424B3 1 d424b3.htm PRELIMINARY PROSPECTUS SUPPLEMENT Prepared by R.R. Donnelley Financial -- Preliminary Prospectus Supplement
Table of Contents
 
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-67137
 

The information in this prospectus supplement is not complete and may be changed. This prospectus supplement and the accompanying prospectus are not an offer to sell these securities, and they are not soliciting an offer to buy these securities, in any state where the offer or sale is not permitted.

Subject to completion, dated September 3, 2002
 
Prospectus Supplement
September    , 2002
(To Prospectus dated December 2, 1998)
 
$300,000,000
 
The Rouse Company
 
      % Notes due 2012
 
 
We are offering $300,000,000 principal amount of our     % Notes due 2012.
 
The notes will mature on September     , 2012. We will pay interest on the notes on each March      and September     , beginning on March     , 2003.
 
We may redeem some or all of the notes at any time for a make-whole price as described under “Description of the Notes—Optional Redemption.”
 
This prospectus supplement and the accompanying prospectus contain additional information about the terms and conditions of the notes, including covenants and events of default.
 
The notes will not be listed on any securities exchange or included in any quotation system.
 
Investing in the notes involves risks. See “Risk Factors” beginning on page S-7 of this prospectus supplement.
 
 
      
Per Note
     
Total
Public offering price(1)
     
    %        
     
$
        
Underwriting discount
     
    %        
     
$
 
Proceeds to us (before expenses)
     
    %        
     
$
 
(1)
 
Plus accrued interest from September     , 2002 if settlement occurs after that date.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus supplement or the accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
 
We expect that delivery of the notes will be made in book-entry form only through the facilities of The Depository Trust Company on or about September     , 2002.
 
 
Joint Book-Running Managers
 
Banc of America Securities LLC
JPMorgan

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You should rely only on the information contained in or incorporated by reference in this prospectus supplement and the accompanying prospectus. We have not authorized anyone to provide you with different information. We are not making an offer of these securities in any state where the offer is not permitted. You should assume that the information appearing in and incorporated by reference in this prospectus supplement and the accompanying prospectus and the documents incorporated by reference is accurate only as of the respective dates of these documents. Our business, financial condition, results of operations and prospects may have changed since these dates. The terms “Rouse,” “we,” “us” and “our” refer to The Rouse Company and its subsidiaries, unless the context otherwise requires. In the “Prospectus Supplement Summary—The Offering,” “Description of the Notes” and “Plan of Distribution” sections, these terms refer to The Rouse Company only and not its subsidiaries.
 
 
This prospectus supplement and the accompanying prospectus include forward-looking statements that reflect our current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties which could cause actual results to differ materially from historical or anticipated results. The words “will,” “plan,” “believe,” “expect,” “anticipate,” “target” and similar expressions identify forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. See “Risk Factors” and Exhibit 99.1 of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 for a discussion of some of the factors that could cause actual results to differ materially from historical results or those expressed or implied by our forward-looking statements.

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This summary highlights information contained or incorporated by reference in this prospectus supplement and the accompanying prospectus and may not include all of the information that you should consider before deciding to invest in our notes. We urge you to read this prospectus supplement and the accompanying prospectus carefully, including the “Risk Factors” section, as well as the documents incorporated by reference in this prospectus supplement and the accompanying prospectus, including our financial statements and the pro forma financial information therein or incorporated by reference therein.
 
The Rouse Company
 
We are one of the largest publicly traded real estate companies in the United States. We have been publicly traded since 1957 and began operating as a real estate investment trust, or REIT, on January 1, 1998. We engage in our real estate business through subsidiaries, affiliates and non-REIT subsidiaries. Our primary business is the acquisition, development and management of retail centers, office buildings, mixed-use projects and other commercial properties across the United States. We are also the developer of master-planned communities in Columbia, Maryland and Summerlin, Nevada.
 
Objectives and Strategy
 
Our primary strategic focus is to own and manage premier retail centers with multiple anchor stores and high sales and occupancy levels in major metropolitan markets. In pursuit of our strategy, over the last five years we have adjusted our retail portfolio by purchasing new centers, expanding existing centers and selling under-performing centers. While this adjustment has reduced the number of our retail properties, we believe this adjustment has increased our Net Operating Income due to the higher quality of our retail properties. For our definition of Net Operating Income, see note 2 to “Selected Consolidated Financial Data.”
 
On May 3, 2002, we, together with Simon Property Group, Inc. (which we refer to as “Simon”) and Westfield America Trust (which we refer to as “Westfield”), completed the acquisition of substantially all of the properties and other specified assets of Rodamco North America N.V. (which we refer to as “Rodamco”), including a group of major retail centers across the United States. Under a related agreement, we, Simon and Westfield agreed to divide the properties and assets acquired from Rodamco. We acquired, directly or indirectly, interests in eight major retail centers and in other assets. In January and February 2002, we issued a total of 16.675 million shares of common stock and used the net proceeds of $456.3 million primarily to fund a portion of the purchase price of the acquisition of assets from Rodamco. See “Acquisition of Assets from Rodamco” and “Risk Factors” for information concerning the acquisition from Rodamco.
 
Retail Operations
 
Currently, we own or manage 45 regional retail centers, five mixed-use centers with retail space, and three community retail centers. These properties comprise approximately 45 million square feet, or a net of approximately 19 million square feet, excluding space owned by tenants. As of June 30, 2002, our comparable properties were 92.9% occupied, and comparable tenants in these properties produced a weighted average of $406 of sales per square foot over the last twelve months (excluding tenant space over 10,000 square feet). Comparable properties exclude properties that have been acquired or disposed of, are newly developed or have undergone significant expansion in either of the two years being compared. Comparable tenants are those tenants that have been in continuous operation in the same space at the start of two consecutive calendar years. By the end of 2002, we expect to complete the development of the Village of Merrick Park, a luxury mixed-use center in Coral Gables, Florida, and the first phase of the expansion and renovation of Fashion Show, a regional mall on the “strip” in Las Vegas, Nevada.

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Community Development
 
Our community development business, which began in 1962 with the launch of Columbia, generated $75 million of Net Operating Income in 2001. Columbia, a master-planned community located between Baltimore, Maryland and Washington D.C., now has a population of approximately 95,000 residents and is home to businesses that employ approximately 75,000 people. Acquired from the Howard Hughes Corporation in 1996, Summerlin was the best selling master-planned community in the United States for nine of the last ten years according to an independent survey by Robert Charles Lesser & Co., a national real estate consultant. Summerlin now has a population of approximately 60,000 residents and is home to businesses that employ approximately 14,000 people. We own approximately 7,000 remaining saleable acres in Summerlin and approximately 1,700 remaining saleable acres in and around Columbia.
 
Office and Other Real Estate
 
We own or manage more than 120 office, mixed-use and other buildings totaling more than nine million square feet, primarily around our master-planned communities in Maryland and Nevada and in Phoenix, Arizona, Portland, Oregon and Seattle, Washington.
 
Corporate Structure
 
In 2001, we formed The Rouse Company LP, which we refer to as the “operating partnership.” One of our wholly owned subsidiaries is the sole general partner and another wholly owned subsidiary is currently the sole limited partner of the operating partnership. In December 2001, we began the process of transferring some of our assets to the operating partnership. As part of this structuring process, as of December 30 and December 31, 2001, we merged or converted some of our corporate subsidiaries into single-member limited liability companies. As of January 2, 2002, we contributed our interests in these limited liability companies to the operating partnership. This structure, which we refer to as an “UPREIT structure,” is designed to allow us to acquire properties in exchange for limited partnership interests in the operating partnership. Using the UPREIT structure, we could issue limited partnership interests of the operating partnership to persons transferring properties to us who wish to defer taxes on the transfer, but who want to receive a right to convert their limited partnership interests into our stock at a future date in a taxable transaction. We currently expect to complete the conversion to an UPREIT structure in 2003. We have agreed with the lenders under some of our credit facilities that, when and if we complete the conversion to an UPREIT structure, the operating partnership will become jointly and severally liable for all of our obligations under these credit facilities. Concurrently, we will cause the operating partnership to become jointly and severally liable for our obligations under the notes offered by this prospectus supplement.
 
Our principal offices are located at The Rouse Company Building, Columbia, Maryland 21044. Our telephone number is (410) 992-6000. We were incorporated as a business corporation under the laws of the State of Maryland in 1956.

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The Offering
 
Issuer
The Rouse Company.
 
Securities Offered
$300,000,000 principal amount of     % Notes due 2012.
 
Maturity Date
September     , 2012.
 
Interest Payment Dates
March      and September      of each year, beginning on March      2003.
 
Sinking Fund
None.
 
Optional Redemption
We may redeem some or all of the notes at any time for a make-whole price. See “Description of the Notes—Optional Redemption” in this prospectus supplement.
 
Ranking
The notes will be unsecured obligations and will have the same priority as all of our other unsecured and unsubordinated indebtedness from time to time outstanding. However, the notes will be, in effect, subordinated to the secured and unsecured indebtedness of our subsidiaries. See “Description of the Notes—General” and “Risk Factors—Risks Related to the Notes—The notes will be effectively subordinated to debt of our subsidiaries” in this prospectus supplement.
 
Covenants
The notes and the indenture governing the notes contain covenants limiting:
 
 
•
 
our ability and that of our subsidiaries to incur debt;
 
 
•
 
our ability and that of some of our subsidiaries to enter into sale/leaseback transactions; and
 
 
•
 
our ability to consolidate or merge with, or to sell, convey or lease all or substantially all of our assets to, any other entity.
 
These covenants are, however, subject to exceptions. See “Description of the Notes—Covenants” in this prospectus supplement and “Description of Debt Securities—Certain Covenants” and “—Consolidation, Merger, Sale, Conveyance and Lease” in the accompanying prospectus.
 
Global Securities
The notes will be represented by one or more global securities, which will be deposited with a custodian for and registered in the name of a nominee of The Depository Trust Company. DTC will keep records of the owners of beneficial interests in the global securities. Except under limited circumstances, we will not issue certificates evidencing notes to any person other than DTC. See “Description of the Notes—Global Securities” and “—Book-Entry System” in this prospectus supplement.

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Use of Proceeds
We will use the net proceeds from the sale of the notes to repay indebtedness consisting of one or more of the following:
 
 
•
 
all of the approximately $61 million aggregate principal amount of the non-recourse indebtedness of one of our consolidated subsidiaries;
 
 
•
 
all or a portion of the approximately $114.2 million aggregate principal amount of our unsecured 8.5% notes due 2003; and
 
 
•
 
up to approximately $         million of our $392.5 million aggregate outstanding borrowings under a bridge loan facility provided by a group of lenders, including Banc of America Securities LLC, as sole lead arranger, and Banc of America Mortgage Capital Corporation, as administrative agent, in connection with our acquisition of assets from Rodamco.
 
See “Use of Proceeds.”

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Before making an investment decision regarding the notes, you should carefully review the information included in or incorporated by reference in this prospectus supplement and the accompanying prospectus and should, in particular, consider the following matters in connection with an investment in the notes. The value of your investment may increase or decrease. The occurrence of any of the following risks could materially and adversely affect our business, financial condition or results of operations which could result in the loss of all or part of your investment.
 
Risks Related to Our Business
 
Our real property portfolio is affected by economic conditions, local real estate considerations and other factors
 
The revenues and cash flow generated by, and the value of, our properties may be adversely affected by general economic conditions and local economic and real estate conditions, including:
 
 
•
 
the perceptions of prospective tenants or purchasers of the attractiveness of a particular property;
 
 
•
 
the inability to collect rent due to bankruptcy or insolvency of tenants or otherwise; and
 
 
•
 
the level of operating costs.
 
Other factors, including changes in tax laws, interest rates and the availability of financing, may also negatively affect revenues, cash flows and values.
 
Decreases in consumer spending because of recessionary economic conditions, tight consumer credit policies or other factors could adversely affect our results of operations and cash flows. In addition, a portion of our rental revenue is derived from our tenant leases in retail centers which provide for rental payments based upon tenant sales in excess of specified levels.
 
Our business and operating results may be affected by a change in general economic conditions. For example, an increase in interest rates will affect the interest payable on our outstanding floating rate debt and may also result in increased interest expense if fixed rate debt is refinanced at higher interest rates. In addition, domestic or international incidents, such as terrorist attacks, could affect general economic conditions and our business.
 
We are dependent upon rental income from our retail centers and our office and industrial buildings
 
Our results of operations and cash flow are substantially dependent upon rental income from tenants in our retail centers and office and industrial buildings. We would be adversely affected if a significant number of our tenants were unable to meet their obligations or if we were unable to lease a significant amount of space in our properties on economically favorable terms. When a tenant defaults, we may experience delays in enforcing our rights as a landlord and may incur substantial costs in protecting our investment. In addition, the bankruptcy or insolvency or departure of a major tenant at one or more of our properties may have an adverse effect on those properties and could, among other things, make those properties less attractive to consumers or prospective tenants.
 
Uncertainty resulting from terrorist attacks and volatility in financial markets could hurt our operating results
 
Following the September 11, 2001 terrorist attacks, there was considerable uncertainty in world financial markets. The full effect of these events, as well as concerns about future terrorist attacks, on the financial markets is not yet known but could include, among other things, increased volatility in the prices of securities. In

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addition, over the last several months, there has been significant volatility in share prices in the U.S. equity markets. These market conditions, together with the need for heightened security across the country, could cause a decrease in consumer confidence and a general slowdown in economic growth. If these or any other circumstances reduce traffic flow at our retail centers, we could experience lower occupancy rates and rents in the future. These uncertainties could also materially adversely affect our ability to refinance maturing indebtedness or obtain favorable financing for our development activities.
 
We were largely spared direct losses caused by the terrorist attacks of September 11, 2001. Operations were disrupted only at South Street Seaport, a retail center in lower Manhattan that we own and operate. The center was closed for a week following the attacks for use as a staging and rest area for rescue workers. It did not sustain significant physical damage. Customer traffic, tenant sales and rents at South Street Seaport are generally affected by the level of pedestrian and other traffic and other commercial activity in lower Manhattan. While we expect a significant recovery of traffic and commercial activity in lower Manhattan, we are uncertain as to its timing and scope. Accordingly, it is difficult to predict with certainty when, if ever, customer traffic, tenant sales and rents will return to historical levels. Customer traffic at our other retail centers was lighter than usual for several days after the attacks but has generally returned to normal levels at our suburban properties. Traffic at our urban specialty marketplaces is more dependent on tourism and continues to be lighter than historical levels. Las Vegas, in which we have a substantial concentration of assets, experienced a significant decline in visitor activity in the weeks immediately following the attacks. Recent data indicate a recovery of visitor activity in Las Vegas. We cannot assure you that visitor activity in Las Vegas or at our urban specialty marketplaces will return to levels experienced before the attacks.
 
Some of our properties are geographically concentrated and, as a result, are sensitive to local economic and real estate conditions
 
Some of our properties are geographically concentrated. As a result, our results of operations from our office and industrial buildings and land sales depend on local economic and real estate conditions, including the availability of comparable, competing buildings and land. Most of our office and industrial buildings are located in the Baltimore-Washington region, including Columbia, Maryland, and in the Las Vegas, Nevada metropolitan area. Our land sales also relate primarily to land in and around Columbia, Maryland, and Las Vegas, Nevada. These office and industrial buildings and land sales are affected by economic developments in the Baltimore-Washington region and the greater Las Vegas, Nevada metropolitan area, and by local real estate conditions and factors such as applicable zoning laws and the availability of financing for residential and commercial development.
 
Our Nevada properties are vulnerable to special local economic and environmental conditions
 
We own significant properties in Nevada, including the following: approximately 2.2 million rentable square feet of office and industrial space primarily around Las Vegas; Fashion Show, a 773,000 square foot regional shopping center located on the “strip” in Las Vegas, which is currently being expanded, and approximately 7,000 saleable acres of development and investment land located primarily in Summerlin.
 
The Las Vegas metropolitan area is a desert environment where the ability to develop real estate is largely dependent on the continued availability of water. The Las Vegas metropolitan area has a limited supply of water to service future development, and it may not be successful in obtaining new sources of water. If new sources of water prove to be inadequate, our development activities could be adversely affected.
 
The Las Vegas valley is classified as a serious PM-10 nonattainment area by the U.S. Environmental Protection Agency, or EPA. Both PM-10 and carbon monoxide are pollutants for which the EPA has established National Ambient Air Quality Standards. State Implementation Plans, known as “SIPs”, have been developed by the Clark County Air Quality Management Board to maintain EPA standards for carbon monoxide and to achieve EPA standards for PM-10. The SIPs will affect the cost of development but are not expected to have a material

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impact. The SIPs have been deemed complete by the EPA. In the event the EPA does not approve the SIPs, federal sanctions for non-attainment or the imposition of a Federal Implementation Plan could adversely affect our real estate development activities in the Las Vegas valley.
 
The rate of growth in the Las Vegas metropolitan area has been straining the capacity of the existing infrastructure, particularly schools, water delivery systems, transportation systems, flood control programs and sewage treatment facilities. Federal, state and local government agencies finance the construction of infrastructure improvements through various means, including general obligation bond issues, some of which require voter approval. The failure of these agencies to obtain financing for, or to complete, infrastructure improvements could materially delay our development efforts in the area or materially increase our development costs through the imposition of impact fees and other fees and taxes, or by requiring us to construct or fund portions of infrastructure.
 
On February 15, 2002, President George W. Bush notified Congress that, based upon the recommendation of the Secretary of Energy, he recommended the Yucca Mountain site in Nevada to be a suitable location for a repository site for highly radioactive materials. Yucca Mountain is located approximately 100 miles from Las Vegas. In April 2002, the State of Nevada disapproved the site; however, under applicable legislation, that disapproval was overridden when the site was approved by the U.S. House of Representatives on May 8, 2002 and by the U.S. Senate on July 9, 2002. For the project to proceed other approvals are necessary, including a license from the U.S. Nuclear Regulatory Commission. The location of a repository site at Yucca Mountain could have an adverse effect on the Las Vegas economy and on our properties in the Las Vegas area.
 
In addition to Nevada and New Jersey, numerous states have legalized casino gaming and other forms of gambling in recent years. A number of states have also negotiated compacts with Indian tribes under the U.S. Indian Gaming Regulatory Act of 1988 that permit gaming on Indian lands. These additional gaming venues create alternative destinations for gamblers and tourists who might otherwise visit Las Vegas. These gaming venues could have an adverse effect on the Las Vegas economy and on our properties in the Las Vegas area.
 
We understand that Nevada Power Company, the electric utility provider in Southern Nevada, is struggling to recover costs incurred when wholesale energy prices soared in the summer of 2001. In April 2002, the Public Utilities Commission of Nevada disallowed $437 million of a $922 million rate increase application. We also understand, based on reports in the financial press, that Nevada Power Company may be experiencing some financial difficulties, which could impair its ability to do business. In addition to providing electricity, Nevada Power Company constructs infrastructure, such as transformer substations and distribution lines that serve development and investment land located in Summerlin. Any delay or failure of Nevada Power Company to construct infrastructure improvements or provide other utility services could materially delay our development efforts in the area and materially increase our development costs.
 
Our development projects are dependent on financing and governmental approvals and vulnerable to unforeseen costs, delays and uncertain revenue streams
 
Our new project developments are dependent on:
 
 
•
 
the availability of financing; and
 
 
•
 
the receipt of zoning, occupancy and other required governmental permits and authorizations.
 
These projects may be vulnerable to:
 
 
•
 
construction delays or cost overruns that may increase project costs;
 
 
•
 
the failure to achieve or sustain anticipated occupancy or sales levels; and
 
 
•
 
decisions not to proceed with projects, which will result in the write-off of costs.

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We may acquire or develop new properties, and this activity is subject to various risks
 
We intend to continue to pursue development and expansion activities as opportunities arise. In connection with any development or expansion, we will be subject to various risks, including the following:
 
 
•
 
we may abandon development or expansion opportunities that we explore;
 
 
•
 
construction costs of a project may exceed original estimates or available financing, possibly making the project unprofitable;
 
 
•
 
we may not be able to obtain financing or to refinance construction loans, which generally have full recourse to us;
 
 
•
 
the receipt of zoning, occupancy and other required governmental permits and authorizations;
 
 
•
 
rents and operating costs at a completed project may not meet projections and, therefore, the project may not be profitable; and
 
 
•
 
we may need anchor, mortgage lender and property partner approvals, if applicable, for expansion activities.
 
If a development project is unsuccessful, our loss could exceed our investment in the project.
 
Our properties are uninsured against some catastrophic losses
 
We carry liability, fire, flood, extended coverage and rental loss insurance on our properties with insurance limits and policy specifications that we believe are customary for similar properties. However, some losses of a catastrophic nature, such as wars, earthquakes or other similar catastrophic events, may be either uninsurable or, in our judgment, not insurable on a financially reasonable basis. Since September 11, 2001, losses related to terrorism have become harder and more expensive to insure against, and we have generally not been able to obtain all risk insurance policies covering our real estate that include general coverage for terrorist acts. Rather, we now insure our properties against terrorism under primary and excess policies with an aggregate total limit of $100 million which is a lower level of coverage than before September 11, 2001. If a major uninsured loss occurs, we could lose both our invested capital in and anticipated profits from the affected property. Therefore, we are at risk for financial loss in excess of these limited amounts for terrorist acts as defined by the policies, which loss could be material.
 
Various debt instruments of ours other than the notes, including mortgage loans secured by our properties, our revolving credit agreement and bridge facility, contain customary covenants requiring us to maintain insurance. The lenders under these instruments may take the position that an exclusion from all risk insurance coverage for losses due to terrorist acts is a breach of these debt instruments that allows the lenders to declare an event of default and accelerate repayment of the debt. In addition, if lenders insist on coverage for these risks, it could adversely affect our ability to finance or refinance our properties and to expand our portfolio.
 
We invest in real estate investments which may be illiquid
 
Real estate investments are relatively illiquid, and some of our properties are subject to restrictions on transfer. This illiquidity tends to limit our ability to vary our portfolio promptly in response to changes in economic or other conditions. In addition, significant expenditures associated with each real estate investment, such as mortgage payments, real estate taxes and maintenance costs, are generally not reduced when circumstances cause a reduction in revenue from the investment. If revenue from a property declines while the related expenses do not decline, our earnings and cash flow from operations would be adversely affected. A significant portion of our properties are mortgaged to secure payment of indebtedness, and if we were unable to meet our mortgage payments, we could lose money as a result of foreclosure on the properties by the various mortgagees. In addition, if it becomes necessary or desirable for us to dispose of one or more of the mortgaged properties, we might not be able to obtain a release of the lien on the mortgaged property without payment of the associated debt. We own several of our properties jointly with other partners. Contractual arrangements with joint owners may also limit our ability to transfer, sell or refinance these properties without the consent of third parties.

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We are subject to extensive environmental regulation which could impose higher costs or liabilities on us
 
We, as an owner, operator and manager of real property, are subject to extensive regulation under federal, state and local environmental laws. These laws are subject to change from time to time and could impose higher costs or liabilities on us.
 
Under various environmental laws, a current or previous owner or operator of real property may become liable for the costs of the investigation, removal and remediation of hazardous or toxic substances on, under, in or migrating from that property. These laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence of the hazardous or toxic substances. The presence of hazardous or toxic substances, or the failure to remediate hazardous or toxic substances when present, may impair our ability to sell or rent the real property or to borrow using that property as collateral.
 
Persons who arrange for the disposal or treatment of hazardous or toxic wastes may also be liable for the costs of the investigation, removal and remediation of such wastes at the disposal or treatment facility, regardless of whether the facility is owned or operated by that person. Other environmental laws require abatement or removal of asbestos-containing materials when demolishing, renovating or remodeling, impose worker protection and notification requirements and govern emissions of and exposure to asbestos fibers in the air.
 
Environmental laws also strictly regulate underground storage tanks to prevent leakage or other releases of hazardous substances into the environment. We could be held liable for costs associated with the release of regulated substances or related claims because of our ownership, operation and/or management of properties containing underground storage tanks. In addition to remediation actions brought by governmental agencies, the presence of hazardous substances on a property could result in personal injury or similar claims by private plaintiffs. These claims could result in costs or liabilities which could exceed the value of that property.
 
We generally conduct environmental reviews of properties that we acquire and develop. However, these reviews may fail to identify all environmental or similar problems prior to acquisition. We are not aware of any environmental condition, or notification by any private party or governmental authority of any non-compliance, liability or other claim related to any environmental condition at any of our properties that would require material expenditures by us. However, we could become subject to such claims or liabilities in the future.
 
We are subject to competition from other participants in the real estate industry
 
We face considerable competition from other developers, managers and owners of real estate in pursuing leasing and management revenues, land for development, property acquisitions and tenants for properties. We may not be successful in responding to or addressing competitive conditions.
 
We are a real estate investment trust and will continue to be subject to complex current and future tax requirements
 
We began operating as a REIT under the Internal Revenue Code of 1986, as amended, on January 1, 1998. We may in the future become owned and organized, or operate, in a manner so as to disqualify us as a REIT. In order to qualify for and maintain our REIT status, we must meet organizational and operational requirements. We believe that our organization and method of operation enable us to meet the current tax law requirements for qualification as a REIT. However, qualification for REIT status requires compliance with complex limitations on the type and amount of income and assets that a REIT may receive or hold.
 
In order to maintain our REIT qualification, we must make distributions to our stockholders, aggregating annually at least 90% of our REIT taxable income (which does not include net capital gains). The actual amount of our future distributions to our stockholders will be based on the cash flows from operations from properties and from any future investments and on our net taxable income. We could have taxable income without sufficient cash to enable us to meet the distribution requirements applicable to a REIT. As a result, we may have to borrow funds or sell investments on less than favorable terms or pay taxable stock dividends to meet distribution requirements.

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If we fail to qualify, or fail to maintain our qualification, as a REIT, we would have to pay federal income tax, including any applicable alternative minimum tax, on our taxable income at corporate rates. In addition, distributions to our stockholders would no longer be deductible. Unless entitled to relief under statutory provisions, we would also be disqualified from treatment as a REIT for the four taxable years following the year in which qualification was lost. This treatment would reduce our cash flow, as well as net earnings available for investment or distribution to stockholders, because of the additional tax liabilities for the year or years involved. Moreover, during any period of disqualification, we would no longer be required by the Internal Revenue Code to make any distributions as a condition to REIT qualification. To the extent that distributions to stockholders would have been made in anticipation of our continuing to qualify as a REIT, we might be required to borrow funds or liquidate investments on adverse terms to pay the applicable tax.
 
Future economic, market, legal, tax or other considerations may cause us to determine that it is in our best interest and the best interest of our stockholders to revoke our REIT election. We would then be disqualified from electing treatment as a REIT for the four taxable years following the year of the revocation.
 
Recent stock market declines have affected the value of the assets in our qualified defined benefit pension plan and we may elect to make additional contributions to the plan to maintain or improve the funded status of the plan
 
A significant portion of the assets of our qualified defined benefit pension plan consists of marketable equity securities that have declined in value in recent months. We presently intend to make discretionary contributions of approximately $10 million to the plan in 2002, a level similar to the contributions we made in 2001, and we may choose to make additional contributions depending on the value of the plan’s assets at year end. The qualified plan currently meets the funding requirements of the Employee Retirement Income Security Act of 1974 and we do not expect to be required to make further contributions in 2002 under ERISA guidelines. A failure to make additional discretionary contributions could result in the recognition of an additional minimum pension liability under generally accepted accounting principles, depending on the value of plan assets at December 31, 2002. Recognition of an additional minimum pension liability would have no effect on our net earnings, but would impact shareholders’ equity and comprehensive income.
 
Risks Related to the Acquisition of Assets from Rodamco
 
Properties designated for sale which were acquired jointly may not be sold on the anticipated time schedule or at the prices expected
 
We, Simon and Westfield have agreed to own jointly some of the properties acquired in the acquisition of assets from Rodamco. We and the other two purchasers have designated some of these jointly-owned properties for sale or other disposition. We will not have independent control over the timing and manner of the sales of the remaining properties, but rather will have to make decisions jointly with the other two purchasers. These sales will be, in many cases, subject to consent or first refusal rights that may delay the sale or reduce the expected price. As a result, we cannot be certain as to the timing or terms of any potential sale of these assets.
 
We share control of some of the acquired properties with the other two purchasers and may have conflicts of interest with those purchasers
 
We own a number of the acquired properties jointly with Simon and Westfield. The consent of each of these other purchasers could be required with respect to financing, encumbering, expanding or selling any of these properties. We might not have the same interests as Simon and Westfield in relation to these properties. Accordingly, we might not be able to favorably resolve any of these issues, or we might have to provide financial or other inducement to the other purchasers to obtain a favorable resolution.

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In addition, various restrictive provisions and approval rights apply to sales or transfers of interests in the jointly-owned properties. Among other things, we might be required to make decisions about buying or selling interests in a property or properties at a time that is disadvantageous to us.
 
We may be responsible for unknown material liabilities
 
We may be exposed to liabilities relating to Rodamco that we may have failed to discover. These liabilities may include liabilities that arise from noncompliance with environmental laws by prior owners for which we, as a successor owner, will be responsible. Our purchase agreement with Rodamco does not provide for indemnification of us by Rodamco. Rodamco has already distributed to its stockholders substantially all of the proceeds paid to Rodamco for the assets and is currently winding up operations in connection with its dissolution.
 
We acquired partnership interests with existing partners who have tax protection arrangements in place
 
We acquired our interests in some former Rodamco properties by acquiring interests in existing partnerships. These existing partnerships have arrangements in place that protect the deferred tax situation of existing third party limited partners. Violation of these arrangements could impose costs on us. As a result, we may be restricted with respect to decisions such as financing, encumbering, expanding or selling these properties.
 
We may not be able to achieve the anticipated financial and operating results from our newly acquired assets
 
We believe that the acquisition from Rodamco will enhance our future financial performance, including our net earnings, cash flow from operations, Net Operating Income and Funds From Operations. This belief is subject to risks, uncertainties and other factors, many of which are beyond our control, that could cause actual results to differ materially from anticipated results. In addition, this belief is based on certain assumptions, many of which are forward-looking and uncertain in nature, including assumptions regarding our ability to:
 
 
•
 
integrate and manage our new properties in a way that will allow us to realize cost savings and synergies;
 
 
•
 
increase the occupancy rates and rents at our new properties;
 
 
•
 
dispose of the assets which are intended to be sold within the periods and on the terms we currently anticipate; and
 
 
•
 
raise long-term financing that will allow us to implement a capital structure at a cost of capital consistent with our objectives and expectations.
 
Factors that could cause our future financial performance to differ from our beliefs include the factors discussed in this “Risk Factors” section as well as in Exhibit 99.1 to our Quarterly Report on Form 10-Q for the period ended June 30, 2002. As a result of the risks and uncertainties attendant with the forward-looking statements described above and their underlying assumptions, investors should not rely upon our forward-looking statements as predictions of actual results.
 
Investors may not have effective remedies against Arthur Andersen, which audited the financial statements of entities owning or holding some of the properties acquired from Rodamco.
 
The financial statements for some of the properties acquired from Rodamco were audited by Arthur Andersen LLP. After reasonable efforts, we have not been able to obtain the consent of Arthur Andersen to include or incorporate by reference its audit reports with respect to these financial statements in the registration statement used in connection with this offering. Accordingly, you will not have a remedy against Arthur Andersen under Section 11 of the Securities Act of 1933 for any material misstatements or omissions in those financial statements because Arthur Andersen will not have consented to the inclusion or incorporation by reference of its audit reports in the registration statement.

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Risks Related to the Notes
 
The notes will be effectively subordinated to debt of our subsidiaries
 
We are a holding company that has no significant assets other than investments in our subsidiaries. As a holding company, we are dependent upon dividends, loans or advances, or other intercompany transfers of funds from our subsidiaries to meet our debt service and other obligations. Generally, creditors of a subsidiary have a claim to the assets and earnings of that subsidiary superior to that of creditors of its parent company. The notes will, therefore, be effectively subordinated to indebtedness and other obligations of our direct and indirect subsidiaries. In the event of a bankruptcy, liquidation or dissolution of a subsidiary, and following payment of its indebtedness and other liabilities, that subsidiary may not have sufficient assets remaining to make payments to us as a stockholder or otherwise. At June 30, 2002, our consolidated subsidiaries had $3.38 billion of outstanding indebtedness excluding intercompany debt.
 
We have a significant number of subsidiaries, which have generally been organized to own, operate or manage specific properties. A significant portion of our consolidated indebtedness consists of debt incurred by these subsidiaries that is secured by mortgages on properties, but that is not guaranteed by, or otherwise recourse to, us as a holding company. In addition, substantially all of our properties, other than land held for development and sale in Columbia, Maryland and Summerlin, Nevada, are mortgaged in favor of lenders to our subsidiaries. Accordingly, only a small part of our properties and other assets, other than land held for development and sale and our investments in subsidiary companies, remains unencumbered by mortgages and other liens and security interests.
 
Our subsidiaries are separate legal entities that have no obligation to pay any amounts due under the notes or to make any funds available for that purpose, whether by dividends, loans or advances, or other intercompany transfers. The ability of our subsidiaries to pay dividends and make other payments to us may also be restricted by, among other things, applicable corporate and other laws as well as loan and other agreements to which those subsidiaries may be party.
 
You may be unable to sell your notes if a trading market for the notes does not develop
 
The notes are securities for which there is currently no established trading market, and none may develop. We do not intend to list the notes on any national securities exchange or automated quotation system. We do not know whether an active trading market for the notes will develop or, if a market develops, we cannot assure you as to the liquidity of the market. The liquidity of any market for the notes will depend on the number of holders of the notes, the interest of securities dealers in making a market in the notes and other factors. The price at which you may be able to sell the notes may be less than the price you pay for them due to prevailing interest rates, the market for similar securities, general economic conditions, our performance and business prospects and other factors.

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We estimate that the net proceeds from the sale of the notes will be approximately $             million after deducting underwriting discounts and commissions but not other transaction expenses. We will use the net proceeds from the sale of the notes to repay indebtedness consisting of one or more of the following:
 
 
•
 
all of the approximately $61 million aggregate principal amount of the non-recourse indebtedness of one of our consolidated subsidiaries;
 
 
•
 
all or a portion of the approximately $114.2 million aggregate principal amount of our unsecured 8.5% notes due 2003; and
 
 
•
 
up to approximately $             million of our $392.5 million aggregate outstanding borrowings under a bridge loan facility provided by a group of lenders, including Banc of America Securities LLC, as sole lead arranger, and Banc of America Mortgage Capital Corporation, as administrative agent, in connection with our acquisition of assets from Rodamco.
 
Pending these payments, we plan to hold a portion of the net proceeds of this offering in short-term investments or temporarily to reduce borrowings under our existing $375 million revolving credit facility.
 
The bridge loan facility has an initial maturity of November 3, 2002, and we have the right to extend the maturity on up to $320 million of borrowings for an additional six months and on up to $225 million for another six months thereafter. Borrowings under the bridge loan facility currently bear interest at a rate of LIBOR plus 1.5%, equivalent to 3.375% per year at June 30, 2002.
 
Our unsecured 8.5% notes due 2003 bear interest at an annual rate of 8.5% and mature on January 15, 2003. In connection with the prepayment of these notes, we will incur a prepayment charge of approximately $            .
 
Our non-recourse indebtedness to be prepaid bears interest at an annual rate of a weighted average of 7.35% and matures on April 1, 2003.

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The following table sets forth the consolidated short-term debt and capitalization of Rouse and its subsidiaries at June 30, 2002, and as adjusted to give effect to this offering (before deducting transaction costs payable by us in connection with this offering) and the application of the net proceeds therefrom. See “Use of Proceeds.”
 
    
June 30, 2002
  
    
Actual
     
As Adjusted
  
    
(in thousands)
  
Short-term debt(1)
   
$
751,729
 
   
$
451,729
 
    
  
Long-term debt:
                  
Parent Company debt and debt carrying a Parent Company guarantee of repayment:
                  
Property debt
   
$
103,620
 
   
$
103,620
 
Other debt
   
 
514,098
 
   
 
814,098
 
Property debt not carrying a Parent Company guarantee of repayment
   
 
3,014,321
 
   
 
3,014,321
 
Long-term portion of capital lease obligations
   
 
17,342
 
   
 
17,342
 
    
  
Total long-term debt
   
 
3,649,381
 
   
 
3,949,381
 
    
  
Parent Company-obligated mandatorily redeemable preferred securities of a Trust holding solely Parent Company subordinated debt securities
   
 
136,965
 
   
 
136,965
 
    
  
Shareholders’ equity:
                  
Preferred stock, par value $.01 per share; 50,000,000 shares authorized; 4,050,000 shares of Series B Convertible Preferred stock, par value $.01 per share, issued and outstanding
   
 
41
 
   
 
41
 
Common stock, par value $.01 per share; 250,000,000 shares authorized; 86,747,385 shares issued and outstanding
   
 
867
 
   
 
867
 
Additional paid-in capital
   
 
1,229,657
 
   
 
1,229,657
 
Accumulated deficit
   
 
(63,095
)
   
 
(63,095
)
Accumulated other comprehensive income (loss)
   
 
(8,952
)
   
 
(8,952
)
    
  
Net shareholders’ equity
   
 
1,158,518
 
   
 
1,158,518
 
    
  
Total capitalization(2)
   
$
4,944,864
 
   
$
5,244,864
 
    
  
(1)
 
Short-term debt consists of the current portion of both long-term and capital lease obligations.
(2)
 
Total capitalization consists of long-term debt, Rouse-obligated mandatorily redeemable preferred securities of a trust holding solely Rouse subordinated debt securities, and net shareholders’ equity (and excludes short-term debt).

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The following selected consolidated financial data for the years ended December 31, 1997, 1998, 1999, 2000 and 2001 are based upon our consolidated financial statements and the five-year comparison of selected consolidated financial data contained in our Annual Report on Form 10-K for the year ended December 31, 2001, except that various amounts have been reclassified to give effect to the matters described in note 1. The following selected consolidated financial data for the six month periods ended June 30, 2001 and 2002 have been derived from, and are qualified by reference to, our unaudited financial statements contained in our Quarterly Report on Form 10-Q for the period ended June 30, 2002. The unaudited financial statements for these six-month periods include all adjustments, consisting of normal, recurring adjustments, which we consider necessary for a fair presentation of our financial condition at the end of, and our results of operations for, the periods indicated. The financial data should be read in conjunction with our consolidated financial statements contained in our reports incorporated by reference in the accompanying prospectus. See “Additional Information” in the accompanying prospectus. Results of operations for six-month periods are not necessarily indicative of results for full years.
 
    
Years Ended December 31,
     
Six Months Ended
June 30,
  
    
1997
     
1998
     
1999
     
2000
     
2001
     
2001
     
2002
  
    
(unaudited, in thousands, except ratios)
 
Operating results data(1):
                                                               
Revenues from continuing operations
   
$
892,607
 
   
$
602,532
 
   
$
624,494
 
   
$
624,425
 
   
$
947,057
 
   
$
488,393
 
   
$
   492,446
 
Earnings from continuing operations
   
 
169,322
 
   
 
109,798
 
   
 
155,258
 
   
 
170,315
 
   
 
112,139
 
   
 
57,795
 
   
 
89,420
 
Balance sheet data:
                                                               
Total assets
   
 
3,483,650
 
   
 
5,033,331
 
   
 
4,233,101
 
   
 
4,175,538
 
   
 
4,880,443
 
   
 
4,734,477
 
   
 
6,279,297
 
Total debt and capital lease obligations
   
 
2,586,260
 
   
 
3,943,902
 
   
 
3,155,312
 
   
 
3,058,038
 
   
 
3,501,398
 
   
 
3,455,978
 
   
 
4,401,110
 
Shareholders’ equity
   
 
465,515
 
   
 
628,926
 
   
 
638,580
 
   
 
630,468
 
   
 
655,360
 
   
 
651,279
 
   
 
1,158,518
 
Other selected data:
                                                               
Net Operating Income(1)(2)
   
 
411,029
 
   
 
451,411
 
   
 
534,199
 
   
 
556,468
 
   
 
558,537
 
   
 
279,920
 
   
 
282,873
 
Funds From Operations(3)
   
 
186,216
 
   
 
206,670
 
   
 
242,735
 
   
 
260,723
 
   
 
283,751
 
   
 
140,533
 
   
 
144,608
 
Net cash provided (used) by:
                                                               
Operating activities
   
 
187,227
 
   
 
268,065
 
   
 
197,288
 
   
 
261,240
 
   
 
301,754
 
   
 
176,826
 
   
 
153,934
 
Investing activities
   
 
(330,289
)
   
 
(1,027,040
)
   
 
28,629
 
   
 
(275
)
   
 
(126,595
)
   
 
(41,037
)
   
 
(787,766
)
Financing activities
   
 
180,878
 
   
 
720,611
 
   
 
(237,389
)
   
 
(273,713
)
   
 
(157,778
)
   
 
(130,625
)
   
 
632,466
 
Ratio of earnings to fixed charges(4)
   
 
1.26
 
   
 
1.28
 
   
 
1.46
 
   
 
1.55
 
   
 
1.60
 
   
 
1.68
 
   
 
1.90
 
(1)
 
In October 2001, the Financial Accounting Standards Board issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” and APB Opinion No. 30, “Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.” SFAS No. 144 does not change the fundamental provisions of SFAS No. 121; however, it resolves various implementation issues of SFAS No. 121 and establishes a single accounting model for long-lived assets to be disposed of by sale. It retains the requirement of Opinion No. 30 to report separately discontinued operations, and extends that reporting for all periods presented for a component of an entity that, subsequent to or on January 1, 2002, either has been disposed of (by sale, abandonment, or in distribution to owners) or is classified as held for sale. Additionally, SFAS No. 144 requires that assets and liabilities of components held for sale, if material, be disclosed separately in the balance sheet. We adopted SFAS No. 144 effective January 1, 2002 and the amounts related to the six month periods ended June 30, 2001 and 2002 already reflect these changes.
 
Under the provisions of SFAS No. 144, we classified 11 community retail centers in Columbia, Maryland and Tampa Bay Center as properties held for sale in 2002. Accordingly, we have classified the operating results of these properties as discontinued operations for all periods presented. We sold the 11 community retail centers in April 2002, and expect to sell Tampa Bay Center during 2002. We decided to sell these properties as they do not meet the criteria of one of our primary business strategies of owning and operating large-scale premier shopping centers.

(footnotes continued on next page)

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Operating results of properties sold or classified as held for sale in 2002 previously shown as revenues, expenses and earnings from continuing operations are included in discontinued operations for all periods presented and are summarized as follows:
 
   
Years Ended December 31,
  
   
1997
    
1998
    
1999
    
2000
  
2001
  
   
(in thousands)
  
Revenues
  
$
24,164
 
  
$
11,269
 
  
$
11,384
 
  
$
8,959
  
$
19,280
 
Operating expense, exclusive of depreciation and amortization
  
 
11,860
 
  
 
6,370
 
  
 
6,664
 
  
 
5,950
  
 
9,429
 
Interest expense
  
 
9,328
 
  
 
4,807
 
  
 
3,362
 
  
 
2,248
  
 
5,479
 
Depreciation and amortization
  
 
3,045
 
  
 
910
 
  
 
781
 
  
 
1,408
  
 
3,876
 
Other provisions and losses, net
  
 
389
 
  
 
—
 
  
 
—
 
  
 
—
  
 
—
 
Net losses on operating properties
  
 
—
 
  
 
—
 
  
 
21,919
 
  
 
694
  
 
—
 
Income tax provision—primarily deferred
  
 
314
 
  
 
—
 
  
 
—
 
  
 
—
  
 
1,518
 
Equity in earnings of unconsolidated real estate ventures
  
 
—
 
  
 
551
 
  
 
1,381
 
  
 
1,511
  
 
—
 
   
 
 
 
 
Total
  
$
(772
)
  
$
(267
)
  
$
(19,961
)
  
$
170
  
$
(1,022
)
   
 
 
 
 
 
In order to conform to general industry practice, we have also reclassified certain building and land improvement costs that are recoverable from tenants from other assets to property. Depreciation of these assets for the years ended December 31, 2001, 2000, 1999, 1998 and 1997 was $8.0 million, $6.2 million, $6.3 million, $6.7 million and $6.6 million, respectively. In addition, we revised our definitions of Net Operating Income and Funds From Operations to exclude corporate streamlining and early retirement program costs. These costs were approximately $11.3 million in 1999 and none in the other years presented.
 
In April 2002, the Financial Accounting Standards Board issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” Upon adoption of SFAS No. 145, we are required to apply the criteria in Accounting Principles Board Opinion No. 30, “Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,” in determining the classification of gains and losses resulting from the early extinguishment of debt.
 
SFAS No. 145 is effective for us on January 1, 2003 with early adoption of the provisions related to the rescission of SFAS No. 4 encouraged. We adopted the provisions relating to the rescission of SFAS No. 4 on April 1, 2002. Upon adoption, we determined that gains and losses we recognized on early extinguishment of debt were not extraordinary items and accordingly reclassified them as components of earnings from continuing operations. The amounts reclassified are as follows:
 
    
Years Ended December 31,
  
    
1997
     
1998
     
1999
     
2000
   
2001
  
    
(in thousands)
  
Other provisions and losses
   
$
(32,834
)
   
$
5,470
 
   
$
(5,879
)
   
$
2,200
   
$
(446
)
Equity in earnings of unconsolidated real estate ventures
   
 
—
 
   
 
(1,115
)
   
 
—
 
   
 
—
   
 
(250
)
Income tax benefit—primarily deferred
   
 
11,492
 
   
 
—
 
   
 
—
 
   
 
—
   
 
—
 
    
  
  
  
  
Amount previously reported as extraordinary items
   
$
(21,342
)
   
$
4,355
 
   
$
(5,879
)
   
$
2,200
   
$
(696
)
    
  
  
  
  
 
(2)
 
We use Net Operating Income, or “NOI”, to assess operating results for our reportable segments. We define NOI as net earnings (computed in accordance with accounting principles generally accepted in the U.S.), excluding cumulative effects of changes in accounting principles, gains (losses) on early extinguishment of debt, gains (losses) on operating properties, certain other provisions and losses, real estate depreciation and amortization, deferred income taxes, certain current income taxes, ground rent expense, interest expense (net of interest income earned on corporate investments) and other financing expenses. Other financing expenses include distributions on Rouse-obligated mandatorily redeemable preferred securities and certain preference returns to partners.
 
(3)
 
We use a supplemental performance measure, Funds From Operations, or “FFO”, along with net earnings to report our results of operations. The National Association of Real Estate Investment Trusts defines FFO as net earnings (computed in accordance with accounting principles generally accepted in the U.S.), excluding

 
(footnotes continued on next page)

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Table of Contents
 
cumulative effects of changes in accounting principles, extraordinary or unusual items and gains or losses from debt restructurings and sales of properties, plus depreciation and amortization, and after adjustments for minority interests and to record unconsolidated partnerships and joint ventures on the same basis. We also exclude deferred income taxes, certain current taxes and certain other provisions and losses from our computation of FFO. FFO is not a measure of results of operations or cash flows from operating activities as defined by accounting principles generally accepted in the U.S. In addition, FFO is not necessarily indicative of cash available to fund cash needs, including the payment of dividends, and should not be considered as an alternative to cash flows as a measure of liquidity.
 
NOI and FFO are reconciled to earnings from continuing operations as follows:
 
    
Years Ended December 31,
     
Six Months Ended June 30,
  
    
1997
     
1998
     
1999
     
2000
     
2001
     
2001
     
2002
  
    
(in thousands)
 
Net Operating Income
   
$
411,029
 
   
$
451,411
 
   
$
534,199
 
   
$
556,468
 
   
$
558,537
 
   
$
279,920
 
   
$
282,873
 
Ground rent, interest and other financing expenses
   
 
(224,813
)
   
 
(244,741
)
   
 
(291,464
)
   
 
(295,745
)
   
 
(274,786
)
   
 
(139,387
)
   
 
(138,265
)
    
  
  
  
  
  
  
Funds From Operations
   
 
186,216
 
   
 
206,670
 
   
 
242,735
 
   
 
260,723
 
   
 
283,751
 
   
 
140,533
 
   
 
144,608
 
Depreciation and amortization
   
 
(81,274
)
   
 
(83,466
)
   
 
(100,067
)
   
 
(95,121
)
   
 
(129,666
)
   
 
(62,874
)
   
 
(71,468
)
Deferred income taxes and certain current income taxes
   
 
131,080
 
   
 
—
 
   
 
—
 
   
 
—
 
   
 
(24,632
)
   
 
(10,387
)
   
 
(13,981
)
Net gains (losses) on operating properties
   
 
(22,426
)
   
 
(6,109
)
   
 
63,092
 
   
 
33,844
 
   
 
(432
)
   
 
(239
)
   
 
48,824
 
Funds From Operations of discontinued operations
   
 
(2,989
)
   
 
(3,892
)
   
 
(6,494
)
   
 
(6,160
)
   
 
(4,372
)
   
 
(2,260
)
   
 
(492
)
Net gains (losses) on early extinguishment of debt and certain other provisions
   
 
(32,834
)
   
 
5,470
 
   
 
(14,998
)
   
 
2,200
 
   
 
(446
)
   
 
(451
)
   
 
(10,894
)
Depreciation and amortization, gains (losses) on operating properties, gains (losses) on early extinguishment of debt and deferred income taxes of unconsolidated real estate ventures, net
   
 
(8,451
)
   
 
(8,875
)
   
 
(29,010
)
   
 
(25,171
)
   
 
(12,064
)
   
 
(6,527
)
   
 
(7,177
)
    
  
  
  
  
  
  
Earnings before discontinued operations and cumulative effect of change in accounting
   
$
169,322
 
   
$
109,798
 
   
$
155,258
 
   
$
170,315
 
   
$
112,139
 
   
$
57,795
 
   
$
89,420
 
    
  
  
  
  
  
  
 
(4)
 
The ratio of earnings to fixed charges is computed by dividing fixed charges into net earnings before income taxes, discontinued operations and cumulative effect of change in accounting principles, adjusted for minority interest in earnings, amortization of interest costs previously capitalized and certain other items, plus fixed charges other than capitalized interest. Fixed charges include interest costs, distributions on company-obligated mandatorily redeemable preferred securities, the estimated interest component of rent expense and certain other items.

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On May 3, 2002, we, Simon and Westfield acquired substantially all of the properties and other specified assets of Rodamco. The primary assets we acquired include direct or indirect ownership interests in eight regional retail centers, leased primarily to national retailers and are set forth in the following table. For further descriptions of these properties, see “Properties of The Rouse Company” below.
 
Property
   
Interest Acquired
  
Collin Creek(1)(2)
   
70
%
Lakeside Mall(1)
   
100
%
North Star(1)(2)
   
96
%
Oakbrook Center(3)
   
47
%
Perimeter Mall(1)(2)(4)
   
50
%
The Streets at Southpoint(5)
   
94
%
Water Tower Place(3)
   
52
%
Willowbrook(1)(2)
   
62
%
 
 
(1)
 
As a result of the acquisition, we own 100% interests in these properties.
 
(2)
 
Properties were owned by existing joint ventures between Rodamco and us.
 
(3)
 
Properties also contain office space.
 
(4)
 
We have agreed to contribute our ownership interest in Perimeter Mall to a joint venture in exchange for a 50% interest in that joint venture and a cash distribution.
 
(5)
 
Property began operations in March 2002.
 
Other primary assets acquired from Rodamco include a 100% interest in a parcel of land and building at Collin Creek that is leased to a Dillard’s department store and a 99% noncontrolling interest in an entity that is developing a portion of the expansion of Fashion Show on land that is leased from us.
 
The purchasers also jointly acquired interests in several other assets, primarily:
 
 
•
 
a 50% interest in Westin New York, a hotel under development in New York City;
 
 
•
 
a 40% interest in River Ridge Mall, a retail center in Lynchburg, VA;
 
 
•
 
Sawmill Place Plaza, a retail center in Columbus, OH;
 
 
•
 
a 50% interest in Durham Associates, a partnership that owns and operates South Square Mall, a regional shopping center in Durham, NC that was sold by the purchasers on August 2, 2002;
 
 
•
 
a 59.17% interest in Kravco Investments, L.P., a limited partnership that owns investments in retail centers, primarily in the greater Philadelphia area;
 
 
•
 
a 9.84% investment in MerchantWired, a joint venture with other real estate companies to provide broadband telecommunication services to tenants;
 
 
•
 
purchase money notes receivable that arose from the sales of other assets of Rodamco; and
 
 
•
 
Urban Retail Properties Co., a property management company.
 
Our ownership interest in these jointly held assets is 27.285%. The purchasers intend to sell the interests in River Ridge Mall and Sawmill Place Plaza.

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Table of Contents
 
In the second quarter of 2002, we and the other real estate companies participating in the MerchantWired joint venture decided to discontinue the operations of the venture. Accordingly, we recorded an impairment provision for the entire amount of our net investment in the venture.
 
The purchasers intend to operate Urban Retail Properties Co. primarily to manage properties held by others. The purchasers’ plans for Urban Retail Properties Co. include significant staffing reductions and will cause the purchasers to incur significant severance costs. Our share of these and other costs that may be incurred in order to operate Urban Retail Properties Co. in accordance with the purchasers’ intentions is expected to be in the range of $4 million to $6 million. The purchasers presently intend to hold the other jointly held investments.
 
Our share of the purchase price was approximately $1.59 billion, including the assumption of an aggregate of $772 million of Rodamco obligations, as described below. We paid approximately €605 million, or approximately $546 million based on exchange rates then in effect, to Rodamco at closing. We also used approximately $257 million to retire some of the obligations of Rodamco and to pay transactions costs. Our share of the debt secured by the properties in which we acquired interests was approximately $675 million, and our share of subsidiary perpetual preferred stock assumed by the purchasers was approximately $24 million. In addition, we acquired a limited partnership interest in an entity developing a portion of the expansion of Fashion Show, a retail center in Las Vegas, Nevada. Our share of the debt of this entity at the time of the acquisition was approximately $72 million, which we had previously guaranteed pursuant to a lease agreement. The $675 million of debt does not include the debt secured by properties we acquired or by the Fashion Show expansion and does not include debt encumbering properties held by the purchasers jointly which totaled approximately $14 million. Our share of the purchase price was based on the allocated prices of the operating properties that we acquired, directly or indirectly, our share of properties we own jointly with Simon and Westfield and our share of Rodamco’s obligations retired and the transaction expenses for the acquisition. The aggregate purchase price was determined as a result of negotiations between Rodamco and the purchasers; our portion of the aggregate purchase price was determined as a result of negotiations among the purchasers.
 
Funds for the payment of our $803 million cash portion of the purchase price were provided as follows:
 
 
•
 
$279 million from a public offering of our common stock in January and February 2002;
 
 
•
 
$392.5 million from a bridge loan facility provided by Banc of America Securities LLC and Banc of America Mortgage Capital Corporation;
 
 
•
 
approximately $111 million from the sale of 11 community retail centers in Columbia, Maryland in March 2002; and
 
 
•
 
approximately $20 million from the sale of our 50% interest in Franklin Park in Toledo, Ohio.

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Table of Contents
 
Pro Forma Financial Information Relating to the Acquisition from Rodamco
 
We prepared pro forma consolidated results of operations for the six months ended June 30, 2002, assuming that the acquisition of assets from Rodamco and the sales of assets used to fund a portion of the cash requirement of the acquisition occurred on January 1, 2002. The unaudited pro forma condensed consolidated statements of operations contain certain adjustments, which are explained below, to give effect to the acquisitions of the interests in the acquired properties. The historical statements of revenues and certain expenses of the acquired properties exclude certain expenses that would not be comparable with those resulting from the proposed future operations. The adjustments include results of operations for the indicated periods of the acquired properties based on our accounting policies where these policies differ from those which were applied in preparing the historical statements of the acquired properties. The pro forma operating results summarized below are not necessarily indicative of the results that would have occurred if the acquisition and sales of assets had been consummated at January 1, 2002 or of future results of operations.
 
The Rouse Company and Subsidiaries
Pro Forma Condensed Consolidated Statement of Operations
Six Months Ended June 30, 2002
(Unaudited, in thousands)
 
    
The Rouse Company and Subsidiaries (Historical)
     
Acquired properties in which The Rouse Company
     
Pro Forma Adjustments
       
The Rouse Company and Subsidiaries (Pro Forma Combined)
  
       
held joint control interests (1)
     
held no joint control interests (2)
          
                                                
Revenues
   
$
492,446
 
   
$
26,804
 
   
$
72,984
 
   
$
(2,530
)(3)
     
$
544,463
 
                               
 
(46,076
)(4)
           
                               
 
835
  (5)
           
                                                
Operating expenses, exclusive of provision for bad debts, depreciation and amortization
   
 
(245,257
)
   
 
(9,206
)
   
 
(33,265
)
   
 
1,082
  (3)
     
 
(262,707
)
                               
 
24,699
  (4)
           
                               
 
(760
)(5)
           
                                                
Interest expense
   
 
(114,533
)
   
 
—
 
   
 
(3,597
)
   
 
2,962
  (4)
     
 
(128,563
)
                               
 
(9,984
)(6)
           
                               
 
1,184
  (7)
           
                               
 
(4,595
)(8)
           
                                                
Provision for bad debts
   
 
(5,755
)
   
 
—
 
   
 
—
 
   
 
—
 
     
 
(5,755
)
Depreciation and amortization
   
 
(71,468
)
   
 
—
 
   
 
(2,250
)
   
 
1,248
  (4)
     
 
(81,273
)
                               
 
(6,719
)(6)
           
                               
 
(2,084
)(9)
           
                                                
Other provisions and losses
   
 
(10,894
)
   
 
—
 
   
 
—
 
   
 
—
 
     
 
(10,894
)
Income taxes, primarily deferred
   
 
(16,957
)
   
 
—
 
   
 
—
 
   
 
(505
)(10)
     
 
(17,462
)
Equity in earnings of unconsolidated real estate ventures
   
 
13,014
 
   
 
—
 
   
 
7,178
 
   
 
(3,824
)(4)
     
 
12,679
 
                               
 
(343
)(5)
           
                               
 
(2,677
)(6)
           
                               
 
(669
)(11)
           
                                                
Net gains on operating properties
   
 
48,824
 
   
 
—
 
   
 
—
 
   
 
(48,824
)(12)
     
 
—
 
    
  
  
  
    
Earnings from continuing operations
   
$
89,420
 
   
$
17,598
 
   
$
41,050
 
   
$
(97,580
)
     
$
50,488
 
    
  
  
  
    
 
  (1)
 
Includes Collin Creek, Perimeter Mall and Willowbrook.
  (2)
 
Includes Lakeside Mall, Oakbrook Center, North Star Mall, Water Tower Place and The Streets at Southpoint.
(footnotes
 
continued on next page)

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Table of Contents
  (3)
 
Eliminate the operating results of South Square Mall, our interest in which was subject to a contract of sale at the acquisition date. The sale was completed August 2, 2002.
  (4)
 
Adjust the operating results of Oakbrook Center, Water Tower Place, Sawmill Place Plaza, River Ridge Mall and Kravco to record our share of earnings using the equity method as follows:
 
•
 
Eliminate revenues and expenses;
 
•
 
Eliminate equity in earnings of unconsolidated real estate recorded by Kravco; and
 
•
 
Record our equity in the earnings of the aforementioned ventures, adjusted for interest expense at a weighted-average effective rate of 5.8% on mortgage notes secured by the properties and for depreciation and amortization expense based on our investment in the properties.
  (5)
 
Adjust operating results for our share of jointly acquired assets and assumed liabilities as follows:
 
•
 
Adjust revenues for our share of income on purchase money notes;
 
•
 
Record dividends payable on perpetual preferred stock; and
 
•
 
Adjust equity in earnings for equity in loss of MerchantWired.
  (6)
 
Adjust the operating results relating to Collin Creek, Perimeter Mall and Willowbrook which were managed by us prior to acquiring Rodamco’s interest (previously accounted for using the equity method) and North Star (previously accounted for using the cost method) as follows:
 
•
 
Consolidate interest expense included in equity in earnings of unconsolidated real estate ventures in our historical results and record interest expense on share of mortgage notes assumed at a weighted average rate of 5.3%;
 
•
 
Record depreciation and amortization expense in accordance with our established accounting policies; and
 
•
 
Eliminate equity in earnings of unconsolidated real estate ventures included in historical results.
  (7)
 
Record interest capitalization on acquired investments in development projects—Westin New York, Streets at Southpoint (through March 31, 2002) and Fashion Show expansion.
  (8)
 
Record interest expense on borrowings under a bridge loan facility and our unsecured revolving credit facility at an effective rate of 5.15% and 2.84%, respectively.
  (9)
 
Adjust depreciation and amortization expense for Lakeside and Collin Creek-Dillard’s to conform to our established accounting policies.
  (10)
 
Record current and deferred tax expense related to operations of acquired assets we own in certain of our taxable REIT subsidiaries.
  (11)
 
Eliminate the equity in earnings of operating results of Franklin Park included in our historical results.
  (12)
 
Eliminate the net gain on the sale of our interest in Franklin Park. Proceeds of the sale were used to pay a portion of the purchase price of the assets acquired from Rodamco.

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Table of Contents
 
The following table sets forth basic information concerning our existing properties as of August 30, 2002. This table should be read in conjunction with our Annual Report on Form 10-K for the period ended December 31, 2001 and the other documents incorporated by reference in the accompanying prospectus. This table gives effect to the acquisition of various properties from Rodamco. See “Acquisition of Assets from Rodamco.”
 
Consolidated Retail Centers in Operation
 
Name and
Location
     
Department Stores/
Anchor Tenants
     
Retail Square Footage
         
Total
Center
     
Mall Only
Augusta Mall
Augusta, GA
     
Rich’s; JCPenney; Sears; Dillard’s
     
1,080,000
     
331,000
The Shops at Arizona Center
Phoenix, AZ
     
—
     
230,000
     
230,000
Bayside Marketplace Miami, FL
     
—
     
227,000
     
227,000
Beachwood Place Cleveland, OH
     
Saks Fifth Avenue; Dillard’s; Nordstrom
     
914,000
     
350,000
Cherry Hill Mall
Cherry Hill, NJ
     
Strawbridge’s; Macy’s; JCPenney
     
1,283,000
     
534,000
Collin Creek
Plano, TX
     
Dillard’s; Foley’s; JCPenney; Sears; Mervyn’s
    
1,121,000
     
331,000
The Mall in Columbia Columbia, MD
     
Nordstrom; Hecht’s; JCPenney; Sears; Lord & Taylor; L.L. Bean
     
1,317,000
     
505,000
Echelon Mall
Voorhees, NJ
     
Strawbridge’s; JCPenney; Boscov’s
     
998,000
     
429,000
Exton Square
Exton, PA
     
Strawbridge’s; Boscov’s; Sears; JCPenney
     
995,000
     
382,000
Faneuil Hall Marketplace Boston, MA
     
—
     
208,000
     
208,000
Fashion Place
Salt Lake City, UT
     
Dillard’s; Nordstrom; Sears
     
886,000
     
320,000
Fashion Show
Las Vegas, NV
     
Neiman Marcus; Saks Fifth Avenue; Macy’s; Dillard’s; Robinsons-May
     
773,000
     
213,000
The Gallery at Harborplace
Baltimore, MD
     
—
     
139,000
     
139,000
The Gallery at Market East
Philadelphia, PA
     
Strawbridge’s; JCPenney; Kmart
     
1,009,000
     
193,000
Governor’s Square Tallahassee, FL
     
Burdines; Dillard’s; Sears; JCPenney
     
1,043,000
     
339,000
Harborplace
Baltimore, MD
     
—
     
143,000
     
143,000
Hulen Mall
Ft. Worth, TX
     
Foley’s; Dillard’s; Sears
     
938,000
     
327,000
The Jacksonville Landing
Jacksonville, FL
     
—
     
125,000
     
125,000
Lakeside Mall
Sterling Heights, MI
     
Marshall Field’s Men & Home; Lord & Taylor; Sears; JCPenney
     
1,503,000
     
542,000
Mall St. Matthews Louisville, KY
     
Dillard’s (two stores); JCPenney; Lord & Taylor
     
1,110,000
     
361,000

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Name and
Location
   
Department Stores/
Anchor Tenants
   
Retail Square Footage
     
Total
Center
   
Mall
Only
Mondawmin Mall/Metro Plaza
Baltimore, MD
   
—
   
442,000
   
442,000
Moorestown Mall Moorestown, NJ
   
Strawbridge’s; Boscov’s; Sears; Lord & Taylor
   
1,033,000
   
339,000
North Star Mall
San Antonio, TX
   
Saks Fifth Avenue; Macy’s; Foley’s; Dillard’s; Mervyn’s
   
1,312,000
   
465,000
Oakwood Center
Gretna, LA
   
Sears; Dillard’s; JCPenney; Mervyn’s
  
957,000
   
359,000
Oviedo Marketplace
Orlando, FL
   
Dillard’s; Regal Cinema; Burdines; Sears
   
955,000
   
335,000
Owings Mills
Baltimore, MD
   
Macy’s; Hecht’s; JCPenney; General Cinema 17
   
1,223,000
   
410,000
Paramus Park
Paramus, NJ
   
Macy’s; Sears
   
779,000
   
312,000
Perimeter Mall (Note 1) Atlanta, GA
   
Rich’s; Nordstrom; Macy’s
   
1,482,000
   
502,000
Pioneer Place
Portland, OR
   
Saks Fifth Avenue
   
374,000
   
314,000
Plymouth Meeting
Plymouth Meeting, PA
   
Strawbridge’s; Boscov’s; General Cinema 12
   
822,000
   
365,000
Riverwalk
New Orleans, LA
   
—
   
197,000
   
197,000
South Street Seaport
New York, NY
   
—
   
261,000
   
261,000
The Streets at Southpoint
Durham, NC
   
Nordstrom; Hecht’s; Belk; Sears; JCPenney
   
1,304,000
   
585,000
Village of Cross Keys
Baltimore, MD
   
—
   
81,000
   
81,000
Westdale Mall
Cedar Rapids, IA
   
JCPenney; Von Maur; Younkers
   
786,000
   
381,000
Westlake Center
Seattle, WA
   
—
   
111,000
   
111,000
Willowbrook
Wayne, NJ
   
Lord & Taylor; Macy’s; Bloomingdale’s; Sears
   
1,528,000
   
500,000
White Marsh
Baltimore, MD
   
Macy’s; JCPenney; Hecht’s; Sears; Lord & Taylor
   
1,156,000
   
367,000
Woodbridge Center Woodbridge, NJ
   
Lord & Taylor; Sears; Macy’s; Fortunoff; JCPenney
   
1,546,000
   
560,000
         
  
    
Total Consolidated
Centers in Operation
   
32,391,000
   
13,115,000
         
  
Note1—We have agreed to contribute our ownership interest in Perimeter Mall to a joint venture in exchange        for a 50% interest in that joint venture and a cash distribution.
Proportionate Share Retail Centers in Operation (Note 2)
          
Name and
Location
   
Department Stores/
Anchor Tenants
   
Retail Square Footage
     
Total
Center
   
Mall
Only
Bridgewater Commons
Bridgewater, NJ
   
Lord & Taylor; Macy’s; Bloomingdale’s
   
888,000
   
385,000
Highland Mall
Austin, TX
   
Dillard’s (two stores); Foley’s; JCPenney
   
1,086,000
   
368,000

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Name and
Location
     
Department Stores/
Anchor Tenants
     
Retail Square Footage
         
Total
Center
     
Mall
Only
Oakbrook Center
Oakbrook, IL
     
Neiman Marcus; Saks Fifth Avenue; Nordstrom; Marshall Field’s; Lord & Taylor; Sears
     
1,994,000
     
828,000
Park Meadows Littleton, CO
     
Dillard’s; Foley’s; Lord & Taylor; Nordstrom; JCPenney; Galyan’s
     
1,561,000
     
610,000
Towson Town Center Baltimore, MD
     
Hecht’s; Nordstrom
     
968,000
     
538,000
Community Retail Centers (3 properties)
Summerlin, NV
     
—
     
384,000
     
384,000
Water Tower Place
Chicago, IL
     
Marshall Field’s; Lord & Taylor
     
728,000
     
302,000
             
    
      
Total Proportionate Share Centers in Operation
     
7,609,000
     
3,415,000
             
    
Other/Managed Centers
                     
Randhurst
Mt. Prospect, IL
     
Carson Pirie Scott; Costco (scheduled to open Fall 2002); Kohl’s
     
1,444,000
     
681,000
Ridgedale Center Minneapolis, MN
     
Marshall Field’s Women’s; JCPenney; Sears; Marshall Field’s Men & Home
     
1,036,000
     
343,000
Southland Center
Taylor, MI
     
Marshall Field’s; Mervyn’s; JCPenney
     
905,000
     
322,000
Staten Island Mall
Staten Island, NY
     
Sears; Macy’s; JCPenney
     
1,229,000
     
622,000
Town & Country Center Miami, FL
     
Sears; Marshalls
     
598,000
     
345,000
             
    
      
Total Other/Managed
Centers in Operation
     
5,212,000
     
2,313,000
             
    
      
Total Retail Centers in Operation
     
45,212,000
     
18,843,000
             
    
Note
 
2—Includes projects owned by joint ventures or partnerships in which our interest is at least 35%.
 
Office and Other Properties in Operation
Consolidated Office and Other Properties
       
Location
     
Square Feet
Arizona Center
       
Phoenix, AZ
       
Garden Office Pavilion
              
32,000
One Arizona Center Office Tower
              
327,000
Two Arizona Center Office Tower
              
453,000
The Gallery at Harborplace
       
Baltimore, MD
       
Office Tower
              
265,000
Renaissance Hotel
              
622 rooms
Pioneer Place
       
Portland, OR
       
Office Tower
              
287,000
Village of Cross Keys
       
Baltimore, MD
       
Village Square Offices
              
69,000
Quadrangle Offices
              
109,000

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Table of Contents
Office and Other Properties in Operation
Consolidated Office and Other Properties
      
Location
   
Square Feet
Water Tower Place
      
Chicago, IL
   
83,000
Westlake Center
      
Seattle, WA
     
Office Tower
           
342,000
Columbia Office (12 buildings)
      
Columbia, MD
   
1,136,000
Columbia Industrial (6 buildings)
      
Columbia, MD
   
306,000
Hughes Center (15 buildings)
      
Las Vegas, NV
   
1,179,000
Summerlin Commercial (25 buildings)
      
Summerlin, NV
   
996,000
Oakbrook Center Office
      
Oakbrook, IL
   
240,000
Owings Mills Town Center (4 buildings)
      
Baltimore, MD
   
732,000
Inglewood Business Center (7 buildings)
      
Prince George’s County, MD
   
538,000
Hunt Valley Business Center (21 buildings)
      
Baltimore, MD
   
1,484,000
Rutherford Business Center (20 buildings)
      
Baltimore, MD
   
783,000
Other Office Projects (5 buildings)
      
Various
   
305,000
            
       
Total Consolidated Office and Other Properties
   
9,666,000
            
 
                
Retail Square Footage
Projects Under Construction
or in Development or Pre-Development
   
Department Stores/
Anchor Tenants
     
Target Date for Opening
   
Total Center
   
Tenant Space
Village of Merrick Park
Coral Gables, FL
   
Neiman Marcus; Nordstrom Office
     
9/02
   
795,000 110,000
   
435,000 110,000
Fashion Show Expansion
Las Vegas, NV
   
Neiman Marcus; Nordstrom; Saks Fifth Avenue; Macy’s; Robinsons-May; Lord & Taylor; Dillard’s; Bloomingdale’s Home
     
11/02
   
1,000,000
   
290,000
The Shops at La Cantera
San Antonio, TX
   
Neiman Marcus; Nordstrom; Dillard’s; Foley’s
     
*
   
1,300,000
   
400,000
Bridgewater Commons Expansion
Bridgewater, NJ
   
Bloomingdale’s; Bloomingdale’s Home
     
*
   
190,000
   
100,000
Kendall Town Center
Miami, FL
   
Dillard’s; Sears
     
*
   
1,200,000
   
350,000
Fashion Place Expansion
Salt Lake City, UT
   
Nordstrom; Dillard’s; Meier & Frank
     
*
   
525,000
   
130,000
Summerlin Center
Summerlin, NV
   
Robinsons-May; Lord & Taylor; Dillard’s; Macy’s
     
*
   
1,050,000
   
350,000
The Crossing Business Center
Summerlin, NV
   
Office/Industrial
     
*
   
55,000
   
55,000
Corporate Pointe
Summerlin, NV
   
Office/Industrial
     
*
   
110,000
   
110,000
Canyon Pointe
Summerlin, NV
   
Community Retail Center
     
*
   
153,000
   
153,000
                
  
    
Total Projects Under Construction or in Development or
Pre-Development
          
6,488,000
   
2,483,000
                
  
*
 
In development or pre-development; construction not yet commenced.

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We have summarized below various terms and conditions of the notes and the indenture. This summary is, however, not complete. The following description of the notes supplements the description in the accompanying prospectus of the general terms and conditions of the Debt Securities. Whenever the following description of notes is inconsistent with that general description in the prospectus, the following description replaces that description in the prospectus.
 
We will issue the notes under an Indenture, dated as of February 24, 1995, between us and Bank One Trust Company, N.A. (successor to The First National Bank of Chicago), as trustee. We previously filed the indenture with the SEC. You should read the indenture for additional information before you purchase any notes. The indenture is governed by the Trust Indenture Act of 1939, as amended (the “Trust Indenture Act”).
 
You can find the definitions of certain terms used in this section of this prospectus supplement under “—Certain Definitions.” All other capitalized terms used but not defined in this section have the meanings specified in the indenture, except as modified in this prospectus supplement. As used in this section, “we,” “us,” “Rouse” and similar terms refer to The Rouse Company and do not include our subsidiaries, unless the context otherwise requires.
 
General
 
The notes will be our unsecured obligations and will have the same priority as all of our other unsecured and unsubordinated indebtedness from time to time outstanding. However, the notes will be, in effect, subordinated to the secured and unsecured debt and other obligations of our subsidiaries. See “Risk Factors—Risks Related to the Notes—The notes will be effectively subordinated to debt of our subsidiaries.”
 
The notes will be issued in denominations of $1,000 principal amount and integral multiples of that amount. The notes will be payable, and may be presented for registration of transfer and exchange, without service charge, at the office or agency of the trustee in New York, New York.
 
The notes will initially be issued in an aggregate principal amount of $300,000,000. We reserve, however, the right to issue additional notes without your consent. If we issue additional notes under the indenture, they will be equal in rank to the notes being offered by this prospectus supplement in all respects (except for the payment of interest accruing prior to the issue date of the additional notes) so that the additional notes may be consolidated and form a single series with the notes issued under this prospectus supplement.
 
The notes will mature on September     , 2012. They will bear interest at the rate per year set forth on the front cover of this prospectus supplement. Interest on the notes will be payable semi-annually on March              and September      of each year, beginning on March     , 2003. We will pay interest to the persons in whose names the notes are registered at the close of business on the                       and                       immediately preceding each interest payment date. Interest will be calculated on the basis of a 360-day year consisting of twelve 30-day months.
 
There is no sinking fund for the notes.
 
Optional Redemption
 
The notes will be redeemable at our option at any time and from time to time, in whole or in part, at a redemption price equal to the “Make-Whole Price” described below. Unless we default in the payment of the redemption price, from and after the date of redemption, interest will cease to accrue on the notes or the portions of the notes called for redemption. Notice of any redemption must be given by us to the holders not less than 30 nor more than 60 days prior to the redemption date. If fewer than all the notes are to be redeemed, the trustee will select the particular notes to be redeemed in principal amounts of $1,000 or integral multiples of that amount by lot or, in its discretion, on a pro rata basis. If any note is to be redeemed only in part, a new note or notes in the principal amount equal to the unredeemed portion of such note will be issued.

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We may purchase the notes in the open market, by tender or otherwise. If we purchase any notes, we may hold them, resell them or surrender them to the trustee for cancellation. To the extent applicable, we will comply with the provisions of Rule 14e-1 under the Securities Exchange Act of 1934, and other securities laws and regulations in connection with any such purchase.
 
Global Securities
 
We will issue the notes in the form of one or more global securities that will be deposited with a custodian for, and registered in the name of a nominee of, The Depository Trust Company, New York, New York (“DTC” or the “depositary”). Interests in the global securities will be issued only in denominations of $1,000 principal amount or integral multiples of that amount. Unless and until exchanged in whole or in part for securities in definitive form, a global security may not be transferred except as a whole to a nominee of the depositary for such global security, or by a nominee of the depositary to the depositary or another nominee of the depositary, or by the depositary or any such nominee to a successor depositary or a nominee of such successor depositary.
 
Book-Entry System
 
The notes will initially be registered in the name of Cede & Co., as nominee of the depositary. Beneficial interests in the notes will be shown on, and transfers thereof will be effected only through, records maintained by the depositary and its participants.
 
DTC has advised us and the underwriters as follows: DTC is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the United States Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds securities that its direct participants deposit with DTC. DTC also facilitates the settlement among its direct participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in its direct participants’ accounts, eliminating the need for physical movement of securities certificates. Direct participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. DTC is owned by a number of its direct participants and by The New York Stock Exchange, Inc., the American Stock Exchange LLC and the National Association of Securities Dealers, Inc. Access to DTC’s book-entry system is also available to others such as securities brokers and dealers, banks and trust companies that clear through or maintain a custodial relationship with a direct participant, either directly or indirectly. The rules applicable to DTC and its direct and indirect participants are on file with the SEC.
 
We will make payments on the notes registered in the name of DTC’s nominee in immediately available funds to DTC’s nominee as the registered owner of the global securities. We and the trustee will treat DTC’s nominee as the owner of these notes for all other purposes as well. Accordingly, neither we, the trustee nor any paying agent has any direct responsibility or liability for the payment of any amount due on the notes to owners of beneficial interests in the global securities. We understand that it is DTC’s current practice, upon receipt of any payment, to credit its direct participants’ accounts on the payment date according to their respective holdings of beneficial interests in the global securities as shown on DTC’s records unless DTC has reason to believe that it will not receive payment. Payments by direct and indirect participants to owners of beneficial interests in the global securities will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name.” These payments will be the responsibility of the direct and indirect participants and not of DTC, the trustee or us.
 
Notes represented by a global security will be exchangeable for notes in definitive form of like tenor in authorized denominations only if:
 
 
•
 
DTC notifies us that it is unwilling or unable to continue as depositary and a successor depositary is not appointed by us within 90 days;

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•
 
DTC ceases to be a clearing agency registered under applicable law and a successor depositary is not appointed by us within 90 days; or
 
 
•
 
we, in our discretion, determine not to require that all of the notes be represented by a global security, and we notify the trustee of our decision.
 
Covenants
 
The indenture contains covenants limiting (1) our ability and that of our subsidiaries to incur debt, (2) our ability and that of some of our subsidiaries to enter into sale/leaseback transactions and (3) our ability to consolidate or merge with or to sell, convey or lease all or substantially all of our assets to any other entity. However, these covenants are subject to exceptions. You should refer to the descriptions of these covenants and the related exceptions under “Description of Debt Securities—Certain Covenants” and “—Consolidation, Merger, Sale, Conveyance and Lease” in the accompanying prospectus.
 
The covenant set forth under “Description of Debt Securities—Certain Covenants—Limitations on the Incurrence of Debt” in the accompanying prospectus will apply to the notes with the following three modifications:
 
 
(1)
 
the Ratio Calculation is 1.7 to 1 (instead of 1.1 to 1);
 
 
(2)
 
the Ratio Calculation is based on Total FFO and Total Interest Expense (instead of EBDT and Consolidated Interest Expense, respectively); and
 
 
(3)
 
the Ratio Calculation and other covenant-related calculations with respect to the notes are based upon GAAP and our segment accounting policies as reflected in our financial statements as prepared and provided in accordance with the indenture.
 
All references in the indenture to EBDT and Consolidated Interest Expense are, with respect to the notes, deemed to mean (and are replaced by) Total FFO and Total Interest Expense, respectively. The Ratio Calculation for the covenants set forth under “Description of Debt Securities—Certain Covenants—Limitation on Sale/Leaseback Transactions” and “—Consolidation, Merger, Sale, Conveyance and Lease” in the accompanying prospectus is 1.7 to 1 (instead of 1.1 to 1).
 
With the modifications described above, the covenant that limits our ability and that of our Subsidiaries to incur debt will be as follows:
 
Limitation on the Incurrence of Debt
 
Rouse and its consolidated Subsidiaries may not incur any Debt if, after giving effect to the incurrence, the Ratio Calculation is less than 1.7 to 1.
 
Notwithstanding the foregoing paragraph, Rouse and its consolidated Subsidiaries may incur the following additional Debt without regard to the foregoing limitation (although the additional Debt so incurred will be included in the determination of the Consolidated Coverage Ratio thereafter):
 
 
(1)
 
Debt Securities issued under the indenture not to exceed an aggregate issue price of $150,000,000;
 
 
(2)
 
intercompany Debt (representing Debt to which the only parties are Rouse and any of its consolidated Subsidiaries (but only so long as such Debt is held solely by any of Rouse and its consolidated Subsidiaries));
 
 
(3)
 
any drawings or redrawings under lines of credit existing on the date of the Indenture and any new lines of credit or replacements, amendments or extensions of existing lines of credit, provided, however, that the maximum amount that may be drawn under all lines of credit pursuant to this clause (3) may not at any time exceed the maximum amount that may be drawn under all lines of credit that exist as of the date of the indenture;

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(4)
 
refinancings, renewals, refundings or extensions of any Debt, in any case in an amount not to exceed the principal amount of the Debt so refinanced plus any prepayment premium or accrued interest, provided that
 
 
(a)
 
such refinancing Debt is either
 
 
(I)
 
Debt of Rouse that ranks equally with or junior to the Debt being refinanced,
 
 
(II)
 
Debt of a Subsidiary that Rouse or another Subsidiary guarantees, or
 
 
(III)
 
Debt of a Subsidiary; and
 
 
(b)
 
such refinancing Debt (giving effect to any right of the holder thereof to require, directly or indirectly, an early repayment, defeasance or retirement of such Debt) either has a weighted average life equal to or longer than the remaining weighted average life of the Debt being refinanced or has a minimum term of five years;
 
 
(5)
 
third party Debt of a Subsidiary, including Debt of a Subsidiary that carries a Rouse guarantee of repayment, directly relating to the development of projects or the expansion, renovation or improvement of existing properties;
 
 
(6)
 
third party Debt of a Subsidiary directly relating to the acquisition of assets;
 
 
(7)
 
reimbursement obligations under letters of credit, bankers’ acceptances or similar facilities, provided that at the time of incurring any additional obligations pursuant to this clause (7) the amount of all such obligations, whether or not currently due, aggregate at any time less than 5% of Consolidated Net Tangible Assets at such date;
 
 
(8)
 
Debt that by its terms is subordinate in right of payment to the other Debt of Rouse, provided, however, that, pursuant to clauses (1) through (9), the aggregate issue price of such subordinated Debt may not at any time exceed the aggregate principal amount of such subordinated Debt as of the date of the Indenture, plus $100,000,000;
 
 
(9)
 
Attributable Debt; and
 
 
(10)
 
in addition to Debt referred to in clauses (1) through (9) above, Debt in the aggregate principal amount of $50,000,000 which is to be used only for working capital purposes.
 
The notes also incorporate the following two additional covenants that limit our ability and that of our subsidiaries to incur debt:
 
 
•
 
Rouse will not, and will not permit any Subsidiary (as to which Rouse owns, directly or indirectly, more than 50% of the voting stock therein) to, incur any Debt if, immediately after giving effect to the incurrence of such additional Debt, the aggregate principal amount of outstanding Total Debt would be greater than 70% of the sum of
 
 
(1)
 
the Gross Asset Value as of the end of the fiscal quarter prior to the incurrence of such additional Debt, plus
 
 
(2)
 
any increase in the Gross Asset Value resulting from any acquisition completed after the end of such quarter, including, without limitation, any pro forma increase from the application of the proceeds of such additional Debt, less
 
 
(3)
 
any decrease in the Gross Asset Value resulting from any disposition completed after the end of such quarter.
 
 
•
 
Rouse will not, and will not permit any Subsidiary (as to which Rouse owns, directly or indirectly, more than 50% of the voting stock therein) to, incur any Secured Debt if, immediately after giving effect to the incurrence of such additional Secured Debt, the aggregate principal amount of all outstanding Secured Debt would be greater than 60% of the sum of
 
 
(1)
 
the Gross Asset Value as of the end of the fiscal quarter prior to the incurrence of such additional Secured Debt, plus

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(2)
 
any increase in the Gross Asset Value resulting from any acquisition completed after the end of such quarter, including, without limitation, any pro forma increase from the application of the proceeds of such additional Secured Debt, less
 
 
(3)
 
any decrease in the Gross Asset Value resulting from any disposition completed after the end of such quarter.
 
If the calculations required by the covenants described above had been made as of June 30, 2002, after giving effect to the issuance of the notes offered by this prospectus supplement and the use of proceeds:
 
 
•
 
The Ratio Calculation would have been              to             ;
 
 
•
 
The ratio of our Total Debt to Gross Asset Value, calculated as described above, would have been 54.9%; and
 
 
•
 
The ratio of our Secured Debt to Gross Asset Value, calculated as described above, would have been 42.2%.
 
Satisfaction, Discharge and Defeasance
 
The satisfaction, discharge and defeasance provisions of the indenture apply to the notes. You should refer to the description of these provisions under “Description of Debt Securities—Satisfaction, Discharge and Defeasance” in the accompanying prospectus.
 
In addition, the notes will provide that we will be released from our obligations to comply with the two additional covenants described under “—Covenants—Limitation on the Incurrence of Debt” above (and our failure to comply with those covenants will not result in an Event of Default) if we satisfy the conditions to covenant defeasance described in the last paragraph of “Description of Debt Securities—Satisfaction, Discharge and Defeasance” in the accompanying prospectus.
 
Events of Default
 
The indenture sets forth events of default which will apply to the notes. You should refer to the description of the events of default and the related remedies of the holders of the notes and the trustee under “Description of Debt Securities—Events of Default” in the accompanying prospectus.
 
The notes will also provide that a failure to pay at maturity indebtedness for money borrowed by Rouse (or by any Subsidiary, the repayment of which Rouse has guaranteed or for which Rouse is directly responsible or liable as obligor or guarantor) having an aggregate principal amount outstanding of at least $10,000,000 constitutes an event of default under the notes.
 
Certain Definitions
 
The following are definitions of certain terms applicable with respect to the notes. To the extent different, these definitions will supercede those in the accompanying prospectus. You should note that, for purposes of the notes, we define Net Operating Income and Total Funds From Operations slightly different than we define Net Operating Income and Funds From Operations in the presentations of our financial results. See “Selected Consolidated Financial Data.”
 
“Adjusted Treasury Rate” means, with respect to any Determination Date, the rate per annum equal to the semi-annual yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such Determination Date, plus      basis points.
 
“Assets Under Development” means land and improvements owned by a member of the Consolidated Group or an Investment Affiliate being developed for retail, office, mixed-use or other rental-income producing purposes which meet all four of the following criteria: (a) such project (or phase) has not yet been substantially completed; (b) no rental income has yet been received; (c) no certificate of occupancy has yet been issued for such project (or phase); and (d) such project (or phase) is classified as construction in progress in accordance with GAAP.

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“Business Day” means each Monday, Tuesday, Wednesday, Thursday or Friday which is not a legal holiday in New York, New York.
 
“Capital Stock” means shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, equivalent ownership interests in a Person which is not a corporation, and warrants or options to purchase any of the foregoing.
 
“Cash Equivalents” means (a) short-term obligations of, or fully guaranteed by, the United States of America, (b) commercial paper rated A-1 or better by Standard & Poor’s Rating Services (or any successor) or P-1 or better by Moody’s Investors Service, Inc. (or any successor), or (c) certificates of deposit issued by, and time deposits with, commercial banks (whether domestic or foreign) having capital and surplus in excess of $100,000,000.
 
“Code” means the Internal Revenue Code of 1986, as amended from time to time, or any replacement or successor statute and the regulations promulgated thereunder from time to time.
 
“Comparable Treasury Issue” means the United States Treasury security selected by the Independent Investment Banker as having a maturity comparable to the remaining term of the notes that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the notes.
 
“Comparable Treasury Price” means, with respect to any Determination Date: (1) the average of the Reference Treasury Dealer Quotations for such date, after excluding the highest and lowest such Reference Treasury Dealer Quotations, or (2) if fewer than three such Reference Treasury Dealer Quotations are obtained, the average of all such Reference Treasury Dealer Quotations.
 
“Consolidated Coverage Ratio” of any Person means for any period the ratio of (a) Total FFO for such period plus Total Interest Expense for the same period for such Person to (b) Total Interest Expense for the same period for such Person.
 
“Consolidated Group” means Rouse and its Subsidiaries that are consolidated with Rouse for financial reporting purposes under GAAP, and any other Person whose financial results are included using the proportionate share method under Rouse’s segment accounting policies in the Financial Statements.
 
“Consolidated Group’s Pro Rata Share” means, with respect to any Investment Affiliate, the percentage of the total ownership and financial interests held by the Consolidated Group, in the aggregate, in such Investment Affiliate as determined in accordance with Rouse’s segment accounting policies in the Financial Statements.
 
“Determination Date” means, with respect to the calculation of the Make-Whole Price in connection with any redemption of the notes, the redemption date.
 
“GAAP” means generally accepted accounting principles in the United States, consistent with the accounting principles utilized in preparing the Financial Statements in accordance with the indenture.
 
“Gross Asset Value” means, as of any determination date, the sum of the values of the following assets of the Consolidated Group, including the Consolidated Group’s Pro Rata Share of the values of such assets of Investment Affiliates, based on the valuation methods set forth below:
 
 
(a)
 
with respect to all Retail Properties, the Net Operating Income attributable thereto for the most recent period of four full fiscal quarters for which financial results have been reported, divided by 0.0825;
 

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(b)
 
with respect to all office, mixed-use and other income-producing properties other than Retail Properties, the Net Operating Income attributable thereto for the most recent period of four full fiscal quarters for which financial results have been reported, divided by 0.09;
 
 
(c)
 
with respect to the Summerlin, Las Vegas and Columbia, Maryland properties and any other properties relating to additional master-planned communities developed or acquired after the date of this prospectus supplement, 100% of the most recent current value thereof (without deduction for the value of the interests of the Hughes heirs therein under the Hughes Agreement) as set forth in appraisals prepared by Landauer Associates, Inc. (or another nationally recognized appraisal firm selected by Rouse), provided that Rouse will obtain updated appraisals thereof at least once during each fiscal year and also when, during any four consecutive full fiscal quarters, any such properties having an aggregate value in excess of 5% of Gross Asset Value as of the end of the last full fiscal quarter are sold or transferred;
 
 
(d)
 
100% of the GAAP book value of all other land, all Assets Under Development and other non-income-producing properties (less the portion of such value attributable to minority interest holders);
 
 
(e)
 
100% of the GAAP book value of cash and Cash Equivalents held by the Consolidated Group; and
 
 
(f)
 
100% of the GAAP book value of current accounts receivable, net held by the Consolidated Group.
 
Notwithstanding the preceding sentence, the contribution to the Gross Asset Value of those assets acquired in any acquisition will be calculated prior to the date ending on or after four full fiscal quarters subsequent to any such acquisition using the actual acquisition cost of such assets excluding actual transaction costs (without regard to any adjustments which may be made in determining book value under GAAP).
 
“Hughes Agreement” means the Contingent Stock Agreement, effective as of January 1, 1996, by Rouse in favor of and for the benefit of the holders and the representatives named therein, as the same may be amended.
 
“Independent Investment Banker” means one of the Reference Treasury Dealers appointed by the Trustee after consultation with us.
 
“Investment Affiliate” means any Person in which any member of the Consolidated Group, directly or indirectly, has an ownership interest, whose financial results are not included using the proportionate share method under Rouse’s segment accounting policies with the financial results of the Consolidated Group in the Financial Statements.
 
“Lien” means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including, without limitation, any conditional sale or other title retention agreement or lease in the nature thereof, any filing or agreement to file a financing statement as debtor under the Uniform Commercial Code on any property leased to any Person under a lease which is not in the nature of a conditional sale or title retention agreement, or any subordination agreement in favor of another Person).
 
“Make-Whole Price” means, with respect to any Note as of any Determination Date, an amount equal to the greater of:
 
 
•
 
100% of the principal amount of the Note; and
 
 
•
 
as determined by an Independent Investment Banker, the sum of the present values of the remaining scheduled payments of principal and interest thereon (not including any portion of such payments of interest accrued as of the Determination Date) discounted to the Determination Date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Adjusted Treasury Rate,
 
plus, in each case, accrued and unpaid interest thereon to such Determination Date.
 

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“Net Operating Income” means, with respect to any Property, for any period, earnings from rental operations (computed in accordance with GAAP, but without deduction for reserves) attributable to such Property, plus depreciation, amortization, interest expense and deferred taxes with respect to such Property for such period, and, if such period is less than four full fiscal quarters, adjusted by straight lining ordinary operating expenses which are payable less frequently than once during every such period (e.g., real estate taxes and insurance). The amounts determined under the preceding sentence will be adjusted by adding back (a) the interests of the former Hughes owners pursuant to the Hughes Agreement that were excluded in determining such amounts and (b) dividends or other distributions accrued with respect to such period on any preferred stock or other preferred security issued by Rouse to the extent that such dividends or other distributions are treated as an operating expense under GAAP. “Net Operating Income” will be adjusted to include a pro forma amount thereof (as determined in good faith by Rouse) for four full fiscal quarters for any Property placed in service during any quarter and to exclude any Net Operating Income for the prior four full fiscal quarters from any Property not owned as of the end of any quarter.
 
“Person” means any individual, corporation, limited liability company, partnership, joint venture, trust, unincorporated organization or government or any agency or political subdivision thereof.
 
“Property” means each parcel of real property owned or operated by any member of the Consolidated Group or any Investment Affiliate.
 
“Ratio Calculation” shall mean that, immediately after either the incurrence of such Debt or the sale of or other disposal of such Asset, as the case may be, we, or our agent, shall calculate the Consolidated Coverage Ratio for the four full fiscal quarter period preceding the incurrence, sale or disposal for which consolidated Financial Statements are available. In making such calculation, (a) the Total Interest Expense attributable to interest on any Debt to be incurred bearing a floating interest rate shall be computed on a pro forma basis as if the rate in effect on the date of computation had been the applicable rate for the entire period and (b) with respect to any Debt which bears, at the option of Rouse, a fixed or floating rate of interest, Rouse shall apply the same rate for purposes of calculating the Consolidated Coverage Ratio as it chooses to apply to the Debt. In addition, such calculation shall be performed using the consolidated Financial Statements which shall be reformulated on a pro forma basis as if such Debt had been incurred or such Asset had been sold or otherwise disposed of, as the case may be, at the beginning of such four fiscal quarter period. Such reformulation shall give effect, as if the relevant event had occurred at the beginning of such four fiscal quarter period, to any actual use of proceeds of such Debt being incurred or Asset being sold or disposed of and to any incurrences or repayments of Debt and other sales, disposals or acquisitions of Assets occurring after the end of the last quarter for which there are consolidated Financial Statements available. If any portion of the proceeds has not been used, it shall be assumed that such portion of the proceeds was invested in one-year Treasury bills on the first day of such four fiscal quarter period.
 
“Reference Treasury Dealer” means each of Banc of America Securities LLC and J.P. Morgan Securities Inc. and their respective successors; provided, however, that if any of the foregoing shall not be a primary U.S. Government securities dealer in New York City (a “Primary Treasury Dealer”), we shall substitute therefor another Primary Treasury Dealer.
 
“Reference Treasury Dealer Quotations” means, with respect to each Reference Treasury Dealer and any Determination Date, the average of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing by such Reference Treasury Dealer at 5:00 p.m. on the third Business Day preceding such Determination Date.
 
“Retail Property” means a shopping center or other retail development containing more than one retail tenant in which at least 90% of the Net Operating Income from such center or development is attributable to retail uses.

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“Secured Debt” means, as of any determination date, the sum of:
 
 
(a)
 
the aggregate principal amount of all Debt of the Consolidated Group then outstanding (including only Rouse’s proportionate interest in the Debt of any Person whose financial results are included using the proportionate share method under Rouse’s segment accounting policies in the Financial Statements) which is secured by a Lien on any asset (including any Capital Stock) of any member of the Consolidated Group, including, without limitation, loans secured by mortgages, stock or partnership interests; plus
 
 
(b)
 
the Consolidated Group’s Pro Rata Share of any Debt of an Investment Affiliate then outstanding which is secured by a Lien on any asset (including any Capital Stock) of such Investment Affiliate, without duplication of any such items.
 
For purposes of the preceding sentence, “Debt” will (1) include, with respect to any Person, any loans where such Person is liable as a general partner or co-venturer less, in each case, the proportionate share of any other general or limited partners or co-venturers and (2) exclude any Debt due from any member of the Consolidated Group or any Investment Affiliate solely to one or more members of the Consolidated Group.
 
“Subsidiary” means a Person more than 50% of the (a) outstanding voting stock or interest in which and/or (b) financial interest in which, is owned, directly or indirectly, by Rouse or by one or more other Subsidiaries, or by Rouse and one or more other Subsidiaries. For purposes of this definition, “voting stock” means stock or other interest which ordinarily has voting power for the election of directors or equivalent persons, whether at all times or only so long as no senior class of stock or other interest has such voting power by reason of any contingency.
 
“Total Debt” means, as of any determination date:
 
 
(a)
 
all Debt of the Consolidated Group then outstanding (including only Rouse’s proportionate interest in the Debt of any Person whose financial results are included using the proportionate share method under Rouse’s segment accounting policies in the Financial Statements); plus
 
 
(b)
 
the Consolidated Group’s Pro Rata Share of all Debt of Investment Affiliates then outstanding, without duplication of any such items.
 
For purposes of the preceding sentence, “Debt” will (1) include, with respect to any Person, any loans where such Person is liable as a general partner or co-venturer less, in each case, the proportionate share of any other general or limited partners or co-venturers and (2) exclude any Debt due from any member of the Consolidated Group or any Investment Affiliate solely to one or more members of the Consolidated Group.
 
“Total FFO” means, for any period, net earnings, as reported by the Consolidated Group in accordance with GAAP, excluding cumulative effects of changes in accounting principles, extraordinary or unusual items, gains or losses from debt restructurings and sales of properties, and deferred income taxes, plus depreciation and amortization and after adjustments for minority interests, and treating unconsolidated partnerships and joint ventures on the same basis, plus (a) distributions accrued with respect to such period on the 9 1/4% Cumulative Quarterly Income Preferred Securities (QUIPS) of Rouse Capital (Delaware statutory business trust), plus (b) payments made and other amounts treated as an expense of Rouse under GAAP with respect to such period pursuant to the Hughes Agreement (provided that no item of income or expense shall be included more than once in such calculation even if it falls within more than one of the above categories).
 
“Total Interest Expense” means, for any period, the sum of
 
 
(a)
 
all interest expense of the Consolidated Group (less the proportionate share of interest expense of any minority interest holders); plus

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(b)
 
the allocable portion (based on liability) of any interest expense on any obligation for which any member of the Consolidated Group is wholly or partially liable under repayment, interest carry or performance guarantees or other relevant liabilities; plus
 
 
(c)
 
the Consolidated Group’s Pro Rata Share of any interest expense on any Debt of any Investment Affiliate, whether recourse or non-recourse,
 
(provided that no expense shall be included more than once in such calculation even if it falls within more than one of the foregoing categories, and provided, further, that no interest expense on Debt due from one member of the Consolidated Group solely to another member of the Consolidated Group shall be included in determining Total Interest Expense). For purposes of the preceding sentence, interest expense will be determined in accordance with GAAP and will exclude any amortization of debt issuance costs.

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The following summary describes the material U.S. federal income tax consequences and, in the case of a holder that is a non-U.S. holder (as defined below), the U.S. federal estate tax consequences, of purchasing, owning and disposing of the notes. This summary applies to you only if you are the initial holder of the notes and you acquire the notes for a price equal to the issue price of the notes. The issue price of the notes is the first price at which a substantial amount of the notes is sold other than to bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers.
 
This summary deals only with notes held as capital assets (generally, investment property) and does not deal with special tax situations such as:
 
 
•
 
dealers in securities or currencies;
 
 
•
 
traders in securities;
 
 
•
 
U.S. holders (as defined below) whose functional currency is not the U.S. dollar;
 
 
•
 
persons holding notes as part of a hedge, straddle, conversion or other integrated transaction;
 
 
•
 
certain U.S. expatriates;
 
 
•
 
financial institutions;
 
 
•
 
insurance companies;
 
 
•
 
entities that are tax-exempt for U.S. federal income tax purposes; and
 
 
•
 
persons that acquire the notes for a price other than their issue price.
 
This summary does not discuss all of the aspects of U.S. federal income and estate taxation that may be relevant to you in light of your particular investment or other circumstances. In addition, this summary does not discuss any U.S. state or local income or foreign income or other tax consequences. This summary is based on U.S. federal income tax law, including the provisions of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), Treasury regulations, administrative rulings and judicial authority, all as in effect as of the date of this prospectus supplement. Subsequent developments in U.S. federal income tax law, including changes in law or differing interpretations, which may be applied retroactively, could have a material effect on the U.S. federal income tax consequences of purchasing, owning and disposing of notes as set forth in this summary. Before you purchase notes, you should consult your own tax advisor regarding the particular U.S. federal, state and local and foreign income and other tax consequences of acquiring, owning and disposing of the notes that may be applicable to you.
 
U.S. Holders
 
The following summary applies to you only if you are a U.S. holder (as defined below).
 
Definition of a U.S. Holder
 
A “U.S. holder” is a beneficial owner of a note or notes that is for United States federal income tax purposes:
 
 
•
 
an individual citizen or resident of the United States;

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•
 
a corporation or partnership (or other entity classified as a corporation or partnership for these purposes) created or organized in or under the laws of the United States or of any political subdivision of the United States, including any state;
 
 
•
 
an estate, the income of which is subject to U.S. federal income taxation regardless of the source of that income; or
 
 
•
 
a trust, if, in general, a United States court is able to exercise primary supervision over the trust’s administration and one or more United States persons (within the meaning of the Internal Revenue Code) has the authority to control all of the trust’s substantial decisions.
 
Payments of Interest
 
Interest on your notes will be taxed as ordinary interest income. In addition:
 
 
•
 
if you use the cash method of accounting for U.S. federal income tax purposes, you will have to include the interest on your notes in your gross income at the time you receive the interest; and
 
 
•
 
if you use the accrual method of accounting for U.S. federal income tax purposes, you will have to include the interest on your notes in your gross income at the time the interest accrues.
 
Sale or Other Disposition of Notes
 
Your tax basis in your notes generally will be their cost. You generally will recognize taxable gain or loss when you sell or otherwise dispose of your notes equal to the difference, if any, between:
 
 
•
 
the amount realized on the sale or other disposition (less any amount attributable to accrued interest, which will be taxable in the manner described under “U.S. Federal Tax Considerations—U.S. Holders—Payments of Interest”); and
 
 
•
 
your tax basis in the notes.
 
Your gain or loss generally will be capital gain or loss. This capital gain or loss will be long-term capital gain or loss if at the time of the sale or other disposition you have held the notes for more than one year. Subject to limited exceptions, your capital losses cannot be used to offset your ordinary income. If you are a non-corporate U.S. holder, your long-term capital gain generally will be subject to a maximum tax rate of 20%.
 
Backup Withholding
 
In general, “backup withholding” at a rate of 30% (which rate under current law will decrease to 29% for payments made in 2004 and 2005 and to 28% for payments made in 2006 through 2010, and increase to 31% thereafter) may apply:
 
 
•
 
to any payments made to you of principal of and interest on your note; and
 
 
•
 
to payment of the proceeds of a sale or other disposition of your note before maturity,
 
if you are a non-corporate U.S. holder and fail to provide a correct taxpayer identification number or otherwise comply with applicable requirements of the backup withholding rules.
 
The backup withholding tax is not an additional tax and may be credited against your United States federal income tax liability, provided that correct information is provided to the Internal Revenue Service.

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Non-U.S. Holders
 
The following summary applies to you if you are a beneficial owner of a note that is not a U.S. holder (as defined above) (a “non-U.S. holder”). An individual may, subject to exceptions, be deemed to be a resident alien, as opposed to a non-resident alien, by among other ways being present in the United States:
 
 
•
 
on at least 31 days in the calendar year; and
 
 
•
 
for an aggregate of at least 183 days during a three-year period ending in the current calendar year, counting for such purposes all of the days present in the current year, one-third of the days present in the immediately preceding year, and one-sixth of the days present in the second preceding year.
 
Resident aliens are subject to U.S. federal income tax as if they were United States citizens.
 
U.S. Federal Withholding Tax
 
Under current U.S. federal income tax laws, and subject to the discussion below, U.S. federal withholding tax will not apply to payments by us or our paying agent (in its capacity as such) of principal of and interest on your notes under the “portfolio interest” exception of the Internal Revenue Code, provided that in the case of interest:
 
 
•
 
you do not, directly or indirectly, actually or constructively, own ten percent or more of the total combined voting power of all classes of our stock entitled to vote within the meaning of section 871(h)(3) of the Internal Revenue Code and the Treasury regulations thereunder;
 
 
•
 
you are not (a) a controlled foreign corporation for U.S. federal income tax purposes that is related, directly or indirectly, to us through sufficient stock ownership (as provided in the Internal Revenue Code) or (b) a bank receiving interest described in section 881(c)(3)(A) of the Internal Revenue Code;
 
 
•
 
such interest is not effectively connected with your conduct of a U.S. trade or business; and
 
 
•
 
you provide a signed written statement, under penalties of perjury, which can reliably be related to you, certifying that you are not a United States person within the meaning of the Internal Revenue Code and providing your name and address to:
 
 
(a)
 
us or our paying agent; or
 
 
(b)
 
a securities clearing organization, bank or other financial institution that holds customers’ securities in the ordinary course of its trade or business and holds your notes on your behalf and that certifies to us or our paying agent under penalties of perjury that it, or the bank or financial institution between it and you, has received from you your signed, written statement and provides us or our paying agent with a copy of this statement.
 
Recently finalized Treasury regulations provide alternative methods for satisfying the certification requirement described in this section. In addition, under these Treasury regulations:
 
 
•
 
if you are a foreign partnership, the certification requirement will generally apply to your partners, and you will be required to provide certain information;
 
 
•
 
if you are a foreign trust, the certification requirement will generally be applied to you or your beneficial owners depending on whether you are a “foreign complex trust,” “foreign simple trust,” or “foreign grantor trust” as defined in the Treasury regulations; and
 
 
•
 
look-through rules will apply for tiered partnerships, foreign simple trusts and foreign grantor trusts.

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If you are a foreign partnership or a foreign trust, you should consult your own tax advisor regarding your status under these Treasury regulations and the certification requirements applicable to you.
 
U.S. Federal Income Tax
 
Except for the possible application of U.S. withholding tax (see “U.S. Federal Tax Considerations—Non-U.S. Holders—U.S. Federal Withholding Tax” above) and backup withholding tax (see “U.S. Federal Tax Considerations—Non-U.S. Holders—Backup Withholding and Information Reporting” below), you generally will not have to pay U.S. federal income tax on payments of principal of and interest on your notes, or on any gain or income realized from the sale, redemption, retirement at maturity or other disposition of your notes unless:
 
 
•
 
in the case of gain, you are an individual who is present in the United States for 183 days or more during the taxable year of the sale or other disposition of your notes, and specific other conditions are met; or
 
 
•
 
the gain is effectively connected with your conduct of a U.S. trade or business, and, if an income tax treaty applies, is generally attributable to a U.S. “permanent establishment” maintained by you.
 
If you are engaged in a trade or business in the United States and interest, gain or any other income in respect of your notes is effectively connected with the conduct of your trade or business, and, if an income tax treaty applies, you maintain a U.S. “permanent establishment” to which the interest, gain or other income is generally attributable, you may be subject to U.S. income tax on a net basis on the interest, gain or income (although interest is exempt from the withholding tax discussed in the preceding paragraphs provided that you provide a properly executed applicable Internal Revenue Service form on or before any payment date to claim the exemption).
 
In addition, if you are a foreign corporation, you may be subject to a branch profits tax equal to 30% of your effectively connected earnings and profits for the taxable year, as adjusted for certain items, unless a lower rate applies to you under a U.S. income tax treaty with your country of residence. For this purpose, you must include interest, gain or income on your notes in the earnings and profits subject to the branch tax if these amounts are effectively connected with the conduct of your U.S. trade or business.
 
U.S. Federal Estate Tax
 
If you are an individual and are not a United States citizen or a resident of the United States (as specially defined for U.S. federal estate tax purposes) at the time of your death, your notes will generally not be subject to the U.S. federal estate tax, unless, at the time of your death:
 
 
•
 
you, directly or indirectly, actually or constructively, own ten percent or more of the total combined voting power of all classes of our stock entitled to vote within the meaning of section 871(h)(3) of the Internal Revenue Code and the Treasury regulations thereunder; or
 
 
•
 
your interest on the notes is effectively connected with your conduct of a U.S. trade or business.
 
Backup Withholding and Information Reporting
 
Under current Treasury regulations, backup withholding and information reporting will not apply to payments made by us or our paying agent (in its capacity as such) to you if you have provided the required certification that you are a non-U.S. holder as described in “U.S. Federal Tax Considerations—Non-U.S. Holders—U.S. Federal Withholding Tax” above, and provided that neither we nor our paying agent has actual knowledge that you are a U.S. holder (as described in “U.S. Federal Tax Considerations—U.S. Holders” above). We or our paying agent may, however, report payments of interest on the notes.
 
The gross proceeds from the disposition of your notes may be subject to information reporting and backup withholding tax at a current rate of 30%, which rate under current law will decrease to 29% for payments made in

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2004 and 2005, and to 28% for payments made in 2006 through 2010, and increase to 31% thereafter. If you sell your notes outside the United States through a non-U.S. office of a non-U.S. broker and the sales proceeds are paid to you outside the United States, then the U.S. backup withholding and information reporting requirements generally will not apply to that payment. However, U.S. information reporting, but not backup withholding, will apply to a payment of sales proceeds, even if that payment is made outside the United States, if you sell your notes though a non-U.S. office of a broker that:
 
 
•
 
is a United States person (as defined in the Internal Revenue Code);
 
 
•
 
derives 50% or more of its gross income in specific periods from the conduct of a trade or business in the United States;
 
 
•
 
is a “controlled foreign corporation” for U.S. federal income tax purposes; or
 
 
•
 
is a foreign partnership, if at any time during its tax year:
 
 
•
 
one or more of its partners are United States persons who in the aggregate hold more than 50% of the income or capital interests in the partnership; or
 
 
•
 
the foreign partnership is engaged in a U.S. trade or business,
 
unless the broker has documentary evidence in its files that you are a non-U.S. person and certain other conditions are met or you otherwise establish an exemption. If you receive payments of the proceeds of a sale of your notes to or through a U.S. office of a broker, the payment is subject to both U.S. backup withholding and information reporting unless you provide a Form W-8BEN certifying that you are a non-U.S. person or you otherwise establish an exemption.
 
You should consult your own tax advisor regarding application of backup withholding in your particular circumstance and the availability of and procedure for obtaining an exemption from backup withholding under current Treasury regulations. Any amounts withheld under the backup withholding rules from a payment to you will be allowed as a refund or credit against your U.S. federal income tax liability, provided the required information is furnished to the Internal Revenue Service.

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Subject to the terms and conditions described in an underwriting agreement among us and Banc of America Securities LLC and J.P. Morgan Securities Inc. as representatives of the underwriters, we have agreed to sell to the underwriters, and the underwriters severally have agreed to purchase from us, the aggregate principal amount of the notes set forth opposite their names below.
 
Underwriter
   
Principal Amount
Banc of America Securities LLC
   
$
            
J.P. Morgan Securities Inc.
       
Total
       
    
    
$
300,000,000
    
 
The underwriters have agreed to purchase all of the notes sold under the underwriting agreement, if any of the notes are purchased. If any underwriter defaults, the underwriting agreement provides that the purchase commitments of the nondefaulting underwriters may be increased or the underwriting agreement may be terminated.
 
We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make in respect of those liabilities.
 
The underwriters are offering the notes, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, including the validity of the notes, and other conditions contained in the underwriting agreement, such as the receipt by the underwriters of officers’ certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.
 
Commissions and Discounts
 
The underwriters have advised us that they propose initially to offer the notes to the public at the public offering price on the cover page of this prospectus supplement, and to dealers at this price less a concession not in excess of     % of the principal amount of the notes. The underwriters may allow, and these dealers may reallow, a discount not in excess of     % of the principal amount of the notes to other dealers. After the initial public offering of these notes, the public offering price, concession and discount may be changed.
 
Our expenses of this offering, not including the underwriting discounts and commissions, are estimated at $         and are payable by us.
 
NASD Regulation
 
Because more than ten percent of the net proceeds of this offering may be paid to members or affiliates of members of the National Association of Securities Dealers Inc. participating in this offering, the offering will be conducted in accordance with NASD Conduct Rule 2710(c)(8).
 
New Issue of Notes
 
This series of notes is a new issue of securities with no established trading market. We do not intend to apply for listing of the notes on any national securities exchange or for quotation of the notes on any automated dealer quotation system. We have been advised by the underwriters that they presently intend to make a market

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in the notes after the completion of this offering. However, they are under no obligation to do so and may discontinue any market-making activities at any time without any notice. We cannot assure the liquidity of the trading market for the notes or that an active public market for the notes will develop. If an active public trading market for the notes does not develop, the market price and liquidity of the notes may be adversely affected.
 
Price Stabilization, Short Positions and Penalty Bids
 
In connection with the offering, the underwriters are permitted to engage in transactions that stabilize the market prices of the notes. Such transactions consist of bids or purchases to peg, fix or maintain the price of the notes. If the underwriters create a short position in the notes in connection with the offering, that is, if they sell more notes than are set forth on the cover page of this prospectus supplement, the underwriters may reduce that short position by purchasing notes in the open market. Purchases of a security to stabilize the price or to reduce a short position could cause the price of the security to be higher than it might be in the absence of those purchases.
 
The underwriters also may impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting commission received by it because the other underwriters have repurchased notes sold by or for the account of that underwriter in stabilizing or short covering transactions.
 
Neither we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the notes. In addition, neither we nor any of the underwriters make any representation that the underwriters will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.
 
Other Relationships
 
The underwriters and their affiliates have engaged in, and may in the future engage in, investment banking and other commercial dealings in the ordinary course of business with us. They have received customary fees and commissions for these transactions.
 
Banc of America Securities LLC is the sole lead arranger and Banc of America Mortgage Capital Corporation is the administrative agent and a lender under our $392.5 million bridge loan facility used to fund part of the purchase price of the assets acquired from Rodamco. Banc of America Securities LLC was also our financial advisor in connection with the Rodamco acquisition. Affiliates of Banc of America Securities LLC are lenders under our unsecured revolving credit facility and construction loans or mortgages for Merrick Park and Fashion Show. See “Use of Proceeds.”
 
Affiliates of J.P. Morgan Securities Inc. own equity interests in our Bridgewater Commons, Towson Town Center, Park Meadows and Village of Merrick Park unconsolidated real estate ventures and have an agreement to purchase an equity interest in Perimeter Mall. J.P. Morgan Securities Inc. is a lender under our unsecured revolving credit facility. See “Use of Proceeds.”

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The consolidated financial statements and schedules of Rouse and its subsidiaries as of December 31, 2001 and 2000 and for each of the years in the three-year period ended December 31, 2001 and the statement of revenues and certain expenses of the Subject Properties (consisting of Perimeter Mall, Willowbrook and Collin Creek) for the year ended December 31, 2001 incorporated by reference in the accompanying prospectus have been incorporated by reference in reliance upon reports of KPMG LLP, independent certified public accountants, incorporated by reference in the accompanying prospectus, and upon the authority of KPMG LLP as experts in accounting and auditing. The report on the statement of revenues and certain expenses of the Subject Properties includes a paragraph that states that the statement of revenues and certain expenses was prepared for the purpose of complying with Rule 3-14 of Regulation S-X of the Securities and Exchange Commission and is not intended to be a complete presentation of revenues and expenses.
 
The historical statement of operations for each of Durham Associates and River Ridge Limited Partnership for the year ended December 31, 2001 incorporated by reference in the accompanying prospectus has been incorporated by reference in reliance upon the reports of Greer & Walker LLP, independent certified public accountants, incorporated by reference therein and upon authority of said firm as experts in accounting and auditing.
 
The consolidated statement of income and certain expenses of Kravco Investments, L.P. for the year ended December 31, 2001 incorporated by reference in the accompanying prospectus has been incorporated by reference in reliance upon the report of Ernst & Young LLP, independent certified public accountants, incorporated by reference therein and upon authority of said firm as experts in accounting and auditing.
 
The financial statements for Lakeside Mall, North Star, Oakbrook Center, Water Tower Place, Collin Creek-Dillard’s and Sawmill Place Plaza included in the Form 8-K/A we filed on July 19, 2002 and incorporated by reference in the accompanying prospectus were audited by Arthur Andersen LLP. After reasonable efforts, we have not been able to obtain the consent of Arthur Andersen to include or incorporate by reference its audit reports with respect to these financial statements. Accordingly, investors in the notes offered by this prospectus supplement will not have a remedy against Arthur Andersen under Section 11 of the Securities Act for any material misstatements or omissions in those financial statements because Arthur Andersen will not have consented to the inclusion or incorporation by reference of its audit reports in the registration statement. In addition, on June 15, 2002, Arthur Andersen was convicted of federal obstruction of justice arising from the U.S. government’s investigation of Enron Corp. and is also the subject of civil proceedings related to Enron Corp. As a result, investors may have no effective remedy against Arthur Andersen in connection with any claim arising out of the financial statements audited by Arthur Andersen.
 
 
The validity of the notes will be passed upon for us by Fried, Frank, Harris, Shriver & Jacobson (a partnership including professional corporations), New York, New York. Certain legal matters will be passed on for us by Gordon H. Glenn, General Counsel of Rouse. The validity of the notes will be passed upon for the underwriters by Simpson Thacher & Bartlett, New York, New York.

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THE ROUSE COMPANY
 
Common Stock, Preferred Stock and Debt Securities
 
 
We are one of the largest publicly traded real estate companies in the United States. Through this prospectus, we may periodically offer shares of our common stock, shares of our preferred stock and/or debt securities, and one of our securityholders may periodically offer up to 3,525,782 shares of our common stock and up to $58,000,000 principal amount of our 6.94% notes due 2008 that have been issued to it, in the amounts, at the prices and on such other terms as will be determined at the time of offering. The offering price of all securities issued under this prospectus may not exceed $2,251,000,000.
 
We may offer any of the securities described in this prospectus in one or more series or issue any of those securities all at once or over time. We will describe the specific terms of any securities we offer in a prospectus supplement that will accompany this prospectus. If we offer common stock, we will specify the number of shares, the public offering price and other terms relating to the offer and sale of those shares in the prospectus supplement. If we offer preferred stock, we will specify the title of the preferred stock, the number of shares, the public offering price, any dividend, liquidation, redemption, voting, conversion, exchange and other rights, and any other terms relating to the offer and sale of those shares in the prospectus supplement. If we offer debt securities, we will specify the title of the debt securities, the principal amount, the public offering price, the denomination, the maturity, any premium, any interest rate (which may be fixed, floating or adjustable), the time and method of calculating any interest payment, the place where the principal of and any premium and interest may be paid, the currency in which the principal of and any premium and interest may be paid, any redemption or repayment terms at our or the holder’s option, any sinking fund, conversion or exchange provisions, any other special terms, and any other terms relating to the offer and sale of those debt securities in the prospectus supplement.
 
Any securities to be sold by the selling securityholder under this prospectus may be sold directly or through agents or broker-dealers on terms to be determined at the time of sale. The terms of any sale will be described in a prospectus supplement that will accompany this prospectus. We will receive no proceeds from any sales of our securities by the selling securityholder, but we have agreed to pay certain expenses associated with the registration and sale of those securities.
 
Our common stock trades on the New York Stock Exchange under the symbol “RSE.” We will list any shares of common stock sold under this prospectus on the New York Stock Exchange. Unless we otherwise specify in a prospectus supplement, any debt securities we issue under this prospectus will be unsecured and unsubordinated obligations and will rank equally with all of our other unsecured and unsubordinated indebtedness.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
 
 
The date of this prospectus is December 2, 1998.

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You should rely only on the information contained or incorporated by reference in this prospectus and in any prospectus supplement accompanying this prospectus or information that we or the selling securityholder have referred you to, such as the information referred to below that we file with the SEC. Neither we nor the selling securityholder has authorized anyone to provide you with information that is different. You should not assume that the information in this prospectus or in any prospectus supplement is accurate as of any date other than the date on the front of those documents.
 
 
We file annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document we file at the SEC’s public reference rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Our SEC filings are also available to the public at the SEC’s web site at http://www.sec.gov and at the public reference room of the New York Stock Exchange at 20 Broad Street, New York, New York 10005.
 
The SEC allows us to “incorporate by reference” the information we file with it, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be part of this prospectus, and later information that we file with the SEC will automatically update and supersede this information. We incorporate by reference the documents listed below and any future filings made with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until we sell all the securities offered under this prospectus. This prospectus is part of the registration statement we filed with the SEC.
 
 
1.
 
Annual Report on Form 10-K for the year ended December 31, 1997 (the “1997 10-K”).
 
 
2.
 
Current Report on Form 8-K dated January 15, 1998.
 
 
3.
 
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998.
 
 
4.
 
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.
 
 
5.
 
Quarterly Report on Form 10-Q for the quarter ended September 30, 1998.
 
 
6.
 
Current Report on Form 8-K dated August 14, 1998.
 
 
7.
 
Current Report on Form 8-K/A dated October 9, 1998.
 
 
8.
 
Current Report on Form 8-K dated October 21, 1998.
 
 
9.
 
Current Report on Form 8-K dated November 5, 1998.
 
 
10.
 
Current Report on Form 8-K/A dated November 16, 1998.
 
 
11.
 
Description of Contingent Stock Agreement (as described elsewhere in this prospectus) is incorporated by reference to the caption “The Contingent Stock Agreement; The Contractual Rights” contained in the registration statement on Form S-4 (File No. 333-1693) filed March 13, 1996, as amended.
 
You may request a copy of these filings, at no cost, by writing or telephoning David L. Tripp, Vice President and Director of Investor Relations and Corporate Communications, The Rouse Company, 10275 Little Patuxent Parkway, Columbia, Maryland 21044-3456, Telephone: (410) 992-6000.

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This prospectus, including the documents incorporated by reference in this prospectus, contains forward-looking statements which reflected our views at the times the documents were filed regarding future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties which could cause actual results to differ materially from historical results or the results we expected at the time of filing. See Exhibit 99.2 to the 1997 10-K. The words “believe,” “expect,” “anticipate” and similar expressions identify forward-looking statements, which speak only as of the dates on which they were made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. You should not unduly rely on these forward-looking statements.
 
 
The Rouse Company is one of the largest publicly-traded real estate companies in the United States. We elected to be taxed as a real estate investment trust (a “REIT”) effective January 1, 1998. Through our subsidiaries, affiliates and non-REIT subsidiaries, we engage in, or have a material financial interests in, (i) the ownership, management, acquisition and development of income-producing and other real estate in the United States, including retail centers, office buildings, mixed-use projects and community retail centers, and the management of one retail center in Canada and (ii) the development and sale of land primarily in Maryland and the Las Vegas, Nevada metropolitan area for residential, commercial and industrial uses.
 
Our principal offices are located at The Rouse Company Building, 10275 Little Patuxent Parkway, Columbia, Maryland 21044-3456, and our telephone number is (410) 992-6000.
 
The Rouse Company and its subsidiaries, affiliates and non-REIT subsidiaries are referred to collectively in this prospectus as “we,” “Rouse” or the “Company.”
 
 
Unless we otherwise indicate in an accompanying prospectus supplement, we intend to use the net proceeds from the sale of any securities offered by us for general corporate purposes, including the repayment of indebtedness and for acquisitions. We will receive no proceeds from any sales of our securities by the selling securityholder. See “Selling Securityholder.”

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The following table sets forth our (i) ratio of earnings to fixed charges and (ii) ratio of earnings to combined fixed charges and Preferred stock dividend requirements for the periods indicated:
 
    
Nine Months
Ended
September 30,
   
Years Ended December 31,
    
1998
   
1997
   
1997
   
1996
   
1995
   
1994
   
1993
Ratio of earnings to fixed charges(1)
   
1.44
   
1.27
   
1.25
   
1.16
   
1.04
   
1.06
   
1.01
Ratio of earnings to combined fixed charges and Preferred stock dividend requirements(2)(3)
   
1.36
   
1.19
   
1.20
   
1.08
   
—  
   
—  
   
—  
(1)
 
The ratio of earnings to fixed charges is computed by dividing fixed charges into net earnings before income taxes, extraordinary loss and cumulative effect of change in accounting principle, adjusted for minority interest in earnings, amortization of interest costs previously capitalized and certain other items, plus fixed charges other than capitalized interest. Fixed charges include interest costs, distributions on Company-obligated mandatorily redeemable preferred securities, the estimated interest component of rent expense and certain other items.
 
(2)
 
The ratio of earnings to combined fixed charges and Preferred stock dividend requirements is computed by dividing total combined fixed charges and amounts of pre-tax earnings required to cover Preferred stock dividend requirements into net earnings before income taxes, extraordinary loss and cumulative effect of change in accounting principle, adjusted for minority interest in earnings, amortization of interest costs previously capitalized and certain other items, plus fixed charges other than capitalized interest. Fixed charges include interest costs, distributions on Company-obligated mandatorily redeemable preferred securities, the estimated interest component of rent expense and certain other items.
 
(3)
 
Total combined fixed charges and Preferred stock dividend requirements exceeded earnings available for combined fixed charges and Preferred stock dividend requirements by $14,086,000, $8,934,000 and $17,722,000 for the years ended December 31, 1995, 1994 and 1993, respectively.

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General
 
The following summary of certain terms and provisions of Rouse’s common stock, $0.01 par value per share, does not purport to be complete and is subject to, and qualified in its entirety by reference to, the Maryland General Corporation Law (the “MGCL”) and to the terms and provisions of the Amended and Restated Articles of Incorporation, as amended, including all Articles Supplementary thereto, of Rouse (the “Charter”) and the Bylaws, as amended, of Rouse (the “Bylaws”), copies of which are filed as exhibits to the registration statement of which this prospectus forms a part.
 
The Charter authorizes the issuance of 250,000,000 shares of common stock and, as of November 30, 1998, 72,158,705 shares of common stock were issued and outstanding. The common stock is listed on the NYSE under the trading symbol “RSE.”
 
In connection with Rouse’s acquisition in June 1996 (the “Hughes Acquisition”) of all the outstanding equity interests in The Hughes Corporation and its affiliated partnership, Howard Hughes Properties, Limited Partnership (collectively, “Hughes”), Rouse entered into an agreement (the “Contingent Stock Agreement”) for the benefit of the former Hughes equity owners (or their successors) (the “Hughes Owners”) pursuant to which shares of common stock, or under certain circumstances, Increasing Rate Cumulative Preferred Stock, par value $0.01 per share (the “Increasing Rate Preferred Stock”), of Rouse may be issued to the Hughes Owners over a 14-year period ending in 2009. The number of shares of common stock (or, under certain circumstances, Increasing Rate Preferred Stock) that may be issued will be determined on the basis of the net cash flow generated from and the appraised value of certain assets acquired in the Hughes Acquisition. Any shares of Increasing Rate Preferred Stock, if issued, will be exchangeable, at Rouse’s option, for shares of common stock.
 
During the first quarter of 1997, Rouse issued 4,050,000 shares of its Series B Convertible Preferred Stock, par value $0.01 per share (the “Series B Convertible Preferred Stock”). The Series B Convertible Preferred Stock is convertible, in whole or in part, at the option of the holder thereof at any time, unless previously redeemed, into shares of common stock, at a conversion price of $38.125 per share of common stock (equivalent to a conversion rate of 1.311 shares of common stock per share of Series B Convertible Preferred Stock), subject to adjustment in certain circumstances. The Series B Convertible Preferred Stock is not redeemable prior to April 1, 2000, and at no time is it redeemable for cash. On or after April 1, 2000, the Series B Convertible Preferred Stock will be redeemable by Rouse, in whole or in part, at Rouse’s option and subject to certain conditions, for such number of shares of common stock as are issuable at a conversion rate of 1.311 shares of common stock for each share of Series B Convertible Preferred Stock, subject to adjustment in certain circumstances. See “Description of Preferred Stock—Series B Convertible Preferred Stock.”
 
Rouse has outstanding $128,515,000 aggregate principal amount of 5 3/4% Convertible Subordinated Debentures due 2002. The debentures are convertible by the holders thereof into common stock at a conversion price equal to $28.625 principal amount of each debenture for each share of common stock, subject to adjustment in certain circumstances.
 
Dividend Rights
 
The holders of common stock are entitled to receive such dividends as are declared by the Board of Directors of Rouse, after payment of, or provision for, full cumulative dividends for outstanding Preferred Stock.
 

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Voting Rights
 
Each share of common stock is entitled to one vote on all matters submitted to a vote of stockholders, including the election of directors. Cumulative voting for directors is not permitted. Holders of common stock and Rouse’s preferred stock, $0.01 per share, when outstanding and when entitled to vote, vote as a class, except with respect to matters that (i) relate only to the rights, terms or conditions of preferred stock, (ii) affect only the holders of preferred stock or (iii) relate to the rights of the holders of preferred stock if Rouse fails to fulfill any of its obligations regarding such stock.
 
Liquidation Rights
 
Upon any dissolution, liquidation or winding up of Rouse, the holders of common stock are entitled to receive pro rata all of Rouse’s assets and funds remaining after payment of, or provision for, creditors and distribution of, or provision for, preferential amounts and unpaid accumulated dividends to holders of preferred stock.
 
Preemptive Rights
 
Holders of common stock have no preemptive right to purchase or subscribe for any shares of Rouse’s capital stock.
 
Special Statutory Requirements for Certain Transactions
 
The summaries of the following statutes do not purport to be complete and are subject to and qualified in their entirety by reference to the applicable provisions of the MGCL.
 
Business Combination Statute
 
The MGCL establishes special requirements with respect to “business combinations” between Maryland corporations and “interested stockholders,” unless exemptions are applicable. Among other things, the law prohibits for a period of five years a merger or other specified transactions between a company and an interested stockholder and requires a super-majority vote for such transactions after the end of such five-year period.
 
“Interested stockholders” are all persons owning beneficially, directly or indirectly, 10% or more of the outstanding voting stock of a Maryland corporation. “Business combinations” include any merger or similar transaction subject to a statutory vote and additional transactions involving transfers of assets or securities in specified amounts to interested stockholders or their affiliates. Unless an exemption is available, transactions of these types may not be consummated between a Maryland corporation and an interested stockholder or its affiliates for a period of five years after the date on which the stockholder first became an interested stockholder and thereafter may not be consummated unless recommended by the board of directors of the Maryland corporation and approved by the affirmative vote of at least 80% of the votes entitled to be cast by all holders of outstanding shares of voting stock and 66 2/3% of the votes entitled to be cast by all holders of outstanding shares of voting stock other than the interested stockholder. A business combination with an interested stockholder which is approved by the board of directors of a Maryland corporation at any time before an interested stockholder first becomes an interested stockholder is not subject to the five-year moratorium or special voting requirements. The Bylaws specifically provide that the foregoing provisions apply to any such business combination with Rouse. An amendment to a Maryland corporation’s charter electing not to be subject to the foregoing requirements must be approved by the affirmative vote of at least 80% of the votes entitled to be cast by all holders of outstanding shares of voting stock and 66 2/3% of the votes entitled to be cast by holders of outstanding shares of voting stock who are not interested stockholders. Any such amendment is not effective until 18 months after the vote of stockholders and does not apply to any business combination of a corporation with a stockholder who was an interested stockholder on the date of the stockholder vote. Rouse has not adopted any such amendment to its charter.

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Control Share Acquisition Statute
 
The MGCL imposes limitations on the voting rights of shares acquired in a “control share acquisition.” The Maryland statute defines a “control share acquisition” at the 20%, 33 1/3% and 50% acquisition levels, and requires a two-thirds stockholder vote (excluding shares owned by the acquiring person and certain members of management) to accord voting rights to stock acquired in a control share acquisition. The statute also requires Maryland corporations to hold a special meeting at the request of an actual or proposed control share acquirer generally within 50 days after a request is made with the submission of an “acquiring person statement,” but only if the acquiring person (a) posts a bond for the cost of the meeting and (b) submits a definitive financing agreement to the extent that financing is not provided by the acquiring person. In addition, unless the charter or bylaws provide otherwise, the statute gives the Maryland corporation, within certain time limitations, various redemption rights if there is a stockholder vote on the issue and the grant of voting rights is not approved, or if an “acquiring person statement” is not delivered to the target within ten days following a control share acquisition. Moreover, unless the charter or bylaws provide otherwise, the statute provides that, if, before a control share acquisition occurs, voting rights are accorded to control shares which result in the acquiring person having majority voting power, then minority stockholders have appraisal rights. An acquisition of shares may be exempted from the control share statute provided that a charter or bylaw provision is adopted for such purpose prior to the control share acquisition. The Bylaws specifically provide that the statutory provisions relating to control share acquisitions do not apply.
 
Transfer Agent and Registrar
 
The transfer agent and registrar for the common stock is The Bank of New York, New York, New York.

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General
 
The following summaries of certain terms and provisions of the preferred stock do not purport to be complete and are subject to, and qualified in their entirety by reference to, the MGCL and the terms and provisions of the Charter, including the Articles Supplementary setting forth the particular terms of (i) the Series B Convertible Preferred Stock, (ii) the Increasing Rate Preferred Stock and (iii) the 10.25% Junior Preferred Stock, Series 1996 (the “Junior Preferred Stock”), and to the Bylaws, copies of which are incorporated by reference into the registration statement of which this prospectus forms a part.
 
The Charter authorizes the issuance of 50,000,000 shares of preferred stock, of which (i) 4,600,000 shares have been classified as Series B Convertible Preferred Stock, (ii) 10,000,000 shares have been classified as Increasing Rate Cumulative Preferred Stock and (iii) 37,362 shares have been classified as 10.25% Junior Preferred Stock, 1996 Series. Preferred stock may be issued from time to time in one or more series, without stockholder approval, with such voting powers (full or limited), designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions as shall be established by the Board of Directors of Rouse. Thus, without stockholder approval, Rouse could authorize the issuance of preferred stock with voting, conversion and other rights that could dilute the voting power and other rights of the holders of common stock.
 
The particular terms of any series of preferred stock offered by any prospectus supplement will be described in the prospectus supplement relating to such series of preferred stock. At any time that any series of preferred stock is authorized, the Board of Directors of Rouse or a duly authorized Committee of such Board of Directors will fix the dividend rights, any conversion rights, any voting rights, redemption provisions, liquidation preferences and any other rights, preferences, privileges and restrictions of such series, as well as the number of shares constituting such series and the designation thereof. The description of the terms of a particular series of preferred stock that will be set forth in a prospectus supplement does not purport to be complete and will be qualified in its entirety by reference to the Articles Supplementary relating to such series.
 
As of November 30, 1998, no shares of Increasing Rate Preferred Stock, 37,362 shares of Junior Preferred Stock and 4,050,000 shares of Series B Convertible Preferred Stock are issued and outstanding.
 
Series B Convertible Preferred Stock
 
General
 
On January 30, 1997, the Board of Directors of Rouse classified and authorized Rouse to issue up to an aggregate of 4,600,000 shares of the Series B Convertible Preferred Stock as part of the 50,000,000 shares of the authorized preferred stock.
 
The holders of the Series B Convertible Preferred Stock have no preemptive rights with respect to any shares of capital stock of Rouse or any other securities of Rouse convertible into or carrying rights or options to purchase any such shares. The Series B Convertible Preferred Stock is not subject to any sinking fund or other obligation of Rouse to redeem or retire the Series B Convertible Preferred Stock. Unless converted or redeemed by Rouse, the Series B Convertible Preferred Stock has a perpetual term, with no maturity. The Series B Convertible Preferred Stock is listed on the NYSE under the trading symbol “RSE Pr B.” The shares of common stock issuable upon conversion or redemption of the Series B Convertible Preferred Stock are listed on the NYSE.
 
Ranking
 
The Series B Convertible Preferred Stock ranks senior to the Increasing Rate Preferred Stock, the Junior Preferred Stock and the common stock with respect to payment of dividends and amounts upon liquidation, dissolution or winding up.

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While any shares of Series B Convertible Preferred Stock are outstanding, Rouse may not authorize, create or increase the authorized amount of any class or series of stock that ranks senior to the Series B Convertible Preferred Stock with respect to the payment of dividends or amounts upon liquidation, dissolution or winding up without the consent of the holders of two-thirds of the outstanding shares of Series B Convertible Preferred Stock and all other shares of Voting Preferred Shares (defined below), voting as a single class. However, Rouse may create additional classes of stock, increase the authorized number of shares of preferred stock or issue series of preferred stock ranking on a parity with the Series B Convertible Preferred Stock with respect, in each case, to the payment of dividends and amounts upon liquidation, dissolution and winding up (a “Series B Parity Stock”) without the consent of any holder of Series B Convertible Preferred Stock. See “—Voting Rights” below.
 
Dividends
 
Holders of shares of Series B Convertible Preferred Stock are entitled to receive, when, as and if declared by the Board of Directors of Rouse, out of funds of Rouse legally available for payment, cumulative cash dividends at the rate per annum of 6.0% per share on the liquidation preference thereof or $3.00 per share of Series B Convertible Preferred Stock. Dividends on the Series B Convertible Preferred Stock are payable quarterly on the first calendar day of January, April, July and October of each year (and, in the case of any accrued but unpaid dividends, at such additional times and for such interim periods, if any, as determined by the Board of Directors), at such annual rate. Each such dividend is payable to holders of record as they appear on the stock records of Rouse at the close of business on such record dates, not exceeding 60 days preceding the payment dates thereof as shall be fixed by the Board of Directors of Rouse. Dividends are cumulative from the most recent dividend payment date to which dividends have been paid, whether or not in any dividend period or periods there shall be funds of Rouse legally available for the payment of such dividends. Accumulations of dividends on shares of Series B Convertible Preferred Stock will not bear interest. Dividends payable on the Series B Convertible Preferred Stock for any period greater or less than a full dividend period will be computed on the basis of a 360-day year consisting of twelve 30-day months. Dividends payable on the Series B Convertible Preferred Stock for each full dividend period are computed by dividing the annual dividend rate by four.
 
No dividend may be declared or paid on any Series B Parity Stock unless full cumulative dividends have been declared and paid or are contemporaneously declared and funds sufficient for payment set aside on the Series B Convertible Preferred Stock for all prior dividend periods, provided, however, that if accrued dividends on the Series B Convertible Preferred Stock for all prior dividend periods have not been paid in full then any dividend declared on the Series B Convertible Preferred Stock for any dividend period and on any Series B Parity Stock will be declared ratably in proportion to accrued and unpaid dividends on the Series B Convertible Preferred Stock and such Series B Parity Stock.
 
Rouse may not
 
 
(i)
 
declare, pay or set apart funds for the payment of any dividend or other distribution with respect to any Series B Junior Stock (as defined below), or
 
 
(ii)
 
redeem, purchase or otherwise acquire for consideration any Series B Junior Stock through a sinking fund or otherwise (other than (A) a redemption or purchase or other acquisition of shares of common stock made for purposes of an employee incentive or benefit plan of Rouse or any subsidiary or (B) a purchase or other acquisition of shares of common stock made for purposes of distribution pursuant to the Contingent Stock Agreement),
 
unless

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(1)
 
all cumulative dividends with respect to the Series B Convertible Preferred Stock and any Series B Parity Stock at the time such dividends are payable have been paid or funds have been set apart for payment of such dividends and
 
 
(2)
 
sufficient funds have been paid or set apart for the payment of the dividend for the current dividend period with respect to the Series B Convertible Preferred Stock and any Series B Parity Stock.
 
The foregoing limitations do not restrict Rouse’s ability to take the foregoing actions with respect to any Series B Parity Stock.
 
As used herein, (i) the term “dividend” does not include dividends payable solely in shares of Series B Junior Stock on Series B Junior Stock, or in options, warrants or rights to holders of Series B Junior Stock to subscribe for or purchase any Series B Junior Stock, and (ii) the term “Series B Junior Stock” means the common stock, and any other class of capital stock of Rouse now or hereafter issued and outstanding that ranks junior as to the payment of dividends or amounts upon liquidation, dissolution and winding up to the Series B Convertible Preferred Stock.
 
Redemption
 
Shares of Series B Convertible Preferred Stock are not redeemable by Rouse prior to April 1, 2000, and at no time is the Series B Convertible Preferred Stock redeemable for cash. On and after April 1, 2000, the shares of Series B Convertible Preferred Stock will be redeemable at the option of Rouse, in whole or in part, for such number of shares of common stock as equals the liquidation preference of the Series B Convertible Preferred Stock to be redeemed divided by the Conversion Price (as defined below under “—Conversion Rights”) as of the opening of business on the date set for such redemption (equivalent to a conversion rate of 1.311 shares of common stock for each share of Series B Convertible Preferred Stock), subject to adjustment in certain circumstances. Rouse may exercise this option only if for 20 trading days within any period of 30 consecutive trading days, including the last trading day of such period, the closing price of the common stock on NYSE exceeds $45.75, subject to adjustment in certain circumstances. In order to exercise its redemption option, Rouse must issue a press release announcing the redemption prior to the opening of business on the second trading day after the conditions in the preceding sentences have, from time to time, been met, but in no event prior to February 1, 2000.
 
On the redemption date, Rouse must pay on each share of Series B Convertible Preferred Stock to be redeemed any accrued and unpaid dividends, in arrears, for any dividend period ending on or prior to the redemption date. In the case of a redemption date falling after a dividend payment record date and prior to the related payment date, the holders of the Series B Convertible Preferred Stock at the close of business on such record date will be entitled to receive the dividend payable on such shares on the corresponding dividend payment date, notwithstanding the redemption of such shares prior to such dividend payment date. Except as provided for in the preceding sentences, no payment or allowance will be made for accrued dividends on any shares of Series B Convertible Preferred Stock called for redemption or on the shares of common stock issuable upon such redemption.
 
In the event that full cumulative dividends on the Series B Convertible Preferred Stock and any Series B Parity Stock have not been paid or declared and set apart for payment, the Series B Convertible Preferred Stock may not be redeemed in part and Rouse may not purchase or acquire shares of Series B Convertible Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of shares of Series B Convertible Preferred Stock.

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On and after the date fixed for redemption, provided that Rouse has made available at the office of the Registrar and Transfer Agent a sufficient number of shares of common stock and an amount of cash to effect the redemption, dividends will cease to accrue on the Series B Convertible Preferred Stock called for redemption (except that, in the case of a redemption date after a dividend payment record date and prior to the related dividend payment date, holders of Series B Convertible Preferred Stock on the dividend payment record date will be entitled on such dividend payment date to receive the dividend payable on such shares), such shares shall no longer be deemed to be outstanding and all rights of the holders of such shares as holders of Series B Convertible Preferred Stock shall cease except the right to receive the shares of common stock upon such redemption and any cash payable upon such redemption, without interest from the date of such redemption. At the close of business on the redemption date, each holder of Series B Convertible Preferred Stock (unless Rouse defaults in the delivery of the shares of common stock or cash) will be, without any further action, deemed a holder of the number of shares of common stock for which such Series B Convertible Preferred Stock is redeemable.
 
Fractional shares of common stock are not to be issued upon redemption of the Series B Convertible Preferred Stock, but, in lieu thereof, Rouse will pay a cash adjustment based on the current market price of the common stock on the trading day prior to the redemption date.
 
Liquidation Preference
 
The holders of shares of Series B Convertible Preferred Stock are entitled to receive in the event of any liquidation, dissolution or winding up of Rouse, whether voluntary or involuntary, $50.00 per share of Series B Convertible Preferred Stock plus an amount per share of Series B Convertible Preferred Stock equal to all dividends (whether or not earned or declared) accrued and unpaid thereon to the date of final distribution to such holders (the “Series B Liquidation Preference”), and no more.
 
Until the holders of the Series B Convertible Preferred Stock have been paid the Series B Liquidation Preference in full, no payment will be made to any holder of Series B Junior Stock upon the liquidation, dissolution or winding up of Rouse. If, upon any liquidation, dissolution or winding up of Rouse, the assets of Rouse, or proceeds thereof, distributable among the holders of the shares of Series B Convertible Preferred Stock are insufficient to pay in full the Series B Liquidation Preference and the liquidation preference with respect to any other shares of Series B Parity Stock, then such assets, or the proceeds thereof, will be distributed among the holders of shares of Series B Convertible Preferred Stock and any such Series B Parity Stock ratably in accordance with the respective amounts which would be payable on such shares of Series B Convertible Preferred Stock and any such Series B Parity Stock if all amounts payable thereon were paid in full. Neither a consolidation or merger of Rouse with another corporation, a statutory share exchange by Rouse nor a sale or transfer of all or substantially all of Rouse’s assets will be considered a liquidation, dissolution or winding up, voluntary or involuntary, of Rouse.
 
Voting Rights
 
Except as indicated below, or except as otherwise from time to time required by applicable law, the holders of shares of Series B Convertible Preferred Stock have no voting rights.
 
If and whenever six quarterly dividends (whether or not consecutive) payable on the Series B Convertible Preferred Stock or any other Series B Parity Stock are in arrears, whether or not earned or declared, the number of directors then constituting the Board of Directors of Rouse will be increased by two and the holders of shares of Series B Convertible Preferred Stock, voting together as a class with the holders of any other series of Series B Parity Stock (any such other series, the “Voting Preferred Shares”),

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will have the right to elect two additional directors to serve on Rouse’s Board of Directors at an annual meeting of stockholders or a properly called special meeting of the holders of the Series B Convertible Preferred Stock and such Voting Preferred Shares and at each subsequent annual meeting of stockholders until all such dividends and dividends for the current quarterly period on the Series B Convertible Preferred Stock and such other Voting Preferred Shares have been paid or declared and set aside for payment.
 
The approval of two-thirds of the outstanding shares of Series B Convertible Preferred Stock and all other series of Voting Preferred Shares, acting as a single class regardless of series either at a meeting of shareholders or by written consent, is required in order to amend the Charter and Articles Supplementary to affect materially and adversely the rights, preferences or voting powers of the holders of the Series B Convertible Preferred Stock or the Voting Preferred Shares or to authorize, create, or increase the authorized amount of, any class of stock having rights senior to the Series B Convertible Preferred Stock with respect to the payment of dividends or amounts upon liquidation, dissolution or winding up. However, Rouse may create additional classes of Series B Parity Stock and Series B Junior Stock, increase the authorized number of shares of Series B Parity Stock and Series B Junior Stock and issue additional series of Series B Parity Stock and Series B Junior Stock without the consent of any holder of Series B Convertible Preferred Stock.
 
Except as required by law, the holders of Series B Convertible Preferred Stock are not entitled to vote on any merger or consolidation involving Rouse or a sale of all or substantially all of the assets of Rouse. See “—Conversion Price Adjustments” below.
 
Conversion Rights
 
Shares of Series B Convertible Preferred Stock are convertible, in whole or in part, at any time, at the option of the holders thereof, into shares of common stock at a conversion price of $38.125 per share of common stock (equivalent to a conversion rate of 1.311 shares of common stock for each share of Series B Convertible Preferred Stock), subject to adjustment as described below (“Conversion Price”). The right to convert shares of Series B Convertible Preferred Stock called for redemption terminates at the close of business on a redemption date.
 
Each conversion will be deemed to have been effected immediately prior to the close of business on the date on which the certificates for shares of Series B Convertible Preferred Stock shall have been surrendered and notice shall have been received by Rouse as aforesaid (and if applicable, payment of any amount equal to the dividend payable on such shares shall have been received by Rouse as described below) and the conversion shall be at the Conversion Price in effect at such time and on such date.
 
Holders of shares of Series B Convertible Preferred Stock at the close of business on a dividend payment record date are entitled to receive the dividend payable on such shares on the corresponding dividend payment date notwithstanding the conversion of such shares following such dividend payment record date and prior to such dividend payment date. However, shares of Series B Convertible Preferred Stock surrendered for conversion during the period between the close of business on any dividend payment record date and ending with the opening of business on the corresponding dividend payment date (except shares converted after the issuance of a notice of redemption with respect to a redemption date during such period or coinciding with such dividend payment date, which will be entitled to such dividend) must be accompanied by payment of an amount equal to the dividend payable on such shares on such dividend payment date. A holder of shares of Series B Convertible Preferred Stock on a dividend record date who (or whose transferee) tenders any such shares for conversion into shares of common stock on such dividend payment date will receive the dividend payable by Rouse on such shares of Series B Convertible Preferred Stock on such date, and the converting holder need not include payment of the amount of such dividend upon surrender of shares of Series B Convertible Preferred Stock for conversion. Except as provided above, Rouse will make no payment or allowance for unpaid dividends, whether or not in arrears, on converted shares or for dividends on the shares of common stock issued upon such conversion.

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Fractional shares of common stock are not to be issued upon conversion but, in lieu thereof, Rouse will pay a cash adjustment based on the current market price of the common stock on the trading day prior to the conversion date.
 
Conversion Price Adjustments
 
The Conversion Price is subject to adjustment upon certain events, including:
 
 
(i)
 
the payment of dividends (and other distributions) payable in common stock on any class of capital stock of Rouse;
 
 
(ii)
 
the issuance to all holders of common stock of certain rights or warrants entitling them to subscribe for or purchase common stock at a price per share less than the fair market value per share of common stock;
 
 
(iii)
 
subdivisions, combinations and reclassifications of common stock; and
 
 
(iv)
 
distributions to all holders of common stock of evidences of indebtedness of Rouse or assets (including securities, but excluding those dividends, rights, warrants and distributions referred to above and dividends and distributions paid in cash out of equity, including revaluation equity, applicable to common stock).
 
In addition to the foregoing adjustments, Rouse may make such reductions in the Conversion Price as it considers to be advisable in order that any event treated for Federal income tax purposes as a dividend of stock or stock rights will not be taxable to the holders of the common stock.
 
In case Rouse shall be a party to any transaction (including, without limitation, a merger, consolidation, statutory share exchange, tender offer for all or substantially all of the shares of common stock or sale of all or substantially all of Rouse’s assets), in each case as a result of which shares of common stock will be converted into the right to receive stock, securities or other property (including cash or any combination thereof), each share of Series B Convertible Preferred Stock, if convertible after the consummation of the transaction, will thereafter be convertible into the kind and amount of shares of stock and other securities and property receivable (including cash or any combination thereof) upon the consummation of such transaction by a holder of that number of shares or fraction thereof of common stock into which one share of Series B Convertible Preferred Stock was convertible immediately prior to such transaction (assuming such holder of common stock failed to exercise any rights of election and received per share the kind and amount received per share by a plurality of non-electing shares). Rouse may not become a party to any such transaction unless the terms thereof are consistent with the foregoing.
 
No adjustment of the Conversion Price is required to be made in any case until cumulative adjustments amount to 1% or more of the Conversion Price. Any adjustments not so required to be made will be carried forward and taken into account in subsequent adjustments.
 
Transfer Agent, Registrar, Dividend Disbursing Agent and Redemption Agent
 
The transfer agent, registrar, dividend disbursing agent and redemption agent for the shares of Series B Convertible Preferred Stock is The Bank of New York, New York, New York.
 
Increasing Rate Preferred Stock
 
General
 
On February 22, 1996, the Board of Directors of Rouse classified, and authorized Rouse to issue, the Increasing Rate Preferred Stock as part of the 50,000,000 shares of authorized preferred stock. The Increasing Rate Preferred Stock is issuable only in connection with the Hughes Acquisition and only to Hughes Owners. Pursuant to the terms of the Contingent Stock Agreement, Rouse will be obligated to

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issue and deliver shares of Increasing Rate Preferred Stock to Hughes Owners if the representatives of the Hughes Owners (which representatives have been appointed under the Contingent Stock Agreement (the “Representatives”)) require Rouse to issue and deliver such shares of Increasing Rate Preferred Stock following certain events of default under the Agreement.
 
If and when issued, the Increasing Rate Preferred Stock will be validly issued, fully paid and nonassessable. The holders of Increasing Rate Preferred Stock will have no preemptive rights with respect to any shares of capital stock of Rouse or any other securities of Rouse convertible into or carrying rights or options to purchase any such shares. The Increasing Rate Preferred Stock will not be subject to any sinking fund. Unless exchanged for common stock or redeemed, the Increasing Rate Preferred Stock will have a perpetual term, with no maturity. The shares of common stock issuable upon the exchange of Increasing Rate Preferred Stock will be listed on the NYSE.
 
Ranking
 
The Increasing Rate Preferred Stock will rank equally with any Parity Stock (as defined below) and will rank senior to the Junior Preferred Stock, the common stock and any other Increasing Rate Junior Stock (as defined below) with respect to the payment of dividends and amounts upon liquidation, dissolution or winding up.
 
While any shares of Increasing Rate Preferred Stock are outstanding, unless Rouse first obtains the consent of the Representatives or the consent of the holders of at least 66 2/3% of the outstanding shares of Increasing Rate Preferred Stock, Rouse may not, either directly or indirectly or through a merger or consolidation of Rouse with another entity (a “Rouse Merger”):
 
 
(i)
 
issue (or approve the issuance of) or increase the authorized number of shares of any Increasing Rate Parity Dividend Stock, Increasing Rate Parity Liquidation Stock or Increasing Rate Prior Stock (as such terms are defined below);
 
 
(ii)
 
declare, pay or set apart funds for the payment of any dividends (other than dividends payable in Increasing Rate Junior Stock) or make any other distribution on or with respect to shares of Increasing Rate Junior Stock;
 
 
(iii)
 
declare, pay or set apart funds for the payment of any dividends (other than dividends payable in Increasing Rate Junior Stock) or make any other distribution on or with respect to shares of Increasing Rate Parity Dividend Stock or Increasing Rate Parity Liquidation Stock, unless simultaneously therewith a proportionate dividend on the Increasing Rate Preferred Stock is ratably distributed; or
 
 
(iv)
 
redeem, retire or otherwise acquire for value or set apart any funds for the redemption or purchase of any shares of Increasing Rate Junior Stock (other than common stock to effect an Exchange (as defined below)) or any warrant, option or right to acquire shares thereof.
 
“Increasing Rate Junior Stock” means the common stock and any other capital stock of Rouse ranking junior to the Increasing Rate Preferred Stock with respect to distributions of assets upon the dissolution, liquidation or winding up of Rouse, whether voluntary or involuntary, or with respect to the payment of dividends.
 
“Increasing Rate Parity Dividend Stock” means any capital stock of Rouse ranking on a parity with the Increasing Rate Preferred Stock with respect to the payment of dividends.
 
“Increasing Rate Parity Liquidation Stock” means any capital stock of Rouse ranking on a parity with the Increasing Rate Preferred Stock with respect to distributions of assets upon the dissolution, liquidation or winding up of Rouse, whether voluntary or involuntary.

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“Parity Stock” means any capital stock of Rouse ranking on a parity with the Increasing Rate Preferred Stock with respect to distributions of assets upon the dissolution, liquidation or winding up of Rouse, whether voluntary or involuntary, or with respect to the payment of dividends.
 
“Increasing Rate Prior Stock” means any capital stock of Rouse ranking prior to the Increasing Rate Preferred Stock with respect to distributions of assets upon the dissolution, liquidation or winding up of Rouse, whether voluntary or involuntary, or with respect to the payment of dividends.
 
Dividends
 
Holders of shares of Increasing Rate Preferred Stock will be entitled to receive for each such share, when and as declared by the Board of Directors of Rouse, out of funds of Rouse legally available for payment, cumulative cash dividends on the Liquidation Value (as defined below) of such share at the Dividend Rate (as defined below). Dividends on the Increasing Rate Preferred Stock will be payable semi-annually (each, a “Dividend Payment Date”) at such rate on the first business day following the end of each six-month period beginning January 1 and July 1 of each year (each such six-month period, a “Dividend Period”). Dividends will be payable to holders of record as they appear on the stock records of Rouse at the close of business 15 days prior to the end of the applicable Dividend Period. Dividends on shares of Increasing Rate Preferred Stock (whether or not earned or declared) will accrue from the date of issuance of such shares (the “Issue Date”) until such shares are redeemed or exchanged as described below. Dividends will be cumulative from the Issue Date, whether or not in any Dividend Period or Periods there are funds of Rouse legally available for the payment of such dividends. Accumulations of dividends on shares of Increasing Rate Preferred Stock will not bear interest.
 
Unless all accrued and unpaid dividends on Increasing Rate Preferred Stock have been paid in full or funds sufficient for such payment have been set apart therefor, Rouse may not:
 
 
(i)
 
pay or set apart funds for the payment of any dividend with respect to any Junior Dividend Stock (as defined below);
 
 
(ii)
 
pay or set apart funds for the payment of any dividend with respect to any Increasing Rate Parity Dividend Stock, other than pro rata with, and recognizing all accrued and unpaid dividends on, the Increasing Rate Preferred Stock and all other classes or series of Increasing Rate Parity Dividend Stock;
 
 
(iii)
 
make any distribution (other than in Junior Dividend Stock) on, redeem or purchase any Junior Liquidation Stock; or
 
 
(iv)
 
make any distribution on, redeem or purchase any Increasing Rate Parity Liquidation Stock.
 
To the extent that Rouse does not have sufficient funds to pay (or set apart for payment) the full amount of accrued but unpaid dividends on the Increasing Rate Preferred Stock on any given Dividend Payment Date, any payments made (or funds set apart for such payments) by Rouse in respect of such dividends will be made ratably to the holders of such Increasing Rate Preferred Stock in proportion to the number of shares held by them.
 
“Base Rate” means:
 
 
(i)
 
with respect to the Dividend Period during which Rouse issues shares of Increasing Rate Preferred Stock for the first time, the dividend rate, as determined by a nationally recognized investment banking firm selected by Rouse for such purpose and reasonably acceptable to the Representatives, which would be required in order for Rouse to successfully sell at par (i.e., stated liquidation value), in a private placement transaction, a class or series of its perpetual preferred stock as of such time; and
 
 
(ii)
 
with respect to each subsequent Dividend Period, the dividend rate, as determined by a nationally recognized investment banking firm selected by Rouse for such purpose and reasonably acceptable to the Representatives, which would be required in order for Rouse to successfully sell at par (i.e., stated liquidation value), in a private placement transaction, a class of its perpetual preferred stock as of the first day of such Dividend Period.

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“Dividend Rate” means a rate per annum equal to the Base Rate plus the Spread, in each case as in effect during a Dividend Period; provided, however, that in the event that any share of Increasing Rate Preferred Stock shall have an Issue Date other than on the first day of any Dividend Period, the Dividend Rate with respect to such share during the Dividend Period in which such Issue Date occurs shall be calculated on the basis of the applicable Dividend Rate for such Dividend Period for the period commencing with the Issue Date to and including the last day of such Dividend Period.
 
“Junior Dividend Stock” means common stock and any other capital stock of Rouse ranking junior to the Increasing Rate Preferred Stock with respect to the payment of dividends.
 
“Junior Liquidation Stock” means common stock and any capital stock of Rouse junior to the Increasing Rate Preferred Stock with respect to distributions of assets upon the dissolution, liquidation or winding up of Rouse, whether voluntary or involuntary.
 
“Liquidation Value” means, with respect to a share of Increasing Rate Preferred Stock, $100 plus all dividends (whether or not earned or declared), accrued and unpaid on such share.
 
“Spread” (i) for the Dividend Period during which Rouse issues shares of Increasing Rate Preferred Stock for the first time shall be 3.50% per annum and (ii) for each Dividend Period thereafter shall be the Spread for the immediately preceding Dividend Period plus 0.50%.
 
Redemption
 
Any holder of Increasing Rate Preferred Stock may elect to have Rouse redeem all or any portion of such holder’s shares on any Dividend Payment Date (the “Redemption Date”) by delivering to Rouse a redemption notice at least 30 but not more than 60 days prior to such Redemption Date; provided, however, that any shares subject to redemption must have been issued at least one year prior to the date of such redemption notice.
 
For each share of Increasing Rate Preferred Stock to be redeemed, Rouse must pay on the Redemption Date an amount equal to the sum of (i) 110% of the Liquidation Value of such share as of such Redemption Date plus (ii) all accrued and unpaid dividends (whether or not earned or declared) on such share as of such Redemption Date. In the event Rouse is required to redeem shares of the Increasing Rate Preferred Stock but does not have sufficient funds legally available to redeem all such shares, Rouse must apply the funds it does have legally available to redeem on a ratable basis as many shares subject to redemption as is possible. If Rouse fails to redeem all shares required to be redeemed by it on any given Redemption Date because of insufficient legally available funds, the holders of Increasing Rate Preferred Stock will be able to exercise the Special Voting Right described below.
 
Exchange
 
Rouse may, at its option, exchange shares of common stock on any Dividend Payment Date (an “Exchange Date”) for any or all shares of Increasing Rate Preferred Stock outstanding on such Exchange Date (each, an “Exchange”), provided that in connection with such Exchange, (i) Rouse delivers an exchange notice at least 30 but not more than 60 days prior to such Exchange Date and (ii) on the Exchange Date, Rouse pays each holder of the shares of Increasing Rate Preferred Stock to be exchanged an amount equal to all accrued but unpaid dividends on such shares to such Exchange Date. The number of shares of common stock to be exchanged for each share of Increasing Rate Preferred Stock will be a number equal to the Liquidation Value divided by the Current Share Value on the last day of the Dividend Period immediately preceding the Exchange Date. If, in connection with an Exchange, Rouse intends to exchange fewer than all the outstanding shares of Increasing Rate Preferred Stock, the number of shares of Increasing Rate Preferred Stock to be exchanged will be determined ratably among the holders of such stock according to the respective number of shares held by them.

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Liquidation
 
The holders of shares of Increasing Rate Preferred Stock will be entitled to receive in the event of any liquidation, dissolution or winding up of Rouse, whether voluntary or involuntary, the Liquidation Value for each share of Increasing Rate Preferred Stock (the “Junior Preferred Liquidation Preference”), and no more.
 
Until the holders of the Increasing Rate Preferred Stock have been paid the Junior Preferred Liquidation Preference in full, no payment may be made to any holder of Junior Liquidation Stock upon the liquidation, dissolution or winding up of Rouse. If, upon any liquidation, dissolution or winding up of Rouse, the assets of Rouse, or any proceeds thereof, distributable among the holders of the shares of Increasing Rate Preferred Stock are insufficient to pay in full the Junior Preferred Liquidation Preference, then such assets, or the proceeds thereof, will be distributed among the holders of shares of Increasing Rate Preferred Stock ratably in accordance with the respective amounts which would be payable on such shares of Increasing Rate Preferred Stock if all amounts payable thereon were paid in full. Neither a merger or consolidation of Rouse with or into another entity nor a voluntary sale, lease, conveyance, exchange or transfer of all or substantially all of Rouse’s assets (except in connection with a plan of liquidation, dissolution or winding up of Rouse) will be considered a liquidation, dissolution or winding up, voluntary or involuntary, of Rouse.
 
Voting Rights
 
Except as described below, or except as otherwise from time to time required by applicable law, the holders of shares of Increasing Rate Preferred Stock will have no voting rights.
 
Whenever
 
 
(i)
 
any accrued but unpaid dividends on the Increasing Rate Preferred Stock (whether or not earned or declared) are in arrears for at least one Dividend Period,
 
 
(ii)
 
Rouse fails to effect any redemption described above or
 
 
(iii)
 
Rouse fails to effect any Exchange,
 
then
 
 
(x)
 
the number of directors then constituting the Board of Directors of Rouse will be increased by one and
 
 
(y)
 
the holders of shares of Increasing Rate Preferred Stock, voting separately as a class, will have the exclusive right (the “Special Voting Right”) to elect a director to fill such vacancy either (1) at a properly called special meeting of the holders of the Increasing Rate Preferred Stock called for such purpose or (2) at any annual meeting of stockholders of Rouse.
 
Holders of Increasing Rate Preferred Stock will have the right to exercise the Special Voting Right until such time as:
 
 
(i)
 
all accumulated dividends on the Increasing Rate Preferred Stock shall have been paid in full;
 
 
(ii)
 
all redemptions required to be made on any Redemption Date shall have been made; and
 
 
(iii)
 
all Exchanges required to be made shall have been made.
 
In exercising the Special Voting Right, each share of Increasing Rate Preferred Stock will be entitled to one vote.
 
In addition, so long as any shares of Increasing Rate Preferred Stock are outstanding, the consent of the Representatives or the affirmative vote of the holders of 66  2/3% of the shares of the Increasing Rate Preferred Stock is required to issue any preferred stock on parity with or senior to the Increasing Rate

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Preferred Stock, amend the articles supplementary relating to the Increasing Rate Preferred Stock, issue or take certain actions affecting the Increasing Rate Preferred Stock or make distributions with respect to stock on parity with or junior to the Increasing Rate Preferred Stock.
 
Transfer Agent and Registrar
 
The transfer agent and registrar for the Increasing Rate Preferred Stock will be The Bank of New York, New York, New York.
 
Junior Preferred Stock
 
General
 
On February 22, 1996, the Board of Directors of Rouse classified, and authorized Rouse to issue, up to 37,362 shares of the Junior Preferred Stock as part of the 50,000,000 shares of authorized preferred stock.
 
In connection with the Hughes Acquisition, 37,362 shares of Junior Preferred Stock were issued to a non-REIT subsidiary of Rouse and are currently outstanding.
 
Ranking
 
The Junior Preferred Stock ranks senior to the common stock and junior to all other preferred stock (unless the terms of such preferred stock specifically provide that it will rank junior to or on parity with the Junior Preferred Stock), with respect to payment of dividends and amounts upon liquidation, dissolution or winding up.
 
Dividends
 
Holders of shares of Junior Preferred Stock are entitled to receive for each such share, when and as declared by the Board of Directors of Rouse, out of funds of Rouse legally available for payment, a cumulative annual cash dividend equal to the greater of (i) 10.25% of the liquidation preference of such Junior Preferred Stock (the “Junior Preferred Liquidation Preference”) or (ii) the lesser of 200% of the amount determined under clause (i) above or the Junior Preferred Liquidation Preference divided by the average closing price of common stock used to determine the exchange ratio in connection with the Hughes Acquisition (the “Multiplier”) multiplied by the aggregate per share amount of all cash and non-cash dividends (other than dividends payable in common stock), subject to adjustment for stock splits, combinations and dividends on the common stock. Accumulations of dividends on shares of Junior Preferred Stock will not bear interest.
 
Until all accumulated dividends are paid in full, Rouse may not, without first obtaining the consent of the holders of at least 66 2/3% of the outstanding shares of Junior Preferred Stock, (i) declare or pay dividends on or make any other distribution on, or redeem or purchase or otherwise acquire forconsideration any shares of Rouse’s capital stock ranking junior to the Junior Preferred Stock (other than such shares acquired in exchange for other shares of Rouse’s capital stock ranking junior to the Junior Preferred Stock), (ii) declare or pay dividends on or make any other distributions on any shares of Rouse’s capital stock ranking on parity with the Junior Preferred Stock other than dividends payable ratably on the Junior Preferred Stock and any other parity stock or (iii) redeem or purchase or otherwise acquire for consideration any shares of Rouse’s capital stock ranking on a parity with the Junior Preferred Stock, except pursuant to an offer that treats fairly and equitably all holders of Junior Preferred Stock and such parity stock.
 
Redemption
 
The Junior Preferred Stock is not subject to redemption.

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Liquidation
 
The holders of shares of Junior Preferred Stock are entitled to receive in the event of any liquidation, dissolution or winding up of Rouse, whether voluntary or involuntary, a liquidation preference for each share of Junior Preferred Stock equal to the greater of (i) the sum of $4,148.60 plus all accrued and unpaid dividends on such share to the date of payment and (ii) an amount equal to the Multiplier multiplied by the aggregate per share amount to be distributed to holders of common stock in connection with such liquidation, dissolution or winding up, in each case subject to adjustment for stock splits, combinations and dividends on the common stock. Until the holders of the Junior Preferred Stock have been paid their aggregate liquidation preference in full, no payment will be made to (i) any holder of Rouse’s capital stock ranking on a parity with the Junior Preferred Stock, except distributions made ratably on the Junior Preferred Stock and any stock ranking on parity therewith or (ii) any holder of Rouse’s capital stock ranking junior to the Junior Preferred Stock.
 
Voting Rights
 
Except as otherwise from time to time required by applicable law, the holders of shares of Junior Preferred Stock have no voting rights; however, when dividends are in arrears, a vote of 66 2/3% of the outstanding shares is required for Rouse to pay distributions on or redeem any stock junior to or on parity with the Junior Preferred Stock.
 
Consolidation, Merger
 
In the event of a merger, consolidation or other transaction in which shares of common stock are exchanged for cash, stock, securities or other property, holders of Junior Preferred Stock are entitled to receive for each share of their stock the per share consideration received by holders of common stock multiplied by the Multiplier, subject to adjustment for stock splits, combinations and dividends on the common stock.

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The following description of the terms of the debt securities that Rouse may issue under this prospectus sets forth certain general terms and provisions of the debt securities to which any prospectus supplement may relate. The particular terms of the debt securities offered by the prospectus supplement (the “Offered Debt Securities”) and the extent, if any, to which such general provisions may apply to the debt securities so offered will be described in the prospectus supplement relating to such Offered Debt Securities.
 
The Offered Debt Securities are to be issued under an Indenture (the “Indenture”) between Rouse and The First National Bank of Chicago, as trustee (the “Trustee”), a copy of which Indenture is filed as an exhibit to the registration statement. The following summaries of certain provisions of the Indenture and the debt securities do not purport to be complete and are subject to, and are qualified in their entirety by reference to, all provisions of the Indenture, including the definitions therein of certain terms and of those terms made a part thereof by the Trust Indenture Act. Wherever particular provisions or defined terms of the Indenture are referred to, such provisions or defined terms are incorporated herein by reference. Certain defined terms in the Indenture are capitalized herein.
 
General
 
The debt securities will be unsecured obligations of Rouse.
 
The debt securities to be offered by this prospectus are limited to $2,251,000,000 in aggregate issue price. The Indenture does not limit the amount of debt securities that may be issued thereunder and provides that debt securities may be issued thereunder from time to time in one or more series. All debt securities of one series need not be issued at the same time and, unless otherwise provided, a series may be reopened, without the consent of any Holder, for issuances of additional debt securities of such series. (Section 301) The Indenture provides that there may be more than one Trustee thereunder, each with respect to one or more series of debt securities.
 
Reference is made to the prospectus supplement relating to the Offered Debt Securities for the following terms, where applicable, of the Offered Debt Securities:
 
 
(1)
 
the title of the Offered Debt Securities or series of which they are a part;
 
 
(2)
 
any limit on the aggregate principal amount of the Offered Debt Securities;
 
 
(3)
 
the date or dates, or the method or methods, if any, by which such date or dates shall be determined, on which the principal of such Offered Debt Securities will be payable;
 
 
(4)
 
the rate or rates (which may be fixed, floating or adjustable) at which the Offered Debt Securities will bear interest, if any, the date or dates from which such interest will accrue, the Interest Payment Dates on which any such interest will be payable and the Regular Record Date for any such interest payable on any Interest Payment Date;
 
 
(5)
 
the place or places where the principal of and any premium and interest on such Offered Debt Securities will be payable;
 
 
(6)
 
the period or periods within which, the price or prices at which and the terms and conditions upon which such Offered Debt Securities may be redeemed, in whole or in part, at the option of Rouse;
 
 
(7)
 
the obligation, if any, of Rouse to redeem or purchase any of such Offered Debt Securities pursuant to any sinking fund or analogous provisions or at the option of a Holder thereof, and the period or periods within which, the price or prices at which and the terms and conditions

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on which any of such Offered Debt Securities will be redeemed or purchased, in whole or in part, pursuant to any such obligation;
 
 
(8)
 
the denominations in which such Offered Debt Securities will be issuable, if other than denominations of $1,000 and any integral multiple thereof;
 
 
(9)
 
if other than the currency of the United States of America, the currency, currencies or currency units in which the principal of or any premium or interest on such Offered Debt Securities will be payable (and the manner in which the equivalent of the principal amount thereof in the currency of the United States of America is to be determined for any purpose, including for the purpose of determining the principal amount deemed to be Outstanding at any time);
 
 
(10)
 
if the amount of payments of principal of or any premium or interest on such Offered Debt Securities may be determined with reference to an index or pursuant to a formula, the manner in which such amounts will be determined;
 
 
(11)
 
if the principal of or any premium or interest on such Securities is to be payable, at the election of Rouse or a Holder thereof, in one or more currencies or currency units other than those in which the Offered Debt Securities are stated to be payable, the currency, currencies or currency units in which payment of any such amount as to which such election is made will be payable, and the periods within which and the terms and conditions upon which such election is to be made;
 
 
(12)
 
if other than the principal amount thereof, the portion of the principal amount of such Offered Debt Securities which will be payable upon declaration of acceleration of the Maturity thereof;
 
 
(13)
 
if applicable, that such Offered Debt Securities are defeasible as provided in the Indenture;
 
 
(14)
 
whether such Offered Debt Securities are convertible into or exchangeable for common stock, preferred stock or other securities and the terms and conditions upon which such conversion or exchange will be effected;
 
 
(15)
 
whether such Offered Debt Securities will be issuable in whole or in part in the form of one or more Global Securities and, if so, the depositary or Depositaries for such Global Security or Global Securities and any circumstances other than those described under “Global Securities” in which any such Global Security may be transferred to, and registered and exchanged for Securities registered in the name of a Person other than the depositary for such Global Security or a nominee thereof and in which any such transfer may be registered;
 
 
(16)
 
any addition to, or modification or deletion of, any Events of Default or covenants provided for with respect to the Offered Debt Securities;
 
 
(17)
 
the terms, if any, pursuant to which the Offered Debt Securities will be made subordinate and subject in right of payment to the prior payment in full of all Senior Indebtedness of Rouse, and the definition of any such Senior Indebtedness; and
 
 
(18)
 
any other terms of such Offered Debt Securities not inconsistent with the provisions of the Indenture. (Section 301)
 
Unless otherwise indicated in the prospectus supplement relating to Offered Debt Securities, principal of and any premium or interest on the debt securities will be payable, and the debt securities will be exchangeable and transfers thereof will be registrable, at the office of the Trustee at its principal executive offices (see “Concerning the Trustee”), provided that, at the option of Rouse, payment of interest may be made by check mailed to the address of the Person entitled thereto as it appears in the Security Register. (Sections 301, 305 and 1002) Any payment of principal and any premium or interest required to be made on an Interest Payment Date, Redemption Date or at Maturity which is not a Business Day need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the Interest Payment Date, Redemption Date or at Maturity, as the case may be, and no interest shall accrue for the period from and after such Interest Payment Date, Redemption Date or Maturity. (Section 113)

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Unless otherwise indicated in the prospectus supplement relating to Offered Debt Securities, the debt securities will be issued only in fully registered form, without coupons, in denominations of $1,000 or any integral multiple thereof. (Section 302) No service charge will be made for any transfer or exchange of the debt securities, but Rouse may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. (Section 305)
 
Debt securities may be issued under the Indenture as Original Issue Discount Securities (as defined below) to be offered and sold at a substantial discount from their stated principal amount. In addition, under Treasury Regulations it is possible that debt securities which are offered and sold at their stated principal amount would, under certain circumstances, be treated as issued at an original issue discount for federal income tax purposes. Federal income tax consequences and other special considerations applicable to any such Original Issue Discount Securities (or other debt securities treated as issued at an original issue discount) will be described in the prospectus supplement relating thereto. “Original Issue Discount Security” means a security, including any security that does not provide for the payment of interest prior to Maturity, which is issued at a price lower than the principal amount thereof and which provides that upon redemption or acceleration of the Stated Maturity thereof an amount less than the principal amount thereof shall become due and payable. (Section 101)
 
Global Securities
 
The debt securities of a series may be issued in the form of one or more Global Securities that will be deposited with a depositary or its nominee identified in the prospectus supplement relating to the Offered Debt Securities. In such a case, one or more Global Securities will be issued in a denomination or aggregate denominations equal to the portion of the aggregate principal amount of Outstanding Debt Securities of the series to be represented by such Global Security or Securities.
 
Unless and until it is exchanged in whole or in part for debt securities in definitive registered form, a Global Security may not be registered for transfer or exchange except as a whole by the depositary for such Global Security to a nominee of such depositary and except in the circumstances described in the prospectus supplement relating to the Offered Debt Securities. (Sections 204 and 305) The specific terms of the depositary arrangement with respect to a series of debt securities will be described in the prospectus supplement relating to such series.
 
Certain Covenants
 
Limitation on the Incurrence of Debt
 
Rouse and its consolidated Subsidiaries may not incur any Debt if, after giving effect to such Incurrence, the Ratio Calculation is less than 1.1 to 1.
 
Notwithstanding the foregoing paragraph, Rouse and its consolidated Subsidiaries may incur the following additional Debt without regard to the foregoing limitation (although the additional Debt so incurred will be included in the determination of the Consolidated Coverage Ratio thereafter):
 
 
(i)
 
Debt Securities issued under the Indenture not to exceed an aggregate issue price of $150,000,000;
 
 
(ii)
 
intercompany Debt (representing Debt to which the only parties are Rouse and any of its consolidated Subsidiaries (but only so long as such Debt is held solely by any of Rouse and its consolidated Subsidiaries));
 
 
(iii)
 
any drawings or redrawings under lines of credit existing on the date of the Indenture and any new lines of credit or replacements, amendments or extensions of existing lines of credit, provided, however, that the maximum amount that may be drawn under all lines of credit pursuant to this clause (iii) may not at any time exceed the maximum amount that may be drawn under all lines of credit that exist as of the date of the Indenture;

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(iv)
 
refinancings, renewals, refundings or extensions of any Debt, in any case in an amount not to exceed the principal amount of the Debt so refinanced plus any prepayment premium or accrued interest, provided that
 
 
(a)
 
such refinancing Debt is either
 
(I) Debt of Rouse that ranks equally with or junior to the Debt being refinanced,
 
(II) Debt of a Subsidiary that Rouse or another Subsidiary guarantees or
 
(III) Debt of a Subsidiary and
 
 
(b)
 
such refinancing Debt (giving effect to any right of the holder thereof to require, directly or indirectly, an early repayment, defeasance or retirement of such Debt) either has a weighted average life equal to or longer than the remaining weighted average life of the Debt being refinanced or has a minimum term of five years;
 
 
(v)
 
third party Debt of a Subsidiary, including Debt of a Subsidiary that carries a Rouse guarantee of repayment, directly relating to the development of projects or the expansion, renovation or improvement of existing properties;
 
 
(vi)
 
third party Debt of a Subsidiary directly relating to the acquisition of assets;
 
 
(vii)
 
reimbursement obligations under letters of credit, bankers’ acceptances or similar facilities, provided that at the time of incurring any additional obligations pursuant to this clause (vii) the amount of all such obligations, whether or not currently due, aggregate at any time less than 5% of Consolidated Net Tangible Assets at such date;
 
 
(viii)
 
Debt that by its terms is subordinate in right of payment to the other Debt of Rouse, provided, however, that, pursuant to clauses (i) through (ix), the aggregate issue price of such subordinated Debt may not at any time exceed the aggregate principal amount of such subordinated Debt as of the date of the Indenture plus $100,000,000;
 
 
(ix)
 
Attributable Debt; and
 
 
(x)
 
in addition to Debt referred to in clauses (i) through (ix) above, Debt in the aggregate principal amount of $50,000,000 which is to be used only for working capital purposes. (Section 1008)
 
Limitation on Sale/Leaseback Transactions
 
Rouse will not, nor will it permit any Restricted Subsidiary to, enter into any arrangement with any bank, insurance company or other lender or investor (not including Rouse or any consolidated Subsidiary) or to which any such lender or investor is a party, providing for the leasing by Rouse or any such Restricted Subsidiary for a period, including renewals, in excess of three years, of any Principal Property owned by Rouse or such Restricted Subsidiary, which has been or is to be sold or transferred more than one year after either the acquisition thereof or the completion of construction and commencement of full operation thereof by Rouse or any such Restricted Subsidiary, to such lender or investor or to any Person to whom funds have been or are to be advanced by such lender or investor on the security of such Principal Property (herein referred to as a “Sale/Leaseback Transaction”) unless (A) the aggregate amount of Attributable Debt for the proposed and all existing Sale/Leaseback Transactions is less than 10% of Consolidated Net Tangible Assets and (B) if the Ratio Calculation is less than 1.1 to 1 after giving effect to the proposed Sale/Leaseback Transaction, Rouse and its Subsidiaries, within 270 days after the sale or transfer shall have been made by Rouse or by any such Restricted Subsidiary, must apply an amount equal to the net proceeds of the sale of the Principal Property sold and leased back pursuant to such arrangement to either (or a combination of) (x) the purchase of property, facilities or

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equipment (other than the property, facilities or equipment involved in such Sale/Leaseback Transaction) or (y) the retirement of Debt of Rouse or a Restricted Subsidiary, including the debt securities issued under the Indenture, which either has an initial term of greater than 12 months or is a bona fide acquisition loan or a construction or bridge loan entered in connection with a construction project or other real estate development. (Section 1009)
 
Certain Definitions
 
“Asset” means, with respect to one or more transactions occurring within any 12-month period, any asset or group of assets of Rouse or its Subsidiaries (including, but not limited to, all balance sheet items and all intangible assets including management contracts, goodwill and trade secrets) with a fair market or book value, whichever is larger, greater than 5% of Consolidated Net Tangible Assets on the date of such transaction.
 
“Attributable Debt” shall mean, as to any particular lease under which Rouse or any Restricted Subsidiary is at the time liable, at any date as of which the amount thereof is to be determined, the lesser of (i) the fair value of the property subject to such lease (as determined by certain officers of Rouse as set forth in the Indenture) or (ii) the total net amount of rent required to be paid by Rouse under such lease during the remaining term thereof, discounted from the respective due dates thereof to such date at the rate of interest per annum equal to 8.5%, compounded semi-annually. The net amount of rent required to be paid under any such lease for any such period shall be the amount of the rent payable by the lessee with respect to such period, after excluding amounts required to be paid on account of maintenance and repairs, insurance, taxes, assessments, water rates and similar charges. In the case of any lease which is terminable by the lessee upon the payment of a penalty, such net amount shall also include the amount of such penalty, but no rent shall be considered as required to be paid under such lease subsequent to the first date upon which it may be so terminated.
 
“Capital Lease Obligations” of any Person means the obligations to pay rent or other amounts under a lease of (or other Debt arrangements conveying the right to use) real or personal property of such Person which are required to be classified and accounted for as a capital lease or a liability on the face of a balance sheet of such Person in accordance with generally accepted accounting principles, and the amount of such obligations shall be the capitalized amount thereof in accordance with generally accepted accounting principles and the stated maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty.
 
“Consolidated Coverage Ratio” of any Person means for any period the ratio of (i) EBDT for such period plus Consolidated Interest Expense for the same period for such Person to (ii) Consolidated Interest Expense for the same period for such Person.
 
“Consolidated Interest Expense” means with respect to any Person for any period the Consolidated Interest Expense included in a consolidated income statement (without deduction of consolidated interest income) of such Person for such period (based on the accounting principles reflected in Rouse’s Consolidated Statement of Operations for the nine months ended September 30, 1994 contained in Rouse’s Form 10-Q for such period), including without limitation or duplication (or, to the extent not so included, with the addition of):
 
 
(i)
 
the portion of any rental obligation in respect of any Capital Lease Obligation allocable to interest expense in accordance with generally accepted accounting principles;
 
 
(ii)
 
the amortization of Debt discount;
 
 
(iii)
 
any payments or fees (other than up-front fees) with respect to letters of credit, bankers’ acceptances or similar facilities;

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(iv)
 
fees (other than up-front fees) with respect to interest rate swap or similar agreements, or foreign currency hedge, exchange or similar agreements;
 
 
(v)
 
the interest portion of any rental obligation with respect to any Sale/Leaseback Transaction (determined as if such obligations were treated as a Capital Lease Obligation); and
 
 
(vi)
 
any dividends attributable to any equity security which may be converted into a debt security of Rouse at any time or is mandatorily redeemable for cash within 20 years from its initial issuance.
 
“Consolidated Net Tangible Assets” shall mean the aggregate amount of assets (less applicable reserves and other properly deductible items) after deducting therefrom
 
 
(i)
 
all current liabilities (excluding any thereof which are by their terms extendible or renewable at the option of the obligor thereon to a time more than 12 months after the time as of which the amount thereof is being computed and excluding current maturities of long- term indebtedness and Capital Lease Obligations) and
 
 
(ii)
 
all goodwill, all as shown in the consolidated balance sheet of Rouse and its Subsidiaries as of the end of the latest fiscal quarter for which consolidated Financial Statements are available.
 
“Debt” means (without duplication), with respect to any Person:
 
 
(i)
 
every obligation of such Person for money borrowed;
 
 
(ii)
 
every obligation of such Person evidenced by bonds, debentures, notes or other similar instruments, including obligations incurred in connection with the acquisition of property, assets or businesses, but excluding any trade payments and other accrued current liabilities arising in the ordinary course of business;
 
 
(iii)
 
every currently due reimbursement obligation of such Person with respect to letters of credit, bankers’ acceptances or similar facilities issued for the account of such Person;
 
 
(iv)
 
every obligation of such Person issued or assumed as the deferred purchase price of property (but excluding trade accounts payable and other accrued current liabilities arising in the ordinary course of business which are not overdue by more than 90 days or which are being contested in good faith);
 
 
(v)
 
every Capital Lease Obligation of such Person;
 
 
(vi)
 
the maximum fixed redemption or repurchase price of any equity security which may be converted into a debt security of such Person at any time or is mandatorily redeemable for cash within 20 years from its initial issuance; and
 
 
(vii)
 
every obligation of the type referred to in clauses (i) through (vi) of another Person and all dividends of another Person the payment of which, in either case, such Person has guaranteed or for which such Person is responsible or liable, directly or indirectly, as obligor, guarantor or otherwise.
 
“EBDT” shall mean Earnings Before Depreciation and Deferred Taxes from Operations for Rouse and its consolidated Subsidiaries based on the accounting principles reflected in Rouse’s Consolidated Statement of Operations for the nine months ended September 30, 1994 contained in Rouse’s Form 10-Q for such period, and assuming that any dividends paid on any equity security shall not be deducted in calculating EBDT unless such equity security may be converted into a debt security at any time or is mandatorily redeemable for cash within 20 years from its initial issuance.
 
“incur” means, with respect to any Debt or other obligation of any Person, to create, issue, incur (by conversion, exchange or otherwise), assume, guarantee or otherwise become liable in respect of such Debt or other obligation or the recording, as required pursuant to generally accepted accounting

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principles or otherwise, of any such Debt or other obligation on the balance sheet of any such Person (and “incurrence,” “incurred,” “incurrable” and “incurring” shall have meanings correlative to the foregoing); provided that a change in generally accepted accounting principles that results in an obligation of such Person that exists at such time becoming Debt shall not be deemed an incurrence of such Debt.
 
“Principal Property” shall mean any land, and any building, structure or other facility, together with the land upon which it is erected and fixtures comprising a part thereof, in each case the net book value which on the date as of which the determination is being made exceeds 2% of Consolidated Net Tangible Assets at such date; provided, however, that Principal Property shall not include:
 
 
(i)
 
any building, structure or facility which, in the opinion of the Board of Directors of Rouse, is not of material importance to the total business conducted by Rouse and its Subsidiaries as an entirety; or
 
 
(ii)
 
any portion of a particular building, structure or facility which, in the opinion of the Board of Directors of Rouse, is not of material importance to the use or operation of such building, structure or facility.
 
“Ratio Calculation” shall mean that, immediately after either the incurrence of such Debt or the sale of or other disposal of such Asset, as the case may be, Rouse, or its agent, shall calculate the Consolidated Coverage Ratio for the four full fiscal quarter period preceding such incurrence, sale or disposal for which consolidated Financial Statements are available. In making such calculation, (a) the Consolidated Interest Expense attributable to interest on any Debt to be incurred bearing a floating interest rate shall be computed on a pro forma basis as if the rate in effect on the date of computation had been the applicable rate for the entire period and (b) with respect to any Debt which bears, at the option of Rouse, a fixed or floating rate of interest, Rouse shall apply the same rate for purposes of calculating the Consolidated Coverage Ratio as it chooses to apply to the Debt. In addition, such calculation shall be performed using the consolidated Financial Statements which shall be reformulated on a pro forma basis as if such Debt had been incurred or such Asset had been sold or otherwise disposed of, as the case may be, at the beginning of such four fiscal quarter period. Such reformulation shall give effect, as if the relevant event had occurred at the beginning of such four fiscal quarter period, to any actual use of proceeds of such Debt being incurred or Asset being sold or disposed of and to any incurrences or repayments of Debt and other sales, disposals or acquisitions of Assets occurring after the end of the last quarter for which there are consolidated Financial Statements available. If any portion of the proceeds has not been used, it shall be assumed that such portion of the proceeds was invested in one-year Treasury bills on the first day of such four fiscal quarter period.
 
“Restricted Subsidiary” shall mean any subsidiary of Rouse which has a 50% or greater ownership interest in a Principal Property or Properties.
 
Events of Default
 
The following are Events of Default under the Indenture with respect to debt securities of any series issued under the Indenture:
 
 
(a)
 
failure to pay principal of or premium, if any, on any debt security of that series when due;
 
 
(b)
 
failure to pay any interest on any debt security of that series when due, continued for 30 days;
 
 
(c)
 
failure to deposit any sinking fund payment, when due, in respect of any debt security of that series;
 
 
(d)
 
failure to perform any other covenant of Rouse in the Indenture (other than a covenant included in the Indenture solely for the benefit of a series of debt securities other than that series), continued for 60 days after written notice as provided in the Indenture;

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(e)
 
certain events in bankruptcy, insolvency or reorganization;
 
 
(f)
 
a default under any bond, debenture, note, mortgage, indenture or other evidence of indebtedness for money borrowed by Rouse (or by any Subsidiary, the repayment of which Rouse has guaranteed or for which Rouse is directly responsible or liable as obligor or guarantor) having an aggregate principal amount outstanding of at least $10,000,000, whether such indebtedness now exists or shall hereafter be created, which default shall have resulted in such indebtedness being declared due and payable prior to the date on which it would otherwise have become due and payable, without such acceleration having been rescinded or annulled within 10 days after written notice as provided in the Indenture; and
 
 
(g)
 
any other Event of Default provided with respect to debt securities of that series. (Section 501) No Event of Default with respect to a particular series of debt securities issued under the Indenture necessarily constitutes an Event of Default with respect to any other series of debt securities issued thereunder.
 
The Trustee shall, within 90 days after the occurrence of a default with respect to debt securities of any series, give all holders of debt securities of such series then outstanding notice of all uncured defaults known to it (the term default to mean the events specified above without grace periods), provided that, except in the case of a default in the payment of principal of and any premium or interest on any debt security of any series, or in the payment of any sinking fund installment with respect to debt securities of any series, the Trustee shall be protected in withholding such notice if it in good faith determines that the withholding of such notice is in the interest of all holders of debt securities of such series then outstanding. (Trust Indenture Act of 1939)
 
If an Event of Default with respect to Outstanding debt securities of any series shall occur and be continuing, either the Trustee or the Holders of at least 25% in aggregate principal amount of the Outstanding debt securities of that series may declare the principal amount (or, if the debt securities of that series are Original Issue Discount Securities, such portion of the principal amount as may be specified in the terms of that series) of all the debt securities of that series to be due and payable immediately. At any time after a declaration of acceleration with respect to debt securities of any series has been made, but before a judgment or decree based on acceleration has been obtained, the Holders of a majority in principal amount of the Outstanding debt securities of that series may, under certain circumstances, rescind and annul such acceleration. (Section 502) For information as to waiver of defaults, see “Modification and Waiver.”
 
Reference is made to the prospectus supplement relating to each series of Offered Debt Securities which are Original Issue Discount Securities for the particular provisions relating to acceleration of the Maturity of a portion of the principal amount of such Original Issue Discount Securities upon the occurrence of an Event of Default and the continuation thereof.
 
The Indenture provides that the Trustee will be under no obligation, subject to the duty of the Trustee during the default to act with the required standard of care, to exercise any of its rights or powers under the Indenture at the request or direction of any of the Holders, unless such Holders shall have offered to the Trustee reasonable indemnity. (Section 601) Subject to such provisions for indemnification of the Trustee, the Holders of a majority in principal amount of the Outstanding debt securities of any series will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, with respect to the debt securities of that series. (Section 512)
 
Rouse will furnish to the Trustee annually a certificate as to compliance by Rouse with all conditions and covenants under the Indenture. (Section 1004)

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Consolidation, Merger, Sale, Conveyance and Lease
 
The Indenture permits Rouse to consolidate or merge with or into any other entity or entities, or to sell, convey or lease all or substantially all of its Assets to any other entity authorized to acquire and operate the same; provided, however, that
 
 
(i)
 
the Person (if other than Rouse) formed by such consolidation, or into which Rouse is merged or which acquires or leases substantially all of the Assets of Rouse, expressly assumes Rouse’s obligations on debt securities issued under the Indenture and under the Indenture itself,
 
 
(ii)
 
Rouse or such successor entity shall not immediately after such consolidation or merger, or such sale, conveyance or lease, be in default in the performance of any covenant or condition of the Indenture,
 
 
(iii)
 
Rouse or such successor entity shall not, immediately after giving effect to such consolidation or merger, or such sale, conveyance or lease, have a Ratio Calculation of less than 1.1 to 1 and
 
 
(iv)
 
certain other conditions are met. (Section 801)
 
Satisfaction, Discharge and Defeasance
 
The prospectus supplement will state if any defeasance provisions will apply to the Offered Debt Securities.
 
The Indenture provides that, if applicable, Rouse will be discharged from any and all obligations in respect of the debt securities of any series issued under the Indenture (except for certain obligations to register the transfer or exchange of debt securities of such series, to replace stolen, lost or mutilated debt securities of such series, to maintain paying agencies and to hold monies for payment in trust) upon the deposit with the Trustee, in trust, of money and/or U.S. Government Obligations (as defined) which through the payment of interest and principal in respect thereof in accordance with their terms will provide money in an amount sufficient to pay the principal of and any premium and interest on the debt securities of such series on the respective Stated Maturities in accordance with the terms of the Indenture and the debt securities of such series. Such a trust may only be established if, among other things, Rouse has delivered to the Trustee an Opinion of Counsel to the effect that Rouse has received from, or there has been published by, the Internal Revenue Service a ruling, or there has been a change in tax law, in either case to the effect that Holders of the debt securities of such series will not recognize income, gain or loss for federal income tax purposes as a result of such deposit, defeasance and discharge and will be subject to federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit, defeasance and discharge had not occurred. (Sections 1302 and 1304)
 
The Indenture provides that, if applicable, Rouse shall be released from its obligations with respect to such debt securities then outstanding under Sections 1005 through 1009, inclusive, Section 1011 and Section 801 of the Indenture and such other obligations as shall be set forth in any supplemental indenture for the debt securities, and the occurrence of an Event of Default specified in Sections 501(3), 501(4) (with respect to any of Sections 1005 through 1009, inclusive, Section 1011 and Section 801 and such other obligations), 501(5) and 501(8) of the Indenture shall be deemed not to result in an Event of Default, upon the deposit with the Trustee, in trust, of money and/or U.S. Government Obligations (as defined) which through the payment of interest and principal in respect thereof in accordance with their terms will provide money in an amount sufficient to pay the principal of and any premium and interest on the debt securities of such series on the Stated Maturities in accordance with the terms of the Indenture and the debt securities of such series. The obligations of Rouse under the Indenture and the debt securities of such series other than with respect to the covenants referred to above and the Events of Default other than the Event of Default referred to above shall remain in full force and effect. Such a

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trust may only be established if, among other things, Rouse has delivered to the Trustee an Opinion of Counsel (who may be an employee of or counsel for Rouse) to the effect that the Holders of the debt securities of such series will not recognize income, gain or loss for federal income tax purposes as a result of such deposit and defeasance of certain covenants and Events of Default and will be subject to federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred. In the event Rouse exercises this option with respect to the debt securities of any series as described above and the debt securities of such series are declared due and payable because of the occurrence of any Event of Default, the amount of money and U.S. Government Obligations on deposit with the Trustee will be sufficient to pay amounts due on the debt securities of such series at the time of their Stated Maturity but may not be sufficient to pay amounts due on the debt securities of such series at the time of the acceleration resulting from such Event of Default. However, Rouse shall remain liable for such payments. (Sections 1303 and 1304)
 
Modification and Waiver
 
Modifications and amendments of the Indenture may be made by Rouse and the Trustee with the consent of the Holders of a majority in principal amount of the Outstanding debt securities of each series affected by such modification or amendment; provided, however, that no such modification or amendment may, without the consent of the Holder of each Outstanding debt security affected thereby,
 
 
(a)
 
change the Stated Maturity of the principal of, or any installment of principal of or interest on, any debt security,
 
 
(b)
 
reduce the principal amount of, or any premium or interest on, any debt security,
 
 
(c)
 
reduce the amount of principal of an Original Issue Discount Security or other security payable upon acceleration of the Maturity thereof,
 
 
(d)
 
change the place or currency of payment of principal of, or any premium or interest on, any debt security,
 
 
(e)
 
impair the right to institute suit for the enforcement of any payment on or with respect to any debt security,
 
 
(f)
 
reduce the percentage in principal amount of Outstanding debt securities of any series, the consent of whose Holders is required for modification or amendment of the Indenture,
 
 
(g)
 
reduce the percentage in principal amount of Outstanding debt securities of any series necessary for waiver of certain defaults or
 
 
(h)
 
modify such provisions with respect to modification and waiver. (Section 902)
 
The Holders of a majority in principal amount of the Outstanding debt securities of any series may on behalf of the Holders of all debt securities of that series waive any past default under the Indenture with respect to that series, except a default in the payment of the principal of or premium, if any, or interest on any debt security of that series or in respect of a provision which under the Indenture cannot be modified or amended without the consent of the Holder of each Outstanding debt security of that series affected. (Section 513)
 
Governing Law
 
The Indenture and the debt securities will be governed by, and construed in accordance with, the law of the State of New York, but without regard to principles of conflict of laws. (Section 112)

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Concerning the Trustee
 
The First National Bank of Chicago, a national banking association duly organized and existing under the laws of the United States of America, with its principal offices at One First National Plaza, Suite 0126, Chicago, Illinois 60670, will act as Trustee for the benefit of the Holders of the debt securities under the Indenture. The Trustee also serves as the trustee under the indenture in respect of (i) Rouse’s $120,000,000 aggregate principal amount of 8.5% Notes due January 15, 2003, (ii) Rouse’s $150,000,000 aggregate issue amount of Medium-Term Notes due Nine Months or More from Date of Issue and (iii) $141,753,000 aggregate principal amount of 9 1/4% Junior Subordinated Debentures due 2025. Rouse maintains other banking relationships with the Trustee in the ordinary course of business, including (i) maintaining a $450,000,000 unsecured revolving line of credit in which the Trustee is a participating lender and the Administrative Agent, and a $350,000,000 unsecured term loan (which is subject to reduction in certain circumstances) that provides bridge financing for certain acquisitions by Rouse, as to which term loan the Trustee is a participating lender and the Administrative Agent and (ii) obtaining other loans from the Trustee.
 
 
All of the shares of common stock (the “Shares”) and notes (the “Notes”) of Rouse offered by the selling securityholder (collectively, the “Selling Securityholder Securities”) are beneficially owned by Teachers Insurance and Annuity Association of America, a New York corporation, and were issued to the selling securityholder in connection with the sale in November, 1998 by the selling securityholder to Rouse of the selling securityholder’s interests in certain real property previously jointly owned by the selling securityholder and Rouse through Rouse-Teachers Properties, Inc., a Delaware corporation. In addition to the joint ownership of this real property and the ownership of the Shares, the selling securityholder has acted as a mortgage lender to Rouse with respect to certain real property owned by Rouse and certain of its affiliates within the past three years. Other than the joint ownership of this real property, the ownership of the Shares and the financing arrangements referred to above, the selling securityholder has had no material relationship with Rouse or any of its affiliates within the past three years. In addition to the Shares, the selling securityholder beneficially owns the number of shares of common stock set forth in the table below. Since the selling securityholder may sell all, some or none of the Shares, no estimate can be made of the aggregate number of Shares that are to be offered hereby or that will be beneficially owned by the selling securityholder upon completion of the offering contemplated by this prospectus. The terms of Notes will be described in a prospectus supplement to this prospectus.
 
Selling
Securityholder
     
Number of Shares
Held at
November 30, 1998
     
Maximum Aggregate
Number of Shares
Which May
be Offered
Teachers Insurance and
Annuity Association of
America
     
3,545,782
     
3,525,782

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Sale of Securities by Rouse
 
Rouse may sell securities to or through one or more underwriters or dealers and also may sell securities directly to institutional investors or other purchasers, or through agents.
 
The distribution of the securities may be effected from time to time in one or more transactions at a fixed price or prices, which may be changed, or at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices.
 
In connection with the sale of securities, underwriters or agents may receive compensation from Rouse or from purchasers of securities for whom they may act as agents in the form of discounts, concessions or commissions. Underwriters may sell securities to or through dealers, and such dealers may receive compensation in the form of discounts, concessions or commissions from the underwriters and/or commissions from the purchasers for whom they may act as agents. Underwriters, dealers and agents that participate in the distribution of securities may be deemed to be underwriters, and any discounts or commissions received by them from Rouse and any profit on the resale of securities by them may be deemed to be underwriting discounts and commissions under the Securities Act. Any such underwriter or agent will be identified, and any such compensation received from Rouse will be described, in the related prospectus supplement.
 
Under agreements which may be entered into by Rouse, underwriters and agents who participate in the distribution of securities may be entitled to indemnification by Rouse against certain liabilities, including liabilities under the Securities Act, or to contribution by Rouse with respect to payments they may be required to make in respect thereof.
 
If so indicated in the related prospectus supplement, Rouse will authorize underwriters or other persons acting as Rouse’s agents to solicit offers by certain institutions to purchase securities from Rouse pursuant to contracts providing for payment and delivery on a future date. Institutions with which such contracts may be made include commercial and savings banks, insurance companies, pension funds, investment companies, educational and charitable institutions and others, but in all cases such institutions must be approved by Rouse. The obligations of any purchaser under any such contract will be subject to the condition that the purchase of the securities shall not at the time of delivery be prohibited under the laws of the jurisdiction to which such purchaser is subject. The underwriters and such other agents will not have any responsibility in respect of the validity or performance of such contracts.
 
Until the distribution of the securities is completed, the rules of the Commission may limit the ability of underwriters and certain selling group members to bid for and purchase the securities. As an exception to these rules, underwriters are permitted to engage in certain transactions that stabilize the price of the securities. Such transactions consist of bids or purchases for the purpose of pegging, fixing or maintaining the price of the securities.
 
If any underwriters create a short position in the securities in connection with the offering, i.e., if they sell more securities than are set forth on the cover page of the applicable prospectus supplement, the underwriters may reduce that short position by purchasing securities in the open market.
 
Underwriters may also impose a penalty bid on certain selling group members. This means that if the underwriters purchase securities in the open market to reduce the underwriters’ short position or to stabilize the price of the securities, they may reclaim the amount of the selling concession from the selling group members who sold those securities as part of the offering.

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In general, purchases of a security for the purpose of stabilization or to reduce a short position could cause the price of the security to be higher than it might be in the absence of such purchases. The imposition of a penalty bid might also have an effect on the price of the securities to the extent that it discourages resales of the securities.
 
Neither Rouse nor any underwriter makes any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the securities. In addition, neither Rouse nor any underwriter makes any representation that the underwriter will engage in such transactions or that such transactions, once commenced, will not be discontinued without notice.
 
The securities may or may not be listed on a national securities exchange (other than the common stock, which is listed on the NYSE). Any common stock sold pursuant to a prospectus supplement will be listed on the NYSE, subject to official notice of issuance. No assurances can be given that there will be an active trading market for the securities.
 
Certain of the underwriters or agents and their associates may engage in transactions with and perform services for Rouse or its affiliates in the ordinary course of their respective businesses.
 
Sale of Selling Securityholder Securities by the Selling Securityholder
 
The Selling Securityholder Securities may be sold from time to time by the selling securityholder, or by pledgees, donees, transferees or other successors in interest, if any, who acquire the Selling Securityholder Securities. Sales of the Shares may be made on one or more exchanges or in the over-the-counter market, or otherwise at prices and at terms then prevailing or at prices related to the then current market price, or in negotiated transactions. Sales of the Notes may be made in negotiated transactions. The Shares may be sold through one or more of the following transactions: (a) a block trade in which the broker or dealer so engaged will attempt to sell the Shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; (b) purchases by a broker or dealer as principal and resale by such broker or dealer for its account pursuant to this prospectus; (c) an exchange distribution in accordance with the rules of such exchange; and (d) ordinary brokerage transactions and transactions in which the broker solicits purchasers. The Notes may be sold through one or more of the following types of transactions: (a) purchases by a broker or dealer as principal and resale by such broker or dealer for its account pursuant to this prospectus; and (b) transactions in which the broker solicits purchasers. In effecting sales, brokers or dealers engaged by the selling securityholder may arrange for other brokers or dealers to participate. Brokers or dealers may receive compensation from the selling securityholder or from purchasers for whom they act in the form of discounts, concessions or commissions. Such brokers or dealers and any other participating brokers or dealers may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales.
 
Upon Rouse being notified by the selling securityholder that any material arrangement has been entered into with a broker-dealer for the sale of Selling Securityholder Securities through a block trade, special offering, exchange distribution, secondary distribution or a purchase by a broker or dealer, a supplemented prospectus will be filed, if required, pursuant to Rule 424(c) under the Securities Act, disclosing (i) the name of the selling securityholder and of the participating broker-dealer(s), (ii) the number of Shares or the principal amount of Notes involved, (iii) the price at which such Selling Securityholder Securities were sold, (iv) the commissions paid or discounts or concessions allowed to such broker-dealer(s), where applicable, (v) that such broker-dealer(s) did not conduct any investigation to verify the information set out or incorporated by reference in this prospectus and (vi) other facts material to the transaction.
 
The selling securityholder has agreed to pay any brokerage fees or commissions, underwriting discounts and fees of any counsel for the selling securityholder in connection with the sale of the Selling Securityholder Securities. All expenses in connection with the registration of the Selling Securityholder Securities under this prospectus will be paid by Rouse.

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Rouse has agreed to indemnify the selling securityholder for certain liabilities under the Securities Act.
 
The securities laws of a particular state might require that the Selling Securityholder Securities be sold in that state only through registered or licensed brokers or dealers. In addition, in certain states, the Selling Securityholder Securities may not be sold unless they have been registered or qualified for sale in such states or an exemption from such registration or qualification requirement is available and is complied with.

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The consolidated financial statements and schedules of Rouse and its subsidiaries as of December 31, 1997 and 1996, and for each of the years in the three-year period ended December 31, 1997, and the statements of revenues and certain expenses of The Fashion Show, Westdale Mall and Towson Town Center for the year ended December 31, 1997, incorporated by reference in this registration statement have been incorporated by reference in reliance upon the reports of KPMG Peat Marwick LLP, independent certified public accountants, incorporated by reference herein and upon the authority of said firm as experts in accounting and auditing. The reports on the statements of revenues and certain expenses of The Fashion Show, Westdale Mall and Towson Town Center contain a paragraph that states that the statements of revenues and certain operating expenses were prepared for the purpose of complying with Rule 3-14 of Regulation S-X of the Securities and Exchange Commission and are not intended to be a complete presentation of revenues and expenses.
 
The statements of revenues and certain operating expenses of the Fashion Place Property, Valley Fair Property and Park Meadows Mall Property for the year ended December 31, 1997, incorporated by reference in this registration statement have been incorporated by reference in reliance upon the reports of PricewaterhouseCoopers LLP, independent accountants, incorporated by reference herein and upon the authority of said firm as experts in accounting and auditing.
 
 
The validity of the common stock and the preferred stock will be passed upon for Rouse by Bruce I. Rothschild, Esq., Vice President and General Counsel of Rouse. The validity of the debt securities will be passed upon for Rouse by Fried, Frank, Harris, Shriver & Jacobson (a partnership including professional corporations), New York, New York.

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$300,000,000
 
The Rouse Company
 
        % Notes due 2012
 
 
Prospectus Supplement
 
September         , 2002
 
 
Banc of America Securities LLC
 
JPMorgan