitable opportunities arise;
 
          (2) the expansion and improvement of certain properties in our
     portfolio; and
 
          (3) repaying our indebtedness.
 
                         DESCRIPTION OF DEBT SECURITIES
 
     The definitions of certain terms used in this description can be found
under the subheading "Certain Definitions."
 
     Our senior securities will be issued under a senior indenture dated as of
May 1, 1994, as amended or supplemented from time to time, between Developers
Diversified Realty Corporation and National City Bank, as Trustee. Our
subordinated securities are to be issued under a subordinated indenture dated as
of May 1, 1994, as amended or supplemented from time to time between Developers
Diversified Realty Corporation and The Chase Manhattan Bank, as Trustee.
 
     The following description is a summary of the material provisions of the
indentures including references to the applicable section of the indentures. It
does not restate the indentures in their entirety. We urge you to read the
indentures because they, and not this description, define the rights of holders
of debt securities.
 
     The indentures have been incorporated by reference as exhibits to the
Registration Statement of which this prospectus is a part. The indentures are
available for inspection at the corporate trust offices of the applicable
Trustee as follows: (i) National City Bank, 1900 East Ninth Street, Corporate
Trust Division, Cleveland, Ohio 44114, and (ii) The Chase Manhattan Bank, 450
West 33rd Street, Fifteenth Floor, New York, New York 10001-2697. The indentures
are subject to, and are governed by, the Trust Indenture Act of 1939. All
section references appearing herein are to sections of the applicable indenture.
 
GENERAL
 
     Our debt securities will be direct, unsecured obligations. The debt
securities issued under each indenture are not limited as to aggregate principal
amount and may be issued in one or more series. The principal amount and series
will be established from time to time in or pursuant to authority granted by a
resolution of our Board of Directors. The principal amount and series also may
be established in one or more indentures supplemental to the applicable
indenture. All debt securities of one series need not be issued at the same time
(Section 301 of the indentures). Unless otherwise provided, a series may be
reopened for issuances of additional debt securities of such series without the
consent of the holders of the debt securities of such series (Section 301 of the
indentures). Either Trustee may resign or be removed with respect to one or more
series of debt
 
                                       13
<PAGE>   15
 
securities issued under the applicable 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;
 
          (2) the aggregate principal amount of such debt securities and any
     limit on such aggregate principal amount;
 
          (3) the percentage of the principal amount at which such debt
     securities will be issued and, if other than the principal amount thereof,
     the portion of the principal amount thereof payable upon declaration of
     acceleration of the maturity of such debt securities, or (if applicable)
     the portion of the principal amount of such debt securities which is
     convertible into our Common Shares or other equity securities, 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 our Common Shares or other equity
     securities into which such debt securities are convertible in connection
     with the preservation of our status as a REIT;
 
          (5) the date(s), or the method for determining the date(s), on which
     the principal of such debt securities will be payable;
 
          (6) the rate(s) (which may be fixed or variable) at which such debt
     securities will bear interest, if any, or the method by which such rate(s)
     shall be determined;
 
          (7) the date(s), or the method for determining the date(s), from which
     interest, if any, will accrue;
 
          (8) the date(s) on which any interest will be payable;
 
          (9) the record date(s) for an interest payment, or the method by which
     such record date(s) shall be determined (the record date for an interest
     payment is the date on which a Person must be a holder in order to receive
     the interest payment);
 
          (10) the Person to whom any interest shall be payable;
 
          (11) the basis upon which any interest shall be calculated if other
     than that of a 360-day year of twelve 30-day months;
 
          (12) the place(s) where:
 
             (a) the principal of (and premium, if any) or interest, if any, on
        such debt securities will be payable,
 
             (b) such debt securities may be surrendered for conversion or
        registration of transfer or exchange, and
 
             (c) notices or demands in respect of such debt securities and the
        applicable indenture may be served;
 
          (13) the period(s) within which, the price(s) at which, and the terms
     and conditions upon which, such debt securities may be redeemed at our
     option, as a whole or in part, if we are to have the option to redeem such
     debt securities;
 
                                       14
<PAGE>   16
 
          (14) our obligation, if any, 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(s) within which, the price(s) at
     which, and the terms and conditions upon which we are obligated, if at all,
     to redeem, repay or purchase such debt securities, as a whole or in part,
     pursuant to any sinking fund or analogous provision or at the option of a
     holder thereof;
 
          (15) 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;
 
          (16) 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 and the manner in which such
     amounts shall be determined (the index, formula or method may, but need not
     be, based on a currency, currencies, currency unit or units or composite
     currency or currencies);
 
          (17) 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;
 
          (18) whether such debt securities will be issued in certificated or
     book-entry form;
 
          (19) 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 and terms and
     conditions relating thereto;
 
          (20) the applicability, if any, of the defeasance and covenant
     defeasance provisions of Article XIV of the applicable indenture;
 
          (21) the terms, if any, upon which such debt securities may be
     convertible into our common shares or other equity securities (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;
 
          (22) whether and under what circumstances we will pay Additional
     Amounts on such debt securities in respect of any tax, assessment or
     governmental charge and, if so, whether we will have the option to redeem
     such debt securities in lieu of making such payment; and
 
          (23) any other terms of such debt securities not inconsistent with the
     provisions of the applicable indenture.
 
     The debt securities may provide for the payment of less than the entire
principal amount upon declaration of acceleration of the maturity of the debt
securities. Such debt securities are known as "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 set forth under the caption "Material Covenants -- Limitation on
Incurrence of Debt" and "-- Maintenance of Unencumbered Real Estate Assets,"
which
 
                                       15
<PAGE>   17
 
relates solely to the senior indenture and the senior securities, neither
indenture contains any additional provision that would limit our ability to
incur indebtedness or that would afford holders of debt securities protection in
a highly leveraged or similar action involving Developers Diversified Realty
Corporation or in the event of a change of control of us. However, certain
restrictions on ownership and transfer of our common shares and other equity
securities designed to preserve our status as a REIT may act to prevent or
hinder a change of control. See "Description of Common Shares," "Description of
Preferred Shares" and "Description of Depositary Shares." Reference is made to
the applicable prospectus supplement for information with respect to any
deletion from, modification of or addition to the Events of Default or our
covenants that are described below, including any addition of a covenant or
other provision providing event risk or similar protection.
 
DENOMINATIONS, INTEREST, REGISTRATION AND TRANSFER
 
     Unless otherwise described in the applicable prospectus supplement, the
debt securities of any series will be issued in denominations of $1,000 and
integral multiples thereof (Section 302 of the indentures).
 
     Unless otherwise specified in the applicable prospectus supplement,
principal, premium, if any, and interest payments on any series of debt
securities will be made at the corporate trust office of the applicable Trustee
as follows: (i) National City Bank, 120 Broadway, 33rd Floor, New York, New York
10271, and (ii) The Chase Manhattan Bank, 450 West 33rd Street, Fifteenth Floor,
New York, New York 10001-2697. However, we may elect to pay interest by check
mailed to the address of the holder as it appears in the register for debt
securities of such series or by wire transfer of funds to the holder at an
account maintained within the United States (Sections 301, 305, 306, 307 and
1002 of the indentures).
 
     Any interest with respect to a debt security that is not punctually paid or
duly provided for on the date the interest is due and payable will cease to be
payable thereafter to the holder on the applicable record date. The interest may
be paid to the holder at the close of business on a special record date fixed by
the applicable Trustee for the payment of the interest. Notice of such payment
must be given to the holder of such debt security not less than 10 days prior to
the special record date. Such interest may also be paid at any time in any other
lawful manner, all as more completely described in the applicable indenture
(Section 307 of the indentures).
 
     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 corporate trust office of the applicable Trustee. 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 or registration of transfer thereof at the corporate trust office of
the applicable Trustee. Every debt security surrendered for conversion,
registration of transfer or exchange must be duly endorsed or accompanied by a
written instrument of transfer. No service charge will be incurred for any
registration of transfer or exchange of any debt securities, but we may require
payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith (Section 305 of the indentures). If the
applicable prospectus supplement refers to any transfer agent (in addition to
the Trustee) that we initially designated with respect to any series of debt
securities, we may at any time
 
                                       16
<PAGE>   18
 
rescind the designation of any such transfer agent or approve a change in the
location at which any such transfer agent acts; however, we will be required to
maintain a transfer agent in each place where principal, premium, if any, and
interest payments on debt securities of such series are payable. We may
designate additional transfer agents with respect to any series of debt
securities at any time (Section 1002 of the indentures).
 
     Neither Developers Diversified Realty Corporation nor any Trustee will be
required:
 
     - to issue, register the transfer of or exchange debt securities of any
       series during a period beginning at the opening of business 15 days
       before any selection of debt securities of that series to be redeemed and
       ending at the close of business on the day of mailing of the relevant
       notice of redemption;
 
     - to register the transfer of or exchange any debt security, or portion
       thereof, called for redemption, except the unredeemed portion of any debt
       security being redeemed in part; or
 
     - to issue, register the transfer of or exchange any debt security that has
       been surrendered for repayment at the option of the holder, except the
       portion, if any, of such debt security not to be repaid (Section 305 of
       the indentures).
 
MERGER, CONSOLIDATION OR SALE
 
     Each indenture provides that we may consolidate with, or sell, lease or
convey all or substantially all of our assets to, or merge with or into, any
other corporation, provided that:
 
          (1) we are the continuing corporation, or the successor corporation
     expressly assumes payment of the principal of (and premium, if any), and
     interest on, all of the outstanding debt securities and the due and
     punctual performance and observance of all of the covenants and conditions
     contained in the applicable indenture;
 
          (2) immediately after giving effect to such transaction and treating
     any indebtedness which becomes our or our subsidiaries' obligation as a
     result thereof as having been incurred by us or our subsidiaries 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 become such an Event of Default, occurs and is continuing; and
 
          (3) an officer's certificate and legal opinion confirming the
     satisfaction of the conditions are delivered to the applicable Trustee
     (Sections 801 and 803 of the indentures).
 
MATERIAL COVENANTS
 
     The subordinated indenture does not contain the covenants described in this
section. It also does not contain any limitation on the amount of Debt (as
defined below) of any kind that we may incur or on the amount of dividends or
other distributions that we may pay our shareholders. The senior indenture
contains the following covenants:
 
     Limitation on Incurrence of Debt. We will not, and will not permit any
subsidiary to, incur any Debt if, immediately after the incurrence of such
additional Debt, the aggregate principal amount of all our outstanding Debt on a
consolidated basis determined in
 
                                       17
<PAGE>   19
 
accordance with generally accepted accounting principles is greater than 65% of
the sum of:
 
          (1) our Undepreciated Real Estate Assets (as defined below) as of the
     end of the calendar quarter covered in our Annual Report on Form 10-K or
     Quarterly Report on Form 10-Q most recently filed with the Commission (or,
     if such filing is not permitted under the Exchange Act, with the applicable
     Trustee) prior to the incurrence of such additional Debt, and
 
          (2) the purchase price of all real estate assets acquired by us or our
     subsidiaries since the end of such calendar quarter, including those
     obtained in connection with the incurrence of such additional Debt (Section
     1004 of the senior indenture).
 
     In addition to the foregoing limitation on the incurrence of Debt, we will
not, and will not permit any subsidiary to, incur any Debt if Consolidated
Income Available for Debt Service (as defined below) for any 12 consecutive
calendar months within the 15 calendar months immediately preceding the date on
which such additional Debt is to be incurred shall have been less than 1.5 times
the Maximum Annual Service Charge (as defined below) on our consolidated Debt to
be outstanding immediately after the incurrence of such additional Debt (Section
1004 of the senior indenture).
 
     Restrictions on Dividends and Other Distributions. We will not:
 
     - declare or pay any dividends (other than dividends payable in our capital
       stock) on any shares of our capital stock;
 
     - apply any of our property or assets to the purchase, redemption or other
       acquisition or retirement of any shares of our capital stock;
 
     - set apart any sum for the purchase, redemption or other acquisition or
       retirement of any shares of our capital stock; or
 
     - make any other distribution on any shares of our capital stock, by
       reduction of capital or otherwise
 
if, immediately after such declaration or other such action, the aggregate of
all such declarations and other actions since the date on which the indenture
was originally executed exceeds the sum of (a) Funds from Operations (as defined
below) from December 31, 1993 until the end of the latest calendar quarter
covered in our Annual Report on Form 10-K or Quarterly Report on Form 10-Q most
recently filed with the Commission (or, if such filing is not permitted under
the Exchange Act, with the applicable Trustee) prior to such declaration or
other action and (b) $20,000,000.
 
     This limitation does not apply to any declaration or other action referred
to above which is necessary to maintain our status as a REIT under the Internal
Revenue Code of 1986 if the aggregate principal amount of all our and our
subsidiaries' outstanding Debt at such time is less than 65% of our
Undepreciated Real Estate Assets as of the end of the latest calendar quarter
covered in our Annual Report on Form 10-K or Quarterly Report on Form 10-Q most
recently filed with the Commission (or, if such filing is not permitted under
the Exchange Act, with the applicable Trustee) prior to such declaration or
other action (Section 1005 of the senior indenture).
 
     Notwithstanding the provisions described above, we will not be prohibited
from making the payment of any dividend within 30 days after the declaration
thereof if at the
 
                                       18
<PAGE>   20
 
date of declaration such payment would have complied with those provisions
(Section 1005 of the senior indenture).
 
     Existence. Except as permitted under the provisions of the senior indenture
described in "Merger, Consolidation or Sale," we must preserve and keep in full
force and effect our corporate existence, rights (charter and statutory) and
franchises. We will not be required to preserve any right or franchise if we
determine that the preservation of that right or franchise is no longer
desirable in the conduct of our business and that the loss thereof is not
disadvantageous in any material respect to the holders of the senior securities
(Section 1006 of the senior indenture).
 
     Maintenance of Properties. All of our properties that are used or useful in
the conduct of our business or the business of our subsidiaries must be
maintained and kept in good condition, repair and working order and supplied
with all necessary equipment. We also are required to make all necessary
repairs, renewals, replacements, betterments and improvements to our properties.
We must do these things as necessary in our judgment to conduct the business
carried on in connection therewith in a proper and advantageous manner at all
times. However, we and our subsidiaries will not be prevented from selling or
otherwise disposing of properties for value in the ordinary course of business
(Section 1007 of the senior indenture).
 
     Insurance. We will, and will cause each of our subsidiaries to, keep all of
our or their respective insurable properties insured against loss or damage at
least equal to the properties' then full insurable value with insurers of
recognized responsibility having a rating of at least A:VIII in Best's Key
Rating Guide (Section 1008 of the senior indenture).
 
     Payment of Taxes and Other Claims. We must pay or discharge or cause to be
paid or discharged, before the same becomes delinquent:
 
          (1) all taxes, assessments and governmental charges levied or imposed
     upon us or any of our subsidiaries or upon our or any of our subsidiaries'
     income, profits or property; and
 
          (2) all lawful claims for labor, materials and supplies that, if
     unpaid, might by law become a lien upon our property or the property of any
     of our subsidiaries. However, we will not be required to pay or discharge
     or cause to be paid or discharged any such tax, assessment, charge or claim
     whose amount, applicability or validity is being contested in good faith by
     appropriate proceedings (Section 1009 of the senior indenture).
 
     Provision of Financial Information. Whether or not we are subject to
Section 13 or 15(d) of the Exchange Act, we must, to the extent permitted under
the Exchange Act, file with the Commission the annual reports, quarterly reports
and other documents which we would have been required to file with the
Commission pursuant to such Section 13 or 15(d) if we were so subject, on or
prior to the respective dates by which we would have been required to file such
documents. We must also in any event:
 
          (1) within 15 days after such document would have been required to be
     filed:
 
             (a) mail to all holders of senior securities, as their names and
        addresses appear in the register for debt securities of each series,
        without cost to such holders, copies of such annual reports and
        quarterly reports which we would have
 
                                       19
<PAGE>   21
 
        been required to file with the Commission pursuant to Section 13 or
        15(d) of the Exchange Act if we were subject to those sections, and
 
             (b) file with the applicable Trustee copies of such annual reports,
        quarterly reports and other documents which we would have been required
        to file with the Commission pursuant to Section 13 or 15(d) of the
        Exchange Act if we were subject to those Sections, and
 
          (2) if we are not permitted to file such documents with the Commission
     under the Exchange Act, we must supply copies of such documents to any
     prospective holder of senior securities promptly upon written request and
     payment of the reasonable cost of duplication and delivery of such
     documents (Section 1010 of the senior indenture).
 
     Maintenance of Unencumbered Real Estate Assets. We must maintain an
Unencumbered Real Estate Asset Value of not less than 135% of the aggregate
principal amount of all our and our subsidiaries' outstanding unsecured Debt
(Section 1011 of the senior indenture).
 
EVENTS OF DEFAULT, NOTICE AND WAIVER
 
     Each indenture provides that the following events are "Events of Default"
with respect to any series of debt securities issued thereunder:
 
          (1) default for 30 days in the payment of any installment of interest,
     Additional Amounts or coupons on any debt security of such series;
 
          (2) default in the payment of the principal of (or premium, if any,
     on) any debt security of such series at the time such payment becomes due
     and payable;
 
          (3) default in making any sinking fund payment as required for any
     debt security of such series;
 
          (4) default in the performance, or breach, of any other covenant or
     warranty contained in the applicable indenture continued for 60 days after
     written notice as provided in such indenture; however, default in the
     performance, or breach, of a covenant or warranty added to such indenture
     solely for the benefit of a series of debt securities issued thereunder
     other than such series is not an Event of Default;
 
          (5) default under any bond, debenture, note or other evidence of
     indebtedness or any mortgage, indenture or other instrument under which
     such indebtedness is issued or by which such indebtedness is secured which
     results in the acceleration of indebtedness in an aggregate principal
     amount exceeding $10,000,000, but only if such indebtedness is not
     discharged or such acceleration is not rescinded or annulled as provided in
     the applicable indenture;
 
          (6) certain events of bankruptcy, insolvency or reorganization, or
     court appointment of a receiver, liquidator or trustee, of Developers
     Diversified Realty Corporation or of any significant subsidiary as defined
     in Regulation S-X promulgated under the Securities Act or of the respective
     property of either; and
 
          (7) any other Event of Default provided with respect to that series of
     debt securities (Section 501 of the indentures).
 
                                       20
<PAGE>   22
 
     If an Event of Default occurs under either indenture with respect to
Outstanding debt securities of any series issued thereunder and is continuing,
then the 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 of
all of the debt securities of that series to be due and payable immediately by
written notice to us. If the holders give notice to us, they must also give
notice to the applicable Trustee. If the debt securities are Original Issue
Discount Securities or Indexed Securities, the amount declared to be due and
payable will be such portion of the principal amount as specified in the terms
thereof. However, at any time after a declaration of acceleration with respect
to debt securities of such series (or of all debt securities then Outstanding
under such indenture, as the case may be) has been made, the holders of a
majority in principal amount of the debt securities of such series or of each
series of debt securities then Outstanding under such indenture, as the case may
be, may rescind and annul such declaration and its consequences if:
 
          (1) we have deposited with the applicable Trustee all required
     payments of the principal of (and premium, if any) and interest and
     Additional Amounts payable on the debt securities of such series or of all
     debt securities then Outstanding under such indenture, as the case may be,
     plus certain fees, expenses, disbursements and advances of such Trustee,
     and
 
          (2) all Events of Default have been cured or waived as provided in
     such indenture (except for the nonpayment of accelerated principal (or
     specified portion thereof) with respect to debt securities of such series
     or of all debt securities then Outstanding under such indenture) (Section
     502 of the indentures).
 
     The indentures also provide that the holders of a majority in principal
amount of the debt securities of any series or of each series of debt securities
then Outstanding under the applicable indenture, as the case may be, may waive
any past default with respect to such series and its consequences.
 
     However, holders may not waive a default:
 
     - in the payment of the principal of (or premium, if any) or interest on
       any debt security of such series; or
 
     - in respect of a covenant or provision contained in such indenture that
       cannot be modified or amended without the consent of the holder of each
       Outstanding debt security affected thereby (Section 513 of the
       indentures).
 
     Each indenture provides that the applicable Trustee is required to give
notice to the holders of debt securities issued thereunder within 90 days of a
default under such indenture. However, the Trustee may withhold notice of any
default to the holders of any such series of debt securities if certain officers
of such Trustee consider such withholding to be in the interest of the holders.
The Trustee may not withhold notice with respect to a default in the payment of
the principal of (or premium, if any) or interest on any debt security or in the
payment of any sinking installment in respect of any debt security (Section 601
of the indentures).
 
     Each indenture provides 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. However, a holder of
debt securities may institute a proceeding if the applicable Trustee fails to
act for 60 days after it has received a written request to institute proceedings
in respect of an Event of Default from the holders of not
 
                                       21
<PAGE>   23
 
less than 25% in principal amount of the Outstanding debt securities of such
series, as well as an offer of reasonable indemnity (Section 507 of the
indentures). However, this provision will not prevent any holder of debt
securities from instituting suit for the enforcement of payment of the principal
of (and premium, if any) and interest on the debt securities held by that holder
at the respective due dates thereof (Section 508 of the indentures).
 
     Subject to provisions in the applicable indenture relating to its duties in
case of default and unless holders of any series of debt securities then
Outstanding under such indenture have offered reasonable security or indemnity
to the Trustee, the Trustee is under no obligation to exercise any of its rights
or powers under such indenture at the request or direction of the holders
(Section 602 of the indentures). The holders of a majority in principal amount
of the Outstanding debt securities of any series (or of each series of debt
securities then Outstanding under such indenture, as the case may be) shall have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to such Trustee. They also have the right to direct the
time, method and place of exercising any trust or power conferred upon such
Trustee. However, such Trustee may refuse to follow any direction which is in
conflict with such indenture or any law which may involve the Trustee in
personal liability or which may be unduly prejudicial to the holders of debt
securities of such series not joining therein (Section 512 of the indentures).
 
     Within 120 days after the close of each fiscal year, we must deliver to
each Trustee a certificate signed by one of several specified officers. The
certificate must state whether such officer has knowledge of any default under
the applicable indenture and, if so, specify each such default and the nature
and status thereof (Section 1012 of the senior indenture and Section 1004 of the
subordinated indenture).
 
MODIFICATION OF THE INDENTURES
 
     Modifications and amendments to either indenture may be made only with the
consent of the holders of a majority in principal amount of all Outstanding debt
securities issued thereunder which are affected by such modification or
amendment. However, unless the consent of the holder of each affected debt
security is obtained, no modification or amendment may:
 
     - change the date specified in any such debt security as the fixed date on
       which the principal thereof is due and payable;
 
     - change the date specified in any such debt security as the fixed date on
       which any installment of interest (or premium, if any) is due and
       payable;
 
     - reduce the principal amount of any such debt security;
 
     - reduce the rate or amount of interest on any such debt security;
 
     - reduce the premium payable on redemption of any such debt security;
 
     - reduce any Additional Amount payable in respect of any such debt
       security;
 
     - reduce the amount of principal of an Original Issue Discount Security
       that would be due and payable upon declaration of acceleration of the
       maturity thereof or would be provable in bankruptcy, or adversely affect
       any right of repayment of the holder of any such debt security;
 
                                       22
<PAGE>   24
 
     - change the place of payment of principal of (or premium, if any) or
       interest on any such debt security;
 
     - change the currency or currencies for payment of principal of (or
       premium, if any) or interest on such debt security;
 
     - change our obligation to pay Additional Amounts;
 
     - impair the right to institute suit for the enforcement of any payment on
       or with respect to any such debt security;
 
     - reduce the percentage of Outstanding debt securities of any series
       necessary to modify or amend the applicable indenture, to waive
       compliance with certain provisions thereof or certain defaults and
       consequences thereunder, or to reduce the quorum or voting requirements
       set forth in such indenture; or
 
     - 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 (Section 902 of the
       indentures).
 
     The senior indenture provides that the holders of a majority in principal
amount of Outstanding debt securities issued thereunder have the right to waive
our compliance with certain covenants in the senior indenture, including those
described in the section of this prospectus captioned "Material Covenants"
(Section 1014 of the senior indenture).
 
     Developers Diversified Realty Corporation and the applicable Trustee may
modify and amend either indenture without the consent of any holder of debt
securities issued thereunder for any of the following purposes:
 
     - to evidence the succession of another Person to our obligations under
       such indenture;
 
     - to add to our covenants 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 us in such indenture;
 
     - to add Events of Default for the benefit of the holders of all or any
       series of debt securities issued thereunder;
 
     - to add or change any provisions of such indenture to facilitate the
       issuance of, or to liberalize certain terms 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;
 
     - to change or eliminate any provision of such indenture, provided that any
       such change or elimination shall become effective only when there are no
       debt securities Outstanding of any series issued thereunder which are
       entitled to the benefit of such provision;
 
     - to secure the debt securities issued thereunder;
 
                                       23
<PAGE>   25
 
     - 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 our common shares or
       preferred shares;
 
     - to provide for the acceptance of appointment by a successor Trustee;
 
     - to facilitate the administration of the trusts under such indenture by
       more than one Trustee;
 
     - to cure any ambiguity, defect or inconsistency in such indenture,
       provided that such action shall not adversely affect in any material
       respect the interests of holders of debt securities of any series issued
       thereunder; or
 
     - to supplement any of the provisions of such indenture to the extent
       necessary to permit or facilitate defeasance and discharge of any series
       of debt securities issued thereunder; however, such action shall not
       adversely affect in any material respect the interests of the holders of
       the debt securities of any series issued thereunder (Section 901 of the
       indentures).
 
     Each indenture provides 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:
 
     - the principal amount of an Outstanding Original Issue Discount Security
       shall be the amount of the principal that would be due and payable as of
       the date of such determination upon declaration of acceleration of the
       maturity of the security;
 
     - the principal amount of an Outstanding debt security denominated in a
       foreign currency 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 in the amount determined as
       provided above);
 
     - the principal amount of an Outstanding Indexed Security shall be the
       principal face amount of such Indexed Security at original issuance,
       unless otherwise provided with respect to such Indexed Security pursuant
       to Section 301 of such indenture; and
 
     - debt securities owned by us, any other obligor upon the debt securities,
       any of our Affiliates or of such other obligor shall be disregarded
       (Section 101).
 
     Each indenture contains provisions for convening meetings of the holders of
an issued series of debt securities (Section 1501 of the indentures). The
applicable Trustee may call a meeting at any time. Developers Diversified Realty
Corporation or the holders of at least 10% in principal amount of the
Outstanding debt securities of such series may also call a meeting upon request.
Notice of a meeting must be given as provided in the applicable indenture
(Section 1502 of the indentures). 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. However, 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
 
                                       24
<PAGE>   26
 
taken by the holders of a specified percentage which is less than a majority in
principal amount of the Outstanding debt securities of a series may be adopted
at a meeting or adjourned meeting 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 duly held meeting of holders of debt securities of any
series 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 the persons holding or representing a majority in principal
amount of the Outstanding debt securities of a series. However, if any action is
to be taken at such meeting with respect to a consent or waiver which may be
given by the holders of not less than a specified percentage in principal amount
of the Outstanding debt securities of a series, the persons holding or
representing such specified percentage in principal amount of the Outstanding
debt securities of such series will constitute a quorum (Section 1504 of the
indentures).
 
     Notwithstanding the provisions described above, 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 of the holders of such series
and one or more additional series:
 
          (1) there shall be no minimum quorum requirement for such meeting and
 
          (2) the principal amount of the Outstanding debt securities of such
     series that vote in favor of such request, demand, authorization,
     direction, notice, consent, waiver or other action shall be taken into
     account in determining whether such request, demand, authorization,
     direction, notice, consent, waiver or other action has been made, given or
     taken under such indenture (Section 1504 of the indentures).
 
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
 
     We may discharge certain obligations to holders of any series of debt
securities that have not already been delivered to the applicable Trustee for
cancellation and that either have become due and payable or will become due and
payable within one year (or scheduled for redemption within one year) by
irrevocably depositing with such Trustee, in trust, funds in an amount
sufficient to pay the entire indebtedness on such debt securities in respect of
principal, premium, if any, and interest to the date of such deposit if such
debt securities have become due and payable or to the date specified in such
debt securities as the fixed date on which the payment of principal and interest
on such debt securities is due and payable or the date fixed for redemption of
such debt securities, as the case may be (Section 401 of the indentures). Funds
shall be deposited in such currency or currencies, currency unit(s) or composite
currency or currencies in which such debt securities are payable.
 
     Each indenture provides that, if the provisions of Article Fourteen thereof
(relating to defeasance and covenant defeasance) are made applicable to the debt
securities of or within any series issued thereunder, we may elect either:
 
          (1) to defease and be discharged from any and all obligations with
     respect to such debt securities. However, we will not be discharged from
     the obligation to pay Additional Amounts, if any, upon the occurrence of
     certain events of tax, assessment
 
                                       25
<PAGE>   27
 
     or governmental charge with respect to payments on such debt securities. In
     addition, we will not be discharged from 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") (Section 1402 of the indentures); or
 
          (2) to be released from our obligations relating to (a) Sections 1004
     to 1011, inclusive, of the senior indenture (being the restrictions
     described under the caption "Material Covenants") and, if provided under
     the senior indenture, our obligations with respect to any other covenant
     contained in the senior indenture, and (b) if provided under the
     subordinated indenture, our obligations with respect to any covenant
     contained in the subordinated indenture, 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") (Section 1403 of
     the indentures).
 
     Defeasance or covenant defeasance will occur upon our irrevocable deposit
with the applicable Trustee, in trust, of an amount sufficient to pay the
principal of (and premium, if any) and interest on such debt securities, and any
mandatory sinking fund or analogous payments, on their scheduled due dates. The
amount deposited will be in Government Obligations (as defined below) or such
currency or currencies, currency unit(s) or composite currency or currencies in
which such debt securities are payable at maturity, or both.
 
     Such a trust may be established only if, among other things, we have
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. In the case of defeasance, the opinion of counsel 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
(Section 1404 of the indentures).
 
     "Government Obligations" means securities that are
 
          (1) 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, and for which the full faith and credit
     of the applicable government is pledged, or
 
          (2) 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 these obligations must be
     unconditionally guaranteed as a full faith and credit obligation by the
     United States of America or such other government, and the obligations may
     not be callable or redeemable at the option of the issuer thereof. Such
     obligations 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
 
                                       26
<PAGE>   28
 
     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 (Section 101 of the indentures).
 
     Unless otherwise provided in the applicable prospectus Supplement, if after
we have deposited funds and/or Government Obligations to effect defeasance or
covenant defeasance with respect to debt securities of any series:
 
          (1) the holder of a debt security of such series is entitled to, and
     does, elect under the applicable indenture or the terms of such debt
     security to receive payment in a currency, currency unit or composite
     currency other than that in which such deposit has been made in respect of
     such debt security, or
 
          (2) 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 on such debt security as they become due
out of the proceeds yielded by converting the amount deposited in respect of
such debt security into the currency, currency unit or composite currency in
which such debt security becomes payable as a result of such election or such
cessation of usage based on the applicable market exchange rate (Section 1405 of
the indentures). "Conversion Event" means the cessation of use of:
 
          (1) a currency, currency unit or composite currency both by the
     government of the country which issued such currency and for the settlement
     of actions by a central bank or other public institution of or within the
     international banking community,
 
          (2) the ECU both within the European Monetary System and for the
     settlement of transactions by public institutions of or within the European
     Communities, or
 
          (3) any currency unit or composite currency other than the ECU for the
     purposes for which it was established (Section 101 of the indentures).
 
     Unless otherwise described in the applicable prospectus Supplement, all
payments of principal of (and premium, if any) and interest on any debt security
that is payable in a foreign currency that ceases to be used by its government
of issuance shall be made in U.S. dollars.
 
     In the event we effect covenant defeasance with respect to any debt
securities and such debt securities are declared due and payable because of the
occurrence of any Event of Default, other than:
 
          (1) with respect to senior securities, the Event of Default described
     in clause (4) under "Events of Default, Notice and Waiver" or
 
          (2) with respect to all debt securities, the Event of Default
     described in clause (7) under "Events of Default, Notice and Waiver" with
     respect to any other covenant as to which there has been covenant
     defeasance,
 
the amount in such currency, currency unit or composite currency in which such
debt securities are payable, and Government Obligations on deposit with the
applicable Trustee, will be sufficient to pay amounts due on such debt
securities at the fixed date on which they become due and payable but may not be
sufficient to pay amounts due on such debt
 
                                       27
<PAGE>   29
 
securities at the time of the acceleration resulting from such Event of Default.
In any such event, we 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.
 
SENIOR SECURITIES AND SENIOR INDEBTEDNESS
 
     Each series of senior securities will constitute Senior Indebtedness (as
described below) and will rank equally with each other series of senior
securities and other Senior Indebtedness. All subordinated indebtedness will be
subordinated to the senior securities and other Senior Indebtedness.
Subordinated indebtedness includes, but is not limited to, all subordinated
securities issued under the subordinated indenture.
 
     Senior Indebtedness is defined in the subordinated indenture to mean:
 
          (1) the principal of (and premium, if any) and unpaid interest on
     indebtedness for money borrowed,
 
          (2) purchase money and similar obligations,
 
          (3) obligations under capital leases,
 
          (4) guarantees, assumptions or purchase commitments relating to
     indebtedness of others, or other transactions as a result of which we are
     responsible for the payment of indebtedness of others,
 
          (5) renewals, extensions and refunding of any such indebtedness,
 
          (6) interest or obligations in respect of any indebtedness accruing
     after the commencement of any insolvency or bankruptcy proceedings, and
 
          (7) obligations associated with derivative products such as interest
     rate and currency exchange contracts, foreign exchange contracts, commodity
     contracts, and similar arrangements.
 
     The indebtedness or obligations described above are not Senior Indebtedness
to the extent the instrument by which we incurred, assumed or guaranteed the
indebtedness or obligations provides that such indebtedness or obligation is
subordinate or junior in right of payment to any of our other indebtedness or
obligations.
 
SUBORDINATION OF SUBORDINATED SECURITIES
 
     Subordinated Indenture. The principal of (and premium, if any) and interest
payments on the subordinated securities will be subordinated as set forth in the
subordinated indenture to our Senior Indebtedness whether outstanding on the
date of the subordinated indenture or thereafter incurred (Section 1701 of the
subordinated indenture).
 
     Ranking. No class of subordinated securities is subordinated to any other
class of subordinated debt securities. See "Subordination Provisions" below.
 
                                       28
<PAGE>   30
 
     Subordination Provisions. In the event:
 
          (1) of any distribution of our assets upon any dissolution,
     winding-up, liquidation or reorganization, whether in bankruptcy,
     insolvency, reorganization or receivership proceeding or upon an assignment
     for the benefit of creditors or any other marshaling of our assets and
     liabilities or otherwise, except a distribution in connection with a merger
     or consolidation or a conveyance or transfer of all or substantially all of
     our properties which complies with the requirements of Article Eight of the
     subordinated indenture,
 
          (2) 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
 
          (3) that the principal of the subordinated 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 subordinated indenture) shall have been declared
     due and payable pursuant to Section 502 of the subordinated indenture, and
     such declaration has not been rescinded and annulled, then:
 
             (a) in a circumstance described in clause (1) or (2) above, the
        holders of all Senior Indebtedness, and in the circumstance described in
        clause (3) above, the holders of all Senior Indebtedness outstanding at
        the time the principal of such issued subordinated securities (or in the
        case of Original Issue Discount Securities, such portion of the
        principal amount) has been declared due and payable, shall first be
        entitled to receive payment of the full amount due thereon in respect of
        principal, premium (if any) and interest, or provision shall be made for
        such payment in money or money's worth, before the holders of any of the
        subordinated securities are entitled to receive any payment on account
        of the principal of (or premium, if any) or interest on the subordinated
        securities;
 
             (b) any payment by us, or distribution of our assets, of any kind
        or character, whether in cash, property or securities (other than
        certain subordinated securities issued in a reorganization or
        readjustment), to which the holder of any of the subordinated securities
        would be entitled except for the 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 (a) above), or on their behalf, to
        the extent necessary to make payment in full of all Senior Indebtedness
        (as provided in clause (a) above) before any payment or distribution is
        made to or in respect of the holders of the subordinated securities.
        Such payment or distribution will be made ratably according to the
        aggregate amount remaining unpaid on account of such Senior
        Indebtedness. The amount of Senior Indebtedness remaining unpaid shall
        be calculated after giving effect to any concurrent payment or
        distribution (or provisions therefor) to the holders of Senior
        Indebtedness; and
 
             (c) in the event that, notwithstanding the foregoing, any payment
        by us, or distribution of our assets, of any kind or character is
        received by the holders of any of the subordinated 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
 
                                       29
<PAGE>   31
 
        stated above, for application to the payment of all such Senior
        Indebtedness remaining unpaid until all such Senior Indebtedness shall
        have been paid in full. The amount of Senior Indebtedness remaining
        unpaid shall be calculated after giving effect to any concurrent payment
        or distribution (or provisions therefor) to the holders of such Senior
        Indebtedness.
 
     Because of subordination in favor of the holders of Senior Indebtedness in
the event of insolvency, certain of our general creditors, including holders of
Senior Indebtedness, may recover more, ratably, than the holders of the
subordinated securities.
 
CONVERTIBLE DEBT SECURITIES
 
     The following provisions will apply to debt securities that will be
convertible into our common shares or other equity securities ("Convertible debt
securities") unless otherwise described in the prospectus supplement for such
Convertible debt securities.
 
     Our Board of Directors will determine the terms and conditions of any
Convertible debt securities, if any, issued pursuant to the senior indenture
("Senior Convertible debt securities"). Such terms and conditions may include
whether the Senior Convertible debt securities are convertible into our common
or preferred shares (including, without limitation, the initial conversion price
or rate, the conversion period, any adjustment of the applicable conversion
price and any requirements relative to the reservation of such shares for
purposes of conversion). (Section 301 of the senior indenture).
 
     The holder of any Convertible debt securities issued pursuant to the
subordinated indenture ("Subordinated Convertible debt securities") will have
the right to convert those Subordinated Convertible debt securities into our
common shares or other equity securities at the conversion price or rate for
each $1,000 principal amount of Subordinated Convertible debt securities set
forth in the applicable prospectus supplement. This conversion right is
exercisable at any time during the time period specified in the applicable
prospectus supplement unless the Subordinated Convertible debt security has been
previously redeemed. The holder of any Subordinated Convertible debt security
may convert a portion thereof, which is $1,000 or any integral multiple of
$1,000 (Section 1602 of the subordinated indenture). In the case of Subordinated
Convertible debt securities called for redemption, conversion rights will expire
at the close of business on the date fixed for the redemption specified in the
prospectus supplement. However, in the case of repayment at the option of the
applicable holder, conversion rights will terminate upon our receipt of written
notice of the exercise of such option (Section 1602 of the subordinated
indenture).
 
     In certain events, the conversion price or rate will be subject to
adjustment as contemplated in the subordinated indenture. For debt securities
convertible into common shares, such events include:
 
     - the issuance of our common shares as a dividend;
 
     - subdivisions and combinations of common shares;
 
     - the issuance to all holders of rights or warrants entitling such holders
       of common shares to subscribe for a purchase of common shares at a price
       per share less than the current market price per common share; and
 
                                       30
<PAGE>   32
 
     - the distribution to all holders of common shares of shares of our capital
       stock (other than common shares), evidences of our indebtedness or assets
       (excluding cash dividends or distributions paid from our retained
       earnings or subscription rights or warrants other than those referred to
       above).
 
     The conversion price or rate is not required to be adjusted if the
adjustment would require a cumulative increase or decrease in price or rate of
less than 1% (Section 1605 of the subordinated indenture). Fractional common
shares will not be issued upon conversion; instead, we will pay cash adjustments
(Section 1606 of the subordinated indenture). Unless otherwise specified in the
applicable prospectus supplement, Subordinated Convertible debt securities
convertible into common shares surrendered for conversion between any record
date for an interest payment and the related interest payment date (except such
Subordinated Convertible debt securities called for redemption on a redemption
date during such period) must be accompanied by the interest payment that the
holder thereof is entitled to receive (Section 1604 of the subordinated
indenture).
 
     To protect our status as a REIT, a Person may not own or convert any
Subordinated Convertible debt security if as a result of such ownership or upon
such conversion such Person would then be deemed to Beneficially Own more than
5.0% of our outstanding capital stock (Section 1601 of the subordinated
indenture). For purposes of determining the percentage ownership of our common
shares or other equity securities held by an investor, common shares or other
equity securities that may be acquired upon the conversion of Convertible debt
securities directly or constructively held by such investor, but not common
shares or other equity securities issuable with respect to the conversion of
Convertible debt securities held by others, are deemed to be outstanding (a) at
the time of purchase of the Convertible debt securities, and (b) prior to the
conversion of the Convertible debt securities. See "Federal Income Tax
Considerations."
 
     The adjustment provisions for debt securities convertible into our equity
securities other than common shares will be determined at the time of issuance
of such debt securities and will be set forth in the applicable prospectus
supplement.
 
     Except as set forth in the applicable prospectus supplement, any
Convertible debt securities called for redemption, unless surrendered for
conversion on or before the close of business on the redemption date, are
subject to being purchased from the holder of such Convertible debt securities
by one or more investment bankers or other purchasers who may agree with us to
purchase such Convertible debt securities and convert them into our common
shares or other equity securities, as the case may be (Section 1108 of the
indentures).
 
     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 to be acquired upon the conversion of
Convertible debt securities, including a description of certain restrictions on
the ownership of the common shares and the preferred shares.
 
THE TRUSTEES
 
     National City Bank serves as Trustee for our senior securities pursuant to
the senior indenture and serves as Transfer Agent for our common shares. The
Chase Manhattan Bank serves as Trustee for our subordinated securities pursuant
to the subordinated indenture.
 
                                       31
<PAGE>   33
 
DEFINITIONS
 
     Set forth below are defined terms used in the indentures. Reference is made
to the indentures for a full disclosure of all such terms, as well as any other
capitalized terms used herein for which no definition is provided.
 
     "Additional Amounts" means any additional amounts which are required by a
debt security or by or pursuant to a resolution of our Board of Directors, under
circumstances specified therein, to be paid by us in respect of certain taxes
imposed on certain holders and which are owing to such holders.
 
     "Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. Control means the power to direct the management and policies of a
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise.
 
     "Beneficially Own" means the ownership of our common shares by a Person who
would be treated as an owner of such common shares either directly or through
the application of Section 544 of the Internal Revenue Code, as modified by
Section 856(b)(1)(B) of the Internal Revenue Code.
 
     "Consolidated Income Available for Debt Service" for any period means
Consolidated Net Income (as defined below) of Developers Diversified Realty
Corporation and its subsidiaries:
 
          (1) plus amounts which have been deducted for
 
             (a) interest on our and our subsidiaries' Debt,
 
             (b) provision for our and our subsidiaries' taxes based on income,
 
             (c) amortization of debt discount,
 
             (d) depreciation and amortization, and
 
          (2) adjusted, as appropriate, for
 
             (a) the effect of any noncash charge resulting from a change in
        accounting principles in determining Consolidated Net Income for such
        period, and
 
             (b) the effect of equity in net income or loss of joint ventures in
        which we own an interest to the extent not providing a source of, or
        requiring a use of, cash, respectively.
 
     "Consolidated Net Income" for any period means the amount of our and our
subsidiaries' net income (or loss) for such period determined on a consolidated
basis in accordance with generally accepted accounting principles.
 
     "Debt" means any of our or our subsidiaries' indebtedness, whether or not
contingent, in respect of :
 
          (1) borrowed money or evidenced by bonds, notes, debentures or similar
     instruments;
 
          (2) indebtedness secured by any mortgage, pledge, lien, charge,
     encumbrance or any security interest existing on property owned by us or
     our subsidiaries;
 
                                       32
<PAGE>   34
 
          (3) letters of credit 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
 
          (4) any lease of property by us or our subsidiaries as lessee which is
     reflected on our Consolidated Balance Sheet as a capitalized lease in
     accordance with generally accepted accounting principles, in the case of
     items of indebtedness under (1) through (3) above to the extent that any
     such items (other than letters of credit) would appear as a liability on
     our Consolidated Balance Sheet in accordance with generally accepted
     accounting principles. Debt also includes, to the extent not otherwise
     included, any obligation of ours or our subsidiaries to be liable for, or
     to pay, as obligor, guarantor or otherwise (other than for purposes of
     collection in the ordinary course of business), indebtedness of another
     Person (other than us or our subsidiaries). Debt shall be deemed to be
     incurred by us or our subsidiaries whenever we or any such subsidiary shall
     create, assume, guarantee or otherwise become liable in respect thereof.
 
     "Funds from Operations" means Consolidated Net Income for any period
without giving effect to depreciation and amortization, nonrecurring gains and
losses from extraordinary items, gains or losses on sales of real estate, plus
funds from operations of unconsolidated joint ventures, all determined on a
consistent basis for such period.
 
     "Holder" means the Person in whose name a debt security is registered in
the register for each series of debt securities.
 
     "Indexed Security" means a debt security for which the principal amount
payable on the date specified in such debt security as the fixed date on which
the principal of such security is due and payable may be more or less than the
principal face amount thereof at original issuance.
 
     "Maximum Annual Service Charge" as of any date means the maximum amount
which may become payable in a period of 12 consecutive calendar months from such
date for interest on, and required amortization of, Debt. The amount payable for
amortization will include the amount of any sinking fund or other analogous fund
for the retirement of Debt. It will also include the amount payable on account
of principal of any such Debt which matures serially other than at the final
maturity date of such Debt.
 
     "Outstanding," when used with respect to debt securities, means, as of the
date of determination, all debt securities theretofore authenticated and
delivered under the indenture, except:
 
          (1) debt securities theretofore canceled by the Trustee or delivered
     to the Trustee for cancellation;
 
          (2) debt securities, or portions thereof, for whose payment or
     redemption or repayment at the option of the holder money in the necessary
     amount has been deposited with the Trustee or any paying agent (other than
     by us) in trust or set aside and segregated in trust by us (if we shall act
     as our own paying agent) for the holders of such debt securities and any
     coupons appertaining thereto, provided that, if such debt securities are to
     be redeemed, notice of such redemption has been duly given pursuant to the
     indenture or provision therefor satisfactory to the Trustee has been made;
 
                                       33
<PAGE>   35
 
          (3) debt securities, except to the extent provided in Sections 1402
     and 1403 of the indenture, with respect to which we have effected
     defeasance and/or covenant defeasance;
 
          (4) debt securities which have been paid pursuant to Section 306 or in
     exchange for or in lieu of which other debt securities have been
     authenticated and delivered pursuant to the indenture, other than any such
     debt securities in respect of which there shall have been presented to the
     Trustee proof satisfactory to it that such debt securities are held by a
     bona fide purchaser in whose hands such debt securities are our valid
     obligations; and
 
          (5) debt securities converted into common shares or preferred shares
     in accordance with or as contemplated by the indenture, if the terms of
     such debt securities provide for convertibility pursuant to Section 301;
 
provided, however, that in determining whether the holders of the requisite
principal amount of the Outstanding securities have given any request, demand,
authorization, direction, notice, consent of waiver hereunder or are present at
a meeting of holders for quorum purposes, and for the purpose of making the
calculations required by Section 313 of the Trust Indenture Act of 1939, as
amended:
 
          (1) the principal amount of an Original Issue Discount Security that
     may be counted in making such determination or calculation and that shall
     be deemed to be Outstanding for such purpose shall be equal to the amount
     of principal that would be (or shall have been declared to be) due and
     payable, at the time of such determination, upon a declaration of
     acceleration of the maturity thereof;
 
          (2) the principal amount of any debt security denominated in a foreign
     currency that may be counted in making such determination or calculation
     and that shall be deemed Outstanding for such purpose shall be equal to the
     U.S. dollar equivalent, determined pursuant to Section 301 as of the date
     such debt security is originally issued by us, of the principal amount (or,
     in the case of an Original Issue Discount Security, the U.S. dollar
     equivalent as of such date of original issuance of the amount determined as
     provided in clause (1) above) of such debt security;
 
          (3) the principal amount of any Indexed Security that may be counted
     in making such determination or calculation and that shall be deemed
     Outstanding for such purpose shall be equal to the principal face amount of
     such Indexed Security at original issuance, unless otherwise provided with
     respect to such Indexed Security pursuant to Section 301; and
 
          (4) debt securities owned by us or any other obligor upon the debt
     securities or any Affiliate of ours or of such other obligor shall be
     disregarded and deemed not to be Outstanding, except that, in determining
     whether the Trustee shall be protected in making such calculation or in
     relying upon any such request, demand, authorization, direction, notice,
     consent or waiver, only debt securities which the Trustee knows to be so
     owned shall be so disregarded. debt securities so owned which have been
     pledged in good faith may be regarded as Outstanding if the pledgee
     establishes to the satisfaction of the Trustee the pledgee's right so to
     act with respect to any such debt securities and that the pledgee is not us
     or any other obligor upon the debt securities or any Affiliate of ours or
     of such other obligor.
 
                                       34
<PAGE>   36
 
     "Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
 
     "subsidiary" means an entity a majority of the outstanding voting stock of
which is owned, directly or indirectly, by us or by one or more of our other
subsidiaries. For purposes of this definition, "voting stock" means stock having
voting power for the election of directors, whether at all times or only so long
as no senior class of stock has such voting power by reason of any contingency.
 
     "Undepreciated Real Estate Assets" as of any date means the amount of our
and our subsidiaries' real estate assets on such date, before depreciation and
amortization and determined on a consolidated basis in accordance with generally
accepted accounting principles.
 
     "Unencumbered Real Estate Asset Value" as of any date means the sum of :
 
          (1) our Undepreciated Real Estate Assets, which are not encumbered by
     any mortgage, lien, charge, pledge or security interest, as of the end of
     the latest calendar quarter covered in our Annual Report on Form 10-K or
     Quarterly Report on Form 10-Q, as the case may be, most recently filed with
     the Commission (or, if that filing is not required under the Exchange Act,
     with the Trustee) prior to such date; and
 
          (2) the purchase price of any real estate assets that are not
     encumbered by any mortgage, lien, charge, pledge, or security interest and
     were acquired by us or any subsidiary after the end of such calendar
     quarter.
 
BOOK-ENTRY DEBT SECURITIES
 
     We may issue debt securities of a series in whole or in part in the form of
one or more global securities. We will deposit such global securities with, or
on behalf of, a depository identified in the applicable prospectus supplement.
We may issue global securities in either registered or bearer form and in either
temporary or permanent form. Unless we specify otherwise in the applicable
prospectus supplement, debt securities that are represented by a global security
will be issued in denominations of $1,000 or any integral multiple thereof and
will be issued in registered form only, without coupons. We will make payments
of principal of, premium, if any, and interest on debt securities represented by
a global security to the applicable trustee under the applicable indenture, and
then forward to the depository.
 
     We anticipate that any global securities will be deposited with, or on
behalf of, The Depository Trust Company, New York, New York ("DTC"), and that
such global securities will be registered in the name of Cede & Co., DTC's
nominee. We further anticipate that the following provisions will apply to the
depository arrangements with respect to any such global securities. We will
describe any additional or differing terms of the depository arrangements in the
applicable 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
 
                                       35
<PAGE>   37
 
represented by such global security for all purposes under the applicable
indenture. Except as described below, owners of beneficial interests in a global
security:
 
          (i) will not be entitled to have debt securities represented by such
     global security registered in their names;
 
          (ii) will not receive or be entitled to receive physical delivery of
     debt securities in certificated form and
 
          (iii) 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 we specify otherwise in the applicable prospectus supplement, each
global security representing book-entry notes will be exchangeable for
certificated notes only if:
 
          (i) DTC notifies us that it is unwilling or unable to continue as
     depository or DTC ceases to be a clearing agency registered under the
     Securities Exchange Act of 1934 (if so required by applicable law or
     regulation) and, in either case, a successor depository is not appointed by
     us within 90 days after we receive such notice or become aware of such
     unwillingness, inability or ineligibility;
 
          (ii) we, in our sole discretion, determines that the global securities
     shall be exchangeable for certificated notes or
 
          (iii) there shall have occurred and be continuing an event of default
     under an indenture with respect to the notes and beneficial owners
     representing a majority in aggregate principal amount of the book-entry
     notes 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 representing book-entry notes will be
     entitled to physical delivery of individual debt securities in certificated
     form of like tenor 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 shall be provided by
     DTC's relevant Participants (as identified by DTC) to the applicable
     trustee.
 
Unless we describe otherwise 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 us by DTC:
 
     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 debt security
certificate will be issued with respect to each $200 million 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
 
                                       36
<PAGE>   38
 
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 SEC.
 
     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 Participants acting
on behalf of Beneficial Owners. Beneficial Owners do not receive certificates
representing their ownership interests in debt securities, except in the event
that use of the book-entry system for the debt securities is discontinued.
 
     To facilitate subsequent transfers, the debt securities are registered in
the name of DTC's partnership 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, premium, if any, and interest payments on the debt securities
will be made in immediately available funds to DTC. DTC's practice is to credit
Direct Participants' accounts on the payment date in accordance with their
respective holdings as shown on
 
                                       37
<PAGE>   39
 
DTC's records unless DTC has reason to believe that it will not receive payment
on the payment date. Payments by 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." Such payments are the responsibility of such Participant and not of DTC,
the applicable Trustee or us, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment of principal,
premium, if any, and interest to DTC is our responsibility 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 book-entry notes within an issue 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.
 
     A Beneficial Owner shall give notice of any option to elect to have its
book-entry notes repaid by us, through its Participant, to the applicable
Trustee, and shall effect delivery of such book-entry notes by causing the
Direct Participant to transfer the Participant's interest in the global security
or securities representing such book-entry notes, on DTC's records, to such
Trustee. The requirement for physical delivery of book-entry notes in connection
with a demand for repayment will be deemed satisfied when the ownership rights
in the global security or securities representing such book-entry notes 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
applicable Trustee or us. Under such circumstances, in the event that a
successor securities depository is not appointed, debt security certificates are
required to be printed and delivered.
 
     We 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.
 
     The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that we believes to be reliable, but we takes no
responsibility for the accuracy thereof.
 
     Unless stated otherwise in the prospectus supplement, the underwriters or
agents with respect to a series of debt securities issued as global securities
will be Direct Participants in DTC.
 
     Neither us, the applicable Trustee nor 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.
 
                        DESCRIPTION OF PREFERRED SHARES
 
     Our Articles authorize us to issue up to:
 
     - 1,500,000 Class A Cumulative Redeemable Preferred Shares, without par
       value (the "Class A Shares");
 
                                       38
<PAGE>   40
 
     - 1,500,000 Class B Cumulative Redeemable Preferred Shares, without par
       value (the "Class B Shares");
 
     - 1,500,000 Class C Cumulative Redeemable Preferred Shares, without par
       value (the "Class C Shares");
 
     - 1,500,000 Class D Cumulative Redeemable Preferred Shares, without par
       value (the "Class D Shares");
 
     - 1,500,000 Class E Cumulative Redeemable Preferred Shares, without par
       value (the "Class E Shares"); and
 
     - 1,500,000 Noncumulative Redeemable Preferred Shares, without par value
       (the "Noncumulative Shares") (the Class A Shares, the Class B Shares, the
       Class C Shares, the Class D Shares, the Class E Shares and the
       Noncumulative Shares, collectively the "Preferred Shares").
 
     As of the date of this prospectus, we had outstanding:
 
     - 421,500 9.5% Class A Shares ($250.00 liquidation preference per share);
 
     - 177,500 9.44% Class B Shares ($250.00 liquidation preference per share);
 
     - 400,000 8.375% Class C Shares ($250.00 liquidation preference per share);
       and
 
     - 216,000 8.68% Class D Shares ($250.00 liquidation preference per share).
 
We had no Class E Shares or Noncumulative Shares outstanding. The outstanding
preferred shares are represented by depositary shares. See "Description of
Depositary Shares."
 
     The following description summarizes certain general terms and provisions
of each class of preferred shares to which any prospectus supplement may relate.
This summary and the summary included in the relevant prospectus supplement are
not complete. For more detail, you should refer to the applicable provisions of
our Articles and Code of Regulations. Our Articles and Code of Regulations have
been filed as exhibits to the Registration Statement of which this prospectus is
a part. The Articles will be amended by our Board of Directors in connection
with the fixing of certain terms of the preferred shares as provided below.
 
GENERAL
 
     Except as discussed below, the Class A Shares, the Class B Shares, the
Class C Shares, the Class D Shares, the Class E Shares and the Noncumulative
Shares rank on a parity with each other and are identical to each other.
Dividends on the Class A Shares, the Class B Shares, the Class C Shares, the
Class D Shares and the Class E Shares will be cumulative, while dividends on the
Noncumulative Shares will not be cumulative. Prior to the issuance of shares of
each series of each class of preferred shares, our Board of Directors may, under
our Articles and Ohio law, fix:
 
          (1) the designation of the series;
 
          (2) the authorized number of shares of the series. Our Board of
     Directors may, except when otherwise provided in the creation of the
     series, increase or decrease the authorized number of shares before or
     after issuance of the series (but not below the number of shares thereof
     then outstanding);
 
                                       39
<PAGE>   41
 
          (3) the dividend rate or rates of the series, including the means by
     which such rates may be established;
 
          (4) with respect to the Class A Shares, the Class B Shares, the Class
     C Shares, the Class D Shares and the Class E Shares, the date(s) from which
     dividends shall accrue and be cumulative and, with respect to all preferred
     shares, the date on which and the period(s) for which dividends, if
     declared, shall be payable, including the means by which such date(s) and
     period(s) may be established;
 
          (5) redemption rights and prices, if any;
 
          (6) the terms and amounts of the sinking fund, if any;
 
          (7) the amounts payable on shares of the series in the event of any
     voluntary or involuntary liquidation, dissolution or winding-up of our
     affairs;
 
          (8) whether the shares of the series shall be convertible into common
     shares or shares of any other class;
 
          (9) if the shares are convertible, the conversion rate(s) or price(s),
     any adjustments to the rate or price and all other terms and conditions
     upon which such conversion may be made; and
 
          (10) restrictions on the issuance of shares of the same or any other
     class or series.
 
     A prospectus supplement relating to the preferred shares being offered will
specify the following terms:
 
          (1) the class, series and title of the preferred shares;
 
          (2) the number of preferred shares offered, the liquidation preference
     per share and the offering price of such preferred shares;
 
          (3) the dividend rate(s), period(s) and payment date(s) or method of
     calculation thereof applicable to such preferred shares;
 
          (4) the date from which dividends on such preferred shares shall
     accumulate, 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 our common shares, including the conversion price (or
     manner of calculation thereof);
 
          (10) whether interests in such preferred shares will be represented by
     depositary shares;
 
          (11) any other specific terms, preferences, rights, limitations or
     restrictions of or on such preferred shares;
 
                                       40
<PAGE>   42
 
          (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 our liquidation, dissolution or
     winding-up;
 
          (14) any limitations on issuance of securities ranking senior to or on
     a parity with such preferred shares as to dividend rights and rights upon
     our liquidation, dissolution or winding-up; and
 
          (15) any limitations on direct or beneficial ownership and
     restrictions on transfer that may be appropriate to preserve our status as
     a REIT.
 
     The preferred shares, upon issuance against full payment of the purchase
price, will be fully paid and nonassessable and will have no preemptive rights.
 
RANK
 
     All preferred shares will be:
 
     - equal to all other preferred shares with respect to dividend rights
       (subject to dividends on Noncumulative Shares being noncumulative) and
       rights upon our liquidation, dissolution or winding-up;
 
     - senior to all classes of common shares and to all other equity securities
       ranking junior to such preferred shares with respect to dividend rights
       and rights upon our liquidation, dissolution or winding-up;
 
     - equal to all of our equity securities the terms of which specifically
       provide that such equity securities are equal to the preferred shares
       with respect to dividend rights and rights upon our liquidation,
       dissolution or winding-up; and
 
     - junior to all of our equity securities the terms of which specifically
       provide that such equity securities rank senior to the preferred shares
       with respect to dividend rights and rights upon our liquidation,
       dissolution or winding-up.
 
DIVIDENDS
 
     The holders of each series of each class of preferred shares are entitled
to receive, if, when and as declared, out of funds legally available for
payment, dividends in cash at the rate determined for such series and no more in
preference to the holders of common shares and of any other class of shares
ranking junior to the preferred shares. Dividends shall be payable on the date
fixed for such series. Dividends with respect to each series of Class A Shares,
Class B Shares, Class C Shares, Class D Shares and Class E Shares will be
cumulative from the dates fixed for the series. Dividends will be payable to
holders of record as they appear on our stock transfer books on the record dates
fixed by our Board of Directors.
 
     If preferred shares are outstanding, dividends may not be paid or declared
or set apart for any series of preferred shares for any dividend period unless
at the same time:
 
          (1) a proportionate dividend for the dividend periods terminating on
     the same or any earlier date for all issued and outstanding shares of all
     series of such class entitled to receive such dividend (but, if such series
     are series of Noncumulative Shares, then only with respect to the current
     dividend period), ratably in proportion to the
 
                                       41
<PAGE>   43
 
     respective annual dividend rates fixed therefor, have been paid or declared
     or set apart, and
 
          (2) the dividends payable for the dividend periods terminating on the
     same or any earlier date for all other classes of issued and outstanding
     preferred shares entitled to receive such dividends (but, with respect to
     Noncumulative Shares, only with respect to the then current dividend
     period), ratably in proportion to the respective dividend rates fixed
     therefor, have been paid or declared or set apart.
 
     If any series of preferred shares is outstanding, a dividend shall not be
paid or declared or any distribution made in respect of the common shares or any
other shares ranking junior to such series of preferred shares, and common
shares or any other shares ranking junior to such series of preferred shares,
and common shares or any other shares ranking junior to such series of preferred
shares shall not be purchased, retired or otherwise acquired by us unless:
 
          (1) all accrued and unpaid dividends on all classes of outstanding
     preferred shares, including the full dividends for all current dividend
     periods (except, with respect to Noncumulative Shares, for the then current
     dividend period only), have been declared and paid or a sum sufficient for
     payment thereof set apart, and
 
          (2) there are no arrearages with respect to the redemption of any
     series of any class of preferred shares from any sinking fund provided for
     such class in accordance with the Articles. However, common shares and any
     other shares ranking junior to such series of preferred shares may be
     purchased, retired or otherwise acquired using the proceeds of a sale of
     common shares or other shares junior to such preferred shares received
     subsequent to the first date of issuance of such preferred shares. In
     addition, we may pay or declare or distribute dividends payable in common
     shares or other shares ranking junior to such preferred shares.
 
     The preceding restrictions on the payment of dividends or other
distributions on, or on the purchase, redemption, retirement or other
acquisition of, common shares or any other shares ranking equal to or junior to
any class of preferred shares will be inapplicable to:
 
          (1) any payments in lieu of issuance of fractional shares, upon any
     merger, conversion, stock dividend or otherwise,
 
          (2) the conversion of preferred shares into common shares, or
 
          (3) the exercise of our rights to repurchase shares of capital stock
     in order to preserve our status as a REIT under the Internal Revenue Code.
 
     When dividends are not paid in full (or a sum sufficient for full payment
is not set apart) upon the preferred shares of any series and the shares of any
other series of preferred shares ranking on a parity as to dividends with 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 on the shares of such series of preferred shares shall in all
cases bear to each 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 for Noncumulative Shares)
and such other series bear to each other. No interest, or sum of money in lieu
of interest, shall be payable
 
                                       42
<PAGE>   44
 
in respect of any dividend payment or payments on preferred shares of such
series which may be in arrears.
 
     Any dividend payment made on preferred shares will first be credited
against the earliest accrued but unpaid dividend due with respect to such shares
that remains payable.
 
REDEMPTION
 
     If we so provide in the applicable prospectus supplement, a series of
preferred shares will be subject to mandatory redemption or redemption at our
option, 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 for a series of preferred shares subject to
mandatory redemption will specify the number of such preferred shares that will
be redeemed by us in each year commencing after a date to be specified. The
prospectus supplement will also specify a redemption price per share. The
redemption price per share will include an amount equal to all accrued and
unpaid dividends on such preferred shares as of the date of redemption; however,
the redemption price of Noncumulative Shares will include only unpaid dividends
for the current dividend period. The redemption price may be payable in cash or
other property, as specified in the applicable prospectus supplement.
 
     We may not purchase or redeem for sinking fund purposes or otherwise less
than all of a class of outstanding preferred shares except in accordance with a
stock purchase offer made to all holders of record of such class, unless all
dividends on that class of outstanding preferred shares for previous and current
dividend periods (except, in the case of Noncumulative Shares, dividends for the
current dividend period only) have been declared and paid or funds set apart and
all accrued sinking fund obligations applicable thereto have been complied with.
However, we may repurchase shares of capital stock in order to maintain our
qualification as a REIT under the Internal Revenue Code.
 
     If fewer than all of our outstanding shares of any class of preferred
shares are to be redeemed, we will determine the number of shares to be
redeemed. Our Board of Directors will determine the manner for selecting by lot
the shares to be redeemed.
 
     We will mail notice of redemption at least 30 days but not more than 60
days before the redemption date to each holder of record of a preferred share to
be redeemed at the address shown on our stock transfer books. If fewer than all
the preferred shares of any series are to be redeemed, the notice of redemption
will also specify the number of preferred shares to be redeemed from each
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 us in trust for
the benefit of the holders of the preferred shares to be redeemed, dividends
will cease to accrue on such preferred shares. In addition the holders of
preferred shares to be redeemed will cease to be shareholders with respect to
such shares and will have no right or claim against us with respect to such
shares as of the redemption date. However, such holders will have the right to
receive the redemption price without interest or to exercise before the
redemption date any unexercised privileges of conversion.
 
LIQUIDATION PREFERENCE
 
     In the event of our voluntary liquidation, dissolution or winding-up, the
holders of any series of any class of preferred shares shall be entitled to
receive in full out of our assets, including its capital, before any amount
shall be paid or distributed among the holders of
                                       43
<PAGE>   45
 
the common shares or any other shares ranking junior to such series, the amounts
fixed by our Board of Directors with respect to such series and set forth in the
applicable prospectus supplement. In addition, each holder will receive an
amount equal to all dividends accrued and unpaid on that series of preferred
shares to the date of payment of the amount due pursuant to our liquidation,
dissolution or winding-up. However, holders of Noncumulative Shares will only
receive dividends for the current dividend period. After holders of the
preferred shares are paid the full preferential amounts to which they are
entitled, they will have no right or claim to any of our remaining assets.
 
     If liquidating distributions are made in full to all holders of preferred
shares, our remaining assets will be distributed among the holders of any other
classes or series of capital stock ranking junior to the preferred shares upon
liquidation, dissolution or winding-up. The distributions will be made according
to the holders' respective rights and preferences and, in each case, according
to their respective numbers of shares. Our merger or consolidation into or with
any other corporation, or the sale, lease or conveyance of all or substantially
all of our assets, shall not constitute a dissolution, liquidation or winding-
up.
 
VOTING RIGHTS
 
     Holders of preferred shares will not have any voting rights, except as
follows and as from time to time required by law.
 
     If and when we are in default in the payment of (or, with respect to
noncumulative shares, have not paid or declared and set aside a sum sufficient
for the payment of) dividends on any series of any class of outstanding
preferred shares, for consecutive dividend payment periods which in the
aggregate contain at least 540 days, all holders of shares of such class, voting
separately as a class, together and combined with all other preferred shares
upon which like voting rights have been conferred and are exercisable, will be
entitled to elect a total of two members of our Board of Directors. This voting
right shall be vested and any additional directors shall serve until all accrued
and unpaid dividends (except, with respect to Noncumulative Shares, only
dividends for the then current dividend period) on such outstanding preferred
shares have been paid or declared and a sufficient sum set aside for payment
thereof.
 
     The affirmative vote of the holders of at least two-thirds of a class of
outstanding preferred shares, voting separately as a class, shall be necessary
to effect either of the following:
 
          (1) The authorization, creation or increase in the authorized number
     of any shares, or any security convertible into shares, senior to such
     class of preferred shares; or
 
          (2) Any amendment, alteration or repeal, whether by merger,
     consolidation or otherwise, of any of the provisions of the Articles or the
     Code of Regulations which adversely and materially affects the preferences
     or voting or other rights of the holders of such class of preferred shares
     which are set forth in the Articles. However, the amendment of the Articles
     to authorize, create or change the authorized or outstanding number of a
     class of preferred shares or of any shares ranking on a parity with or
     junior to such class of preferred shares does not adversely and materially
     affect preferences or voting or other rights of the holders of such class
     of preferred shares. In addition, amending the Code of Regulations to
     change the number or
 
                                       44
<PAGE>   46
 
     classification of our directors does not adversely or materially affect
     preferences or voting rights or other rights. Voting shall be done in
     person at a meeting called for one of the above purposes or in writing by
     proxy.
 
     Without limiting the provisions described above, under Ohio law, holders of
each class of preferred shares will be entitled to vote as a class on any
amendment to the Articles, whether or not they are entitled to vote thereon by
the Articles, if the amendment would
 
          (1) increase or decrease the par value of the shares of such class,
 
          (2) change the issued shares of such class into a lesser number of
     shares of such class or into the same or different number of shares of
     another class,
 
          (3) change or add to the express terms of the shares of the class in
     any manner substantially prejudicial to the holders of such class,
 
          (4) change the express terms of any class of issued shares senior to
     the particular class in any manner substantially prejudicial to the holders
     of shares of the particular class,
 
          (5) authorize shares of another class that are convertible into, or
     authorize the conversion of shares of another class into, shares of the
     particular class, or authorize the directors to fix or alter conversion
     rights of shares of another class that are convertible into shares of the
     particular class,
 
          (6) reduce or eliminate our stated capital,
 
          (7) substantially change our purposes, or
 
          (8) change us into a nonprofit corporation.
 
     If, and only to the extent that, (1) a class of preferred shares is issued
in more than one series and (2) Ohio law permits the holders of a series of a
class of capital stock to vote separately as a class, the affirmative vote of
the holders of at least two-thirds of each series of such class of outstanding
preferred shares, voting separately as a class, shall be required for any
amendment, alteration or repeal, whether by merger, consolidation or otherwise,
of any of the provisions of the Articles or the Code of Regulations which
adversely and materially affects the preferences or voting or other rights of
the holders of such series as set forth in the Articles. However, the amendment
of the Articles so as to authorize, create or change the authorized or
outstanding number of a class of preferred shares or of any shares ranking equal
to or junior to such class of preferred shares does not adversely and materially
affect the preference or voting or other rights of the holders of such series.
In addition, amendment of the Code of Regulations to change the number or
classification of our directors does not adversely and materially affect the
preference or voting or other rights of the holders of such series.
 
     The preceding voting provisions will not apply if, at or prior to the time
of the action with respect to which such vote would be required, all outstanding
shares of such series of preferred shares have been redeemed or called for
redemption and sufficient funds shall have been deposited in trust to effect
such redemption.
 
                                       45
<PAGE>   47
 
CONVERSION RIGHTS
 
     The terms and conditions, if any, upon which shares of any series of any
class of preferred shares are convertible into common shares will be set forth
in the relating prospectus supplement. Such terms will include:
 
     - the number of common shares into which the 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 such preferred shares or Developers Diversified Realty Corporation,
 
     - the events requiring an adjustment of the conversion price, and
 
     - provisions affecting conversion upon the occurrence of certain events.
 
RESTRICTIONS ON OWNERSHIP
 
     In order for us to qualify as a REIT under the Internal Revenue Code, not
more than 50% in value of our outstanding capital stock may be owned, directly
or indirectly, by five or fewer individuals during the last half of a taxable
year. Individual is defined in the Internal Revenue Code to include certain
entities. In addition, our capital stock must be beneficially owned by 100 or
more persons during at least 335 days of a taxable year of 12 months or during a
proportionate part of a shorter taxable year. We also must satisfy certain other
requirements. For more information on restrictions on ownership, see
"Description of Common Shares -- Restrictions on Ownership."
 
     To assure that five or fewer individuals do not own more than 50% in value
of our outstanding preferred shares, the Articles provide that, subject to
certain exceptions, no one may own, or be deemed to own by virtue of the
attribution provisions of the Internal Revenue Code, more than 9.8% (the
"Preferred Shares Ownership Limit") of any series of any class of our
outstanding preferred shares. In addition, because rent from a Related Party
Tenant is not qualifying rent for purposes of the gross income tests under the
Internal Revenue Code, the Articles provide that no individual or entity may
own, or be deemed to own by virtue of the attribution provisions of the Internal
Revenue Code, in excess of 9.8% of our outstanding shares of any series of any
class of preferred shares (the "Preferred Shares Related Party Limit"). See
"Description of Common Shares -- Restrictions on Ownership." The attribution
provisions of the Internal Revenue Code applied to Related Party Tenants differ
from the attribution provisions applied to the Preferred Shares Ownership Limit.
A Related Party Tenant is any tenant of which 10% is owned, directly or
constructively, by a REIT, including an owner of 10% or more of a REIT. Our
Board of Directors may waive the Preferred Shares Ownership Limit and the
preferred shares Related Party Limit if it obtains such representations and
undertakings from the applicant with respect to preserving our REIT status as
are reasonably necessary to ascertain that such ownership will not jeopardize
our REIT status.
 
     The preceding restrictions on transferability and ownership of preferred
shares may not apply if our Board of Directors determines that it is no longer
in our best interests to attempt to qualify, or to continue to qualify, as a
REIT. Even if the REIT provisions of the Internal Revenue Code are changed so as
to no longer contain any ownership concentration limitation or if the ownership
concentration limitation is increased, the
 
                                       46
<PAGE>   48
 
Preferred Shares Ownership Limit and the preferred shares Related Party Limit
will not be automatically removed. Any change in the Preferred Shares Ownership
Limit would require an amendment to the Articles, even if our Board of Directors
determines that maintenance of REIT status is no longer in our best interests.
Amendments to our Articles require the affirmative vote of holders owning not
less than a majority of our outstanding common shares. If it is determined that
an amendment would materially and adversely affect the holders of any class of
preferred shares, such amendment would also require the affirmative vote of
holders of not less than two-thirds of such class of preferred shares.
 
     If preferred shares in excess of the Preferred Shares Ownership Limit or
the preferred shares Related Party Limit are issued or transferred to any
person, such issuance or transfer will be null and void to the intended
transferee, and the intended transferee will acquire no rights to the shares. In
addition, if an issuance or transfer would cause our shares to be beneficially
or constructively owned by fewer than 100 persons or would result in our being
"closely held" within the meaning of Section 856(h) of the Internal Revenue
Code, such issuance or transfer will be null and void to the intended
transferee, and the intended transferee will acquire no rights to the shares.
Preferred shares transferred or proposed to be transferred in excess of the
Preferred Shares Ownership Limit or the preferred shares Related Party Limit or
which would otherwise jeopardize our REIT status will be subject to repurchase
by us. The purchase price of such preferred shares will be equal to the lesser
of (1) the price in such proposed transaction and (2) the fair market value of
such shares reflected in the last reported sales price for the shares on the
trading day immediately preceding the date on which we or our designee determine
to exercise our repurchase right if the shares are listed on a national
securities exchange, or such price for the shares on the principal exchange if
the shares are then listed on more than one national securities exchange. If the
shares are not listed on a national securities exchange, the purchase price will
be equal to the lesser of (1) the price in such proposed transaction and (2) the
latest bid quotation for the shares if the shares are then traded over the
counter, or, if such quotation is not available, the fair market value as
determined by our Board of Directors in good faith, on the last trading day
immediately preceding the day on which notice of such proposed purchase is sent
by us.
 
     From and after the date fixed for our purchase of such preferred shares,
the holder will cease to be entitled to distributions, voting rights and other
benefits with respect to such shares except the right to payment of the purchase
price for the shares. Any dividend or distribution paid to a proposed transferee
on such preferred shares must be repaid to us upon demand. If the foregoing
transfer restrictions are determined to be void or invalid by virtue of any
legal decision, statute, rule or regulation, then the intended transferee of any
such preferred shares may be deemed, at our option, to have acted as our agent
in acquiring such preferred shares and to hold such preferred shares on our
behalf.
 
     See "Description of Common Shares" for a general description of the common
shares acquired upon the conversion of preferred shares convertible into common
shares. This section includes a description of certain restrictions on the
ownership of the common shares. For purposes of determining the percentage of
common shares owned directly or constructively by an investor, common shares
that may be acquired upon the conversion of convertible preferred shares will be
deemed to be outstanding (1) at the time of purchase of the convertible
preferred shares, and (2) prior to the conversion of the convertible preferred
shares.
 
                                       47
<PAGE>   49
 
     All certificates for preferred shares will bear a legend referring to the
restrictions described above.
 
     The Articles provide that all persons who own, directly or by virtue of the
attribution provisions of the Internal Revenue Code, more than 5% of the
preferred shares shall upon demand disclose to us in writing such information
with respect to the direct, indirect and constructive ownership of shares that
our Board of Directors deems necessary to comply with the provisions of the
Internal Revenue Code as applicable to a REIT or to comply with the requirements
of any taxing authority or governmental agency.
 
                        DESCRIPTION OF DEPOSITARY SHARES
 
GENERAL
 
     We may issue receipts for depositary shares ("Depositary Receipts"). Each
Depositary Receipt will represent a fractional interest or a share of a
particular series of a class of preferred shares, as specified in the applicable
prospectus supplement. Preferred shares of each series of each class represented
by depositary shares will be deposited under a separate Deposit Agreement among
us, the depositary named therein 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 to all the rights and preferences of
the preferred shares represented by such depositary shares including dividend,
voting, conversion, redemption and liquidation rights. Such rights and
preferences will be proportionate to the fractional interest of a share of the
particular series of preferred shares represented by the depositary shares
evidenced by such Depositary Receipt. As of the date of this prospectus, there
are outstanding
 
     - 4,215,000 Depositary Shares each representing 1/10 of a share of the 9.5%
       Class A Cumulative Redeemable Preferred Shares,
 
     - 1,775,000 Depositary Shares each representing 1/10 of a share of the
       9.44% Class B Cumulative Redeemable Preferred Shares,
 
     - 4,000,000 Depositary Shares each representing 1/10 of a share of the
       8.375% Class C Cumulative Redeemable Preferred Shares, and
 
     - 2,160,000 Depositary Shares each representing 1/10 of a share of the
       8.68% Class D Cumulative Redeemable Preferred Shares.
 
     See "Description of Preferred Shares." These depositary shares are listed
on the New York Stock Exchange under the symbols DDRPrA, DDRPrB, DDRPrC and
DDRPrD, respectively.
 
     The depositary shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately after we issue and
deliver the preferred shares to the depositary, we will cause the depositary to
issue the Depositary Receipts on our behalf. Copies of the applicable form of
Deposit Agreement and Depositary Receipt may be obtained from us upon request.
 
DIVIDENDS AND OTHER DISTRIBUTIONS
 
     The depositary will distribute all cash dividends or other cash
distributions received on behalf of the preferred shares proportionately to the
record holders of the related
 
                                       48
<PAGE>   50
 
Depositary Receipts owned by such holder. Such distributions are subject to
certain obligations of holders to file proofs, certificates and other
information and to pay certain charges and expenses to the depositary.
 
     In the event of a non-cash distribution, the depositary will distribute
property it receives to the record holders of Depositary Receipts entitled to
the property unless the depositary determines that it is not feasible to make
such distribution, in which case the depositary may, with our approval, sell
such property and distribute the net proceeds of such sale to holders. Such
distributions by the depositary are subject to certain obligations of holders to
file proofs, certificates and other information and to pay certain changes and
expenses to the depositary.
 
WITHDRAWAL OF SHARES
 
     Unless the related depositary shares have previously been called for
redemption, upon surrender of the Depositary Receipts at the corporate trust
office of the depositary the holders 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 preferred shares to be withdrawn, the 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 we redeem preferred shares held by the depositary, the depositary
will redeem as of the same redemption date the number of depositary shares
representing the preferred shares so redeemed, provided we have paid in full to
the depositary the redemption price of the preferred shares to be redeemed plus
an amount equal to any accrued and unpaid dividends thereon to the date fixed
for redemption. With respect to Noncumulative Shares, dividends will be paid for
the current dividend period only. The redemption price per depositary share will
be equal to 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
depositary by lot.
 
     After the date fixed for redemption, the depositary shares 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 called for
redemption will cease. However, the holders will have the right to receive any
moneys payable upon redemption and any money or other property that the holders
of such Depositary Receipts were entitled to at the time of redemption when they
surrender their Depositary Receipts to the 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 depositary will mail the information contained
in such notice to the
 
                                       49
<PAGE>   51
 
record holders of the Depositary Receipts related to such preferred shares. Each
record holder of Depositary Receipts on the record date will be entitled to
instruct the depositary as to the exercise of the voting rights of the preferred
shares related to such holder's Depositary Receipts. The record date for
Depositary Receipts will be the same date as the record date for preferred
shares. The depositary will vote the preferred shares related to such Depositary
Receipts in accordance with such instructions, and we will agree to take all
reasonable action that the depositary deems necessary to enable it to vote the
preferred shares. The depositary will abstain from voting preferred shares
represented by such depositary shares to the extent it does not receive specific
instructions from the holders of Depositary Receipts.
 
LIQUIDATION PREFERENCE
 
     In the event of our liquidation, dissolution or winding-up, whether
voluntary or involuntary, each holder of a Depositary Receipt will be entitled
to the 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 of our other securities or property. 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 depositary
with written instructions to the depositary to instruct us to cause conversion
of the preferred shares represented by the depositary shares into whole common
shares, other preferred shares or other shares of capital stock. We have agreed
that upon receipt of such instructions and any amounts payable in respect
thereof, we 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. If conversion will result in a fractional share being issued, we
will pay in cash an amount 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 depositary and us. However, any
amendment that materially and adversely alters the rights of the holders of
Depositary Receipts will not be effective unless it has been approved by the
existing holders of at least a majority of the depositary shares evidenced by
outstanding Depositary Receipts.
 
     We may terminate the Deposit Agreement upon not less than 30 days' prior
written notice to the depositary if (1) such termination is to preserve our
status as a REIT or (2) a majority of each class of preferred shares affected by
such termination consents to such termination. Upon termination of the Deposit
Agreement, the depositary shall deliver or make available to each holder of
Depositary Receipts, upon surrender of the Depositary
 
                                       50
<PAGE>   52
 
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:
 
          (1) all outstanding depositary shares have been redeemed,
 
          (2) there has been a final distribution in respect of the related
     preferred shares in connection with any liquidation, dissolution or
     winding-up and such distribution has been distributed to the holders of
     Depositary Receipts evidencing the depositary shares representing such
     preferred shares, or
 
          (3) each related preferred share shall have been converted into
     capital stock that is not represented by depositary shares.
 
CHARGES OF PREFERRED SHARES DEPOSITARY
 
     We will pay all transfer and other taxes and governmental charges arising
solely from the existence of the Deposit Agreement. In addition, we will pay the
fees and expenses of the depositary in connection with the performance of its
duties under the Deposit Agreement. However, holders of Depositary Receipts will
pay the depositary's fees and expenses for any duties that holders request to be
performed which are outside those expressly provided for in the Deposit
Agreement.
 
RESIGNATION AND REMOVAL OF DEPOSITARY
 
     The depositary may resign at any time by delivering to us notice of its
resignation, and we may remove the depositary at any time. Any such resignation
or removal will take effect upon the appointment of a successor depositary. A
successor depositary must be appointed within 60 days after delivery of the
notice of resignation or removal. A successor depositary 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 depositary will forward to holders of Depositary Receipts any reports
and communications from us which it receives with respect to the related
preferred shares.
 
     Neither us nor the depositary will be liable if it is prevented from or
delayed in, by law or any circumstances beyond its control, performing its
obligations under the Deposit Agreement. The obligations of us and the
depositary under the Deposit Agreement will be limited to performing their
duties thereunder in good faith and without negligence, gross negligence or
willful misconduct. Developers Diversified Realty Corporation and the 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 satisfactory indemnity is furnished. Developers Diversified
Realty Corporation and the 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 depositary shall receive conflicting claims, requests or
instructions from any holders of Depositary Receipts, on the one hand, and us,
on the other hand, the depositary shall be entitled to act on such claims,
requests or instructions received from us.
 
                                       51
<PAGE>   53
 
                          DESCRIPTION OF COMMON SHARES
 
GENERAL
 
     Our Articles authorize us to issue up to 100,000,000 common shares, without
par value. As of December 31, 1998, we had 61,289,186 common shares issued and
outstanding. In addition, we have reserved 2,583,981 common shares for issuance
upon the exercise of options under our employee share option plan, 3,150,000
common shares for issuance under our equity-based award plans and 930,000 common
shares for issuance upon the exercise of options granted to our directors and
others. Our common shares are listed on the New York Stock Exchange under the
symbol "DDR." National City Bank, Cleveland, Ohio, is the transfer agent and
registrar of the common shares.
 
     The following description of our common shares sets forth certain of their
general terms and provisions. The following description of our common shares is
in all respects subject to and qualified by reference to the applicable
provisions of the Articles and our Code of Regulations (the "Code of
Regulations").
 
     Holders of our common shares are entitled to receive dividends when, as and
if declared by our Board of Directors, out of funds legally available therefor.
Any payment and declaration of dividends by us on our common shares and
purchases thereof will be subject to certain restrictions if we fail to pay
dividends on any outstanding preferred shares. See "Description of Preferred
Shares -- Dividends." If we are liquidated, dissolved or involved in any
winding-up, the holders of our common shares are entitled to receive ratably any
assets remaining after we have fully paid all of our liabilities, including the
preferential amounts we owe with respect to any preferred shares. Holders of our
common shares possess ordinary voting rights, with each share entitling the
holder to one vote. Holders of our common shares have cumulative voting rights
in the election of directors. Holders of our common shares do not have
preemptive rights, which means that they have no right to acquire any additional
common shares that we may subsequently issue.
 
     All of our common shares now outstanding are, and any common shares offered
hereby when issued will be, fully paid and nonassessable.
 
RESTRICTIONS ON OWNERSHIP
 
     In order for us to qualify as a REIT under the Internal Revenue Code, not
more than 50% in value of our outstanding capital stock may be owned, directly
or indirectly, by five or fewer individuals during the last half of a taxable
year. Individual is defined in the Internal Revenue Code to include certain
entities. In addition, our capital stock must be beneficially owned by 100 or
more persons during at least 335 days of a taxable year of 12 months or during a
proportionate part of a shorter taxable year. Additionally, certain other
requirements must be satisfied.
 
     To assure that five or fewer individuals do not own more than 50% in value
of our outstanding common shares, our Articles provide that, subject to certain
exceptions, no holder may own, or be deemed to own by virtue of the attribution
provisions of the Internal Revenue Code, more than 5% (the "Ownership Limit") of
our outstanding common shares. Shareholders whose ownership exceeded the
Ownership Limit immediately after the IPO may continue to own common shares in
excess of the Ownership Limit and may acquire additional shares through the
share option plan, the equity-based award plans, any dividend reinvestment plan
adopted by us (a "Dividend Reinvestment Plan") or
 
                                       52
<PAGE>   54
 
from other existing shareholders who exceed the Ownership Limit, but may not
acquire additional shares from those sources if the result would be that the
five largest beneficial owners of common shares hold more than 49.6% of our
outstanding common shares. In addition, because rent from a Related Party Tenant
(any tenant 10% of which is owned, directly or constructively, by a REIT,
including an owner of 10% or more of a REIT) is not qualifying rent for purposes
of the gross income tests under the Internal Revenue Code, our Articles provide
that no individual or entity may own, or be deemed to own by virtue of the
attribution provisions of the Internal Revenue Code (which differ from the
attribution provisions applied to the Ownership Limit), in excess of 9.8% of our
outstanding common shares (the "Related Party Limit"). Our Board of Directors
may waive the Ownership Limit and the Related Party Limit (the Related Party
Limit has been waived with respect to the shareholders who exceeded the Related
Party Limit immediately after the IPO) if an opinion of counsel or a ruling from
the Internal Revenue Service is provided to the Board of Directors to the effect
that that ownership will not then or in the future jeopardize our status as a
REIT. As a condition of any waiver, our Board of Directors will require
appropriate representations and undertakings from the applicant with respect to
preserving our REIT status. We issued the selling shareholder a waiver for
shares issuable on the exchange of partnership units and the exercise of the
warrant as described on the cover of this prospectus.
 
     The preceding restrictions on transferability and ownership of common
shares may not apply if our Board of Directors determines that it is no longer
in our best interests to continue to qualify as a REIT. The Ownership Limit and
the Related Party Limit will not be automatically removed even if the REIT
provisions of the Internal Revenue Code are changed to no longer contain any
ownership concentration limitation or if the ownership concentration limitation
is increased. In addition to preserving our status as a REIT, the effects of the
Ownership Limit and the Related Party Limit are to prevent any person or small
group of persons from acquiring unilateral control of us. Any change in the
Ownership Limit requires an amendment to the Articles, even if our Board of
Directors determines that maintenance of REIT status is no longer in our best
interests. Amendments to the Articles require the affirmative vote of holders
owning a majority of our outstanding common shares. If it is determined that an
amendment would materially and adversely affect the holders of any class of
preferred shares, that amendment also would require the affirmative vote of
holders of two-thirds of the affected class of preferred shares.
 
     If common shares in excess of the Ownership Limit or the Related Party
Limit, or common shares which would cause the REIT to be beneficially or
constructively owned by less than 100 persons or would result in us being
"closely held" within the meaning of Section 856(h) of the Internal Revenue
Code, are issued or transferred to any person, the issuance or transfer will be
null and void to the intended transferee. The intended transferee will not
acquire rights to the shares. Common shares transferred or proposed to be
transferred in excess of the Ownership Limit or the Related Party Limit or which
would otherwise jeopardize our REIT status ("Excess Shares") will be subject to
repurchase by us. The purchase price of any Excess Shares will be equal to the
lesser of (i) the price in the proposed transaction and (ii) the fair market
value of the shares reflected in the last reported sale price for the common
shares on the trading day immediately preceding the date on which we or our
designee determine to exercise our repurchase right, if the shares are then
listed on a national securities exchange, or such price for the shares on the
principal exchange, if they are then listed on more than one
                                       53
<PAGE>   55
 
national securities exchange, or, if the common shares are not then listed on a
national securities exchange, the latest bid quotation for the common shares if
they are then traded over-the-counter, or, if such quotation is not available,
the fair market value as determined by our Board of Directors in good faith, on
the last trading day immediately preceding the day on which notice of the
proposed purchase is sent by us. From and after the date fixed for purchase of
Excess Shares by us, the holder of the Excess Shares will cease to be entitled
to distribution, voting rights and other benefits with respect to the Excess
Shares except the right to payment of the purchase price for the Excess Shares.
Any dividend or distribution paid to a proposed transferee on Excess Shares will
be repaid to us upon demand. If the foregoing transfer restrictions are
determined to be void or invalid by virtue of any legal decision, statute, rule
or regulation, then the intended transferee of any Excess Shares may be deemed,
at our option, to have acted as an agent on our behalf in acquiring the Excess
Shares and to hold the Excess Shares on our behalf.
 
     All certificates representing our common shares bear a legend referring to
the preceding restrictions.
 
     Our Articles provide that all persons who own, directly or by virtue of the
attribution provisions of the Internal Revenue Code, more than 5% of our
outstanding common shares must file an affidavit with us containing information
specified in the Articles each year by January 31. In addition, each of those
shareholders will upon demand be required to disclose to us in writing such
information with respect to the direct, indirect and constructive ownership of
shares as our Board of Directors deems necessary for us to comply with the
provisions of the Internal Revenue Code as applicable to a REIT or to comply
with the requirements of any taxing authority or governmental agency.
 
                      DESCRIPTION OF COMMON SHARE WARRANTS
 
     We may issue common share warrants for the purchase of common shares. We
may issue common share warrants independently or together with any other
securities offered by any prospectus supplement. The common share warrants we
issue may be attached to or separate from such offered securities. Each series
of common share warrants will be issued under a separate warrant agreement
(each, a "Warrant Agreement") to be entered into between us and a warrant agent
specified in the applicable prospectus supplement (the "Warrant Agent"). The
Warrant Agent will act solely as our agent in connection with the common share
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 share
warrants. The following sets forth certain general terms and provisions of the
common share warrants that may be offered under this Registration Statement.
Further terms of the common share warrants and the applicable Warrant Agreements
will be set forth in the applicable prospectus supplement.
 
     The applicable prospectus supplement will describe the terms of the common
share warrants in respect of which this prospectus is being delivered,
including, where applicable, the following:
 
          (i) the title of such common share warrants;
 
          (ii) the aggregate number of such common share warrants;
 
          (iii) the price or prices at which such common share warrants will be
     issued;
 
                                       54
<PAGE>   56
 
          (iv) the number of common shares purchasable upon exercise of such
     common share warrants;
 
          (v) the designation and terms of the other Offered Securities with
     which such common share warrants are issued and the number of such common
     share warrants issued with each such Offered Security;
 
          (vi) the date, if any, on and after which such common share warrants
     and the related common shares will be separately transferable;
 
          (vii) the price at which each common share purchasable upon exercise
     of such common shares warrants may be purchased;
 
          (viii) the date on which the right to exercise such common share
     warrants shall commence and the date on which such right shall expire;
 
          (ix) the minimum or maximum amount of such common share warrants which
     may be exercised at any one time;
 
          (x) information with respect to book-entry procedures, if any;
 
          (xi) a discussion of certain federal income tax considerations; and
 
          (xii) any other terms of such common share warrants, including terms,
     procedures and limitations relating to the exchange and exercise of such
     common share warrants.
 
     You should also read the section captioned "Description of Common Shares"
for a general description of the common shares to be acquired upon the exercise
of the common share warrants, including a description of certain restrictions on
the ownership of common shares. We will treat as outstanding any common shares
that may be acquired upon the exercise of common share warrants, directly or
constructively held by an investor, at the following times:
 
          (i) at the time of acquisition of the common share warrants, and
 
          (ii) prior to the exercise of the common share warrants, for purposes
     of determining the percentage ownership of common shares held by such
     investor.
 
                  CERTAIN ANTI-TAKEOVER PROVISIONS OF OHIO LAW
 
     Certain provisions of Ohio law may have the effect of discouraging or
rendering more difficult an unsolicited acquisition of a corporation or its
capital stock to the extent the corporation is subject to those provisions. We
have opted out of one such provision. We remain subject to the foregoing
provisions described below.
 
     Chapter 1704 of the Ohio Revised Code prohibits certain transactions,
including mergers, sales of assets, issuances or purchases of securities,
liquidation or dissolution, or reclassifications of the then outstanding shares
of an Ohio corporation with fifty or more shareholders involving, or for the
benefit of, certain holders of shares representing 10% or more of the voting
power of the corporation (any such shareholder, a "10% Shareholder"), unless:
 
          (i) the transaction is approved by the directors before the 10%
     Shareholder becomes a 10% Shareholder;
 
                                       55
<PAGE>   57
 
          (ii) the acquisition of 10% of the voting power is approved by the
     directors before the 10% Shareholder becomes a 10% Shareholder; or
 
          (iii) the transaction involves a 10% Shareholder who has been a 10%
     Shareholder for at least three years and is approved by holders of
     two-thirds of our voting power and the holders of a majority of the voting
     power not owned by the 10% Shareholder, or certain price and form of
     consideration requirements are met.
 
Chapter 1704 of the Ohio Revised Code may have the effect of deterring certain
potential acquisitions of us which might be beneficial to shareholders.
 
     Section 1701.041 of the Ohio Revised Code regulates certain "control bids"
for corporations in Ohio with fifty or more shareholders that have significant
Ohio contacts and permits the Ohio Division of Securities to suspend a control
bid if certain information is not provided to offerees.
 
                       FEDERAL INCOME TAX CONSIDERATIONS
 
     The following summary of certain federal income tax considerations
regarding Developers Diversified Realty Corporation and the securities we are
registering is based on current law, is for general information only and is not
tax advice. The information set forth below, to the extent that it constitutes
matters of law, summaries of legal matters or legal conclusions, is the opinion
of Baker & Hostetler LLP. The tax treatment to holders of securities will vary
depending on a holder's particular situation and this discussion does not
purport to deal with all aspects of taxation that may be relevant to a holder of
securities in light of his or her personal investments or tax circumstances, or
to certain types of shareholders subject to special treatment under the federal
income tax laws except to the extent discussed under the headings " -- Taxation
of Tax-Exempt Shareholders" and " -- Taxation of Non-U.S. Shareholders."
Shareholders subject to special treatment include, without limitation, insurance
companies, financial institutions or broker-dealers, tax-exempt organizations,
shareholders holding securities as part of a conversion transaction, or a hedge
or hedging transaction or as a position in a straddle for tax purposes, foreign
corporations or partnerships and persons who are not citizens or residents of
the United States. In addition, the summary below does not consider the effect
of any foreign, state, local or other tax laws that may be applicable to holders
of our securities.
 
     The information in this section is based on the Internal Revenue Code,
current, temporary and proposed Treasury Regulations promulgated under the
Internal Revenue Code, the legislative history of the Internal Revenue Code,
current administrative interpretations and practices of the Internal Revenue
Service (the "IRS") (including its practices and policies as expressed in
certain private letter rulings which are not binding on the IRS except with
respect to the particular taxpayers who requested and received such rulings),
and court decisions, all as of the date of this prospectus. Future legislation,
Treasury Regulations, administrative interpretations and practices and/or court
decisions may adversely affect, perhaps retroactively, the tax considerations
described herein. We have not requested, and do not plan to request, any rulings
from the IRS concerning our tax treatment and the statements in this prospectus
are not binding on the IRS or a court. Thus, we can provide no assurance that
these statements will not be challenged by the IRS or sustained by a court if
challenged by the IRS.
 
                                       56
<PAGE>   58
 
     YOU ARE ADVISED TO CONSULT YOUR TAX ADVISOR REGARDING THE SPECIFIC TAX
CONSEQUENCES TO YOU OF THE ACQUISITION, OWNERSHIP AND SALE OF OUR SECURITIES,
INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH
DISPOSITION, ACQUISITION, OWNERSHIP AND SALE AND OF POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
 
TAXATION OF THE COMPANY
 
     General. We elected to be taxed as a REIT under Sections 856 through 860 of
the Internal Revenue Code, commencing with our taxable year ended December 31,
1993. We believe we have been organized and have operated in a manner which
allows us to qualify for taxation as a REIT under the Internal Revenue Code
commencing with our taxable year ended December 31, 1993. We intend to continue
to operate in this manner. However, our qualification and taxation as a REIT
depends upon our ability to meet (through actual annual operating results, asset
diversification, distribution levels and diversity of stock ownership) the
various qualification tests imposed under the Internal Revenue Code.
Accordingly, there is no assurance that we have operated or will continue to
operate in a manner so as to qualify or remain qualified as a REIT. See
" -- Failure to Qualify."
 
     The sections of the Internal Revenue Code that relate to the qualification
and operation as a REIT are highly technical and complex. The following sets
forth the material aspects of the sections of the Internal Revenue Code that
govern the federal income tax treatment of a REIT and its shareholders. This
summary is qualified in its entirety by the applicable Internal Revenue Code
provisions, relevant rules and regulations promulgated under the Internal
Revenue Code, and administrative and judicial interpretations of the Internal
Revenue Code.
 
     If we qualify for taxation as a REIT, we generally will not be subject to
federal corporate income taxes on our net income that is currently distributed
to our shareholders. This treatment substantially eliminates the "double
taxation" (once at the corporate level when earned and once again at the
shareholder level when distributed) that generally results from investment in a
corporation. However, Developers Diversified Realty Corporation will be subject
to federal income tax as follows:
 
     First, we will be taxed at regular corporate rates on any undistributed
REIT taxable income, including undistributed net capital gains.
 
     Second, we may be subject to the "alternative minimum tax" on our items of
tax preference under certain circumstances.
 
     Third, if we have (a) net income from the sale or other disposition of
"foreclosure property" (defined generally as property we acquired through
foreclosure or after a default on a loan secured by the property or a lease of
the property) which is held primarily for sale to customers in the ordinary
course of business or (b) other nonqualifying income from foreclosure property,
we will be subject to tax at the highest corporate rate on this income.
 
     Fourth, we will be subject to a 100% tax on any 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).
 
                                       57
<PAGE>   59
 
     Fifth, we will be subject to a 100% tax on an amount equal to (a) the gross
income attributable to the greater of the amount by which we fail the 75% or 95%
gross income test multiplied by (b) a fraction intended to reflect our
profitability, if we fail to satisfy the 75% gross income test or the 95% gross
income test (as discussed below), but have maintained our qualification as a
REIT because we satisfied certain other requirements.
 
     Sixth, we would be subject to a 4% excise tax on the excess of the required
distribution over the amounts actually distributed if we fail to distribute
during each calendar year at least the sum of (a) 85% of our REIT ordinary
income for the year, (b) 95% of our REIT capital gain net income for the year
(other than certain long-term capital gains for which we make a Capital Gains
Designation (defined below) and on which we pay the tax), and (c) any
undistributed taxable income from prior periods.
 
     Seventh, if we acquire any asset (a "Built-In Gain Asset") from a
corporation which is or has been a C corporation (i.e., generally a corporation
subject to full corporate-level tax) in a transaction in which the basis of the
Built-In Gain Asset in our hands is determined by reference to the basis of the
asset in the hands of the C corporation, and we subsequently recognize gain on
the disposition of the asset during the ten-year period (the "Recognition
Period") beginning on the date on which we acquired the asset, then we will be
subject to tax at the highest regular corporate tax rate on this gain to the
extent of the Built-In Gain (i.e., the excess of (a) the fair market value of
the asset over (b) our adjusted basis in the asset, in each case determined as
of the beginning of the Recognition Period). The results described in this
paragraph with respect to the recognition of Built-In Gain assume that we will
make an election pursuant to IRS Notice 88-19.
 
     Requirements for Qualification as a REIT. The Internal Revenue Code defines
a REIT as a corporation, trust or association:
 
          (1) that is managed by one or more trustees or directors;
 
          (2) that issues transferable shares or transferable certificates to
     evidence its beneficial ownership;
 
          (3) that would be taxable as a domestic corporation, but for Sections
     856 through 859 of the Internal Revenue Code;
 
          (4) that is not a financial institution or an insurance company within
     the meaning of certain provisions of the Internal Revenue Code;
 
          (5) that is beneficially owned by 100 or more persons;
 
          (6) not more than 50% in value of the outstanding stock of which is
     owned, actually or constructively, by five or fewer individuals (as defined
     in the Internal Revenue Code to include certain entities) during the last
     half of each taxable year; and
 
          (7) that meets certain other tests, described below, regarding the
     nature of its income and assets and the amount of its distributions.
 
     The Internal Revenue Code provides that conditions (1) to (4), inclusive,
must be met during the entire taxable year and that condition (5) must be met
during at least 335 days of a taxable year of twelve months, or during a
proportionate part of a taxable year of less than twelve months. Conditions (5)
and (6) do not apply until after the first taxable year for which an election is
made to be taxed as a REIT. For purposes of
 
                                       58
<PAGE>   60
 
condition (6), pension funds and certain other tax-exempt entities are treated
as individuals, subject to a "look-through" exception with respect to pension
funds.
 
     We believe that we have satisfied each of the above conditions. In
addition, our charter provides for restrictions regarding ownership and transfer
of shares. These restrictions are intended to assist us in continuing to satisfy
the share ownership requirements described in (5) and (6) above. These ownership
and transfer restrictions are described in "Description of Preferred
Shares -- Restrictions on Ownership" and "Description of Common
Shares -- Restrictions on Ownership." These restrictions, however, may not
ensure that we will, in all cases, be able to satisfy the share ownership
requirements described in (5) and (6) above. If we fail to satisfy these share
ownership requirements, our status as a REIT will terminate. However, if we
comply with the rules contained in applicable Treasury Regulations that require
us to ascertain the actual ownership of our shares and we do not know, or would
not have known through the exercise of reasonable diligence, that we failed to
meet the requirement described in condition (6) above, we will be treated as
having met this requirement. See " -- Failure to Qualify."
 
     In addition, a corporation may not elect to become a REIT unless its
taxable year is the calendar year. We have and will continue to have a calendar
taxable year.
 
     Ownership of Interests in Partnerships and Qualified REIT Subsidiaries. In
the case of a REIT which is a partner in a partnership, IRS regulations provide
that the REIT will be deemed to own its proportionate share of the assets of the
partnership. Also, the REIT will be deemed to be entitled to the income of the
partnership attributable to its proportionate share. The character of the assets
and gross income of the partnership retains the same character in the hands of
the REIT for purposes of Section 856 of the Internal Revenue Code, including
satisfying the gross income tests and the asset tests. Thus, our proportionate
share of the assets and items of income of partnerships and limited liability
companies in which we own, directly or indirectly through other partnerships or
limited liability companies, less than all of the outstanding ownership
interests, are treated as our assets and items of income for purposes of
applying the requirements described in this prospectus (including the income and
asset tests described below).
 
     Developers Diversified Realty Corporation owns 100% of the stock of a
number of corporate subsidiaries that are qualified REIT subsidiaries (each, a
"QRS") and may acquire stock of one or more new subsidiaries. A corporation will
qualify as a QRS if 100% of its stock is held by Developers Diversified Realty
Corporation. A QRS will not be treated as a separate corporation, and all
assets, liabilities and items of income, deduction and credit of a QRS will be
treated as assets, liabilities and such items (as the case may be) of Developers
Diversified Realty Corporation for all purposes of the Internal Revenue Code,
including the REIT qualification tests. For this reason, references under
"Certain Federal Income Tax Considerations" to our income and assets shall
include the income and assets of any QRS. A QRS will not be subject to federal
income tax, and our ownership of the voting stock of a QRS will not violate the
restrictions against ownership of securities of any one issuer which constitute
more than 10% of such issuer's voting securities or more than 5% of the value of
our total assets, as described below under "--Asset Tests."
 
     Income Tests. We must satisfy two gross income requirements annually to
maintain our qualification as a REIT. First, in each taxable year we must derive
directly or indirectly at least 75% of our gross income (excluding gross income
from prohibited
 
                                       59
<PAGE>   61
 
transactions) 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, each taxable
year we must derive at least 95% of our gross income (excluding gross income
from prohibited transactions) from these real property investments, dividends,
interest and gain from the sale or disposition of stock or securities (or from
any combination of the foregoing). The term "interest" generally does not
include any amount received or accrued (directly or indirectly) if the
determination of the 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.
 
     Rents we receive will qualify as "rents from real property" in satisfying
the gross income requirements for a REIT described above only if the following
conditions are met:
 
     -  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;
 
     -  The Internal Revenue 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 actual or constructive owner of 10% or
        more of the REIT actually or constructively owns 10% or more of the
        interests in such tenant (a "Related Party Tenant");
 
     -  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 personal
        property will not qualify as "rents from real property"; and
 
     -  For rents received to qualify as "rents from real property," the REIT
        generally must not operate or manage the property or furnish or render
        services to the tenants of the property (subject to a 1% de minimis
        exception), other than through an independent contractor from whom the
        REIT derives no revenue. The REIT may, however, directly perform certain
        services that are "usually or customarily rendered" in connection with
        the rental of space for occupancy only and are not otherwise considered
        "rendered to the occupant" of the property.
 
     If we fail to satisfy one or both of the 75% or 95% gross income tests for
any taxable year, we may nevertheless qualify as a REIT for the year if we are
entitled to relief under certain provisions of the Internal Revenue Code.
Generally, we may avail ourselves of the relief provisions if:
 
          (i) our failure to meet these tests was due to reasonable cause and
     not due to willful neglect;
 
          (ii) we attach a schedule of the sources of our income to our federal
     income tax return; and
 
          (iii) any incorrect information on the schedule was not due to fraud
     with intent to evade tax.
 
                                       60
<PAGE>   62
 
     We do not intend to 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 heretofore described), and we do not
intend to 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). We directly perform services under
certain of our leases, but such services are not rendered to the occupant of the
property. Furthermore, these services are usual and customary management
services provided by landlords renting space for occupancy in the geographic
areas in which we own property. To the extent that the performance of any
services provided by us would cause amounts received from our tenants to be
excluded from rents from real property, we intend to hire independent
contractors from whom we derive no revenue to perform such services.
 
     It is not possible, however, to state whether in all circumstances we would
be entitled to the benefit of these relief provisions. For example, if we fail
to satisfy the gross income tests because nonqualifying income that we
intentionally incur exceeds the limits on nonqualifying income, the IRS could
conclude that our failure to satisfy the tests was not due to reasonable cause.
If these relief provisions do not apply to a particular set of circumstances, we
will not qualify as a REIT. As discussed above in " -- Taxation of the
Company -- General," even if these relief provisions apply, and we retain our
status as a REIT, a tax would be imposed with respect to our excess net income.
We may not always be able to maintain compliance with the gross income tests for
REIT qualification despite our periodic monitoring of our income.
 
     Prohibited Transaction Income. Any gain realized by us on the sale of any
property held as inventory or other property held primarily for sale to
customers in the ordinary course of business will be treated as income from a
prohibited transaction that is subject to a 100% penalty tax. Under existing
law, whether property is held as inventory or primarily for sale to customers in
the ordinary course of a trade or business is a question of fact that depends on
all the facts and circumstances surrounding the particular transaction.
 
     Asset Tests. At the close of each quarter of our taxable year, we also must
satisfy three tests relating to the nature and diversification of our assets.
First, at least 75% of the value of our total assets must be represented by real
estate assets, cash, cash items and government securities. For purposes of this
test, real estate assets include stock or debt instruments that are purchased
with the proceeds of a stock offering or a long-term (at least five years)
public debt offering, but only for the one-year period beginning on the date we
receive such proceeds. Second, not more than 25% of our total assets may be
represented by securities, other than those securities includable in the 75%
asset test. Third, of the investments included in the 25% asset class, the value
of any one issuer's securities may not exceed 5% of the value of our total
assets and we may not own more than 10% of any one issuer's outstanding voting
securities.
 
     After initially meeting the asset tests at the close of any quarter, we
will not lose our status as a REIT for failure to satisfy the asset tests at the
end of a later quarter solely by reason of changes in asset values. If we fail
to satisfy the asset tests because we acquire securities or other property
during a quarter, we can cure this failure by disposing of sufficient
nonqualifying assets within 30 days after the close of that quarter. We believe
we have maintained and intend to continue to maintain adequate records of the
value of our assets to ensure compliance with the asset tests and to take such
other actions within the 30 days after the close of any quarter as may be
required to cure any noncompliance. If we
 
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<PAGE>   63
 
fail to cure noncompliance with the asset tests within this time period, we
would cease to qualify as a REIT.
 
     Annual Distribution Requirements. To maintain our qualification as a REIT,
we are required to distribute dividends (other than capital gain dividends) to
our shareholders in an amount at least equal to the sum of 95% of our "REIT
taxable income" (computed without regard to the dividends paid deduction and our
net capital gain) and 95% of our net income (after tax), if any, from
foreclosure property, minus the excess of the sum of certain items of noncash
income (i.e., income attributable to leveled stepped rents, original issue
discount on purchase money debt, or a like-kind exchange that is later
determined to be taxable) over 5% of "REIT taxable income" as described above.
 
     These distributions must be paid in the taxable year to which they relate,
or in the following taxable year if they are declared before we timely file our
tax return for such year and if paid on or before the first regular dividend
payment after such declaration. Except as provided below, these distributions
are taxable to our shareholders (other than tax-exempt entities, as discussed
below) in the year in which paid. This is so even though these distributions
relate to the prior year for purposes of our 95% distribution requirement. The
amount distributed must not be preferential -- e.g., every shareholder of the
class of stock to which a distribution is made must be treated the same as every
other shareholder of that class, and no class of stock may be treated otherwise
than in accordance with its dividend rights as a class. To the extent that we do
not distribute all of our net capital gain or distribute at least 95%, but less
than 100%, of our "REIT taxable income," as adjusted, we will be subject to tax
thereon at regular ordinary and capital gain corporate tax rates. We believe we
have made and intend to continue to make timely distributions sufficient to
satisfy these annual distribution requirements.
 
     We generally expect that our REIT taxable income will be less than our cash
flow due to the allowance of depreciation and other non-cash charges in
computing REIT taxable income. Accordingly, we anticipate that we will generally
have sufficient cash or liquid assets to enable us to satisfy the distribution
requirements described above. However, from time to time, we may not have
sufficient cash or other liquid assets to meet these distribution requirements
due to timing differences between the actual receipt of income and actual
payment of deductible expenses, and the inclusion of income and deduction of
expenses in arriving at our taxable income. If these timing differences occur,
in order to meet the distribution requirements, we may need to arrange for
short-term, or possibly long-term, borrowings or need to pay dividends in the
form of taxable share dividends.
 
     Under certain circumstances, we may be able to rectify a failure to meet
the distribution requirement for a year by paying "deficiency dividends" to
shareholders in a later year, which may be included in our deduction for
dividends paid for the earlier year. Thus, we may be able to avoid being taxed
on amounts distributed as deficiency dividends. However, we will be required to
pay interest based upon the amount of any deduction taken for deficiency
dividends.
 
     Furthermore, we would be subject to a 4% excise tax on the excess of the
required distribution over the amounts actually distributed if we should fail to
distribute during each calendar year (or in the case of distributions with
declaration and record dates falling in the last three months of the calendar
year, by the end of January immediately following such year) at least the sum of
85% of our REIT ordinary income for such year, 95% of
 
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<PAGE>   64
 
our REIT capital gain income for the year (other than certain long-term capital
gains for which we make a Capital Gains Designation and on which we pay the
tax), and any undistributed taxable income from prior periods. Any REIT taxable
income and net capital gain on which this excise tax is imposed for any year is
treated as an amount distributed during that year for purposes of calculating
such tax.
 
     Earnings and Profits Distribution Requirement. In order to qualify as a
REIT, we cannot have at the end of any taxable year any undistributed "earnings
and profits" that are attributable to a "C corporation" taxable year (i.e., a
year in which a corporation is neither a REIT nor an S corporation).
 
FAILURE TO QUALIFY
 
     If we fail to qualify for taxation as a REIT in any taxable year, and the
relief provisions do not apply, we will be subject to tax (including any
applicable alternative minimum tax) on our taxable income at regular corporate
rates. Distributions to shareholders in any year in which we fail to qualify
will not be deductible by us and we will not be required to distribute any
amounts to our shareholders. As a result, our failure to qualify as a REIT would
reduce the cash available for distribution by us to our shareholders. In
addition, if we fail to qualify as a REIT, all distributions to shareholders
will be taxable as ordinary income to the extent of our current and accumulated
earnings and profits, and subject to certain limitations of the Internal Revenue
Code, corporate distributees may be eligible for the dividends received
deduction. Unless entitled to relief under specific statutory provisions, we
will also be disqualified from taxation as a REIT for the four taxable years
following the year during which we lost our qualification. It is not possible to
state whether in all circumstances we would be entitled to this statutory
relief.
 
TAX ASPECTS OF JOINT VENTURES
 
     General. We hold certain investments indirectly through partnerships,
limited liability companies, and joint ventures (the "Joint Ventures"). In
general, partnerships and limited liability companies in which we own an
interest are "pass-through" entities which are not subject to federal income
tax. Rather, partners or owners are allocated their proportionate shares of the
items of income, gain, loss, deduction and credit of a partnership, and are
potentially subject to tax thereon, without regard to whether the partners
receive a distribution from the partnership. We will include in our income our
proportionate share of the foregoing partnership or limited liability company
items for purposes of the various REIT income tests and in the computation of
our REIT taxable income.
 
     Entity Classification. Our interests in the Joint Ventures involve special
tax considerations, including the possibility of a challenge by the IRS of the
status of a Joint Venture as a partnership (as opposed to an association taxable
as a corporation) for federal income tax purposes. If a Joint Venture were
treated as an association, it would be taxable as a corporation and therefore be
subject to an entity-level tax on its income. In such a situation, the character
of our assets and items of gross income would change and preclude us from
satisfying the asset tests and possibly the income tests (see " -- Taxation of
the Company -- Asset Tests" and " -- Income Tests"). This, in turn, would
prevent us from qualifying as a REIT. See " -- Failure to Qualify" for a
discussion of the effect of our failure to meet these tests for a taxable year.
In addition, a change in a Joint Venture's status for tax purposes might be
treated as a taxable event. If so, we might incur a tax liability without any
related cash distributions.
 
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<PAGE>   65
 
     Treasury Regulations that apply for tax periods beginning on or after
January 1, 1997 provide that a domestic business entity not otherwise classified
as a corporation and which has at least two members (an "Eligible Entity") may
elect to be taxed as a partnership for federal income tax purposes. Unless it
elects otherwise, an Eligible Entity in existence prior to January 1, 1997 will
have the same classification for federal income tax purposes that it claimed
under the entity classification Treasury Regulations in effect prior to this
date. In addition, an Eligible Entity which did not exist, or did not claim a
classification, prior to January 1, 1997, will be classified as a partnership
for federal income tax purposes unless it elects otherwise. We believe all of
our Joint Ventures will be classified as partnerships for federal income tax
purposes.
 
TAXATION OF TAXABLE U.S. SHAREHOLDERS
 
     As used below, the term "U.S. Shareholder" means a holder of shares who
(for United States federal income tax purposes):
 
          (i) is a citizen or resident of the United States;
 
          (ii) is a corporation or partnership (including an entity treated as a
     corporation or partnership for United States federal income tax purposes)
     created or organized in or under the laws of the United States or of any
     state thereof or in the District of Columbia, unless, in the case of a
     partnership, Treasury Regulations provide otherwise;
 
          (iii) is an estate the income of which is subject to United States
     federal income taxation regardless of its source; or
 
          (iv) is a trust whose administration is subject to the primary
     supervision of a United States court and which has one or more United
     States persons who have the authority to control all substantial decisions
     of the trust.
 
     Notwithstanding the preceding sentence, to the extent provided in Treasury
Regulations, certain trusts in existence on August 20, 1996, and treated as
United States persons prior to this date that elect to continue to be treated as
United States persons, shall also be considered U.S. Shareholders.
 
     Distributions Generally. As long as we qualify as a REIT, distributions out
of our current or accumulated earnings and profits, other than capital gain
dividends discussed below, will constitute dividends taxable to our taxable U.S.
Shareholders as ordinary income. These distributions will not be eligible for
the dividends-received deduction in the case of U.S. Shareholders that are
corporations. For purposes of determining whether distributions to holders of
shares are out of current or accumulated earnings and profits, our earnings and
profits will be allocated first to the outstanding preferred shares and then to
the shares.
 
     To the extent that we make distributions in excess of our current and
accumulated earnings and profits, these distributions will be treated first as a
tax-free return of capital to each U.S. Shareholder. This treatment will reduce
the adjusted basis which each U.S. Shareholder has in his shares of stock for
tax purposes by the amount of the distribution (but not below zero).
Distributions in excess of a U.S. Shareholder's adjusted basis in his shares
will be taxable as capital gains (provided that the shares have been held as a
capital asset) and will be taxable as long-term capital gain if the shares have
been held for more than one year. Dividends we declare in October, November, or
December of any year and
 
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<PAGE>   66
 
payable to a shareholder of record on a specified date in any of these months
shall be treated as both paid by us and received by the shareholder on December
31 of that year, provided we actually pay the dividend on or before January 31
of the following calendar year. Shareholders may not include in their own income
tax returns any of our net operating losses or capital losses.
 
     Capital Gain Distributions. Distributions that we properly designate as
capital gain dividends (and undistributed amounts for which we properly make a
Capital Gains Designation) will be taxable to taxable U.S. Shareholders as gains
(to the extent that they do not exceed our actual net capital gain for the
taxable year) from the sale or disposition of a capital asset. Depending on the
period of time we have held the assets which produced these gains, and on
certain designations, if any, which we may make, these gains may be taxable to
non-corporate U.S. Shareholders at a 20% or 25% rate. U.S. Shareholders that are
corporations may, however, be required to treat up to 20% of certain capital
gain dividends as ordinary income. For a discussion of the manner in which that
portion of any dividends designated as capital gain dividends will be allocated
among the holders of our preferred shares, depositary shares and common shares,
see "Description of Preferred Shares," "Description of Depositary Shares" and
"Description of Common Shares."
 
     The Taxpayer Relief Act of 1997 (as modified by the Internal Revenue
Service Restructuring and Reform Act of 1998, which was signed into law on July
22, 1998) made certain changes to the Internal Revenue Code with respect to
taxation of long-term capital gains earned by taxpayers other than corporations.
In general, for sales made after January 1, 1998, the maximum tax rate for
individual taxpayers on net long-term capital gains (i.e., the excess of net
long-term capital gain over net short-term capital loss) is lowered to 20% for
most assets. This 20% rate applies to sales on or after January 1, 1998 only if
the asset was held for more than 12 months at the time of disposition. Also,
so-called "unrecaptured section 1250 gain" is subject to a maximum federal
income tax rate of 25%. "Unrecaptured section 1250 gain" generally includes the
long-term capital gain realized on the sale of a real property asset described
in Section 1250 of the Internal Revenue Code, but not in excess of the amount of
depreciation (less the gain, if any, treated as ordinary income under Internal
Revenue Code Section 1250) taken on such asset. A rate of 18% instead of 20%
will apply after December 31, 2000 for assets held more than five years.
However, the 18% rate applies only to assets acquired after December 31, 2000
unless the taxpayer elects to treat an asset held prior to such date as sold for
market value on January 1, 2001. In the case of individuals whose ordinary
income is taxed at a 15% rate, the 20% rate is reduced to 10% and the 10% rate
for assets held more than five years is reduced to 8%.
 
     Certain aspects of the new legislation are currently unclear, including how
the reduced rates will apply to gains earned by REITs such as us. Until the IRS
issues some guidance, it is unclear whether or how the 20% or 10% rate will
apply to distributions of long-term capital gains by us. The Taxpayer Relief Act
of 1997 gives the IRS authority to apply the Act's new rules on taxation of
capital gains to sales by pass-through entities, including REITs. It is possible
that the IRS could provide in such regulations, as it did in IRS Notice 97-64
(superseded by the Internal Revenue Service Restructuring and Reform Act of
1998), that REIT capital gain dividends must be determined by looking through to
the assets sold by the REIT and treated by REIT shareholders as "long-term
capital gain" and "unrecaptured section 1250 gain" to the extent of such
respective gain realized by the
 
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<PAGE>   67
 
REIT. No regulations have yet been issued. Such regulations, if and when issued,
may have a retroactive effect.
 
     Shareholders should consult their tax advisors with regard to (i) the
application of the changes made by the Taxpayer Relief Act of 1997 and the
Internal Revenue Service Restructuring and Reform Act of 1998 with respect to
taxation of capital gains and capital gain dividends and (ii) state, local and
foreign taxes on capital gains.
 
     Passive Activity Losses and Investment Interest Limitations. Distributions
we make and gain arising from the sale or exchange by a U.S. Shareholder of our
shares will not be treated as passive activity income. As a result, U.S.
Shareholders generally will not be able to apply any "passive losses" against
this income or gain. Distributions we make (to the extent they do not constitute
a return of capital) generally will be treated as investment income for purposes
of computing the investment interest limitation. Gain arising from the sale or
other disposition of our shares, however, will not be treated as investment
income under certain circumstances.
 
     Retention of Net Long-Term Capital Gains. We may elect to retain, rather
than distribute as a capital gain dividend, our net long-term capital gains. If
we make this election a "Capital Gains Designation", we would pay tax on our
retained net long-term capital gains. In addition, to the extent we make a
Capital Gains Designation, a U.S. Shareholder generally would:
 
          (i) include its proportionate share of our 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 our taxable year falls (subject
     to certain limitations as to the amount that is includable);
 
          (ii) be deemed to have paid the capital gains tax imposed on us on the
     designated amounts included in the U.S. Shareholder's long-term capital
     gains;
 
          (iii) receive a credit or refund for the amount of tax deemed paid by
     it;
 
          (iv) increase the adjusted basis of its common shares by the
     difference between the amount of includable gains and the tax deemed to
     have been paid by it; and
 
          (v) in the case of a U.S. Shareholder that is a corporation,
     appropriately adjust its earnings and profits for the retained capital
     gains in accordance with Treasury Regulations to be prescribed by the IRS.
 
DISPOSITIONS OF SECURITIES
 
     If you are a U.S. Shareholder and you sell or dispose of your shares, you
will recognize gain or loss for federal income tax purposes in an amount equal
to the difference between the amount of cash and the fair market value of any
property you receive on the sale or other disposition and your adjusted basis in
the shares for tax purposes. This gain or loss will be capital if you have held
the shares as a capital asset and will be long-term capital gain or loss if you
have held the shares for more than one year. However, if you are a U.S.
Shareholder and you recognize loss upon the sale or other disposition of shares
that you have held for six months or less (after applying certain holding period
rules), the loss you recognize will be treated as a long-term capital loss, to
the extent you received distributions from us which were required to be treated
as long-term capital gains.
 
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<PAGE>   68
 
BACKUP WITHHOLDING
 
     We report to our U.S. Shareholders and the IRS the amount of dividends paid
during each calendar year, and the amount of any tax withheld. Under the backup
withholding rules, a shareholder may be subject to backup withholding at the
rate of 31% with respect to dividends paid unless the holder is a corporation or
comes within certain other exempt categories and, when required, demonstrates
this fact, or provides a taxpayer identification number, certifies as to no loss
of exemption from backup withholding, and otherwise complies with applicable
requirements of the backup withholding rules. A U.S. Shareholder that does not
provide us with his correct taxpayer identification number may also be subject
to penalties imposed by the IRS. Backup withholding is not an additional tax.
Any amount paid as backup withholding will be creditable against the
shareholder's income tax liability. In addition, we may be required to withhold
a portion of capital gain distributions to any shareholders who fail to certify
their non-foreign status. See " -- Taxation of Non-U.S. Shareholders."
 
TAXATION OF TAX-EXEMPT SHAREHOLDERS
 
     The IRS has ruled that amounts distributed as dividends by a qualified REIT
do not constitute unrelated business taxable income ("UBTI") when received by a
tax-exempt entity. Based on that ruling, dividend income from us will not be
UBTI to a tax-exempt shareholder, so long as the tax-exempt shareholder (except
certain tax-exempt shareholders described below) has not held its shares as
"debt financed property" within the meaning of the Internal Revenue Code
(generally, shares, the acquisition of which was financed through a borrowing by
the tax exempt shareholder) and the shares are not otherwise used in a trade or
business. Similarly, income from the sale of shares will not constitute UBTI
unless a tax-exempt shareholder has held its shares as "debt financed property"
within the meaning of the Internal Revenue Code or has used the shares in its
trade or business.
 
     For tax-exempt shareholders which are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans exempt from federal income taxation under Internal
Revenue Code Sections 501(c)(7), (c)(9), (c)(17) and (c)(20), respectively,
income from an investment in our shares will constitute UBTI unless the
organization is able to properly deduct amounts set aside or placed in reserve
for certain purposes so as to offset the income generated by its investment in
our shares. These prospective investors should consult their own tax advisors
concerning these "set aside" and reserve requirements.
 
     Notwithstanding the above, however, a portion of the dividends paid by a
"pension held REIT" shall be treated as UBTI as to certain types of trusts which
hold more than 10% (by value) of the interests in the REIT.
 
     A REIT will not be a "pension held REIT" if it is able to satisfy the "not
closely held" requirement without relying upon the "look-through" exception with
respect to certain trusts. We do not expect to be classified as a "pension held
REIT."
 
TAXATION OF NON-U.S. SHAREHOLDERS
 
     The preceding discussion does not address the rules governing United States
federal income taxation of the ownership and disposition of shares by persons
that are not U.S. Shareholders ("Non-U.S. Shareholders"). In general, Non-U.S.
Shareholders may be
 
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<PAGE>   69
 
subject to special tax withholding requirements on distributions from Developers
Diversified Realty Corporation and with respect to their sale or other
disposition of shares of Developers Diversified Realty Corporation, except to
the extent reduced or eliminated by an income tax treaty between the United
States and the Non-U.S. Shareholder's country. A Non-U.S. Shareholder who is a
shareholder of record and is eligible for reduction or elimination of
withholding must file an appropriate form with Developers Diversified Realty
Corporation in order to claim such treatment. Non-U.S. Shareholders should
consult their own tax advisors concerning the federal income tax consequences to
them of an acquisition of shares, including the federal income tax treatment of
dispositions of interests in, and the receipt of distributions from, Developers
Diversified Realty Corporation.
 
OTHER TAX CONSEQUENCES
 
     State and Local Tax Consequences. We may be subject to state or local
taxation or withholding in various state or local jurisdictions, including those
in which we transact business and our shareholders may be subject to state or
local taxation or withholding in various state or local jurisdictions, including
those in which they reside. Our state and local tax treatment may not conform to
the federal income tax consequences discussed above. In addition, your state and
local tax treatment may not conform to the federal income tax consequences
discussed above. Consequently, you should consult your own tax advisors
regarding the effect of state and local tax laws on an investment in our shares.
 
     Federal Estate Tax. Shares owned or treated as owned by an individual who
is not a citizen or a "resident" (as specifically defined for U.S. federal
estate tax purposes) of the United States at the time of death will be
includable in the individual's gross estate for U.S. federal estate tax
purposes, unless an applicable estate tax treaty provides otherwise. Such
individual's estate may be subject to U.S. federal estate tax on the property
includable in the estate for U.S. federal estate tax purposes.
 
ERISA CONSIDERATIONS
 
     The following is a summary of material considerations arising under the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") and the
prohibited transaction provisions of Section 4975 of the Internal Revenue Code
that may be relevant to a prospective purchaser of our securities (including a
prospective purchaser that is not an employee benefit plan which is subject to
ERISA, but is a tax-qualified retirement plan or an individual retirement
account, individual retirement annuity, medical savings account or education
individual retirement account (collectively, an "IRA")). This discussion does
not purport to deal with all aspects of ERISA or Section 4975 of the Internal
Revenue Code or, to the extent not preempted, state law that may be relevant to
particular employee benefit plan shareholders (including plans subject to Title
I of ERISA, other employee benefit plans and IRAs subject to the prohibited
transaction provisions of Section 4975 of the Internal Revenue Code, and
governmental plans and church plans that are exempt from ERISA and Section 4975
of the Internal Revenue Code but that may be subject to state law requirements),
depending on their particular circumstances.
 
     A FIDUCIARY MAKING THE DECISION TO INVEST IN SECURITIES ON BEHALF OF A
PROSPECTIVE PURCHASER WHICH IS AN ERISA PLAN, A TAX QUALIFIED RETIREMENT PLAN,
AN IRA OR OTHER EMPLOYEE BENEFIT PLAN IS ADVISED TO CONSULT ITS OWN LEGAL
ADVISOR REGARDING THE SPECIFIC CONSIDERATIONS ARISING UNDER ERISA (WHEN
APPLICABLE), SECTION 4975 OF THE INTERNAL
 
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<PAGE>   70
 
REVENUE CODE, AND (TO THE EXTENT NOT PREEMPTED) STATE LAW WITH RESPECT TO THE
PURCHASE, OWNERSHIP OR SALE OF SECURITIES BY SUCH PLAN OR IRA. Plans should also
consider the entire discussion under the heading "Certain Federal Income Tax
Considerations," because material contained in that section is potentially
relevant to any decision by an employee benefit plan, tax-qualified retirement
plan or IRA to purchase our securities.
 
EMPLOYEE BENEFIT PLANS, TAX-QUALIFIED RETIREMENT PLANS AND IRAS
 
     Each fiduciary of an employee benefit plan subject to Title I of ERISA (an
"ERISA Plan") should carefully consider whether an investment in securities is
consistent with its fiduciary responsibilities under ERISA. In particular, the
fiduciary requirements of Part 4 of Title I of ERISA require that:
 
          (i) an ERISA Plan fiduciary make investments that are prudent and in
     the best interests of the ERISA Plan's participants and beneficiaries;
 
          (ii) an ERISA Plan fiduciary make investments that are diversified in
     order to reduce the risk of large losses, unless it is clearly prudent for
     the fiduciary not to do so;
 
          (iii) an ERISA Plan's investments are authorized under ERISA and the
     terms of the governing documents of the ERISA Plan; and
 
          (iv) the fiduciary not cause the ERISA Plan to enter into transactions
     that are prohibited under Section 406 of ERISA and not exempt under
     Sections 407 or 408 of ERISA.
 
     In determining whether an investment in securities is prudent for purposes
of ERISA, the appropriate fiduciary of an ERISA Plan should consider all of the
facts and circumstances, including whether the investment is reasonably designed
to meet the objectives of the ERISA Plan (or that part of the ERISA Plan's
portfolio for which the fiduciary has investment responsibility), taking into
consideration the risk of loss and opportunity for gain (or other return) from
the investment, the diversification, cash flow and funding requirements of the
ERISA Plan (or portfolio), and the liquidity and current return of the ERISA
Plan (or portfolio). A fiduciary should also take into account the nature of our
business, the length of our operating history and other matters described under
"Risk Factors."
 
     The owner of an IRA or the fiduciary of an employee benefit plan not
subject to Title I of ERISA (a "Non-ERISA Plan") should consider that such an
IRA or Non-ERISA Plan may only make investments that are either authorized or
not prohibited by the appropriate governing documents, not prohibited under
Section 4975 of the Internal Revenue Code and permitted under applicable state
law. Government plans and church plans are examples of Non-ERISA Plans, as are
plans that do not cover any common law employees.
 
STATUS OF THE COMPANY UNDER ERISA
 
     A prohibited transaction may occur if our assets are deemed to be assets of
the investing ERISA Plans and disqualified persons directly or indirectly deal
with such assets. In certain circumstances where an ERISA Plan holds an interest
in an entity, the assets of the entity are deemed to be ERISA Plan assets (the
"look-through rule"). Under those circumstances, any person that exercises
authority or control with respect to the
 
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<PAGE>   71
 
management or disposition of the assets is an ERISA Plan fiduciary. ERISA Plan
assets are not defined in ERISA or the Internal Revenue Code, but the United
States Department of Labor has issued regulations, effective March 13, 1987,
that outline the circumstances under which an ERISA Plan's interest in an entity
will be subject to the look-through rule.
 
     The Department of Labor regulations apply only to the purchase by an ERISA
Plan of an "equity interest" in an entity, such as stock of a REIT. However, the
Department of Labor regulations provide an exception to the look-through rule
for equity interests that are "publicly-offered securities." The Department of
Labor regulations also provide exceptions to the look-through rule for equity
interests in certain types of entities, including any entity which qualifies as
either a "real estate operating company" (a "REOC") or a "venture capital
operating company" (a "VCOC").
 
     Under the Department of Labor regulations, a "publicly-offered security" is
a security that is:
 
             (i) freely transferable;
 
             (ii) part of a class of securities that is widely-held; and
 
             (iii) either part of a class of securities that is registered under
        section 12(b) or 12(g) of the Exchange Act or sold to an ERISA Plan as
        part of an offering of securities to the public pursuant to an effective
        registration statement under the Securities Act so long as the class of
        securities of which such security is a part is timely registered under
        the Exchange Act after the end of the fiscal year of the issuer during
        which the offering of such securities to the public occurred.
 
     Whether a security is considered "freely transferable" depends on the facts
and circumstances of each case. Under the Department of Labor regulations, if
the security is part of an offering in which the minimum investment is $10,000
or less, then any restriction on or prohibition against any transfer or
assignment of such security for the purposes of preventing a termination or
reclassification of the entity for federal or state tax purposes will not
ordinarily prevent the security from being considered freely transferable.
Additionally, limitations or restrictions on the transfer or assignment of a
security which are created or imposed by persons other than the issuer of the
security or persons acting for or on behalf of the issuer will ordinarily not
prevent the security from being considered freely transferable. A class of
securities is considered "widely-held" if it is a class of securities that is
owned by 100 or more investors independent of the issuer and of one another.
 
     Under the Department of Labor regulations, a REOC is defined as an entity
which on certain testing dates has at least 50% of its assets (other than
short-term investments pending long-term commitment or distribution to
investors), valued at cost, invested in real estate which is managed or
developed and with respect to which the entity has the right to substantially
participate directly in the management or development activities and which, in
the ordinary course of its business, is engaged directly in real estate
management or development activities. A VCOC is defined as an entity which on
certain testing dates has at least 50% of its assets (other than short-term
investments pending long-term commitment or distribution to investors), valued
at cost, invested in one or more operating companies with respect to which the
entity has management rights and which, in the
 
                                       70
<PAGE>   72
 
ordinary course of its business, actually exercises its management rights with
respect to one or more of the operating companies in which it invests.
 
     We expect that the equity securities offered in this prospectus (other than
any warrants) will meet the criteria of the publicly-offered security exception
to the look-through rule. Those equity securities should be considered to be
freely transferable, as the minimum investment will be less than $10,000 and the
only stock transfer restrictions consist of (1) those required under federal tax
laws to maintain our status as a REIT, (2) resale restrictions under applicable
federal securities laws with respect to securities not purchased pursuant to
this prospectus, (3) those owned by our officers, directors and other
affiliates, and (4) voluntary restrictions agreed to by the selling shareholders
regarding volume limitations. In addition, we expect those equity securities to
be held by 100 or more investors and we expect that at least 100 or more of
these investors will be independent of us and of one another. Also, those equity
securities will be part of an offering of securities to the public pursuant to
an effective registration statement under the Securities Act and those equity
securities will be registered under the Exchange Act. Finally, even if the
publicly-offered security exception did not apply, we have management rights
with respect to the Joint Ventures and conduct our affairs in such a manner that
we will qualify as either a REOC or VCOC under the Department of Labor
regulations. Accordingly, we believe that if an ERISA Plan purchases those
equity securities (other than any warrants), our assets should not be deemed to
be ERISA Plan assets and, therefore, that any person who exercises authority or
control with respect to our assets should not be an ERISA Plan fiduciary. We
expect that any debt securities offered in this prospectus will not be subject
to the look-through rule in any event.
 
   RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED FIXED
                     CHARGES AND PREFERRED SHARE DIVIDENDS
 
     Our ratio of earnings to fixed charges for the nine month period ended
September 30, 1998 and the fiscal years ended December 31, 1997, December 31,
1996, December 31, 1995, December 31, 1994 and December 31, 1993 were as
follows:
 
<TABLE>
<CAPTION>
                       TIME PERIOD                           RATIO
                       -----------                           -----
<S>                                                          <C>
December 31, 1993........................................    1.65
December 31, 1994........................................    1.91
December 31, 1995........................................    1.71
December 31, 1996........................................    2.32
December 31, 1997........................................    2.58
Nine month period ended September 30, 1998...............    2.03
</TABLE>
 
     Our ratio of earnings to combined fixed charges and preferred share
dividends for the nine month period ended September 30, 1998 and the fiscal
years ended December 31,
 
                                       71
<PAGE>   73
 
1997, December 31, 1996, December 31, 1995, December 31, 1994 and December 31,
1993 were as follows:
 
<TABLE>
<CAPTION>
                       TIME PERIOD                           RATIO
                       -----------                           -----
<S>                                                          <C>
December 31, 1993........................................    1.65
December 31, 1994........................................    1.91
December 31, 1995........................................    1.64
December 31, 1996........................................    1.65
December 31, 1997........................................    1.91
Nine month period ended September 30, 1998...............    1.63
</TABLE>
 
     For purposes of computing these ratios, earnings have been calculated by
adding fixed charges (excluding capitalized interest and preferred dividends)
and the minority interest in the income of majority owned joint ventures that
have fixed charges and subtracting any undistributed net income of joint
ventures accounted for using the equity method of accounting from income or loss
before income taxes and extraordinary items. Fixed charges consist of interest
costs, whether expensed or capitalized, the interest component of rental
expense, and amortization of debt discounts and issue costs, whether expensed or
capitalized.
 
                              PLAN OF DISTRIBUTION
 
     We may sell securities offered pursuant to any applicable prospectus
supplement to one or more underwriters for public offering and sale by them or
we may sell such securities to investors directly or through agents. The name of
any underwriter or agent involved in the offer and sale of such securities will
be included in the applicable prospectus supplement.
 
     Underwriters may offer and sell securities offered pursuant to any
applicable prospectus supplement:
 
     - at a fixed price or prices, which may be changed;
 
     - at market prices prevailing at the time of sale;
 
     - at prices related to prevailing market prices; or
 
     - at negotiated prices.
 
     From time to time, we may also authorize underwriters acting as our agents
to offer and sell securities upon the terms and conditions set forth in an
applicable prospectus supplement. Underwriters may be deemed to have received
compensation from us in the form of underwriting discounts or commissions in
connection with the sale of securities offered pursuant to any applicable
prospectus supplement. Underwriters may also receive commissions from purchasers
of securities for whom such underwriters may act as agent. Underwriters may sell
securities offered pursuant to any applicable prospectus supplement to or
through dealers. Such dealers may receive compensation in the form of discounts,
concessions from the underwriters or commissions from the purchasers for whom
such dealers may act as agent.
 
     We will describe in the applicable prospectus supplement any underwriting
compensation we pay to underwriters or agents in connection with any offering of
securities. Likewise, we will also describe any discounts, concessions or
commissions allowed by
                                       72
<PAGE>   74
 
underwriters to participating dealers in the applicable prospectus supplement.
Underwriters, dealers and agents participating in the distribution of the
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 securities may
be deemed to be underwriting discounts and commissions. We may enter into
agreements to indemnify underwriters, dealers and agents against certain civil
liabilities, including liabilities under the Securities Act, and to reimburse
these persons for certain expenses. We will describe any indemnification
agreements in the applicable prospectus supplement.
 
     If indicated in the applicable prospectus supplement, we may authorize
dealers acting as our agents to solicit offers by certain institutions to
purchase the securities from us at the public offering price set forth in such
prospectus supplement pursuant to delayed delivery contracts providing for
payment and delivery on the date or dates stated in the prospectus supplement.
Each delayed delivery contract will be for an amount not less than the
respective amounts stated in the applicable prospectus supplement. Likewise, the
aggregate principal amount of the securities sold pursuant to delayed delivery
contracts will not be less or more than the respective amounts stated in the
applicable prospectus supplement. We may make delayed delivery with various
institutions, including commercial and savings banks, insurance companies,
pension funds, investment companies, educational and charitable institutions,
and other institutions. Delayed delivery contracts will always be subject to our
approval. Delayed delivery contracts will not be subject to any conditions
except:
 
             (i) the purchase by an institution of the securities covered by its
        delayed delivery 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 securities are being sold to underwriters, we shall
        have sold to such underwriters the total principal amount of the offered
        securities less the principal amount covered by the delayed delivery
        contracts.
 
     Certain of the underwriters and their affiliates may be customers of,
engage in transactions with and perform services for us and our subsidiaries in
the ordinary course of business.
 
                                    EXPERTS
 
     The financial statements incorporated in this prospectus by reference to
the Annual Report on Form 10-K of Developers Diversified Realty Corporation for
the year ended December 31, 1997, the audited historical financial statements
included on pages F-2 through F-10 of the Company's Current Report on Form 8-K
dated April 28, 1998, the audited historical financial statements included on
pages F-3 through F-23 of the Company's Current Report on Form 8-K dated
February 28, 1998 and the audited historical financial statements included on
pages F-2 through F-7 of the Company's Current Report on Form 8-K dated November
7, 1997 have been so incorporated in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
 
                                       73
<PAGE>   75
 
                                 LEGAL MATTERS
 
     The validity of the debt securities, preferred shares, depositary shares,
common shares and common share warrants will be passed upon for us by Baker &
Hostetler LLP, Cleveland, Ohio, and for any underwriters, dealers or agents by
Brown & Wood LLP, New York, New York. Albert T. Adams, a director of Developers
Diversified Realty Corporation, is a partner of Baker & Hostetler LLP.
 
                                       74
<PAGE>   76
 
                                    PART II
 
                     INFORMATION NOT REQUIRED IN PROSPECTUS
 
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
 
     The following table sets forth the fees and expenses in connection with the
issuance and distribution of the securities being registered hereunder. Except
for the SEC registration fee, all amounts are estimates.
 
<TABLE>
<S>                                                             <C>
SEC registration fee........................................    $  208,500
NYSE listing fee............................................        30,000
Accounting fees and expenses................................       300,000
Legal fees and expenses (other than Blue Sky)...............       300,000
Blue Sky fees and expenses (including counsel fees).........         2,500
Printing and engraving expenses.............................       250,000
Transfer agent's and registrar's fees and expenses..........        25,000
Rating Agency Fees..........................................       200,000
Miscellaneous Expenses......................................        34,000
                                                                ----------
          Total.............................................    $1,350,000
                                                                ==========
</TABLE>
 
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
 
     The Ohio Revised Code (the "Ohio Code") authorizes Ohio corporations to
indemnify officers and directors from liability if the officer or director acted
in good faith and in a manner reasonably believed by the officer or director to
be in or not opposed to the best interests of the corporation, and with respect
to any criminal actions, if the officer or director had no reason to believe his
action was unlawful. In the case of an action by or on behalf of a corporation,
indemnification may not be made (i) if the person seeking indemnification is
adjudged liable for negligence or misconduct, unless the court in which such
action was brought determines such person is fairly and reasonably entitled to
indemnification, or (ii) if liability asserted against such person concerns
certain unlawful distributions. The indemnification provisions of the Ohio Code
require indemnification if a director or officer has been successful on the
merits or otherwise in defense of any action, suit or proceeding that he was a
party to by reason of the fact that he is or was a director or officer of the
corporation. The indemnification authorized under Ohio law is not exclusive and
is in addition to any other rights granted to officers and directors under the
articles of incorporation or code of regulations of the corporation or any
agreement between officers and directors and the corporation. A corporation may
purchase and maintain insurance or furnish similar protection on behalf of any
officer or director against any liability asserted against him and incurred by
him in his capacity, or arising out of the status, as an officer or director,
whether or not the corporation would have the power to indemnify him against
such liability under the Ohio Code.
 
     The Registrant's Code of Regulations provides for the indemnification of
directors and officers of the Registrant to the maximum extent permitted by Ohio
law as authorized by the Board of Directors of the Registrant and for the
advancement of expenses incurred in connection with the defense of any action,
suit or proceeding that he was a party to by reason of the fact that he is or
was a director or officer of the Registrant upon the receipt of an undertaking
to repay such amount unless it is ultimately determined that the director or
officer is entitled to indemnification.
 
                                      II-1
<PAGE>   77
 
     The Registrant maintains a directors' and officers' insurance policy which
insures the directors and officers of the Registrant from claims arising out of
an alleged wrongful act by such persons in their respective capacities as
directors and officers of the Registrant, subject to certain exceptions.
 
     The Registrant has entered into indemnification agreements with its
directors and officers which provide for indemnification to the fullest extent
permitted under Ohio law.
 
     Reference is made to Section 6 of the separate Underwriting Agreements,
copies of which are filed herewith as Exhibits 1(a), and 1(b) and Section 7 of
the Distribution Agreement, a copy of which is filed herewith as Exhibit 1(c)
for information concerning indemnification arrangements among the Registrant and
the Underwriters.
 
ITEM 16. EXHIBITS.
 
<TABLE>
<C>       <S>  <C>
  1(a)    --   Form of Underwriting Agreement for Debt Securities(6)
  1(b)    --   Form of Underwriting Agreement for Equity Securities(6)
  1(c)    --   Form of Distribution Agreement for Medium-Term Notes(6)
  4(a)    --   Amended and Restated Articles of Incorporation(1)
  4(b)    --   Senior Indenture(2)
  4(b)(1) --   First Supplement to Senior Indenture(5)
  4(c)    --   Subordinated Indenture(3)
  4(d)    --   Form of Senior Debt Security(4)
  4(e)    --   Form of Subordinated Debt Security(4)
  4(f)    --   Form of Fixed Rate Senior Medium-Term Note(6)
  4(g)    --   Form of Floating Rate Senior Medium-Term Note(6)
  4(h)    --   Form of Fixed Rate Subordinated Medium-Term Note(6)
  4(i)    --   Form of Floating Rate Subordinated Medium-Term Note(6)
  4(j)    --   Specimen Certificate for Common Shares(4)
  4(k)    --   Form of Common Share Warrant Agreement(6)
  4(l)    --   Form of Certificate for Preferred Shares(6)
  4(m)    --   Form of Deposit Agreement and Depositary Receipt(6)
  5       --   Opinion of Baker & Hostetler LLP
  8       --   Opinion of Baker & Hostetler LLP regarding tax matters
 12(a)    --   Calculation of Ratio of Earnings to Fixed Charges
 12(b)    --   Calculation of Ratio of Earnings to Combined Fixed Charges
               and Preferred Share Dividends
 23(a)    --   Consent of PricewaterhouseCoopers LLP
 23(b)    --   Consent of Baker & Hostetler LLP (included in Exhibit 5)
 25(a)    --   Statement of Eligibility of Trustee on Form T-1 for National
               City Bank
 25(b)    --   Statement of Eligibility of Trustee on Form T-1 for The
               Chase Manhattan Bank
 27       --   Financial Data Schedule(1)
</TABLE>
 
- ---------------
 
(1) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
    for the fiscal quarter ended September 30, 1998.
 
(2) Incorporated by reference from the Company's Current Report on Form 8-K
    dated July 19, 1994.
 
                                      II-2
<PAGE>   78
 
(3) Incorporated by reference from the Company's Current Report on Form 8-K
    dated December 5, 1994.
 
(4) Incorporated by reference from the Company's Registration Statement on Form
    S-3 (No. 33-78778) filed with the Commission on May 10, 1994.
 
(5) Incorporated by reference from the Company's Annual Report on Form 10-K for
    the fiscal year ended December 31, 1995.
 
(6) To be filed by amendment or incorporated by reference prior to the offering
    of the related securities.
 
ITEM 17. UNDERTAKINGS.
 
     The undersigned Registrant hereby undertakes:
 
     (1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
 
          (i) To include any prospectus required by section 10(a)(3) of the
     Securities Act of 1933;
 
          (ii) To reflect in the prospectus any facts or events arising after
     the effective date of the registration statement (or the most recent
     post-effective amendment thereof) which, individually or in the aggregate,
     represent a fundamental change in the information set forth in this
     registration statement. Notwithstanding the foregoing, any increase or
     decrease in the volume of securities offered (if the total dollar value of
     securities offered would not exceed that which was registered) and any
     deviation from the low or high end of the estimated maximum offering range
     may be reflected in the form of prospectus filed with the Commission
     pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
     price represent no more than a 20% change in the maximum aggregate offering
     price set forth in the "Calculation of Registration Fee" table in the
     effective registration statement;
 
          (iii) To include any material information with respect to the plan of
     distribution not previously disclosed in this registration statement or any
     material change to such information in this registration statement;
 
provided, however, that subparagraphs (i) and (ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in this
registration statement.
 
     (2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the Securities offered herein, and the
offering of such Securities at that time shall be deemed to be the initial bona
fide offering thereof.
 
     (3) To remove from registration by means of a post-effective amendment any
of the Securities being registered which remain unsold at the termination of the
offering.
 
     The undersigned Registrant hereby further undertakes that, for the purposes
of determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the Securities offered herein, and the offering of such Securities
at that time shall be deemed to be the initial bona fide offering thereof.
 
                                      II-3
<PAGE>   79
 
     Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 15 of this
registration statement, or otherwise (other than insurance), the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the Securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
 
                                      II-4
<PAGE>   80
 
                                   SIGNATURES
 
     Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Cleveland, State of Ohio, on the 17th day of
February, 1999.
 
                                    DEVELOPERS DIVERSIFIED REALTY CORPORATION
 
                                    By: /s/ SCOTT A. WOLSTEIN
                                       -----------------------------------------
                                        Scott A. Wolstein, President
                                        and Chief Executive Officer
 
     KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Scott A. Wolstein, James A. Schoff and Albert T.
Adams or any one of them, his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacitates, to sign any and all pre- or
post-effective amendments to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
 
     PURSUANT TO THE REQUIREMENT OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
 
<TABLE>
<S>                                                 <C>
/s/ SCOTT A. WOLSTEIN                               Chairman of the Board, Chief Executive Officer
- ------------------------------------------------    and Director (Principal Executive Officer)
Scott A. Wolstein
 
/s/ JAMES A. SCHOFF                                 Vice Chairman of the Board, Chief Investment
- ------------------------------------------------    Officer and Director
James A. Schoff
 
/s/ WILLIAM H. SCHAFER                              Vice President and Chief Financial Officer
- ------------------------------------------------    (Principal Financial Officer and Principal
William H. Schafer                                  Accounting Officer)
 
/s/ WILLIAM N. HULETT III                           Director
- ------------------------------------------------
William N. Hulett III
 
                                                    Director
- ------------------------------------------------
Ethan Penner
 
/s/ ALBERT T. ADAMS                                 Director
- ------------------------------------------------
Albert T. Adams
 
/s/ DEAN S. ADLER                                   Director
- ------------------------------------------------
Dean S. Adler
 
                                                    Director
- ------------------------------------------------
Barry A. Sholem
</TABLE>
 
                                      II-5

<PAGE>   1
                                                                       Exhibit 5

                                BAKER & HOSTETLER
                             1900 EAST NINTH STREET
                           CLEVELAND, OHIO 44114-3485


                              February 17, 1999


Developers Diversified
  Realty Corporation
34555 Chagrin Boulevard
Moreland Hills, Ohio  44022

Gentlemen:

                  As counsel for Developers Diversified Realty Corporation, an
Ohio corporation (the "Company"), we are familiar with the Company's
Registration Statement on Form S-3 (the "Registration Statement") being filed
with the Securities and Exchange Commission under the Securities Act of 1933, as
amended, on or about the date hereof, with respect to the offering from time to
time by the Company of an aggregate of up to $750,000,000 of the following: (i)
one or more series of senior debt securities ("Senior Securities") to be issued
under an Indenture dated as of May 1, 1994 between the Company and National City
Bank, as trustee (the "Senior Indenture"), (ii) one or more series of
subordinated debt securities ("Subordinated Securities") to be issued under an
Indenture dated as of May 1, 1994 between the Company and Chase Manhattan Bank,
as trustee (the "Subordinated Indenture") (the Senior Securities and the
Subordinated Securities collectively, the "Debt Securities," and the Senior
Indenture and the Subordinated Indenture collectively, the "Indentures"), (iii)
Common Shares, without par value (the "Common Shares"), (iv) Warrants to
purchase Common Shares (the "Common Share Warrants"), (v) one or more series of
Class A Cumulative Preferred Shares, without par value (the "Class A Shares"),
(vi) one or more series of Class B Cumulative Preferred Shares, without par
value (the "Class B Shares"), (vii) one or more series of Class C Cumulative
Preferred Shares, without par value (the "Class C Shares"), (viii) one or more
series of Class D Cumulative Preferred Shares, without par value (the "Class D
Shares"), (ix) one or more series of Class E Cumulative Preferred Shares,
without par value (the "Class E Shares"), (x) one or more series of
Noncumulative Preferred Shares, without par value (the "Noncumulative Preferred
Shares," and collectively with the Class A Shares, the Class B Shares, the Class
C Shares, the Class D Shares, and the Class E Shares, the "Preferred Shares"),
and (xi) Depositary Shares representing whole or fractional parts of one or more
series of the Preferred Shares (the "Depositary Shares"). The Debt Securities,
the Common Shares, the Common Share Warrants, the Preferred Shares and the
Depositary Shares are collectively referred to herein as the "Securities."

                  In connection with the foregoing, we have examined originals
or copies, certified or otherwise identified to our satisfaction, of those
documents and instruments filed as exhibits to the Registration Statement, the
Code of Regulations of the Company, as amended, and such records of the

<PAGE>   2

corporate proceedings of the Company and such other documents as we deemed
necessary to render this opinion.

                  Based on the foregoing and subject to the qualifications and
limitations set forth below, we are of the opinion that:

                  1. When (a) Senior Securities in substantially the form filed
                  as an exhibit to the Registration Statement shall have been
                  duly executed and authenticated in accordance with the terms
                  of the Senior Indenture, (b) the Senior Indenture shall have
                  been qualified under the Trust Indenture Act of 1939 and (c)
                  those Senior Securities shall have been issued and sold as
                  described in the Registration Statement, and if in an
                  underwritten offering, in accordance with the terms and
                  conditions of the applicable Underwriting Agreement,
                  substantially in the form filed as an exhibit to the
                  Registration Statement with the blanks therein and in any
                  related Terms Agreement appropriately filled in, and in a
                  manner contemplated in the Registration Statement, including
                  the prospectus supplement relating to those Senior Securities,
                  those Senior Securities will be legally issued, and will be
                  valid and binding obligations of the Company, except as may be
                  limited by bankruptcy, insolvency, reorganization or other
                  laws relating to the enforcement of creditors' rights
                  generally or by general principles of equity.

                  2. When (a) Subordinated Securities in substantially the form
                  filed as an exhibit to the Registration Statement shall have
                  been duly executed and authenticated in accordance with the
                  terms of the Subordinated Indenture, (b) the Subordinated
                  Indenture shall have been qualified under the Trust Indenture
                  Act of 1939 and (c) those Subordinated Securities shall have
                  been issued and sold as described in the Registration
                  Statement, and if in an underwritten offering, in accordance
                  with the terms and conditions of the applicable Underwriting
                  Agreement, substantially in the form filed as an exhibit to
                  the Registration Statement with the blanks therein and any
                  related Terms Agreement appropriately filled in, and in a
                  manner contemplated in the Registration Statement, including
                  the prospectus supplement relating to those Subordinated
                  Securities, those Subordinated Securities will be legally
                  issued and will be valid and binding obligations of the
                  Company, except as may be limited by bankruptcy, insolvency,
                  reorganization or other laws relating to the enforcement of
                  creditors' rights generally or by general principles of
                  equity.

                  3. When Common Shares shall have been issued and sold as
                  described in the Registration Statement, and if in an
                  underwritten offering, in accordance with the terms and
                  conditions of the applicable Underwriting Agreement,
                  substantially in the form filed as an exhibit to the
                  Registration Statement with the blanks therein and in any
                  related Terms Agreement appropriately filled in, and in a
                  manner contemplated in the Registration Statement, including
                  the prospectus supplement relating to those Common Shares,
                  those Common Shares will be validly issued, fully paid and
                  nonassessable.

                  4. When Common Share Warrants shall have been issued and sold
                  as described in the Registration Statement, and if in an
                  underwritten offering, in accordance with the terms and
                  conditions of the applicable Underwriting Agreement,
                  substantially in the form filed as an exhibit to the
                  Registration Statement with the blanks therein and in any
                  related Terms Agreement appropriately filled in, and in a
                  manner contemplated in the Registration Statement, including
                  the prospectus supplement relating to those Common Share
                  Warrants, those Common Share Warrants will be legally issued,
                  and will be valid and binding obligations of the Company,
                  except as may be limited by bankruptcy, 

- --------------------------------------------------------------------------------
                                                                          Page 2

<PAGE>   3

                  insolvency, reorganization or other laws relating to the
                  enforcement of creditors' rights generally or by general
                  principles of equity.

                  5. When Preferred Shares shall have been issued and sold as
                  described in the Registration Statement, and if in an
                  underwritten offering, in accordance with the terms and
                  conditions of the applicable Underwriting Agreement,
                  substantially in the form filed as an exhibit to the
                  Registration Statement with the blanks therein and in any
                  related Terms Agreement appropriately filled in, and in a
                  manner contemplated in the Registration Statement, including
                  the prospectus supplement relating to those Preferred Shares,
                  those Preferred Shares will be validly issued, fully paid and
                  nonassessable.

                  6. When Depositary Shares shall have been issued and sold as
                  described in the Registration Statement, and if in an
                  underwritten offering, in accordance with the terms and
                  conditions of the applicable Underwriting Agreement,
                  substantially in the form filed as an exhibit to the
                  Registration Statement with the blanks therein and in any
                  related Terms Agreement appropriately filled in, and in a
                  manner contemplated in the Registration Statement, including
                  the prospectus supplement relating to those Depositary Shares,
                  those Depositary Shares will be validly issued, fully paid and
                  nonassessable.

                  We hereby consent to the filing of this opinion as Exhibit 5
to the Registration Statement and the reference to us under the caption "Legal
Matters" in the prospectus that is a part of the Registration Statement. In
giving such consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended, or the rules and regulations of the Securities and Exchange
Commission.

                                                  Very truly yours,




                                                  /s/ Baker & Hostetler LLP

- --------------------------------------------------------------------------------
                                                                          Page 3


<PAGE>   1


                                                                       Exhibit 8

                              BAKER & HOSTETLER LLP
                              1900 E. Ninth Street
                            Cleveland, OH 44114-3485

                               February 17, 1999



Developer's Diversified Realty Corporation
34555 Chagrin Blvd.
Moreland Hills, Ohio 44022


                           RE: STATUS AS A REIT
                               ----------------

Ladies and Gentlemen:

                  In connection with the registration statement on Form S-3
being filed by you on the date hereof with the Securities and Exchange
Commission (the "Registration Statement"), you have requested our opinion
regarding whether the Company has been organized in conformity with the
requirements for qualification as a real estate investment trust ("REIT"), and
whether its method of operation has enabled the Company to meet, and will enable
it to continue to meet, the requirements for qualification and taxation as a
REIT under the Internal Revenue Code of 1986, as amended (the "Code"). This
opinion is based on various assumptions and is conditioned upon certain
representations made by the Company as to factual matters as set forth in the
Registration Statement and the registration statements on Forms S-3 and S-11
previously filed with the Securities and Exchange Commission (the "Prior        
Registrations"). In addition, the Company has provided a representation letter
and certificate ("Representation Letter") certifying, among other items, that
it has made a timely election to be taxed as a REIT under the Code commencing
with its initial taxable year ended December 31, 1993, and that commencing with
the first taxable year that the Company has elected to be taxed as a REIT, the
Company has operated and will continue to operate in accordance with the method
of operation described in the Registration Statement and the Prior
Registrations.

                  Based on such assumptions and representations, it is our
opinion that the Company has qualified as a REIT for its taxable years ended
December 31, 1993 through December 31, 1997, and the Company is organized in
conformity with the requirements for qualification as a REIT and the Company's
method of operation has enabled it and will continue to enable it to meet the
requirements for qualification and taxation as a REIT under the Code, provided
the Company meets and continues to meet the asset composition, source of income,
shareholder diversification, distributions and other requirements of the Code
necessary for the Company to qualify as a REIT.

<PAGE>   2

February 17, 1999
Page 2




                  This opinion is based on various statutory provisions and
regulations promulgated thereunder, in effect on the date hereof, and the
interpretations of such provisions and regulations by the Internal Revenue
Service and the courts having jurisdiction over such matters, all of which are
subject to change either prospectively or retroactively. Also, any variation
from the factual statements set forth in the Registration Statement, the Prior
Registrations or the Representation Letter may affect the conclusions stated
herein. Moreover, the Company's 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, the various qualification 
tests imposed under the Code, the results of which have not been and will not
be reviewed by Baker & Hostetler LLP. Accordingly, no assurance can be given
that the actual results of the Company's operations for any one taxable year
will satisfy such requirements. We wish to point out that our opinion is not
binding on the Internal Revenue Service and, without limiting our opinion, we
note that there can be no assurance that all of the requirements for
qualification as a REIT for any particular taxable year have in fact been met
until the return for such taxable year has been reviewed by the Internal
Revenue Service or the period for such review has expired.

                  This opinion is limited to the federal income tax matters
addressed herein, and no other opinions are rendered with respect to other
federal tax matters or to any issues arising under the tax laws of any state or
locality. We undertake no obligation to update the opinions expressed herein
after the date of this letter. This opinion is rendered to the addressee of this
letter solely for the purpose referred to in the first paragraph hereof, and may
not be relied on or referred to by any other person or entity or by any
addressee for any other purpose without the express written consent of this
Firm. We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement.



                                             Very truly yours,

                                             /s/ Baker & Hostetler LLP






<PAGE>   1


                                                                Exhibit 12(a)


               COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
                            (Amounts in Thousands)

<TABLE>
<CAPTION>
                                                                                                             Nine Months   
                                                                    Year Ended December 31,                     Ended      
                                                     ---------------------------------------------------     September 30, 
                                                       1993      1994        1995       1996       1997           1998      
                                                     -------    -------    -------    -------    -------     ------------- 
<S>                                                  <C>        <C>        <C>        <C>        <C>           <C>
Pretax income from continuing operations              $9,349    $21,352    $25,505    $49,542    $67,522       $56,981     
                                                     =======    =======    =======    =======    =======       =======
Fixed charges:                                                                                            
Interest expense including amortization of                                                                
  deferred costs and capitalized interest            $15,100    $22,496    $32,107    $33,188    $40,598       $50,124
Ground Rent 33%                                          $44        $44        $44        $43        $56           $78
Proportionate share of fixed charges of 50% owned                                                         
  joint ventures accounted for using equity method                                                        
  of accounting                                           --         --         --     $1,750         --            --
                                                     -------    -------    -------    -------    -------       --------
                                                                                                          
                  Total fixed costs                  $15,144    $22,540    $32,151    $34,981    $40,654       $50,202
                                                     -------    -------    -------    -------    -------       --------

Capitalized interest during the period                  ($40)   ($1,073)   ($2,512)   ($3,300)   ($3,991)      ($6,579)           
Amortization of capitalized interest during the                                                           
  period                                                $133       $135       $170       $255       $498          $373
Majority-owned subsidiary adjustments                     --         --         --         --     $1,048        $1,628
Equity Company Adjustments                              $347       $186      ($486)   ($8,709)  ($10,893)     ($10,323)
                                                                                       $8,276    $10,050        $9,581
                                                    --------   --------   --------   --------   --------      --------

Earnings before income taxes and fixed charges       $24,933    $43,140    $54,828    $81,045   $104,888      $101,863
                                                    ========   ========   ========   ========   ========      ========

Ratio of earnings to Fixed charges                     $1.65      $1.91      $1.71      $2.32      $2.58         $2.03
                                                    ========   ========   ========   ========   ========      ========

</TABLE>


<PAGE>   1
                                                                   Exhibit 12(b)

COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED SHARE
                                    DIVIDENDS

                             (Amounts in Thousands)
<TABLE>
<CAPTION>                                                                                                             Nine Months
                                                                                      Year Ended December 31,            Ended
                                                                --------------------------------------------------    September 30,
                                                                  1993        1994       1995       1996       1997      1998
                                                                -------     -------    -------    -------    -------  ------------
<S>                                                             <C>         <C>        <C>        <C>        <C>       <C>     
Pretax income from continuing operations                         $9,349     $21,352    $25,505    $49,542    $67,522   $ 56,981
                                                                =========   =======    =======    =======   ========   ========

Fixed charges:
Interest expense including amortization of deferred costs       
  and capitalized interest                                      $15,100     $22,496    $32,107    $33,188    $40,598    $50,124
Ground Rent 33%                                                     $44         $44        $44        $43        $56        $78
Preferred Dividends                                                --          --       $1,255    $14,200    $14,200    $12,255
Proportionate share of fixed charges of 50% owned joint 
  ventures accounted for using equity method of accounting         --          --         --       $1,750       --         --
                                                                -------     -------    -------    -------    -------    -------


                    Total fixed costs                           $15,144     $22,540    $33,406    $49,181    $54,854    $62,457
                                                                -------     -------    -------    -------    -------    -------

Capitalized interest during the period                             ($40)    ($1,073)   ($2,512)   ($3,300)   ($3,991)   ($6,579)
Preferred Dividends                                                --          --      ($1,255)  ($14,200)  ($14,200)  ($12,255)
Amortization of capitalized interest during the period             $133        $135       $170       $255       $498       $373
Majority-owned subsidiary adjustments                              --          --         --         --       $1,048     $1,628
Equity Company Adjustments                                         $347        $186      ($486)   ($8,709)  ($10,893)  ($10,323)
                                                                                                   $8,276    $10,050     $9,581
                                                                -------     -------    -------    -------    -------    -------

Earnings before income taxes and fixed charges                  $24,933     $43,140    $54,828    $81,045   $104,888   $101,863 
                                                                =========   =======    =======    =======   ========   ========

Ratio of earnings to Fixed charges                                $1.65       $1.91      $1.64      $1.65      $1.91      $1.63
                                                                =========   =======    =======    =======   ========   ========
</TABLE>



<PAGE>   1

                                                                   Exhibit 23(a)

                       CONSENT OF INDEPENDENT ACCOUNTANTS



We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
February 12, 1998, which appears in the Developers Diversified Realty
Corporation's Annual Report on Form 10-K for the year ended December 31, 1997,
our reports dated June 16, 1998 relating to the statements of revenue and
certain expenses of The Family Center Properties and The Sansone Properties,
which appear in the Current Report on Form 8-K of Developers Diversified Realty
Corporation dated April 28, 1998, our report dated April 14, 1998 relating to
the statement of revenue and certain expenses of Belair Centre, which appears in
the Current Report on Form 8-K of Developers Diversified Realty Corporation
dated February 25, 1998, our reports dated January 18, 1998 relating to the
statements of revenue and certain expenses of The Columbus Properties, Sun
Center, Dublin Village Center, Washington Park Plaza and Lennox Town Center,
which appear in the Current Report on Form 8-K of Developers Diversified Realty
Corporation dated February 25, 1998, and our reports dated October 7, 1997 and
July 28, 1997 relating to the statements of revenue and certain expenses of
Spring Creek Centre and Cooks Corner, respectively, which appear in the Current
Report on Form 8-K of Developers Diversified Realty Corporation dated
November 7, 1997. We also consent to the reference to us under the heading
"Experts" in such Prospectus.


/s/ PricewaterhouseCoopers LLP

PRICEWATERHOUSECOOPERS LLP
Cleveland, Ohio
February 16, 1999

<PAGE>   1
                                                                   EXHIBIT 25(a)

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    ---------

                                    FORM T-1

                   STATEMENT OF ELIGIBILITY AND QUALIFICATION
                   UNDER THE TRUST INDENTURE ACT OF 1939 OF A
                    CORPORATION DESIGNATED TO ACT AS TRUSTEE

   Check if an application to determine eligibility of a Trustee pursuant to
                               section 305(b) (2)

                               NATIONAL CITY BANK
              ( Exact name of Trustee as specified in its charter)

                                   34-0420310
                      (I.R.S. Employer Identification No.)

                1900 East Ninth Street 
                Cleveland, Ohio                                  44114 
                (Address of principal executive                  (zip code)
                offices)

                 David L. Zoeller
                 Senior Vice President and General Counsel
                 National City Corporation
                 1900 East Ninth Street
                 Cleveland, Ohio  44114
                 (216) 575-9313
                 (Name, address and telephone number of agent for service)
                                   ----------
                    DEVELOPERS DIVERSIFIED REALTY CORPORATION
               (Exact name of obligor as specified in its charter)

                              OHIO                        34-1723097
                  (State or other jurisdiction of      (I.R.S. Employer
                  incorporation or organization)      Identification No.)

                  34555 Chagrin Blvd.
                  Moreland Hills, Ohio  44022
                  (Address of principal  (zip code)
                  executive offices)

                  Senior Debt Securities
                  (Title of the Indenture securities)




<PAGE>   2



                                     GENERAL


1.       General information. Furnish the following information as to the 
         trustee:

         (a)      Name and address of each examining or supervising authority to
                  which it is subject.

                  Comptroller of the Currency, Washington, D.C. The Federal
                  Reserve Bank of Cleveland, Cleveland, Ohio Federal Deposit
                  Insurance Corporation, Washington, D.C.

         (b)      Whether it is authorized to exercise corporate trust powers.

         National City Bank is authorized to exercise corporate trust powers.


2.       Affiliations with obligor. If the obligor is an affiliate of the
         trustee, describe such affiliation.

                  NONE

16.      List of exhibits

          (1)     A copy of the Articles of Association of the Trustee.

                  Incorporated herein by reference is Charter No. 786 Merger No.
                  1043 the Articles of Association of National City Bank, which
                  Articles of Association were included as a part of Exhibit 1
                  to Form T-1 filing made by said National City Bank with the
                  Securities and Exchange Commission in November 1973 (File No.
                  2-49786).

                  Incorporated herein by reference is an amendment to the
                  Articles of Association of National City Bank, which amendment
                  was included as a part of Exhibit 1 to Form T-1 filing made by
                  said National City Bank with the Securities and Exchange
                  Commission in April 1996 (File No. 333-02761)

         (2)      A copy of the certificate of authority of the Trustee to
                  commence business:

                  (a)      a copy of the certificate of NCB National Bank to
                           commence business.






<PAGE>   3



                  Incorporated herein by reference is a true and correct copy of
                  the certificate issued by the Comptroller of the Currency
                  under date of April 26, 1973, whereby NCB National Bank was
                  authorized to commence the business of banking as a National
                  banking Association, which true copy of said Certificate was
                  included as Exhibit 2(a) to Form T-1 filing made by said
                  National City Bank with the Securities and Exchange Commission
                  in November 1973 (File 2-49786)

                  (b)     a copy of the approval of the merger of The National 
                          City Bank of Cleveland into NCB National Bank under 
                          the charter of NCB National Bank and under the title
                          "National City Bank."

                  Incorporated herein by reference is a true and correct copy of
                  the certificate issued by the Comptroller of the Currency
                  under date of April 27, 1973, whereby the National City Bank
                  of Cleveland was merged into NCB National Bank, which true
                  copy of said certificate was included as Exhibit 2(b) to Form
                  T-1 filing made by said National City Bank with the Securities
                  and Exchange Commission in November 1973 (File 2-49786).

         (3)      A copy of the authorization of the Trustee to exercise
                  corporate trust powers.

                  Incorporated herein by reference is a true and correct copy of
                  the certificate dated April 13, 1973 issued by the Comptroller
                  of the Currency whereby said National City Bank has been
                  granted the right to exercise certain trust powers, which true
                  copy of said certificate was included as Exhibit 3 to Form T-1
                  filing made by said National City Bank with the Securities and
                  Exchange Commission in November 1973 (File 2-49786).

         (4)      A copy of existing By-Laws of the Trustee.

                  Incorporated herein by reference is a true and correct copy of
                  the National City Bank By-Laws as amended through January 1,
                  1993. This true copy of said By-Laws was included as Exhibit 4
                  to Form T-1 filing made by National City Bank with the
                  Securities and Exchange Commission in March, 1995 (File
                  22-26594).

         (5)      Not applicable.



<PAGE>   4




         (6)      Consent of the United States Institutional Trustee required by
                  Section 321(b) of the Act.

                  Attached hereto as Exhibit 6 is the Consent of the Trustee in
                  accordance with Section 321 (b) of the Trust Indenture Act of
                  1939 as amended.

         (7)      A copy of the latest report of condition of the Trustee 
                  published pursuant to law or the requirements of its
                  supervising or examining authority.

                  Attached hereto as Exhibit 7 is the latest report of condition
                  of National City Bank.

         (8)      Not applicable.

         (9)      Not applicable.



<PAGE>   5
                                    SIGNATURE

         Pursuant to the requirements of the Trust Indenture Act of 1939 the
Trustee, National City Bank, a national banking association organized and
existing under the laws of the United States of America, has duly caused this
statement of eligibility to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of Cleveland, and State of Ohio, on
the 8th day of January, 1999.


                                            NATIONAL CITY BANK

                                            By: /s/ Christine Robinette
                                               ------------------------
                                                  Christine Robinette
                                                  Vice President

<PAGE>   6




                                     CONSENT

         In accordance with Section 321(b) of the Trust Indenture Act of 1939,
as amended, and to the extent required thereby to enable it to act as an
indenture trustee, National City Bank hereby consents as of the date hereof that
reports of examinations of it by the Treasury Department, the Comptroller of the
Currency, the Board of Governors of the Federal Reserve Banks, the Federal
Deposit Insurance Corporation or of any other Federal or State authority having
the right to examine National City Bank, may be furnished by similar authorities
to the Securities and Exchange Commission upon request thereon.


                                                 NATIONAL CITY BANK

                                                 By /s/ Christine Robinette
                                                   -----------------------------
                                                       Christine Robinette
                                                       Vice President




<PAGE>   7
 
                               REPORT OF CONDITION
                               -------------------
                               NATIONAL CITY BANK
                               ------------------
                  (Including Domestic and Foreign Subsidiaries)

      In the State of Ohio, at the close of business on September 30, 1998
<TABLE>
<CAPTION>

                                     ASSETS
                                     ------
                                                                                                            (In Thousands)
<S>                                                                                                          <C>        
    Cash and balances due from depository institutions:
        Noninterest-bearing balances and currency and coin................................................   $ 1,072,320
        Interest-bearing balances.........................................................................           200
    Securities:
        Held-to-maturity securities.......................................................................             0
        Available-for-sale securities.....................................................................     4,803,761
    Federal funds sold and securities purchased under agreements to resell in domestic
        offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs.......................       422,211

    Loans and lease financing receivables:

        Loans and leases, net of unearned income..........................................    $20,679,471
        Less: Allowance for loan and lease losses.........................................        406,307
        Loans and leases, net of unearned income and allowance............................................    20,273,164

    Assets held in trading accounts.......................................................................             0
    Premises and fixed assets (including capitalized leases)..............................................       318,294
    Other real estate owned...............................................................................         6,145
    Customers' liability to this bank on acceptances outstanding..........................................        16,813
    Intangible assets.....................................................................................        76,847
    Other assets..........................................................................................     1,053,138
                                                                                                          --------------
        TOTAL ASSETS......................................................................................   $28,042,893
                                                                                                          ==============

                                   LIABILITIES
                                   -----------
    Deposits:
        In domestic offices...............................................................................   $15,609,790
           Non-interest bearing.............................................................   $ 3,564,243
           Interest-bearing.................................................................    12,045,547

        In foreign offices, Edge and Agreement subsidiaries, and IBFs.....................................     1,181,395
           Interest-bearing....................................................................  1,181,395
    Federal funds purchased and securities sold under agreements to repurchase............................     3,992,825
    Demand notes issued to the U.S. Treasury..............................................................       345,141
    Trading Liabilities...................................................................................             0
    Other borrowed money:
        With a remaining maturity of one year or less.....................................................       909,112
        With a remaining maturity of more than one year through three years...............................     1,395,421
        With a remaining maturity of more than three years................................................     1,750,312
    Bank's liability on acceptances executed and outstanding..............................................        16,813
    Subordinated notes and debentures.....................................................................       449,723
    Other liabilities.....................................................................................       461,697
                                                                                                          --------------
        TOTAL LIABILITIES.................................................................................    26,112,229
                                                                                                          --------------

                                   EQUITY CAPITAL
                                   --------------
    Common Stock..........................................................................................         7,311
    Surplus...............................................................................................       306,945
    Undivided profits and capital reserves................................................................     1,572,371
    Net unrealized holding gains (losses) on available-for-sale securities...............................         44,037
                                                                                                          --------------
        TOTAL EQUITY CAPITAL..............................................................................     1,930,664
                                                                                                          --------------
        TOTAL LIABILITIES AND EQUITY CAPITAL..............................................................   $28,042,893
                                                                                                          ==============
</TABLE>





<PAGE>   1
          -------------------------------------------------------------

                                                                   EXHIBIT 25(b)

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549
                            -------------------------

                                    FORM T-1

                            STATEMENT OF ELIGIBILITY
                    UNDER THE TRUST INDENTURE ACT OF 1939 OF
                   A CORPORATION DESIGNATED TO ACT AS TRUSTEE
                   -------------------------------------------
               CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF
                A TRUSTEE PURSUANT TO SECTION 305(b)(2) ________
                    ----------------------------------------

                            THE CHASE MANHATTAN BANK
               (Exact name of trustee as specified in its charter)

<TABLE>
<S>                                                      <C>
NEW YORK                                                           13-4994650
(State of incorporation                                      (I.R.S. employer
if not a national bank)                                   identification No.)

270 PARK AVENUE
NEW YORK, NEW YORK                                                      10017
(Address of principal executive offices)                           (Zip Code)
</TABLE>

                               William H. McDavid
                                 General Counsel
                                 270 Park Avenue
                            New York, New York 10017
                               Tel: (212) 270-2611
            (Name, address and telephone number of agent for service)
                  --------------------------------------------
                    DEVELOPERS DIVERSIFIED REALTY CORPORATION
               (Exact name of obligor as specified in its charter)
<TABLE>
<S>                                                       <C>
OHIO                                                               34-1723097
(State or other jurisdiction of                              (I.R.S. employer
incorporation or organization)                            identification No.)

34555 CHAGRIN BLVD.
MORELAND HILLS, OH                                                      44022
 (Address of principal executive offices)                          (Zip Code)
</TABLE>

                  --------------------------------------------
                          SUBORDINATED DEBT SECURITIES
                       (Title of the indenture securities)

          -------------------------------------------------------------



<PAGE>   2


                                     GENERAL

Item 1.  General Information.

         Furnish the following information as to the trustee:

         (a) Name and address of each examining or supervising authority to
which it is subject.

              New York State Banking Department, State House, Albany, New York
              12110.

              Board of Governors of the Federal Reserve System, Washington, 
              D.C., 20551

              Federal Reserve Bank of New York, District No. 2, 33 Liberty
              Street, New York, N.Y.

              Federal Deposit Insurance Corporation, Washington, D.C., 20429.


         (b) Whether it is authorized to exercise corporate trust powers.

              Yes.


Item 2.  Affiliations with the Obligor.

         If the obligor is an affiliate of the trustee, describe each such
affiliation.

         None.


                                      - 2 -

<PAGE>   3


Item 16.   List of Exhibits

           List below all exhibits filed as a part of this Statement of
Eligibility.

           1. A copy of the Articles of Association of the Trustee as now in
effect, including the Organization Certificate and the Certificates of Amendment
dated February 17, 1969, August 31, 1977, December 31, 1980, September 9, 1982,
February 28, 1985, December 2, 1991 and July 10, 1996 (see Exhibit 1 to Form T-1
filed in connection with Registration Statement No. 333-06249, which is
incorporated by reference).

           2. A copy of the Certificate of Authority of the Trustee to Commence
Business (see Exhibit 2 to Form T-1 filed in connection with Registration
Statement No. 33-50010, which is incorporated by reference. On July 14, 1996, in
connection with the merger of Chemical Bank and The Chase Manhattan Bank
(National Association), Chemical Bank, the surviving corporation, was renamed
The Chase Manhattan Bank).

           3. None, authorization to exercise corporate trust powers being
contained in the documents identified above as Exhibits 1 and 2.

           4. A copy of the existing By-Laws of the Trustee (see Exhibit 4 to
Form T-1 filed in connection with Registration Statement No. 333-06249, which is
incorporated by reference).

           5. Not applicable.

           6. The consent of the Trustee required by Section 321(b) of the Act
(see Exhibit 6 to Form T-1 filed in connection with Registration Statement No.
33-50010, which is incorporated by reference. On July 14, 1996, in connection
with the merger of Chemical Bank and The Chase Manhattan Bank (National
Association), Chemical Bank, the surviving corporation, was renamed The Chase
Manhattan Bank).

           7. A copy of the latest report of condition of the Trustee, published
pursuant to law or the requirements of its supervising or examining authority.

           8. Not applicable.

           9. Not applicable.

                                    SIGNATURE

         Pursuant to the requirements of the Trust Indenture Act of 1939 the
Trustee, The Chase Manhattan Bank, a corporation organized and existing under
the laws of the State of New York, has duly caused this statement of eligibility
to be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of New York and State of New York, on the 7th day of January, 1999.

                                                 THE CHASE MANHATTAN BANK

                                                 By /s/ Wanda Eiland
                                                   -----------------------------
                                                     Wanda Eiland
                                                     Assistant Vice President

                                      - 3 -



<PAGE>   4


                            Exhibit 7 to Form T-1
                                      
                                      
                               Bank Call Notice
                                      
                            RESERVE DISTRICT NO. 2
                     CONSOLIDATED REPORT OF CONDITION OF
                                      
                           The Chase Manhattan Bank
                 of 270 Park Avenue, New York, New York 10017
                    and Foreign and Domestic Subsidiaries,
                   a member of the Federal Reserve System,
                                      
           at the close of business September 30, 1998, in accordance
        with a call made by the Federal Reserve Bank of this District
            pursuant to the provisions of the Federal Reserve Act.

<TABLE>
<CAPTION>
                                                                       DOLLAR AMOUNTS
                     ASSETS                                              IN MILLIONS

<S>                                              <C>                       <C>      
Cash and balances due from depository institutions:                   
     Noninterest-bearing balances and                                 
     currency and coin .....................................               $  11,951
     Interest-bearing balances .............................                   4,551
Securities:  ...............................................          
Held to maturity securities.................................                   1,740
Available for sale securities...............................                  48,537
Federal funds sold and securities purchased under                     
     agreements to resell ..................................                  29,730
Loans and lease financing receivables:                                
     Loans and leases, net of unearned income    $127,379             
     Less: Allowance for loan and lease losses      2,719             
     Less: Allocated transfer risk reserve ......       0             
                                                 --------             
     Loans and leases, net of unearned income,                        
     allowance, and reserve ................................                 124,660
Trading Assets .............................................                  51,549
Premises and fixed assets (including capitalized                      
     leases)................................................                   3,009
Other real estate owned ....................................                     272
Investments in unconsolidated subsidiaries and                        
     associated companies...................................                     300
Customers' liability to this bank on acceptances                      
     outstanding ...........................................                   1,329
Intangible assets ..........................................                   1,429
Other assets ...............................................                  13,563
                                                                           ---------
TOTAL ASSETS ...............................................               $ 292,620
                                                                           =========
</TABLE>

                                       -4-
<PAGE>   5
<TABLE>
<CAPTION>
                                   LIABILITIES

Deposits
<S>                                                                         <C>
     In domestic offices ................................................   $ 98,760
     Noninterest-bearing .....................................   $ 39,071
     Interest-bearing ........................................     59,689
                                                                 --------
     In foreign offices, Edge and Agreement,
     subsidiaries and IBF's .............................................     75,403
     Noninterest-bearing .....................................   $  3,877
     Interest-bearing ........................................     71,526

Federal funds purchased and securities sold under 
agreements to repurchase ................................................     34,471
Demand notes issued to the U.S. Treasury ................................      1,000
Trading liabilities .....................................................     41,589

Other borrowed money (includes mortgage indebtedness and obligations under
     capitalized leases):
     With a remaining maturity of one year or less ......................      3,781
     With a remaining maturity of more than one year
            through three years .........................................        213
     With a remaining maturity of more than three years .................        104
Bank's liability on acceptances executed and outstanding ................      1,329
Subordinated notes and debentures .......................................      5,408
Other liabilities .......................................................     12,041

TOTAL LIABILITIES .......................................................    274,099
                                                                            --------

                                 EQUITY CAPITAL

Perpetual preferred stock and related surplus ...........................          0
Common stock ............................................................      1,211
Surplus  (exclude all surplus related to preferred stock) ...............     10,441
Undivided profits and capital reserves ..................................      6,287
Net unrealized holding gains (losses)
on available-for-sale securities ........................................        566
Cumulative foreign currency translation adjustments .....................         16

TOTAL EQUITY CAPITAL ....................................................     18,521
                                                                            --------
TOTAL LIABILITIES AND EQUITY CAPITAL ....................................   $292,620
                                                                            ========
</TABLE>

I, Joseph L. Sclafani, E.V.P. & Controller of the above-named 
bank, do hereby declare that this Report of Condition has 
been prepared in conformance with the instructions issued 
by the appropriate Federal regulatory authority and is true 
to the best of my knowledge and belief.

                               JOSEPH L. SCLAFANI

We, the undersigned directors, attest to the correctness 
of this Report of Condition and declare that it has been 
examined by us, and to the best of our knowledge and
belief has been prepared in conformance with the 
instructions issued by the appropriate Federal regulatory 
authority and is true and correct.

                               WALTER V. SHIPLEY       )
                               THOMAS G. LABRECQUE     ) DIRECTORS
                               WILLIAM B. HARRISON, JR.)

                                      -5-


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