WALDEN RESIDENTIAL PROPERTIES INC, 424B2, 1996-04-24

WALDEN RESIDENTIAL PROPERTIES INC
424B2, 1996-04-24
REAL ESTATE INVESTMENT TRUSTS

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Filed Pursuant to Rule 424(b)(2)
File No. 33-92328

PROSPECTUS SUPPLEMENT
(To Prospectus dated June 2, 1995)

1,800,000 Shares

WALDEN RESIDENTIAL PROPERTIES, INC.

9.16% Series A Convertible Redeemable Preferred Stock
(Liquidation Preference of $25.00 per Share)

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

All of the 1,800,000 shares of 9.16% Series A Convertible Redeemable
Preferred Stock, $.01 par value per share (the "Convertible Preferred Stock"),
offered hereby (the "Offering") are being sold by Walden Residential
Properties, Inc., a Maryland corporation (the "Company"). The Company as a
self-administered, self-managed, fully integrated real estate investment trust
("REIT") focused on middle income multifamily properties located primarily in
selected Southwestern and Southeastern markets. The Company currently owns and
operates 55 multifamily properties containing 17,205 apartment units.

Dividends on the Convertible Preferred Stock will be cumulative from
the date of original issuance and will be payable quarterly in March, June,
September and December of each year, commencing with a partial dividend of
$0.19 per share on June 3, 1996, in an amount equal to the greater of (i) $2.29
per share per annum or (ii) the dividends declared or paid in respect of the
number of shares (or fraction thereof) of the Company's common stock, par value
$.01 per share (the "Common Stock"), into which a share of Convertible
Preferred Stock is then convertible. The Convertible Preferred Stock is
convertible at the option of the holder at any time into shares of Common Stock
at a conversion price of $21.92 per share of Common Stock, subject to
adjustment upon the occurrence of certain events. The Convertible Preferred
Stock will not be redeemable at the option of the Company prior to April 30,
2006. On and after April 30, 2006, the Convertible Preferred Stock may be
redeemed for cash at the option of the Company, in whole or in part, at a
redemption price of $25.00 per share, plus in each case accrued and unpaid
dividends, if any, to the redemption date. The Convertible Preferred Stock has
no stated maturity and will not be entitled to the benefit of any sinking fund.
The Common Stock is listed on the New York Stock Exchange ("NYSE") under the
symbol "WDN." On April 22, 1996, the last reported sale price of the Common
Stock on the NYSE was $20.875 per share. The shares of Common Stock issuable
upon conversion of the Convertible Preferred Stock will be approved for listing
on the NYSE upon delivery of the Convertible Preferred Stock.

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

THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT
PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

--------------------
The Underwriter has agreed to purchase from the Company the
Convertible Preferred Stock offered hereby for an aggregate price of
$43,650,000. The Convertible Preferred Stock offered hereby may be offered by
the Underwriter from time to time in one or more transactions at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices, or at negotiated prices. In addition, the Underwriter may sell the
Common Stock issuable to it upon conversion of the Convertible Preferred Stock
offered hereby from time to time in one or more transactions on the NYSE or
otherwise, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices, or at negotiated prices. The Company has
agreed to indemnify the Underwriter against certain liabilities, including
liabilities under the Securities Act of 1933. See "Plan of Distribution."

The Convertible Preferred Stock is offered by the Underwriter, subject
to prior sale, to withdrawal, cancellation or modification of the offer without
notice, to delivery and acceptance by the Underwriter, and to certain further
conditions. It is expected that delivery of the Convertible Preferred Stock
will be made on or about April 26, 1996.

FRIEDMAN, BILLINGS, RAMSEY & CO., INC.

--------------------
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS APRIL 23, 1996
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
CONVERTIBLE PREFERRED STOCK, OR THE COMMON STOCK, AT A LEVEL ABOVE THAT WHICH
MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED
ON THE NYSE (WITH RESPECT TO THE COMMON STOCK), IN THE OVER-THE-COUNTER MARKET
OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

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THE COMPANY

The Company is a self-administered, self-managed, fully integrated
REIT focused on middle income multifamily properties located primarily in
selected Southwestern and Southeastern markets. The Company, a Maryland
corporation with headquarters in Dallas, Texas, was formed in September 1993 to
continue and expand the multifamily property ownership, management, acquisition
and marketing operations and related business objectives and strategies of The
Walden Group, Inc. and its subsidiaries and affiliates (collectively,
"Walden"). The Company currently owns and operates 55 multifamily properties
(the "Properties") containing 17,205 apartment units. Approximately 84% of the
Properties are located in the Dallas/Fort Worth, Oklahoma City, Tampa,
Jacksonville, Tulsa, Phoenix, Houston, Austin and Salt Lake City areas, with
the remaining Properties primarily located in other areas in the Southwest and
Southeast regions of the United States. The Properties had a weighted average
occupancy rate of approximately 94.8% at March 24, 1996. Through WDN
Management Company, a corporation formed by the Company to manage multifamily
properties for third parties, the Company manages on a fee basis 10 additional
multifamily properties containing 2,814 apartment units.

Upon completion of its initial public offering in February 1994, the
Company purchased the multifamily operations of Walden, including 18 Properties
containing 5,895 apartment units (of which one 299-unit property was sold in
April 1995), and concurrently purchased the two additional Properties
containing 448 apartment units, one of which was owned by a third party and the
other of which was principally owned by Walden. Since the consummation of its
initial public offering, the Company has acquired 37 Properties (of which one
242-unit property was sold in December 1995), containing an aggregate 11,403
apartment units, for an aggregate purchase price of approximately $366.2
million. Management believes that these activities are consistent with its
core acquisition strategy of acquiring well located garden apartment properties
at costs less than replacement costs, which serve middle income residents and
can benefit from the Company's comprehensive management programs.

The Company is operated under the direction of Don R. Daseke, Chairman
of the Board and Chief Executive Officer of the Company, and a management team
substantially all of whom were formerly employed by Walden. The Company's 17
senior executives have an average tenure with the Company and Walden of nine
years and have an average of 17 years experience in the multifamily properties
business. The Company is fully integrated with operations that include
multifamily property acquisitions, redevelopment services, management,
marketing, finance, leasing and asset management.

The Company's executive offices are located at One Lincoln Centre,
5400 LBJ Freeway, Suite 400, Dallas, Texas 75240. The telephone number is
(214) 788-0510. The Company was incorporated in Maryland on September 29, 1993
and the duration of its existence is perpetual.

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RECENT DEVELOPMENTS

On February 8, 1996, the Company entered into a new credit facility
(the "Credit Facility") with The First National Bank of Boston ("Bank of
Boston"). This Credit Facility provides financing up to $75 million; however,
the borrowing base is limited to approximately $55 million based upon the
available collateral of 13 Properties and is currently further limited to $30
million until Bank of Boston obtains other participants to commit to lend under
the Credit Facility. At the Company's election, the interest rate on
borrowings is at a floating rate equal to either (i) 1% over the Bank of
Boston's base rate, or (ii) 1.75% over LIBOR; however, the interest rate may be
reduced to 1.60% over LIBOR upon the Company's meeting certain financial
covenants. As of March 24, 1996, the outstanding balance of the Credit
Facility was $10.5 million.

USE OF PROCEEDS

The net proceeds to the Company from the sale of the Convertible
Preferred Stock offered hereby, after deducting estimated placement fees and
expenses of the Offering, are expected to be $43,500,000. The Company intends
to use (i) $10.5 million of the net proceeds to repay outstanding indebtedness
under the Credit Facility, which indebtedness bears interest at approximately
7.2% per annum, matures in February 1998 and was incurred by the Company to pay
a portion of the purchase price of certain property acquisitions and (ii) $2.5
million to repay outstanding indebtedness under the Company's mortgage loan
with Northwestern Mutual Life Insurance Company, which indebtedness bears
interest at 9.22% per annum, matures in June 2005 and was incurred to repay
then existing variable rate debt. The balance of the net proceeds will be used
to fund potential acquisitions and for general corporate purposes. While the
Company constantly evaluates acquisition opportunities, it has no probable
acquisitions identified as of the date hereof. Pending application of the net
proceeds of the Offering, the Company intends to invest such proceeds in
interest-bearing accounts and short-term interest bearing securities.

DESCRIPTION OF CONVERTIBLE PREFERRED STOCK

DIVIDENDS

Subject to the preferential rights of any other series of preferred
stock of the Company (the "Preferred Stock") ranking senior as to dividends to
the Convertible Preferred Stock and to the Company's Amended and Restated
Articles of Incorporation (the "Articles") regarding Excess Stock (as defined
in the Articles), holders of shares of the Convertible Preferred Stock will be
entitled to receive, when and as declared by the Board of Directors, out of
funds legally available for the payment of dividends, cumulative preferential
cash dividends in an amount per share of Convertible Preferred Stock equal to
the greater of (i) $2.29 per annum or (ii) the dividends (determined on each of
the quarterly Convertible Preferred Dividend Payment Dates referred to below)
on the number of shares of Common Stock (or fraction thereof) into which a
share of Convertible Preferred Stock is convertible. The amount referred to in
clause (ii) above will equal the number of shares of Common Stock, or fraction
thereof, into which a share of Convertible

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Preferred Stock is then convertible, multiplied by the quarterly dividend
declared or paid with respect to a share of Common Stock on or most recently
prior to the applicable Convertible Preferred Dividend Payment Date.

Dividends with respect to the Convertible Preferred Stock will be
cumulative from the date of original issuance and will be payable quarterly in
arrears in March, June, September and December (on the same dates as dividends
on shares of Common Stock), beginning with a partial dividend of $0.19 per
share on June 3, 1996 (each, a "Convertible Preferred Dividend Payment Date"),
with respect to the period from the date of original issuance to June 3, 1996.
Any dividend payable on the Convertible Preferred Stock for any partial
dividend period after the initial dividend period will be computed on the basis
of a 360-day year consisting of twelve 30-day months. Dividends payable on the
Convertible Preferred Stock for each full dividend period will be computed by
dividing the annual dividend rate by four. Dividends will be payable to
holders of record as they appear in the stock records of the Company at the
close of business on the applicable record date, which will be the first day of
the calendar month in which the applicable Convertible Preferred Dividend
Payment Date falls or such other date designated by the Board of Directors of
the Company for the payment of dividends that is no more than thirty (30) nor
less than ten (10) days prior to such Convertible Preferred Dividend Payment
Date (each, a "Convertible Preferred Dividend Record Date").

No dividends on shares of Convertible Preferred Stock will be declared
by the Board of Directors of the Company or paid or set apart for payment by
the Company at such time as, and to the extent that, the terms and provisions
of any agreement of the Company, including any agreement relating to its
indebtedness, or any provisions of the Articles relating to any series of
Preferred Stock ranking senior to the Convertible Preferred Stock as to
dividends, prohibit such declaration, payment or setting apart for payment or
provide that such declaration, payment or setting apart for payment would
constitute a breach thereof or a default thereunder, or if such declaration or
payment will be restricted or prohibited by law. Notwithstanding the
foregoing, dividends on the Convertible Preferred Stock will accrue whether or
not the Company has earnings, whether or not there are funds legally available
for the payment of such dividends and whether or not such dividends are
declared. Holders of the Convertible Preferred Stock will not be entitled to
any dividends in excess of full cumulative dividends as described above.

If any shares of Convertible Preferred Stock are outstanding, no full
dividends will be declared or paid or set apart for payment on the capital
stock of the Company of any other series ranking, as to dividends, on a parity
with or junior to the Convertible Preferred Stock for any period unless full
cumulative dividends have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for such
payment on the Convertible Preferred Stock for all past dividend periods and
the then current dividend period. When dividends are not paid in full (or a
sum sufficient for such full payment is not so set apart) upon the shares of
the Convertible Preferred Stock and the shares of any other series of Preferred
Stock ranking on a parity as to dividends with the Convertible Preferred Stock,
all dividends declared upon shares of Convertible Preferred Stock and any other
series of Preferred Stock ranking on a parity as to dividends with the
Convertible Preferred Stock will be declared pro rata

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so that the amount of dividends declared per share on the Convertible Preferred
Stock and such other series of Preferred Stock will in all cases bear to each
other the same ratio that accrued and unpaid dividends per share on the shares
of Convertible Preferred Stock and such other series of Preferred Stock bear to
each other. No interest, or sum of money in lieu of interest, will be payable
in respect of any dividend payment or payments on Convertible Preferred Stock
which may be in arrears.

Except as provided in the immediately preceding paragraph, unless full
cumulative dividends on the Convertible Preferred Stock have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for payment for all past dividend periods and the
then current dividend period, no dividends (other than distributions payable in
Common Stock or other capital stock ranking junior to the Convertible Preferred
Stock as to dividends and upon liquidation, dissolution or winding up) will be
declared or paid or set aside for payment, and no other distribution will be
declared or made, upon the Common Stock or any other capital stock of the
Company ranking junior to or on a parity with the Convertible Preferred Stock
as to dividends, nor will any Common Stock or any other capital stock of the
Company ranking junior to or on a parity with the Convertible Preferred Stock
as to dividends or upon liquidation, dissolution or winding up be redeemed,
purchased or otherwise acquired for any consideration (or any moneys be paid to
or made available for a sinking fund for the redemption of any shares of any
such stock) by the Company (except by conversion into or exchange for other
capital stock of the Company ranking junior to the Convertible Preferred Stock
as to dividends and upon liquidation, dissolution and winding up).

Any dividend payment made on shares of Convertible Preferred Stock
will first be credited against the earliest accrued but unpaid dividend due
with respect to shares of such Convertible Preferred Stock which remains
payable.

LIQUIDATION RIGHTS

In the event of any liquidation, dissolution or winding up of the
Company, subject to the prior rights of any series of capital stock ranking
senior to the Convertible Preferred Stock, the holders of shares of Convertible
Preferred Stock will be entitled to be paid out of the assets of the Company
legally available for distribution to its stockholders a liquidation preference
equal to the sum of $25.00 per share plus an amount equal to any accrued and
unpaid dividends thereon (whether or not earned or declared) to the date of
payment (the "Convertible Preferred Liquidation Preference Amount"), before any
distribution of assets is made to holders of Common Stock or any other capital
stock that ranks junior to the Convertible Preferred Stock as to liquidation
rights. After payment of the full amount of the liquidating distributions to
which they are entitled, the holders of Convertible Preferred Stock will have
no right or claim to any of the remaining assets of the Company.

In the event that, upon any such voluntary or involuntary liquidation,
dissolution or winding up, the legally available assets of the Company are
insufficient to pay the Convertible Preferred Liquidation Preference Amount on
all outstanding shares of Convertible Preferred Stock

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and the corresponding amounts payable on all shares of other classes or series
of capital stock of the Company ranking on a parity with the Convertible
Preferred Stock in the distribution of assets upon liquidation, dissolution or
winding up, then the holders of the Convertible Preferred Stock and all other
such classes or series of capital stock will share ratably in any such
distribution of assets in proportion to the full liquidating distributions to
which they would otherwise be respectively entitled.

If liquidating distributions have been made in full to all holders of
shares of Convertible Preferred Stock, the remaining assets of the Company will
be distributed among the holders of any other classes or series of capital
stock ranking junior to the Convertible Preferred Stock upon liquidation,
dissolution or winding up, according to their respective rights and preferences
and in each case according to their respective number of shares.

The consolidation or merger of the Company with or into any other
corporation, or the sale, lease, transfer or conveyance of all or substantially
all of the property or business of the Company, will not be deemed to
constitute a liquidation, dissolution or winding up of the Company for these
purposes.

REDEMPTION

The Convertible Preferred Stock will not be redeemable prior to April
30, 2006, except under certain limited circumstances to preserve the Company's
status as a REIT. See "Restrictions on Transfer." On and after April 30,
2006, the Company, at its option (to the extent the Company has funds legally
available therefor) upon not less than 30 nor more than 60 days' written
notice, may redeem shares of Convertible Preferred Stock, in whole or in part,
at any time or from time to time, for cash at the redemption price per share of
$25.00, plus all accrued and unpaid dividends, if any, thereon (whether or not
earned or declared) to the date fixed for redemption.

Notwithstanding the foregoing, unless full cumulative dividends on all
shares of Convertible Preferred Stock have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
apart for payment for all past dividend periods and the then current dividend
period, no shares of Convertible Preferred Stock will be redeemed unless all
outstanding shares of Convertible Preferred Stock are simultaneously redeemed;
provided, however, that the foregoing will not prevent the purchase or
acquisition of shares of the Convertible Preferred Stock pursuant to a purchase
or exchange offer made on the same terms to holders of all outstanding shares
of Convertible Preferred Stock, and unless full cumulative dividends on all
outstanding shares of Convertible Preferred Stock have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for payment for all past dividend periods and the
then current dividend period, the Company will not purchase or otherwise
acquire directly or indirectly through a subsidiary or otherwise, any shares of
Convertible Preferred Stock (except by conversion into or exchange for capital
stock of the Company ranking junior to the Convertible Preferred Stock as to
dividends and upon liquidation, dissolution and winding up).

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If fewer than all of the outstanding shares of Convertible Preferred
Stock are to be redeemed, the number of shares to be redeemed will be
determined by the Company and such shares may be redeemed pro rata from the
holders of record of such shares in proportion to the number of such shares
held by such holders (as nearly as may be practicable without creating
fractional shares of Convertible Preferred Stock) or any other equitable method
determined by the Company.

Notice of redemption will be given by publication in a newspaper of
general circulation in the City of New York, such publication to be made once a
week for two successive weeks commencing not less than 30 nor more than 60
days' prior to the redemption data. A similar notice will be mailed by the
Company, postage prepaid, not less than 30 nor more than 60 days' prior to the
redemption date, addressed to the respective holders of record of Convertible
Preferred Stock to be redeemed at their respective addresses as they appear on
the stock transfer records of the Company. No failure to give such notice or
any defect therein or in the mailing thereof will affect the validity of the
proceeding for the redemption of any shares of Convertible Preferred Stock
except as to the holder to whom notice was defective or not given. Each notice
will state: (i) the redemption date; (ii) the redemption price; (iii) the
number of shares of Convertible Preferred Stock to be redeemed; (iv) the place
or places where the Convertible Preferred Stock is to be surrendered for
payment of the redemption price; (v) that dividends on the shares to be
redeemed will cease to accrue on such redemption date; and (vi) that any
conversion rights will terminate at the close of business on the third business
day immediately preceding the redemption date. If fewer than all the shares of
Convertible Preferred Stock held by any holder are to be redeemed, the notice
mailed to such holder will also specify the number of shares of Convertible
Preferred Stock to be redeemed from such holder. If notice of redemption of
any shares of Convertible Preferred Stock has been properly given and if funds
necessary for such redemption have been irrevocably set aside by the Company in
trust for the benefit of the holders of any of the shares of Convertible
Preferred Stock so called for redemption, then from and after the redemption
date dividends will cease to accrue on such shares of Convertible Preferred
Stock, such shares of Convertible Preferred Stock will no longer be deemed to
be outstanding and all rights of the holders of such shares will terminate
except for the right to receive the applicable redemption price and other
amounts payable in respect of such shares.

The holders of Convertible Preferred Stock at the close of business on
a Convertible Preferred Dividend Record Date will be entitled to receive the
dividend payable with respect to such Convertible Preferred Stock on the
corresponding Convertible Preferred Dividend Payment Date notwithstanding the
redemption thereof between such Convertible Preferred Dividend Record Date and
the corresponding Convertible Preferred Dividend Payment Date or the Company's
default in the payment of the dividend due. Except as provided above, the
Company will make no payment or allowance for unpaid dividends, whether or not
in arrears, on shares of Convertible Preferred Stock called for redemption.

The Convertible Preferred Stock has no stated maturity and will not be
subject to any sinking fund.

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VOTING RIGHTS

Holders of the Convertible Preferred Stock will not have any voting
rights, except as set forth below or as otherwise from time to time required by
law. Subject to the provisions in the Articles regarding Excess Stock, in any
matter in which the Convertible Preferred Stock may vote, including any action
by written consent, each share of Convertible Preferred Stock will be entitled
to one vote. The holders of each share of Convertible Preferred Stock may
separately designate a proxy for the vote to which that share of Convertible
Preferred Stock is entitled.

Whenever dividends on any shares of Convertible Preferred Stock have
been in arrears for six or more consecutive quarterly periods, the holders of
such shares of Convertible Preferred Stock (voting separately as a class with
all other series of Preferred Stock upon which rights to vote on such matter
with the Convertible Preferred Stock have been conferred and are then
exercisable) will be entitled to vote for the election of two additional
directors of the Company at a special meeting called by the holders of record
of at least 10% of the Convertible Preferred Stock and such other Preferred
Stock, if any (unless such request is received less than 90 days before the
date fixed for the next annual or special meeting of the stockholders), or at
the next annual meeting of stockholders, and at each subsequent annual meeting
until all dividends accumulated on such shares of Convertible Preferred Stock
for the past dividend periods and the then current dividend period have been
fully paid or declared and a sum sufficient for the payment thereof set aside
for payment. In such event, the entire Board of Directors of the Company will
be increased by two directors. Each of such two directors will be elected to
serve until the earlier of (i) the election and qualification of such
director's successor or (ii) payment of the dividend arrearage for the
Convertible Preferred Stock.

So long as any shares of Convertible Preferred Stock remain
outstanding, the Company will not, without the affirmative vote or consent of
the holders of at least a majority of the shares of Convertible Preferred Stock
outstanding at the time, given in person or by proxy, either in writing or at a
meeting (such series voting separately as a class), (i) authorize or create, or
increase the authorized or issued amount of, any class or series of capital
stock ranking senior to the Convertible Preferred Stock with respect to payment
of dividends or the distribution of assets upon liquidation, dissolution or
winding up, or create, authorize or issue any obligation or security
convertible into or evidencing the right to purchase any such shares; or (ii)
amend, alter or repeal the provisions of the Articles, whether by merger,
consolidation or otherwise, so as to materially and adversely affect any right,
preference, privilege or voting power of the Convertible Preferred Stock or the
holders thereof; provided, however, that any increase in the amount of the
authorized Preferred Stock or the creation or issuance of any other series of
Preferred Stock, or any increase in the amount of authorized shares of
Convertible Preferred Stock or any other series of Preferred Stock, in each
case ranking on a parity with or junior to the Convertible Preferred Stock with
respect to payment of dividends or the distribution of assets upon liquidation,
dissolution or winding up, will not be deemed to materially and adversely
affect such rights, preferences, privileges or voting powers.

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The foregoing voting provisions will not apply if, at or prior to the
time when the act with respect to which such vote would otherwise be required
is effected, all outstanding shares of Convertible Preferred Stock have been
redeemed or called for redemption upon proper notice and sufficient funds have
been deposited in trust to effect such redemption.

CONVERSION

Subject to the exceptions described under "Restrictions on Transfer,"
holders of the Convertible Preferred Stock will have the right, except in the
case of Convertible Preferred Stock called for redemption, to convert all or
any of the Convertible Preferred Stock (based upon the Convertible Preferred
Liquidation Preference Amount determined immediately following the most recent
Convertible Preferred Dividend Payment Date) into shares of Common Stock at the
conversion price of $21.92 per share of Common Stock, subject to adjustment
upon the occurrence of certain events, as described below (the "Conversion
Price"). In the case of Convertible Preferred Stock called for redemption,
conversion rights will expire at the close of business on the third business
day immediately preceding the date fixed for redemption.

Shares of Convertible Preferred Stock will be deemed to have been
converted immediately prior to the close of business on the date such shares
are surrendered for conversion and notice of election to convert the same is
received by the Company. Upon conversion, no adjustment or prepayment will be
made for dividends, but if any holder surrenders Convertible Preferred Stock
for conversion after the close of business on a Convertible Preferred Dividend
Record Date and prior to the opening of business on the related Convertible
Preferred Dividend Payment Date, then, notwithstanding such conversion, the
dividend payable on such Convertible Preferred Dividend Payment Date will be
paid on such Convertible Preferred Dividend Payment Date to the registered
holder of such shares on such Convertible Preferred Dividend Record Date.
Shares of Convertible Preferred Stock surrendered for conversion during the
period from the close of business on a Convertible Preferred Dividend Record
Date to the Convertible Preferred Dividend Payment Date must also pay the
amount of the dividend which is payable. No fractional shares of Common Stock
will be issued upon conversion and, if the conversion results in a fractional
interest, an amount will be paid in cash equal to the value of such fractional
interest based on the market price of the Common Stock on the last trading day
prior to the date of conversion.

The number of shares of Common Stock or other assets issuable upon
conversion and the Conversion Price are subject to adjustment upon the
occurrence of the following events:

(i) the issuance of Common Stock as a dividend or
distribution on shares of Common Stock;

(ii) the subdivision, combination or reclassification of
the outstanding shares of Common Stock;

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(iii) the issuance to all holders of Common Stock of rights
or warrants to subscribe for or purchase Common Stock (or securities
convertible into Common Stock) at a price per share less than the then
current market price per share;

(iv) the distribution to all holders of Common Stock of
evidences of indebtedness or assets (including securities, but
excluding Ordinary Cash Distributions, as defined below, and those
dividends, distributions, rights or warrants referred to above); and

(v) the distribution to all holders of Common Stock of
rights or warrants to subscribe for securities (other than those
referred to in clause (iii) above).

The adjustments to be made in each such event are set forth in the Articles.
In the event of a distribution of evidence of indebtedness or other assets (as
described in clause (iv)) or a dividend to all holders of Common Stock of
rights to subscribe for additional shares of the Company's capital stock (other
than those referred to in clause (iii) above), the Company may, instead of
making an adjustment of the Conversion Price, make proper provision so that
each holder who converts such shares will be entitled to receive upon such
conversion, in addition to shares of Common Stock, an appropriate number of
such rights, warrants, evidences of indebtedness or other assets. No
adjustment will be made for Ordinary Cash Distributions (defined as
distributions to holders of Common Stock in an amount not exceeding the
Company's accumulated funds from operations since its formation, after
deducting dividends or other distributions (i) paid in respect of all classes
of capital stock of the Company or (ii) accrued in respect of the Convertible
Preferred Stock, and any other shares of Preferred Stock ranking on a parity
with or senior to the Convertible Preferred Stock as to dividends). In
addition, no adjustment of the Conversion Price will be made until cumulative
adjustments amount to one percent or more of the Conversion Price as last
adjusted. Any adjustments not so required to be made will be carried forward
and taken into account in subsequent adjustments.

Whenever the number of shares of Common Stock or other assets issuable
upon conversion and the Conversion Price are adjusted as herein provided, the
Company (i) will promptly make available at the office of the transfer agent a
statement describing in reasonable detail such adjustment, and (ii) will cause
to be mailed by first class mail, postage prepaid, as soon as practicable, to
each holder of record of shares of Convertible Preferred Stock, a notice
stating that certain adjustments have been made and stating the adjusted
conversion price.

In the event of any capital reorganization or reclassification of the
capital stock of the Company, or consolidation or merger of the Company with
another corporation, or the sale, transfer or lease of all or substantially all
of its assets to another corporation, is affected in such a way that holders of
Common Stock will be entitled to receive stock, securities or other assets with
respect to or in exchange for Common Stock, then, as a condition of such
reorganization, reclassification, consolidation, merger, sale, transfer or
lease, the holder of each share of Convertible Preferred Stock shall have the
right immediately to convert such share into the kind and amount of stock,
securities or other assets which the holders of such shares would have

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<PAGE> 12
owned or been entitled to receive immediately after the transaction if such
holders had converted such shares immediately before the effective date of the
transaction, subject to further adjustment upon the occurrence of the events
described above.

RANK

The Convertible Preferred Stock will, with respect to dividend rights
and distributions upon liquidation, dissolution, and winding up, rank (i)
senior to the Common Stock, all other shares of common stock of the Company of
all classes and series, all classes of Excess Stock (other than Excess
Convertible Preferred Stock, as to which the Convertible Preferred Stock is
senior only as to dividends) and shares of all other series of capital stock
issued by the Company other than any series of capital stock the terms of which
specifically provide that the capital stock of such series rank senior to or on
a parity with such Convertible Preferred Stock with respect to dividend rights
or distributions upon liquidation, dissolution or winding up of the Company;
(ii) on a parity with the Excess Convertible Preferred Stock upon liquidation,
dissolution and winding up) and the shares of all other capital stock issued by
the Company the terms of which specifically provide that the shares rank on a
parity with the Convertible Preferred Stock with respect to dividends and
distributions upon liquidation, dissolution or winding up of the Company or
make no specific provision as to their ranking; and (iii) junior to all other
capital stock issued by the Company the terms of which specifically provide
that the shares rank senior to the convertible Preferred Stock with respect to
dividends and distributions upon liquidation, dissolution or winding up of the
Company (the issuance of which must have been approved by a vote of at least a
majority of the outstanding shares of Convertible Preferred Stock).

RESTRICTIONS ON TRANSFER

The shares of Convertible Preferred Stock are generally transferable.
The Articles, however, contain certain restrictions on the number of shares of
Stock, defined to include all classes of capital stock that the Company shall
have authority to issue, including Convertible Preferred Stock, other series of
preferred stock and Common Stock, that shareholders may own. For the Company
to qualify as a REIT under the Internal Revenue Code of 1986, as amended (the
"Code"), shares of Stock must be beneficially owned by 100 or more persons
during at least 365 days of a taxable year of twelve months or during a
proportionate part of a shorter taxable year. Further, not more than 50% of
the value of the issued and outstanding shares of Stock (including the
Convertible Preferred Stock) may be owned, directly or indirectly, by five or
fewer individuals (as defined in the Code to include, except in limited
circumstances, certain entities such as qualified private pension plans) during
the last half of a taxable year or during a proportionate part of a shorter
taxable year.

Since the Board of Directors of the Company believes it is essential
for the Company to maintain its status as a REIT under the Code, the Articles
provide that no person, except Mr. Don R. Daseke, Chairman of the Board of
Directors and Chief Executive Officer of the Company, may own or be deemed to
own by virtue of the attribution provisions of the Code, more than 9.0% (the
"Ownership Limit") of the aggregate value of all outstanding shares of Stock
(including

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<PAGE> 13
the Convertible Preferred Stock); provided, however, that Mr. Daseke may not
own, directly or indirectly, more than 13.0% of the aggregate value of all
outstanding shares of Stock (the "Existing Holder Limit"). The Board of
Directors, upon receipt of evidence and assurances satisfactory to the Board of
Directors, may also exempt a proposed transferee from the Ownership Limit or
Existing Holder Limit. In connection therewith, the Board of Directors may
require opinions of counsel, affidavits, undertakings or agreements as it may
deem necessary or advisable in order to determine or ensure the Company's
status as a REIT. Any acquisition or transfer of shares of Stock that would:
(i) result in the shares of Stock being owned by fewer than 100 persons or (ii)
result in the Company being "closely-held" within the meaning of Section 856(h)
of the Code, shall be null and void, and the intended transferee will acquire
no rights to the shares of Stock (including the Convertible Preferred Stock).
The foregoing restrictions on transferability and ownership will not apply if
the Board of Directors determines that it is no longer in the best interests of
the Company to attempt to qualify, or to continue to qualify, as a REIT and the
Articles are amended accordingly.

Any purported transfer of shares of Stock (including the Convertible
Preferred Stock) that would result in a person owning shares of Stock in excess
of the Ownership Limit or Existing Holder Limit will result in the shares
subject to such purported transfer being automatically exchanged for an equal
number of shares of Excess Stock. Under the Articles, Excess Stock shall be
deemed to have been transferred to the Company, as trustee of a separate trust
(the "Trust"), for the exclusive benefit of the person or persons to whom the
interest in the Trust can ultimately be transferred.

Excess Stock is not transferable. The purported transferee of any
shares of Stock (including Convertible Preferred Stock) that are exchanged for
Excess Stock may designate a transferee of the interest in the Trust if the
Excess Stock held in the Trust and represented by such Trust interest to be
transferred would not be Excess Stock in the hands of the designated transferee
at a price not to exceed the price paid by the purported transferee (or, if no
consideration was paid, the market price at the time of the original attempted
transfer) at which point such Excess Stock will automatically be exchanged for
the shares of Stock (including Convertible Preferred Stock) to which the Excess
Stock is attributable. In addition, Excess Stock is subject to purchase by the
Company at a purchase price equal to the lesser of: (i) the price paid for the
shares of Stock (including Convertible Preferred Stock) by the intended
transferee (or, if no consideration was paid, the market price of the shares of
Stock (including the Convertible Preferred Stock) the attempted transfer of
which resulted in Excess Stock, measured on the date of the transfer); or (ii)
the market price of the shares of Stock (including Convertible Preferred Stock)
the attempted transfer of which resulted in Excess Stock measured on the date
on which the Company elects to purchase the Excess Stock. "Market Price" means
the average daily per share closing sales price of a share of Stock (including
Convertible Preferred Stock) if shares of Stock (including Convertible
Preferred Stock) are listed on a national securities exchange or quoted on
Nasdaq National Market or if not then traded on any exchange or quotation
systems, the mean between the average per share closing bid prices and the
average per share closing bid prices and the average per share closing asked
prices, in each case, during the 30 calendar day period ending on the business
day prior to the redemption date, or if there

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<PAGE> 14
have been no sales on a national securities exchange or Nasdaq National Market
and no published bid and asked quotations with respect to shares of such stock
during such 30 calendar day period, then the market price of the shares of
Stock (including Convertible Preferred Stock) on the relevant date shall be as
determined in good faith by the Board of Directors.

From and after the intended transfer to the purported transferee of
the Excess Stock, the purported transferee shall cease to be entitled to
distributions (except upon liquidation), voting rights and other benefits with
respect to the Excess Stock except the right to payment of the purchase price
for the shares of Stock (including Convertible Preferred Stock). Any dividend
or distribution paid to a purported transferee on Excess Stock prior to the
discovery by the Company that the shares have been transferred in violation of
the Articles shall be repaid to the Company 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 Stock may be deemed, at the option of the Company, to have acted as
an agent on behalf of the Company in acquiring the Excess Stock and to hold the
Excess Stock on behalf of the Company. All certificates representing shares of
Stock (including Convertible Preferred Stock) will bear a legend referring to
the restrictions described above.

In addition, each stockholder shall, upon demand, be required to
disclose to the Company in writing, all information regarding the direct and
indirect beneficial ownership of shares of Stock (including Convertible
Preferred Stock) as the Board of Directors deems reasonably necessary to comply
with the provisions of the Code applicable to a REIT, to comply with the
requirements of any taxing authority or governmental agency or to determine any
such compliance.

These ownership limitations could have the effect of discouraging a
takeover or other transaction in which holders of some, or a majority, of
shares of Stock (including Convertible Preferred Stock) might receive a premium
for their shares over the then-prevailing market price or which these holders
might believe to be otherwise in their best interest.

GENERAL

The transfer agent and registrar for the Convertible Preferred Stock
is The First National Bank of Boston.

The Convertible Preferred Stock will be, when issued, duly authorized,
fully paid and nonassessable and will have no preemptive rights.

S-12
<PAGE> 15
TAXATION OF HOLDERS OF CONVERTIBLE PREFERRED STOCK

The following is a summary of the material Federal income tax
considerations affecting holders of Convertible Preferred Stock. This
discussion is directed principally at investors who are United States citizens
or residents or domestic corporations, and does not address in all material
respects considerations that might adversely affect the treatment of investors
who are subject to special treatment under the tax laws (such as insurance
companies, cooperatives, financial institutions, broker-dealers, tax exempt
organizations or foreign investors). The discussion in this section is based
on existing provisions of the Code, existing and proposed Treasury regulations,
existing court decisions and existing rulings and other administrative
interpretations. There can be no assurance that future Code provisions or
other legal authorities will not alter significantly the tax consequences
described below. No rulings have been obtained from the Internal Revenue
Service ("IRS") concerning any of the matters discussed in this section.
Because the following represents only a summary, it is qualified in its
entirety by the applicable provisions of the Code, and regulations, court
decisions and IRS rulings and other IRS pronouncements.

Each prospective purchaser of shares of Convertible Preferred Stock is
advised to consult his or her own tax advisor about the Federal, state, local,
foreign and other tax consequences of buying, holding and selling shares of
Convertible Preferred Stock.

TAXABLE DISTRIBUTIONS

Distributions made to the holders of Convertible Preferred Stock out
of current or accumulated earnings and profits (and not designated as capital
gain dividends) will be taken into account by such holders as ordinary income
and will not be eligible for the dividends received deduction for shareholders
that are corporations. For purposes of determining whether distributions on
the Convertible Preferred Stock are out of current or accumulated earnings and
profits, the earnings and profits of the Company will be allocated first to the
Convertible Preferred Stock and second to the Common Stock. Distributions not
designated as capital gain dividends which exceed the Company's earnings and
profits will not be taxable to the extent of the basis in such holder's
Convertible Preferred Stock (which basis will be reduced by the amount of such
distributions), and will be taxable capital gain to the extent such
distributions exceed such basis. Dividends that are designated as capital gain
dividends will be taxed as long-term capital gains (to the extent that they do
not exceed the Company's actual net capital gain for the taxable year) without
regard to the period for which the holder has held the Convertible Preferred
Stock. However, corporate shareholders may be required to treat up to 20% of
certain capital gain dividends as ordinary income. If any portion (the
"Capital Gain Amount") of the Company's distributions are designated by the
Company as capital gain dividends, then the portion of the Capital Gain Amount
for the year so designated that will be allocable to the holders of Convertible
Preferred Stock will be the Capital Gain Amount multiplied by a fraction, the
numerator of which will be the total dividends paid or made available to the
holders of the Convertible Preferred Stock for the year and the denominator of
which will be the total dividends paid by the Company.

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<PAGE> 16
REDEMPTION OF CONVERTIBLE PREFERRED STOCK

A redemption of shares of Convertible Preferred Stock will be treated
under Section 302 of the Code, as a distribution taxable as a dividend (to the
extent of the Company's current and accumulated earnings and profits) at
ordinary income rates unless the redemption satisfies one of the tests set
forth in Section 302(b) of the Code and is therefore treated as a sale or
exchange of the redeemed shares. The redemption will be treated as a sale or
exchange if it (i) is "substantially disproportionate" with respect to the
holder, (ii) results in a "complete termination" of the holder's stock interest
in the Company, or (iii) is "not essentially equivalent to a dividend" with
respect to the holder, all within the meaning of Section 302(b) of the Code.
In determining whether any of these tests has been met, shares of Stock
considered to be owned by the holder by reason of certain constructive
ownership rules set forth in the Code, as well as shares of Stock actually
owned by the holder, must generally be taken into account. Because the
determination as to whether any of the alternative tests of Section 302(b) of
the Code will be satisfied with respect to any particular holder of Convertible
Preferred Stock depends upon the facts and circumstances at the time that the
determination must be made, prospective holders of Convertible Preferred Stock
are advised to consult their own tax advisors to determine such tax treatment.

If a redemption of shares of Convertible Preferred Stock is treated as
a distribution taxable as a dividend, the amount of the distribution will be
measured by the amount of cash and the fair market value of any property
received by the holder. The holder's adjusted basis in the redeemed shares of
Convertible Preferred Stock for tax purposes will be transferred to the
holder's remaining shares of Stock, if any. If the holder owns no other shares
of Stock, such basis may, under certain circumstances, be transferred to a
related person or it may be lost entirely.

If a redemption of shares of Convertible Preferred Stock is not
treated as a distribution taxable as a dividend to a particular holder, it will
be treated, as to that holder, as a taxable sale or exchange. As a result,
such holder will recognize gain or loss for Federal income tax purposes in an
amount equal to the difference between (i) the amount of cash and the fair
market value of any property received (less any portion thereof attributable to
accumulated and declared but unpaid dividends, which will be taxable as a
dividend to the extent of the Company's current and accumulated earnings and
profits) and (ii) the holder's adjusted basis in the shares of Convertible
Preferred Stock for tax purposes. Such gain or loss will be capital gain or
loss if the shares of Convertible Preferred Stock have been held as a capital
asset and will be long-term gain or loss if such shares have been held for more
than one year.

REDEMPTION PREMIUM

Under Section 305(c) of the Code and applicable Treasury Regulations,
if the redemption price of a Convertible Preferred Stock exceeds its issue
price by more than a reasonable redemption premium, the amount of such excess
may be deemed to be a constructive distribution (treated as a dividend to the
extent of the Company's current and accumulated earnings and profits and
otherwise subject to the treatment described above for distributions) taxable
to the holder ratably over the period during which the Convertible Preferred
Stock cannot be redeemed.

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<PAGE> 17
A redemption premium is considered to be reasonable if it is in the
nature of a penalty for a premature redemption of redeemable preferred stock
and if such premium does not exceed the amount which the issuer would be
required to pay for such redemption right under market conditions existing at
the time of issuance of the stock. Applicable Treasury Regulations currently
provide that a redemption premium not exceeding 10% of the issue price of
preferred stock which is not redeemable for five years from the date of issue
will be considered reasonable. Although the Revenue Reconciliation Act of 1990
substituted a 0.25% de minimis rule for the 10% "safe harbor" set forth in the
Treasury Regulations, the applicable legislative history provides that the
reduced de minimis test will not apply to stock which (like the Convertible
Preferred Stock) is neither mandatorily callable by the issuer or puttable by
the holder.

The amount, if any, of the redemption premium for the Convertible
Preferred Stock will depend upon the issue price of such stock. Although the
potential redemption premiums on the Convertible Preferred Stock will not fall
within such "safe harbor" guidelines, the Company believes that any redemption
premium on the Convertible Preferred Stock will be considered a reasonable
redemption premium. There can be no assurance, however, that the IRS will
regard the redemption premiums on the Convertible Preferred Stock as
reasonable. If the Convertible Preferred Stock were deemed to have an
unreasonable redemption premium, holders would be required to accrue the
premium over the period of time during which the Convertible Preferred Stock
cannot be called for redemption.

CONVERSION OF CONVERTIBLE PREFERRED STOCK INTO COMMON STOCK

In general, no gain or loss will be recognized for Federal income tax
purposes upon conversion of the Convertible Preferred Stock solely into shares
of Common Stock. The basis that a holder will have for tax purposes in the
shares of Common Stock received upon conversion will be equal to the adjusted
basis of such holder in the shares of Convertible Preferred Stock so converted,
and, provided that the shares of Convertible Preferred Stock were held as a
capital asset, the holding period for the shares of Common Stock received would
include the holding period for the shares of Convertible Preferred Stock
converted. A holder will, however, recognize gain or loss on the receipt of
cash in lieu of fractional shares of Common Stock in an amount equal to the
difference between the amount of cash received and the holder's adjusted basis
in such fractional shares for tax purposes. Furthermore, under certain
circumstances, a holder of shares of Convertible Preferred Stock may recognize
gain or dividend income to the extent there are dividends in arrears on such
shares at the time of conversion into Common Stock.

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<PAGE> 18
ADJUSTMENTS TO CONVERSION PRICE

Adjustments in the conversion price (or the failure to make such
adjustments) pursuant to the antidilution provisions of the Convertible
Preferred Stock or otherwise may result in constructive distributions to the
holders of Convertible Preferred Stock that could, under certain circumstances,
be taxable to them as dividends pursuant to Section 305 of the Code. If such
constructive distribution were to occur, a holder of Convertible Preferred
Stock could be required to recognize ordinary income for tax purposes without
receiving a corresponding distribution of cash.

PLAN OF DISTRIBUTION

Subject to the terms and conditions contained in a purchase agreement
between Friedman, Billings, Ramsey & Co., Inc. (the "Underwriter") and the
Company (the "Purchase Agreement"), the Underwriter has agreed to purchase from
the Company, and the Company has agreed to sell to the Underwriter, 1,800,000
shares of Convertible Preferred Stock at the price set forth on the cover page
of this Prospectus Supplement.

The Purchase Agreement provides that the Underwriter's obligation to
purchase Convertible Preferred Stock is subject to the satisfaction of certain
conditions, including the receipt of certain legal opinions. The nature of the
Underwriter's obligations is such that it is committed to purchase all of the
Convertible Preferred Stock if any are purchased.

The Underwriter has advised the Company that it proposes to offer the
Convertible Preferred Stock offered hereby for sale, from time to time, to
purchasers directly or through agents, or to underwriters or dealers in
negotiated transactions or in a combination of such methods of sale, at fixed
prices that may be changed, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices or at negotiated prices. The
Underwriter also may sell the shares of Common Stock issuable to it upon
conversion of the Convertible Preferred Stock purchased by it pursuant to the
Purchase Agreement, to purchasers directly or through agents, through brokers
in brokerage transactions on the NYSE, through short sales of such Common
Stock, or to underwriters or dealers in negotiated transactions or in a
combination of such methods of sale, at fixed prices that may be changed, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.

Brokers, dealers, agents and underwriters that participate in the
distribution of the Convertible Preferred Stock offered hereby, or the shares
of Common Stock underlying the Convertible Preferred Stock, may be deemed to be
underwriters under the Securities Act of 1933, as amended (the "Securities
Act"). Those who act as underwriter, broker, dealer or agent in connection
with the sale of the Convertible Preferred Stock offered hereby, or the
underlying Common Stock, will be selected by the Underwriter and may have other
business relationships with the Company and its subsidiaries or affiliates in
the ordinary course of business.

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<PAGE> 19
The Company has agreed not to register for sale, sell, contract to
sell or otherwise dispose of any shares of convertible preferred stock for a
period of 180 days after the date of this Prospectus Supplement without the
prior written consent of the Underwriter. The Company has also agreed to
indemnify the Underwriter against certain liabilities, including certain
liabilities under the Securities Act or to contribute to payments the
Underwriter may be required to make in respect thereof.

S-17
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PROSPECTUS

WALDEN RESIDENTIAL PROPERTIES, INC.

$150,000,000

COMMON STOCK AND PREFERRED STOCK

Walden Residential Properties, Inc. (the "Company") may from time to
time offer and sell shares of its common stock, par value $.01 per share (the
"Common Stock"), and shares of its preferred stock, par value $.01 per share
(the "Preferred Stock," and together with the Common Stock, the "Offered
Securities"), with an aggregate public offering price not to exceed
$150,000,000. The Offered Securities may be offered separately or together, in
separate series, in amounts and at prices and terms to be set forth in an
accompanying supplement to this Prospectus (the "Prospectus Supplement").

The terms of the Preferred Stock, including the specific designation
and stated value per share, any dividend, liquidation, redemption, conversion,
voting and other rights, and all other specific terms of the Preferred Stock
will be set forth in the applicable Prospectus Supplement. The specific number
of shares of Common Stock and issuance price per share will be set forth in the
applicable Prospectus Supplement. In addition, such specific terms may include
limitations on direct or beneficial ownership and restrictions on transfer of
the Offered Securities, in each case as may be appropriate to preserve the
status of the Company as a real estate investment trust ("REIT") for Federal
income tax purposes.

The applicable Prospectus Supplement will also contain information,
where applicable, about certain Federal income tax considerations relating to,
and any listing on a securities exchange of, the Offered Securities covered by
such Prospectus Supplement.

The Offered Securities may be offered directly, through agents
designated from time to time by the Company, or to or through underwriters or
dealers. If any agents or underwriters are involved in the sale of any of the
Offered Securities, their names, and any applicable purchase price, fee,
commission or discount arrangement between or among them, will be set forth, or
will be calculable from the information set forth, in the applicable Prospectus
Supplement. See "Plan of Distribution." No Offered Securities may be sold
without delivery of the applicable Prospectus Supplement describing the method
and terms of the offering of such Offered Securities.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE
<PAGE> 21
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT
PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

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

THE DATE OF THIS PROSPECTUS IS JUNE 2, 1995.
<PAGE> 22
AVAILABLE INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (of which this Prospectus is a part) on
Form S-3 under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the securities offered hereby. This Prospectus does not
contain all of the information set forth in the Registration Statement, certain
portions of which have been omitted as permitted by the rules and regulations
of the Commission. Statements contained in this Prospectus as to the content
of any contract or other document are not necessarily complete, and in each
instance reference is made to the copy of the contract or other document filed
as an exhibit to the Registration Statement, each statement being qualified in
all respects by that reference and the exhibits to the Registration Statement.
For further information regarding the Company and the securities offered
hereby, reference is hereby made to the Registration Statement and the exhibits
to the Registration Statement which may be obtained from the Commission at its
principal office in Washington, D.C., upon payment of fees prescribed by the
Commission.

The Company is subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports, proxy and information statements and other
information with the Commission. The reports, proxy and information
statements, the Registration Statement and exhibits thereto, and other
information filed by the Company with the Commission can be inspected and
copied at the Public Reference Section of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Commission located at 13th Floor, 7 World Trade Center,
New York, New York 10048, and at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of the material can be obtained from the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. The Common Stock is
traded on the New York Stock Exchange, Inc. ("NYSE"). The reports, proxy and
information statements and other information can also be inspected at the
offices of the NYSE, 20 Broad Street, New York, New York 10005.

The Company furnishes its stockholders with annual reports containing
financial statements audited by its independent auditors and with quarterly
reports containing unaudited summary financial information for each of the
first three quarters of each fiscal year.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

There are incorporated herein by reference the following documents
heretofore filed by the Company with the Commission:

(a) The Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994;

(b) The Company's Quarterly Report Form 10-Q for the fiscal
quarter ended March 31, 1995;

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<PAGE> 23
(d) The Company's Registration Statement on Form 8-A filed
November 19, 1993.

All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering made hereby shall be deemed to be
incorporated by reference into this Prospectus.

Any statement contained in a document all or a portion of which is
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of the Registration Statement and
this Prospectus to the extent that a statement contained in the Registration
Statement, this Prospectus, or any other subsequently filed document that is
also incorporated by reference herein modifies or supersedes that statement.
Any statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.

The Company hereby undertakes to provide without charge to each
person, including any beneficial owner, to whom a Prospectus is delivered, upon
written or oral request of that person, a copy of any document incorporated
herein by reference (other than exhibits to those documents unless the exhibits
are specifically incorporated by reference into the documents that this
Prospectus incorporates by reference). Requests should be directed to Nancy
Bisgaier, Shareholder Relations, Walden Residential Properties, Inc., 13601
Preston Road, Suite 800 West, Dallas, Texas 75240.

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<PAGE> 24
THE COMPANY

The Company is a self-administered, self-managed, fully integrated
real estate investment trust focused on middle income multifamily residential
properties located primarily in selected Southwestern and Southeastern markets.
The Company, a Maryland corporation with headquarters in Dallas, Texas, was
formed in September 1993 to continue and expand the multifamily property
ownership, management, acquisition and marketing operations and related
business objectives and strategies of the Company's predecessors, The Walden
Group, Inc. and its subsidiaries and affiliates (collectively, "Walden"). The
Company currently owns and operates 41 multifamily residential properties
containing 12,697 apartment units (the "Properties"). Approximately 78% of the
Properties are located in the Dallas/ Fort Worth, Salt Lake City, Phoenix,
Tulsa, Oklahoma City, Austin, Tampa and Houston areas, with the remaining
Properties primarily located in other areas in the Southwest and Southeast
regions of the United States. The Properties had an occupancy rate of
approximately 94.9% at March 31, 1995. Through WDN Management, Inc., a
Delaware corporation formed by the Company to perform certain third-party
property contracts ("WDN Management"), the Company manages on a fee basis 12
additional multifamily residential properties containing 3,534 apartment units.

Upon completion of its initial public offering in February 1994, the
Company purchased the multifamily operations of Walden, including 18 Properties
containing 5,895 apartment units, and concurrently purchased two additional
Properties containing 448 apartment units, one of which was owned by a third
party and the other of which was principally owned by Walden. Since the
consummation of the initial public offering in February 1994, the Company has
acquired 22 Properties, containing an aggregate 6,653 apartment units, for an
aggregate purchase price of approximately $189.5 million and sold one property
(containing 299 units) for approximately $8.8 million. See "Recent
Developments." Management believes that these activities are consistent with
its core acquisition strategy of acquiring well located garden apartment
properties at costs less than replacement costs, which serve middle income
residents and can benefit from the Company's comprehensive management programs.

The Company is operated under the direction of Mr. Don R. Daseke and a
management team consisting of substantially all of the former personnel of
Walden. The Company's 17 senior executives have an average tenure with the
Company and its predecessors of eight years and have an average of 16 years
experience in the multifamily residential property business. The Company is
fully integrated with operations that include multifamily property
acquisitions, redevelopment services, management, marketing, finance, leasing
and asset management.

The Company's executive offices are located at 13601 Preston Road,
Suite 800W, Dallas, Texas 75240. The telephone number is (214) 788-0510. The
Company was incorporated in Maryland on September 29, 1993 and the duration of
its existence is perpetual.

4
<PAGE> 25
USE OF PROCEEDS

Unless otherwise described in the Prospectus Supplement which
accompanies this Prospectus, the Company intends to use the net proceeds from
the sale of the Offered Securities for general corporate purposes, which may
include acquiring additional multifamily residential garden apartment
properties or interests in entities owning multifamily residential garden
apartment properties as suitable opportunities arise, making improvements to
properties, repaying certain then-outstanding secured or unsecured indebtedness
and for working capital. Pending use for the foregoing purposes, such proceeds
may be invested in short-term, interest-bearing time or demand deposits with
financial institutions, cash items or qualified government securities.

PLAN OF DISTRIBUTION

The Company may sell the Offered Securities to one or more
underwriters for public offering and sale by them or may sell the Offered
Securities to investors directly or through agents. Any such underwriter or
agent involved in the offer and sale of the Offered Securities will be named in
the applicable Prospectus Supplement.

Underwriters may offer and sell the Offered Securities at a fixed
price or prices which may be changed, at prices related to the prevailing
market prices at the time of sale or at negotiated prices. The Company also
may, from time to time, authorize underwriters acting as the Company's agents
to offer and sell the Offered Securities upon the terms and conditions as are
set forth in the applicable Prospectus Supplement. In connection with the sale
of the Offered Securities, underwriters may be deemed to have received
compensation from the Company in the form of underwriting discounts or
commissions and may also receive commissions from purchasers of the Offered
Securities for whom they may act as agent. Underwriters may sell the Offered
Securities to or through dealers, and such dealers may receive compensation in
the form of discounts, concessions or commissions from the underwriters and/or
commissions from the purchasers for whom they may act as agent.

Any underwriting compensation paid by the Company to underwriters or
agents in connection with the offering of the Offered Securities, and any
discounts, concessions or commissions allowed by underwriters to participating
dealers, will be set forth in the applicable Prospectus Supplement.
Underwriters, dealers and agents participating in the distribution of the
Offered Securities may be deemed to be underwriters, and any discounts and
commissions received by them and any profit realized by them on resale of the
Offered Securities may be deemed to be underwriting discounts and commissions,
under the Securities Act. Underwriters, dealers and agents may be entitled,
under agreements entered into with the Company, to indemnification against and
contribution toward certain civil liabilities, including liabilities under the
Securities Act. Underwriters, dealers and agents may engage in transactions
with, or perform services for, or be customers of, the Company in the ordinary
course of business.

If so indicated in the applicable Prospectus Supplement, the Company
will authorize dealers acting as the Company's agents to solicit offers by
certain institutions to purchase the Offered Securities from the Company at the
public offering price set forth in such Prospectus Supplement pursuant to
Delayed Delivery Contracts ("Contracts") providing for payment and

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<PAGE> 26
delivery on the date or dates stated in such Prospectus Supplement. Each
Contract will be for an amount not less than, and the aggregate amount of the
Offered Securities sold pursuant to Contracts shall be not less nor more than,
the respective amounts stated in the applicable Prospectus Supplement.
Institutions with whom Contracts, when authorized, may be made include
commercial and savings banks, insurance companies, pension funds, investment
companies, educational and charitable institutions, and other institutions but
will in all cases be subject to the approval of the Company. Contracts will
not be subject to any conditions except (i) the purchase by an institution of
the Offered Securities covered by its Contracts shall not at the time of
delivery be prohibited under the laws of any jurisdiction in the United States
to which such institution is subject; and (ii) if the Offered Securities are
being sold to underwriters, the Company shall have sold to such underwriters
the total amount of the Offered Securities less the amount thereof covered by
the Contracts.

Certain of the underwriters and their affiliates may be customers of,
engage in transactions with and perform services for the Company and its
subsidiaries in the ordinary course of business.

DESCRIPTION OF COMMON STOCK

The summary of the terms of the Common Stock set forth below does not
purport to be complete and is subject to, and qualified in its entirety by,
reference to the Company's Articles of Incorporation, as amended and restated
(the "Articles"), and the Company's Bylaws.

The Articles authorize the Company to issue up to 50 million shares of
Common Stock, par value $.01 per share, 10 million shares of Preferred Stock
and 60 million shares of excess stock, par value $.01 per share (the "Excess
Stock"). At April 30, 1995, 10,286,000 shares of Common Stock were issued and
outstanding, all of which are fully paid and nonassessable. Under the Maryland
General Corporation Law (the "MGCL"), stockholders generally are not liable for
the corporation's debts or obligations.

GENERAL

All shares of Common Stock offered pursuant to a Prospectus Supplement
will be duly authorized, fully paid and nonassessable. Subject to the
preferential rights of shares of the Preferred Stock, if any, and any other
shares or series of stock hereinafter designated by the Board of Directors,
holders of shares of Common Stock are entitled to receive dividends on the
stock if, as and when authorized and declared by the Board of Directors out of
assets legally available therefor and to share ratably in the assets of the
Company legally available for distribution to its stockholders in the event of
its liquidation, dissolution or winding-up after payment of, or adequate
provision for payment of, all known debts and liabilities of the Company. The
Company has paid regular quarterly dividends to date and intends to continue
paying regular quarterly dividends.

Each outstanding share of Common Stock entitles the holder thereof to
one vote on all matters submitted to a vote of stockholders, including the
election of directors and, except as otherwise required by law or except as
provided with respect to any other class or series of stock,

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<PAGE> 27
the holders of shares of Common Stock will possess the exclusive voting power.
There is no cumulative voting in the election of directors, which means that
the holders of a majority of the outstanding shares of Common Stock can elect
all of the directors then standing for election and the holders of the
remaining shares will not be able to elect any directors. Holders of shares of
Common Stock have no conversion, sinking fund, redemption rights or preemptive
rights to subscribe for any securities of the Company.

Shares of Common Stock have equal dividend, distribution, liquidation
and other rights and will have no preference or exchange rights.

Pursuant to the MGCL, a corporation generally cannot dissolve, amend
its charter, merge, sell all or substantially all of its assets, engage in a
share exchange or engage in similar transactions unless approved by the holders
of at least two-thirds of the shares of stock entitled to vote on the matter
unless a lesser percentage (but not less than a majority of all of the votes to
be cast on the matter) is set forth in the corporation's charter. The Articles
provide for the vote of the holders of a majority of the shares of stock
outstanding and entitled to vote on the matter to approve any of such actions,
except for amendments to the Articles relating to the number of directors and
the classification of the Board of Directors which require approval of holders
of at least two-thirds of the shares of stock entitled to vote on the matter.

The transfer agent and registrar for the Common Stock is The First National
Bank of Boston.

RESTRICTIONS ON TRANSFER

For the Company to qualify as a REIT under the Internal Revenue Code
of 1986, as amended (the "Code"), shares of Common Stock must be beneficially
owned by 100 or more persons during at least 335 days of a taxable year of
twelve months (other than the first year) or during a proportionate part of a
shorter taxable year. Further, not more than 50% of the value of the issued
and outstanding shares of capital stock of the Company may be owned, directly
or indirectly, by five or fewer individuals (as defined in the Code to include,
except in limited circumstances, certain entities such as qualified private
pension plans) during the last half of a taxable year (other than the first
year) or during a proportionate part of a shorter taxable year.

Since the Board of Directors believes it is essential for the Company
to maintain its status as a REIT under the Code, the Articles provide that no
person, except Mr. Daseke, may own, or be deemed to own by virtue of the
attribution provisions of the Code, more than 9.0% (the "Ownership Limit") of
the aggregate value of all outstanding shares of capital stock of the Company.
Mr. Daseke owns in the aggregate approximately 8.1% of the shares of Common
Stock and may acquire additional shares of Common Stock; provided, however,
that Mr. Daseke may not own, directly or indirectly, more than 13.0% of the
aggregate value of all outstanding shares of capital stock of the Company (the
"Existing Holder Limit"). The Board of Directors, upon receipt of evidence and
assurances satisfactory to the Board of Directors, may also exempt a proposed
transferee from the Ownership Limit or Existing Holder Limit. In connection
therewith, the Board of Directors may require opinions of counsel, affidavits,
undertakings or agreements as it may deem necessary or advisable in order to
determine or ensure the Company's

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<PAGE> 28
status as a REIT. Any acquisition or transfer of shares of Common Stock that
would: (i) result in the shares of Common Stock being owned by fewer than 100
persons or (ii) result in the Company being "closely-held" within the meaning
of Section 856(h) of the Code, shall be null and void, and the intended
transferee will acquire no rights to the shares of Common Stock. The foregoing
restrictions on transferability and ownership will not apply if the Board of
Directors determines that it is no longer in the best interests of the Company
to attempt to qualify, or to continue to qualify, as a REIT and the Articles
are amended accordingly.

Any purported transfer of shares of Common Stock that would result in
a person owning shares of Common Stock in excess of the Ownership Limit or
Existing Holder Limit will result in the shares subject to such purported
transfer being automatically exchanged for an equal number of shares of Excess
Stock. Under the Articles, Excess Stock shall be deemed to have been
transferred to the Company as trustee of a separate trust (the "Trust") for the
exclusive benefit of the person or persons to whom the interest in the Trust
can ultimately be transferred.

Excess Stock is not transferable. The purported transferee of any
shares of capital stock that are exchanged for Excess Stock may designate a
transferee of the interest in the Trust if the Excess Stock held in the Trust
and represented by such Trust interest to be transferred would not be Excess
Stock in the hands of the designated transferee at a price not to exceed the
price paid by the purported transferee (or, if no consideration was paid, the
Market Price measured on the date of the original attempted transfer) at which
point such Excess Stock will automatically be exchanged for the shares of
Common Stock to which the Excess Stock is attributable. In addition, Excess
Stock is subject to purchase by the Company at a purchase price equal to the
lesser of: (i) the price paid for the shares of Common Stock by the intended
transferee (or, if no consideration was paid, the Market Price of the shares of
Common Stock the attempted transfer of which resulted in Excess Stock, measured
on the date of the transfer); or (ii) the Market Price of the shares of Common
Stock the attempted transfer of which resulted in Excess Stock measured on the
date on which the Company elects to purchase the Excess Stock. "Market Price"
means the average daily per share closing sales price of a share of Common
Stock if shares of Common Stock are listed on a national securities exchange or
quoted on Nasdaq National Market or if not then traded on any exchange or
quotation system, the mean between the average per share closing bid prices and
the average per share closing asked prices, in each case, during the 30
calendar day period ending on the business day prior to the measurement date,
or if there have been no sales on a national securities exchange or the Nasdaq
National Market and no published bid and asked quotations with respect to
shares of such stock during such 30 calendar day period, then the market price
of the shares of Common Stock on the relevant date shall be as determined in
good faith by the Board of Directors.

From and after the intended transfer to the purported transferee of
the Excess Shares, the purported transferee shall cease to be entitled to
distributions (except upon liquidation), voting rights and other benefits with
respect to the Excess Stock except the right to payment of the purchase price
for the shares of Common Stock. Any dividend or distribution paid to a
purported transferee on Excess Stock prior to the discovery by the Company that
the shares have been transferred in violation of the Articles shall be repaid
to the Company 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 Stock may be deemed,
at

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<PAGE> 29
the option of the Company, to have acted as an agent on behalf of the Company
in acquiring the Excess Stock and to hold the Excess Stock on behalf of the
Company. All certificates representing shares of Common Stock will bear a
legend referring to the restrictions described above.

In addition, each stockholder shall, upon demand, be required to
disclose to the Company in writing all information regarding the direct and
indirect beneficial ownership of shares of Common Stock as the Board of
Directors deems reasonably necessary to comply with the provisions of the Code
applicable to a REIT, to comply with the requirements of any taxing authority
or governmental agency or to determine any such compliance.

These ownership limitations could have the effect of discouraging a
takeover or other transaction in which holders of some, or a majority, of
shares of Common Stock might receive a premium for their shares over the
then-prevailing market price or which these holders might believe to be
otherwise in their best interest.

DESCRIPTION OF PREFERRED STOCK

The following description of terms of the Preferred Stock sets forth
certain general terms and provisions of the Preferred Stock to which any
Prospectus Supplement may relate. Certain other terms of any series of the
Preferred Stock offered by any Prospectus Supplement will be described in such
Prospectus Supplement. The description of certain provisions of the Preferred
Stock set forth below and in any Prospectus Supplement does not purport to be
complete and is subject to and qualified in its entirety by reference to the
Company's Articles and the Board of Directors' resolution or resolutions
relating to each series of the Preferred Stock which will be filed with the
Commission and incorporated by reference as an exhibit to the Registration
Statement of which this Prospectus is a part at or prior to the time of the
issuance of such series of Preferred Stock.

GENERAL

Subject to limitations prescribed by the MGCL and the Articles, the
Board of Directors is authorized to issue shares of Preferred Stock in one or
more series, to establish from time to time the number of shares of Preferred
Stock to be included in any such series and to fix for any such series the
designation and any preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption. The Company is authorized to issue 10 million shares
of Preferred Stock, of which no shares are currently outstanding.

The Preferred Stock shall have the dividend, liquidation, redemption
and voting rights set forth below unless otherwise provided in a Prospectus
Supplement relating to a particular series of the Preferred Stock. Reference
is made to the Prospectus Supplement relating to the particular series of the
Preferred Stock offered thereby for specific terms, including: (i) the
designation and stated value per share of such Preferred Stock and the number
of shares offered; (ii) the amount of liquidation preference per share; (iii)
the initial public offering price at which such Preferred Stock will be issued;
(iv) the dividend rate (or method of calculation), the dates on which

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<PAGE> 30
dividends shall be payable and the dates from which dividends shall commence to
cumulate, if any; (v) any redemption or sinking fund provisions; (vi) any
conversion right; (vii) any listing of the Preferred Stock on any securities
exchange; (viii) any additional voting, dividend, liquidation, redemption,
sinking fund and other rights, preferences, privileges, limitations and
restrictions not in conflict with the Articles or the MGCL; (ix) a discussion
of Federal income tax considerations applicable to the Preferred Stock; (x) the
relative ranking and preferences of the Preferred Stock as to dividends and
rights upon liquidation; and (xi) any limitations on direct or beneficial
ownership and restrictions on transfer. The Preferred Stock will, when issued
for lawful consideration therefor, be fully paid and nonassessable and will
have no preemptive rights.

Unless otherwise indicated in a Prospectus Supplement relating
thereto, The First Bank of Boston will be the transfer agent and registrar for
shares of each series of Preferred Stock.

RANK

Unless otherwise specified in the Prospectus Supplement, the Preferred
Stock will, with respect to dividend rights upon liquidation, dissolution or
winding up of the Company, rank (i) senior to all classes or series of Common
Stock and to all equity securities ranking junior to such Preferred Stock; (ii)
on a parity with all equity securities issued by the Company the terms of which
specifically provide that such equity securities rank on a parity with the
Preferred Stock; and (iii) junior to all equity securities issued by the
Company the terms of which specifically provide that such equity securities
rank senior to the Preferred Stock. The rights of the holders of each series
of Preferred Stock will be subordinate to those of the Company's general
creditors.

DIVIDENDS

Holders of each series of Preferred Stock shall be entitled to
receive, when, as and if declared by the Board of Directors, out of assets of
the Company legally available for payment, cash dividends at such rates and on
such dates as will be set forth in the applicable Prospectus Supplement. Such
rate may be fixed or variable or both. Each such dividend shall be payable to
holders of record as they appear on the share transfer books of the Company on
such record dates as shall be fixed by the Board of Directors, as specified in
the Prospectus Supplement relating to such series of Preferred Stock.

Dividends on any series of Preferred Stock may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement.
Dividends, if cumulative, will be cumulative from and after the date set forth
in the applicable Prospectus Supplement. If the Board of Directors fails to
declare a dividend payable on a dividend payment date on any series of
Preferred Stock for which dividends are noncumulative, then the holders of such
series of Preferred Stock will have no right to receive a dividend in respect
of the dividend period ending on such dividend payment date, and the Company
will have no obligation to pay the dividend accrued for such period, whether or
not dividends on such series are declared payable on any future dividend
payment date. Dividends on shares of each series of Preferred Stock for which
dividends are cumulative will accrue from the date on which the Company
initially issues shares of such series.

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<PAGE> 31
So long as any series of Preferred Stock shall be outstanding, unless
(i) full dividends (including, if such dividends are cumulative, dividends for
prior dividend periods) shall have been paid or declared and set apart for
payment on all outstanding shares of Preferred Stock of such series and all
other classes and series of Preferred Stock (other than Junior Stock, as
defined below) and (ii) the repurchase or other mandatory retirement of, or
with respect to any sinking or other analogous fund for, any shares of
Preferred Stock of such series or any other Preferred Stock of any class or
series (other than Junior Stock), the Company may not declare any dividends on
any Common Stock or any other equity securities of the Company ranking as to
dividends or distributions of assets junior to such series of Preferred Stock
(the Common Stock and any such other equity securities being herein referred to
as "Junior Stock"), or make any payment on account of, or set apart money for,
the purchase, redemption or other retirement of, or for a sinking or other
analogous fund, for, any Junior Stock or make any distribution in respect
thereof, whether in cash or property or in obligations or equity securities of
the Company, other than shares of Junior Stock which are neither convertible
into, nor exchangeable or exercisable for, any securities of the Company other
than shares of Junior Stock.

Any dividend payment made on a series of Preferred Stock shall first
be credited against the earliest accrued but unpaid dividend due with respect
to shares of such series which remains payable.

REDEMPTION

A series of Preferred Stock may be redeemable, in whole or from time
to time in part, at the option of the Company, and may be subject to mandatory
redemption pursuant to a sinking fund or otherwise, in each case upon the
terms, at the times and at the redemption prices set forth in the Prospectus
Supplement relating to such series. Shares of Preferred Stock redeemed by the
Company will be restored to the status of authorized but unissued Preferred
Stock of the Company.

The Prospectus Supplement relating to a series of Preferred Stock that
is subject to mandatory redemption will specify the number of shares of such
Preferred Stock that shall be redeemed by the Company in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon
(which shall not, if such Preferred Stock does not have a cumulative dividend,
include any accumulation in respect of unpaid dividends for prior dividend
periods) to the date of redemption. The redemption price may be payable in
cash or other property, as specified in the applicable Prospectus Supplement.
If the redemption price for Preferred Stock of any series is payable only from
the net proceeds of the issuance of equity securities of the Company, the terms
of such series of Preferred Stock may provide that, if no such equity
securities shall have been issued or to the extent the net proceeds from any
issuance are insufficient to pay in full the aggregate redemption price then
due, such Preferred Stock shall automatically and mandatorily be converted into
the applicable equity securities of the Company pursuant to conversion
provisions specified in the applicable Prospectus Supplement.

So long as any dividends on shares of any series of Preferred Stock or
any other series of Preferred Stock of the Company ranking on a parity as to
dividends and distribution of assets

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<PAGE> 32
which such series of Preferred Stock are in arrears, no shares of any such
series of Preferred Stock or such other series of Preferred Stock of the
Company will be redeemed (whether by mandatory or optional redemption) unless
all such shares are simultaneously redeemed, and the Company will not purchase
or otherwise acquire any such shares; provided, however, that the foregoing
will not prevent the purchase or acquisition of such shares pursuant to a
purchase or exchange offer made on the same terms to holders of all such shares
outstanding.

In the event that fewer than all of the outstanding shares of a series
of Preferred Stock are to be redeemed, whether by mandatory or optional
redemption, the number of shares to be redeemed will be determined by lot or
pro rata (subject to rounding to avoid fractional shares) as may be determined
by the Company or by any other method as may be determined by the Company in
its sole discretion to be equitable. From and after the redemption date
(unless default shall be made by the Company in providing for the payment of
the redemption price plus accumulated and unpaid dividends, if any), dividends
shall cease to accumulate on the shares of Preferred Stock called for
redemption and all rights of the holders thereof (except the right to receive
the redemption price plus accumulated and unpaid dividends, if any) shall
cease.

LIQUIDATION PREFERENCE

Upon any voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the Company, then, before any distribution or payment
shall be made to the holders of any Junior Stock, the holders of each series of
Preferred Stock shall be entitled to receive out of assets of the Company
legally available for distribution to STOCKholders, liquidating distributions
in the amount of the liquidation preference per share (set forth in the
applicable Prospectus Supplement), plus an amount equal to all dividends
accrued and unpaid thereon (which shall not include any accumulation in respect
of unpaid dividends for prior dividend periods if such Preferred Stock does not
have a cumulative dividend). After payment of the full amount of the
liquidating distributions to which they are entitled, the holders of Preferred
Stock will have no right or claim to any of the remaining assets of the
Company. In the event that, upon any such voluntary or involuntary
liquidation, dissolution or winding up, the available assets of the Company are
insufficient to pay the amount of the liquidating distributions on all
outstanding Preferred Stock and the corresponding amounts payable on all shares
of other classes or series of equity securities of the Company ranking on a
parity with the Preferred Stock in the distribution of assets, then the holders
of the Preferred Stock and all other such classes or series of equity
securities shall share ratably in any such distribution of assets in proportion
to the full liquidating distributions to which they would otherwise be
respectively entitled.

If liquidating distributions shall have been made in full to all
holders of Preferred Stock, the remaining assets of the Company shall be
distributed among the holders of shares of Junior Stock, according to their
respective rights and preferences and in each case according to their
respective number of shares. For such purposes, the consolidation or merger of
the Company with or into any other corporation, or the sale, lease or
conveyance of all or substantially all of the assets or business of the
Company, shall not be deemed to constitute a liquidation, dissolution or
winding up of the Company.

VOTING RIGHTS

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<PAGE> 33
Except as indicated below or in a Prospectus Supplement relating to a
particular series of Preferred Stock, or except as required by applicable law,
holders of the Preferred Stock will not be entitled to vote for any purpose.

So long as any series of Preferred Stock remains outstanding, the
consent or the affirmative vote of the holders of at least a majority of the
votes entitled to be cast with respect to the then outstanding shares of such
series of Preferred Stock together with any Other Preferred Stock (as defined
below), voting as one class, either expressed in writing or at a meeting called
for that purpose, will be necessary (i) to permit, effect or validate the
authorization, or any increase in the authorized amount, of any class or series
of equity securities of the Company ranking prior to Preferred Stock of such
series as to dividends, voting or upon distribution of assets; and (ii) to
repeal, amend or otherwise change any of the provisions applicable to the
Preferred Stock of such series in any manner which adversely affects the
powers, preferences, voting power or other rights or privileges of such series
of Preferred Stock. In case any series of Preferred Stock would be so affected
by any such action referred to in clause (ii) above in a different manner than
one or more series of Other Preferred Stock which will be similarly affected,
the holders of the Preferred Stock of such series, together with any series of
Other Preferred Stock which will be similarly affected, will be entitled to
vote as a class, and the Company will not take such action without the consent
or affirmative vote, as provided above, of at least a majority of the total
number of votes entitled to be cast with respect to each such series of
Preferred Stock and Other Preferred Stock, then outstanding, in lieu of the
consent or affirmative vote hereinafter otherwise required.

With respect to any matter as to which the Preferred Stock of any
series is entitled to vote, holders of the Preferred Stock of such series and
any other series of Preferred Stock ranking on a parity with such series of
Preferred Stock as to dividends and distributions of assets and which by its
terms provides for similar voting rights (the "Other Preferred Stock") will be
entitled to cast the number of votes set forth in the Prospectus Supplement
with respect to that series of Preferred Stock. As a result of the provisions
described in the preceding paragraph requiring the holders of shares of a
series of Preferred Stock to vote together as a class with the holders of
shares of one or more series of Other Preferred Stock, it is possible that the
holders of such shares of Other Preferred Stock could approve action that would
adversely affect such series of Preferred Stock, including the creation of a
class of shares of beneficial interest ranking prior to such shares of
Preferred Stock as to dividends, voting or distributions of assets.

CONVERSION RIGHTS

The terms and conditions, if any, upon which shares of any series of
Preferred Stock are convertible into Common Stock will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include the
number of shares of Common Stock into which the Preferred Stock is convertible,
the conversion price (or manner of calculation thereof), the conversion period,
the provisions as to whether conversion will be at the option of the holders of
the Preferred Stock or the Company, the events requiring an adjustment of the
conversion price and the provisions affecting conversion.

RESTRICTIONS ON OWNERSHIP

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See "Description of Common Stock--Restrictions on Transfer" for a
discussion of the restrictions on transfer of shares of capital stock necessary
for the Company to qualify as a REIT under the Code.

CERTAIN PROVISIONS OF MARYLAND LAW
AND OF THE COMPANY'S ARTICLES AND BYLAWS

The following discussion summarizes certain provisions of MGCL and the
Articles and the Company's Bylaws. This summary does not purport to be
complete and is subject to and qualified in its entirety by reference to the
Articles and the Company's Bylaws.

CLASSIFICATION OF THE BOARD OF DIRECTORS

The Bylaws provide that the number of directors of the Company shall
be as set in the Articles or as may be established by the Board of Directors
but may not be fewer than the number required under the MGCL nor more than 15.
Any vacancy will be filled, at any regular meeting or at any special meeting
called for that purpose, by a majority of the remaining directors, except that
a vacancy resulting from an increase in the number of directors will be filled
by a majority of the entire Board of Directors. The stockholders may elect a
director to fill a vacancy on the Board of Directors which results from the
removal of a director. Pursuant to the terms of the Articles, the directors
are divided into three classes. One class holds office initially for a term
expiring at the annual meeting of stockholders to be held in 1995, another
class holds office initially for a term expiring at the annual meeting of
stockholders to be held in 1996 and another class holds office initially for a
term expiring at the annual meeting of stockholders to be held in 1997. As the
term of each class expires, directors in that class will be elected for a term
of three years. The Company believes that classification of the Board of
Directors will help to assure the continuity and stability of the Company's
business strategies and policies as determined by the Board of Directors.

The classified director provision could have the effect of making the
removal of incumbent directors more time-consuming and difficult, which could
discourage a third party from making a tender offer or otherwise attempting to
obtain control of the Company, even though such an attempt might be beneficial
to the Company and its stockholders. At least two annual meetings of
stockholders, instead of one, will generally be required to effect a change in
a majority of the Board of Directors. Thus, the classified board provision
could increase the likelihood that incumbent directors will retain their
positions. Further, holders of shares of Common Stock have no right to
cumulative voting for the election of directors. Consequently, at each annual
meeting of stockholders, the holders of a majority of shares of Common Stock
will be able to elect all of the successors of the class of directors whose
term expires at that meeting.

LIMITATION OF LIABILITY AND INDEMNIFICATION

The Articles limit the liability of the Company's directors and
officers to the Company and its stockholders to the fullest extent permitted
from time to time by the MGCL. The MGCL

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presently permits the liability of directors and officers to a corporation or
its stockholders for money damages to be limited, except (i) to the extent that
it is proved that the director or officer actually received an improper benefit
or profit or (ii) to the extent that a judgment or other final adjudication is
entered adverse to the director or officer in a proceeding based on a finding
that the director's or officer's action, or failure to act, was the result of
active and deliberate dishonesty and was material to the cause of action
adjudicated in the proceeding. This provision does not limit the ability of
the Company or its stockholders to obtain other relief, such as an injunction
or rescission.

The Articles require the Company to indemnify its directors, officers
and certain other parties to the fullest extent permitted from time to time by
the MGCL. The MGCL permits a corporation, subject to certain exceptions, to
indemnify its directors, officers and certain other parties against judgments,
penalties, fines, settlements and reasonable expenses, including attorneys'
fees, actually incurred by them in connection with any proceeding to which they
may be made a party by reason of their service to or at the request of the
corporation, unless it is established that (i) the act or omission of the
indemnified party was material to the matter giving rise to the proceeding and
was committed in bad faith or was the result of active and deliberate
dishonesty, (ii) the indemnified party actually received an improper personal
benefit, or (iii) in the case of any criminal proceeding, the indemnified party
had reasonable cause to believe that the act or omission was unlawful.
Indemnification may be made against judgments, penalties, fines, settlements
and reasonable expenses actually incurred by the director or officer in
connection with the proceeding; provided, however, that if the proceeding is
one by or in the right of the corporation, indemnification may not be made with
respect to any proceeding in which the director or officer has been adjudged to
be liable to the corporation. In addition, a director or officer may not be
indemnified with respect to any proceeding charging improper personal benefit
to the director or officer in which the director or officer was adjudged to be
liable on the basis that personal benefit was improperly received. The
termination of any proceeding by conviction, or upon a plea of nolo contendere
or its equivalent, or an entry of any order of probation prior to judgment,
creates a rebuttable presumption that the director or officer did not meet the
requisite standard of conduct required for indemnification to be permitted. It
is the position of the Commission that indemnification of directors and
officers for liabilities arising under the Securities Act is against public
policy and is unenforceable pursuant to Section 14 of the Securities Act.

BUSINESS COMBINATIONS

Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange or, in certain circumstances, an asset transfer
or issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns 10% or more of the voting
power of the corporation's shares after the date on which the corporation had
100 or more beneficial owners of its stock or an affiliate or associate of the
corporation and was the beneficial owner, directly or indirectly, of 10% or
more of the voting power of the then outstanding stock of the corporation who,
at any time within the two-year period prior to the date in question and after
the date on which the corporation had 100 or more beneficial owners of its
stock (an "Interested Stockholder") or an affiliate thereof, are prohibited for
five years after the most recent date on which the Interested Stockholder
became an Interested Stockholder.

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<PAGE> 36
Thereafter, any such business combination must be recommended by the board of
directors of such corporation and approved by the affirmative vote of at least
(i) 80% of the votes entitled to be cast by holders of outstanding voting
shares of the corporation voting together as a single voting group and (ii)
two-thirds of the votes entitled to be cast by holders of outstanding voting
shares of the corporation other than shares held by the Interested Stockholder
with whom the business combination is to be effected, unless, among other
things, the corporation's stockholders receive a minimum price (as defined in
the MGCL) for their shares and the consideration is received in cash or in the
same form as previously paid by the Interested Stockholder for its shares.
These provisions of the MGCL do not apply, however, to business combinations
that are approved or exempted by the board of directors of the corporation
prior to the time that the Interested Stockholder becomes an Interested
Stockholder. The Articles contain a provision exempting from these provisions
of the MGCL any business combination involving Mr. Daseke (or his affiliates)
or any other person acting in concert or as a group with any of the foregoing
persons.

CONTROL SHARE ACQUISITIONS

The MGCL provides that "control shares" of a Maryland corporation
acquired in a "control share acquisition" have no voting rights except to the
extent approved by a vote of two-thirds of the votes entitled to be cast on the
matter, excluding shares of stock owned by the acquirer, by officers or by
directors who are employees of the corporation. "Control shares" are voting
shares of stock which, if aggregated with all other such shares of stock
previously acquired by such person, or in respect of which such person is able
to exercise or direct the exercise of voting power, would entitle the acquirer
to exercise voting power in electing directors within one of the following
ranges of voting power: (i) one-fifth or more but less than one-third, (ii)
one-third or more but less than a majority, or (iii) a majority. Control
shares do not include shares the acquiring person is then entitled to vote as a
result of having previously obtained stockholder approval. A "control share
acquisition" means the acquisition of control shares, subject to certain
exceptions.

A person who has made or proposes to make a control share acquisition,
upon satisfaction of certain conditions (including an undertaking to pay
expenses), may compel the board of directors to call a special meeting of
stockholders to be held within 50 days of demand to consider the voting rights
of the shares. If no request for a meeting is made, the corporation may itself
present the question at any stockholders meeting.

If voting rights are not approved at the meeting or if the acquiring
person does not deliver an acquiring person statement as required by the MGCL,
then, subject to certain conditions and limitations, the corporation may redeem
any or all of the control shares (except those for which voting rights have
previously been approved) for fair value determined, without regard to the
absence of voting rights for control shares, as of the date of the last control
share acquisition or of any meeting of stockholders at which the voting rights
of such shares are considered and not approved. If voting rights for control
shares are approved at a stockholders meeting and the acquirer becomes entitled
to vote a majority of the shares entitled to vote, all other stockholders may
exercise appraisal rights. The fair value of the shares as determined for
purposes of such appraisal rights may not be less than the highest price per
share paid by the acquiring person in

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<PAGE> 37
the control share acquisition, and certain limitations and restrictions
otherwise applicable to the exercise of dissenters' rights do not apply in the
context of a control share acquisition.

The control share acquisition statute does not apply to shares
acquired in a merger, consolidation or share exchange if the corporation is a
party to the transaction, or to acquisitions approved or exempted by the
charter or bylaws of the corporation.

The Articles contain a provision exempting from the control share
acquisition statute any and all acquisitions by Mr. Daseke (or his affiliates)
or any other person acting in concert or as a group with any of the foregoing
persons of shares of the Company's capital stock. There can be no assurance
that such provision will not be amended or eliminated at any point in the
future.

AMENDMENT TO THE ARTICLES

The Articles may be amended by the affirmative vote of the holders of
a majority of all shares entitled to be voted on the matter, except for the
provision relating to the classification of the Board of Directors which may be
amended only by the affirmative vote of the holders of not less than two-thirds
of all shares entitled to be voted on the matter.

DISSOLUTION OF THE COMPANY

The Articles permit the dissolution of the Company by (i) the
affirmation or vote of a majority of the entire Board of Directors declaring
such dissolution to be advisable and directing that the proposed dissolution be
submitted for consideration at an annual or special meeting of stockholders and
(ii) upon proper notice, stockholder approval by the affirmative vote of the
holders of not less than a majority of all of the votes entitled to be cast on
the matter or the written consent of all the votes entitled to be cast on this
matter.

ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS

The Bylaws provide that with respect to an annual meeting of
stockholders, nominations of persons for election to the Board of Directors and
the proposal of business to be considered by stockholders may be made only (i)
by, or at the direction of, a majority of the Board of Directors or (ii) by a
stockholder who is entitled to vote at the meeting and has complied with the
advance notice procedures set forth in the Bylaws.

The provisions in the Articles on classification of the Board of
Directors, the business combination and control share acquisition provisions of
the MGCL and the advance notice provisions of the Bylaws could have the effect
of discouraging a takeover or other transaction in which holders of some, or a
majority, of the shares of Common Stock might receive a premium for their
shares of Common Stock over the then prevailing market price or which such
holders might believe to be otherwise in their best interests.

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<PAGE> 38
MEETINGS OF STOCKHOLDERS

Beginning in 1995, an annual meeting of the stockholders for the
election of directors and the transaction of any business within the powers of
the Company shall be held on the second Wednesday in May or at such other time
as set by the Board of Directors.

Subject to the rights, if any, of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
special meetings of the stockholders may be called by the Chairman of the Board
of Directors, by the President or by a resolution adopted by a majority of the
directors and by the Secretary of the Company upon the written request of the
holders of 25% or more of the outstanding voting stock. Such request shall
state the purpose or purposes of such meeting and the matters proposed to be
acted upon at such meeting.

FEDERAL INCOME TAX CONSIDERATIONS

The following is a summary of the material Federal income tax
considerations affecting the Company and its stockholders. This discussion is
directed principally at investors who are United States citizens or residents
or domestic corporations, and does not address in all material respects
considerations that might adversely affect the treatment of investors who are
subject to special treatment under the tax laws (such as insurance companies,
cooperatives, financial institutions, broker-dealers, tax exempt organizations
or foreign investors). The discussion in this section is based on existing
provisions of the Code, existing and proposed Treasury regulations, existing
court decisions and existing rulings and other administrative interpretations.
There can be no assurance that future Code provisions or other legal
authorities will not alter significantly the tax consequences described below.
No rulings have been obtained from the Internal Revenue Service ("IRS")
concerning any of the matters discussed in this section. Because the following
represents only a summary, it is qualified in its entirety by the applicable
provisions of the Code, and regulations, court decisions and IRS rulings and
other IRS pronouncements.

Each prospective purchaser of shares of Common Stock and/or Preferred
Stock is advised to consult his or her own tax advisor about the Federal,
state, local, foreign and other tax consequences of buying, holding and selling
shares of Common Stock and/or Preferred Stock, and of the Company's election to
be taxed as a REIT, particularly in light of that purchaser's specific
circumstances.

REIT QUALIFICATION

Entities like the Company that invest principally in real estate and
that otherwise would be taxed as regular corporations may elect to be treated
as REITs when they satisfy certain detailed requirements imposed by the Code.
If the Company qualifies for taxation as a REIT, it generally will not be
subject to corporate income tax to the extent the Company currently distributes
its REIT taxable income to its stockholders. This treatment effectively
eliminates the "double taxation" (i.e., taxation at both the corporate and
stockholder levels) imposed on investments in most regular corporations. A
qualifying REIT, however, may be subject to certain excise and other taxes, as
well as to normal corporate tax on taxable income that is not currently
distributed to its stockholders. See "-- Taxation of the Company as a REIT."
In addition, if the

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<PAGE> 39
Company fails to qualify as a REIT in any taxable year, it will be subject to
Federal income tax at regular corporate rates on all of its taxable income.
The current maximum Federal tax rate for corporations is 35%, but that rate may
increase.

The Company has elected to be treated as a REIT for Federal income tax
purposes for its taxable year ended December 31, 1994, and for each subsequent
taxable year. Based on certain assumptions and representations that are
summarized below, Winstead Sechrest & Minick P.C., counsel to the Company, is
of the opinion that the Company qualified as a REIT for its taxable year ended
December 31, 1994 and its organization and its method of operations described
in this Prospectus will enable it to continue to satisfy the requirements for
such qualification. The rules governing REITs are highly technical and require
ongoing compliance with a variety of tests that depend, among other things, on
future operating results. Winstead Sechrest & Minick P.C. will not monitor the
Company's compliance with these requirements. While the Company expects to
satisfy these tests, and will use its best efforts to do so, no assurance can
be given that the Company will qualify as a REIT for any particular year, or
that the applicable law will not change and adversely affect the Company and
its stockholders. See " -- Failure to Qualify as a REIT."

General Qualification Requirements. The Company filed an election to
be a REIT with its Federal income tax return for the taxable year ended
December 31, 1994. The Company must be organized as an entity that would, if
it does not maintain its REIT status, be taxable as a regular corporation. It
cannot be a financial institution or an insurance company. The Company must be
managed by one or more directors. The Company currently meets and expects to
continue to meet, each of these requirements. The Company also expects to
satisfy the requirements that are separately described below concerning share
ownership and reporting, the nature and amounts of the Company's income and
assets and the levels of required annual distributions.

Share Ownership; Reporting. Beneficial ownership of the Company must
be and is evidenced by transferable shares (or transferable certificates of
beneficial interest). The shares of Common Stock must be held by at least 100
persons for approximately 92% of the days in each taxable year. Not more than
50% of the value of the shares of capital stock may be held, directly or
indirectly, applying certain constructive ownership rules, by five or fewer
individuals at any time during the last half of each of the Company's taxable
years. The Company is not required to satisfy these 100 person and 50% tests
until its second taxable year for which an election is made to be taxed as a
REIT. The Company believes that its shares of Common Stock are owned by a
sufficient number of investors and in appropriate proportions to permit it to
continue satisfying these requirements. To protect against violations of these
requirements, the Articles provide that no person is permitted to own (applying
certain constructive ownership tests) more than the Ownership Limit. The
Ownership Limit does not apply to (i) acquisitions by any person that has made
a tender offer for all outstanding shares of Common Stock in conformity with
applicable securities laws; (ii) the acquisition of shares of Common Stock by
an underwriter in a public offering; (iii) the acquisition of shares of Common
Stock pursuant to the exercise of employee share options; or (iv) acquisitions
approved by the Board. In addition, the Articles contain restrictions on
transfers of the Company's shares of Common Stock, as well as provisions that
automatically convert shares of Common Stock into nonvoting, non-dividend

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<PAGE> 40
paying Excess Stock to the extent that the ownership otherwise might jeopardize
the Company's REIT status. See "Description of Common Stock -- Restrictions on
Transfer." Special rules for determining stock ownership apply to certain
qualified pension and profit sharing trusts. See " -- Taxation of Tax Exempt
Entities."

To monitor the Company's compliance with the share ownership
requirements, the Company is required to maintain records disclosing the actual
ownership of shares of Common Stock. To do so, the Company must demand written
statements each year from the record holders of certain percentages of shares
of Common Stock in which the record holders are to disclose the actual owners
of the shares (i.e., the persons required to include in gross income the REIT
dividends). (A REIT with 2,000 or more record stockholders must demand
statements from record holders of 5% or more of its shares, one with fewer than
2,000, but more than 200 record stockholders must demand statements from record
holders of 1% or more of the shares, while a REIT with 200 or fewer record
stockholders must demand statements from record holders of 0.5% or more of the
shares.) A list of those persons failing or refusing to comply with this
demand must be maintained as part of the Company's records. Stockholders who
fail or refuse to comply with the demand must submit a statement with their tax
returns disclosing the actual ownership of the shares of Common Stock and
certain other information.

Sources of Gross Income. In order to qualify as a REIT for a
particular year, the Company also must meet three tests governing the sources
of its income. These tests are designed to ensure that a REIT derives its
income principally from passive real estate investments. The Company satisfied
these three tests for its taxable year ended December 31, 1994. In evaluating
a REIT's income, the REIT will be treated as receiving its proportionate share
of the income produced by any partnership in which the REIT invests, and any
such income will retain the character that it has in the hands of the
partnership. The Code allows the Company to own and operate a number of its
properties through wholly-owned subsidiaries which are "qualified REIT
subsidiaries." The Code provides that a qualified REIT subsidiary is not
treated as a separate corporation, and all of its assets, liabilities and items
of income, deduction and credit are treated as assets, liabilities and such
items of the REIT.

75% Gross Income Test. At least 75% of a REIT's gross income for each
taxable year must be derived from specified classes of income that principally
are real estate related. The permitted categories of principal importance to
the Company are: (a) rents from real property; (b) interest on loans secured by
real property; (c) gain from the sale of real property or loans secured by real
property (excluding gain from the sale of property held primarily for sale to
customers in the ordinary course of the Company's trade or business, referred
to below as "dealer property"); (d) income from the operation and gain from the
sale of certain property acquired in connection with the foreclosure of a
mortgage securing that property ("foreclosure property"); (e) distributions on,
or gain from the sale of, shares of other qualifying REITs; (f) abatements and
refunds of real property taxes; and (g) "qualified temporary investment income"
(described below). In evaluating the Company's compliance with the 75% income
test (as well as the 95% income test described below), gross income does not
include gross income from "prohibited transactions." A prohibited transaction
is one involving a sale of dealer property, not including foreclosure property
and certain dealer property held by the Company for at least four years.

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<PAGE> 41
The Company expects that substantially all of its operating gross
income from the Properties will be considered rent from real property. Rent
from real property is qualifying income for purposes of the 75% income test
only if certain conditions are satisfied. Rent from real property includes
charges for services customarily rendered to residents, and rent attributable
to personal property leased together with the real property so long as the
personal property rent is less than 15% of the total rent. The Company does
not expect to earn material amounts in these categories. Rent from real
property generally does not include rent based on the income or profits derived
from the property. Also excluded is rent received from a person or corporation
in which the Company (or any of its 10% or greater owners) owns a 10% or
greater interest. The Company does not expect to earn income in these two
excluded categories. A third exclusion covers amounts received with respect to
real property if the Company furnishes services to the residents or manages or
operates the property, other than through an "independent contractor" from whom
the Company does not derive any income. The obligation to operate through an
independent contractor generally does not apply, however, if any services
provided by the Company are "usually or customarily rendered" in connection
with the rental of space for occupancy only and are not considered rendered
primarily for the convenience of the resident (applying standards that govern
in evaluating whether rent from real property would be unrelated business
taxable income when received by a tax exempt owner of the property).

The Company will, in most instances, directly operate and manage the
Properties without using an "independent contractor." The Company believes
that the only material services to be provided to the residents will be those
usually or customarily rendered in connection with the rental of space for
occupancy only. The Company will not provide services that might be considered
rendered primarily for the convenience of the residents, such as hotel, health
care or extensive recreational or social services. Consequently, the Company
believes that substantially all of its rental income from the Properties will
be qualifying income under the 75% income test, and that the Company's
provision of services will not cause the rental income to fail to be included
under that test.

Upon the Company's ultimate sale of its Properties, any gains realized
also are expected to constitute qualifying income, as gain from the sale of
real property (not involving a prohibited transaction).

95% Gross Income Test. In addition to earning 75% of its gross income
from the sources listed above, at least an additional 20% of the Company's
gross income for each taxable year must come either from those sources, or from
dividends, interest or gains from the sale or other disposition of stock or
other securities that do not constitute dealer property. This test permits a
REIT to earn a significant portion of its income from traditional "passive"
investment sources that are not necessarily real estate related. The term
"interest" (under both the 75% and 95% tests) does not include amounts that are
based on the income or profits of any person, unless the computation is based
only on a fixed percentage of receipts or sales.

Failing the 75% or 95% Tests; Reasonable Cause. As a result of the
75% and 95% tests, REITs generally are not permitted to earn more than 5% of
their gross income from active sources (such as brokerage commissions or other
fees for services rendered). This type of income will not qualify for the 75%
test or 95% test but is not expected to be significant and

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<PAGE> 42
such income and other nonqualifying income are expected to be at all times less
than 5% of the Company's annual gross income. While the Company does not
anticipate that it will earn substantial amounts of nonqualifying income, if
nonqualifying income exceeds 5% of the Company's gross income, the Company
could lose its status as a REIT. WDN Management, which provides management
services with respect to certain properties not owned by the Company, is not a
qualified REIT subsidiary. Therefore, WDN Management's gross income is not
included in the Company's gross income. However, dividends from WDN Management
to the Company are included in the Company's gross income and qualify for the
95% income test.

If the Company fails to meet either the 75% or 95% income tests during
a taxable year, it may still qualify as a REIT for that year if (a) it reports
the source and nature of each item of its gross income in its Federal income
tax return for that year; (b) the inclusion of any incorrect information in its
return is not due to fraud with intent to evade tax; and (c) the failure to
meet the tests is due to reasonable cause and not to willful neglect. However,
in that case the Company would be subject to a 100% tax based on the greater of
the amount by which it fails either the 75% or 95% income tests for such year.
See "-- Taxation of the Company as a REIT."

30% Income Test. The Company also must earn less than 30% of its
gross income from the sale or other disposition of: (a) real property and
loans secured by real property held for less than four years (other than
foreclosure property and involuntarily conversions), (b) stock or securities
held by the Company for less than one year and (c) property in a prohibited
transaction. The 30% income test does not have a reasonable cause exception as
do the 75% and 95% income tests. Consequently, a failure to meet the 30%
income test would terminate the Company's status as a REIT automatically.
Because the Company expects to hold its Properties for long-term investment and
does not anticipate selling them within four years, the Company expects to
comply with this requirement.

Character of Assets Owned. On the last day of each calendar quarter,
the Company also must meet two tests concerning the nature of its investments.
First, at least 75% of the value of the total assets of the Company generally
must consist of real estate assets, cash, cash items (including receivables)
and government securities. For this purpose, "real estate assets" include
interests in real property, interests in loans secured by mortgages on real
property or by certain interests in real property, shares in other REITs and
certain options, but exclude mineral, oil or gas royalty interests. The
temporary investment of new capital in debt instruments also qualifies under
this 75% asset test, but only for the one-year period beginning on the date the
Company receives the new capital. Second, although the balance of the
Company's assets generally may be invested without restriction, the Company
will not be permitted to own (a) securities of any one non-governmental issuer
that represent more than 5% of the value of the Company's total assets or (b)
more than 10% of the outstanding voting securities of any single issuer. A
REIT, however, may own 100% of the stock of a qualified REIT subsidiary, in
which case the assets, liabilities and items of income, deduction and credit of
the subsidiary are treated as those of the REIT. In evaluating a REIT's
assets, if the REIT invests in a partnership, it is deemed to own its
proportionate share of the assets of the partnership.

The Company's non-voting common stock of WDN Management does not
violate the prohibition against a REIT's ownership of more than 10% of the
voting securities of any one

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<PAGE> 43
issuer. If, however, the value of the Company's non-voting common stock in WDN
Management were to exceed 5% of the total value of all of the Company's assets,
then the asset test would be violated. The Company believes that the value of
the securities of WDN Management held by the Company is substantially less than
5% of the total value of the Company's assets, and the Company does not expect
that it will exceed 5% in the future.

The Company anticipates that it complies with these asset tests.
While some portion of its assets initially was invested in qualifying temporary
debt investments, substantially all of the Company's investments are in its
Properties, which should represent qualifying real estate assets.

Annual Distributions to Stockholders. To maintain REIT status, the
Company generally must distribute to its stockholders in each taxable year at
least 95% of its net ordinary income (capital gain is not required to be
distributed). More precisely, the Company must distribute an amount equal to
(a) 95% of the sum of (i) its "REIT Taxable Income" before deduction of
dividends paid and excluding any net capital gain and (ii) any net income from
foreclosure property less the tax on such income, minus (b) certain limited
categories of "excess noncash income." REIT Taxable Income is defined to be
the taxable income of the REIT, computed as if it were an ordinary corporation,
with certain modifications. For example, the deduction for dividends paid is
allowed, but neither net income from foreclosure property, nor net income from
prohibited transactions, is included. In addition, the REIT may carry over,
but not carry back, a net operating loss for 15 years following the year in
which it was incurred. REITs also are required to distribute at least 95% of
any after-tax built-in gain that is realized during the ten year recognition
period applicable to property transferred to the REIT in a corporate
nonrecognition transaction. The Company does not anticipate that any such
property will be transferred to it.

A REIT may satisfy the 95% distribution test with dividends paid
during the taxable year and with certain dividends paid after the end of the
taxable year. Dividends paid in January that were declared during the last
calendar quarter of the prior year and were payable to stockholders of record
on a date during the last calendar quarter of that prior year are treated as
paid on December 31 of the prior year (for both the Company and its
stockholders). Other dividends declared before the due date of the Company's
tax return for the taxable year (including extensions) also will be treated as
paid in the prior year for the Company if they are paid (a) within 12 months of
the end of such taxable year and (b) no later than the Company's next regular
distribution payment. Dividends that are paid after the close of a taxable
year and do not qualify under the rule governing payments made in January that
is described above will be taxable to the stockholders in the year paid, even
though they may be taken into account by the Company for a prior year. A
nondeductible excise tax equal to 4% will be imposed on the Company for each
calendar year to the extent that dividends declared and distributed or deemed
distributed before December 31 are less than the sum of (i) 85% of the
Company's "ordinary income" plus (ii) 95% of the Company's capital gain net
income plus (iii) income not distributed in earlier years minus (iv)
distributions in excess of income in earlier years and (v) any amount of REIT
taxable income for such year.

The Company will be taxed at regular corporate rates to the extent
that it retains any portion of its taxable income (e.g., if the Company
distributes only the required 95% of its taxable income, it would be taxed on
the retained 5%). Under certain circumstances the

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<PAGE> 44
Company may not have sufficient cash or other liquid assets to meet the
distribution requirement. This could arise because of competing demands for
the Company's funds, or due to timing differences between tax reporting and
cash receipts and disbursements (i.e., income may have to be reported before
cash is received, or expenses may have to be paid before a deduction is
allowed). Although the Company does not anticipate any difficulty in meeting
this requirement, no assurance can be given that necessary funds will be
available.

If the Company fails to meet the 95% distribution requirement because
of an adjustment to the Company's taxable income by the IRS, the Company may be
able to cure the failure retroactively by paying a "deficiency dividend" (as
well as applicable interest and penalties) within a specified period.

TAXATION OF THE COMPANY AS A REIT

The Company has adopted the calendar year for Federal income tax
purposes, and uses the accrual method of accounting. For each taxable year in
which the Company qualifies as a REIT, it generally will be taxed only on the
portion of its taxable income that it retains (which will include undistributed
net capital gain), because the Company will be entitled to a deduction for its
dividends paid to stockholders during the taxable year. A dividends paid
deduction is not available for dividends that are considered preferential
within any given class of shares or as between classes except to the extent
such class is entitled to such preference. The Company does not anticipate
that it will pay any such preferential dividends. The Articles provide for the
automatic exchange of outstanding shares of Common Stock or Preferred Stock for
Excess Stock in circumstances in which the Company's REIT status might
otherwise be put into jeopardy (i.e., if a person attempts to acquire a block
of shares that would be sufficient to cause the Company to fail the
requirement that five or fewer individuals may not own more than 50% of the
value of the outstanding shares). Because Excess Stock will represent a
separate class of outstanding shares, the fact that those shares will not be
entitled to dividends should not adversely affect the Company's ability to
deduct its dividend payments.

The Company would be subject to tax on any income or gain from
foreclosure property at the highest corporate rate (currently 35%). A
confiscatory tax of 100% applies to any net income from prohibited
transactions. In addition, if the Company fails to meet either the 75% or 95%
source of income tests described above, but still qualifies for REIT status
under the reasonable cause exception to those tests, a 100% tax would be
imposed equal to the amount obtained by multiplying (a) the greater of the
amount, if any, by which it failed either the 75% income test or the 95% income
test, times (b) the ratio of the Company's REIT Taxable Income to the Company's
gross income (excluding capital gain and certain other items). The Company
also will be subject to the minimum tax on items of tax preference (excluding
items specifically allocable to the Company's stockholders). Finally, under
regulations that are to be promulgated, the Company also may be taxed at the
highest regular corporate tax rate on any built-in gain (i.e., the excess of
value over adjusted tax basis) attributable to assets that the Company acquires
in certain tax-free corporate transactions, to the extent the gain is
recognized during the first ten years after the Company acquires such assets.

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<PAGE> 45
FAILURE TO QUALIFY AS A REIT

For any taxable year in which the Company fails to qualify as a REIT,
it would be taxed at the usual corporate rates on all of its taxable income.
Distributions to its stockholders would not be deductible in computing that
taxable income, and distributions would no longer be required. Any corporate
level taxes generally would reduce the amount of cash available to the Company
for distribution to its stockholders and, because the stockholders would
continue to be taxed on the distributions they receive, the net after tax yield
to the stockholders from their investment in the Company likely would be
reduced substantially. As a result, the Company's failure to qualify as a REIT
during any taxable year could have a material adverse effect upon the Company
and its stockholders. If the Company loses its REIT status, unless certain
relief provisions apply, the Company will not be eligible to elect REIT status
again until the fifth taxable year which begins after the first year for which
the Company's election was terminated.

If, after forfeiting its REIT status, the Company later qualifies and
elects to be taxed as a REIT again, the Company may face significant adverse
tax consequences. Prior to the end of the year in which the Company sought to
qualify again as a REIT, the Company would be required to make distributions
sufficient to eliminate any earnings and profits accumulated during its period
of non-REIT status. Moreover, immediately prior to the effectiveness of the
election to return to REIT status, the Company would be treated as having
disposed of all of its assets in a taxable transaction, triggering taxable gain
with respect to the Company's appreciated assets. In that event, however, the
Company would be permitted to elect an alternative treatment under which those
gains would be taken into account only as and when they actually are recognized
upon sales of the appreciated property occurring within a ten-year period. The
Company would be required to distribute at least 95% of any such recognized
gains, but it would not receive the benefit of a dividends paid deduction to
reduce those taxable gains. Thus, any such gains on appreciated assets would
be subject to double taxation (i.e., at the corporate level as well as the
stockholder level).

TAXATION OF STOCKHOLDERS

Distributions generally will be taxable to stockholders as ordinary
income to the extent of the Company's earning and profits. Dividends declared
during the last quarter of a calendar year and actually paid during January of
the immediately following calendar year are generally treated as if received by
the stockholders on December 31 of the calendar year during which they were
declared. Distributions paid to stockholders will not constitute passive
activity income, and as a result generally cannot be offset by losses from
passive activities of a stockholder who is subject to the passive activity
rules. Distributions designated by the Company as capital gains dividends
generally will be taxed as long term capital gains to stockholders to the
extent that the distributions do not exceed the Company's actual net capital
gain for the taxable year. Corporate stockholders may be required to treat up
to 20% of any such capital gains dividends as ordinary income. Distributions
by the Company, whether characterized as ordinary income or as capital gains,
are not eligible for the 70% dividends received deduction for corporations.
Stockholders are not permitted to deduct losses or loss carry-forwards of the
Company. Future regulations may require that the stockholders take into
account, for purposes of computing their individual alternative minimum tax
liability, certain tax preference items of the Company.

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<PAGE> 46
The Company may generate cash in excess of its net earnings. If the
Company distributes cash to stockholders in excess of the Company's current and
accumulated earnings and profits (other than as a capital gain dividend), the
excess cash will be deemed to be a return of capital to each stockholder to the
extent of the adjusted tax basis of the stockholder's shares of Common Stock.
Distributions in excess of the adjusted tax basis will be treated as gain from
the sale or exchange of the shares of Common Stock. A stockholder who has
received a distribution in excess of current and accumulated earnings and
profits of the Company may, upon the sale of the shares of Common Stock,
realize a higher taxable gain or a smaller loss because the basis of the shares
of Common Stock as reduced will be used for purposes of computing the amount of
the gain or loss.

Generally, gain or loss realized by a stockholder upon the sale of
shares of Common Stock will be reportable as capital gain or loss. If a
stockholder receives a long-term capital gain dividend from the Company and has
held the shares of Common Stock for six months or less, any loss incurred on
the sale or exchange of the shares of Common Stock is treated as a long-term
capital loss, to the extent of the corresponding long-term capital gain
dividend received.

In any year in which the Company fails to qualify as a REIT, the
stockholders generally will continue to be treated in the same fashion
described above, except that no Company dividends will be eligible for
treatment as capital gains dividends, corporate stockholders will qualify for
the dividends received deduction and the stockholders will not be required to
report any share of the Company's tax preference items.

BACKUP WITHHOLDING

The Company will report to its stockholders and the IRS the amount of
dividends paid during each calendar year and the amount of tax withheld, if
any. If a stockholder is subject to backup withholding, the Company will be
required to deduct and withhold from any dividends payable to that stockholder
a tax of 31%. These rules may apply (a) when a stockholder fails to supply a
correct taxpayer identification number, (b) when the IRS notifies the Company
that the stockholder is subject to the rules or has furnished an incorrect
taxpayer identification number or (c) in the case of corporations or others
within certain exempt categories, when they fail to demonstrate that fact when
required. A stockholder that does not provide a correct taxpayer
identification number may also be subject to penalties imposed by the IRS. Any
amount withheld as backup withholding may be credited against the stockholder's
Federal income tax liability. The Company also may be required to withhold a
portion of capital gain distributions made to stockholders who fail to certify
their non-foreign status to the Company.

TAXATION OF TAX EXEMPT ENTITIES

In general, a tax exempt entity that is a stockholder of the Company
will not be subject to tax on distributions from the Company or gain realized
on the sale of shares of Common Stock. In Revenue Ruling 66-106, the IRS
specifically confirmed that a REIT's distributions to a tax exempt employees'
pension trust did not constitute unrelated business taxable income. A tax
exempt entity may be subject to tax, however, to the extent that it has
financed the

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<PAGE> 47
acquisition of its shares of Common Stock with "acquisition indebtedness"
within the meaning of the Code. The Revenue Reconciliation Act of 1993 has
modified the rules for tax exempt employees' pension and profit sharing trusts
which qualify under Code Section 401(a) and are exempt from tax under Code
Section 501(a) ("qualified trusts") for tax years beginning after December 31,
1993. Under the new rules, in determining the number of stockholders a REIT
has for purposes of the "50% test" described above under "-- REIT Qualification
- -- Share Ownership; Reporting," generally, any stock held by a qualified trust
will be treated as held directly by its beneficiaries in proportion to their
actuarial interests in such trust and will not be treated as held by such
trust. (This general rule will not apply if certain persons related to the
qualified trust ("disqualified persons") hold in the aggregate more than 5% of
the value of the REIT and the REIT has accumulated earnings and profits
attributable to any period for which it did not qualify as a REIT; this
exception is not expected to apply to the Company.)

A qualified trust owning more than 10% of a REIT must treat a
percentage of dividends from the REIT as unrelated business taxable income.
The percentage is determined by dividing the REIT's gross income (less direct
expenses related thereto) derived from an unrelated trade or business for the
year by the gross income of the REIT for the year in which the dividends are
paid. However, if this percentage is less than 5%, dividends are not treated
as unrelated business taxable income. These unrelated business taxable income
rules apply only if the REIT qualifies as a REIT because of the change in the
50% test discussed above and if the trust is "predominantly held" by a
qualified trust. A real estate investment trust is predominantly held by
qualified trusts if at least one pension trust owns more than 25% of the value
of the REIT or a group of pension trusts individually holding more than 10% of
the value of the REIT collectively owns more than 50% of the value of the REIT.

For social clubs, voluntary employee benefit associations,
supplemental unemployment benefit trusts and qualified group legal services
plans exempt from Federal income taxation under Sections 501(c)(7), (c)(9),
(c)(17) and (c)(20) of the Code, respectively, income from an investment in the
Company will constitute unrelated business taxable income unless the
organization is able to deduct an amount properly set aside or placed in
reserve for certain purposes so as to offset the unrelated business taxable
income generated by the investment in the Company. These prospective investors
should consult their own tax advisors concerning the "set aside" and reserve
requirements.

TAXATION OF FOREIGN INVESTORS

The rules governing Federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships and other foreign
stockholders (collectively, "Non-U.S. Stockholders") are complex and no attempt
will be made herein to provide more than a summary of such rules. Prospective
Non-U.S. Stockholders should consult with their own tax advisors to determine
the impact of Federal, state and local income tax laws with regard to an
investment in shares of Common Stock, including any reporting requirements, as
well as the tax treatment of such an investment under the laws of their home
country.

Dividends that are not attributable to gain from sales or exchanges by
the Company of United States real property interests and not designated by the
Company as capital gain dividends

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<PAGE> 48
will be treated as dividends of ordinary income to the extent that they are
made out of current or accumulated earnings and profits of the Company. Such
dividends ordinarily will be subject to a withholding tax equal to 30% of the
gross amount of the dividend unless an applicable tax treaty reduces or
eliminates that tax. However, if income from the investment in the shares of
Common Stock is treated as effectively connected with the Non-U.S.
Stockholder's conduct of a United States trade or business, the Non-U.S.
Stockholder generally will be subject to a tax at graduated rates, in the same
manner as U.S. stockholders are taxed with respect to such dividends (and may
also be subject to the 30% branch profits tax in the case of a stockholder that
is a foreign corporation). The Company expects to withhold United States
income tax at the rate of 30% on the gross amount of any such dividends paid to
a Non-U.S. Stockholder unless (i) the Non-U.S. Stockholder files on IRS Form
1001 claiming that a lower treaty rate applies or (ii) the Non-U.S. Stockholder
files an IRS Form 4224 with the Company claiming that the dividend is
effectively connected income. Dividends in excess of current and accumulated
earnings and profits of the Company will not be taxable to a stockholder to the
extent that they do not exceed the adjusted basis of the stockholder's shares
of Common Stock, but rather will reduce the adjusted basis of such shares of
Common Stock. To the extent that such dividends exceed the adjusted basis of a
Non-U.S. Stockholder's shares of Common Stock, they will give rise to tax
liability if the Non-U.S. Stockholder would otherwise be subject to tax on any
gain from the sale or disposition of his shares of Common Stock, as described
below. If it cannot be determined at the time a dividend is paid whether or
not such dividend will be in excess of current and accumulated earnings and
profits, the dividends will be subject to such withholding. However, the
Non-U.S. Stockholder may seek a return of such amounts from the IRS.

For any year in which the Company qualifies as a REIT, dividends that
are attributable to gain from sales or exchanges by the Company of United
States real property interests will be taxed to a Non-U.S. Stockholder under
the provisions of the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, those dividends are taxed to a Non-U.S. Stockholder
as if such gain were effectively connected with a United States business.
Non-U.S. Stockholders would thus be taxed at the normal capital gain rates
applicable to U.S. stockholders (subject to applicable alternative minimum tax
and a special alternative minimum tax in the case of nonresident alien
individuals). Also, dividends subject to FIRPTA may be subject to a 30% branch
profits tax in the hands of a foreign corporate stockholder not entitled to
treaty exemption. The Company is required by the Code and applicable Treasury
Regulations to withhold 35% of any dividend that could be designated by the
Company as a capital gain dividend. This amount is creditable against the
Non-U.S. Stockholder's FIRPTA tax liability.

Gain recognized by a Non-U.S. Stockholder upon a sale of shares of
Common Stock generally will not be taxed under FIRPTA if the Company is a
"domestically controlled REIT," defined generally as a REIT in which at all
times during a specified testing period less than 50% in value of the stock was
held directly or indirectly by foreign persons. It is currently anticipated
that the Company will be a "domestically controlled REIT," and therefore the
sale of shares of Common Stock will not be subject to taxation under FIRPTA.
Because the Common Stock is publicly traded, however, no assurance can be given
that the Company will remain a "domestically controlled REIT." However, gain
not subject to FIRPTA will be taxable to a Non-U.S. Stockholder if (i)
investment in the shares of Common Stock is effectively connected with the
Non-U.S. Stockholder's United States trade or business, in which case the
Non-U.S.

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<PAGE> 49
Stockholder will be subject to the same treatment as U.S. stockholders with
respect to such gain (and may also be subject to the 30% branch profits tax in
the case of a stockholder that is a foreign corporation), or (ii) the Non-U.S.
Stockholder is a nonresident alien individual who was present in the United
States for 183 days or more during the taxable year and has a "tax home" in the
United States, in which case the nonresident alien individual will be subject
to a 30% tax on the individual's capital gains. If the gain on the sale of
shares of Common Stock were to be subject to taxation under FIRPTA, the
Non-U.S. Stockholder will be subject to the same treatment as U.S. stockholders
with respect to such gain (subject to applicable alternative minimum tax and a
special alternative minimum tax in the case of nonresident alien individuals
and may also be subject to the 30% branch profits tax in the case of a
stockholder that is a foreign corporation).

Upon the death of a foreign individual stockholder, the investor's
shares will be treated as part of the investor's U.S. estate for purposes of
the U.S. estate tax, except as may be otherwise provided in an applicable
estate tax treaty.

TAX ASPECTS OF TRANSFERRED INTERESTS AND PARTNERSHIP INTEREST IN
CHIMNEY TRACE ASSOCIATES

The following discussion summarizes certain Federal income tax
considerations applicable solely to the Company's interests in distributions
(assigned by Walden to the Company as part of the formation of the Company)
attributable to Walden's general partnership interests in four partnerships
which own multifamily residential properties which were not acquired by the
Company and Walden's limited partnership interests in three of such
partnerships (the "Transferred Interests") and partnerships to which they
relate (the "Acquired Partnerships").

Classification as a Partnership. The Company includes in its income
its distributive share of the Acquired Partnerships' income and deducts its
distributive share of the Acquired Partnerships' losses only if the Acquired
Partnerships are classified, for Federal income tax purposes, (i) as
partnerships rather than as associations taxable as corporations and (ii) not
as "publicly traded partnerships." An organization formed as a partnership
will be treated as a partnership rather than as a corporation for Federal
income tax purposes only if it has no more than two of the following four
corporate characteristics: continuity of life, centralization of management,
limited liability and free transferability of interests.

If for any reason the Acquired Partnerships were taxable as
corporations rather than as partnerships for Federal income tax purposes, the
Company may not be able to satisfy the income and asset requirements for status
as a REIT. Further, items of income and deduction of the Acquired Partnerships
would not pass through to their partners; their partners would be treated as
stockholders for tax purposes. The Acquired Partnerships would be required to
pay income tax at regular corporate tax rates on their net income and
distributions to partners would constitute dividends to the extent of the
Acquired Partnerships' earnings and profits. In addition, any change in the
Acquired Partnerships' status for tax purposes might be treated as a taxable
event, in which case the Company might incur taxable income without any related
cash distribution.

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<PAGE> 50
The Company has not requested, and does not intend to request, a
ruling from the IRS that the Acquired Partnerships will be treated as
"partnerships" for Federal income tax purposes. Winstead Sechrest & Minick
P.C. has previously rendered an opinion to the Company that the Company will be
treated as a partner for Federal income tax purposes in the Acquired
Partnerships and that the Acquired Partnerships will be classified as
partnerships for Federal income tax purposes and not as associations taxable as
corporations. An opinion of counsel is not binding on the IRS.

Partners, Not the Partnership, Subject to Tax. Partnerships are not
taxable entities for Federal income tax purposes. Rather, the Company is
required to take into account its allocable share of the Acquired Partnerships'
income, gains, losses, deductions and credits for any taxable year of the
partnerships ending within or with the taxable year of the Company without
regard to whether the Company has received or will receive any cash
distributions from the Acquired Partnerships. For purposes of income tests and
asset tests which govern classification of the Company as a REIT, the Company
must include its proportionate share (based upon capital interests) of the
income and assets of any partnership in which it has a direct or indirect
interest.

Partnership Allocations. Although a partnership agreement will
generally determine the allocation of income and losses among partners, the
allocations provided in a partnership agreement will be disregarded for tax
purposes under Section 704(b) of the Code if they do not comply with the
provisions of such Section and the Treasury Regulations promulgated thereunder.
If an allocation is not recognized for Federal income tax purposes, the item
subject to the allocation will be reallocated in accordance with the partners'
interests in the partnership, which will be determined by taking into account
all of the facts and circumstances relating to the economic arrangement of the
partners with respect to such item. The Acquired Partnerships' allocations of
taxable income and loss are intended to comply with the requirements of Section
704(b) of the Code and the Treasury Regulations promulgated thereunder.

Basis in Partnership Interests. The Company's adjusted tax basis in a
particular Transferred Interest generally (i) is equal to the fair market value
of the partnership interest as of the date acquired; (ii) is increased by (a)
its allocable share of the partnership's income and (b) its allocable share of
indebtedness of the partnership on the date acquired and its allocable share of
any increases in such indebtedness thereafter; and (iii) is reduced, but not
below zero, by the Company's allocable share of (a) the partnership's loss and
(b) the amount of cash distributed to the Company, the basis of property
distributed to the Company and by constructive distributions resulting from a
reduction in the Company's share of the indebtedness of the partnership
thereafter.

If the allocation of the Company's distributive share of a
partnership's loss would reduce the adjusted tax basis of the Company's
partnership interest in the partnership below zero, the recognition of such
loss will be deferred until such time as the recognition of such loss would not
reduce the Company's adjusted tax basis below zero. To the extent that a
partnership distribution or any decrease in the Company's share of the
indebtedness of a partnership (each such decrease being considered a
constructive cash distribution to the partners) would reduce the Company's
adjusted tax basis in the partnership below zero, such distributions (including
such constructive distributions) would constitute taxable income to the
Company. Such distributions

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<PAGE> 51
and constructive distributions normally will be characterized as a capital
gain, and if the Company's partnership interest in such partnership has been
held for longer than the long-term capital gain holding period (currently one
year), the distributions and constructive distributions will constitute
long-term capital gains.

STATE AND LOCAL TAXES

The Company and its stockholders may be subject to state or local
taxation in various state or local jurisdictions, including those in which it
or they transact business or reside. Consequently, prospective stockholders
should consult their own tax advisors regarding the effect of state and local
tax laws on an investment in the Company.

ERISA CONSIDERATIONS

A fiduciary of a pension, profit-sharing, retirement or other employee
benefit plan subject to the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") (a "Plan"), should consider the fiduciary standards under
ERISA in the context of the Plan's particular circumstances before authorizing
an investment of a portion of such Plan's assets in the shares of Common Stock.
In particular, such fiduciary should consider (i) whether the investment
satisfies the diversification requirements of Section 404(a)(1)(c) of ERISA,
(ii) whether the investment is in accordance with the documents and instruments
governing the Plan as required by Section 404(a)(1)(D) of ERISA, (iii) whether
the investment is for the exclusive purpose of providing benefits to
participants in the Plan and their beneficiaries or defraying reasonable
administrative expenses of the Plan, and (iv) whether the investment is prudent
under ERISA. In addition to the imposition of general fiduciary standards of
investment prudence and diversification, ERISA, and the corresponding
provisions of the Code, prohibit a wide range of transactions involving the
assets of a Plan or an individual retirement account ("IRA") and persons who
have certain specified relationships to the Plan or an IRA ("parties in
interest" within the meaning of ERISA, "disqualified persons" within the
meaning of the Code). Thus, a fiduciary of a Plan or an IRA considering an
investment in the shares of Common Stock also should consider whether the
acquisition or the continued holding of the shares of Common Stock might
constitute or give rise to a direct or indirect prohibited transaction.

The Department of Labor (the "DOL") has issued final regulations (the
"Regulations") as to what constitutes assets of an employee benefit plan under
ERISA. Under the Regulations, if a Plan or an IRA acquires an equity interest
in an entity, which interest is neither a "publicly offered security" nor a
security issued by an investment company registered under the Investment
Company Act of 1940, as amended, the Plan's and IRA's assets would include, for
purposes of the fiduciary responsibility provisions of ERISA and the prohibited
transaction provisions of ERISA and the Code, both the equity interest and an
undivided interest in each of the entity's underlying assets unless certain
specified exceptions apply. The Regulations define a publicly-offered security
as a security that is "widely held," "freely transferable," and either part of
a class of securities registered under the Exchange Act, or sold pursuant to an
effective registration statement under the Securities Act (provided the
securities are registered under the Exchange Act within 120 days after the end
of the fiscal year of the issuer during which the offering occurred).

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<PAGE> 52
The Offered Securities will be sold in an offering registered under the
Securities Act and are or will be registered under the Exchange Act.

The Regulations provide that a security is "widely held" only if it is
part of a class of securities that is owned by 100 or more investors
independent of the issuer and of one another. A security will not fail to be
"widely held" because the number of independent investors falls below 100
subsequent to the initial public offering as a result of events beyond the
issuer's control.

The Regulations provide that whether a security is "freely
transferable" is a factual question to be determined on the basis of all
relevant facts and circumstances. The DOL Regulations further provide that when
a security is part of an offering in which the minimum investment is $10,000 or
less certain restrictions ordinarily will not, alone or in combination, affect
the finding that such securities are freely transferable. The Company believes
that the restrictions imposed under the Articles on the transfer of the capital
stock are limited to the restrictions on transfer generally permitted under the
Regulations and are not likely to result in the failure of the capital stock to
be "freely transferable." The Company also believes that certain restrictions
that apply to the capital stock held by the Company or which may be derived
from contractual arrangements requested by the underwriters in connection with
Offered Securities offered pursuant to an underwritten agreement are unlikely
to result in the failure of the capital stock to be "freely transferable." The
Regulations only establish a presumption in favor of the finding of free
transferability, and, therefore, no assurance can be given that the DOL and the
U.S. Treasury Department will not reach a contrary conclusion.

Assuming that the Offered Securities will be "widely held," the
Company believes that the Offered Securities will be publicly offered
securities for purposes of the Regulations and that the assets of the Company
will not be deemed to be "plan assets" of any Plan or IRA that invests in the
Offered Securities.

LEGAL MATTERS

Certain legal matters will be passed upon for the Company by Winstead
Sechrest & Minick P.C., Dallas, Texas, and the validity of the Offered
Securities will be passed upon for the Company by Piper & Marbury, Baltimore,
Maryland.

EXPERTS

The financial statements for Walden Residential Properties, Inc. and
Walden Predecessors included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1994 and the statement of revenue and certain
expenses of Pinto Creek Apartments for the year ended December 31, 1993
included in the Company's Form 8-K/A-1 dated January 10, 1995 referred to and
incorporated by reference in this Prospectus have been audited by Deloitte &
Touche LLP, independent certified public accountants, as stated in their
reports appearing therein and have been so included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing.

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No person has been authorized to give any 1,800,000 SHARES
information or to make any representations other than
those contained herein and, if given or made, such
information or representations must not be relied upon
as having been authorized by the Company or the
Selling Stockholders. This Prospectus does not WALDEN RESIDENTIAL
constitute an offer to sell, or a solicitation of an PROPERTIES, INC.
offer to buy, the securities offered hereby in any
jurisdiction to any person to whom it is unlawful to
make an offer or solicitation. Neither the delivery 9.16% Series A
of this Prospectus nor any sale made hereunder shall, Convertible Redeemable
under any circumstances, create an implication that Preferred Stock
there has not been any change in the facts set forth (Liquidation Preference
in this Prospectus or in the affairs of the Company $25.00 Per Share)
since the date hereof.

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TABLE OF CONTENTS
Page PROSPECTUS SUPPLEMENT
--------------
Prospectus Supplement

The Company . . . . . . . . . . . . . . . . . . . . S-1
Recent Developments . . . . . . . . . . . . . . . . S-2
Use of Proceeds . . . . . . . . . . . . . . . . . . S-2
Description of Preferred Stock . . . . . . . . . . S-2
Taxation of Holders of Convertible
Preferred Stock . . . . . . . . . . . . . . . S-13
Plan of Distribution . . . . . . . . . . . . . . S-16
FRIEDMAN, BILLINGS,
Prospectus RAMSEY & CO., INC.

Available Information . . . . . . . . . . . . . . . . 2
Incorporation of Certain Documents by
Reference . . . . . . . . . . . . . . . . . . . . 2
The Company . . . . . . . . . . . . . . . . . . . . . 4 APRIL 23, 1996
Use of Proceeds . . . . . . . . . . . . . . . . . . . 5
Plan of Distribution . . . . . . . . . . . . . . . . 5
Description of Common Stock . . . . . . . . . . . . . 6
Description of Preferred Stock . . . . . . . . . . . 9
Certain Provisions of Maryland Law and
of the Company's Articles and Bylaws . . . . . . 14
Federal Income Tax Considerations . . . . . . . . . 18
ERISA Considerations . . . . . . . . . . . . . . . 31
Legal Matters . . . . . . . . . . . . . . . . . . . 32
Experts . . . . . . . . . . . . . . . . . . . . . . 32

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