EVANS WITHYCOMBE RESIDENTIAL INC, S-3/A, 1996-05-14

EVANS WITHYCOMBE RESIDENTIAL INC
S-3/A, 1996-05-14
REAL ESTATE INVESTMENT TRUSTS

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 14, 1996

REGISTRATION NO. 333-3002
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

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

PRE-EFFECTIVE
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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

EVANS WITHYCOMBE RESIDENTIAL, INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
MARYLAND 86-0766008
(State or other jurisdiction (I.R.S. Employer
of Identification
incorporation or Number)
organization)
</TABLE>

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

6991 EAST CAMELBACK ROAD, SUITE A-200, SCOTTSDALE, ARIZONA 85251, (602) 840-1040
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------------------

STEPHEN O. EVANS
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
EVANS WITHYCOMBE RESIDENTIAL, INC.
6991 EAST CAMELBACK ROAD, SUITE A-200
SCOTTSDALE, ARIZONA 85251
(602) 840-1040
(Name, address, including zip code and telephone number, including area code, of
agent for service)

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

COPIES TO:

<TABLE>
<S> <C>
KENNETH M. DORAN EDWARD SONNENSCHEIN, JR.
GIBSON, DUNN & CRUTCHER LLP LATHAM & WATKINS
333 SOUTH GRAND AVENUE 633 WEST 5TH STREET, SUITE 4000
LOS ANGELES, CALIFORNIA 90071-3197 LOS ANGELES, CALIFORNIA 90071-2007
(213) 229-7000 (213) 485-1234
</TABLE>

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant Rule 462 (b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement from the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>

SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MAY 14, 1996

PROSPECTUS
4,500,000 SHARES

EVANS WITHYCOMBE RESIDENTIAL, INC.

[LOGO] COMMON STOCK
------------------

Evans Withycombe Residential, Inc., a Maryland corporation (the "Company"),
is the largest developer, owner and manager of multifamily apartment communities
in Arizona and is expanding its operations into selected sub-markets in Southern
California which the Company believes provide attractive investment
opportunities. The Company owns and manages 43 stabilized multifamily apartment
communities located in Arizona, containing a total of 11,241 apartments. In
addition, the Company owns one stabilized multifamily community in Southern
California, which contains a total of 492 apartments. The Company also owns nine
additional apartment communities in Arizona which are either under construction
or in initial lease-up with a total of 1,586 apartments. Three of these
communities are new developments and six are expansions of existing communities
owned by the Company.

The Company operates as a self-administered and self-managed real estate
investment trust (a "REIT") and conducts all of its operations through Evans
Withycombe Residential, L.P., a Delaware limited partnership (the "Operating
Partnership"), either directly or through subsidiaries. The Company is the sole
general partner and a limited partner of the Operating Partnership and, after
giving effect to the Offering (as defined below), will own an approximately 79%
interest therein.

Of the 4,500,000 shares of common stock, par value $.01 per share, of the
Company (the "Common Shares") being offered hereby (the "Offering"), 2,000,000
are being sold by the Company and 2,500,000 are being sold by certain
non-management stockholders of the Company (the "Selling Stockholders"). The
Company will not receive any of the proceeds from the sale of shares by the
Selling Stockholders. Upon completion of the Offering, approximately 33.1% of
the equity of the Company will be held by officers and directors of the Company
or entities affiliated therewith. See "Principal and Selling Stockholders." To
ensure that the Company maintains its qualification as a REIT, ownership of
Common Shares by any person is, with certain exceptions, limited to 9.8% of the
outstanding shares.

Since the Company completed its initial public offering in August 1994, the
Company has paid regular quarterly dividends to holders of its Common Shares.
The Common Shares are listed on the New York Stock Exchange (the "NYSE") under
the symbol "EWR." On May 13, 1996, the last reported sale price of the Common
Shares on the NYSE was $21 5/8 per share. See "Price Range of Common Shares and
Dividends."

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

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.

<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS
<S> <C> <C> <C> <C>
Per Share..................................... $ $ $ $
Total (3)..................................... $ $ $ $
</TABLE>

(1) The Company, the Operating Partnership and the Selling Stockholders have
agreed to indemnify the several Underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, as amended. See
"Underwriting."

(2) Before deducting expenses payable by the Company estimated at $500,000.

(3) The Company and the Selling Stockholders have granted the Underwriters an
option to purchase up to an additional 675,000 Common Shares to cover
over-allotments, if any. Of the 675,000 Common Shares, the Company may, at
its option, sell up to 300,000 Common Shares, with the remainder to be sold
by the Selling Stockholders on a pro rata basis according to the number of
shares sold by them in the Offering. If 300,000 of such shares are purchased
from the Company, the total Price to Public, Underwriting Discount and
Proceeds to Company will be $ , $ , and $ ,
respectively. See "Underwriting."
------------------------------

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 COMMON SHARES ARE OFFERED BY THE SEVERAL UNDERWRITERS, SUBJECT TO PRIOR
SALE, WHEN, AS, AND IF ISSUED, DELIVERED TO AND ACCEPTED BY THE UNDERWRITERS,
SUBJECT TO THE APPROVAL OF CERTAIN LEGAL MATTERS BY COUNSEL FOR THE UNDERWRITERS
AND CERTAIN OTHER CONDITIONS. THE UNDERWRITERS RESERVE THE RIGHT TO WITHDRAW,
CANCEL OR MODIFY SUCH OFFER AND TO REJECT ORDERS IN WHOLE OR IN PART. IT IS
EXPECTED THAT DELIVERY OF THE COMMON SHARES OFFERED HEREBY WILL BE MADE IN NEW
YORK, NEW YORK ON OR ABOUT , 1996.

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

MERRILL LYNCH & CO.
DEAN WITTER REYNOLDS INC.
MORGAN STANLEY & CO.
INCORPORATED
SMITH BARNEY INC.
------------------

The date of this Prospectus is , 1996.
<PAGE>

The inside front and back covers contain photographs of certain of the Company's
apartment communities with captions identifying each community and a regional
map identifying the markets the Company is focused on: Phoenix, Tucson,
Riverside/ San Bernardino and San Diego.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON SHARES
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
FINANCIAL AND OTHER INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS OR
INCORPORATED HEREIN BY REFERENCE. UNLESS OTHERWISE INDICATED, THE INFORMATION IN
THE PROSPECTUS ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT
EXERCISED. UNLESS OTHERWISE INDICATED OR AS THE CONTEXT OTHERWISE REQUIRES, (A)
REFERENCES TO THE "COMPANY" INCLUDE THE COMPANY'S PREDECESSOR, EVANS WITHYCOMBE,
INC., AND ITS AFFILIATES, PREDECESSORS AND PARTNERS (COLLECTIVELY, "EVANS
WITHYCOMBE") AND EVANS WITHYCOMBE RESIDENTIAL, L.P. (THE "OPERATING
PARTNERSHIP"), EVANS WITHYCOMBE FINANCE PARTNERSHIP, L.P. (THE "FINANCING
PARTNERSHIP") AND EVANS WITHYCOMBE MANAGEMENT, INC. (THE "MANAGEMENT COMPANY")
AND (B) REFERENCES TO THE OPERATING PARTNERSHIP INCLUDE THE FINANCING
PARTNERSHIP.

THE COMPANY

The Company is the largest developer, owner and manager of multifamily
apartment communities in Arizona and is expanding its operations into selected
sub-markets in the Southern California metropolitan areas of San Diego and
Riverside/San Bernardino which the Company believes provide attractive
investment opportunities. The Company's property portfolio consists of
stabilized properties and properties under construction. The Company owns and
manages 43 stabilized multifamily apartment communities located in Arizona and
one stabilized multifamily community in Southern California, containing a total
of 11,733 apartments, of which 11,241 are in Arizona and 492 are in Southern
California. The 44 stabilized communities in Arizona and California are referred
to herein as the "Stabilized Communities." The Company also owns nine additional
apartment communities in Arizona which are either under construction or in
initial lease-up with a total of 1,586 apartments (the "Communities Under
Construction" and, together with the Stabilized Communities, the "Communities").
Three of these communities are new developments and six are expansions of
existing communities owned by the Company. The Company considers a property
stabilized when it reaches 93% physical occupancy. Additionally, the Company
owns, or has the rights to acquire, sites intended for the development of four
additional multifamily apartment communities, which, if completed, are expected
to contain approximately 1,720 apartments. There can be no assurance that, in
connection with the sites that it has the rights to acquire, the Company will
succeed in obtaining any necessary governmental approvals or any financing
required to develop these projects, or that the Company will decide to develop
any particular project.

Since the Company completed its initial public offering in August 1994 (the
"Initial Public Offering") through December 31, 1995, the Company has expanded
its portfolio of Stabilized Communities 52.5% by (i) completing the development
and stabilization of 12 properties containing a total of 2,282 apartments, (ii)
acquiring four communities in the Phoenix market containing a total of 1,264
apartments and (iii) acquiring the Riverside/San Bernardino community containing
492 apartments. The following table sets forth financial and operating data for
(a) the 30 Stabilized Communities acquired by the Company in connection with the
formation transactions which occurred contemporaneously with the Initial Public
Offering, excluding Village at Tanque Verde which was expanded by 81 units with
the completion of Phase II in December 1994 (the "Initial Communities"), as of
December 31, 1994 and December 31, 1995 and (b) the 44 Stabilized Communities
at, and for the quarter ended, March 31, 1996.

<TABLE>
<CAPTION>
STABILIZED
INITIAL COMMUNITIES COMMUNITIES
--------------------------------------------- -------------
AT AT AT
DECEMBER 31, DECEMBER 31, PERCENTAGE MARCH 31,
1994 1995 INCREASE 1996
--------------- --------------- ----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Total rental revenues................ $ 49,712 $ 52,940 6.5% $ 17,288
Net operating income................. 35,123 37,624 7.1% 12,634
Total properties..................... 30 30 N/A 44
Total apartment units................ 7,559 7,559 N/A 11,733
</TABLE>

3
<PAGE>
The Company believes that the following factors have accounted for the
Company's success and will continue to contribute to the Company's prospects for
future growth:

- - REGIONAL FOCUS. The Company has focused on becoming a major presence in each
of its markets, allowing it to capitalize on its superior customer service,
product design and property locations while establishing and maintaining a
strong brand identity. The Company seeks to operate in markets where
population and employment growth rates are expected to exceed the national
averages and where it believes it can become one of the regionally
significant owners and managers of multifamily apartment properties. The
Company believes that by continuing its focus on Arizona and other selected
markets within its region in Southern California it strengthens its
expertise in, and detailed knowledge of, each of its markets.

ARIZONA. The Company's size and prominence in its primary Arizona
markets provide it with a number of competitive advantages, including
superior market knowledge resulting in choice site selection, superior
employee training and retention, product differentiation, economies of
scale in operations and the ability to utilize specialized marketing
techniques. The Phoenix and Tucson apartment markets, which, during
1995, had vacancy rates of 4.5% and 7.7%, respectively, are expected to
continue to improve due to increasing population, job growth and
household formations.

CALIFORNIA. After conducting an extensive study of a number of potential
markets within its region, the Company has determined that certain
selected sub-markets in Riverside/San Bernardino and San Diego,
California present significant opportunities for growth and attractive
investment opportunities. The Company believes that properties are
currently available for purchase in such markets at prices below
replacement costs which could result in attractive yields and growth for
the Company.

The above statements regarding the Company's expectations and projections of
population and employment growth rates and household formations, and the
availability of properties for purchase are forward-looking and involve risks
and uncertainties beyond the Company's control. No assurance can be given that
such expectations will conform to actual results.

- - PROPERTY LOCATIONS. The Communities are located in growing sub-markets in the
Phoenix and Tucson metropolitan areas in Arizona and in Riverside/San
Bernardino in Southern California. The Communities are in submarkets close
to areas of employment, transportation and shopping, principally in
"in-fill" areas and master planned communities.

- - REPUTATION FOR QUALITY. As a long-term investor, the Company develops its
communities to increase value and minimize long term operating expenses. The
properties developed by the Company share an innovative design approach
characterized by high-quality construction, architectural detail, attractive
landscaping, extensive amenities and interior features. Similarly, in
seeking acquisition properties, the Company identifies properties which
after refurbishment meet the same standards. The Company's reputation for
quality in its markets has led to success in obtaining development
entitlements and brand name identification in its primary markets.

- - EXPERIENCED MANAGEMENT IN FULLY-INTEGRATED ORGANIZATION. With an average of
over 17 years in the multifamily apartment business, the Company's executive
management team has extensive development, construction, acquisition,
refurbishment, marketing and property management experience, and has gained
in-depth knowledge of the multifamily apartment industry and the Company's
markets. Of the Stabilized Communities, the Company has developed 15 new
properties and five expansions to existing properties consisting of 4,238
apartments, and has acquired and refurbished 26 properties consisting of
6,815 apartments.

- - WELL-TRAINED WORKFORCE. The Company believes that employee training and
retention has been integral to its success. The Company conducts numerous
training sessions throughout the year and prides itself on the quality and
experience of its people. The Company's size and concentration in its market

4
<PAGE>
provides qualified employees with opportunities for advancement within the
Company and contributes to employee retention. The Company believes employee
stability enhances operating efficiency and productivity.

- - SERVICE-ORIENTED PHILOSOPHY. The Company will continue its tradition of
focusing on extensive resident amenities and customer service designed to
maintain high occupancy, premium rental rates and low resident turnover. By
providing efficient service and soliciting customer feedback, the Company
believes it maintains a high level of customer satisfaction which results in
lower turnover and more frequent rental referrals by existing residents.
Emphasizing product differentiation and customer service, the Company has
created and continues to strengthen its brand image in its markets.

- - CAPITAL STRUCTURE. The Company maintains a conservative capital structure by
minimizing its exposure to floating rate debt and utilizing prudent leverage.
As of March 31, 1996, the Company's ratio of total debt to total market
capitalization was 39.6% and approximately $76.0 million of the Company's
debt was variable rate (excluding $17.3 million of variable rate tax free
bond debt), which represented less than 9.4% of the Company's total market
capitalization. The Company's fixed rate and tax free bond debt has an
average interest rate of 7.8% and an average maturity of 6.1 years. During
1995, the Company replaced its secured line of credit and secured
construction loans with a $125 million unsecured line of credit, thereby
reducing its short-term interest rate from 185 basis points over LIBOR to 175
basis points over LIBOR. See "Recent Activity -- Financing Activity" below.

- - COST CONTROLS. The Company's cost controls have enabled it to keep its
general and administrative expenses at approximately 2.1% of revenues since
its Initial Public Offering, which is well below the REIT industry average of
more than 4.3%. The Company's operating expenses for the Initial Communities,
including an allocation for property management overhead, were $2,513 per
unit during 1995, reflecting a modest increase of 0.6% during the year, which
was less than inflation and which is 9.2% lower than the regional industry
average of $2,767 per unit.

All of the Communities and other assets of the Company are held by, and all
of the Company's operations are conducted through, the Operating Partnership
(either directly or through subsidiaries). The Company is the sole general
partner and also a limited partner of the Operating Partnership and, after
giving effect to the Offering, will own an approximately 79.23% interest
therein. See "Use of Proceeds." To maintain the Company's qualification as a
REIT while realizing income from its fee management and related service
business, the Company's management operations are conducted through the
Management Company pursuant to the terms of management agreements with the
Operating Partnership and the Financing Partnership.

Upon consummation of the Offering, Stephen O. Evans and F. Keith Withycombe,
the two senior officers of the Company, will beneficially own approximately 8.7%
and 7.9%, respectively, of the outstanding equity of the Company (giving effect
to the exchange of units of partnership interest in the Operating Partnership
("Units") for Common Shares).

5
<PAGE>
RECENT DEVELOPMENTS

DEVELOPMENT ACTIVITY

DEVELOPMENT COMPLETED SINCE THE INITIAL PUBLIC OFFERING. Since its Initial
Public Offering, the Company has completed the development and stabilization of
12 Communities with an aggregate of 2,282 apartment units. The following table
compares the Company's actual results with its estimates.

<TABLE>
<CAPTION>
ESTIMATED
ESTIMATED AVERAGE ACTUAL AVERAGE
NUMBER COMMENCEMENT ACTUAL ESTIMATED ACTUAL MONTHLY BASE MONTHLY BASE
STABILIZED OF OF COMMENCEMENT STABILIZED STABILIZED RENT PER RENT PER
COMMUNITY: UNITS LEASE-UP(1) OF LEASE-UP OCCUPANCY(1) OCCUPANCY APARTMENT(2) APARTMENT(2)(3)
- ------------------------------ ------ ------------ ------------ ------------ --------- ------------ ---------------
QUARTER
------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Tanque Verde Expansion........ 81 3Q'94 3Q'94 4Q'94 4Q'94 $708 $720
Mountain Park................. 240 2Q'94 2Q'94 2Q'95 2Q'95 713 789
The Enclave................... 204 3Q'94 3Q'94 2Q'95 2Q'95 697 816
Towne Square Expansion........ 120 4Q'94 4Q'94 3Q'95 3Q'95 749 789
The Sonoran................... 297 4Q'94 4Q'94 1Q'96 3Q'95 710 761
The Heritage (4).............. 204 4Q'94 1Q'95 4Q'95 3Q'95 726 785
Arboretum Expansion........... 144 4Q'94 1Q'95 3Q'95 4Q'95 762 740
Gateway Villas (5)............ 180 1Q'95 1Q'95 4Q'95 4Q'95 775 812
Ladera (6).................... 248 1Q'95 2Q'95 4Q'95 1Q'96 774 833
The Legends (7)............... 312 4Q'94 4Q'94 1Q'96 1Q'96 808 792
The Ingleside................. 120 3Q'95 3Q'95 1Q'96 1Q'96 843
The Sonoran Expansion......... 132 3Q'95 2Q'95 2Q'96 4Q'95 761
------
TOTAL......................... 2,282
</TABLE>

- ------------------------
(1) Represents estimates made by the Company in its Prospectus dated August 10,
1994 relating to the Company's Initial Public Offering. In the case of The
Ingleside and The Sonoran Expansion, the estimates are based upon the
Company's estimates set forth in public filings subsequent to the Initial
Public Offering.

(2) Base rent excludes miscellaneous income relating to (a) certain special
amenities, including fireplaces and views, which averages approximately $15
per month per apartment and (b) late payments, applications and redecorating
fees and deposit forfeitures which average approximately $20 per month per
apartment.

(3) As of March 31, 1996.

(4) Formerly known as Crystal Point.

(5) Formerly known as Paradise Village Gateway.

(6) Formerly known as Pointe Squaw Peak.

(7) Formerly known as La Paloma.

6
<PAGE>
COMMUNITIES UNDER CONSTRUCTION. The Company currently has nine apartment
communities under construction or in initial lease-up (collectively, the
"Communities Under Construction"), of which three are new communities and six
are expansions of existing Communities that will contain an aggregate of 1,586
apartments when completed. Information regarding the Communities Under
Construction is summarized in the following table.

<TABLE>
<CAPTION>
ESTIMATED
ESTIMATED AVERAGE
CONSTRUCTION ACTUAL OR PERCENTAGE OF MONTHLY AVERAGE MONTHLY
NUMBER COST (1) ESTIMATED ESTIMATED UNITS LEASED BASE RENT BASE RENT PER
OF (IN CONSTRUCTION COMMENCEMENT STABILIZED AS OF MARCH PER APARTMENT AS OF
METROPOLITAN AREA UNITS MILLIONS) COMMENCEMENT OF LEASE-UP OCCUPANCY 31, 1996 APARTMENT MARCH 31, 1996
- -------------------- ------ ------------ ------------ ------------ --------- ------------- --------- ---------------
QUARTER
---------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PHOENIX, AZ
Mirador(2).......... 316 $ 23 4Q'94 3Q'95 3Q'96 72% $756 $825
Towne Square III
Expansion.......... 116 7 3Q'95 1Q'96 4Q'96 33% 716
The Hawthorne....... 276 17 4Q'95 3Q'96 3Q'97 -- --
Country Brook III
Expansion.......... 120 8 4Q'95 3Q'96 1Q'97 -- --
Promontory Pointe II
Expansion.......... 120 8 4Q'95 3Q'96 2Q'97 -- --
Park Meadow II
Expansion.......... 68 4 4Q'95 2Q'96 4Q'96 -- --
TUCSON, AZ
Bear Canyon......... 238 15 3Q'95 2Q'96 2Q'97 8% 720
Orange Grove II
Expansion.......... 144 8 2Q'95 3Q'95 3Q'96 78% 702
Harrison Park II
Expansion.......... 188 10 3Q'95 2Q'96 2Q'97 22% 697
------ -----
TOTAL............... 1,586 $100
------ -----
------ -----
</TABLE>

- ------------------------
(1) Represents estimated development costs of the community.

(2) Described as a "Development Community" in the Company's Prospectus dated
August 10, 1994, relating to its Initial Public Offering. Formerly known as
Pointe Tapatio Cliffs.

The information set forth in the table above is forward-looking and is
subject to various risks and uncertainties. Such information is based upon a
number of estimates and assumptions that are inherently subject to business,
economic and competitive uncertainties and contingencies, many of which are
beyond the Company's control. While all apartment communities previously
constructed by the Company have been constructed on schedule and within budget,
the actual development cost, completion date and stabilization date of any
project will be dependent upon a variety of factors beyond the control of the
Company including, for example, labor and other personnel costs, material costs,
weather conditions and government fees and leasing rate, and therefore may vary
materially from these estimates. The inclusion of estimates herein should not be
regarded as a representation by the Company, the Underwriters or any other
person that the estimates will be achieved.

The Company is also currently conducting feasibility and other
pre-development studies for the development of other possible new Evans
Withycombe communities in its Arizona markets. The Company owns, or has the
rights to acquire, sites intended for the development of four additional
multifamily apartment communities, which, if completed are expected to contain
approximately 1,720 apartments.

ACQUISITION ACTIVITY IN ARIZONA

Since the Initial Public Offering in August 1994, the Company has acquired
four communities in the Phoenix area. In November 1994, the Company purchased
Heritage Point, a 148-unit apartment community in Mesa, Arizona for
approximately $5.8 million. In February 1995, the Company acquired Rancho
Murietta, a 292-unit apartment community in Tempe, Arizona for approximately
$11.9 million (including the assumption of approximately $6.4 million of debt).
In March 1995, the Company acquired Acacia Creek, a 508-unit apartment community
in Scottsdale, Arizona, for a total of approximately $30.5 million, consisting
of the issuance of 530,165 Units to the seller (with a value of $10.7 million at
$20.25 per Unit) and the assumption of $19.8 million of debt. In October 1995,
the Company acquired Superstition Vista, a 316-unit apartment community in Mesa,
Arizona for approximately $13.6 million ($13 million of which was in the form of
seller financing which was repaid as of January 5, 1996).

7
<PAGE>
EXPANSION INTO RIVERSIDE/SAN BERNARDINO AND SAN DIEGO

After extensive market research, the Company believes that selected
sub-markets in Riverside/San Bernardino and San Diego present the Company with
an opportunity to establish a significant market share through property
acquisitions at attractive prices in the near term and potentially through new
property development in the long term.

The Company believes that its growth strategies will be effective in the
sub-markets of the Riverside/San Bernardino and San Diego metropolitan areas
because these markets are comparable, and tied closely, both geographically and
economically, to the Company's core Arizona markets. The Company believes that
its targeted California markets and its Arizona markets exist within a single,
dynamic economic and demographic region. The Phoenix, Riverside/San Bernardino
and San Diego metropolitan areas are similar in size with populations of
approximately 2.4 million, 3.1 million and 2.8 million people, respectively. The
median household income for each market in 1995 was also relatively similar --
$33,707 in Phoenix, $39,355 in Riverside/San Bernardino and $45,400 in San
Diego. The Riverside/San Bernardino and San Diego markets are easily accessible
from the Company's Scottsdale, Arizona headquarters, allowing the Company to
maintain operating control. The Riverside/San Bernardino and San Diego apartment
markets are highly fragmented. The Company believes that it thus has an
opportunity to become a strong regional competitor in these markets.

Because the Company believes that acquisitions are available at prices below
replacement cost in these target markets, the Company's initial growth in these
markets will occur through property acquisitions. No assurance can be given
that, due to factors beyond the Company's control including the strength of the
apartment market and economies of the Company's sub-markets, such acquisitions
will be available. New apartment construction is at very low levels, with 612
units built in Riverside/San Bernardino and 1,604 units built in San Diego in
1995, as compared to 7,768 units and 8,211 units, respectively, in 1990.

The Company plans no development and construction of properties in these
markets in the near term, except for the potential expansion of existing
properties. The Company anticipates that it will begin building in these markets
at such time as economic occupancy and rent levels in these regions have risen
to justify new construction. As of December 31, 1995, the occupancy was 92% and
93% in the Riverside/San Bernardino and the San Diego target sub-markets,
respectively.

In connection with its expansion into California, the Company has sought
properties with favorable growth characteristics. In general, the Company has
targeted properties that will benefit from the Company's management and customer
service systems and from refurbishment programs. The Company believes that
successful implementation of this strategy will allow it to achieve increased
operating income at these properties; however, no assurance may be given that
the Company will successfully implement its strategy.

In December 1995, the Company purchased The Ashton (formerly Stoneridge
Apartments), a 492 unit apartment community in Corona Hills, California, for a
total purchase price of approximately $21.5 million, consisting of the issuance
of 180,385 Units to the sellers (with a value of $3.46 million at $19.18 per
Unit), $740,000 in cash and the assumption of $17.3 million of debt in the form
of tax free bonds. It is a condition of the bond financing that 20% of the
apartment units continue to be available at rental rates which do not exceed 30%
of 65% of the median gross income for the area in which the apartment community
is located. On March 15, 1996, the Company entered into escrow on Canyon Crest
Views Apartments, a 178-unit apartment community located in Riverside,
California for a total purchase price of approximately $12.9 million in cash. On
March 28, 1996 the Company entered into an agreement to purchase Vineyard
Village apartments, a 164 unit apartment community in Rancho Cucamonga,
California, for a total purchase price of approximately $7.1 million in cash;
the agreement is subject to the satisfaction of certain conditions including,
without limitation, the approval of a bankruptcy court. Additionally, the
Company is actively pursuing and is in preliminary negotiations regarding
additional properties in Riverside/San Bernardino and San Diego, but no
assurance can be given that it will continue to pursue or consummate any
acquisitions as a result of these negotiations.

8
<PAGE>
DIVIDEND INCREASE

Since the Initial Public Offering, the Company has increased its quarterly
dividend twice. On March 13, 1996, the Company announced a 2.6% increase in its
quarterly dividend, increasing the quarterly dividend on its Common Shares from
$0.38 per share to $0.39 per share, which is equal to $1.56 on an annualized
basis. The higher dividend rate commenced with the Company's dividend with
respect to the first quarter of 1996. The Company previously announced, in
September 1995, a 2.7% increase in its quarterly dividend (from $0.37 per share
to $0.38 per share), which, together with the March increase, represents an
aggregate increase of 5.4% of its quarterly dividends since September 1995. The
increase in the Company's quarterly dividend is less than the percentage
increase in the Company's Funds From Operations (as defined herein), which is
consistent with the Company's goal of decreasing its payout ratio in order to
retain and reinvest additional funds in acquisition and new development
opportunities at attractive rates of return.

FINANCING ACTIVITY

In January 1995, the Company, through the Financing Partnership, borrowed an
additional $29.0 million aggregate principal amount under its 7.98% securitized
mortgage financing (the "Mortgage Loan"). Such amount was issued at 97.9375% of
its face amount, will mature on August 1, 2001 and is AA rated by Standard &
Poor's Corporation. As of March 31, 1996, the total amount outstanding on the
Mortgage Loan was $130.5 million (net of an unamortized discount of $540,000),
which includes the $102 million of Mortgage Loan notes issued in connection with
the Initial Public Offering. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

In December 1995, the Company entered into a ten-year $50 million fixed rate
loan agreement with The Northwestern Mutual Life Insurance Company (the
"Northwestern Loan"). The Northwestern Loan is secured initially by five of the
Communities and will become unsecured at such time as the Company has obtained
an investment grade debt rating of BBB or better. The loan bears interest at a
rate of 7.17%, and provides for principal and interest payments monthly based on
a 25-year amortization schedule beginning January 1, 1996, with the remaining
unpaid principal balance due January 1, 2006. Proceeds from the loan were used
to pay down outstanding balances on the Credit Facility (as defined below). Upon
the closing of the Northwestern Loan, the Company's weighted average interest
rate on its fixed rate debt dropped from 8.20%, at September 30, 1995, to 7.86%
and overall weighted average fixed rate debt maturity extended from 5.1 years,
at September 30, 1995, to 5.7 years.

In December 1995, the Company obtained a new credit facility (the "Credit
Facility") from Bank One, Arizona, NA ("Bank One") to (i) increase availability
under its prior credit facility from $35 million to $125 million, (ii) change
the facility from secured to unsecured, (iii) reduce the floating interest rate
from 185 basis points above LIBOR (or, at the option of the Company, 25 basis
points over the prime rate announced from time to time by Bank One), to 175
basis points over LIBOR (or, at the option of the Company, at the prime rate
announced by Bank One) and (iv) replace the secured construction loan
commitments of $76.6 million with respect to Communities Under Construction. The
Credit Facility, as amended, has a term of two years, with an option to extend
for one year, and provides for monthly payments of interest only. At March 31,
1996, there was $76.0 million outstanding on the Credit Facility bearing
interest at 175 basis points over LIBOR, effective interest rate of 7.2%.

GROWTH STRATEGIES

The Company's primary business objectives are to maximize the current return
to shareholders through increases in cash flow available for distribution per
share and to increase long-term total returns to shareholders through the
appreciation in the value of the Common Shares. The Company intends to grow by
improving cash flow from existing properties and will also seek to achieve these
objectives through development and acquisition of multifamily properties which
will provide both favorable initial returns and long-term growth prospects.

9
<PAGE>
The Company believes that a focus on portfolio management is essential for
stable and sustained growth. The Company intends to improve cash flow from
existing properties through intensive management focusing on resident
satisfaction and retention, increasing rents and maintaining high occupancy
levels and controlling operating expenses.

The Company intends to increase its market share in its current Arizona
markets and to continue to expand into the San Diego and Riverside/San
Bernardino metropolitan areas. The Company expects significant near-term growth
in its portfolio and revenues upon the completion of the nine Communities Under
Construction which have been under construction an average of four months. Such
communities are expected to add an aggregate of 1,586 units to the Company's
stabilized portfolio over the next 18 months. The Communities Under Construction
are located in markets that are currently experiencing demand that exceeds
supply for multifamily apartments. The Company is an experienced apartment
developer and builder, having developed 50 properties consisting of 9,869 units
and is well positioned to pursue opportunities in its Arizona markets for the
development of new apartment communities. See "Business and Properties -- Growth
Strategy -- Development Strategy."

In addition to development, the Company believes it will be able to increase
its cash flow available for distribution through acquisitions of existing
multifamily apartment communities. The Company believes that it is well
positioned to take advantage of opportunities to acquire underperforming
communities in certain sub-markets. The Company's acquisition program will focus
in the near term on attractive opportunities available in Riverside/San
Bernardino and San Diego. The Company has been successful in achieving higher
rents and occupancy and lower turnover and operating expenses for acquired
properties through application of the Company's management, marketing and
refurbishment capabilities. The Company has acquired five multifamily apartment
communities with a total of 1,756 units since its Initial Public Offering in
August 1994 (four in the Phoenix area and one in the Riverside/San Bernardino
region of Southern California), has entered into agreements to purchase two
additional properties in Southern California and is currently in preliminary
discussions regarding the acquisition of additional multifamily properties in
the San Diego and Riverside/San Bernardino regions of Southern California; no
assurances can be given, however, that agreements for the purchase of additional
properties will be concluded or that additional properties will be acquired. The
Company's access to the capital markets as a public company, as well as its
ability to offer property sellers an opportunity to defer federal income taxes
by receiving Units instead of cash as consideration for properties, allows for
additional financing capacity and flexibility for acquisitions.

THE COMMUNITIES

The Stabilized Communities consist of 44 high-quality multifamily apartment
communities located in the following metropolitan areas:

<TABLE>
<CAPTION>
NUMBER OF
STABILIZED PERCENTAGE
APARTMENT NUMBER OF TOTAL
METROPOLITAN AREA COMMUNITIES OF UNITS UNITS
- ------------------------------------------------------- ----------------- ----------- -------------
<S> <C> <C> <C>
Phoenix, AZ............................................ 36 9,124 77.8%
Tucson, AZ............................................. 7 2,117 18.0%
Riverside/San Bernardino, CA........................... 1 492 4.2%
--
----------- -------------
TOTAL................................................ 44 11,733 100.0%
--
--
----------- -------------
----------- -------------
</TABLE>

All of the Stabilized Communities are owned and operated by the Company and
have an average size of 267 units. The Stabilized Communities are primarily
oriented to residents seeking high levels of amenities, such as clubhouses,
exercise rooms, tennis courts, swimming pools, therapy pools and covered
parking. The apartments average approximately 902 square feet in size and offer
features such as washer/dryers, fully-equipped kitchens with upgraded cabinets,
dishwashers and microwave ovens, high ceilings, separate dining areas,
individual storage, fireplaces, individual utility metering, spacious patios and
balconies, ceramic tile

10
<PAGE>

entries and alarm system prewiring. As of March 31, 1996, the average age of the
Stabilized Communities was approximately seven years. The average physical
occupancy for the Stabilized Communities was 96.5% and 96.6% during the three
months ended March 31, 1996 and 1995, respectively.

The Company's goal is for each community to reflect the Company's brand
image as a market leader in its property type and geographical sub-market. Each
Community is individually designed to suit the specific site characteristics and
anticipated needs and desire of the residents. The design and construction of
the Communities attempt to integrate and respect the natural surroundings and
architectural character of the neighborhood. The Communities are extensively
landscaped to create inviting open spaces and to complement the building
architecture. The objectives of the site layout and building design are to
provide residents with premium views, convenient parking, easy access to
amenities and a comfortable living environment.

THE OFFERING

<TABLE>
<S> <C>
Common Shares offered by the Company................. 2,000,000 shares (1)
Common Shares offered by the Selling Stockholders.... 2,500,000 shares (1)(2)
Common Shares to be outstanding after the Offering... 22,945,627 shares (1)(3)
Use of Proceeds by the Company....................... Proceeds of the Offering will be
used for the repayment of existing
indebtedness. The Company will not
receive any of the proceeds from the
sale of the Common Shares offered by
the Selling Stockholders. See "Use
of Proceeds."
NYSE Symbol.......................................... "EWR"
</TABLE>

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

(1) Assumes that the Underwriter's over-allotment option is not exercised. See
"Underwriting."

(2) The Selling Stockholders are AEW Partners, L.P., a Delaware limited
partnership, and CIIF Associates II Limited Partnership, a Delaware limited
partnership, who will sell 1,787,500 and 712,500 Common Shares,
respectively, in the Offering.

(3) Includes 4,766,248 Common Shares that may be issued upon the exchange of
Units (which are exchangeable by the holder for cash or, at the Company's
option, Common Shares on a one-for-one basis). Excludes an aggregate of
approximately 975,000 shares issuable upon the exercise of outstanding
options previously granted under the Company's 1994 Stock Incentive Plan.

11
<PAGE>
SUMMARY SELECTED FINANCIAL AND OPERATING DATA

The following table sets forth certain financial and operating data on a
consolidated historical basis for the Company as of and for the three months
ended March 31, 1996 and 1995; on a consolidated historical basis for the
Company as of and for the year ended December 31, 1995 and 1994 and on a
combined historical basis for Evans Withycombe as of and for each of the years
in the three year period ended December 31, 1993. The following information
should be read in conjunction with all of the financial statements and notes
thereto incorporated by reference in this Prospectus. The combined historical
financial information of Evans Withycombe for the years ended December 31, 1993,
1992 and 1991 has been derived from the historical Combined Financial
Statements, and the consolidated historical financial information of the Company
for the years ended December 31, 1995 and 1994 has been derived from the
historical Consolidated Financial Statements, audited by Ernst & Young LLP,
independent auditors, whose report for the years ended December 31, 1993, 1994
and 1995 with respect thereto is incorporated by reference in this Prospectus.
The unaudited financial statements include all adjustments, consisting only of
normal recurring adjustments, that the Company considers necessary for a fair
presentation of the financial position and results of operations for these
periods.

The unaudited summary selected pro forma financial and operating information
is presented as if (i) the proceeds of the Offering were applied as described
herein, as of January 1, 1996 for the consolidated statement of operations and
(ii) the Company qualified as a REIT, distributed all of its taxable income and,
therefore, incurred no income tax expense during the period. The summary pro
forma consolidated financial information is not necessarily indicative of what
the Company's actual results of operations or financial position would have been
for the periods or as of the dates indicated, nor does it purport to represent
the results of operations or financial position for future periods.

12
<PAGE>
SUMMARY SELECTED FINANCIAL AND OPERATING DATA

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, (UNAUDITED)
--------------------------------- YEARS ENDED DECEMBER 31,
--------------------------------------------------
CONSOLIDATED
PRO FORMA HISTORICAL CONSOLIDATED AND COMBINED HISTORICAL
------------ ------------------ --------------------------------------------------
1996(1) 1996 1995 1995(2) 1994(2) 1993(2) 1992 1991
------------ -------- -------- --------- --------- -------- -------- --------
(IN THOUSANDS, EXCEPT SHARE AND PROPERTY INFORMATION)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING INFORMATION:
REVENUES:
Rental.................................. $ 22,136 $ 22,136 $ 14,875 $ 68,864 $ 51,097 $ 38,613 $ 26,876 $ 18,454
Third party management fees............. 287 287 395 1,268 1,668 2,213 2,204 2,512
Interest and other...................... 1,756 1,756 1,037 4,478 4,424 3,112 2,373 1,163
------------ -------- -------- --------- --------- -------- -------- --------
Total Revenues............................ 24,179 24,179 16,307 74,610 57,189 43,938 31,453 22,129
EXPENSES:
Repairs and maintenance................... 2,556 2,556 1,816 8,293 6,288 4,730 3,272 1,480
Other property operating.................. 2,683 2,683 1,909 8,699 7,834 6,593 4,684 3,135
Advertising............................... 433 433 187 1,244 966 1,022 783 468
Real estate taxes......................... 1,649 1,649 951 4,723 3,204 2,869 2,307 1,501
Property management....................... 884 884 805 2,825 2,505 2,605 2,417 2,386
General and administrative................ 497 497 453 1,588 1,409 1,466 1,360 1,342
Interest.................................. 4,614 5,424 1,834 12,650 7,836 6,361 5,909 5,364
Depreciation and amortization............. 4,770 4,770 2,746 13,762 10,333 10,319 7,146 6,074
Write-down of real estate assets(3)....... -- -- -- -- -- 1,361 10,284 --
Other(4).................................. -- -- -- -- 5,233 -- -- --
------------ -------- -------- --------- --------- -------- -------- --------
Total expenses.............................. 18,086 18,896 10,701 53,784 45,608 37,326 38,162 21,750
Income (loss) before minority interest and
extraordinary item......................... 6,093 5,283 5,606 20,826 11,581 6,612 (6,709) 379
Minority interest(5)........................ (1,276) (1,212) (1,173) (4,594) (1,548) -- -- --
Extraordinary item -- gain on extinguishment
of debt(3)................................. -- -- -- -- -- 6,061 12,569 --
------------ -------- -------- --------- --------- -------- -------- --------
Net income.................................. $ 4,817 $ 4,071 $ 4,433 $ 16,232 $ 10,033 $ 12,673 $ 5,860 $ 379
------------ -------- -------- --------- --------- -------- -------- --------
------------ -------- -------- --------- --------- -------- -------- --------
Earnings per share(6)....................... $ 0.27 $ 0.25 $ 0.28 $ 1.01
------------ -------- -------- ---------
------------ -------- -------- ---------
</TABLE>

<TABLE>
<CAPTION>
AT MARCH 31, 1996
---------------------------------
AS ADJUSTED (7) HISTORICAL (2)
---------------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET INFORMATION:
Real estate, before accumulated depreciation.................................. $617,903 $617,903
Total assets.................................................................. 605,172 604,362
Total debt.................................................................... 278,506 319,586
Minority interest............................................................. 63,784 63,720
Stockholders' equity.......................................................... 237,486 196,440
</TABLE>

13
<PAGE>

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, (UNAUDITED)
---------------------------------- YEARS ENDED DECEMBER 31,
-----------------------------------------------------
CONSOLIDATED
PRO FORMA HISTORICAL CONSOLIDATED AND COMBINED HISTORICAL
------------ -------------------- -----------------------------------------------------
1996(1) 1996 1995 1995(2) 1994(2) 1993(2) 1992 1991
------------ --------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT SHARE AND PROPERTY INFORMATION)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER INFORMATION:
Cash flows from:
Operating activities......... $ 14,816 $ 14,006 $ 11,077 $ 36,531 $ 21,609 $ 20,897 $ 13,271 $ 5,844
Investing activities......... (30,756) (30,756) (31,132) (118,061) (211,651) (79,511) (61,829) (47,706)
Financing activities......... 14,061 14,061 19,262 82,725 190,003 57,417 50,792 42,678
Funds from Operations(8)....... 10,994 10,184 8,511 35,143 27,392 16,931 437 6,453
Total rental communities (end
of period).................... 44 44 36 41 32 31 27 20
Total number of apartments (end
of period).................... 11,733 11,733 9,456 11,053 7,924 7,695 6,502 4,694
Physical occupancy (end of
period)(9).................... 97% 97% 97% 97% 97% 97% 97% 96%
Weighted average number of
apartments(10)................ 11,929 11,929 8,442 9,798 7,740 6,641 4,998 3,453
Weighted average monthly
revenue per occupied
apartment(11)................. $ 672 $ 672 $ 621 $ 641 $ 586 $ 532 $ 498 $ 512
</TABLE>

- ------------------------
(1) Consolidated pro forma adjustments assumes the Offering occurs at the
beginning of 1996 as follows:

Proforma adjustments:

A) Offering price of the Common Shares is assumed to be $22 per share with
2,000,000 of such shares to be issued by the Company.

B) Proceeds to the Company of approximately $41,080,000, net of issuance
costs, were used to pay down outstanding debt with an average interest
rate of 7.8 percent thereby reducing 1996 interest expense with a
corresponding increase to income before minority interest of $810,000.

PRO FORMA CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996
-----------------------------------------
HISTORICAL PRO FORMA PRO FORMA
CONSOLIDATED ADJUSTMENTS CONSOLIDATED
------------ ------------- ------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
(A)(B)
Rental.............................................. $ 22,136 $ -- $ 22,136
Third party management fees......................... 287 -- 287
Interest and other.................................. 1,756 -- 1,756
------------ ----- ------------
Total Revenues...................................... 24,179 -- 24,179
Repairs and maintenance............................. 2,556 -- 2,556
Other property operating............................ 2,683 -- 2,683
Advertising......................................... 433 -- 433
Real estate taxes................................... 1,649 -- 1,649
Property management................................. 884 -- 884
General and administrative.......................... 497 -- 497
Interest............................................ 5,424 (810) 4,614
Depreciation and amortization....................... 4,770 -- 4,770
------------ ----- ------------
Total expenses...................................... 18,896 (810) 18,086
------------ ----- ------------
Income before minority interest..................... 5,283 810 6,093
Minority interest................................... (1,212) (64) (1,276)
------------ ----- ------------
Net income.......................................... $ 4,071 $ 746 $ 4,817
------------ ----- ------------
------------ ----- ------------
</TABLE>

14
<PAGE>
(2) See Consolidated and Combined Financial Statements of the Company
incorporated herein by reference. Balances for 1994 have been restated for
the effect of adopting Emerging Issues Task Force Issue Number 95-6
"Accounting by a Real Estate Investment Trust for an Investment in a
Service Corporation" which requires the Company to report the operations of
the Management Company on a consolidated basis.

(3) During 1993 and 1992, the Company negotiated discounted payoffs of two
mortgage loans secured by The Meadows (1993) and Promontory Pointe (1992).
The excess of the amounts owed for principal and interest over the amount
paid to pay off the loans is recorded as an extraordinary item-gain on
extinguishment of debt. The Company determined that the carrying values of
the communities were in excess of net realizable value. The excess of
$1,361 and $10,284 was charged to the write down of real estate assets.

(4) In connection with the repayment of existing indebtedness at the time of
the Initial Public Offering, prepayment penalties and lender participation
(additional interest) totaling $2,594 were paid. Prior to the Initial
Public Offering, an Executive Incentive Deferred Compensation Plan was
canceled and the $2,639 that was funded by the Company was expensed during
1994.

(5) Net income includes an adjustment for the 22.98 percent and 20.50 percent
minority interest in the Operating Partnership for the years ended December
31, 1995 and 1994, respectively, and 20.94 percent on a pro forma basis.

(6) Earnings per share is based on 16,137,137 weighted average shares
outstanding for the three months ended March 31, 1996 and 18,137,137
weighted average shares on a pro forma basis.

(7) Adjusted to reflect the Offering.

(8)The Company and industry analysts consider funds from operations ("FFO") an
appropriate measure of performance of an equity REIT because it is
predicated on cash flow analyses. The Company computes FFO in accordance
with standards established by the National Association of Real Estate
Investment Trusts ("NAREIT"). For periods ended prior to January 1, 1996,
funds from operations was defined to mean net income (loss) determined in
accordance with GAAP, excluding gains (or losses) from debt restructuring
and sales of property, plus depreciation and amortization, and after
adjustment for unconsolidated partnerships and joint ventures. In May 1995,
NAREIT modified the definition of FFO, among other things, to eliminate
amortization of deferred financing costs and depreciation of non-real estate
assets as items added back to net income when computing FFO. The Company has
implemented the new method of calculating FFO under the NAREIT provisions by
the NAREIT-suggested adoption date of January 1, 1996. Funds from operations
should not be considered as an alternative to net income (determined in
accordance with GAAP) as an indicator of the Company's financial performance
or to cash flow from operating activities (determined in accordance with
GAAP) as a measure of the Company's liquidity, nor is it necessarily
indicative of sufficient cash flow to fund all of the Company's needs. The
Company believes that in order to facilitate a clear understanding of the

15
<PAGE>
consolidated historical operating results of the Company, funds from
operations should be examined in conjunction with net income, as presented
in the consolidated financial statements and data incorporated by reference
into this Prospectus.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
PROFORMA ACTUAL YEAR ENDED DECEMBER 31,
-------- --------------- ---------------------------------------------
1996 (A) 1996 1995 1995 1994 (B) 1993 1992 1991
-------- ------- ------ ------- --------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Income............................................. $ 4,817 $ 4,071 $4,433 $16,232 $15,266 $ 6,612 $(6,709) $ 379
Add:
Depreciation and Amortization........................ 4,731 4,731 2,727 13,624 10,311 10,319 7,146 6,074
Executive deferred compensation expense
(non cash).......................................... 170 170 178 693 267 -- -- --
Minority interest.................................... 1,276 1,212 1,173 4,594 1,548 -- -- --
-------- ------- ------ ------- --------- ------- ------- ------
FFO (c)................................................ $10,994 $10,184 $8,511 $35,143 $27,392 $16,931 $ 437 $6,453
-------- ------- ------ ------- --------- ------- ------- ------
</TABLE>

(a) Pro forma amounts are presented as if the Offering and the related
pay-off of debt had occurred on January 1, 1996.

(b) 1994 FFO has been adjusted to include other expenses ($5,233) that were
incurred relating to the repayment of existing indebtedness at the time
of the Initial Public Offering, prepayment penalties and lender
participation (additional interest) totaling $2,594. Prior to the
Initial Public Offering, an Executive Incentive Deferred Compensation
Plan was canceled and the $2,639 that was funded by the Company was
expensed in 1994. The Company believes it is appropriate to add back
other expenses to net income for the FFO calculation in 1994 as these
expenses represent nonrecurring costs directly related to the Initial
Public Offering rather than recurring expenses from operations.

(9) Physical occupancy is defined as the number of apartments occupied or
leased (including models and employee apartments) divided by the total
number of leasable apartments within the Community, expressed as a
percentage. Physical occupancy has been calculated using the average of the
occupancy that existed on the last day of each month over each period.

(10) Weighted average number of apartments is the average of all apartments
during the period. For stabilized properties, all apartments are included
in the calculation of the weighted average. For Communities in the lease-up
phase, only apartments that are completed and occupied are included in the
weighted average calculation.

(11) Weighted average monthly revenue per occupied apartment is derived by
dividing rental income by the weighted average number of occupied
apartments.

16
<PAGE>
USE OF PROCEEDS

The net cash proceeds to the Company from the Offering, after deducting
estimated Underwriters' discounts and Offering expenses, are expected to be
approximately $41.1 million ($47.3 million if the Underwriters' over-allotment
option were exercised in full, assuming 300,000 Common Shares are sold by the
Company), based on an assumed offering price of $22 per share. The Company will
contribute the net proceeds of the Offering to the Operating Partnership in
exchange for 2,000,000 Units, and will thereby increase its economic interest in
the Operating Partnership from approximately 77.24% to approximately 79.23%
(79.50% if the Underwriters' over-allotment option were exercised in full,
assuming 300,000 Common Shares are sold by the Company). Such proceeds will be
used by the Company and the Operating Partnership to pay down the variable rate
Credit Facility. At March 31, 1996, outstanding borrowings under the Credit
Facility amounted to $76.0 million. These borrowings were used to replace the
secured loan commitments with respect to the Communities Under Construction. The
Credit Facility matures on December 1, 1997, subject to an option for the
Company to extend the maturity date one year, and bears interest at 1.75% over
LIBOR, or 7.20% as of March 31, 1996.

The Company will not receive any of the proceeds from the sale of the Common
Shares offered by the Selling Stockholders.

PRICE RANGE OF COMMON SHARES AND DIVIDENDS

The Company's Common Shares have been traded on the NYSE under the symbol
"EWR" since August 10, 1994. On May 13, 1996, the last reported sale price of
the Common Stock on the NYSE was $21 5/8 per share. The following table sets
forth the quarterly high and low sales prices per share reported on the NYSE and
the dividends declared and paid by the Company during each quarterly period
since the Initial Public Offering.

<TABLE>
<CAPTION>
SALE PRICES DIVIDENDS
-------------------- DECLARED
PERIOD HIGH LOW AND PAID
- ------------------------------------------------------------------------------------- --------- --------- -----------
<S> <C> <C> <C>
1996:
Second Quarter (through May 13, 1996)................................................ $ 23 1/4 $ 20 1/2
First Quarter........................................................................ $ 23 1/4 $ 20 3/4 $ 0.39

1995:
Fourth Quarter....................................................................... $ 21 5/8 $ 18 3/8 $ 0.38
Third Quarter........................................................................ $ 20 5/8 $ 18 1/2 $ 0.38
Second Quarter....................................................................... $ 20 7/8 $ 18 3/8 $ 0.37
First Quarter........................................................................ $ 20 7/8 $ 19 1/2 $ 0.37

1994:
Fourth Quarter....................................................................... $ 21 1/2 $ 17 7/8 $ 0.37
Third Quarter (from August 10 to September 30, 1994)................................. $ 21 1/4 $ 19 3/8 $ 0.18(1)
</TABLE>

- ------------------------
(1) Paid with respect to the period August 17, 1994 to September 30, 1994.

On March 13, 1996, the Company announced a 2.6% increase in its quarterly
dividend, increasing the quarterly dividend on its Common Shares from $0.38 per
share to $0.39 per share, which is equal to $1.56 on an annualized basis. The
higher dividend rate commenced with the Company's dividend with respect to the
first quarter of 1996, to be paid on April 11, 1996 to shareholders of record as
of March 29, 1996. The Company previously announced, in September 1995, a 2.7%
increase in its quarterly dividend (from $0.37 per share to $0.38 per share),
which, together with the March increase, represents a total increase of 5.4% of
its quarterly dividend since September 1995.

The Company, for itself and in its capacity as general partner of the
Operating Partnership, currently intends to cause the Operating Partnership to
make regular quarterly distributions to holders of Units, and to continue paying
regular quarterly dividends to holders of Common Shares in amounts sufficient to

17
<PAGE>
maintain its status as a REIT. Since the Initial Public Offering, the Company
has decreased its dividend payout ratio from 91.7% in 1994 to 85.7% in 1995. The
Company's goal is to decrease further its dividend payout ratio in order to
retain and reinvest additional funds in acquisition and new development
opportunities. The Company currently anticipates that future dividend increases
per share, if any, would be less than future increases in funds from operations,
if any, on a percentage basis; however, although it has no current plans to do
so, the Company may amend or alter its policy in this regard at any time.

Future dividends will be at the direction of the Board of Directors and will
depend upon factors deemed relevant by the Board of Directors, including actual
Funds From Operations of the Company, its financial condition, capital
requirements, the annual distribution requirements under the REIT provisions of
the Code and other factors. Although the Company intends to continue to make
quarterly distributions to its stockholders, no assurance can be given as to the
amounts to be distributed in the future.

The Company anticipates that funds from operations will exceed net income
(as determined in accordance with GAAP) due to non-cash expenses, primarily
depreciation and amortization, to be incurred by the Company; however, no
assurance may be given that the Company's actual results will prove this premise
to be correct. Distributions by the Company to the extent of its current and
accumulated earnings and profits for Federal income tax purposes will be taxable
to stockholders as ordinary dividend income. Distributions in excess of earnings
and profits generally will be treated as a non-taxable reduction of the
stockholder's basis in the Common Shares (return of capital) to the extent
thereof, and thereafter as taxable gain. Such distributions will have the effect
of deferring taxation until the sale of such Common Shares. In order to maintain
its qualification as a REIT, the Company must make annual distributions to
stockholders of at least 95% of its taxable income (which does not include
capital gains). Under certain circumstances (which the Company does not expect
to occur), the Company could be required to make distributions in excess of cash
available for distribution in order to meet such distribution requirements.

Of the dividends declared for 1995, 30% represented a return of capital to
shareholders for tax purposes. The Company currently anticipates that
approximately 30% of the dividends expected to be declared in 1996 will
represent a return of capital for tax purposes. There can be no assurance,
however, that the estimate for 1996 will not vary from actual results for 1996
which will depend, in 1996 and future years, among other things, upon the
Company's actual taxable income and amounts distributed.

18
<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of the Company as of March
31, 1996, the pro forma capitalization of the Company prepared as adjusted to
give effect to the Offering and the application of net proceeds therefrom of
$41.1 million as described under the caption "Use of Proceeds." The information
set forth in the table should be read in conjunction with the consolidated
financial statements of the Company and notes thereto incorporated by reference
into this Prospectus and the discussion under "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------------------
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS AS ADJUSTED
---------- ----------- -----------
(UNAUDITED, IN THOUSANDS)
<S> <C> <C> <C>
DEBT (1):
Mortgage and Notes Payable............................................... $ 45,946 $ -- $ 45,946
$131 million securitized debt, net of unamortized
discount of $540........................................................ 130,460 -- 130,460
$50 million securitized debt............................................. 49,880 -- 49,880
Variable rate credit facility............................................ 76,000 (41,080) 34,920
Variable rate tax free IDA bonds......................................... 17,300 -- 17,300
---------- ----------- -----------
319,586 (41,080) 278,506
MINORITY INTEREST IN OPERATING PARTNERSHIP................................. 63,720 -- 63,720
STOCKHOLDERS' EQUITY:
Preferred Shares, $.01 par value; 10,000,000 authorized;
none issued and outstanding............................................. -- -- --
Common Shares, $.01 par value; 100,000,000 authorized; 16,145,248 issued
and outstanding, 18,145,248 pro forma
as adjusted (2)......................................................... 161 20 181
Additional paid-in capital............................................... 209,164 41,060 250,224
Accumulated deficit...................................................... (12,885) -- (12,885)
---------- ----------- -----------
Total stockholders' equity............................................... 196,440 41,080 237,520
---------- ----------- -----------
Total capitalization..................................................... $ 579,746 $ -- $ 579,746
---------- ----------- -----------
---------- ----------- -----------
</TABLE>

- ------------------------
(1) See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity and Capital Resources" and note 5 of the notes to
Consolidated Financial Statements of the Company incorporated herein by
reference for information relating to the indebtedness. The $131 million
securitized debt is rated "AA" by Standard & Poors.

(2) Does not include (i) 4,800,379 Common Shares at March 31, 1996 that may be
issued upon the exchange of Units, (ii) approximately 975,000 Common Shares
issuable upon the exercise of options granted under the Company's 1994 Stock
Incentive Plan and (iii) 300,000 Common Shares subject to the Underwriters'
over-allotment option. A total of 1,830,000 Common Shares has been reserved
for issuance under the 1994 Stock Incentive Plan.

19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The following discussion, which is based primarily on the consolidated
financial statements of the Company and the combined financial statements of
Evans Withycombe, should be read in conjunction with the "Summary Selected
Financial and Operating Data" and all financial statements appearing elsewhere
in this Prospectus and the Company's Annual Report on Form 10-K for the year
ended December 31, 1995 and Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996, which have been incorporated herein by reference. The
consolidated financial statements of the Company consist of the Communities
owned and under development and the Management Company.

When used in the following discussion, the words "believes," "anticipates,"
"expects," and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties which
could cause actual results to differ materially from those projected, including,
but not limited to, the actual timing of the Company's planned acquisitions and
developments, the strength of the local economies in the sub-markets in which
the Company operates, and the Company's ability to successfully manage its
planned expansion into Southern California. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date hereof. The Company undertakes no obligation to publicly release any
revisions to these forward-looking statements which may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.

RESULTS OF OPERATIONS -- CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31,
1996 TO THE THREE MONTHS ENDED MARCH 31, 1995.

The results of operations for the three months ended March 31, 1996, as
compared to the three months ended March 31, 1995, were significantly affected
by acquisitions, developments and expansions. During the three months ended
March 31, 1996, three new communities under development (Ladera, The Legends and
The Ingleside), achieved stabilized occupancy. During the first quarter of 1995,
the Company acquired two apartment communities (Acacia Creek and Rancho
Murietta).

<TABLE>
<CAPTION>
MARCH 31,
---------------- PERCENTAGE
1996 1995 CHANGE
------- ------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Rental income................................................................... $22,136 $14,875 48.8%
Third party management fees..................................................... 287 395 (27.3)
Interest and other.............................................................. 1,756 1,037 69.3
------- ------- ----------
Total Revenues.............................................................. 24,179 16,307 48.3
------- ------- ----------
Property operating and maintenance (1).......................................... 5,672 3,912 44.9
Real estate taxes............................................................... 1,649 951 73.4
Property management............................................................. 884 805 9.8
General and administrative...................................................... 497 453 9.7
Interest........................................................................ 5,424 1,834 195.7
Depreciation and amortization................................................... 4,770 2,746 73.7
------- ------- ----------
Total Expenses.............................................................. 18,896 10,701 76.6
------- ------- ----------
Income before minority interest................................................. $ 5,283 $ 5,606 (5.8)%
------- ------- ----------
------- ------- ----------
</TABLE>

- ------------------------
(1) The Company defines property operating and maintenance expense as repairs
and maintenance, other property operating and advertising expense.

Rental revenues increased by $7.3 million or 48.8 percent as a result of
increases in the weighted average number of apartments and weighted average
monthly revenue per occupied apartment. The

20
<PAGE>
weighted average number of apartments increased by 41.3 percent from 8,442
apartments during the three months ended March 31, 1995 to 11,929 during the
three months ended March 31, 1996. Weighted average monthly revenue increased
$51 or 8.2 percent from $621 during the three months ended March 31, 1995 to
$672 during the three months ended March 31, 1996. The Company believes that the
increase in rental income was largely attributable to the acquisitions and
stabilization of properties developed by the Company, as described above.
Average economic and physical occupancy were 93.9 and 96.6 percent,
respectively, during the three months ended March 31, 1995 and 92.3 and 96.5
percent, respectively, during the three months ended March 31, 1996.

The decrease in third party management fees of $108,000, a 27.3 percent
decrease from the 1995 period, is due to the sale of several properties from the
management portfolio, including 508 units which the Company purchased. Property
operating and maintenance expense increased $1.8 million or 44.9 percent (versus
a 41.3 percent increase in the weighted average number of units) due to the
increase in the number of properties. Real estate taxes increased $698,000 or
73.4 percent (versus a 41.3 percent increase in the weighted average number of
units) primarily due to the increase in the number of properties and higher
values placed on properties due to improved market conditions.

Property management expense increased $79,000 or 9.8 percent due to the
increase in the number of properties under management.

Interest expense increased $3.6 million or 195.7 percent due to an increase
in debt resulting from acquisitions and the increase in weighted average number
of units in the portfolio. The Company capitalized $720,000 of interest in 1996
compared to $1.3 million in 1995 due to a decrease in construction activity
(1,586 units under construction versus 2,517 units under construction in the
first quarter 1995). Interest costs incurred during construction of a new
property is capitalized until completion of construction on a building-
by-building basis.

"SAME STORE" PORTFOLIO

The Company defines same store portfolio as those communities that reached
stabilized occupancy prior to January 1, 1995.

Same store portfolio consists of 32 stabilized properties containing 7,924
apartment units that were owned by the Company for the three months ended March
31, 1996 and 1995.

Rental income for the three months ended March 31, 1996 increased $164,000
or 1.2 percent as a result of an increase in the weighted average monthly
revenue per occupied unit which increased $32 or 5.2 percent from $621 during
the three months ended March 31, 1995 to $653 during the three months ended
March 31, 1996. This was offset by a decline in the average economic occupancy
from 93.9 percent during the three months ended March 31, 1995 to 92.0 percent
during the three months ended March 31, 1996. Excluding the amortization of
rental concessions carried over from 1995 of approximately $220,000, total
revenues would have increased 3.2 percent and property net operating income
would have increased 2.7 percent.

Real estate taxes increased $118,000 or 12.9 percent due to higher values
placed on properties due to improved market conditions and property values.

21
<PAGE>
COMMUNITIES STABILIZED LESS THAN TWO YEARS

Communities stabilized less than two years consist of the development of
five new apartment communites and the expansion of two existing apartment
communities by the Company, containing 1,521 apartment units that reached
stabilized occupancy during the year ended December 31, 1995. Increases in the
three month period ended March 31, 1996 as compared to the three month period
ended March 31, 1995 are the result of there being only 741 units stabilized
less than two years in 1995 as compared to 1,521 units in 1996.

<TABLE>
<CAPTION>
MARCH 31,
------------
1996 1995
------ ----
(IN
THOUSANDS)
<S> <C> <C>
Rental income................................................................... $3,220 $688
Other income.................................................................... 182 59
------ ----
3,402 747
Property operating and maintenance.............................................. 648 221
Real estate taxes............................................................... 241 --
------ ----
889 221
------ ----
Property net operating income................................................... $2,513 $526
------ ----
------ ----
</TABLE>

DEVELOPMENT AND LEASE UP PROPERTIES

Development and lease up properties consist of the development of 12 new
apartment communities or the expansion of existing apartment communities
containing 2,266 apartment units that were in the "construction," "development,"
or "lease up" stage during 1996 and, therefore, not considered to have achieved
stabilized occupancy for the periods presented. Increases in the three month
period ended March 31, 1996 as compared to the three month period ended March
31, 1995 are the result of there being no development units in lease-up during
first quarter 1995.

<TABLE>
<CAPTION>
MARCH 31,
------------
1996 1995
------ ----
(IN
THOUSANDS)
<S> <C> <C>
Rental income................................................................... $1,896 $--
Other income.................................................................... 136 --
------ ----
2,032 --
Property operating and maintenance.............................................. 497 --
Real estate taxes............................................................... 172 --
------ ----
669 --
------ ----
Property net operating income................................................... $1,363 $--
------ ----
------ ----
</TABLE>

ACQUISITIONS

Acquisitions consist of four properties containing 1,608 apartment units
which have been acquired by the Company since January 1, 1995. Increases in the
three month period ended March 31, 1996, as compared

22
<PAGE>
to the three months ended March 31, 1995, are the result of acquiring two
apartment communities during February and March 1995 consisting of 800 units and
two apartment communities during fourth quarter 1995, consisting of 808
apartment units.

<TABLE>
<CAPTION>
MARCH 31,
------------
1996 1995
------ ----
(IN
THOUSANDS)
<S> <C> <C>
Rental income................................................................... $2,952 $283
Other income.................................................................... 170 3
------ ----
3,122 286
Property operating and maintenance.............................................. 794 35
Real estate taxes............................................................... 201 34
------ ----
995 69
------ ----
Property net operating income................................................... $2,127 $217
------ ----
------ ----
</TABLE>

COMPARISON OF RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995 TO
THE YEAR ENDED DECEMBER 31, 1994

The results of operations for the year ended December 31, 1995 were
significantly affected by acquisitions, developments and expansions. During the
year ended December 31, 1995, the Company acquired four stabilized apartment
communities (Rancho Murietta, Acacia Creek, Superstition Vista and The Ashton).
In addition, the Company developed five new communities (Mountain Park Ranch,
The Enclave, The Heritage, Sonoran and Gateway Villas) and completed three
expansions of existing communities (Towne Square, Arboretum and Sonoran) all of
which achieved stabilized occupancy. During 1994, subsequent to its Initial
Public Offering, the Company acquired one stabilized apartment community
(Heritage Point) referred to as the "1994 acquisition" and developed a second
phase at a stabilized community (Tanque Verde).

<TABLE>
<CAPTION>
DECEMBER 31,
---------------- PERCENTAGE
1995 1994 CHANGE
------- ------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Rental income................................................................... $68,864 $51,097 34.8%
Third party management fees..................................................... 1,268 1,668 (24.0)
Interest and other.............................................................. 4,478 4,424 1.2
------- ------- -----
Total Revenues................................................................ 74,610 57,189 30.5

Property operating and maintenance (1).......................................... 18,236 15,088 20.9
Real estate taxes............................................................... 4,723 3,204 47.4
Property management............................................................. 2,825 2,505 12.8
General and administrative...................................................... 1,588 1,409 12.7
Interest........................................................................ 12,650 7,836 61.4
Depreciation and amortization................................................... 13,762 10,333 33.2
Other........................................................................... -- 5,233 --
------- ------- -----
Total Expenses................................................................ 53,784 45,608 17.9
------- ------- -----
Income before minority interest................................................. $20,826 $11,581 79.8%
------- ------- -----
------- ------- -----
</TABLE>

- ------------------------
(1) The Company defines property operating and maintenance expense as repairs
and maintenance, other property operating and advertising expense.

Rental revenues increased by $17.8 million or 34.8 percent as a result of
increases in the weighted average number of apartments and weighted average
monthly revenue per occupied apartment. The weighted average number of
apartments increased by 26.6 percent from 7,740 apartments during the year ended
December 31, 1994 to 9,798 during the year ended December 31, 1995. Weighted
average monthly revenue per occupied apartment increased $55 or 9.4 percent from
$586 during the year ended December 31, 1994 to $641 during the year ended
December 31, 1995. The Company believes that the increase in

23
<PAGE>
rental income, other than that attributable to the acquisitions and
developments, was achieved as a result of the Company's ability to capitalize on
continuing improvement in the Company's rental markets. Average economic and
physical occupancy were 92.3 and 97 percent, respectively, during the year ended
December 31, 1994 and 91.6 and 97 percent, respectively, during the year ended
December 31, 1995.

The decrease in third party management fees of $400,000, a 24.0 percent
decrease from the 1994 period, was due to the sale of several properties from
the management portfolio, including 508 units which the Company purchased.

Property operating and maintenance expense increased $3.1 million or 20.9
percent (compared to a 26.6 percent increase in the weighted average number of
units) due to the increase in the number of properties. Real estate taxes
increased $1.5 million or 47.4 percent (compared to a 26.6 percent increase in
the weighted average number of units) primarily due to the increase in the
number of properties and higher values placed on properties due to improved
market conditions.

Property management expense increased $320,000 or 12.8 percent due to the
increase in the number of properties under management.

Interest expense increased $4.8 million or 61.4 percent due to an increase
in debt resulting from acquisitions and from more units under construction. The
Company capitalized $5.0 million of interest in 1995 compared to $2.7 million in
1994 due to an increase in construction activity. Interest costs incurred during
construction of a new property are capitalized until completion of construction
on a building-by-building basis.

"SAME STORE" PORTFOLIO

The Company defines same store portfolio as those Communities that reached
stabilization prior to the beginning of the previous calendar year. Same store
portfolio consists of 30 stabilized operating properties containing 7,559
apartment units that were owned by the Company for the years ended December 31,
1995 and 1994.

<TABLE>
<CAPTION>
DECEMBER 31,
---------------- PERCENTAGE
1995 1994 CHANGE
------- ------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Rental income................................................................... $52,940 $49,712 6.5%
Other income.................................................................... 2,568 3,180 (19.2)
------- ------- -----
55,508 52,892 4.9
Property operating and maintenance.............................................. 14,213 14,589 (2.6)
Real estate taxes............................................................... 3,671 3,180 15.4
------- ------- -----
17,884 17,769 .6
------- ------- -----
Property net operating income................................................... $37,624 $35,123 7.1%
------- ------- -----
------- ------- -----
</TABLE>

Rental income for the year ended December 31, 1995 increased $3.2 million or
6.5 percent as a result of an increase in the weighted average monthly revenue
per occupied unit. Average economic occupancy was 91.5 percent during the year
ended December 31, 1995 and 92.5 percent during the year ended December 31,
1994.

Property operating and maintenance expense decreased $376,000 or 2.6 percent
due to the Company beginning to realize economies of scale from consolidated
operations of the integrated property portfolio.

Real estate taxes increased $491,000 or 15.4 percent due to higher values
placed on properties due to improved market conditions and property values.

DEVELOPMENT PROPERTIES STABILIZED OR IN LEASE UP

Development properties consist of 15 developments or expansions of existing
properties, containing 2,878 apartment units, that have been developed by the
Company since the Initial Public Offering in

24
<PAGE>
August 1994. Increases in 1995 as compared to 1994 is the result of development
units stabilized or in lease-up increasing to 15 properties and 2,878 apartment
units in 1995 as compared to three properties and 661 apartment units in 1994.

<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1995 1994
------ ------
(IN THOUSANDS)
<S> <C> <C>
Rental income................................................................... $9,766 $1,248
Other income.................................................................... 636 84
------ ------
10,402 1,332
Property operating and maintenance.............................................. 2,604 459
Real estate taxes............................................................... 560 18
------ ------
3,164 477
------ ------
Property net operating income................................................... $7,238 $ 855
------ ------
------ ------
</TABLE>

ACQUISITIONS

Acquisitions consist of five properties containing 1,756 apartment units
which have been acquired by the Company since the Initial Public Offering in
August 1994. Increases in 1995 as compared to 1994 are the result of acquiring
four properties in 1995 consisting of 1,608 apartment units compared to one
property consisting of 148 apartment units in 1994.

<TABLE>
<CAPTION>
DECEMBER 31,
------------
1995 1994
------ ----
(IN
THOUSANDS)
<S> <C> <C>
Rental income................................................................... $6,158 $137
Other income.................................................................... 239 5
------ ----
6,397 142
Property operating and maintenance.............................................. 1,419 40
Real estate taxes............................................................... 492 6
------ ----
1,911 46
------ ----
Property net operating income................................................... $4,486 $ 96
------ ----
------ ----
</TABLE>

COMPARISON OF YEAR ENDED DECEMBER 31, 1994 TO YEAR ENDED DECEMBER 31, 1993

<TABLE>
<CAPTION>
DECEMBER 31,
---------------- PERCENTAGE
1994 1993 CHANGE
------- ------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Rental income................................................................... $51,097 $38,613 32.3%
Third party management fees..................................................... 1,668 2,213 (24.6)
Interest and other.............................................................. 4,424 3,112 42.2
------- ------- -----
Total Revenues................................................................ 57,189 43,938 30.2

Property operating and maintenance.............................................. 15,088 12,345 22.2
Real estate taxes............................................................... 3,204 2,869 11.7
Property management............................................................. 2,505 2,605 (3.8)
General and administrative...................................................... 1,409 1,466 (3.9)
Interest........................................................................ 7,836 6,361 23.2
Depreciation and amortization................................................... 10,333 10,319 .1
Write-down of real estate assets................................................ -- 1,361 --
Other........................................................................... 5,233 -- --
------- ------- -----
Total Expenses................................................................ 45,608 37,326 22.2
------- ------- -----
Income before minority interest................................................. $11,581 $ 6,612 75.2%
------- ------- -----
------- ------- -----
</TABLE>

25
<PAGE>
Rental revenues increased by $12.5 million or 32.3 percent as a result of
increases in the weighted average number of occupied apartments and weighted
average monthly revenue per occupied apartment. The weighted average number of
occupied apartments increased by 17 percent from 6,641 apartments during the
year ended December 31, 1993 to 7,740 during the year ended December 31, 1994.
Weighted average monthly revenue per available apartment increased $54 or 10
percent from $532 during the year ended December 31, 1993 to $586 during the
year ended December 31, 1994. The Company believes that the increase in rental
income, other than that attributable to the acquisitions and developments, was
achieved as a result of the Company's ability to capitalize on continuing
improvement in the Company's rental markets.

The decrease in third party management fees of $545,000 or 24.6 percent
resulted from the sale of several properties from the management portfolio.

Interest and other increased $1.3 million or 42.2 percent due to an increase
in the weighted average number of apartments in 1994 and interest income from
the $24.2 million of net proceeds received from exercising the over-allotment
option of shares.

Property operating and maintenance expense increased $2.7 million or 22.2
percent as a result of the addition of properties through acquisition and
development. Real estate taxes increased $335,000 or 11.7 percent as a result of
the addition of properties through acquisition and development.

Interest expense increased $1.5 million or 23.2 percent due to an increase
in average total debt from 1993 to 1994. Interest cost incurred during
construction of a new property is capitalized. Interest costs incurred during
construction of a new property is capitalized until completion of construction
on a building-by-building basis.

Other expense for the year ended December 31, 1994 were comprised of costs
incurred in the termination and distribution of the Company's Executive
Incentive Deferred Compensation Plan of approximately $2.6 million prior to the
Initial Public Offering. In addition, in connection with the repayment of
existing indebtedness at the time of the Initial Public Offering, the Company
incurred and paid approximately $2.6 million in prepayment penalties and lender
participation (additional interest).

LIQUIDITY AND CAPITAL RESOURCES

The Company's net cash provided by operating activities increased from $11.1
million for the three months ended March 31, 1995 to $14 million for the three
months ended March 31, 1996 principally due to an increase in property operating
income as a result of the increase in the number of stabilized properties. Net
cash used in investing activities decreased from $31.1 million for the three
months ended March 31, 1995 to $30.8 million for the three months ended March
31, 1996. Cash used in investing activities largely relates to the Company's
development and construction of new apartment communities in Phoenix and Tucson,
Arizona. Net cash provided by financing activities decreased from $19.3 million
for the three months ended March 31, 1995 to $14.1 million for the three months
ended March 31, 1996 due to the Company having unused funds from the issuance of
the second tranche of the $131 million securitized debt in January 1995. These
funds were subsequently used in the second quarter of 1995 to fund communities
under construction.

On August 17, 1994, the Company completed the Initial Public Offering of
8,685,000 shares of its Common Stock at $20.00 per share and on September 2,
1994, completed the sale of an additional 1,302,750 shares upon exercise of the
underwriters' over allotment option. Net proceeds to the Company after the
underwriting discounts and other Initial Public Offering costs were
approximately $181.3 million.

Concurrent with the Initial Public Offering, the Company, through the
Financing Partnership, borrowed $102.0 million under a securitized loan. The
Company borrowed the balance of $29.0 million (increasing the total to $131.0
million) during January 1995. The loan is secured by first mortgage liens on 22
of the Communities. The $102.0 million was issued at 99.97 percent of its face
amount and the $29.0 million was issued at 97.9375 percent of its face amount
and will mature on August 1, 2001. Although both amounts bear interest at 7.98
percent, the $29.0 million has an effective interest rate of 8.40 percent due to
the discount.

26
<PAGE>
Upon consummation of the Initial Public Offering, the Company assumed
approximately $24.9 million of existing mortgage obligations relating to four
properties of which $24.3 million was outstanding at March 31, 1996. These
assumed mortgages are due and payable at various dates from August 1996 to
October 2001 and have fixed rates of interest varying from 7.2 percent to 8.0
percent.

During February 1995, the Company assumed debt of approximately $6.5 million
with an interest rate of 8.28 percent due and payable in June 1998 as a result
of an acquisition of an apartment community, of which $6.3 million was
outstanding at December 31, 1995. In March 1995, the Company acquired another
apartment community and assumed debt of $19.8 million with an average interest
rate of 9.8 percent ($4.3 million of the debt was paid in April 1995). The
outstanding debt was $15.4 million at March 31, 1996, with the remaining unpaid
principal balance due in September 1997. The March 1995 acquisition included an
issuance of 530,165 Units to the seller.

On October 31, 1995, the Company acquired an apartment community through the
origination of a $13 million short term note payable to the seller with an
interest rate of 6 percent. The note payable matured January 5, 1996 and was
paid off with funds from the Credit Facility.

On December 12, 1995, the Company assumed the payment of obligations with
respect to $17.3 million of tax free bonds with a floating interest rate based
on the tax exempt note rate set by the remarketing agent (or at the option of
the Company at a fixed rate as determined by the remarketing agent) as a result
of the acquisition of an apartment community. The tax free bonds are secured by
a $17.8 million direct pay letter of credit. The debt matures December 1, 2007.
The December acquisition included the issuance of 180,385 Units to the seller.

In December 1995, the Company obtained a new Credit Facility from Bank One
of Arizona, N.A. which (i) increased availability under the Credit Facility from
$35 million to $125 million, (ii) changed the facility from secured to
unsecured, (iii) reduced the floating interest rate from 185 basis points above
LIBOR (or, at the option of the Company, 25 basis points over the prime rate
announced from time to time by Bank One), to 175 basis points over LIBOR (or, at
the option of the Company, at the prime rate announced by Bank One) and (iv)
replaced the secured construction loan commitments of $76.6 million with respect
to the Communities Under Construction. The Credit Facility, as amended, has a
term of two years, with an option for the Company, subject to certain
conditions, to extend the term for one year and continues to provide for monthly
payments of interest only. It will be used to finance acquisitions, to fund
construction and development and renovation costs, and for working capital
purposes. At March 31, 1996, there was $76.0 million outstanding on the Credit
Facility bearing interest at 7.2 percent.

In December 1995, the Company entered into a ten year $50 million fixed rate
loan agreement with The Northwestern Mutual Life Insurance Company that bears
interest at 7.17 percent, with principal and interest due monthly based on a
25-year amortization schedule beginning January 1, 1996 through January 1, 2006,
and the remaining unpaid principal balance due January 1, 2006. Proceeds from
the loan were used to pay down outstanding balances on the new Credit Facility.
The outstanding debt was $49.9 million at March 31, 1996. The loan is
convertible to an unsecured loan upon the Company achieving an investment grade
rating of BBB or better.

27
<PAGE>
The table below outlines the Company's debt structure as of March 31, 1996
(dollars in thousands, unaudited).

<TABLE>
<CAPTION>
OUTSTANDING WEIGHTED AVERAGE
BALANCE INTEREST RATE
----------- ----------------
<S> <C> <C>
FIXED RATE DEBT:
Mortgage Debt
Conventional................................................................ $ 95,826 7.83%
Mortgage Loan Certificates.................................................. 130,460 8.05
----------- ---
Total Fixed Rate Debt..................................................... 226,286 7.96
----------- ---
----------- ---
VARIABLE RATE DEBT:
Tax free bonds................................................................ 17,300 5.90
Revolving Credit Facility..................................................... 76,000 7.20
----------- ---
Total Variable Rate Debt.................................................. 93,300 6.96
----------- ---
Total Debt................................................................ $319,586 7.70%
----------- ---
----------- ---
</TABLE>

Following is a summary of the scheduled principal maturities of the
Company's mortgage debt (in thousands, except percentages):

<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31,
- ------------------------------------------------------------------------------- TOTAL
MATURITIES
---------------
(IN THOUSANDS)
<S> <C>
1996 (1)....................................................................... $ 6,425
1997........................................................................... 92,501
1998........................................................................... 16,655
1999........................................................................... 1,072
2000........................................................................... 1,158
Thereafter..................................................................... 201,775
---------------
Total........................................................................ $319,586
---------------
---------------
</TABLE>

- ------------------------
(1) Represents period from April 1, 1996 through December 31, 1996.

At March 31, 1996, the Company's total debt represented approximately 39.6%
of total market capitalization (Market Equity plus Debt).

In September 1995, the Company filed a shelf registration statement with the
Securities and Exchange Commission for up to $200 million of debt securities,
common stock, preferred stock, and warrants, which will provide the Company with
the ability to issue and sell a portion of such securities from time to time.

The Company elected to be taxed as a REIT under Sections 856 through 860 of
the Internal Revenue Code of 1986, as amended, commencing with its taxable year
ended December 31, 1994. REITs are subject to a number of organizational and
operational requirements, including a requirement that they currently distribute
95% of their ordinary taxable income.

The Company expects to meet its short-term liquidity requirements generally
through its net cash provided by operations and borrowings under its credit
arrangements. The Company believes that its net cash provided by operations will
be adequate and anticipates that it will continue to be adequate to meet both
operating requirements and payment of dividends by the Company in accordance
with REIT requirements in both the short and the long term. The budgeted
expenditures for improvements and renovations to certain of the properties are
expected to be funded from operating cash flow.

The information in the immediately preceding paragraph is forward-looking
and involves risks and uncertainties that could significantly impact the
Company's expected liquidity requirements in the short and long term. While it
is impossible to itemize the many factors and specific events that could affect
the Company's outlook for its liquidity requirements, such factors would include
the actual timing of the Company's acquisitions and planned development of new,
and expansion of existing, communities; the actual costs associated with such
acquisitions and developments; and the strength of the local economies in the
sub-markets in which the Company operates. The Company is further subject to
risks relating to the

28
<PAGE>
limited geographic area in which it operates and its ability to successfully
manage its planned expansion into Southern California, a market in which it does
not have any operating history prior to 1995. Higher than expected costs, delays
in development of communities, a downturn in the local economies and/or the lack
of growth of such economies could reduce the Company's revenues and increase its
expenses, resulting in a greater burden on the Company's liquidity than that
which the Company has described above.

FUNDS FROM OPERATIONS

The Company and industry analysts generally consider FFO an appropriate
measure of performance of an equity REIT because it is predicated on cash flow
analyses. The Company computes FFO in accordance with standards established by
NAREIT. FFO, as defined by NAREIT, represents net income (loss) (computed in
accordance with GAAP), excluding gains (or losses) from debt restructuring and
sales of property, plus depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures. Adjustments for unconsolidated
partnerships and joint ventures will be calculated to reflect FFO on the same
basis. For all periods presented, depreciation and amortization were the
non-cash adjustments. In May 1995, NAREIT modified the definition of FFO, among
other things, to eliminate amortization of deferred financing costs and
depreciation of non-real estate assets as items added back to net income when
computing FFO. The Company has implemented the new method of calculating FFO
under the NAREIT provisions by the NAREIT-suggested adoption date of January 1,
1996. FFO should be considered in conjunction with net income (loss) as
presented in the Company's consolidated financial statements and footnotes
thereto. FFO should not be considered an alternative to net income as an
indication of the Company's performance or to cash flows from operating
activities as a measure of liquidity, both of which are computed in accordance
with GAAP. The following table presents the Company's FFO under both methods of
calculation for illustrative purposes (in thousands):

<TABLE>
<CAPTION>
CURRENT METHOD PREVIOUS METHOD
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1996 MARCH 31, 1996
------------------------------ ------------------------------
PROFORMA(1) ACTUAL YEAR ENDED PROFORMA(1) ACTUAL YEAR ENDED
----------- ---------------- ---------- ----------- ---------------- ----------
1996 1996 1995 1995 1996 1996 1995 1995
----------- ------- ------- ---------- ----------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Income................................ $ 4,817 $ 4,071 $ 4,433 $16,232 $ 4,817 $ 4,071 $ 4,433 $16,232
Add:
Depreciation and amortization........... 4,731 4,731 2,727 13,624 4,770 4,770 2,746 13,762
Amortization of deferred financing costs
and depreciation of non-real estate
assets................................. -- -- -- -- 156 156 107 658
Amortization of executive deferred
compensation expense................... 170 170 178 693 170 170 178 693
Minority interest in income............... 1,276 1,212 1,173 4,594 1,276 1,212 1,173 4,594
----------- ------- ------- ---------- ----------- ------- ------- ----------
Funds From Operations..................... $10,994 $10,184 $ 8,511 $35,143 $11,189 $10,379 $ 8,637 $35,939
----------- ------- ------- ---------- ----------- ------- ------- ----------
----------- ------- ------- ---------- ----------- ------- ------- ----------
Distributions and dividends paid.......... $ 8,682 $ 7,902 $ 7,452 $30,451 $ 8,682 $ 7,902 $ 7,452 $30,451
----------- ------- ------- ---------- ----------- ------- ------- ----------
----------- ------- ------- ---------- ----------- ------- ------- ----------
</TABLE>

- ------------------------
(1) Pro forma amounts are presented as if the Offering and the related pay-off
of debt had occurred on January 1, 1996.

CAPITAL EXPENDITURES

An annual capital expenditure budget is prepared for each of the Communities
which is intended to provide for all necessary recurring capital improvements.
At the present time, the Company's existing portfolio of Communities has been
properly maintained on a current and regular basis and there are no material
deferred capital maintenance obligations. The Company believes that its annual
reserve for maintenance and recurring capital improvements will provide the
necessary funding for such requirements for the foreseeable future; no
assurances may be given, however, that such reserve will in fact be adequate due
to risks inherent with the Company's business including the incurrence of
unanticipated or unforeseeable maintenance and repair expenses. The Company's
policy is to capitalize those expenditures relating to the acquisition of new
assets, the material enhancement of the value of an existing asset, or the
substantial extension of the useful life of an existing asset. All expenditures
necessary to maintain a Community in ordinary operating condition and all
expenditures of less than $750 are expensed as incurred. The Company's average
annual capital budget is currently $150 per unit ($1,760,000 annually based on
the number of units in the Stabilized Communities). The Initial Communities
acquired since January 1, 1991 underwent a

29
<PAGE>
refurbishment and upgrade program at an average expenditure of $2,194 per unit.
This program essentially front-loaded many capital expenditures which is
expected to reduce ongoing capital expenditures for several years.

INFLATION

Substantially all of the leases at the Communities are for a term of one
year or less, which may enable the Company to seek increased rents upon renewal
of existing leases or commencement of new leases. The short-term nature of the
leases generally serves to reduce the risk to the Company of the adverse effects
of inflation.

SEASONALITY

The fall and winter months in the Company's primary markets consistently
experience somewhat higher seasonal occupancies due to students attending local
colleges, increases in area visitors and residents providing services to such
visitors.

30
<PAGE>
BUSINESS AND PROPERTIES

OVERVIEW

The Company's portfolio consists of Stabilized Communities and Communities
Under Construction:

- - STABILIZED COMMUNITIES. The Company owns and manages 43 Stabilized
Communities located in the Phoenix and Tucson metropolitan areas, containing
a total of 11,241 apartments. In addition, the Company owns and manages one
Stabilized Community in the Riverside/San Bernardino, California region,
which contains a total of 492 apartments.

- - COMMUNITIES UNDER CONSTRUCTION. The Company owns nine apartment Communities
Under Construction with a total of 1,586 apartments. Three of these
communities are new developments and six are expansions of existing
communities owned by the Company.

GROWTH STRATEGY

The Company intends to grow by improving cash flow from Stabilized
Communities through intensive management focusing on resident satisfaction and
retention, increasing rents, maintaining high community occupancy levels and
controlling operating expenses. The Company's strategy is also to grow through
development and acquisition of multifamily properties which will provide both
favorable initial returns and long-term growth prospects.

- - GROWTH FROM EXISTING PROPERTIES. The Company's objective is to grow cash flow
from existing properties through relatively stable occupancy, rising rents in
the Company's Arizona markets and the Company's property management programs.
The property management team for each apartment community includes on-site
management and maintenance personnel. The property management teams perform
leasing and rent collection functions and coordinate resident services. All
personnel are extensively trained and are encouraged to continue their
education through both Company-sponsored and outside training. Property
management personnel utilize state-of-the-art on-site computer management
systems to assist in the timely leasing of vacant apartments, collection of
rents, maintenance management and delivery of services to the apartment
residents.

The focus of the Company's on-site management program is on providing
prompt, courteous and responsive service to its residents. The Company
believes that a strong resident retention program which emphasizes customer
service reduces the Company's turnover rate and encourages residents to
refer new customers. The Company solicits resident feedback and responds to
maintenance requests on a same day basis and provides 24 hour a day
emergency maintenance services.

The Company conducts periodic capital and preventative maintenance programs
at each Community. In addition, periodic preventative maintenance checks are
made in each apartment, pursuant to which appliances, heating and cooling
systems and apartment interiors are inspected and serviced as necessary. The
Company believes that these programs lower operating costs over the life of
the Communities, increase the long-term value and maintain the upscale
market position of the Communities.

- - DEVELOPMENT STRATEGY. The Company seeks to develop properties in markets
where it discerns a strong demand and the Company anticipates it will achieve
attractive rates of return. Projects currently under construction and the 12
communities stabilized since the Initial Public Offering are specific
examples of the Company's implementation of its growth strategy through
development. The Company develops its communities in markets where resident
profiles justify the development of high quality apartments offering
extensive resident amenities and services. In evaluating whether to develop
an apartment community in a particular location, the Company analyzes
relevant demographic, economic and financial data. Specifically, the Company
considers the following factors, among others, in determining the viability
of a potential new apartment community: (i) income levels and employment
growth trends in the relevant market, (ii) uniqueness of location, (iii)
household growth and net migration of the relevant market's population, (iv)
supply/demand ratio, competitive housing alternatives, sub-market occupancy

31
<PAGE>
and rent levels and (v) barriers to entry which would limit competition. The
Company currently intends to develop apartment communities in the Phoenix and
Tucson area and intends to develop communities in its California markets when
economic conditions warrant.

- - ACQUISITION STRATEGY. The Company believes that it is well positioned to take
advantage of market timing opportunities in two Southern California markets,
San Diego and Riverside/San Bernardino, which will permit it to acquire
existing apartment properties at favorable prices. The Company especially
targets properties with below market occupancies and rents, so that it can
benefit both from property repositioning and market improvements. The target
acquisition properties will often be under-managed, but fundamentally sound
properties. Improvements to landscaping, recreational amenities, and
apartment interiors, coupled with more effective management and marketing,
may result in significant revenue increases over revenue levels at the time
of acquisition. Such repositioning may require substantial expenditures for
capital improvements, refurbishments and marketing.

The Company believes that its status as a publicly traded REIT conducting
business through the Operating Partnership will enhance its ability to
acquire properties or development sites by providing property sellers a
means to defer federal income taxes on gains through the use of Units in the
Operating Partnership as consideration for the acquisition. Units were
utilized in the acquisition of Acacia Creek during the first quarter of 1995
and The Ashton during the fourth quarter of 1995. In addition, the Company's
access to the capital markets allows for additional financing flexibility
for acquisitions.

- - THIRD PARTY FEE MANAGEMENT BUSINESS. The Company succeeded to the third party
property management activities of its predecessor. Although it contributes a
small part of the Company's revenues and less that one percent of funds from
operations, the Management Company continues to manage multifamily properties
owned by third parties. The fee management business is highly competitive and
fragmented. The Company's competitors include a variety of local, regional
and national firms with no one firm controlling a significant market share in
the Company's markets. While the Company will take advantage of its
reputation and experience as a property manager and accept property
management assignments that it expects to be profitable and which fit well
with the Company's property portfolio, it does not anticipate revenue growth,
and has experienced a revenue decline in this segment of its business.

The Company's growth strategies stated above include estimates and
forward-looking statements and prospects regarding, among other things, the
stability of occupancy and rent levels in the Company's markets and its ability
to acquire existing apartment communities at favorable prices. This
forward-looking information involves risks and uncertainties that could
significantly impact the Company's ability to successfully implement these
strategies. Among the factors that could cause actual results to differ
materially from the forward-looking statements above are: the timing of the
Company's acquisitions and planned development of new, and expansion of existing
communities; the actual costs associated with such acquisitions and
developments; the demand for apartments in its markets; the strength of the
local economies; and the Company's ability to successfully expand its operations
into Southern California, a market in which it does not have any operating
experience prior to 1995.

PROPERTY OPERATIONS

Each of the Communities is managed by the Management Company. The Company's
property management division has 17 years of experience managing properties,
successfully leasing new development properties and refurbishing and
repositioning acquisition properties. The property management team for each
Community includes on-site management and maintenance personnel. Community
management teams perform leasing and rent collection functions and coordinate
resident services. All personnel are extensively trained and are encouraged to
continue their education through both Company-sponsored and outside training.
Property management personnel utilize state-of-the-art on-site computer
management systems to assist in the timely leasing of vacant apartments,
collection of rents, maintenance management and delivery

32
<PAGE>
of services to the apartment residents. The on-site personnel receive support
and direction from the Company's management supervisors. In accordance with the
REIT requirements of the Code, certain of the services with respect to the
Communities are provided through independent contractors.

The focus of the Company's on-site management program is on providing
prompt, courteous and responsive service to its residents. The Company believes
that a strong resident retention program which emphasizes customer service
reduces the Company's turnover rate and encourages residents to refer new
customers. The Company solicits ongoing resident feedback, responds to
maintenance requests on a same day basis and provides 24 hour a day emergency
services.

The Company conducts an annual capital and preventative maintenance program
at each Community. In addition, periodic preventive maintenance checks are made
in each apartment, pursuant to which appliances, heating and cooling systems and
apartment interiors are inspected and serviced as necessary. The Company
believes that these programs lower operating costs over the life of the
communities, increase the long-term value and maintain the upscale market
position of the Communities.

The Company has operated successfully in its markets by emphasizing customer
service and using sophisticated marketing techniques. The size of the Company,
its management experience and its regional concentration allows it to develop
and use specialized marketing resources. One example is the Company's marketing
program which includes special marketing agreements with over 400 companies in
Arizona.

THE COMPANY'S MARKETS

The Company's primary markets are the greater Phoenix and Tucson, Arizona
metropolitan areas. In addition to expanding its operations in Arizona, the
Company intends to establish a strong regional presence in selected sub-markets
in Southern California that the Company believes present attractive investment
opportunities. See "-- Expansion into San Diego and Riverside/San Bernardino"
below.

As a result of the Company's regional focus, substantially all of the
Communities are located in various sub-markets in the Phoenix and Tucson area
and one is located in the Riverside/San Bernardino region of Southern
California. The Company's performance could be adversely affected by economic
conditions in, and other factors relating to, these geographic areas, including
supply and demand for apartments in these areas, zoning or other regulatory
conditions and competition from other available apartments and alternative forms
of housing. These and other factors or a decline in the economy or real estate
values in the Company's markets may adversely affect the ability of the Company
to make distributions to its shareholders.

The Company expects to enter one additional market, San Diego, and expand in
Riverside/San Bernardino, in the near term. The performance of the Company's
properties in these markets may be linked to economic conditions in these
regions and in the market for apartments therein. There can be no assurance that
the Company will be successful in penetrating its targeted Southern California
markets in light of the competition that the Company will encounter in such
markets or that the Company's investments in these new markets will generate the
same returns as similar investments in the Phoenix and Tucson areas.

PHOENIX AND TUCSON ECONOMIC AND DEMOGRAPHIC OVERVIEW

EMPLOYMENT GROWTH. During the last 15 years, Phoenix and Tucson have
significantly outperformed the United States in terms of employment growth.
Between 1981 and 1995, employment grew 4.6% per year in Phoenix and 3.3% per
year in Tucson, which compared to the United States at 1.8%. During the last
five years, between 1991 and 1995, annual employment growth averaged 4.4% in
Phoenix and 4.0% in Tucson, well ahead of the average United States growth rate
during the same period of 1.5%. 1995 employment growth in Phoenix and Tucson was
5.4% and 4.4%, respectively.

POPULATION GROWTH. Phoenix and Tucson have also outperformed the United
States in terms of population growth. Between 1981 and 1995, the population of
Phoenix grew an average of 3.9% per year to 2.4 million and Tucson's population
grew 2.7% per year to 756,000. During the same period, the United States
population increased 1.0% per year. The average annual population growth from
1991 to 1995 in

33
<PAGE>
Phoenix and Tucson was 2.3% and 2.4% respectively, while the population of the
United States increased by 0.9% per year. 1995 population growth was 2.7% in
Phoenix and 2.8% in Tucson, which outpaced the United States at 1.1%.

MULTIFAMILY APARTMENT MARKET IN PHOENIX AND TUCSON

The low level of apartment development activity and increasing demand in
both Phoenix and Tucson have resulted in continued low vacancy levels in both
cities. The 1995 physical vacancy rate in the Company's two Arizona markets was
4.5% in Phoenix and 7.7% in Tucson.

As the following charts illustrate, apartment construction in Arizona is at
a modest level with 7,700 permits in Phoenix and 2,800 permits in Tucson in
1995. For comparison, apartment construction activity averaged 13,700 units per
year in Phoenix and 4,300 units per year in Tucson in the 1980s. With continued
job and population growth and moderate new apartment supply, the Company
believes that these two rental markets will be stable with occupancies moving
within a narrow range.

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
PHOENIX BUILDING PERMITS
<S> <C>
1993 1,800
1994 6,000
1995 7,700
1996 (est.) 7,250
</TABLE>

SOURCE: Phoenix Housing Study, Arizona State University Real Estate Center; 1996
Company (Estimate)

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
TUCSON BUILDING PERMITS
<S> <C>
1993 700
1994 2,600
1995 2,800
1996 (est.) 500
</TABLE>

SOURCE: Metro Tucson Land Use Study, University of Arizona; 1996 Company
(Estimate)

EXPANSION INTO SAN DIEGO AND RIVERSIDE/SAN BERNARDINO

OVERVIEW. The Company is expanding its operations into San Diego and
Riverside/San Bernardino while continuing to grow within Arizona. The Company's
geographic growth goal is to establish a major market presence in each of its
metropolitan areas, rather than entering additional markets for portfolio
diversification alone. Consistent with that goal, the Company has carefully
analyzed the real estate investment potential of a number of major Western
metropolitan areas and has selected these two California markets.

34
<PAGE>
POTENTIAL BENEFITS OF GEOGRAPHIC EXPANSION. The Company believes that
selective geographic expansion with the intent of establishing a significant
market presence in each market it enters presents a number of advantages, as
summarized below.

- BROADER GROWTH OPPORTUNITIES. The Company intends to enter only those
additional markets that provide significant growth opportunities.
Operating in these nearby markets would allow the Company to allocate its
resources efficiently to those specific markets that presented the
greatest opportunities at any given time.

- MANAGEMENT SYSTEMS. The Company's strong management team has given the
Company potential for significant growth. The Company has excellent
management and marketing systems which it believes have allowed it to
achieve high quality and value throughout its operations and can be
duplicated in other markets. The Company's expertise give it a
significant advantage in successfully entering other markets,
particularly those that are fragmented and do not have a leading
apartment company that provides a differentiated product.

- DIVERSIFICATION. Although the markets that the Company is evaluating are
all in relatively close proximity within the Western United States,
expansion beyond Arizona provides diversification relative to the Arizona
market and economy.

CRITERIA FOR EXAMINING NEW MARKETS. When evaluating potential markets for
expansion, the Company considered, among other things, the following factors:

- MARKET SIZE. The Company believes that expansion markets need to be large
enough to provide economic diversity and to allow the Company to build a
large apartment portfolio.

- ACCESSIBILITY. The Company intends to maintain a centralized corporate
structure rather than a regional subsidiary structure, allowing it to
centralize control and communication, asset allocation, maintenance of
the brand image, human resource allocation and standardized operating
procedures. Therefore it seeks expansion markets that are easily
accessible from the Company's Scottsdale, Arizona headquarters.

- STRONG GROWTH CHARACTERISTICS. The Company's expansion markets must have
near-term and long-term growth potential and economic stability.

- FRAGMENTED COMPETITION. The Company believes it has successfully
differentiated its product from those of its competitors in Phoenix and
Tucson. Therefore, the Company seeks markets where the competition is
fragmented, allowing it to replicate such product differentiation.

EXPANSION INTO RIVERSIDE/SAN BERNARDINO AND SAN DIEGO MARKETS. Because
acquisitions at prices below replacement cost are available in these target
markets, the Company's initial growth in these markets will occur through
property acquisitions. The Company plans no development and construction of
properties in these markets in the near term, except for the potential expansion
of existing properties. The Company anticipates that it will begin building in
these markets at such time after economic occupancy and rent levels have risen
to justify new construction.

Management believes that neither San Diego nor the Riverside/San Bernardino
region is currently served by a dominant multifamily apartment owner, developer
or manager. The Company expects to utilize its experience and capabilities to
pursue real estate opportunities and to establish a significant market presence
in these markets.

RIVERSIDE/SAN BERNARDINO AND SAN DIEGO ECONOMIC AND DEMOGRAPHIC OVERVIEW

EMPLOYMENT GROWTH. For the 15-year period between 1981 and 1995, employment
grew 4.6% per year in Riverside/San Bernardino and 3.2% per year in San Diego,
which compared to the United States at 1.8% per year. During the last five
years, between 1991 and 1995, employment growth slowed to an average of 1.1% per
year in Riverside/San Bernardino and 0.1% per year in San Diego, which was below
the United States growth rate of 1.5% per year. During 1995, employment growth
recovered in Riverside/San Bernardino and San Diego to 3.3% and 2.1%,
respectively.

35
<PAGE>
POPULATION GROWTH. During the last 15 years, Riverside/San Bernardino and
San Diego have outperformed the United States in terms of population growth.
Between 1981 and 1995, the population of Riverside/San Bernardino grew an
average of 6.2% per year to 3.09 million and the population of San Diego grew
3.3% per year to 2.8 million. During the same period, the population of the
United States increased 1.0% per year. Population growth in both markets slowed
in the early 1990's, but growth accelerated in 1995. The average annual growth
in population from 1991 to 1995 in Riverside/San Bernardino and San Diego was
2.9% and 1.7%, respectively, which compared to the United States at 0.9% per
year. 1995 population growth was 2.7% in Riverside/San Bernardino and 1.7% in
San Diego, which outpaced the United States at 1.1%.

MULTIFAMILY MARKET IN RIVERSIDE/SAN BERNARDINO AND SAN DIEGO

After a four-year period with relatively high vacancy rates, apartment
occupancy has been improving in Riverside/San Bernardino and San Diego. In 1995,
Riverside/San Bernardino and San Diego experienced physical vacancy rates of
approximately 8.4% and 6.9%, respectively.

As the following charts illustrate, apartment construction is at very low
levels with only 300 permits in Riverside/San Bernardino and 1,900 permits in
San Diego in 1995. For comparison, apartment construction averaged 10,500 units
per year in Riverside/San Bernardino and 13,700 units per year in San Diego
during the 1980s. With recovering job and population growth and very low new
apartment production levels, the Company believes that these two rental markets
will continue to improve.

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
RIVERSIDE/SAN BERNARDINO BUILDING PERMIT ACTIVITY
<S> <C>
1993 700
1994 700
1995 300
1996 (est.) 300
</TABLE>

SOURCE: Real Data; 1996 Company (estimate)

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
SAN DIEGO BUILDING PERMIT ACTIVITY
<S> <C>
1993 1,500
1994 1,700
1995 1,900
1996 (est.) 800
</TABLE>

SOURCE: Real Data; 1996 Company (estimate)

Certain information in this "Company's Markets" section is forward-looking
and involves risks and uncertainties. Specifically, the Company has set forth
certain estimates with respect to employment and

36
<PAGE>
population growth in its markets that is inherently uncertain and subject to
numerous factors beyond the Company's control including the strength of the
local economies and the general business environment. The actual results may
vary materially from these estimates. The inclusion of estimates herein should
not be regarded as a representation by the Company, by the Underwriters or any
other person that those estimates will be achieved.

COMMUNITIES

The Company's goal is for each Community to be a market leader in its
property type and geographical sub-market. Each Community is individually
designed to suit the specific site characteristics and anticipated needs and
desires of the residents. The design and construction of the Communities attempt
to integrate with and respect the natural surroundings and architectural
character of the neighborhood. The Communities are landscaped to create an
inviting atmosphere starting with the first approach to the properties.
Landscaping is designed to complement the building architecture, and provide
residents with attractive open spaces. The objectives of the site layout and
building design are to provide residents with premium views, convenient parking,
easy access to amenities and a comfortable living environment. After completion
of the Communities Under Construction, the average age of the Communities will
be six years.

37
<PAGE>
STABILIZED COMMUNITIES

The following sets forth certain information regarding the current
stabilized communities. All of the communities are owned 100% in fee by the
Company. For a description of liens on certain of the communities listed below,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations."

<TABLE>
<CAPTION>
AVERAGE AVERAGE PHYSICAL
YEAR UNIT PHYSICAL OCCUPANCY
DEVELOPED SIZE OCCUPANCY AS OF
NUMBER OF DEVELOPED/ OR (SQUARE DURING MARCH 31,
STABILIZED COMMUNITIES CITY APARTMENTS ACQUIRED ACQUIRED FEET) 1995 (1) 1996 (1)
- ----------------------------------- ---------- ---------- ----------- ---------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
PHOENIX:
Acacia Creek (2)................... Scottsdale 508 Acquired 1995 910 95% 98%
Bayside at the Islands............. Gilbert 272 Developed 1988 870 96% 96%
Country Brook (3).................. Chandler 276 Acq/Dev 1991/1993 961 98% 94%
Deer Creek Village................. Phoenix 308 Acquired 1991 819 97% 100%
Gateway Villas..................... Phoenix 180 Developed 1995 998 94% 98%
Greenwood Village.................. Tempe 270 Acquired 1993 884 97% 96%
Heritage Point..................... Mesa 148 Acquired 1994 773 97% 98%
La Mariposa........................ Mesa 222 Acquired 1990 928 97% 95%
La Valencia........................ Mesa 361 Acquired 1990 950 96% 93%
Ladera (4)......................... Phoenix 248 Developed 1996 1,012 (4) 96%
Little Cottonwoods................. Tempe 379 Acq/Acq/Dev 1989/89/90 1,023 96% 92%
Los Arboles (5).................... Chandler 232 Developed 1985 851 96% 93%
Miramonte.......................... Scottsdale 151 Developed 1983 782 97% 98%
Morningside........................ Scottsdale 160 Acquired 1992 1,019 93% 94%
Mountain Park Ranch................ Phoenix 240 Developed 1995 961 97% 95%
Park Meadow (3).................... Gilbert 156 Acquired 1992 880 96% 100%
Preserve at Squaw Peak............. Phoenix 108 Acquired 1991 952 97% 96%
Promontory Pointe (3).............. Phoenix 304 Acquired 1988 986 95% 97%
Rancho Murietta (6)................ Tempe 292 Acquired 1995 866 97% 100%
Scottsdale Courtyards.............. Scottsdale 274 Developed 1993 1,044 94% 99%
Scottsdale Meadows................. Scottsdale 168 Developed 1984 888 95% 98%
Shadow Brook....................... Phoenix 224 Acquired 1993 1,010 96% 98%
Shores at Andersen Springs......... Chandler 299 Developed 1989/1993 889 98% 98%
Silver Creek....................... Phoenix 174 Acquired 1991 775 97% 99%
Sonoran............................ Phoenix 429 Developed 1995 965 95% 93%
Sun Creek.......................... Glendale 175 Acquired 1993 762 97% 93%
Superstition Vista (7)............. Mesa 316 Acquired 1995 950 97% 97%
The Enclave........................ Tempe 204 Developed 1995 952 97% 94%
The Heritage....................... Phoenix 204 Developed 1995 973 96% 92%
The Ingleside (4).................. Phoenix 120 Developed 1995 987 (4) 100%
The Meadows........................ Mesa 306 Acquired 1987 809 97% 94%
The Palms.......................... Phoenix 132 Developed 1990 1,026 97% 98%
The Pines.......................... Mesa 194 Acquired 1992 887 97% 95%
Towne Square (3)................... Chandler 468 Acq/Dev 1992/1995 960 96% 97%
Villa Encanto...................... Phoenix 382 Developed 1983 810 96% 99%
Village at Lakewood................ Phoenix 240 Developed 1988 857 97% 97%
----------
9,124
</TABLE>

38
<PAGE>

- ------------------------
(1) Physical occupancy is defined as apartments occupied or leased (including
models and employee apartments) divided by the total number of leasable
apartments within the Community, expressed as a percentage.

(2) Property was acquired in March 1995.

(3) Another phase of this community is currently under development. See
"Communities Under Construction" below.

(4) Property achieved stabilized occupancy in 1996.

(5) The Company owns approximately a 10% interest in the joint venture that owns
Los Arboles II, as well as two promissory notes with an outstanding balance
of approximately $703,403, secured by subordinated liens on such property.
Los Arboles II contains 200 apartments, was developed in 1987, has an
average unit size of 843 square feet and had average physical occupancy
during 1995 of 94% and physical occupancy as of March 31, 1996 of 90%.

(6) Property was acquired in February 1995.

(7) Property was acquired in October 1995.

(8) Property was acquired in December 1995.

Of the Stabilized Communities included in the table, 36 are located in the
greater Phoenix area, seven are located in the Tucson area and one is located in
the Riverside/San Bernardino region. All of the Stabilized Communities are
managed and operated by the Company and have an average size of 267 units. The
Stabilized Communities are primarily oriented to upscale residents seeking high
levels of amenities, such as clubhouses, exercise rooms, tennis courts, swimming
pools, therapy pools and covered parking. The apartments average approximately
902 square feet in size and most offer features such as washer/dryers,
fully-equipped kitchens with upgraded cabinets, dishwashers and microwave ovens,
high ceilings, separate dining areas, individual storage, fireplaces, individual
utility metering, spacious patios and balconies, ceramic tile entries and alarm
system prewiring.

In addition, on March 15, 1996, the Company entered into escrow on Canyon
Crest Views Apartments, a 178-unit apartment community located in Riverside,
California for a total purchase price of approximately $12,900,000 in cash. On
March 28, 1996 the Company entered into an agreement to purchase Vineyard
Village apartments, a 164-unit apartment community in Rancho Cucamonga,
California, for a total purchase

39
<PAGE>
price of approximately $7.1 million in cash. Consummation of the agreements
remains subject to a number of conditions. Additionally, the Company is actively
pursuing and in preliminary negotiations regarding additional properties in
Riverside/San Bernardino and San Diego.

COMMUNITIES UNDER CONSTRUCTION.

The Company's current construction activity is summarized below:

<TABLE>
<CAPTION>
ESTIMATED ACTUAL OR ACTUAL OR PERCENTAGE OF
NUMBER CONSTRUCTION QUARTER OF ESTIMATED ESTIMATED UNITS LEASED
OF COST CONSTRUCTION COMMENCEMENT STABILIZED AS OF MARCH
METROPOLITAN AREA UNITS (IN MILLIONS) COMMENCEMENT OF LEASE-UP OCCUPANCY 31, 1996
- ---------------------------------------- ------ ------------- ------------ ------------ --------- -------------
QUARTER
---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PHOENIX, AZ
Mirador................................. 316 $ 23 4Q'94 3Q'95 3Q'96 72%
Towne Square III Expansion.............. 116 7 3Q'95 1Q'96 4Q'96 33%
The Hawthorne........................... 276 17 4Q'95 3Q'96 3Q'97 --
Country Brook III Expansion............. 120 8 4Q'95 3Q'96 1Q'97 --
Promontory Pointe II Expansion.......... 120 8 4Q'95 3Q'96 2Q'97 --
Park Meadow II Expansion................ 68 4 4Q'95 2Q'96 4Q'96 --

TUCSON, AZ
Bear Canyon............................. 238 15 3Q'95 2Q'96 2Q'97 8%
Orange Grove II Expansion............... 144 8 2Q'95 3Q'95 3Q'96 78%
Harrison Park II Expansion.............. 188 10 3Q'95 2Q'96 2Q'97 22%
------ -----
TOTAL................................. 1,586 $100
------ -----
------ -----
</TABLE>

The information set forth in the table above is forward looking and involves
various risks and uncertainties. Such information is based upon a number of
estimates and assumptions that, are inherently subject to business, economic and
competitive uncertainties and contingencies, many of which are beyond the
Company's control. While all apartment communities previously constructed by the
Company have been constructed on schedule and within budget, the actual
development cost, completion date and stabilization date of any project will be
dependent upon a variety of factors beyond the control of the Company including,
for example, labor and other personnel costs, material costs, weather
conditions, government fees and leasing rate. The inclusion of estimates herein
should not be regarded as a representation by the Company, the Underwriters, the
Selling Stockholders or any other person that the estimates will be achieved.

Additionally, the Company owns, or has the rights to acquire, sites intended
for the development of four additional multifamily apartment communities, which,
if completed, are expected to contain approximately 1,720 apartments. There can
be no assurance that, the Company will succeed in obtaining any necessary
governmental approvals in connection with the sites that it has rights to
acquire or any financing required to develop these projects, or that the Company
will decide to develop any particular project.

40
<PAGE>
SUMMARY OF FEATURES AND AMENITIES OF THE COMMUNITIES

The following tables list certain features and amenities of the Communities:

<TABLE>
<CAPTION>
APPROXIMATE
METROPOLITAN RENTABLE
AREA/ NUMBER OF AREA DEVELOPED/ YEAR
COMMUNITY AND LOCATION SUB-MARKET OWNERSHIP (1) APARTMENTS (SQ. FT.) ACQUIRED CONSTRUCTED
- ----------------------------------- ------------ ------------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
STABILIZED COMMUNITIES:
PHOENIX:
Acacia Creek..................... Scottsdale 100% 508 462,084 Acquired 1987/90/92/94
Bayside at the Islands........... Gilbert 100% 272 236,640 Developed 1988
Country Brook.................... Chandler 100% 276 265,228 Acq/Dev 1986/1993
Deer Creek Village............... Phoenix 100% 308 252,132 Acquired 1987
Gateway Villas................... Phoenix 100% 180 179,376 Developed 1995
Greenwood Village................ Tempe 100% 270 238,680 Acquired 1984
Heritage Point................... Mesa 100% 148 114,436 Acquired 1986
La Mariposa...................... Mesa 100% 222 206,052 Acquired 1986
La Valencia...................... Mesa 100% 361 342,946 Acquired 1986
Ladera........................... Phoenix 100% 248 251,128 Developed 1995
Little Cottonwoods............... Tempe 100% 379 388,852 Acq/Acq/Dev 1984/86/90
Los Arboles I (3)................ Chandler 100% 232 197,352 Developed 1985
Miramonte........................ Scottsdale 100% 151 118,018 Developed 1983
Morningside...................... Scottsdale 100% 160 163,116 Acquired 1989
Mountain Park Ranch.............. Phoenix 100% 240 230,560 Developed 1995
Park Meadow...................... Gilbert 100% 156 137,280 Acquired 1986
Preserve at Squaw Peak........... Phoenix 100% 108 102,768 Acquired 1990
Promontory Pointe................ Phoenix 100% 304 299,782 Acquired 1984
Rancho Murietta.................. Tempe 100% 292 258,712 Acquired 1983
Scottsdale Courtyards............ Scottsdale 100% 274 286,052 Developed 1993
Scottsdale Meadows............... Scottsdale 100% 168 149,200 Developed 1984
Shadow Brook..................... Phoenix 100% 224 226,296 Acquired 1984
Shores at Andersen Springs....... Chandler 100% 299 265,768 Developed 1989/1993
Silver Creek..................... Phoenix 100% 174 134,820 Acquired 1984
Sonoran.......................... Phoenix 100% 429 413,276 Developed 1995
Sun Creek........................ Glendale 100% 175 133,409 Acquired 1985
Superstition Vista............... Mesa 100% 316 300,164 Acquired 1987
The Enclave...................... Tempe 100% 204 193,920 Developed 1995
The Heritage..................... Phoenix 100% 204 200,164 Developed 1995
The Ingleside.................... Phoenix 100% 120 118,386 Developed 1995
The Meadows...................... Mesa 100% 306 247,438 Acquired 1984
The Palms........................ Phoenix 100% 132 135,460 Developed 1990
The Pines........................ Mesa 100% 194 172,078 Acquired 1984
Towne Square..................... Chandler 100% 468 425,392 Acq/Dev 1987/1995
Villa Encanto.................... Phoenix 100% 382 309,422 Developed 1983
Village at Lakewood.............. Phoenix 100% 240 205,584 Developed 1988

MONTHLY RENTAL
PHYSICAL OCCUPANCY AT RATES AT 3/31/96
------------------------------ ----------------

AVERAGE
UNIT SIZE $ PER $ PER
COMMUNITY AND LOCATION 1 BR 2 BR 3 BR (SQ. FT.) 12/31/93 12/31/94 12/31/95 UNIT SQ. FT
- ----------------------------------- ----- ----- ---- --------- -------- -------- -------- ------ -------
(2) (2)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STABILIZED COMMUNITIES:
PHOENIX:
Acacia Creek..................... 145 286 77 910 -- -- 98% $738 .81
Bayside at the Islands........... 96 144 32 870 100% 99% 99 714 .82
Country Brook.................... 89 151 36 961 94 98 97 731 .76
Deer Creek Village............... 184 124 -- 819 99 99 94 545 .67
Gateway Villas................... 52 96 32 998 -- -- 94 812 .81
Greenwood Village................ 64 206 -- 884 96 96 99 644 .73
Heritage Point................... 64 84 -- 773 -- -- 100 567 .73
La Mariposa...................... 74 148 -- 928 96 97 97 638 .69
La Valencia...................... 105 208 48 950 96 93 99 664 .70
Ladera........................... 72 128 48 1,013 -- -- -- 832 .82
Little Cottonwoods............... 51 292 36 1,023 98 96 96 765 .75
Los Arboles I (3)................ 74 132 26 851 98 99 97 648 .76
Miramonte........................ 89 62 -- 782 99 99 98 624 .80
Morningside...................... 32 92 36 1,019 100 100 98 786 .77
Mountain Park Ranch.............. 72 118 50 961 -- -- 95 789 .82
Park Meadow...................... -- 156 -- 880 96 97 91 625 .71
Preserve at Squaw Peak........... 32 76 -- 952 98 99 96 807 .85
Promontory Pointe................ 114 190 -- 986 98 99 96 741 .75
Rancho Murietta.................. 128 144 20 866 -- -- 99 649 .73
Scottsdale Courtyards............ 64 149 61 1,044 100 99 100 877 .84
Scottsdale Meadows............... 72 72 24 888 100 99 93 721 .81
Shadow Brook..................... 70 154 -- 1,010 100 98 98 826 .82
Shores at Andersen Springs....... 102 155 42 889 97 94 97 749 .84
Silver Creek..................... 80 94 -- 775 100 100 98 570 .74
Sonoran.......................... 120 226 83 965 -- -- 95 761 .79
Sun Creek........................ 79 96 -- 762 86 99 99 587 .77
Superstition Vista............... 40 276 -- 950 -- -- 96 611 .64
The Enclave...................... 64 104 36 952 -- -- 100 816 .86
The Heritage..................... 68 104 32 973 -- -- 97 785 .80
The Ingleside.................... 36 60 24 987 -- -- -- 846 .86
The Meadows...................... 136 170 -- 809 97 98 95 540 .67
The Palms........................ 30 87 15 1,026 100 100 98 899 .88
The Pines........................ -- 194 -- 887 96 97 95 608 .69
Towne Square..................... 140 256 72 960 99(5) 97(5) 96 669 .74
Villa Encanto.................... 178 180 24 810 99 97 97 596 .74
Village at Lakewood.............. 92 120 28 857 98 100 92 742 .87
</TABLE>

41
<PAGE>

<TABLE>
<CAPTION>
APPROXIMATE YEAR
METROPOLITAN RENTABLE CONSTRUCTED
COMMUNITY AND AREA/ OWNERSHIP NUMBER OF AREA DEVELOPED/ OR TO BE
LOCATION SUB-MARKET (1) APARTMENTS (SQ. FT.) ACQUIRED CONSTRUCTED
- -------------------- ------------ ------------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
TUCSON:
Harrison Park..... Tucson 100% 172 139,091 Acquired 1985
The Legends....... Tucson 100% 312 324,808 Developed 1995
La Reserve........ Oro Valley 100% 240 216,008 Developed 1988
Orange Grove
Village.......... Tucson 100% 256 182,880 Acquired 1986
Suntree Village... Oro Valley 100% 424 352,248 Acquired 1984
The Arboretum..... Tucson 100% 496 402,464 Acq/Dev 1987/95
Village at Tanque
Verde............ Tucson 100% 217 175,380 Acq/Dev 1984/94
RIVERSIDE/SAN
BERNARDINO:
The Ashton........ Corona Hills 100% 492 418,284 Acquired 1986
---------- -----------
TOTAL............... 11,733 10,573,134
---------- -----------
---------- -----------
Weighted Averages
and Percentages for
Stabilized
Communities........ 267 240,299 1988
COMMUNITIES UNDER
CONSTRUCTION: --
Bear Canyon....... Tucson 100% 238 231,640 Developed 1995/96
Country Brook III
Expansion........ Chandler 100% 120 130,672 Developed 1995/96
Harrison Park II
Expansion........ Tucson 100% 188 183,253 Developed 1995/96
Mirador........... Phoenix 100% 316 319,776 Developed 1995/96
Orange Grove II
Expansion........ Tucson 100% 144 145,048 Developed 1995/96
Park Meadow II
Expansion........ Gilbert 100% 68 61,640 Developed 1995/96
Promontory Pointe
II Expansion..... Phoenix 100% 120 121,608 Developed 1995/96
The Hawthorne..... Phoenix 100% 276 249,484 Developed 1995/96
Towne Square III
Expansion........ Chandler 100% 116 110,548 Developed 1995/96
---------- -----------
TOTAL............... 1,586 1,553,669
---------- -----------
---------- -----------
Weighted Averages
and Percentages for
Communities Under
Construction....... 176 172,630 1995/96
Weighted Averages
and Percentages for
Communities........ 251 228,808 1989

MONTHLY
RENTAL
RATES AT
PHYSICAL OCCUPANCY AT 3/31/96
-------------------------------- -------------
ESTIMATED
ESTIMATED AVERAGE
AVERAGE MONTHLY
MONTHLY BASE RENT
AVERAGE BASE RENT PER
COMMUNITY AND UNIT SIZE $ PER $ PER PER SQUARE
LOCATION 1 BR 2 BR 3 BR (SQ. FT.) 12/31/93 12/31/94 12/31/95 UNIT SQ. FT APARTMENT FOOT
- -------------------- ----- ----- ----- --------- -------- -------- -------- ----- ------- --------- ---------
(2) (2) (2)(4) (2)(4)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TUCSON:
Harrison Park..... 64 108 -- 809 100% 97% 94% $563 .70
The Legends....... 72 152 88 1,041 -- -- -- 790 .76
La Reserve........ 64 148 28 900 99 96 88 672 .75
Orange Grove
Village.......... 160 96 -- 714 99 97 93 473 .66
Suntree Village... 192 231 1 831 100 98 94 544 .65
The Arboretum..... 288 160 48 886 98(5) 94(5) 97 586 .72
Village at Tanque
Verde............ 97 100 20 694 96(5) 97 100 578 .72
RIVERSIDE/SAN
BERNARDINO:
The Ashton........ 176 292 24 850 -- -- 97 $623 $.73

TOTAL...............

Weighted Averages
and Percentages for
Stabilized
Communities........ 34.3% 56.4% 9.3% 902 97% 97% 97% $682 $.76
COMMUNITIES UNDER
CONSTRUCTION:
Bear Canyon....... 72 118 48 973 -- -- -- -- -- $732 .75
Country Brook III
Expansion........ 32 44 44 1,089 -- -- -- -- -- 799 .73
Harrison Park II
Expansion........ 24 100 64 974 -- -- -- -- -- 719 .74
Mirador........... 92 160 64 1,012 -- -- -- -- -- 848 .84
Orange Grove II
Expansion........ -- 92 52 1,007 -- -- -- -- -- 711 .71
Park Meadow II
Expansion........ 40 -- 28 906 -- -- -- -- -- 725 .80
Promontory Pointe
II Expansion..... 36 60 24 1,013 -- -- -- -- -- 847 .84
The Hawthorne..... 112 140 24 904 -- -- -- -- -- 757 .84
Towne Square III
Expansion........ 32 72 12 953 -- -- -- -- -- 734 .77

TOTAL............... 440 786 360 -- -- -- -- -- --

Weighted Averages
and Percentages for
Communities Under
Construction....... 27.7% 49.6% 22.7% 980 $770 $.79

Weighted Averages
and Percentages for
Communities........ 33.5% 55.6% 10.9% 910 $692 $.76

</TABLE>

- ----------------------------------
(1) The Company holds fee simple title to each of the Communities.

(2) Base rent excludes miscellaneous charges such as late payments, application
and redecorating fees and deposit forfeitures which average approximately
$20 per month per apartment.

(3) The Company owns approximately a 10% interest in the joint venture that owns
Los Arboles II, as well as two promissory notes with an outstanding balance
of approximately $703,403 secured by subordinated liens on such property.
Los Arboles II contains 200 apartments, was developed in 1987, has an
average unit size of 843 square feet and had average physical occupancy
during 1995 of 94% and physical occupancy as of December 31, 1995 of 97%.

(4) Base rent excludes miscellaneous income derived from optional amenities such
as fireplaces and views which average approximately $15 per month per
apartment.

(5) Excludes Phase II of indicated Community.

42
<PAGE>
EVANS WITHYCOMBE RESIDENTIAL, INC.
COMMUNITY AMENITIES

<TABLE>
<CAPTION>
COMMUNITY/APARTMENT RECREATIONAL AMENITIES
PATIO AMENITIES -------------------------------
OR ------------------------ COVERED FITNESS
BALCONY WASHER/DRYER FIREPLACE PARKING CLUBHOUSE CENTER POOL SPA
------- ------------ --------- ------- --------- ------- ---- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STABILIZED COMMUNITIES:
PHOENIX:
Acacia Creek.......................... All All 22% All Yes Yes 6 2
Bayside at the Islands................ All All 15% All Yes Yes 2 1
Country Brook......................... All All 37% All Yes Yes 2 1
Deer Creek Village.................... All All 25% All Yes Yes 2 2
Gateway Villas........................ All All All All Yes Yes 1 1
Greenwood Village..................... All All None All Yes Yes 2 2
Heritage Point........................ All All None All Yes Yes 1 1
La Mariposa........................... All All 50% All Yes Yes 2 2
La Valencia........................... All All 50% All Yes Yes 3 3
Ladera................................ All All 30% All Yes Yes 2 1
Little Cottonwoods.................... All All 35% All Yes Yes 3 3
Los Arboles I......................... All All 17% All Yes Yes 2 1
Miramonte............................. All All 24% All No Yes 1 1
Morningside........................... All All All All Yes Yes 1 1
Mountain Park Ranch................... All All 30% All Yes Yes 2 1
Park Meadow........................... All All None All Yes Yes 2 1
Preserve at Squaw Peak................ All All 50% All Yes No 1 2
Promontory Pointe..................... All All None All Yes Yes 3 3
Rancho Murietta....................... All All 3% All Yes Yes 1 1
Scottsdale Courtyards................. All All All All Yes Yes 2 2
Scottsdale Meadows.................... All All 24% All Yes No 2 2
Shadow Brook.......................... All All All All Yes Yes 2 2
Shores at Andersen Springs............ All All 18% All Yes Yes 3 1
Silver Creek.......................... All All None All Yes No 2 2
Sonoran............................... All All 30% All Yes Yes 2 1
Sun Creek............................. All None None All Yes No 2 2
Superstition Vista.................... All All All All Yes Yes 2 2
The Enclave........................... All All 30% All Yes Yes 2 1
The Heritage.......................... All All 30% All Yes Yes 1 1
The Ingleside......................... All All 30% All Yes Yes 1 1
The Meadows........................... All 8% None All Yes No 2 2
The Palms............................. All All All All Yes Yes 2 1
The Pines............................. All All None All Yes Yes 2 2
Towne Square.......................... All All 43% All Yes Yes 3 4
Villa Encanto......................... All 50% 16% All Yes Yes 4 2
Village at Lakewood................... All All 15% All Yes Yes 2 2
TUCSON:
Harrison Park......................... All All 26% All Yes Yes 1 2
La Reserve............................ All All 31% All Yes Yes 2 1
Orange Grove Village.................. All None All All Yes Yes 2 2
Suntree Village....................... All All 45% All Yes Yes 6 1
The Arboretum......................... All 29% 18% All Yes Yes 2 2
The Legends........................... All All All All Yes Yes 2 1
Village at Tanque Verde............... All 40% 17% All Yes Yes 2 2
RIVERSIDE/SAN BERNARDINO:
The Ashton............................ All All None All Yes Yes 3 2
</TABLE>

43
<PAGE>

COMPETITION

The Communities are located in areas that include other apartment
communities and that may include new apartment communities that are under
construction. The number of competitive communities in a particular area could
have an effect on the Company's ability to lease apartments at the Communities
or at any newly developed or acquired properties and on the rents charged by the
Company. Also, other forms of housing provide alternatives to potential
residents of high quality apartment complexes like the Communities.

ENVIRONMENTAL MATTERS

Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real estate may be
required to investigate and clean up hazardous or toxic substances or petroleum
product releases at such property, and may be held liable to a governmental
entity or to third parties for property damage and for investigation and
clean-up costs incurred by such parties in connection with the contamination.

The Company believes that the Communities are in compliance in all material
respects with all federal, state and local laws, ordinances and regulations
regarding hazardous or toxic substances or petroleum products. The Company has
not been notified by any governmental authority, and is not otherwise aware, of
any material noncompliance, liability or claim relating to hazardous or toxic
substances or petroleum products in connection with any of its properties.

EMPLOYEES

As of April 30, 1996, the Company, primarily through the Management Company,
employed, in the aggregate, a total of 507 persons. The Management Company
and/or the Operating Partnership employ substantially all of the professional
employees that are currently engaged in the residential property management,
development and construction businesses of the Company. The Company believes
that its relations with its employees are good.

REGULATION

Apartment communities are subject to various laws, ordinances and
regulations, including laws, ordinances and regulations related to fair housing,
Americans with disabilities and building safety. The Company believes that each
Community has the necessary permits and approvals to operate its business and
that each Community is in material compliance with present laws, ordinances and
regulations.

LEGAL PROCEEDINGS

None of the Company, the Operating Partnership, any of the Communities or
Evans Withycombe is presently subject to any material litigation nor, to the
Company's knowledge, is any litigation threatened against the Company, the
Operating Partnership, any of the Communities or Evans Withycombe, other than
routine litigation and administrative proceedings arising in the ordinary course
of business, some of which are expected to be covered by liability insurance and
all of which collectively are not expected to have material adverse effect on
the business, financial condition or results of operations of the Company.

44
<PAGE>
MANAGEMENT

The following table sets forth the names, ages and positions of each of the
Company's executive officers and directors.

<TABLE>
<CAPTION>
NAME AGE POSITIONS AND OFFICES HELD
- ----------------------- --- ------------------------------------------------------------
<S> <C> <C>
Stephen O. Evans 50 Chairman of the Board and Chief Executive Officer
F. Keith Withycombe 51 President, Chief Operating Officer and Director
Richard G. Berry 51 Executive Vice President and Director
Paul R. Fannin 39 Senior Vice President and Chief Financial Officer
Jay E. Northrop 50 Senior Vice President -- Property Management
G. Edward O'Clair 52 Senior Vice President -- Construction
David L. Williams 50 Senior Vice President -- Operations
Reid W. Butler 39 Senior Vice President, General Counsel and Secretary
Joseph F. Azrack 48 Director
G. Peter Bidstrup 65 Director
Joseph W. O'Connor 50 Director
John O. Theobald II 51 Director
</TABLE>

STEPHEN O. EVANS has served as the Chairman of the Board and Chief Executive
Officer of the Company since its formation. Mr. Evans founded the predecessor of
the Company in 1977 and served as Chairman of the Board. From 1973 to 1977, Mr.
Evans was Investment Vice President of W.R. Schulz & Associates, at that time
Arizona's largest apartment development company. He earned his Bachelor of
Science in Business Administration and Masters of Business Administration
degrees from Arizona State University. He also served as an officer in the
United States Air Force for four years.

F. KEITH WITHYCOMBE has served as the President and Chief Operating Officer
and a director of the Company since its formation. Prior to that time, Mr.
Withycombe served as the President of Evans Withycombe, Inc. From 1973 to 1981,
Mr. Withycombe was Vice President and a Managing Partner for W.R. Schulz &
Associates where he was responsible for the development and management of a
large number of apartment projects, in addition to corporate responsibilities.
Mr. Withycombe is a Certified Property Manager. He is a graduate of the United
States Air Force Academy with an Engineering Sciences degree, and earned a
Master of Industrial Engineering degree from Arizona State University. He also
served as an officer in the United States Air Force for six years.

RICHARD G. BERRY has served as the Executive Vice President and a director
of the Company since its formation. Prior to that time, Mr. Berry served as the
Executive Vice President of Evans Withycombe, Inc. since 1992. From 1983 to
1992, Mr. Berry served as Chairman of the Board of Berry and Boyle, a real
estate investment and development management company. Prior to that time, Mr.
Berry served as Executive Vice President of Hutton Real Estate Services and was
responsible for that firm's real estate investment and management activities.
Mr. Berry earned a Bachelor of Architecture degree and a Masters of Business
Administration degree from the University of Michigan. He also served as an
officer of a United States Navy mobile construction battalion for three years.

PAUL R. FANNIN has served as the Senior Vice President and Chief Financial
Officer of the Company since its formation. Prior to that time, Mr. Fannin
served as the Vice President -- Asset Management of Evans Withycombe, Inc. since
1986. From 1983 to 1986, Mr. Fannin served as the Director of Finance of an
Arizona real estate development firm for three years, and was a member of the
tax staff of a public accounting firm for a period of three years. Mr. Fannin is
a Certified Public Accountant licensed in the State of Arizona and holds a
Bachelor of Science degree in Accounting from the University of Arizona and a
Masters of Business Administration degree from Arizona State University.

JAY E. NORTHROP has served as the Senior Vice President -- Property
Management of the Company since its formation. Prior to that time, Mr. Northrop
served as Senior Vice President -- Property Management of Evans Withycombe, Inc.
Mr. Northrop joined Evans Withycombe, Inc. in 1981. Prior to that time, Mr.
Northrop served as a District Manager for W.R. Schultz & Associates, where he
was responsible for the property operations of a large number of apartment
projects. Mr. Northrop holds a Bachelor of Science degree in Business
Administration from Arizona State University.

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<PAGE>
G. EDWARD O'CLAIR has served as the Senior Vice President -- Construction of
the Company since its formation. Prior to that time, Mr. O'Clair served as the
Senior Vice President -- Construction of Evans Withycombe, Inc. Mr. O'Clair has
been involved in the construction management field since 1967. Prior to joining
Evans Withycombe's predecessor in 1978, Mr. O'Clair supervised the construction
of numerous residential and commercial projects for Stanley Development Company
and C.J. Hassett Corporation, both located in Arizona. Mr. O'Clair is a licensed
general contractor in the state of Arizona and holds a Bachelor of Science
degree in Business Administration from Arizona State University.

DAVID L. WILLIAMS has served as Senior Vice President -- Operations of the
Company since January 1996. From 1990 until 1995, Mr. Williams was Executive
Vice President of Equity Residential Properties Trust, a large multi-family
REIT. From 1977 to 1990, Mr. Williams served as Chief Operations Officer for
Geness Health and Wellness Resorts, a multi-family development company.

REID W. BUTLER has served as Senior Vice President and Secretary of the
Company since its formation. Prior to that time, Mr. Butler served as the Senior
Vice President -- Development and Acquisitions of Evans Withycombe, Inc. Prior
to joining Evans Withycombe, Inc. in 1984, Mr. Butler practiced law with Brown &
Bain in Phoenix and with Rogers & Wells in New York City. Mr. Butler holds a
Bachelor of Arts degree in International Relations from Stanford University and
a law degree from the University of Michigan.

JOSEPH F. AZRACK became a director of the Company concurrently with the
closing of the Company's Initial Public Offering in August 1994. Mr. Azrack is
President and Chief Executive Officer of Aldrich, Eastman and Waltch, L.P., a
Boston based real estate investment advisory firm. Mr. Azrack has over 20 years
experience in the real estate investment industry. He is past Chairman of the
Pension Real Estate Association. Mr. Azrack is also a Trustee of the Urban Land
Institute, Chairman of the ULI's Task Force on Real Estate Capital Markets and
is a member of the National Realty Committee. He is also a member of the Taubman
Realty Group, L.P. partnership committee. Mr. Azrack is also a past adjunct
professor of Real Estate Finance at Columbia University's Graduate School of
Business Administration. He is a graduate of Villanova University (B.S.) and
Columbia University (M.B.A.).

G. PETER BIDSTRUP became a director of the Company concurrently with the
closing of the Company's Initial Public Offering in August 1994. Mr. Bidstrup
formed Doubletree, Inc. in 1969 and was Chairman and Chief Executive Officer of
that company and its successor, Met Hotels, Inc., until 1991. Mr. Bidstrup is
now a principal officer and director of Bid-Group, Inc., CDT Investments, Inc.
and GA Investments, Inc. Mr. Bidstrup also is the founder and currently a Board
member of Homeward Bound, a non-profit housing organization. His memberships
include Association for Corporate Growth; Dean's Council of 100, ASU College of
Business; Entrepreneurial Fellow, University of Arizona; Lambda International;
and World President's Organization. Mr. Bidstrup holds a Bachelor of Science
Degree from the United States Military Academy and a Master of Business
Administration Degree from the Harvard Graduate School of Business
Administration.

JOSEPH W. O'CONNOR became a director of the Company concurrently with the
closing of the Company's Initial Public Offering in August 1994. Mr. O'Connor
has been active in real estate since 1970 and has served for 14 years as the
President and Chief Executive Officer of Copley Real Estate Advisors, Inc. Mr.
O'Connor is a graduate of Holy Cross College and earned his Masters of Business
Administration Degree at Harvard Business School. He has lectured extensively
and is affiliated with numerous real estate professional organizations and
community affairs. At the present time, Mr. O'Connor is either a Director or
Trustee of the following entities: The Urban Land Institute; Copley Properties,
Inc.; The New England Aquarium; Harvard Private Capital Group, Inc.; Children's
Hospital; and the MIT Center for Real Estate Development.

JOHN O. THEOBALD II became a director of the Company concurrently with the
closing of the Company's Initial Public Offering in August 1994. Since 1988, Mr.
Theobald has served as Senior Vice President and General Counsel for The Pointe
Group, Ltd., a privately owned real estate company operating in Arizona and
Southern California with activities including residential, office, industrial,
land development, and resort development and management. From 1975 to 1988, Mr.
Theobald was a partner in the law firm of McLoone, Theobald & Galbut,
specializing in real estate and corporate law. His memberships include Boards of
Directors of St. Luke's Charitable Health Trust, Herrington Arthritis Research
Center; and The Arizona Historical Foundation. Mr. Theobald holds an AB Degree
from Princeton University and a law degree from the University of Arizona.

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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth the beneficial ownership of Common Shares and
Units as of April 30, 1996, and as adjusted to reflect consummation of the
Offering, for (i) each person who is known to the Company to beneficially own
more than a 5% interest in the Company, including the Selling Stockholders, (ii)
each director and the Chief Executive Officer and each of the other four most
highly compensated executive officers of the Company during 1995 and (iii) the
directors and executive officers of the Company as a group. Unless otherwise
indicated in the footnotes, all of such interests are owned directly, and the
indicated person or entity has sole voting and investment power, subject to
community property laws where applicable.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING AFTER OFFERING
------------------------------ NUMBER OF -----------------------------
PERCENT OF COMMON SHARES PERCENT OF COMMON PERCENT OF EQUITY
NAME AND ADDRESS OF SHARES BEING SHARES INTEREST AFTER
BENEFICIAL OWNER(1) NUMBER OUTSTANDING(2) OFFERED NUMBER OUTSTANDING(2) OFFERING(2)
- ------------------------------- ----------- ----------------- ---------- ---------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Stephen O. Evans (3)........... 183,502 1.1% -- 183,502 1.0% 8.7%
F. Keith Withycombe (4)........ 154,152 * -- 154,152 * 7.9%
Richard G. Berry (5)........... 18,370 * -- 18,370 * *
G. Edward O'Clair (6).......... 35,453 * -- 35,453 * *
Reid W. Butler (7)............. 35,413 * -- 35,413 * *
Joseph F. Azrack (8)........... 4,319,844 26.7% 1,787,500 2,532,344 13.9% 11.0%
Joseph W. O'Connor (9)......... 1,723,464 10.6% 712,500 1,010,964 5.6% 4.4%
G. Peter Bidstrup (10)......... 25,000 * -- 25,000 * *
John O. Theobald II (10)....... 6,000 * -- 6,000 * *
AEW Partners, L.P.............. 4,314,844 26.7% 1,787,500 2,527,344 13.9% 11.0%
CIIF Associates II Limited
Partnership, a Delaware
limited partnership........... 1,718,464 10.6% 712,500 1,005,964 5.5% 4.4%
ABKB/LaSalle Group (11)........ 1,463,750 9.0% -- 1,463,750 8.1% 6.4%
All Executive Officers and
Directors as a Group (12
persons) (12)................. 6,561,421 40.1% 2,500,000 4,061,421 22.1% 33.1%
</TABLE>

- --------------------------
* Less than 1%.

(1) Unless otherwise noted, the address for each of the persons or entities
listed above is 6991 East Camelback Road, Suite A-200, Scottsdale, Arizona,
85251. The address for AEW and Mr. Azrack is 225 Franklin Street, Boston,
Massachusetts 02110; the address for CIIF Associates II Limited Partnership
and Mr. O'Connor is 399 Boylston Street, Boston, Massachusetts 02116; and
the address for ABKB/LaSalle Securities Limited Partnership is 11 South
LaSalle Street, Chicago, Illinois 60603.

(2) Assumes the Underwriters' over-allotment option is not exercised. If the
over-allotment option is exercised, and to the extent that the Company
sells Common Shares pursuant to such option, the percentage interest of the
Company in the Operating Partnership will increase and the percentage
interest in the Company of the persons listed above will decrease.
Percentage of ownership is based on 16,179,379 Common Shares outstanding,
at April 30, 1996, prior to the Offering and 18,179,379 Common Shares
outstanding after the Offering, except that, with respect to any particular
individual or group, for purposes of calculating the percentages, the
number of shares outstanding is increased by the number of shares of Common
Stock deemed to be beneficially owned, as set forth in the footnotes.
Percent of equity interest gives effect to the conversion of Units held by
persons other than the Company into Common Shares.

(3) Includes 50,000 Common Shares subject to options that are exercisable
within 60 days. Does not include 145,000 Common Shares subject to options
that are not exercisable within 60 days. Does not include shares of Common
Stock issuable upon exchange of 1,807,936 Units. All exchanges of Units for
shares of Common Stock and exercise of stock options are subject to the
Ownership Limit (as defined in the Company's Charter). Without regard to
the Ownership Limit, 1,807,936 Units owned by Mr. Evans would be presently

47
<PAGE>
exchangeable into a like number of shares of Common Stock and the amount
and percentage of shares beneficially owned after the Offering in the table
above for Mr. Evans would be 1,991,438 and 9.9%, respectively.

(4) Includes 50,000 Common Shares subject to options that are exercisable
within 60 days. Does not include 145,000 Common Shares subject to options
that are not exercisable within 60 days. Does not include shares of Common
Stock issuable upon exchange of 1,672,386 Units. All exchanges of Units for
shares of Common Stock and exercise of stock options are subject to the
Ownership Limit (as defined in the Company's Charter). Without regard to
the Ownership Limit, 1,672,386 Units owned by Mr. Withycombe would be
presently exchangeable into a like number of shares of Common Stock and the
amount and percentage of shares beneficially owned after the Offering in
the table above for Mr. Withycombe would be 1,826,538 and 9.2%,
respectively.

(5) Includes 16,250 Common Shares subject to options that are exercisable
within 60 days. Does not include 102,750 Common Shares subject to options
that are not exercisable within 60 days. Does not include shares of Common
Stock issuable upon exchange of 110,000 Units. The 110,000 Units owned by
Mr. Berry are presently exchangeable into a like number of shares of Common
Stock and, giving effect to such exchange, the amount and percentage of
shares beneficially owned after the Offering in the table above for Mr.
Berry would be 128,370 and .7%, respectively.

(6) Includes 8,750 Common Shares subject to options that are exercisable within
60 days. Does not include 48,750 Common Shares subject to options that are
not exercisable within 60 days. Does not include shares of Common Stock
issuable upon exchange of 4,724 Units. The 4,724 Units owned by Mr. O'Clair
are presently exchangeable into a like number of shares beneficially owned
after the Offering of Common Stock and, giving effect to such exchange, the
amount and percentage of shares in the table above for Mr. O'Clair would be
40,177 and .2%, respectively.

(7) Does not include 26,250 Common Shares subject to options that are not
exercisable within 60 days.

(8) Includes 4,314,844 Common Shares held by AEW Partners, L.P. Mr. Azrack
disclaims beneficial ownership of all such Common Shares except 3,309
Common Shares relating to his proportionate interest in AEW Partners, L.P.
Mr. Azrack is the President of AEW, Inc., the sole general partner of the
sole general partner of AEW Partners, L.P. Includes 5,000 Common Shares
subject to options that are exercisable within 60 days.

(9) Includes 1,718,464 Common Shares held by CIIF Associates II Limited
Partnership, a Delaware limited partnership, as to which Mr. O'Connor
disclaims beneficial ownership. Mr. O'Connor is Chief Executive Officer and
a director of Copley Advisors, Inc., the managing general partner of CIIF
Associates II Limited Partnership. Includes 5,000 Common Shares subject to
options that are exercisable within 60 days, which Mr. O'Connor holds as
nominee of CIIF Associates II Limited Partnership.

(10) Includes 5,000 Common Shares subject to options that are exercisable within
60 days.

(11) The information set forth is based on a Schedule 13G filed by LaSalle
Advisors Limited Partnership ("LaSalle Advisors") and ABKB/LaSalle
Securities Limited Partnership ("ABKB/LaSalle") with the SEC on February
14, 1996 that identifies such entities as a "group" as defined in Section
13(d)(3) of the Exchange Act. Such Schedule 13G indicates that LaSalle
Advisors Limited Partnership beneficially owns an aggregate of 881,400
shares of Common Stock, of which it has sole and dispositive power over
431,200 shares, shared voting power over 165,000 shares and shared
dispositive power over 450,200 shares. The Schedule 13G further indicates
that ABKB/LaSalle beneficially owns 582,350 shares of Common Stock, of
which it has sole voting and dispositive power over 111,100 shares, shared
voting power over 228,250 shares and shared dispositive power over 471,500
shares.

(12) Includes an aggregate of 171,250 Common Shares subject to options that are
exercisable within 60 days. Does not include shares of Common Stock
issuable upon exchange of 3,597,631 Units held by Executive Officers and
directors as a group. All exchanges of Units for shares of Common Stock and
exercise of stock options are subject to the Ownership Limit (as defined in
the Company's Charter). Without regard for the Ownership Limit, 3,597,631
Units owned by such persons would be presently exchangeable into a like
number of shares of Common Stock, and the amount and percentage of shares
beneficially owned after the Offering in the table above for such persons
would be 7,659,052 and 34.9%, respectively.

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<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS

The following summary of the material federal income tax considerations
regarding the Offering is based on current law, is for general information only
and is not tax advice. This discussion does not purport to deal with all aspects
of taxation that may be relevant to particular shareholders in light of their
personal investment or tax circumstances, or to certain types of shareholders
including insurance companies, tax-exempt organizations (except to the extent
discussed under the heading "-- Taxation of Tax-Exempt Shareholders"), financial
institutions or broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States (except to the extent discussed under
the heading "-- Taxation of Non-U.S. Shareholders"), which are subject to
special treatment under the federal income tax laws.

EACH PROSPECTIVE PURCHASER OF COMMON SHARES IS URGED TO CONSULT WITH ITS OWN
TAX ADVISOR TO DETERMINE THE IMPACT OF SUCH PROSPECTIVE PURCHASER'S PERSONAL TAX
SITUATION ON THE ANTICIPATED TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND
SALE OF COMMON SHARES IN AN ENTITY ELECTING TO BE TAXED AS A REIT, INCLUDING THE
FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE,
OWNERSHIP, SALE AND ELECTION, AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.

TAXATION OF THE COMPANY

GENERAL. The Company has made an election to be taxed as a REIT under
Sections 856 through 860 of the Code, commencing with its taxable year ended
December 31, 1994. The Company believes that it has been organized and has
operated in such a manner as to qualify for taxation as a REIT under the Code,
and the Company intends to continue to operate in such a manner, but no
assurance can be given that it has operated or will operate in a manner so as to
qualify or remain qualified.

The sections of the Code and Treasury Regulations governing REITs are highly
technical and complex. The following sets forth the material aspects of the
sections that govern the federal income tax treatment of a REIT and its
shareholders. This summary is qualified in its entirety by the applicable Code
provisions, Treasury Regulations and rules promulgated thereunder, and
administrative and judicial interpretations thereof.

In the opinion of Gibson, Dunn & Crutcher LLP, commencing with the Company's
taxable year ended December 31, 1994, the Company was organized in conformity
with the requirements for qualification as a REIT, and its proposed method of
operation has enabled and will enable it to continue to meet the requirements
for qualification and taxation as a REIT, under the Code. It must be emphasized
that this opinion is based on various assumptions and is conditioned upon the
accuracy of certain representations made by the Company as to factual matters
relating to the Company's organization, operations, income, assets,
distributions and stock ownership. The Company's qualification as a REIT depends
on the Company having met and continuing to meet -- through actual operating
results, distribution levels and diversity of stock ownership -- the various
qualification tests imposed under the Code and discussed below, the results of
which have not been and will not be reviewed by Gibson, Dunn & Crutcher LLP.
Accordingly, no assurance can be given that the actual results of the Company's
operations for any particular taxable year have satisfied or will satisfy such
requirements. An opinion of counsel is not binding on the IRS or the courts, and
no assurance can be given that the IRS will not challenge the Company's
eligibility for taxation as a REIT. Further, the anticipated federal income tax
treatment described in this Prospectus may be changed, perhaps retroactively, by
legislative, administrative or judicial action at any time. See "-- Failure to
Qualify."

If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income taxes on its net income that is currently
distributed to shareholders. This treatment substantially eliminates the "double
taxation" (at the corporate and shareholder levels) of income that generally
results from an investment in a regular corporation. However, the Company will
be subject to federal income tax as follows: First, the Company will be taxed at
regular corporate rates on any undistributed "REIT taxable income" (as defined
below), including undistributed net capital gains. Second, under certain
circumstances the Company may be subject to the "alternative minimum tax" as a
consequence of its items of tax

49
<PAGE>
preference to the extent that tax exceeds its regular tax. Third, if the Company
has (i) net income from the sale or other disposition of "foreclosure property"
(generally, property acquired by reason of default on indebtedness held by the
Company) that is held primarily for sale to customers in the ordinary course
business or (ii) other nonqualifying income from foreclosure property, it will
be subject to tax at the highest corporate rate on such income. Fourth, if the
Company has net income from prohibited transactions (which are, in general,
certain sales or other dispositions of property held primarily for sale to
customers in the ordinary course of business, other than foreclosure property),
such income will be subject to a 100% tax. Fifth, if the Company should fail to
satisfy the 75% gross income test or the 95% gross income test (as discussed
below), but has nonetheless maintained its qualification as a REIT because
certain other requirements have been met, it will be subject to a 100% tax on an
amount equal to (a) the greater of the amount by which the Company fails the 75%
or 95% test, multiplied by (b) a fraction intended to reflect the Company's
profitability. Sixth, if the Company should fail to distribute during each
calendar year at least the sum (i) 85% of its REIT ordinary income for such
year, (ii) 95% of its REIT capital gain net income for such year, and (iii) any
undistributed taxable income from prior periods, the Company would be subject to
a 4% excise tax on the excess of such required distribution over the amounts
actually distributed. Seventh, with respect to any asset (a "Built-in Gain
Asset") acquired by the Company from a corporation which is or has been a C
corporation (I.E., generally a corporation subject to full corporate-level tax)
in certain transactions in which the basis of the Built-in Gain Asset in the
hands of the Company is determined by reference to the basis of the asset in the
hands of the C corporation, if the Company recognizes gain on the disposition of
such asset during the 10-year period (the "Recognition Period") beginning on the
date on which such asset was acquired by the Company, then, to the extent of the
Built-in Gain (I.E., the excess of (a) the fair market value of such asset over
(b) the Company's adjusted basis in such asset, determined as of the beginning
of the Recognition Period), such gain will be subject to tax at the highest
regular corporate rate pursuant to IRS regulations that have not yet been
promulgated.

REQUIREMENTS FOR QUALIFICATION. The Code defines a REIT as a corporation,
trust or association (i) that is managed by one or more trustees or directors;
(ii) the beneficial ownership of which is evidenced by transferable shares, or
by transferable certificates of beneficial interest; (iii) that would be taxable
as a domestic corporation but for Sections 856 through 859 of the Code; (iv)
that is neither a financial institution nor an insurance company subject to
certain provisions of the Code; (v) the beneficial ownership of which is held by
100 or more persons; (vi) in which during the last half of each taxable year not
more than 50% in value of its outstanding stock is owned, actually or
constructively, by five or fewer individuals (as defined in the Code to include
certain entities); and (vii) which meets certain other tests, described below,
regarding the nature of its income and assets. The Code provides that conditions
(i) to (iv), inclusive, must be met during the entire taxable year and that
condition (v) must be met during at least 335 days of a taxable year of 12
months, or during a proportionate part of a taxable year of less than 12 months.
Conditions (v) and (vi) will not apply until after the first taxable year for
which an election is made to be taxed as a REIT.

The Company believes that it has issued sufficient shares to allow it to
satisfy conditions (v) and (vi). In addition, the Company's Charter provides for
restrictions regarding the transfer and ownership of shares, which restrictions
are intended to assist the Company in continuing to satisfy the share ownership
requirements described in (v) and (vi) above. Such transfer and ownership
restrictions are described in "Description of Capital Stock -- Restrictions on
Ownership." These restrictions may not ensure that the Company will, in all
cases, be able to satisfy the share ownership requirements described above. If
the Company fails to satisfy such share ownership requirements, the Company's
status as a REIT will terminate. See "Failure to Qualify."

To monitor the Company's compliance with the share ownership requirements,
the Company is required to maintain records regarding the actual ownership of
its shares. To do so, the Company must demand written statements each year from
the record holders of certain percentages of its shares of 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 shareholders must demand statements from record holders of
5% or more of its shares, one with less than 2,000, but more than 200 record
shareholders must demand statements from record holders of 1% or more of the
shares, while a REIT with

50
<PAGE>
200 or fewer record shareholders 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. A
shareholder who fails or refuses to comply with the demand must submit a
statement with its tax return disclosing the actual ownership of the shares and
certain other information.

In the case of a REIT which is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the income
of the partnership attributable to such share. In addition, the character of the
assets and gross income of the partnership shall retain the same character in
the hands of the REIT for purposes of Section 856 of the Code, including
satisfying the gross income tests and the assets tests, discussed below. Thus,
the Company's proportionate share of the assets, liabilities and items of income
of the Operating Partnership (including the Operating Partnership's share of
such items of the Financing Partnership and any other partnership in which the
Operating Partnership has a direct or indirect interest) are treated as assets,
liabilities and items of income of the Company for purposes of applying the
requirements described herein. The Company controls the Operating Partnership
and the Financing Partnership and believes it has operated them in a manner
consistent with the requirements for qualification as a REIT, and intends to
continue to operate them in such a manner. However, there can be no assurance
that the Company has actually operated or will actually operate such
partnerships in a manner that has satisfied or will continue to satisfy the REIT
provisions of the Code.

The Company owns an indirect 1% interest as a general partner in the
Financing Partnership, which is held through Evans Withycombe Finance, Inc., a
wholly owned subsidiary of the Company that has been organized and operated as a
"qualified REIT subsidiary" within the meaning of the Code. Qualified REIT
subsidiaries are not treated as separate entities from their parent REIT for
federal income tax purposes. Instead, all assets, liabilities and items of
income, deduction and credit of Evans Withycombe Financing, Inc. are treated as
assets, liabilities and items of the Company. Evans Withycombe Financing, Inc.,
therefore, is not subject to federal corporate income taxation, although it may
be subject to state or local taxation. In addition, the Company's ownership of
the voting stock of Evans Withycombe Financing, Inc. will not violate the
general restriction against ownership of more than 10% of the voting securities
of any issuer.

INCOME TESTS. In order to maintain qualification as a REIT, the Company
annually must satisfy three gross income requirements. First, at least 75% of
the Company's gross income (excluding gross income from certain sales of real
property held primarily for sale) for each taxable year must be derived directly
or indirectly from investments relating to real property or mortgages on real
property (including "rents from real property" and, in certain circumstances,
interest) or from certain types of temporary investments. Second, at least 95%
of the Company's gross income (excluding gross income from certain sales of real
property held primarily for sale) for each taxable year must be derived from
items of income that qualify under the 75% test, dividends, interest and gain
from the sale or disposition of stock or securities (or from any combination of
the foregoing). Third, gain from the sale or other disposition of stock or
securities held for less than one year, gain from certain sales of real property
held primarily for sale and gain from the sale or other disposition of real
property held for less than four years (apart from involuntary conversions and
sales of foreclosure property) must represent less than 30% of the Company's
gross income for each taxable year.

Rents received by the Company qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in whole
or in part on the income or profits of any person. However, an amount received
or accrued generally will not be excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or percentages
of receipts or sales. Second, rents received from a tenant will not qualify as
"rents from real property" in satisfying the gross income test if the Company,
or an owner of 10% or more of the Company, actually or constructively owns 10%
or more of such tenant (a "Related Party Tenant"). Third, if rent attributable
to personal property, leased in connection with a lease of real property, is
greater than 15% of the total rent received under the lease, then the portion of
rent attributable to such personal property will not qualify as "rents from real
property." Finally, for rents received to qualify as "rents from real property,"
the Company generally must not operate or manage the property or furnish or

51
<PAGE>
render services to the tenants of such property, other than through an
independent contractor from whom the Company derives no revenue, provided,
however, the Company may directly perform certain services that are "usually or
customarily rendered" in connection with the rental of space for occupancy only
and not otherwise considered "rendered to the occupant" of the property.

The Company regularly monitors its activities to ensure that the foregoing
tests are satisfied. The Company believes that the aggregate amount of any
nonqualifying income in any taxable year has not exceeded and will not exceed
the limits on nonqualifying income under the gross income tests.

If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions generally will be available if (i) the Company's failure to meet such
tests was due to reasonable cause and not due to willful neglect, (ii) the
Company attaches to its return for that year a schedule of the nature and amount
of each item of its income and (iii) any incorrect information on the schedule
was not due to fraud with intent to evade tax. However, in the event the Company
does not meet these tests, the Company would not be entitled to the benefit of
these relief provisions. If these relief provisions are inapplicable to a
particular set of circumstances involving the Company, the Company will not
qualify as a REIT. As discussed above in "-- General," even if these relief
provisions apply, a tax would be imposed with respect to the excess
nonqualifying income. There are no comparable relief provisions which could
mitigate the consequences of a failure to satisfy the 30% gross income test.

ASSET TESTS. The Company, at the close of each quarter of its taxable year,
must also satisfy three tests relating to the nature of its assets. First, at
least 75% of the value of the Company's total assets must be represented by real
estate assets, stock or debt instruments held for not more than one year
purchased with the proceeds of a stock offering or long-term (at least five
years) debt offering of the Company, cash, cash items and government securities.
Second, not more than 25% of Company's total assets may be represented by
securities other than those included in the 75% asset test. Third, of the
investments included in the 25% asset class, the value of any one issuer's
securities owned by the Company may not exceed 5% of the value of the Company's
total assets and the Company may not own more than 10% of any one issuer's
outstanding voting securities. In applying these tests, the Company will be
deemed to own a proportionate share of any assets owned, directly or indirectly,
by the Operating Partnership based on its capital interest in the Operating
Partnership and the Operating Partnership's direct or indirect capital interest
in any other partnership, including the Financing Partnership.

The Company believes that it has complied and will continue to comply with
the asset tests. Substantially all of the Company's investments are in the
properties owned by the Operating Partnership and Financing Partnership, which
represent qualifying real estate assets. The Company's proportionate share of
the Management Company's voting and nonvoting common stock owned by the
Operating Partnership also is within the permissible range, since these
interests do not exceed a 10% voting interest. In addition, the Company believes
that the value of its interests in the stock of the Management Company will be
less than the permitted 5% of the total value of the Company's assets. Gibson,
Dunn & Crutcher LLP, in issuing its opinion referred to above, is relying on the
Company's representations as to the value of its interest in the stock of the
Management Company relative to the value of the Company's assets. There can be
no assurance that the IRS will not contend that the value of the securities of
the Management Company held by the Company (through the Operating Partnership)
exceeds the 5% value limitation.

ANNUAL DISTRIBUTION REQUIREMENTS. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends) to
its shareholders in an amount at least equal to (i) the sum of (a) 95% of the
Company's "REIT taxable income" (computed without regard to the dividends paid
deduction and the Company's net capital gain) and (b) 95% of the net income
(after tax), if any, from foreclosure property, minus (ii) the sum of certain
items of noncash income. "REIT taxable income" for any year means the taxable
income of the Company for such year (excluding any net income derived either
from property held primarily for sale to customers or from foreclosure
property), subject to certain adjustments provided in the REIT provision of the
Code. In addition, if the Company disposes of any Built-in Gain Asset during
such asset's Recognition Period, the Company will be required, pursuant to IRS
regulations which

52
<PAGE>
have not yet been promulgated, to distribute at least 95% of the Built-in Gain
(after tax), if any, recognized on the disposition of such asset. Such
distributions must be paid in the taxable year to which they relate, or in the
following taxable year if declared before the Company timely files its tax
return for such year and if paid on or before the first regular dividend payment
after such declaration. The Company intends to make, and to cause the Operating
Partnership and Financing Partnership to make, timely distributions sufficient
to satisfy these annual distribution requirements. To the extent that the
Company does not distribute all of its net capital gain or distributes at least
95%, but less than 100%, of its REIT taxable income, as adjusted, it will be
subject to tax thereon at regular capital gain and ordinary corporate tax rates.

It is possible that the Company, from time to time, may not have sufficient
cash or other liquid assets to meet the distribution requirements described
above due to timing differences between the actual receipt of income and actual
payment of deductible expenses and the inclusion of such income and deduction of
such expenses in arriving at taxable income of the Company, or if nondeductible
capital expenditures such as principal amortization or capital expenditures
exceed the amount of noncash deductions. In the event that such timing
differences occur, in order to meet the distribution requirements, the Company
may find it necessary to arrange, or to cause the Operating Partnership or
Financing Partnership to arrange, for short-term, or possibly long-term,
borrowing, to sell assets, or to pay dividends in the form of taxable stock
dividends. In this regard, the Partnership Agreement authorizes the Company, as
general partner, to take such steps as may be necessary to cause the Operating
Partnership to distribute to its partners an amount sufficient to permit the
Company to meet these distribution requirements.

Under certain circumstances, the Company may be able to rectify a failure to
meet the above distribution requirements for a year by paying "deficiency
dividends" to shareholders in a later year, which may be included in the
Company's deduction for dividends paid for the earlier year. The Company will,
however, be required to pay interest based upon the amount of any deduction
taken for deficiency dividends.

Furthermore, if the Company should fail to distribute each calendar year at
least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of
its REIT capital gain income for such year and (iii) any undistributed taxable
income from prior periods, the Company will be subject to a 4% excise tax on the
excess of such required distribution over the amounts actually distributed. Any
REIT taxable income and capital gains on which tax is imposed for any year is
treated as an amount distributed during that year for purposes of this excise
tax.

FAILURE TO QUALIFY

If the Company should fail to qualify for taxation as a REIT in any taxable
year, and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
rates applicable to regular C corporations. Distributions to shareholders in any
year in which the Company fails to qualify as a REIT will not be deductible by
the Company nor will they be required to be made. As a result, the Company's
failure to qualify as a REIT will reduce the cash available for distribution by
the Company to shareholders. In addition, if the Company fails to qualify as a
REIT, all distributions to shareholders will be taxable as ordinary income to
the extent of the Company's current and accumulated earnings and profits, and,
subject to certain limitations in the Code, corporate distributees may be
eligible for the dividends received deduction. Unless entitled to relief under
specific statutory provisions, the Company will also be disqualified from
taxation as a REIT for the four taxable years following the year during which
qualification was lost. It is not possible to state whether in all circumstances
the Company would be entitled to such statutory relief.

TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS

As long as the Company qualifies as a REIT, distributions made to the
Company's taxable domestic shareholders out of current or accumulated earnings
and profits (and not designated as capital gain dividends) will be taken into
account by them as ordinary income and will not be eligible for the dividends
received deduction for corporations. Distributions that are properly designated
by the Company as capital gain dividends will be taxed as long-term capital gain
(to the extent they do not exceed the Company's actual net capital gain for the
taxable year) without regard to the period for which the shareholder has held
its shares. However, corporate shareholders may be required to treat up to 20%
of certain capital gain

53
<PAGE>
dividends as ordinary income. Distributions (not designated as capital gain
dividends) in excess of current and accumulated earnings and profits will be
treated as tax-free returns of capital to the extent of the shareholder's basis
in the shares, and will reduce the adjusted basis of such shares (but not below
zero). To the extent distributions in excess of current and accumulated earnings
and profits exceed the basis of a shareholder's shares they will be included in
income as long-term capital gain (or short-term capital gain if the shares have
been held for one year or less), assuming the shares are a capital asset in the
hands of the shareholder. In addition, any dividend declared by the Company in
October, November or December of any year payable to a shareholder of record on
a specified date in any such month shall be treated as both paid by the Company
and received by the shareholder on December 31 of such year, provided that the
dividend is actually paid by the Company during January of the following
calendar year. Shareholders may not include in their individual income tax
returns any net operating losses or capital losses of the Company.

Upon any sale or other disposition of shares, a domestic shareholder 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 on such sale or other disposition and (ii) the holder's
adjusted basis in such shares for tax purposes. In general, provided the shares
were held as a capital asset, any gain or loss realized on a taxable disposition
of shares will be treated as long-term capital gain or loss if the shares have
been held for more than twelve months and otherwise as short-term capital gain
or loss. However, any loss upon a sale or exchange of shares by a shareholder
who has held such shares for six months or less (after applying certain holding
period rules) will be treated as a long-term capital loss to the extent of
distributions from the Company required to be treated by such shareholder as
long-term capital gain.

INFORMATION REPORTING AND BACKUP WITHHOLDING

The Company reports to its domestic shareholders and the IRS the amount of
dividends paid with respect to each calendar year, and the amount of tax
withheld therefrom, if any. Under the backup withholding rules, a shareholder
may be subject to backup withholding at a rate of 31% with respect to dividends
paid unless such holder (i) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact or (ii) provides a
taxpayer identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with applicable requirements of the backup
withholding rules. A shareholder that does not provide the Company with its
correct taxpayer identification number may also be subject to penalties imposed
by the IRS. Any amount withheld under the backup withholding rules will be
creditable against the shareholder's income tax liability. In addition, the
Company may be required to withhold a portion of capital gain distributions made
to any shareholders who fail to certify to their non-foreign status to the
Company. See "-- Taxation of Non-U.S. Shareholders."

TAXATION OF TAX-EXEMPT SHAREHOLDERS

The IRS has ruled that amounts distributed as dividends by a REIT do not
constitute unrelated business taxable income ("UBTI") when received by a
tax-exempt entity. Based on that ruling, dividend income from the Company should
not, subject to certain exceptions described below, be UBTI to a qualified plan,
IRA or other tax-exempt entity (a "Tax-Exempt Shareholder") provided the
Tax-Exempt Shareholder has not held its shares as "debt financed property"
within the meaning of Section 514 of the Code and the shares are not otherwise
used in an unrelated trade or business of the Tax-Exempt Shareholder. Similarly,
income from the sale of Common Shares should not, subject to certain exceptions
described below, constitute UBTI unless the Tax-Exempt Shareholder has held such
Common Shares as a dealer (under Section 512(b)(5)(B) of the Code) or as
"debt-financed property."

For Tax-Exempt Shareholders that are 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 UBTI unless the organization is able
to properly deduct amounts set aside or placed in reserve for certain purposes
so as to offset the income generated by its investment in the Company. Such
prospective investors should consult their tax advisors concerning these
"set-aside" and reserve requirements.

54
<PAGE>
Notwithstanding the above, however, a portion of the dividends paid by the
Company shall be treated as UBTI to certain trusts if the Company is treated as
a "pension held REIT." A trust will be subject to this rule if it (i) is
described in Section 401(a) of the Code, (ii) is tax-exempt under Section 501(a)
of the Code and (iii) holds more than 10% (by value) of the interests in the
REIT. Tax-exempt pension funds that are described in Section 401(a) of the Code
are referred to below as "qualified trusts."

The Company will be treated as a "pension held REIT" if (i) it would not
have qualified as a REIT but for the fact that Section 856(h)(3) of the Code
provides that stock owned by qualified trusts shall be treated, for purposes of
the "five or fewer" shareholder requirement (discussed above), as owned by the
beneficiaries of the trust (rather than by the trust itself) and (ii) either (a)
at least one such qualified trust holds more than 25% (by value) of the
interests in the Company or (b) one or more such qualified trusts, each of whom
owns more than 10% (by value) of the interests in the Company, hold in the
aggregate more than 50% (by value) of the interests in the Company. The Company
believes that it has not been, and is not, a "pension held REIT."

TAXATION OF NON-U.S. SHAREHOLDERS

The rules governing United States federal income taxation of the ownership
and disposition of stock by persons that are, for purposes of such taxation,
nonresident alien individuals, foreign corporations, foreign partnerships or
foreign estates or trusts (collectively, "Non-U.S. Shareholders") are complex,
and no attempt is made herein to provide more than a brief summary of such
rules. Accordingly, the discussion does not address all aspects of United States
federal income tax law and does not address state, local or foreign tax
consequences that may be relevant to a Non-U.S. Shareholder in light of its
particular circumstances. In addition, this discussion is based on current law,
which is subject to change, and assumes that the Company qualifies for taxation
as a REIT. Prospective Non-U.S. Shareholders should consult with their own tax
advisors to determine the impact of federal, state, local and foreign income and
other tax laws with regard to an investment in Common Shares, including any
reporting requirements.

DISTRIBUTIONS. Distributions by the Company to a Non-U.S. Shareholder that
are neither attributable to gain from sales or exchanges by the Company of
United States real property interests nor designated by the Company as capital
gains dividends will be treated as dividends of ordinary income to the extent
that they are made out of current or accumulated earnings and profits of the
Company. Such distributions generally will be subject to withholding of United
States federal income tax at a 30% rate on the total amount distributed unless
an applicable income tax treaty reduces or eliminates that tax. However,
dividends that are "effectively connected" with the conduct of a trade or
business by the Non-U.S. Shareholder will be subject to tax on a net basis at
graduated rates, in the same manner as domestic shareholders are taxed with
respect to such dividends, and are generally not subject to withholding. Any
such "effectively connected" dividends received by a Non-U.S. Shareholder that
is a corporation may also be subject to an additional branch profits tax at a
30% rate or such lower rate as may be specified by an applicable income tax
treaty.

Pursuant to current Treasury regulations, dividends paid to an address in a
country outside the United States are generally presumed to be paid to a
resident of such country for purposes of ascertaining the requirement of
withholding discussed above and the applicability of a tax treaty rate. Under
proposed Treasury Regulations not currently in effect, however, a Non-U.S.
Shareholder who seeks to claim the benefit of an applicable treaty rate would be
required to satisfy certain certification and other requirements. Under certain
treaties, lower withholding rates generally applicable to dividends do not apply
to dividends from a REIT, such as the Company. A Non-U.S. Shareholder must file
a properly completed and executed IRS Form 4224 with the Company's withholding
agent certifying that the investment to which the distribution relates is
effectively connected with the conduct of a United States trade or business of
such Non-U.S. Shareholder in order to qualify for the exemption from withholding
under the effectively connected income exemption discussed above.

Distributions that are neither attributable to gain from sales or exchanges
by the Company of United States real property interests nor designated by the
Company as capital gains dividends and that are in excess of current or
accumulated earnings and profits of the Company will not be taxable to a
Non-U.S. Shareholder to the extent that they do not exceed the adjusted basis of
the shareholder's Common Shares, but

55
<PAGE>
rather will reduce the adjusted basis of such Common Shares. To the extent such
distributions in excess of the Company's current and accumulated earnings and
profits exceed the adjusted basis of a Non-U.S. Shareholder's Common Shares,
they will give rise to gain from the sale or exchange of the Common Shares, the
tax treatment of which is described below. If it cannot be determined at the
time a distribution is made whether or not such distribution will be in excess
of current or accumulated earnings and profits, the distribution will generally
be treated as a dividend subject to withholding. However, amounts thus withheld
are generally refundable if it is subsequently determined that such distribution
was, in fact, in excess of current or accumulated earnings and profits of the
Company.

Distributions to a Non-U.S. Shareholder that are designated by the Company
at the time of distribution as capital gains dividends (other than those
attributable to gain from sales or exchanges by the Company of United States
real property interests) generally will not be subject to United States federal
income taxation unless (i) the investment in the Common Shares is effectively
connected with the Non-U.S. Shareholder's United States trade or business, in
which case the Non-U.S. Shareholder will be subject to the same treatment as
domestic shareholders with respect to such gain (except that a shareholder that
is a foreign corporation may also be subject to the 30% branch profits tax, as
discussed above) or (ii) the Non-U.S. Shareholder is a nonresident alien
individual who is present in the United States for 183 days or more during the
taxable year and either has a "tax home" in the United States or sold his shares
under circumstances where the sale is attributable to a U.S. office, in which
case the nonresident alien individual will be subject a 30% tax on the
individual's capital gains.

Distributions to a Non-U.S. Shareholder that are attributable to gain from
sales or exchanges by the Company of United States real property interests will
be treated as income that is effectively connected with a United States trade or
business of the Non-U.S. Shareholder. Non-U.S. Shareholders would thus generally
be taxed on such distributions at the same rates applicable to domestic
shareholders (subject to a special alternative minimum tax in the case of
nonresident alien individuals). Also, such gain may be subject to a 30% branch
profits tax in the hands of a corporate Non-U.S. Shareholder that is not
entitled to a treaty exemption or rate reduction. The Company is required to
withhold 35% of any such distribution, and the withheld amount is creditable
against the Non-U.S. Shareholder's United States federal income tax liability.

SALE OF COMMON SHARES. Gain recognized by a Non-U.S. Shareholder upon a
sale or other disposition of Common Shares generally will not be subject to
United States federal income tax unless (i) the Company is not a "domestically
controlled REIT," or (ii) the investment in the Common Shares is effectively
connected with the Non-U.S. Shareholder's United States trade or business or
(iii) in the case of a Non-U.S. Shareholder who is a nonresident alien
individual, the individual is present in the United States for 183 days or more
during the taxable year and either has a "tax home" in the United States or sold
his shares under circumstances where the sale is attributable to a U.S. office.
A domestically controlled REIT is 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. The Company currently believes
that it is a domestically controlled REIT. However, because the Common Shares
will be publicly traded, no assurance can be given that the Company will
continue to be a domestically-controlled REIT. In the circumstances described
above in clauses (i) and (ii), the Non-U.S. Shareholders will generally be
subject to the same treatment as domestic shareholders with respect to such gain
(subject to a special alternative minimum tax in the case of nonresident alien
individuals in the circumstances described above in clause (i) and, in the case
of foreign corporations, subject to the possible application of the 30% branch
profits tax, discussed above). In the circumstances described above in clause
(iii), the nonresident alien individual will be subject to a 30% tax on the
individual's capital gain.

INFORMATION REPORTING AND BACKUP WITHHOLDING. The Company must report
annually to the IRS and to each Non-U.S. Shareholder the amount of distributions
subject to withholding as described above and the tax withheld with respect to
such distributions, regardless of whether withholding is actually required.
Copies of the information returns reporting such distributions and withholding
may also be made available to the tax authorities in the country in which the
Non-U.S. Shareholder resides under the provisions of an applicable

56
<PAGE>
income tax treaty. Additional issues may arise pertaining to information
reporting and backup withholding for Non-U.S. Shareholders. Non-U.S.
Shareholders should consult their tax advisors with regard to U.S. information
reporting and backup withholding.

TAX RISKS ASSOCIATED WITH OWNING INTERESTS IN PARTNERSHIPS

The Company owns interests in various partnerships, including the Operating
Partnership and the Finance Partnership. The ownership of an interest in a
partnership may involve special tax risks, including the possible challenge by
the IRS of (i) allocations of income and expense items, which could affect the
computation of taxable income of the Company and (ii) the status of a
partnership as a partnership (as opposed to an association taxable as a
corporation) for federal income tax purposes. If a partnership is treated as an
association taxable as a corporation for federal income tax purposes, the
partnership would be treated as a taxable entity. In addition, in such a
situation, (i) if the Company owned more than 10% of the outstanding voting
securities of such partnership, or the value of such securities exceeded 5% of
the value of the Company's assets, such as in the case of the Operating
Partnership and the Finance Partnership, the Company would fail to satisfy the
asset tests described above and would therefore fail to qualify as a REIT, (ii)
distributions from any of the partnerships to the Company would be treated as
dividends, which are not taken into account in satisfying the 75% gross income
test described above and would, therefore, preclude the Company from satisfying
such test, (iii) the interest in any of the partnerships held by the Company
would not qualify as a "real estate asset," which would preclude the Company
from meeting the 75% asset test described above and (iv) the Company would not
be able to deduct its share of any losses generated by the partnerships in
computing its taxable income. See "-- Failure to Qualify" for a discussion of
the effect of the Company's failure to meet such tests for a taxable year.

Although the Company believes they will be so treated, the Operating
Partnership and the Financing Partnership have not requested, and do not intend
to request, rulings from the IRS that they will be treated as partnerships for
federal income tax purposes. No assurance can be given that the IRS will not
challenge the status of the Operating Partnership or the Financing Partnership
as a partnership for federal income tax purposes. If such a challenge were
sustained by a court, the Operating Partnership and/or the Financing Partnership
could be treated as corporations for federal income tax purposes.

OTHER TAX CONSEQUENCES

The Company and its shareholders 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. The state and local tax treatment of the Company
and its shareholders may not conform to the federal income tax consequences
discussed above. Consequently, prospective shareholders should consult their own
tax advisors regarding the effect of state and local tax laws on an investment
in the Company.

The Management Company does not qualify as a REIT, and therefore it is
subject to federal, state and local taxes on its income.

57
<PAGE>
UNDERWRITING

Subject to the terms and conditions of a purchase agreement (the
"Underwriting Agreement"), the Company and the Selling Stockholders have agreed
to sell to each of the Underwriters named below, and each of the Underwriters
for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated, Dean Witter
Reynolds Inc., Morgan Stanley & Co. Incorporated and Smith Barney Inc. are
acting as representatives (the "Representatives"), has severally agreed to
purchase from the Company and the Selling Stockholders the number of Common
Shares set forth opposite its name below. Pursuant to the Underwriting
Agreement, the Underwriters are committed to purchase all of such Common Shares
if any are purchased.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------
<S> <C>
----------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..........................................................
Dean Witter Reynolds Inc.........................................................
Morgan Stanley & Co. Incorporated................................................
Smith Barney Inc.................................................................

----------
Total................................................................. 4,500,000
----------
----------
</TABLE>

The Representatives have advised the Company that they propose initially to
offer the Common Shares to the public at the public offering price set forth on
the cover page of this Prospectus, and to certain dealers at such price less a
concession not in excess of $. per Common Share. The Underwriters may allow,
and such dealers may reallow, a discount not in excess of $. per Common Share
on sales to certain other dealers. After the Offering, the public offering
price, concession and discount may be changed.

The Company and the Selling Stockholders have granted the Underwriters an
option exercisable for 30 days after the date hereof to purchase up to 675,000
additional Common Shares to cover over-allotments, if any, at the public
offering price, less the underwriting discount set forth on the cover page of
this Prospectus. Of the 675,000 Common Shares, the Company may, at its option,
sell up to 300,000 Common Shares, with the remainder to be sold by the Selling
Stockholders on a pro rata basis according to the number of shares sold by them
in the Offering. If the Underwriters exercise this option, each of the
Underwriters will have a firm commitment, subject to certain conditions, to
purchase approximately the same percentage thereof that the number of Common
Shares to be purchased by it shown in the foregoing table bears to the number of
Common Shares initially offered hereby.

In the Underwriting Agreement, the Company, the Operating Partnership and
the Selling Stockholders have agreed to indemnify the several Underwriters
against certain civil liabilities, including liabilities under the Securities
Act of 1933, as amended, or to contribute to payments the Underwriters may be
required to make in respect thereof.

The Company, its directors and executive officers have also agreed, with
limited exceptions, including the issuance of Common Shares under employee and
director stock plans and the issuance of Common Shares or Units in connection
with the acquisition of any land or apartment community, not to offer, sell,
contract to sell, or otherwise dispose of any Common Shares or Units or any
securities convertible into or exercisable or exchangeable for Common Shares or
Units for a period of 120 days after the closing of this Offering without the
prior written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated.

The Selling Stockholders have agreed not to offer, sell, contract to sell,
or otherwise dispose of or distribute any of their Common Shares for a period of
120 days after the closing of this Offering without the prior written consent of
Merrill Lynch, Pierce, Fenner & Smith Incorporated. The Selling Stockholders
have also agreed not to exercise any of their "demand" registration rights prior
to January 31, 1997 or, at the Company's election and subject to certain
conditions, March 31, 1997.

58
<PAGE>
EXPERTS

The consolidated financial statements of Evans Withycombe Residential, Inc.
(the Company) and Evans Withycombe Residential Group (the Predecessor) appearing
in the Company's Annual Report (Form 10-K) for the year ended December 31, 1995,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given the authority of such firm as experts in
accounting and auditing.

LEGAL MATTERS

The validity of the Common Shares offered hereby will be passed upon for the
Company by Ballard Spahr Andrews & Ingersoll, Baltimore, Maryland. Certain legal
matters related to the Offering will be passed upon for the Company by Gibson,
Dunn & Crutcher LLP, Los Angeles, California. Certain legal matters related to
the Offering will be passed upon for the Underwriters by Latham & Watkins, Los
Angeles, California.

AVAILABLE INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 (the "Registration
Statement"), under the Securities Act of 1933, as amended (the "Securities
Act"), covering the Securities offered hereby. This Prospectus omits certain
information and exhibits included in the Registration Statement, copies of which
may be obtained upon payment of a fee prescribed by the Commission or may be
examined free of charge at the principal office of the Commission in Washington,
D.C. 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 such
reference and the exhibits and schedules thereto. For further information
regarding the Company and the Common Shares offered hereby, reference is hereby
made to the Registration Statement, including the exhibits and schedules
thereto, which may be inspected without charge at the Commission's principal
office at 450 Fifth Street, N.W., Washington, D.C. and copies of the
Registration Statement or any part thereof may be obtained from such office,
upon payment of the fees prescribed by the Commission.

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information filed with the
Commission by the Company can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the regional offices of the Commission located at 500 West
Madison Street, Room 1400, Chicago, Illinois 60661-2511 and at 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Company's Common
Stock is listed on the New York Stock Exchange (the "NYSE") and the reports,
proxy and information statements and other information filed by the Company with
the NYSE can also be inspected at the offices of the NYSE at 20 Broad Street,
New York, New York 10005.

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

The following documents filed with the Commission (File No. 1-13256)
pursuant to the Exchange Act are incorporated herein by reference:

(1) the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995;

(2) the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1996;

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<PAGE>

(3) the following sections of the Company's Proxy Statement for its 1996
Annual Meeting of Stockholders: "Election of Directors," "Nominees for
Election as Director," "Directors Continuing in Office," "Executive
Compensation," "Security Ownership of Beneficial Owners and Management"
and "Certain Relationships and Related Transactions;"

(4) the description of the Company's Common Stock contained in the Company's
Registration Statement on Form 8-A filed with the Commission on August 1,
1994; and

(5) all other documents filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the filing of a post-effective amendment which
indicates that all Common Shares offered hereby have been sold or which
deregisters all Common Shares then remaining unsold.

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

Copies of all documents which are incorporated herein by reference (not
including the exhibits to such documents, unless such exhibits are specifically
incorporated by reference into such documents or into this Prospectus) will be
provided without charge to each person, including any beneficial owner, to whom
this Prospectus is delivered, upon a written or oral request to Evans Withycombe
Residential, Inc., Attention: Secretary, 6991 East Camelback Road, Suite A-200,
Scottsdale, Arizona 85251, telephone number: (602) 840-1040.

60
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR BY ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON
STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO
SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL UNDER ANY CIRCUMSTANCE CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE THEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. 3
Use of Proceeds................................ 17
Price Range of Common Shares and Dividends..... 17
Capitalization................................. 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 20
Business and Properties........................ 31
Management..................................... 45
Principal and Selling Stockholders............. 47
Federal Income Tax Considerations.............. 49
Underwriting................................... 58
Experts........................................ 59
Legal Matters.................................. 59
Available Information.......................... 59
Incorporation of Certain Information by
Reference..................................... 59
</TABLE>

4,500,000 SHARES

[LOGO]

EVANS WITHYCOMBE
RESIDENTIAL, INC.

COMMON STOCK

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

PROSPECTUS

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

MERRILL LYNCH & CO.
DEAN WITTER REYNOLDS INC.
MORGAN STANLEY & CO.
INCORPORATED

SMITH BARNEY INC.

, 1996

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the estimated fees and expenses payable by
the Company in connection with the issuance and distribution of the Common
Shares registered hereby (all amounts except the registration fee and the NASD
fee are estimated).

<TABLE>
<S> <C>
Registration fee................................................................ $ 40,821
NASD fee........................................................................ 12,338
NYSE listing fee................................................................ 20,000
Printing, duplicating and engraving expenses.................................... 100,000
Legal fees and expenses (other than Blue Sky)................................... 200,000
Accounting fees and expenses.................................................... 60,000
Blue sky fees and expenses...................................................... 10,000
Miscellaneous................................................................... 56,841
--------
Total....................................................................... $500,000
--------
--------
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Company's Charter limits the liability of the Company's directors and
officers to the Company and its shareholders to the fullest extent permitted
from time to time by Maryland law. Maryland law presently permits the liability
of directors and officers to a corporation or its shareholders 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) if a judgment or
other final adjudication is entered 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
shareholders to obtain other relief, such as an injunction or rescission.

The Company's Charter and Bylaws require the Company to indemnify its
directors and officers to the fullest extent permitted from time to time by
Maryland law. The Charter also permits the Company to indemnify employees,
agents and other persons acting on behalf of or at the request of the Company.
The MGCL permits a corporation to indemnify its directors, officers and certain
other parties against judgments, penalties, fines, settlements and reasonable
expenses 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 the act or omission of the
indemnified party was material to the matter giving rise to the proceeding and
(i) 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 Securities and Exchange 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.

The Agreement of Limited Partnership of the Operating Partnership also
provides for indemnification of the Company, or any director or officer of the
Company, in its capacity as general partner of the

II-1
<PAGE>
Partnership, from and against all losses, claims, damages, liabilities, joint or
several, expenses (including legal fees), fines, settlements and other amounts
incurred in connection with any actions relating to the operations of the
Operating Partnership as set forth in the Operating Partnership Agreement.

The Company entered into indemnification agreements with each of its
executive officers and directors. The indemnification agreements require, among
other things, that the Company indemnify its officers and directors to the
fullest extent permitted by the MGCL, and advance to the officers and directors
all related expenses, subject to reimbursement if it is subsequently determined
that indemnification is not permitted. The Company must also indemnify and
advance all expenses incurred by officers and directors seeking to enforce their
rights under the indemnification agreements, and cover officers and directors
under the Company's directors and officers' liability insurance. Although the
form of indemnification agreement offers substantially the same scope of
coverage afforded by provisions in the Charter and the Bylaws, it provides
greater assurance to directors and officers that indemnification will be
available, because, as a contract, it cannot be modified unilaterally in the
future by the Board of Directors or by the shareholders to eliminate the rights
it provides.

ITEM 16. EXHIBITS

See Exhibit Index attached hereto on page II-4 and incorporated herein by
reference.

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes:

The undersigned Registrant hereby further undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended (the
"Securities Act"), each filing of the Registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in this registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions set forth or described in Item 15 of this
Registration Statement, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person, in connection with the securities registered hereby, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.

II-2
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 2 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Scottsdale, State of Arizona, on this
13th day of May 1996.

EVANS WITHYCOMBE RESIDENTIAL, INC.

By: /S/ STEPHEN O. EVANS

---------------------------------------
Stephen O. Evans
CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.

<TABLE>
<C> <S> <C>
NAME TITLE DATE
- ------------------------------------------------------ ---------------------------------------- ---------------

/S/ STEPHEN O. EVANS Chairman of the Board of Directors and May 13, 1996
------------------------------------------- Chief Executive Officer (Principal
Stephen O. Evans Executive Officer)

/S/ F. KEITH WITHYCOMBE President, Chief Operating Officer and May 13, 1996
------------------------------------------- Director
F. Keith Withycombe

/S/ PAUL R. FANNIN Senior Vice President and Chief May 13, 1996
------------------------------------------- Financial Officer (Principal Financial
Paul R. Fannin and Accounting Officer)

/S/ RICHARD G. BERRY Executive Vice President and Director May 13, 1996
-------------------------------------------
Richard G. Berry

* Director May 13, 1996
-------------------------------------------
Joseph F. Azrack

* Director May 13, 1996
-------------------------------------------
G. Peter Bidstrup

* Director May 13, 1996
-------------------------------------------
Joseph W. O'Connor

* Director May 13, 1996
-------------------------------------------
John O. Theobald II

*By: /S/ STEPHEN O. EVANS
--------------------------------------
Stephen O. Evans
ATTORNEY-IN-FACT
</TABLE>

II-3
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ----------------------------------------------------------------------------------------
<C> <S> <C>
*1.1 Form of Purchase Agreement
*4.1 Articles of Amendment and Restatement of the Registrant (previously filed as Exhibit No.
3.1 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994
and incorporated herein by reference).
*4.2 Amended and Restated Bylaws of the Registrant (previously filed as Exhibit 3.2 to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1994 and
incorporated herein by reference).
*5.1 Opinion of Ballard Spahr Andrews & Ingersoll regarding the validity of the securities
being registered.
23.1 Consent of Ernst & Young LLP
*23.2 Consent of Ballard Spahr Andrews & Ingersoll (included in Exhibit 5.1)
*24 Power of Attorney (included on signature page)
</TABLE>

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

* Previously filed.

II-4

<PAGE>
EXHIBIT (23.1)

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" in the
Pre-Effective Amendment No. 2 to Form S-3 Registration Statement and related
Prospectus of Evans Withycombe Residential, Inc. for the registration of
4,500,000 shares of its common stock and to the incorporation by reference
therein of our report dated January 19, 1996, with respect to the consolidated
financial statements and schedule of Evans Withycombe Residential, Inc. and
Evans Withycombe Residential Group included in its Annual Report (Form 10-K) for
the year ended December 31, 1995, filed with the Securities and Exchange
Commission.

ERNST & YOUNG LLP

Phoenix, Arizona
May 13, 1996