Prospectus filed pursuant to Rule 424(b)(1)
                      to Registration Statement 333-133933
2,969,914 Shares

Prospectus


Common Stock

     The selling  stockholders  named herein are selling 2,969,914 shares of our
common  stock.  We will not receive any proceeds  from the sale of our shares by
the selling stockholders.

     Our common stock is listed on the New York Stock  Exchange under the symbol
 "HME ".  The last closing price of our common stock on May 8, 2006,  was $52.54
per share.

     Investing in our common  stock  involves a high degree of risk as described
in the  "Risk Factors"  sections of this prospectus.

     Neither the  Securities and Exchange  Commission  nor any state  securities
commission has approved or disapproved of these securities or determined if this
prospectus  is truthful or  complete.  Any  representation  to the contrary is a
criminal offense.

                                                            Per Share             Total
Public Offering Price                                       $50.80             $150,871,631.20
----------------------------------------------------------- ------------------ --------------------
Underwriting Discounts and Commissions                      $ 1.20             $  3,563,896.80
----------------------------------------------------------- ------------------ --------------------
Proceeds, before expenses to the selling stockholders       $49.60             $147,307,734.40


     The   underwriter   is  offering   our  common   stack  as   described   in
"Underwriting."  The common stock will be ready for delivery on or about May 15,
2006.

                                   __________

                               UBS Investment Bank

                                   __________

                   The date of this prospectus is May 9, 2006






                                TABLE OF CONTENTS
                                                               Page

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS................1
HOME PROPERTIES..................................................2
RISK FACTORS.....................................................2
THE OFFERING.....................................................2
USE OF PROCEEDS..................................................3
SELLING STOCKHOLDERS.............................................3
DESCRIPTION OF CAPITAL STOCK.....................................4
FEDERAL INCOME TAX CONSIDERATIONS...............................11
OTHER TAX CONSEQUENCES..........................................26
UNDERWRITING....................................................26
WHERE YOU CAN FIND MORE INFORMATION.............................27
EXPERTS.........................................................28
LEGAL MATTERS...................................................28




                SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     This prospectus contains, or incorporates by reference, statements that may
be deemed to be  "forward-looking"  within  the  meaning of  Section 27A  of the
Securities   Act,  and  Section 21E  of  the  Exchange  Act.  Some  examples  of
forward-looking   statements   include  statements  related  to  future  capital
expenditures,   financing   sources   and   availability   and  the  effects  of
environmental and other regulations.  Although we believe expectations reflected
in such forward-looking  statements are based on reasonable assumptions,  we can
give no assurance that our expectations will be achieved. Factors that may cause
actual  results  to  differ  include  general  economic  and local  real  estate
conditions and the weather,  and other  conditions  that might affect  operating
expenses,  and timely completion of repositioning  activities within anticipated
budgets,  the actual pace of future acquisitions and sales, and continued access
to capital to fund growth.  For this purpose,  any statements  contained in this
prospectus  or  incorporated  herein by  reference  that are not  statements  of
historical fact should be considered to be forward-looking  statements.  Some of
the  words  used to  identify  forward-looking  statements  include  "believes",
"anticipates",   "plans",   "expects",   "seeks",   "estimates",   and   similar
expressions.  Readers should  exercise  caution in  interpreting  and relying on
forward-looking   statements   since  they  involve  known  and  unknown  risks,
uncertainties and other factors which are, in some cases, beyond the our control
and could  materially  affect our actual results,  performance or  achievements.
Additional  factors  which  may  cause  our  actual  results  to vary  from  our
expectations are described under "Risk Factors". Our actual results could differ
materially  from  those  set  forth  in  the  forward-looking   statements.  The
forward-looking  statements  made in, or  incorporated  by  reference in to this
prospectus are made only as of the date of this  prospectus and we under take no
obligation   to  update  these  forward   looking   statements  to  reflect  new
information, future events, or other matters.

     This  prospectus is part of a registration  statement  filed by us with the
Securities and Exchange  Commission.  You should read this  prospectus  together
with the additional  information described under the heading "Where You Can Find
More  Information."  You should  rely only on the  information  incorporated  by
reference or provided in this  prospectus.  We have not, and the underwriter has
not,  authorized  anyone  else to  provide  you  with  different  or  additional
information.  We are not,  and the  underwriter  is not,  making an offer of the
shares in any jurisdiction where the offer or sale is not permitted.

     You should not assume that the  information in this  prospectus is accurate
as of any  date  other  than the date on the  front  of this  prospectus.  Other
information  filed  by  us  with  the  Securities  and  Exchange  Commission  is
incorporated  into this  prospectus  by  reference.  You should  assume that the
reports and  documents  incorporated  by reference are accurate only as of their
respective dates. Our business, financial condition, results of operations, risk
factors and forward-looking information may have changed since these dates.

     Documents  which are exhibits to or  incorporated  by  reference  into this
prospectus   and   the   reports   incorporated   by   reference   may   contain
representations,  warrantees and agreements.  Those representations,  warranties
and  agreements  were  made  solely  for the  benefit  of the  parties  to those
documents and may be subject to  qualifications  and limitations,  and are not a
representation, warranty or agreement for your benefit.

     The  following  information  should  be read in  conjunction  with the more
detailed  information  included  elsewhere in this  prospectus  or  incorporated
herein  by  reference.  References  to "Home  Properties,"  "we" or "us" in this
prospectus  mean,  except as the context  otherwise  requires,  Home Properties,
Inc.,  a  Maryland  corporation,  Home  Properties,  L.P.,  a New  York  limited
partnership  (the "Operating  Partnership"),  Home Properties I, LLC, a New York
limited  liability  company,   Home  Properties  Trust,  a  Maryland  trust,  HP
Management,  Inc., a Maryland  corporation,  Home Properties  Resident Services,
Inc., a Maryland corporation, and all other subsidiaries of Home Properties on a
consolidated basis.

                                 HOME PROPERTIES

     We are a self-administered and self-managed real estate investment trust, a
REIT. We own, operate,  acquire and rehabilitate apartment communities in select
Northeast,  Midwest, Mid-Atlantic and Southeast Florida markets. Currently, Home
Properties operates 156 communities containing 46,911 apartment units. Of these,
43,342  units in 151  communities  are  owned  directly  by us;  868  units  are
partially  owned and  managed  by us as  general  partner,  and 2,701  units are
managed for other owners.

     We were incorporated in November 1993 as a Maryland corporation. We are the
general  partner  of Home  Properties,  L.P.,  a New York  limited  partnership,
through which we own, acquire and operate most of our market rate apartments. We
frequently  refer  to Home  Properties,  L.P.  as the  "Operating  Partnership".
Certain of our activities,  such as residential  property management for others,
development activities and construction,  development and redevelopment services
are carried on through two wholly-owned subsidiaries: Home Properties Management
Inc. and Home Properties Resident Services, Inc.

     Our  principal  executive  offices  are  located  at  850  Clinton  Square,
Rochester, New York 14604. Our telephone number is (585) 246-4900.


                                  RISK FACTORS


     Please  carefully  consider  the risk  factors  described  in our  periodic
reports filed with the Securities and Exchange Commission (the "SEC"), which are
incorporated by reference in this  prospectus,  as well as other  information we
include or incorporate  by reference in this  prospectus.  Additional  risks and
uncertainties not presently known to us or that we currently deem immaterial may
also impair our business operations.

                                  THE OFFERING

Common stock offered by selling stockholders    2,969,914 shares

Common stock to be outstanding after completion
   of this offering                             34,507,465 shares*

Use of proceeds                                 We will not receive
                                                any proceeds from this offering

NYSE Symbol                                     HME

*The number of shares of common stock  outstanding  after this offering is based
on 31,537,551 shares outstanding on May 5, 2006 and excludes:

     -    2,262,211  shares issuable upon exercise of outstanding  stock options
          under out stock benefit plan;

     -    452,000 shares  underlying  stock options  approved for issuance under
          out stock benefit plan;

     -    26,661 shares reserved for issuance under our retirement savings plan;
          and

     -    up to  16,596,111  shares which may be issued in exchange for Units of
          limited partnership interest in the Operating Partnership.

                                 USE OF PROCEEDS

     The selling stockholders will receive all of the net proceeds from the sale
of the shares of common stock offered  hereby.  We will not receive any proceeds
from the offering.


                              SELLING STOCKHOLDERS

     The selling  stockholders  listed below, hold units of limited  partnership
interest in the Operating Partnership ("Units"). On April 24,  2006, the selling
stockholders  exercised  their  purchase  right under the terms of the Operating
Partnership's partnership agreement that requires us, at our option, to purchase
the Units for cash or shares of our common stock on a one-for-one basis. We have
decided to purchase all the Units by issuing an aggregate of 2,969,914 shares of
our common stock.  The selling  stockholders  have exercised their right under a
registration rights agreement dated October 29, 1997 with us to cause us to file
the registration  statement,  of which this prospectus forms a part, registering
such shares for resale under the  Securities  Act.  Pursuant to the terms of the
registration  rights agreement,  we are bearing all costs of this  registration,
but the  underwriting  discounts  and  commissions  will be paid by the  selling
stockholders  from the  proceeds of the sale of the shares.  We will not receive
any proceeds from the sale of the shares offered hereby.

     The following table sets forth certain information  regarding the number of
shares of common stock which we will issue to the selling stockholders and which
are  registered  for  resale  under the  registration  statement  of which  this
prospectus  forms a part. The selling  stockholders do not  beneficially own any
shares of our common  stock  other than the shares  listed  below.  The  selling
stockholders intend to sell all the shares listed below and after the completion
of this  offering  they  will not own any  shares  of our  common  stock.  Other
partners  of the  Operating  Partnership  may sell  shares of common  stock they
acquire in exchange for their Units under separate registration statements filed
with the SEC covering such shares.

     None  of the  affiliates  of  the  selling  stockholders  are  officers  or
directors of the Company.

                                                         Number of Shares
                                                      Registered for Sale
Name                                                          in Offering

B&L Realty Investments Limited Partnership                         33,560

Berger/Lewiston Associates Limited Partnership                  1,076,594

Big Beaver-Rochester Properties Limited Partnership               528,348

Century Realty Investment Company Limited                          99,195
Partnership

Greentrees Apartments Limited Partnership                         275,905

Kingsley-Moravian Company Limited Partnership                     376,288

Stephenson-Madison Heights Company Limited                        104,541
Partnership

Southpointe Square Apartments Limited Partnership                 155,623

Woodland Garden Apartments Limited Partnership                    319,860

Total                                                           2,969,914


                          DESCRIPTION OF CAPITAL STOCK

     The authorized capital stock of Home Properties consists of:

          -    80 million  shares of common  stock,  $0.01 par  value,  of which
               31,537,550 shares were outstanding on May 5, 2006;

          -    10 million shares of preferred stock, $0.01 par value,  3,000,000
               shares  of  which  have  been  designated   Series F   Cumulative
               Redeemable  Preferred  Stock (the  "Series F  preferred  stock"),
               2,400,000 of which were outstanding as of March 31, 2006.

          -    10 million shares of "excess stock," $0.01 par value, of which no
               shares were outstanding on March 31, 2006.

For more detail about our Articles of Amendment and  Restatement  of Articles of
Incorporation,  and the Articles  Supplementary thereto relating to the Series F
preferred  stock  (sometimes  collectively  referred  to  as  our  "Articles  of
Incorporation"  or  "charter")  and bylaws you should  refer to the  charter and
bylaws,  which have been filed as  exhibits  to other  reports  incorporated  by
reference into this prospectus.  In addition, for a discussion of limitations on
the  ownership of our capital  stock,  you should refer to the section  entitled
"Restrictions on Transfer; Ownership Limits" in this prospectus.

Common Stock

     All of the shares of common stock offered by this  prospectus  will be duly
authorized,  fully paid, and nonassessable when issued in exchange for the Units
in the Operating  Partnership held by the selling  stockholders.  Holders of the
common stock have no conversion,  redemption, sinking fund or preemptive rights;
however,  shares of common  stock  automatically  convert  into shares of Excess
Stock as defined below.  Under the Maryland  General  Corporation  Law ("MGCL"),
stockholders  are  generally  not liable for our debts or  obligations,  and the
holders of shares will not be liable for  further  calls or  assessments  by us.
Subject to the  provisions  of our Articles of  Incorporation  regarding  Excess
Stock  described  below,  all  shares  of  common  stock  have  equal  dividend,
distribution,  liquidation  and  other  rights  and will have no  preference  or
exchange rights.

     Subject to the right of holders of Preferred Stock to receive  preferential
distributions,  the  holders of the shares of common  stock will be  entitled to
receive distributions in the form of dividends if and when declared by our Board
of Directors out of funds legally available  therefor,  and, upon liquidation of
us, each  outstanding  share of common stock will be entitled to participate pro
rata in the assets remaining after payment of, or adequate provision for, all of
our known debts and liabilities,  including debts and liabilities arising out of
its status as general partner of the Operating Partnership,  and any liquidation
preference  of issued and  outstanding  Preferred  Stock.  We intend to continue
paying quarterly distributions.

     The holder of each  outstanding  share of common  stock is  entitled to one
vote  on all  matters  presented  to  stockholders  for a vote,  subject  to the
provisions of our Articles of  Incorporation  regarding  Excess Stock  described
below.  As described  below,  our Board of Directors has, and may in the future,
grant  holders of one or more series of  Preferred  Stock the right to vote with
respect  to  certain  matters  when it fixes the  attributes  of such  series of
Preferred Stock.  Pursuant to the MGCL, we cannot  dissolve,  amend our charter,
merge with or into another  entity,  sell all or  substantially  all our assets,
engage in a share exchange or engage in similar  transactions unless such action
is  approved  by  stockholders  holding a  majority  of the  outstanding  shares
entitled to vote on such matter.  In addition,  the Second  Amended and Restated
Partnership Agreement of the Operating  Partnership,  as amended,  requires that
any  merger  or sale of all or  substantially  all of the  assets  of  Operating
Partnership be approved by partners holding a majority of the outstanding Units,
excluding  Operating  Partnership Units held by us, directly or indirectly.  Our
Articles of Incorporation provide that our Bylaws may be amended by our Board of
Directors.

     The holder of each  outstanding  share of common  stock is  entitled to one
vote in the  election of directors  who serve for terms of one year.  Holders of
the  shares of common  stock  will have no right to  cumulative  voting  for the
election of directors. Consequently, at each annual meeting of stockholders, the
holders  of a  majority  of the  shares  entitled  to  vote in the  election  of
directors will be able to elect all of the directors,  subject to certain rights
of the holders of preferred  stock,  described  below.  Directors may be removed
only for cause and only with the  affirmative  vote of the holders of a majority
of the shares entitled to vote in the election of directors.

Preferred Stock

     We may issue  shares of preferred  stock from time to time,  in one or more
series, as authorized by our Board of Directors. The Board of Directors will fix
the attributes of any preferred  stock that it authorizes for issuance.  Because
the Board of Directors has the power to establish the  preferences and rights of
each  series of  preferred  stock,  it may afford  the  holders of any series of
preferred stock preferences,  powers and rights, voting or otherwise,  senior to
the rights of holders of shares of common stock. The issuance of preferred stock
could  have the effect of  delaying  or  preventing  a change in control of Home
Properties.

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

Series F Cumulative Redeemable Preferred Stock

     On March 22, 2002, Home Properties  issued 2,400,000 shares of its Series F
preferred  stock.  The Articles  Supplementary  to the charter  establishing the
Series F  preferred  stock authorize an aggregate  3,000,000  shares of Series F
preferred  stock and set forth the rights,  privileges  and  preferences of that
stock.  The Series F  preferred  stock is entitled to a  liquidation  preference
equal to $25 per share plus all accumulated accrued and unpaid dividends whether
or not declared to the date of liquidation.

     Dividends on the Series F  preferred stock accrue  quarterly in arrears and
are equal to 9.00% of the liquidation preference (or $2.25 per share) each year.
The holders of the Series F preferred stock,  together with the holders of other
classes of preferred  stock,  have the right to elect two directors to the Board
of Directors of Home Properties in the event that the preferred dividends are in
arrears for six quarters (whether consecutive or not).

     Pursuant  to certain  covenants,  if we fail to limit our ratio of earnings
before interest,  taxes, depreciation and amortization (EBITDA) to fixed charges
(consisting of total interest expense and dividends on our preferred  stock), to
less than 1.75 to 1.0 for six  consecutive  quarters the holders of the Series F
preferred  stock  will be  entitled  to  elect  two  directors  to our  Board of
Directors if not already  increased by reason of similar  provisions  (including
those  relating  to the  failure to pay  dividends),  until we again  complete a
quarter in compliance with the ratio.

     The  Series F  preferred  stock is  redeemable  at our  option  on or after
March 25, 2007 at $25 per share, plus accrued dividends.  The Series F preferred
stock has no stated  maturity  and will not be  subject to any  sinking  fund or
mandatory redemption.

     The Series F  preferred stock is not convertible  into or exchangeable  for
any of our other  property or  securities,  except  that shares of the  Series F
preferred  stock may be exchanged for shares of our excess stock to preserve our
status as a REIT for federal income tax purposes.

Restrictions on Transfer; Ownership Limits

     Our  charter  contains  certain  restrictions  on the  number  of shares of
capital stock that  stockholders  may own. For us to qualify as a REIT under the
Internal  Revenue  Code of 1986,  as amended (the  "Code"),  no more than 50% in
value of our  outstanding  shares of  capital  stock may be owned,  directly  or
indirectly,  by five or fewer  individuals  (as defined in the Code,  to include
certain  entities)  during  the  last  half  of  a  taxable  year  or  during  a
proportionate  part of a shorter  taxable  year.  The capital stock must also be
beneficially  owned by 100 or more persons during at least 335 days of a taxable
year or during a proportionate part of a shorter taxable year. Because we expect
to  continue  to qualify as a REIT,  our charter  contains  restrictions  on the
ownership  and  transfer  of  shares of our  capital  stock  intended  to ensure
compliance with these requirements.  Subject to certain exceptions  specified in
the charter, no holder may own, or be deemed to own by virtue of the attribution
provisions of the Code, more than 8.0% (the  "Ownership  Limit") of the value of
the issued and outstanding shares of our capital stock.  Certain entities,  such
as qualified  pension plans, are treated as if their beneficial  owners were the
holders of the common stock held by such entities.

     Stockholders  ("Existing  Holders")  whose holdings  exceeded the Ownership
Limit  immediately  after our  initial  public  offering  of our  common  stock,
assuming  that all Units of the Operating  Partnership  are counted as shares of
common  stock,  are permitted to continue to hold the number of shares they held
on such date and may acquire  additional  shares of capital  stock upon  (i) the
exchange of Units for Shares,  (ii) the  exercise of stock options or receipt of
grants of shares of capital stock  pursuant to a stock  benefit plan,  (iii) the
acquisition of shares of capital stock pursuant to a dividend reinvestment plan,
(iv) the transfer of shares of capital stock from another Existing Holder or the
estate  of  an  Existing  Holder  by  devise,  gift  or  otherwise,  or  (v) the
foreclosure  on  a  pledge  of  shares  of  capital  stock;  provided,  no  such
acquisition  may cause any Existing  Holder to own,  directly or by attribution,
more than  17.5% (the  "Existing  Holder  Limit") of the issued and  outstanding
Shares, subject to certain additional restrictions.

     Our Board of Directors  may increase or decrease  the  Ownership  Limit and
Existing  Holder  Limit from time to time,  but may not do so to the extent that
after giving effect to such increase or decrease:  (i) five beneficial owners of
Shares could  beneficially own in the aggregate more than 49.5% of the aggregate
value of our outstanding  capital or (ii) any  beneficial owner of capital stock
would  violate the  Ownership  Limit or Existing  Holder  Limit as a result of a
decrease.  The Board of Directors may waive the Ownership  Limit or the Existing
Holder  Limit  with  respect  to a  holder  if  such  holder  provides  evidence
acceptable  to the Board of  Directors  that such  holder's  ownership  will not
jeopardize  our  status as a REIT.  Waivers  of the  Ownership  Limit  have been
granted to certain  institutional  investors in connection  with the sale of our
Preferred Stock.

     Any transfer of our outstanding  capital stock  ("Outstanding  Stock") that
would:  (i) cause any holder,  directly or by attribution,  to own capital stock
having a value in  excess  of the  Ownership  Limit or  Existing  Holder  Limit,
(ii) result  in shares of capital stock other than Excess  Stock,  if any, to be
owned by fewer than 100 persons,  (iii) result  in our being closely held within
the meaning of section  856(h) of the Code,  or  (iv) otherwise  prevent us from
satisfying any criteria necessary for us to qualify as a REIT, is null and void,
and the purported transferee acquires no rights to such Outstanding Stock.

     Outstanding  Stock owned by or  attributable  to a stockholder or shares of
Outstanding  Stock  purportedly  transferred  to a stockholder  which cause such
stockholder or any other stockholder to own shares of capital stock in excess of
the Ownership  Limit or Existing  Holder Limit will  automatically  convert into
shares of Excess Stock.  Such Excess Stock will be  transferred  by operation of
law to a  separate  trust,  with  Home  Properties  acting as  trustee,  for the
exclusive benefit of the person or persons to whom such Outstanding Stock may be
ultimately  transferred without violating the Ownership Limit or Existing Holder
Limit.  Excess Stock is not treasury  stock,  but rather  constitutes a separate
class of issued and outstanding stock of Home Properties. While the Excess Stock
is held in trust,  it will not be entitled to vote,  will not be considered  for
purposes of any stockholder vote or the  determination of a quorum for such vote
and will not be entitled to participate in dividends or other distributions. Any
record owner or purported  transferee of  Outstanding  Stock which has converted
into Excess Stock (the "Excess  Holder") who receives a dividend or distribution
prior to the discovery by us that such Outstanding Stock has been converted into
Excess Stock must repay such dividend or distribution upon demand.  While Excess
Stock is held in trust, we will have the right to purchase it from the trust for
the lesser of: (i) the price paid for the Outstanding Stock which converted into
Excess Stock by the Excess Holder (or the market value of the Outstanding  Stock
on the date of  conversion  if no  consideration  was given for the  Outstanding
Stock) or (ii) the  market price of shares of capital  stock  equivalent  to the
Outstanding Stock which converted into Excess Stock (as determined in the manner
set forth in the Articles of  Incorporation)  on the date we exercise our option
to purchase.  We must exercise this right within the 90-day period  beginning on
the date on which we  receive  written  notice of the  transfer  or other  event
resulting in the  conversion of  Outstanding  Stock into Excess Stock.  Upon our
liquidation,  distributions will be made with respect to such Excess Stock as if
it consisted of the Outstanding Stock from which it was converted.

     Any Excess  Holder,  with respect to each trust created upon the conversion
of  Outstanding  Stock into Excess  Stock,  may  designate  any  individual as a
beneficiary of such trust;  provided,  such person would be permitted to own the
Outstanding  Stock which converted into the Excess Stock held by the trust under
the Ownership Limit or Existing Holder Limit and the consideration  paid to such
Excess Holder in exchange for designating  such person as the beneficiary is not
in excess of the price  paid for the  Outstanding  Stock  which  converted  into
Excess Stock by the Excess Holder (or the market value of the Outstanding  Stock
on the date of  conversion  if no  consideration  was given for the  Outstanding
Stock).  Our  redemption  right must have  expired or been waived  prior to such
designation.  Immediately upon the designation of a permitted  beneficiary,  the
Excess Stock, if any, will automatically  convert into shares of the Outstanding
Stock from which it was  converted  and we as trustee of the trust will transfer
such shares,  if any, and any proceeds from  redemption or  liquidation  without
interest to the beneficiary.

     If the  restrictions  on ownership and transfer,  conversion  provisions or
trust arrangements in our Articles of Incorporation are determined to be void or
invalid by virtue of any legal decision,  statute, rule or regulation,  then the
Excess Holder of any Outstanding  Stock that would have converted into shares of
Excess Stock if the conversion  provisions of the Articles of Incorporation were
enforceable  and valid shall be deemed to have acted as an agent on behalf of us
in acquiring such Outstanding Stock and to hold such Outstanding Stock on behalf
of us unless we waive our right to this remedy.

     The  foregoing  ownership and transfer  limitations  may have the effect of
precluding  acquisition of control of Home Properties without the consent of our
Board of Directors.  All certificates  representing shares of capital stock will
bear a legend  referring to the  restrictions  described  above.  The  foregoing
restrictions  on  transferability  and ownership  will not apply if the Board of
Directors  determines,  and the stockholders concur, that it is no longer in our
best  interests  to attempt to qualify,  or to  continue to qualify,  as a REIT.
Approval of the limited partners of the Operating  Partnership to terminate REIT
status is also required.

Ownership Reports

     Every owner of more than 5% of our issued and outstanding shares of capital
stock must file a written notice with us containing the information specified in
the  Articles  of  Incorporation  no later  than  January  31 of each  year.  In
addition,  each stockholder shall, upon demand, be required to disclose to us in
writing such  information  as we may request in order to determine the effect of
such  stockholder's  direct,  indirect  and  attributed  ownership  of shares of
capital stock on our status as a REIT or to comply with any  requirements of any
taxing authority or other governmental agency.

Certain Provisions of Maryland Law and of Our Charter and Bylaws

     The following is a summary of certain provisions of Maryland law and of our
charter  and  bylaws.  Copies of our  charter  and  bylaws are  incorporated  by
reference  into  the  exhibits  to the  registration  statement  of  which  this
prospectus is a part. See "Where you can find more information."

The Board of Directors

     Our  Articles  of  Incorporation  and  bylaws  provide  that the  number of
directors of our company may be  established  by our board of directors  but may
not be fewer than the minimum number permitted under the MGCL  (generally,  one)
nor more than 12. Except any vacancy  among  directors  elected  separately by a
separate class of shares,  any vacancy may be filled,  at any regular meeting or
at any  special  meeting  called for that  purpose,  only by a  majority  of the
remaining directors, even if the remaining directors do not constitute a quorum,
and any director  elected to fill a vacancy will serve for the  remainder of the
full term of the directorship in which such vacancy occurred.

     Pursuant to our charter,  each member of our board of directors  will serve
one year terms, with each current director serving until the 2006 annual meeting
of  stockholders  and until their  respective  successors  are duly  elected and
qualified.  Holders  of  shares  of our  common  stock  will  have no  right  to
cumulative  voting in the election of directors  and  directors are elected by a
plurality  of votes cast in the  election of  directors.  Consequently,  at each
annual meeting of stockholders  at which our board of directors is elected,  the
holders  of a majority  of the shares of our common  stock will be able to elect
all of the members of our board of directors.  Moreover, our charter permits our
stockholders  to  remove a  director  but only for  cause and then only upon the
affirmative  vote of a majority  of the shares of our common  stock  entitled to
vote on any such proposal.

Termination of REIT Status

     Our board of directors, under our Articles of Incorporation,  is prohibited
from taking any action to terminate  our REIT status or to amend the  provisions
of our Articles of  Incorporation  regarding  excess stock unless such action is
approved by the board of directors, presented to an annual or special meeting of
stockholders and approved by vote of a majority of votes entitled to be cast.

Business Combinations

     Maryland law prohibits "business combinations" between a corporation and an
interested  stockholder  or an affiliate of an interested  stockholder  for five
years after the most recent date on which the interested  stockholder becomes an
interested   stockholder.   These  business   combinations   include  a  merger,
consolidation,  statutory share exchange, or, in circumstances  specified in the
statute,  certain  transfers of assets,  certain stock  issuances and transfers,
liquidation plans and  reclassifications  involving interested  stockholders and
their affiliates. Maryland law defines an interested stockholder as:

          -    any person who beneficially  owns 10% or more of the voting power
               of our voting stock; or

          -    an affiliate or  associate  of the  corporation  who, at any time
               within the two-year period prior to the date in question, was the
               beneficial  owner  of 10% or  more  of the  voting  power  of the
               then-outstanding voting stock of the corporation.

     A  person  is not an  interested  stockholder  if the  board  of  directors
approves in advance the  transaction  by which the person  otherwise  would have
become an interested  stockholder.  However,  in approving the transaction,  the
board of directors may provide that its approval is subject to compliance, at or
after the time of  approval,  with any terms and  conditions  determined  by the
board of directors.

     After  the five  year  prohibition,  any  business  combination  between  a
corporation and an interested  stockholder  generally must be recommended by the
board of directors and approved by the affirmative vote of at least:

          -    80% of the  votes  entitled  to be cast by  holders  of the  then
               outstanding shares of common stock; and

          -    two-thirds  of the votes  entitled  to be cast by  holders of the
               common stock other than shares held by the interested stockholder
               with whom or with whose affiliate the business  combination is to
               be effected or shares held by an  affiliate  or  associate of the
               interested stockholder.

     These   super-majority  vote  requirements  do  not  apply  if  the  common
stockholders  receive a minimum price,  as defined under Maryland law, for their
shares in the form of cash or other consideration in the same form as previously
paid by the interested stockholder for its shares.

     The statute  permits  various  exemptions  from its  provisions,  including
business  combinations  that are approved by the board of  directors  before the
time that the interested stockholder becomes an interested stockholder.

     Our Articles of Incorporation  excluded business  combinations  between the
corporation and our founders,  Norman and Nelson  Leenhouts and their affiliates
from these provisions of the MGCL and,  consequently,  the five-year prohibition
and the super-majority vote requirements will not apply to business combinations
between us and the founders or their  affiliates.  We believe that our ownership
restrictions will substantially  reduce the risk that a stockholder would become
an  "interested  stockholder"  within  the  meaning  of  the  Maryland  business
combination statute.

Control Share Acquisitions

     The MGCL provides that "control shares" of a Maryland  corporation acquired
in a "control  share  acquisition"  have no voting  rights  except to the extent
approved at a special meeting by the affirmative vote of two-thirds of the votes
entitled to be cast on the matter, excluding shares of stock in a corporation in
respect of which any of the following  persons is entitled to exercise or direct
the  exercise of the voting power of shares of stock of the  corporation  in the
election  of  directors:  (i) a person who makes or  proposes  to make a control
share  acquisition,  (ii) an  officer of the corporation or (iii) an employee of
the corporation who is also a director of the corporation.

     "Control  shares" are voting shares of stock which,  if aggregated with all
other such shares of stock previously  acquired by the acquiror or in respect of
which the  acquiror is able to exercise or direct the  exercise of voting  power
(except  solely by virtue of a revocable  proxy),  would entitle the acquiror to
exercise voting power in electing  directors  within one of the following ranges
of voting power:  (i) one-tenth or more but less than one-third,  (ii) one-third
or more but less than a  majority,  or (iii) a  majority  or more of all  voting
power.

     Control shares do not include shares the acquiring  person is then entitled
to vote as a result  of  having  previously  obtained  stockholder  approval.  A
"control share acquisition" means the acquisition of control shares,  subject to
certain exceptions.

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

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

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

     Our  Articles  of  Incorporation  contain a  provision  exempting  from the
control share acquisition  statute any and all acquisitions by any person of our
stock and, consequently, the a control share acquisition statute is inapplicable
to us unless the  acquisition  would  violate the  Ownership  Limit or unless we
later amend our Articles of Incorporation to modify or eliminate the exemption.

Unsolicited Takeovers

     The MGCL Subtitle 8 of Title 3 permits a Maryland  corporation with a class
of equity  securities  registered  under  the  Exchange  Act and at least  three
independent  directors  to elect to be subject,  by  provision in its charter or
bylaws  or a  resolution  of its board of  directors,  and  notwithstanding  any
contrary provision in the charter or bylaws, to any or all of the following five
provisions:

          -    a classified board;

          -    a two-thirds vote requirement for removing a director;

          -    a requirement  that the number of directors be fixed only by vote
               of the directors;

          -    a  requirement  that a vacancy on the board be filled only by the
               remaining directors and for the remainder of the full term of the
               class of directors in which the vacancy occurred; and

          -    a  majority  requirement  for the  calling by  stockholders  of a
               special meeting of stockholders.

     Through  provisions  in our charter and bylaws  unrelated to Subtitle 8, we
already (a) vest in the board the  exclusive  power to fix the number of members
of the board of directors and (b) require,  unless called by our chairman of the
board,  our  president,  the board,  the  request of holders of 25%  outstanding
shares to call a special  meeting.  We have not  elected  to be  subject  to the
provisions of Subtitle 8 relating to the filling of vacancies on the board.

Amendment to Our Articles of Incorporation and Bylaws

     Our  charter  may be amended  only if  declared  advisable  by the board of
directors  and  approved  by the  affirmative  vote of the holders of at least a
majority of all of the votes  entitled to be cast on the matter.  Our bylaws may
only be adapted, amended, altered or repealed by the board of directors.

Dissolution of Our Company

     The  dissolution of our company must be declared  advisable by the board of
directors and approved by the affirmative vote of the holders of not less than a
majority of all of the votes entitled to be cast on the matter.

Effect of Certain Provisions of Maryland Law and of Our Charter and Bylaws

     The business  combination  provisions  of the MGCL,  the  provisions of our
charter  regarding the  restrictions  on ownership and transfer of our stock and
the  provisions  of our  bylaws  setting  the  number of members of the board of
directors could delay,  defer or prevent a transaction or a change of control of
our company that might  involve a premium  price for holders of our common stock
or  otherwise  be in their best  interest.  Likewise,  if our board of directors
resolves to avail any of the provisions of Subtitle 8 of Title 3 of the MGCL not
currently  applicable to us or if the provision in the Articles of Incorporation
opting  out of the  control  share  acquisition  provisions  of  the  MGCL  were
rescinded, these provisions of the MGCL could have similar effects.

Indemnification and Limitation of Directors' and Officers' Liability

     As Maryland law permits, our Articles of Incorporation  contain a provision
limiting the  liability of our directors and officers to us for money damages to
the fullest  extent  permitted  under  Maryland  law.  Maryland law permits full
limitation of the liability of directors or officers for money damage except for
liability  resulting from (i) actual receipt of an improper benefit or profit in
money, property or services or (ii) active and deliberate dishonesty established
by a final judgment and material to the cause of action.

     The MGCL requires a corporation  to indemnify a director or officer who has
been successful, on the merits or otherwise, in the defense of any proceeding to
which he or she is made,  or  threatened to be made, a party by reason of his or
her service in that  capacity.  The MGCL permits a corporation  to indemnify its
present and former  directors and officers,  among  others,  against  judgments,
penalties,  fines, settlements and reasonable expenses actually incurred by them
in connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities unless it is established that:

          -    an act or omission of the director or officer was material to the
               matter  giving rise to the  proceeding  and was  committed in bad
               faith; or was the result of active and deliberate dishonesty;

          -    the director or officer  actually  received an improper  personal
               benefit in money, property or services; or

          -    in the case of any criminal  proceeding,  the director or officer
               had  reasonable  cause to believe  that the act or  omission  was
               unlawful.

     However,  under the MGCL, a Maryland  corporation  may not indemnify for an
adverse  judgment  in a suit  by or in the  right  of the  corporation  or for a
judgment  of  liability  on the  basis  that  personal  benefit  was  improperly
received, unless in either case a court orders indemnification and then only for
expenses.

     In addition,  the MGCL permits a corporation  to, and our bylaws require us
to, advance reasonable  expenses to a director or officer upon the corporation's
receipt of:

          -    a written  affirmation  by the  director or officer of his or her
               good faith  belief that he or she has met the standard of conduct
               necessary for indemnification by the corporation; and

          -    a  written  undertaking  by the  director  or  officer  or on the
               director's  or  officer's  behalf  to repay  the  amount  paid or
               reimbursed by the corporation if it is ultimately determined that
               the director or officer did not meet the standard of conduct.

     We  entered  into  indemnification  agreements  with each of our  executive
officers  and  directors  whereby  we  indemnify  such  executive  officers  and
directors to the fullest  extent  permitted by Maryland law against all expenses
and liabilities, subject to limited exceptions. These indemnification agreements
also provide that upon an application  for indemnity by an executive  officer or
director  to a court of  appropriate  jurisdiction,  such  court may order us to
indemnify such executive officer or director.

     Insofar as the foregoing  provisions permit  indemnification  of directors,
officers or persons  controlling  us for liability  arising under the Securities
Act,  the   Securities   and  Exchange   Commission   has  indicated  that  this
indemnification  is against public policy as expressed in the Securities Act and
is therefore unenforceable.

                        FEDERAL INCOME TAX CONSIDERATIONS

     The following summary of material federal income tax consequences regarding
Home Properties and the common stock we are registering is based on current law,
is for general  information only and is not tax advice.  The information in this
section is based on the Code as  currently  in effect,  current,  temporary  and
proposed  Treasury  Regulations  promulgated  under  the Code,  the  legislative
history of the Code, current administrative interpretations and practices of the
IRS, including its practices and policies as expressed in private letter rulings
which are not binding on the IRS except with respect to the particular taxpayers
who requested and received such rulings, and court decisions, all as of the date
of this  prospectus.  There is no assurance  that future  legislation,  Treasury
Regulations,  administrative  interpretations  and practices or court  decisions
will not  adversely  affect  existing  interpretations.  Any change  could apply
retroactively to transactions preceding the date of the change.

     We have not requested, and do not plan to request, any rulings from the IRS
concerning  our tax treatment  and the  statements  in this  prospectus  are not
binding on the IRS or a court.  Thus,  we can  provide no  assurance  that these
statements  will  not be  challenged  by the  IRS or  sustained  by a  court  if
challenged  by the IRS.  The tax  treatment to holders of common stock will vary
depending  on a  holder's  particular  situation  and this  discussion  does not
purport to deal with all aspects of taxation that may be relevant to a holder of
common stock in light of his or her personal  investments or tax  circumstances,
or to  stockholders  subject to special  treatment  under the federal income tax
laws except to the extent  discussed under the headings  "Taxation of Tax-Exempt
Stockholders" and "Taxation of Non-U.S.  Stockholders."  Stockholders subject to
special treatment include,  without limitation,  insurance companies,  financial
institutions or broker-dealers,  tax-exempt organizations,  stockholders holding
securities as part of a conversion  transaction or hedge or hedging  transaction
or as a position  in a  straddle  for tax  purposes,  foreign  corporations  and
persons who are not citizens or residents of the United States.

     In addition, the summary below does not consider the effect of any foreign,
state,  local or other tax laws that may be  applicable to holders of the common
stock. If we meet the detailed  requirements in the Code for  qualification as a
REIT,  which are  summarized  below,  we will be treated  as a REIT for  federal
income tax purposes.  In this case, we generally  will not be subject to federal
corporate  income taxes on our net income that is currently  distributed  to our
stockholders. This treatment substantially eliminates the "double taxation" that
generally  results from investments in a corporation.  Double taxation refers to
the  imposition of corporate  level tax on income  earned by a  corporation  and
taxation  at the  shareholder  level on  funds  distributed  to a  corporation's
shareholders.  If we fail to qualify as a REIT in any taxable year, we would not
be allowed a deduction  for  dividends  paid to our  stockholders  in  computing
taxable income and would be subject to federal  income tax at regular  corporate
rates. Unless entitled to relief under specific statutory  provisions,  we would
be  ineligible  to be taxed as a REIT for the four  succeeding  tax years.  As a
result,  the funds  available  for  distribution  to our  stockholders  would be
reduced.  Each  prospective  purchaser should consult his or her own tax advisor
regarding the specific tax  consequences of the purchase,  ownership and sale of
common  stock,  including  the  federal,  state,  local,  foreign  and other tax
consequences  of such purchase,  ownership and sale and of potential  changes in
applicable tax laws.

Taxation Of Home Properties

     General. We elected to be taxed as a REIT under Sections 856 through 860 of
the Code,  commencing with our taxable year ended December 31,  1994. We believe
we have  been  organized  and have  operated  in a manner  which  qualifies  for
taxation  as a REIT  under  the Code  commencing  with our  taxable  year  ended
December 31, 1994. We intend to continue to operate in this manner. However, our
qualification  and taxation as a REIT depends upon our ability to meet,  through
actual annual operating results, asset diversification,  distribution levels and
diversity of stock ownership,  the various qualification tests imposed under the
Code. Accordingly,  there is no assurance that we have operated or will continue
to operate in a manner so as to qualify or remain qualified as a REIT.  Further,
legislative,   administrative   or   judicial   action   may   change,   perhaps
retroactively,   the  anticipated   income  tax  treatment   described  in  this
prospectus. See "Failure to Qualify."

     This  discussion  is  not  intended  to be a  substitute  for  careful  tax
planning.  We urge each prospective  investor to consult with his or her own tax
advisor  regarding  the specific tax  consequences  applicable to him or her, in
light  of  his or  her  particular  circumstances,  relating  to  the  purchase,
ownership and  disposition of our common shares,  including the federal,  state,
local, foreign and other tax consequences of such purchase,  ownership, sale and
disposition.

     In the opinion of Nixon  Peabody  LLP,  Home  Properties  was  organized in
conformity with the requirements for  qualification as a REIT, and its method of
operation has enabled it, and its proposed method of operation will enable it to
meet the requirements for  qualification  and taxation as a REIT under the Code.
This opinion is based on certain  assumptions  and is  conditioned  upon certain
representations  made by Home Properties as to certain factual matters  relating
to Home Properties' organization,  manner of operation, income and assets. Nixon
Peabody  LLP is not aware of any facts or  circumstances  that are  inconsistent
with these assumptions and representations.  Home Properties'  qualification and
taxation  as a REIT  will  depend  upon  Home  Properties'  satisfaction  of the
requirements  necessary  to be  classified  as a  REIT,  discussed  below,  on a
continuing basis.  Nixon Peabody LLP will not review compliance with these tests
on a continuing basis. Therefore, no assurance can be given that Home Properties
will satisfy such tests on a continuing basis. You should be aware that opinions
of counsel are not binding on the IRS,  and no  assurance  can be given that the
IRS will not challenge the conclusions set forth in such opinions.

     The sections of the Code that relate to the  qualification and operation as
a REIT are highly  technical and complex.  The following sets forth the material
aspects of the sections of the Code that govern the federal income tax treatment
of a REIT and its stockholders. This summary is qualified in its entirety by the
applicable Code provisions, relevant rules and regulations promulgated under the
Code, and  administrative  and judicial  interpretations  of the Code, and these
rules and these regulations.

     If we qualify for taxation as a REIT,  we generally  will not be subject to
federal  corporate income taxes on our net income that is currently  distributed
to  our  stockholders.  This  treatment  substantially  eliminates  the  "double
taxation" that generally results from investment in a corporation. However, Home
Properties will be subject to federal income tax as follows:

     First,  we will be taxed at regular  corporate  rates on any  undistributed
REIT  taxable  income,  including  undistributed  net capital  gains;  provided,
however,  that properly designated  undistributed capital gains will effectively
avoid taxation at the  stockholder  level. A REIT's "REIT taxable income" is the
otherwise taxable income of the REIT subject to certain adjustments, including a
deduction for dividends paid.

     Second, we may be subject to the "alternative  minimum tax" on our items of
tax preference under some circumstances.

     Third,  if we have  (a) net  income from the sale or other  disposition  of
"foreclosure  property"  which is held  primarily  for sale to  customers in the
ordinary course of business or (b) other  nonqualifying  income from foreclosure
property,  we will  be  subject  to tax at the  highest  corporate  rate on this
income.  Foreclosure  property  is defined  generally  as  property  we acquired
through  foreclosure  or after a default on a loan  secured by the property or a
lease of the property.

     Fourth,  we will be subject to a 100% tax on any net income from prohibited
transactions.   Prohibited   transactions   generally  include  sales  or  other
dispositions  of property  held  primarily for sale to customers in the ordinary
course of business, other than the sale or disposition of foreclosure property.

     Fifth, we will be subject to a 100% tax on an amount equal to (a) the gross
income attributable to the greater of the amount by which we fail the 75% or 95%
test multiplied by (b) a fraction intended to reflect our  profitability,  if we
fail to satisfy the 75% gross  income test or the 95% gross income test but have
maintained our qualification as a REIT because we satisfied other  requirements.
The gross income tests are discussed below.

     Sixth, we would be subject to a 4% excise tax on the excess of the required
distribution  over the amounts  actually  distributed  (plus retained amounts on
which income tax is paid at the corporate level) if we fail to distribute during
each calendar year at least the sum of: 85% of our REIT ordinary  income for the
year,  95%  of  our  REIT  capital  gain  net  income  for  the  year,  and  any
undistributed taxable income from prior periods.

     Seventh,  if we acquire any asset from a corporation which is or has been a
C corporation  in a transaction  in which the basis of the acquired asset in our
hands is determined by reference to the basis of the asset in the hands of the C
corporation,  and we subsequently recognize gain on the disposition of the asset
during the ten-year period beginning on the date on which we acquired the asset,
then we will be subject to tax at the highest regular corporate tax rate on this
gain to the extent of the "built-in-gain" of the asset. The built-in- gain of an
asset  equals the excess of (a) the  fair market value of the asset over (b) our
adjusted  basis in the asset,  determined  as of the date we acquired  the asset
from the  C corporation.  A C corporation is generally a corporation  subject to
full corporate-level tax.

     Eighth,  we will be  subject  to a 100%  tax on  amounts  received  through
arrangements between Home Properties,  its tenants and a taxable REIT subsidiary
that are not arm's length.

     Ninth,  certain of our  subsidiaries  are  subchapter C  corporations,  the
earnings of which could be subject to federal corporate income tax.

     In addition,  we and our subsidiaries may be subject to a variety of taxes,
including  payroll taxes and state,  local,  property,  and other taxes on their
assets and  operations.  We could also be  subject to tax in  situations  and on
transactions not presently contemplated.

     Requirements  for  Qualification  as a REIT.  The Code  defines a REIT as a
corporation, trust or association that:

          1.   is managed by one or more trustees or directors;

          2.   uses transferable shares or transferable certificates to evidence
               beneficial ownership;

          3.   would be taxable as a domestic corporation,  but for Sections 856
               through 860 of the Code;

          4.   is not a financial  institution  referred to in Section 582(c) of
               the Code or an  insurance  company to which  subchapter  L of the
               Code applies;

          5.   is beneficially owned by 100 or more persons;

          6.   during  the last half of each  taxable  year not more than 50% in
               value  of  its   outstanding   stock  is   owned,   actually   or
               constructively,  by five or fewer individuals,  as defined in the
               Code to include the  entities set forth in  Section 542(a)(2)  of
               the Code; and

          7.   meets other tests,  described below,  regarding the nature of its
               income and assets and the amount of its distributions.

     The Code provides that conditions (1) to (4), inclusive, must be met during
the entire  taxable year and that  condition (5) must be met during at least 335
days of a taxable year of twelve  months,  or during a  proportionate  part of a
taxable  year of less than twelve  months.  Conditions  (5) and (6) do not apply
until after the first  taxable year for which an election  made to be taxed as a
REIT.  For purposes of condition  (6),  pension funds and some other  tax-exempt
entities are treated as individuals,  subject to a  "look-through"  exception in
the case of pension funds.  We have satisfied  condition (5) and believe that we
have  issued  sufficient  shares to satisfy  condition  (6).  In  addition,  our
articles of  incorporation  provides for  restrictions  regarding  ownership and
transfer of shares.  These  restrictions are intended to assist us in continuing
to satisfy  the share  ownership  requirements  described  in (5) and (6) above.
These  ownership and transfer  restrictions  are  described in the  accompanying
prospectus  in   "Description  of  Capital   Stock-Restrictions   on  Transfer."
Primarily,  though not  exclusively,  as a result of fluctuations in value among
the different  classes of our stock,  these  restrictions may not ensure that we
will,  in all  cases,  be able  to  satisfy  the  share  ownership  requirements
described in  conditions  (5) and (6) above.  If we fail to satisfy  these share
ownership  requirements,  our status as a REIT will  terminate.  However,  if we
comply with the rules contained in applicable Treasury  Regulations that require
us to ascertain the actual  ownership of our shares and we do not know, or would
not have known through the exercise of reasonable  diligence,  that we failed to
meet the  requirement  described in condition  (6) above,  we will be treated as
having met this requirement. See "Failure to Qualify."

     In  addition,  a  corporation  may not  elect to become a REIT  unless  its
taxable year is the calendar  year. We have and will continue to have a calendar
taxable year.

     Taxable REIT Subsidiaries.  A taxable REIT subsidiary of Home Properties is
a corporation other than a REIT in which Home Properties  directly or indirectly
holds  stock  and that has made a joint  election  with  Home  Properties  to be
treated as a taxable REIT  subsidiary.  A taxable REIT  subsidiary also includes
any  corporation  other  than a REIT  with  respect  to  which  a  taxable  REIT
subsidiary of Home Properties  owns  securities  possessing more than 35% of the
total voting power or value of the outstanding  securities of such  corporation.
However,  a taxable REIT  subsidiary  does not include  certain  health care and
lodging  facilities.  A taxable REIT  subsidiary  is subject to regular  federal
income tax,  and state and local income tax where  applicable,  as a regular "C"
corporation.  In addition,  a taxable REIT  subsidiary of Home Properties may be
limited  in its  ability  to  deduct  interest  paid  to Home  Properties.  Home
Properties  jointly made the election with the following entities for them to be
treated as taxable REIT  subsidiaries  of Home Properties  effective  January 1,
2001: Home Properties  Resident Services,  Inc. and Home Properties  Management,
Inc.

     Qualified REIT Subsidiaries.  If a REIT owns a corporate subsidiary that is
a "qualified REIT subsidiary," the separate existence of that subsidiary will be
disregarded  for  federal  income tax  purposes.  Generally,  a  qualified  REIT
subsidiary is a corporation,  other than a taxable REIT  subsidiary,  all of the
capital stock of which is owned by the REIT. All assets,  liabilities  and items
of income, deduction and credit of the qualified REIT subsidiary will be treated
as assets,  liabilities  and items of income,  deduction  and credit of the REIT
itself.  A qualified REIT  subsidiary of Home  Properties will not be subject to
federal corporate income taxation, although it may be subject to state and local
taxation in some states.

     Ownership  of a  Partnership  Interest.  In the  case of a REIT  which is a
partner in a partnership,  IRS regulations  provide that the REIT will be deemed
to own its proportionate share of the assets of the partnership. Also, a partner
in a partnership  will be deemed to be entitled to the income of the partnership
attributable to its  proportionate  share. The character of the assets and gross
income  of the  partnership  retains  the same  character  in the  hands of Home
Properties  for purposes of Section 856  of the Code,  including  satisfying the
gross income tests and the asset tests.  Thus,  our  proportionate  share of the
assets, liabilities and items of income of the Operating Partnership,  including
the Operating  Partnership's share of these items for any partnership or limited
liability  company,  are treated as our assets,  liabilities and items of income
for purposes of applying the requirements described in this prospectus.

     We have  included  a summary  of the rules  governing  the  Federal  income
taxation  of  partnerships  and  their  partners  below in "Tax  Aspects  of the
Operating Partnership".  We have direct control of the Operating Partnership and
will continue to operate it consistent with the requirements  for  qualification
as a REIT.

     Income  Tests.  We must satisfy two gross income  requirements  annually to
maintain our  qualification as a REIT.  First,  each taxable year we must derive
directly  or  indirectly  at least  75% of our  gross  income  from  investments
relating to real property or mortgages on real property,  including  "rents from
real  property" and, in specific  circumstances,  interest,  or from  particular
types of temporary  investments.  Gross income from  prohibited  transactions is
excluded  for purposes of  determining  if we satisfy  this test.  Second,  each
taxable  year we must  derive at least 95% of our gross  income  from these real
property investments,  dividends, interest and gain from the sale or disposition
of stock or securities,  or from any combination of the foregoing.  Gross income
from  prohibited  transactions  is excluded  for purposes of  determining  if we
satisfy this test.

     The term  "interest"  generally  does not  include  any amount  received or
accrued,  directly or indirectly,  if the determination of the amount depends in
whole or in part on the  income or  profits of any  person.  However,  an amount
received  or accrued  generally  will not be excluded  from the term  "interest"
solely by reason of being based on a fixed percentage or percentages of receipts
or sales.  Rents we  receive  will  qualify  as "rents  from real  property"  in
satisfying  the gross income  requirements  for a REIT  described  above only if
several conditions are met.

     First,  the  amount  of rent  must  not be based in whole or in part on the
income or  profits  of any  person.  However,  an  amount  received  or  accrued
generally will not be excluded from the term "rents from real  property"  solely
by reason of being based on a fixed  percentage  or  percentages  of receipts or
sales.

     Second, the Code provides that rents received from a "related party tenant"
will not qualify as "rents from real  property" in  satisfying  the gross income
tests.  A  related  party  tenant  is a  tenant  of Home  Properties  that  Home
Properties,  or one or more actual or constructive owners of 10% or more of Home
Properties,  actually or constructively own in the aggregate 10% or more of such
tenant.  For taxable years after December 31, 2000, Home Properties will be able
to lease its properties to a taxable REIT subsidiary and the rents received from
that subsidiary  will not be disqualified  from being "rents from real property"
by reason of Home  Properties'  ownership  interest in the subsidiary so long as
the  property  is  operated  on  behalf of the  taxable  REIT  subsidiary  by an
"eligible independent contractor."

     Third, if rent attributable to personal property, leased in connection with
a lease of real  property,  is greater than 15% of the total rent received under
the lease,  then the portion of rent  attributable to personal property will not
qualify as "rents from real property."

     Finally,  for rents received to qualify as "rents from real property," Home
Properties  is  allowed  only to  provide  services  that are both  "usually  or
customarily  rendered" in  connection  with the rental of real  property and not
otherwise  considered "rendered to the occupant." Income received from any other
services will be treated as  "impermissible  tenant  service  income" unless the
services are provided through an independent  contractor that bears the expenses
of providing  the services and from whom Home  Properties  derives no revenue or
through a taxable REIT subsidiary,  subject to specified limitations. The amount
of impermissible tenant service income is deemed to be the greater of the amount
actually  received  by the  REIT  or 150% of  Home  Properties'  direct  cost of
providing the service. If the impermissible  tenant service income exceeds 1% of
Home  Properties'  total  income from  income  from a property,  then all of the
income from that property will fail to qualify as rents from real  property.  If
the total amount of impermissible tenant service income from a property does not
exceed 1% of Home Properties'  total income from that property,  the income will
not cause the rent paid by tenants of that  property to fail to qualify as rents
from real property,  but the impermissible tenant service income itself will not
qualify as rents from real property.

     We believe that Home Properties'  real estate  investments will continue to
give rise to income  that will  enable it to  satisfy  all of the  income  tests
described above.  Substantially  all of Home Properties'  income will be derived
from its interest in the Operating  Partnership,  which will, for the most part,
qualify as "rents from real  property" for purposes of the 75% and the 95% gross
income tests. We generally do not and do not intend to:

          -    charge rent for any property that is based in whole or in part on
               the income or profits  of any  person,  except by reason of being
               based on a percentage of receipts or sales, as described above;

          -    rent any property to a related party tenant (except for leases to
               a taxable REIT subsidiary);

          -    derive rental income  attributable  to personal  property,  other
               than personal  property  leased in  connection  with the lease of
               real property,  the amount of which is less than 15% of the total
               rent received under the lease; or

          -    perform   services  (other  than  services  that  are  "usual  or
               customary")  considered  to be  rendered  to the  occupant of the
               property,  other than through an independent contractor from whom
               we derive no revenue or through a taxable REIT subsidiary.

Notwithstanding  the  foregoing,  we may have taken and may continue to take the
actions  set forth  above to the extent  these  actions  will not,  based on the
advice of our tax counsel, jeopardize our status as a REIT.

     Home  Properties  may receive  certain  types of income with respect to the
properties  it owns that will not qualify for the 75% or 95% gross  income test.
In  addition,   dividends  on  Home  Properties'  stock  in  any  non-controlled
subsidiaries or taxable REIT  subsidiaries  will not qualify under the 75% gross
income test. Home Properties  believes,  however,  that the aggregate  amount of
such fees and other  non-qualifying  income in any  taxable  year will not cause
Home Properties to exceed the limits on non-qualifying  income under the 75% and
95% income tests.

     If we fail to satisfy one or both of the 75% or 95% gross  income tests for
any taxable year, we may  nevertheless  qualify as a REIT for the year if we are
entitled to relief under  specific  provisions  of the Code.  Generally,  we may
avail ourselves of the relief provisions if: (i) our failure to meet these tests
was due to reasonable cause and not due to willful  neglect,  and (ii) following
our  identification  of the failure to meet the 75% or 95% gross income test for
any taxable year, we file a schedule with the IRS setting forth each item of our
gross  income for  purposes of the 75% or 95% gross income test for such taxable
year in accordance with Treasury Regulations to be issued.

     It is not possible, however, to state whether in all circumstances we would
be entitled to the benefit of these relief provisions.  For example,  if we fail
to  satisfy  the  gross  income  tests  because  non-qualifying  income  that we
intentionally  incur exceeds the limits on non-qualifying  income, the IRS could
conclude that our failure to satisfy the tests was not due to reasonable cause.

     If  these  relief   provisions  do  not  apply  to  a  particular   set  of
circumstances, we will not qualify as a REIT. As discussed above in "Taxation of
Home Properties  -General," even if these relief provisions apply, and we retain
our status as a REIT, a tax would be imposed with respect to the amount by which
we fail to satisfy the  particular  gross income test. We may not always be able
to  maintain  compliance  with the gross  income  tests  for REIT  qualification
despite our periodic monitoring of our income.

     Prohibited  Transaction  Income. Any gain realized by us on the sale of any
property  held as  inventory  or  other  property  held  primarily  for  sale to
customers in the ordinary  course of business,  including  our share of any such
gain  realized by the  Operating  Partnership,  will be treated as income from a
prohibited  transaction  that is subject to a 100% penalty tax. This  prohibited
transaction  income may also adversely  effect our ability to satisfy the income
tests for  qualification as a REIT. Under existing law, whether property is held
as  inventory or  primarily  for sale to  customers in the ordinary  course of a
trade or  business  is a  question  of fact  that  depends  on all the facts and
circumstances surrounding the particular transaction.

     The Operating  Partnership  intends to hold the  properties  for investment
with a view to long- term appreciation,  to engage in the business of acquiring,
developing, owning, and operating its properties and to make occasional sales of
the properties as are  consistent  with the Operating  Partnership's  investment
objectives.  However,  the IRS may  contend  that one or more of these  sales is
subject to the 100% penalty tax. No assurance  can be given that any property we
sell will not be treated as property held for sale to customers,  or that we can
comply with certain  safe-harbor  provisions  of the Code that would prevent the
imposition of the 100% penalty tax.

     Asset Tests. At the close of each quarter of our taxable year, we also must
satisfy six tests relating to the nature and diversification of our assets.

     First, at least 75% of the value of our total assets must be represented by
real  estate  assets,  cash,  cash items and U.S.  government  securities.  Home
Properties' real estate assets include, for purposes of this test, its allocable
share  of real  estate  assets  held by the  partnerships  in  which  it owns an
interest and the non-corporate  subsidiaries of those  partnerships,  as well as
stock or debt  instruments held for one year or less that are purchased with the
proceeds  of an offering  of shares or  long-term  (at least five years) debt of
Home Properties.

     Second,  not more  than  25% of our  total  assets  may be  represented  by
securities, other than those securities includable in the 75% asset test.

     Third,  except for investments in REITs,  qualified REIT  subsidiaries  and
taxable REIT  subsidiaries,  the value of any one issuer's  securities  owned by
Home Properties may not exceed 5% of the value of Home Properties' total assets.

     Fourth,  except for investments in REITs,  qualified REIT  subsidiaries and
taxable REIT subsidiaries,  Home Properties may not own more than 10% of any one
issuer's outstanding voting securities.

     Fifth,  except  for  investments  in REITs,  qualified  REIT  subsidiaries,
taxable REIT subsidiaries  "straight debt" having specified  characteristics and
to certain other securities  described  below,  Home Properties may not own more
than 10% of the total value of the outstanding securities of any one issuer.

     Sixth, not more than 20% of the value of Home Properties'  total assets may
be represented by the securities of one or more taxable REIT subsidiaries.

     Certain  relief  provisions  are  available  to REITs to satisfy  the asset
requirements,   or  to  maintain  REIT  qualification   notwithstanding  certain
violations of the asset and other requirements. One such provision allows a REIT
which  fails  one or more  of the  asset  requirements  (other  than de  minimis
violations  of the 5% and 10% asset tests as  described  below) to  nevertheless
maintain its REIT qualification if (a) it provides the IRS with a description of
each asset causing the failure,  (b) the failure is due to reasonable  cause and
not willful neglect, (c) the REIT pays a tax equal to the greater of (i) $50,000
per failure, and (ii) the product of the net income generated by the assets that
caused the failure  multiplied  by the  highest  applicable  corporate  tax rate
(currently  35%),  and (d) the REIT either  disposes  of the assets  causing the
failure within 6 months after the last day of the quarter in which it identifies
the failure,  or otherwise  satisfies the relevant  asset tests within that time
frame.

     In the case of de minimis  violations of the 10% and 5% asset tests, a REIT
may  maintain  its  qualification  if (a) the value of the  assets  causing  the
violation  do not  exceed  the  lesser of 1% of the  REIT's  total  assets,  and
$10,000,000,  and (b) the REIT either disposes of the assets causing the failure
within 6 months  after the last day of the  quarter in which it  identifies  the
failure, or the relevant tests are otherwise satisfied within that time frame.

     Certain  securities  will  not  cause a  violation  of the 10%  value  test
described above. Such securities include  instruments that constitute  "straight
debt," which includes securities having certain contingency features. A security
will not qualify as "straight  debt" where a REIT (or a controlled  taxable REIT
subsidiary  of the REIT) owns other  securities  of the issuer of that  security
which do not  qualify  as  straight  debt,  unless  the  value  of  those  other
securities constitute,  in the aggregate,  1% or less of the total value of that
issuer's  outstanding  securities.  In addition to straight debt,  certain other
securities will not violate the 10% value test. Such securities  include (a) any
loan made to an individual or an estate,  (b) certain rental agreements in which
one or more payments are to be made in subsequent  years (other than  agreements
between a REIT and certain persons  related to the REIT),  (c) any obligation to
pay rents from real property,  (d) securities  issued by  governmental  entities
that are not  dependent in whole or in part on the profits of (or payments  made
by) a non-governmental  entity, (e) any security issued by another REIT, and (f)
any debt instrument issued by a partnership if the partnership's  income is of a
nature that it would  satisfy the 75% gross  income test  described  above under
"--Income  Tests." In applying  the 10% value test, a debt  security  issued by a
partnership  is not taken into  account  to the  extent,  if any,  of the REIT's
proportionate equity interest in that partnership.

     As previously discussed, Home Properties is deemed to own its proportionate
share of the  assets  of a  partnership  in which  it is a  partner  so that the
partnership interest, itself, is not a security for purposes of this asset test.

     We believe that our holdings of assets comply, and will continue to comply,
with the foregoing REIT asset requirements,  and we intend to monitor compliance
on an ongoing basis. No independent  appraisals have been obtained,  however, to
support our conclusions as to the value of our total assets, or the value of any
particular security or securities.  We do not intend to seek an IRS ruling as to
the  classification  of our  properties  for  purposes of the REIT asset  tests.
Accordingly,  there can be no  assurance  that the IRS will not contend that our
assets or our interest in other  securities  cause a violation of the REIT asset
requirements.

     After  initially  meeting the asset tests at the close of any  quarter,  we
will not lose our status as a REIT for failure to satisfy the asset tests at the
end of a later quarter  solely by reason of changes in asset values.  If we fail
to satisfy  the asset  tests  because we acquire  additional  securities  of the
Management  Companies or other  securities or other  property  during a quarter,
including an increase in our interests in the Operating Partnership, we can cure
this failure by disposing of  sufficient  non-qualifying  assets  within 30 days
after  the  close of that  quarter.  We have  maintained  and will  continue  to
maintain  adequate records of the value of our assets to ensure  compliance with
the asset  tests and to take such  other  actions  within  the 30 days after the
close of any quarter as may be required to cure any noncompliance. If we fail to
cure  noncompliance with the asset tests within this time period, we would cease
to qualify as a REIT.

     Annual Distribution Requirements.  To maintain our qualification as a REIT,
we are required to distribute dividends,  other than capital gain dividends,  to
our stockholders in an amount at least equal to:

          -    the sum of:

               -    90% of our "REIT taxable income," computed without regard to
                    the dividends paid deduction and our net capital gain, and

               -    90% of the after tax net income,  if any,  from  foreclosure
                    property;

          -    minus:

               -    the sum of specified items of noncash income.

These distributions must be paid in the taxable year to which they relate, or in
the  following  taxable year if they are declared  before we timely file our tax
return for such year and if paid on or before the first regular dividend payment
after such  declaration.  These  distributions  are taxable to holders of common
stock and  convertible  preferred  stock,  other than  tax-exempt  entities,  as
discussed  below,  in the  year in  which  paid.  This is so even  though  these
distributions  relate to the prior  year for  purposes  of our 90%  distribution
requirement.  The  amount  distributed  must not be  preferential  (e.g.,  every
shareholder  of the  class  of stock to  which a  distribution  is made  must be
treated the same as every other shareholder of that class, and no class of stock
may be  treated  otherwise  than in  accordance  with its  dividend  rights as a
class).

     To the extent  that we do not  distribute  all of our net  capital  gain or
distribute at least 90%, but less than 100%,  of our "REIT  taxable  income," as
adjusted, we will be subject to tax thereon at regular ordinary and capital gain
corporate  tax  rates.  We have  made and  intend to make  timely  distributions
sufficient to satisfy these annual distribution requirements. We expect that our
REIT  taxable  income  will be less than our cash flow due to the  allowance  of
depreciation  and other  non-cash  charges in  computing  REIT  taxable  income.
Accordingly, we anticipate that we will generally have sufficient cash or liquid
assets to enable us to satisfy the distribution requirements described above. In
this regard, the Partnership Agreement of the Operating  Partnership  authorizes
Home Properties,  as general partner,  to take such steps as may be necessary to
cause  the  Operating  Partnership  to  distribute  to its  partners  an  amount
sufficient to permit Home  Properties to meet these  distribution  requirements.
However,  from time to time,  we may not have  sufficient  cash or other  liquid
assets to meet these distribution requirements due to timing differences between
the actual receipt of income and actual payment of deductible expenses,  and the
inclusion of income and deduction of expenses in arriving at our taxable income.
If  these  timing   differences   occur,  in  order  to  meet  the  distribution
requirements,  we may need to arrange for  short-term,  or  possibly  long-term,
borrowings  or need to pay  dividends  in the form of taxable  stock  dividends.
Under specific circumstances identified in the Code, we may be able to rectify a
failure to meet the  distribution  requirement for a year by paying  "deficiency
dividends"  to  stockholders  in a later  year,  which  may be  included  in our
deduction for dividends paid for the earlier year. Thus, we may be able to avoid
being taxed on amounts distributed as deficiency dividends.  However, we will be
required  to pay  interest  based  upon the  amount of any  deduction  taken for
deficiency dividends.

     Furthermore,  we would be  subject  to a 4% excise tax on the excess of the
required distribution over the amounts actually distributed if we should fail to
distribute  during each  calendar  year,  or in the case of  distributions  with
declaration  and record  dates  falling in the last three months of the calendar
year, by the end of January  immediately  following  such year, at least the sum
of:

     -    85% of our REIT ordinary income for such year,

     -    95% of our REIT capital gain income for the year,

     -    and any undistributed taxable income from prior periods.

Any REIT taxable income and net capital gain on which this excise tax is imposed
for any year is treated as an amount  distributed  during that year for purposes
of calculating such tax.

Failure To Qualify

     If we fail to qualify for taxation as a REIT in any taxable  year,  and the
relief  provisions  do not  apply,  we will be  subject  to tax,  including  any
applicable  alternative  minimum tax, on our taxable income at regular corporate
rates.  Distributions  to  stockholders  in any year in which we fail to qualify
will not be  deductible  by us and we will not be  required  to  distribute  any
amounts to our stockholders. As a result, our failure to qualify as a REIT would
reduce the cash available for distribution by us to our stockholders.

     In  addition,  if we  fail  to  qualify  as a REIT,  all  distributions  to
stockholders will be taxable as ordinary income to the extent of our current and
accumulated earnings and profits,  and subject to limitations  identified in the
Code,  corporate  distributees  may  be  eligible  for  the  dividends  received
deduction.  Unless entitled to relief under specific  statutory  provisions,  we
will also be ineligible  to be taxed as a REIT for the four tax years  following
the year during  which we lost our  qualification.  It is not  possible to state
whether in all circumstances we would be entitled to this statutory relief.

Taxation Of Taxable U.S. Stockholders

     As used  below,  the term  "U.S.  stockholder"  means a holder of shares of
common stock who, for United States federal income tax purposes: is a citizen or
resident of the United States;  is a corporation,  partnership,  or other entity
created or organized  in or under the laws of the United  States or of any state
thereof or in the District of Columbia,  unless,  in the case of a  partnership,
Treasury  Regulations  provide  otherwise;  is an estate  the income of which is
subject to United States federal income taxation regardless of its source; or is
a trust whose  administration is subject to the primary  supervision of a United
States  court and  which  has one or more  United  States  persons  who have the
authority to control all substantial decisions of the trust. Notwithstanding the
preceding sentence, to the extent provided in Treasury Regulations,  some trusts
in existence on August 20, 1996,  and treated as United States  persons prior to
this date that elect to continue  to be treated as United  States  persons,  are
also considered U.S. stockholders.

     Distributions Generally. As long as we qualify as a REIT, distributions out
of our current or  accumulated  earnings  and  profits,  other than capital gain
dividends discussed below, will constitute dividends taxable to our taxable U.S.
stockholders as ordinary income.  These  distributions  will not be eligible for
the  dividends-received  deduction  in the  case of U.S.  stockholders  that are
corporations. To the extent that we make distributions,  other than capital gain
dividends discussed below, in excess of our current and accumulated earnings and
profits,  these  distributions  will be treated  first as a  tax-free  return of
capital to each U.S. stockholder.  This treatment will reduce the adjusted basis
which each U.S.  stockholder  has in his shares of stock for tax purposes by the
amount of the distribution.  This reduction will not, however, reduce a holder's
adjusted  basis  below  zero.  Distributions  in excess of a U.S.  stockholder's
adjusted basis in his shares will be taxable as capital gain,  provided that the
shares have been held as a capital asset. In addition,  these distributions will
be taxable as long-term  capital gain if the shares have been held for more than
one year.

     Dividends that we declare in October, November, or December of any year and
that are payable to a stockholder  of record on a specified date in any of these
months  shall be treated as both paid by us and received by the  stockholder  on
December 31  of that year,  provided we actually  pay the  dividend on or before
January 31 of the following calendar year. Stockholders may not include in their
own income tax returns any of our net operating losses or capital losses.

     Capital Gain  Distributions.  Distributions  that we properly  designate as
capital gain dividends  will be taxable to U.S.  stockholders  as gains,  to the
extent that they do not exceed our actual net capital gain for the taxable year,
from the sale or  disposition  of a capital  asset.  Capital gain  dividends are
taxed to U.S.  stockholders as gain from the sale or exchange of a capital asset
held for more than one year. This tax treatment applies regardless of the period
the stockholder  has held its shares.  If we designate any portion of a dividend
as a capital gain dividend, a U.S. stockholder will receive an IRS Form 1099-DIV
indicating  the amount that will be taxable to the  stockholder as capital gain.
U.S. stockholders that are corporations may, however, be required to treat up to
20% of some capital gain dividends as ordinary income.

     Passive Activity Losses and Investment Interest Limitations.  Distributions
we make and gain arising from the sale or exchange by a U.S.  stockholder of our
shares  will not be  treated  as  passive  activity  income.  As a result,  U.S.
stockholders  generally will not be able to apply any "passive  losses"  against
this income or gain. Distributions we make, to the extent they do not constitute
a return of capital, generally will be treated as investment income for purposes
of computing the investment interest  limitation.  Gain arising from the sale or
other  disposition  of our shares,  however,  will not be treated as  investment
income under some circumstances.

     Retention of Net Long-Term  Capital Gains.  We may elect to retain,  rather
than distribute as a capital gain dividend,  our net long-term capital gains. If
we make this  election,  we would pay tax on our retained net long-term  capital
gains. In addition,  to the extent we designate,  a U.S.  stockholder  generally
would:  include its proportionate  share of our undistributed  long-term capital
gains in computing  its  long-term  capital  gains in its return for its taxable
year in which the last day of our taxable year falls subject to  limitations  as
to the amount that is  includable;  be deemed to have paid the capital gains tax
imposed  on us on the  designated  amounts  included  in the U.S.  stockholder's
long-term capital gains; receive a credit or refund for the amount of tax deemed
paid by it;  increase the adjusted  basis of its common stock by the  difference
between the amount of  includable  gains and the tax deemed to have been paid by
it; and in the case of a U.S.  stockholder that is a corporation,  appropriately
adjust its  earnings and profits for the retained  capital  gains in  accordance
with Treasury Regulations to be prescribed by the IRS.

Dispositions Of Common Stock

     Generally,  gain or loss realized by a shareholder  upon the sale of common
shares (including  redemptions of common shares which are treated as sales) will
be  reportable  as  capital  gain or loss.  Such gain or loss will be treated as
long-term  capital  gain or loss if the  shares  have been held for more than 12
months and as  short-term  capital gain or loss if the shares have been held for
12 months or less. If a shareholder  receives a long-term  capital gain dividend
and has held the shares for six months or less, any loss incurred on the sale or
exchange of the shares is treated as a long-term  capital  loss to the extent of
the corresponding long-term capital gain dividend received.

     If an investor recognizes a loss upon a subsequent disposition of our stock
in an amount  that  exceeds a  prescribed  threshold,  it is  possible  that the
provisions  of  recently  adopted  Treasury  regulations  involving  "reportable
transactions"  could apply, with a resulting  requirement to separately disclose
the loss generating transaction to the IRS. While these regulations are directed
towards "tax shelters," they are written quite broadly and apply to transactions
that would not typically be considered  tax  shelters.  In addition  significant
penalties are imposed by the Code for failure to comply with these requirements.
You  should  consult  your  tax  advisor  concerning  any  possible   disclosure
obligation  with  respect  to  the  receipt  or  disposition  of our  stock,  or
transactions  that might be undertaken  directly or indirectly by us.  Moreover,
you should be aware that we and other participants in the transactions involving
us  (including   their  advisors)  might  be  subject  to  disclosure  or  other
requirements pursuant to these regulations.

Backup Withholding

     We report to our U.S. stockholders and the IRS the amount of dividends paid
during each calendar year, and the amount of any tax withheld.  Under the backup
withholding  rules,  a stockholder  may be subject to backup  withholding at the
rate of 28% with respect to dividends paid unless the holder is a corporation or
comes within other exempt categories and, when required, demonstrates this fact,
or  provides  a  taxpayer  identification  number,  certifies  as to no  loss of
exemption  from backup  withholding,  and  otherwise  complies  with  applicable
requirements of the backup withholding  rules. A U.S.  stockholder that does not
provide us with his correct taxpayer  identification  number may also be subject
to penalties  imposed by the IRS. Any amount paid as backup  withholding will be
creditable against the stockholder's income tax liability.  In addition,  we may
be  required  to  withhold  a  portion  of  capital  gain  distributions  to any
stockholders  who fail to certify  their  non-foreign  status.  See "Taxation of
Non-U.S. Stockholders."

Taxation Of Tax-Exempt Stockholders

     The IRS has ruled that amounts distributed as dividends by a qualified REIT
do  not  constitute  unrelated  business  taxable  income  when  received  by  a
tax-exempt entity. Based on that ruling, provided that a tax-exempt shareholder,
except tax-exempt shareholders described below, has not held its shares as "debt
financed  property"  within  the  meaning  of the  Code and the  shares  are not
otherwise  used in a trade  or  business,  dividend  income  from us will not be
unrelated business taxable income to a tax-exempt shareholder. Similarly, income
from the sale of shares will not constitute  unrelated  business  taxable income
unless a tax-exempt  shareholder has held its shares as "debt financed property"
within the meaning of the Code or has used the shares in its trade or business.

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

     Notwithstanding the above,  however, the Omnibus Budget  Reconciliation Act
of 1993 provides that,  effective for taxable years beginning in 1994, a portion
of the  dividends  paid by a "pension  held REIT" shall be treated as  unrelated
business taxable income as to any trust which: is described in Section 401(a) of
the Code; is tax-exempt  under  Section 501(a)  of the Code; and holds more than
10%, by value,  of the  interests in a REIT.  Tax-exempt  pension funds that are
described  in  Section 401(a)  of the Code are  referred to below as  "qualified
trusts." A REIT is a "pension  held REIT" if: it would not have  qualified  as a
REIT but for the fact that  Section 856(h)(3)  of the Code  provides  that stock
owned by  qualified  trusts  shall be treated,  for purposes of the "not closely
held"  requirement,  as owned by the beneficiaries of the trust,  rather than by
the trust itself;  and either at least one such qualified  trust holds more than
25%, by value, of the interests in a REIT, or one or more such qualified trusts,
each of which owns more than 10%, by value, of the interests in a REIT, holds in
the aggregate more than 50%, by value, of the interests in the REIT.

     The percentage of any REIT dividend  treated as unrelated  business taxable
income is equal to the ratio of: the unrelated business taxable income earned by
Home  Properties,  treating Home  Properties as if it were a qualified trust and
therefore  subject to tax on unrelated  business  taxable  income,  to the total
gross  income of Home  Properties.  A de  minimis  exception  applies  where the
percentage  is less than 5% for any year.  The  provisions  requiring  qualified
trusts to treat a portion of REIT  distributions  as unrelated  business taxable
income will not apply if Home  Properties  is able to satisfy  the "not  closely
held" requirement without relying upon the "look-through" exception with respect
to  qualified  trusts.  As a  result  of the  limitations  on the  transfer  and
ownership of stock contained in our articles of incorporation, we are not and do
not expect to be classified as a "pension held REIT."

Taxation Of Non-U.S. Stockholders

     When we use the term "non-U.S.  stockholders," we mean holders of shares of
common  stock that are  nonresident  alien  individuals,  foreign  corporations,
foreign  partnerships or foreign estates or trusts.  The rules governing  United
States  federal  income  taxation of the ownership and  disposition  of stock by
persons that are non-U.S.  stockholders are complex.  No attempt is made in this
prospectus  to provide more than a brief  summary of these  rules.  Accordingly,
this discussion does not address all aspects of United States federal income tax
and does not  address  state,  local or  foreign  tax  consequences  that may be
relevant to a non-U.S. stockholder in light of its particular circumstances.  In
addition,  this  discussion is based on current law, which is subject to change,
and  assumes  that we qualify  for  taxation  as a REIT.  Prospective  non- U.S.
stockholders  should consult with their own tax advisers to determine the impact
of  federal,  state,  local  and  foreign  income  tax laws  with  regard  to an
investment in stock, including any reporting requirements.

     Distributions.  If we make a distribution  that is not attributable to gain
from the sale or exchange of United  States real  property  interests and is not
designated as capital gains dividends,  then the distribution will be treated as
dividends  of  ordinary  income  to the  extent  it is made  out of  current  or
accumulated earnings and profits. These distributions ordinarily will be subject
to  withholding  of United States  federal  income tax on a gross basis at a 30%
rate or such lower rate as may be specified by an applicable  income tax treaty.
However, if the dividends are treated as effectively  connected with the conduct
by the non-U.S.  stockholder  of a United  States  trade or  business,  or if an
income  tax  treaty  applies,  as  attributable  to a  United  States  permanent
establishment of the non-U.S.  stockholder, the dividends will be subject to tax
on a net basis at graduated  rates, in the same manner as domestic  stockholders
are taxed with  respect  to such  dividends  and are  generally  not  subject to
withholding.  Such income must generally be reported on a U.S. income tax return
filed  by or on  behalf  of the  non-U.S.  stockholder  and any  such  dividends
received by a non-U.S.  stockholder that is a corporation may also be subject to
an  additional  branch  profits  tax at a 30% rate or such  lower rate as may be
specified  by an  applicable  income  tax  treaty.  Under some  treaties,  lower
withholding  rates  generally  applicable to dividends do not apply to dividends
from a REIT.  Certification and disclosure  requirements must be satisfied to be
exempt from  withholding  under the effectively  connected  income and permanent
establishment  exemptions  discussed above. Home Properties  expects to withhold
U.S. income tax at the rate of 30% on any dividend distributions, not designated
as (or deemed to be)  capital  gain  dividends,  made to a non-U.S.  stockholder
unless:

     -    a lower treaty rate applies and the non-U.S.  stockholder files an IRS
          Form W-8BEN  evidencing  eligibility  for that  reduced rate with Home
          Properties; or

     -    the non-U.S. stockholder files an IRS Form W-8ECI with Home Properties
          claiming that the distribution is effectively connected income.

     Distributions we make in excess of our current or accumulated  earnings and
profits will not be taxable to a non-U.S. stockholder to the extent that they do
not exceed the adjusted basis of the stockholder's stock, but rather will reduce
the adjusted basis of such stock. To the extent that these distributions  exceed
the adjusted  basis of a non-U.S.  stockholder's  stock,  they will give rise to
gain from the sale or exchange of his stock.  The tax  treatment of this gain is
described  below.  If our stock  constitutes  a  "United  States  real  property
interest"  under  the  Foreign  Investment  in  Real  Property  Tax  Act of 1980
("FIRPTA"),  Home  Properties  will be  required to withhold at least 10% of any
distribution  in excess of its current and  accumulated  earnings  and  profits.
However, a non-U.S. stockholder may seek a refund of these amounts.

     Distributions  to a non-U.S.  stockholder  that we designate at the time of
distribution  as capital  gains  dividends,  other than those  arising  from the
disposition of a "United States real property  interest,"  generally will not be
subject to United States  federal  income  taxation,  unless:  investment in the
stock is  effectively  connected with the non-U.S.  stockholder's  United States
trade or business, in which case the non-U.S. stockholder will be subject to the
same treatment as domestic stockholders with respect to such gain, except that a
stockholder that is a foreign  corporation may also be subject to the 30% branch
profits tax, as discussed  above;  or the non-U.S.  stockholder is a nonresident
alien individual who is present in the United States for 183 days or more during
the taxable  year and has a "tax home" in the United  States,  in which case the
nonresident  alien  individual will be subject to a 30% tax on the  individual's
capital gains.

     Distributions to a non-U.S.  stockholder that are attributable to gain from
our sale or exchange of United  States real  property  interests  will cause the
non-  U.S.  stockholder  to be  treated  as  recognizing  this  gain  as  income
effectively  connected  with  a  United  States  trade  or  business.   Non-U.S.
stockholders  would  thus  generally  be taxed at the same rates  applicable  to
domestic stockholders,  subject to a special alternative minimum tax in the case
of nonresident alien individuals. Also, this gain may be subject to a 30% branch
profits tax in the hands of a non-U.S.  stockholder  that is a  corporation,  as
discussed above. We are required to withhold 35% of any such distribution.  That
amount is creditable  against the non-U.S.  stockholder's  United States federal
income tax liability. We or any nominee (e.g., a broker holding shares in street
name)  may  rely  on  a  certificate  of  non-foreign  status  on  Form  W-9  or
substantially similar form to determine whether withholding is required on gains
realized  from the  disposition  of United  States real  property  interests.  A
domestic  person  who  holds  shares of  common  stock on  behalf of a  non-U.S.
stockholder will bear the burden of withholding,  provided that we have properly
designated the appropriate portion of a distribution as a capital gain dividend.

     Sale of Stock.  If you are a non-U.S.  stockholder  and you recognize  gain
upon the sale or exchange  of shares of stock,  the gain  generally  will not be
subject to United States taxation unless the stock  constitutes a "United States
real property  interest" within the meaning of FIRPTA. If we are a "domestically
controlled  REIT,"  then the stock will not  constitute  a "United  States  real
property interest." A  "domestically-controlled  REIT" is a REIT in which at all
times during a specified  testing  period less than 50% in value of its stock is
held  directly or  indirectly  by non-U.S.  stockholders.  Because our shares of
stock are publicly traded, there is no assurance that we are or will continue to
be a "domestically-controlled REIT." Notwithstanding the foregoing, if you are a
non-U.S.  stockholder and you recognize gain upon the sale or exchange of shares
of stock and the gain is not  subject  to  FIRPTA,  the gain will be  subject to
United States taxation if: your investment in the stock is effectively connected
with a United  States trade or business,  or, if an income  treaty  applies,  is
attributable  to  a  United  States  permanent  establishment;   or  you  are  a
nonresident alien individual who is present in the United States for 183 days or
more during the taxable year and you have a "tax home" in the United States.  In
this case, a nonresident alien individual will be subject to a 30% United States
withholding tax on the amount of such individual's gain.

     If we are not or cease to be a "domestically-controlled  REIT" whether gain
arising from the sale or exchange by a non-U.S.  stockholder  of shares of stock
would be subject to United States  taxation  under FIRPTA as a sale of a "United
States real property  interest" will depend on whether the shares are "regularly
traded,"  as defined  by  applicable  Treasury  Regulations,  on an  established
securities market and on the size of the selling non-U.S. stockholder's interest
in our shares.  If gain on the sale or exchange of shares of stock were  subject
to taxation under FIRPTA,  the non-U.S.  stockholder would be subject to regular
United States  income tax on this gain in the same manner as a U.S.  stockholder
and the  purchaser  of the stock would be required to withhold  and remit to the
IRS 10% of the purchase price. In addition in this case, non- U.S.  stockholders
would be subject to any applicable  alternative  minimum tax,  nonresident alien
individuals  may be subject to a special  alternative  minimum  tax and  foreign
corporations may be subject to the 30% branch profits tax.

     Backup  Withholding Tax and Information  Reporting.  Backup withholding tax
generally  is a  withholding  tax  imposed  at the  rate  of  28% on  reportable
payments,  as  defined in  Section 3406  of the Code,  to  persons  that fail to
furnish the required  information under the United States information  reporting
requirements.  Backup  withholding tax and information  reporting will generally
not apply to  distributions  paid to  non-U.S.  stockholders  outside the United
States that are treated as: dividends  subject to the 30%, or lower treaty rate,
withholding  tax discussed  above;  capital gains  dividends;  or  distributions
attributable  to gain from our sale or exchange of United  States real  property
interests.  As a general matter,  backup  withholding and information  reporting
will not apply to a payment of the  proceeds  of a sale of stock by or through a
foreign  office of a  foreign  broker.  Information  reporting,  but not  backup
withholding,  will  apply,  however,  to a payment of the  proceeds of a sale of
stock by a foreign office of a broker that: is a United States  person;  derives
50% or more of its gross income for specific periods from the conduct of a trade
or business in the United States; or is a "controlled  foreign  corporation" for
United States tax purposes.  Information  reporting will not apply if the broker
has  documentary  evidence  in  its  records  that  the  holder  is  a  non-U.S.
stockholder  and  other  conditions  are  met,  or  the  stockholder   otherwise
establishes  an  exemption.  Payment to or through a United  States  office of a
broker of the  proceeds of sale of stocks is subject to both backup  withholding
and information  reporting  unless the stockholder  certifies under penalties of
perjury that the stockholder is a non-U.S. stockholder, or otherwise establishes
an exemption. A non-U.S. stockholder may obtain a refund of any amounts withheld
under the backup  withholding  rules by filing the appropriate  claim for refund
with the IRS.

Tax Aspects Of The Operating Partnership

     General.  Substantially  all of our  investments  will be  held  indirectly
through the Operating Partnership.  In general,  partnerships are "pass-through"
entities  which are not subject to federal  income  tax.  Rather,  partners  are
allocated  their  proportionate  shares  of the  items of  income,  gain,  loss,
deduction  and  credit of a  partnership,  and are  potentially  subject  to tax
thereon,  without regard to whether the partners receive a distribution from the
partnership.  We will  include  in our  income  our  proportionate  share of the
foregoing partnership items for purposes of the various REIT income tests and in
the computation of our REIT taxable income.  Moreover,  for purposes of the REIT
asset  tests,  we will  include  our  proportionate  share of assets held by the
Operating Partnership. See "Taxation of Home Properties."

     Entity  Classification.  Our interests in the Operating Partnership involve
special tax considerations,  including the possibility of a challenge by the IRS
of the status of the Operating  Partnership as a  partnership,  as opposed to an
association  taxable as a corporation,  for federal income tax purposes.  If the
Operating  Partnership were treated as an association,  it would be taxable as a
corporation  and therefore be subject to an entity-level  tax on its income.  In
such a  situation,  the  character of our assets and items of gross income would
change and preclude us from  satisfying  the asset tests and possibly the income
tests (see  "Taxation of Home  Properties  - Asset Tests" and "-Income  Tests").
This, in turn, could prevent us from qualifying as a REIT unless we are eligible
for relief from the violation pursuant to relief provisions described above. See
"Taxation of Home Properties - Failure to Qualify" above for a discussion of the
effect of our failure to meet these tests for a taxable  year.  In  addition,  a
change in the Operating  Partnership's  status for tax purposes might be treated
as a taxable  event.  If so, we might incur a tax liability  without any related
cash distributions.

     Treasury  Regulations  that  apply  for tax  period  beginning  on or after
January 1,  1997,  provide that an "eligible  entity" may elect to be taxed as a
partnership  for federal income tax purposes.  An eligible  entity is a domestic
business entity not otherwise classified as a corporation and which has at least
two members.  Unless it elects otherwise,  an eligible entity in existence prior
to January 1,  1997,  will have the same  classification  for federal income tax
purposes that it claimed under the entity classification Treasury Regulations in
effect prior to this date. In addition,  an eligible entity which did not exist,
or did not claim a classification,  prior to January 1, 1997, will be classified
as a partnership for federal income tax purposes unless it elects otherwise. The
Operating  Partnership  intends to claim  classification  as a partnership under
these regulations.

     Even if the Operating  Partnership is taxable as a partnership  under these
Treasury  Regulations,  it could be treated as a corporation  for federal income
tax purposes under the "publicly  traded  partnership"  rules of Section 7704 of
the Code. A publicly traded  partnership is a partnership  whose interests trade
on an  established  securities  market or are  readily  tradable  on a secondary
market,  or the  substantial  equivalent  thereof.  While units of the Operating
Partnership  are not and will not be traded on an  established  trading  market,
there is some  risk  that the IRS might  treat  the  units  held by the  limited
partners of the Operating  Partnership as readily  tradable  because,  after any
applicable holding period,  they may be exchanged for our common stock, which is
traded on an established  market. A publicly traded  partnership will be treated
as a  corporation  for federal  income tax purposes  unless at least 90% of such
partnership's  gross income for a taxable year consists of  "qualifying  income"
under the publicly  traded  partnership  provisions of Section 7704 of the Code.
"Qualifying income" under Section 7704 of the Code includes interest, dividends,
real property rents,  gains from the  disposition of real property,  and certain
income  or  gains  from  the  exploitation  of  natural  resources.   Therefore,
qualifying income under  Section 7704 of the Code generally  includes any income
that is qualifying  income for purposes of the 95% gross income test  applicable
to REITs.  We  anticipate  that the Operating  Partnership  will satisfy the 90%
qualifying  income test under  Section 7704  of the Code and, thus,  will not be
taxed as a corporation.

     There is one significant difference,  however, regarding rent received from
related party tenants.  For a REIT, rent from a tenant does not qualify as rents
from real property if the REIT and/or one or more actual or constructive  owners
of 10% or more of the REIT  actually  or  constructively  own 10% or more of the
tenant.  See "Taxation of Home Properties - Income Tests." Under Section 7704 of
the Code,  rent from a tenant is not qualifying  income if a partnership  and/or
one or more  actual  or  constructive  owners  of 5% or more of the  partnership
actually or constructively own 10% or more of the tenant.

     Accordingly,  we will need to monitor  compliance  with both the REIT rules
and the publicly traded  partnership  rules.  The Operating  Partnership has not
requested,  nor does it intend to request, a ruling from the IRS that it will be
treated as a  partnership  for federal  income tax  purposes.  In the opinion of
Nixon Peabody LLP, which is based on the provisions of the partnership agreement
of  the  Operating   Partnership   and  on  certain   factual   assumptions  and
representations  of Home  Properties,  the Operating  Partnership  has since its
formation  and  will  continue  to be  taxed  as a  partnership  rather  than an
association taxable as a corporation. Nixon Peabody LLP's opinion is not binding
on the IRS or the courts.

     Tax Allocations with Respect to the Properties. Under Section 704(c) of the
Code,  income,   gain,  loss  and  deduction   attributable  to  appreciated  or
depreciated  property that is  contributed  to a partnership  in exchange for an
interest  in the  partnership,  must  be  allocated  in a  manner  so  that  the
contributing partner is charged with the "book-tax  difference"  associated with
the  property at the time of the  contribution.  The  book-tax  difference  with
respect to property that is contributed  to a partnership is generally  equal to
the difference between the fair market value of contributed property at the time
of  contribution  and the  adjusted  tax  basis of the  property  at the time of
contribution.  These  allocations are solely for federal income tax purposes and
do not affect the book capital accounts or other economic or legal  arrangements
among the partners. The Operating Partnership was formed by way of contributions
of appreciated property, including some of the properties.  Moreover, subsequent
to  the  formation  of  the  Operating  Partnership,   additional  persons  have
contributed  appreciated  property to the Operating  Partnership in exchange for
interests in the Operating Partnership.

     The  partnership  agreement  requires that these  allocations  be made in a
manner consistent with Section 704(c) of the Code. In general,  limited partners
of the Operating  Partnership who acquired their limited  partnership  interests
through a contribution  of appreciated  property will be allocated  depreciation
deductions  for tax purposes which are lower than these  deductions  would be if
determined on a pro rata basis. In addition,  in the event of the disposition of
any of the  contributed  assets  which  have a  book-tax  difference  all income
attributable  to the  book-tax  difference  will  generally  be allocated to the
limited  partners  who  contributed  the  property,  and we  will  generally  be
allocated only our share of capital gains attributable to appreciation,  if any,
occurring after the time of contribution to the Operating Partnership. This will
tend to  eliminate  the  book-tax  difference  over  the  life of the  Operating
Partnership.  However,  the special  allocation rules of  Section 704(c)  do not
always  entirely  eliminate  the book-tax  difference on an annual basis or with
respect to a specific  taxable  transaction  such as a sale. Thus, the carryover
basis of the  contributed  assets in the hands of the Operating  Partnership may
cause us to be allocated lower  depreciation and other  deductions.  Possibly we
could be allocated  an amount of taxable  income in the event of a sale of these
contributed assets in excess of the economic or book income allocated to us as a
result of the sale.  This may cause us to recognize  taxable income in excess of
cash proceeds,  which might adversely affect our ability to comply with the REIT
distribution   requirements.   See   "Taxation  of  Home   Properties  -  Annual
Distribution Requirements."

     Basis in the Operating Partnership Interest.  The adjusted tax basis in our
interest in the Operating  Partnership generally will be equal to: the amount of
cash  and the  basis  of any  other  property  we  contribute  to the  Operating
Partnership,  increased by our allocable  share of the  Operating  Partnership's
income and our allocable share of indebtedness of the Operating Partnership, and
reduced,  but not below zero, by our allocable  share of losses  suffered by the
Operating  Partnership,  the amount of cash  distributed to us and  constructive
distributions  resulting  from a reduction in our share of  indebtedness  of the
Operating  Partnership.  If the  allocation  of our  distributive  share  of the
Operating  Partnership's  loss exceeds the adjusted tax basis of our partnership
interest in the Operating Partnership,  the recognition of this excess loss will
be deferred until such time and to the extent that we have adjusted tax basis in
our interest in the Operating  Partnership.  We will recognize taxable income to
the extent that the Operating  Partnership's  distributions,  or any decrease in
our share of the indebtedness of the Operating Partnership, exceeds our adjusted
tax  basis  in  the  Operating  Partnership.  A  decrease  in our  share  of the
indebtedness of the Operating Partnership is considered a cash distribution.

     Sale of Partnership Property. Generally, any gain realized by a partnership
on the sale of property held by the  partnership  for more than one year will be
long-term  capital gain,  except for any portion of such gain that is treated as
depreciation or cost recovery recapture.  However,  under the REIT Requirements,
Home  Properties'  share as a  partner  of any gain  realized  by the  Operating
Partnership on the sale of any property held as inventory or other property held
primarily  for sale to customers  in the ordinary  course of a trade or business
will be treated as income  from a  prohibited  transaction  that is subject to a
100% penalty tax. See "Taxation of Home Properties." Such prohibited transaction
income will also have an adverse effect upon Home Properties' ability to satisfy
the income tests for REIT status.  Under existing law,  whether property is held
as  inventory or  primarily  for sale to  customers in the ordinary  course of a
trade or  business  is a  question  of fact  that  depends  on all the facts and
circumstances with respect to the particular transaction.

                             OTHER TAX CONSEQUENCES

     State and Local Tax  Considerations.  We may be  subject  to state or local
taxation in various state or local  jurisdictions,  including  those in which we
transact business and our stockholders may be subject to state or local taxation
in various state or local  jurisdiction,  including  those in which they reside.
Our state and local tax  treatment  may not  conform to the  federal  income tax
consequences  discussed  above. In addition,  your state and local tax treatment
may  not  conform  to the  federal  income  tax  consequences  discussed  above.
Consequently,  you should consult your own tax advisors  regarding the effect of
state and local tax laws on an investment in our shares.

     Possible  Federal Tax  Developments.  The rules dealing with federal income
taxation are  constantly  under review by the IRS, the Treasury  Department  and
Congress.  New federal tax  legislation or other  provisions may be enacted into
law or new  interpretations,  rulings or Treasury  Regulations could be adopted,
all  of  which  could  affect  the  taxation  of  Home   Properties  or  of  its
stockholders.  No prediction  can be made as to the likelihood of passage of any
new tax legislation or other provisions either directly or indirectly  affecting
Home Properties or its stockholders.  Consequently,  the tax treatment described
herein may be modified  prospectively or retroactively by legislative,  judicial
or administrative action.

                                  UNDERWRITING

     Under the terms and subject to the conditions  contained in an underwriting
agreement,   dated  May  9,  2006,  UBS  Securities  LLC,  acting  as  the  sole
underwriter,  has agreed to  purchase  from the  selling  stockholders,  and the
selling stockholders have agreed to sell to the underwriter, 2,969,914 shares of
our common stock.

     The  underwriting  agreement  provides that the underwriter must buy all of
the shares if it buys any of them.

     The shares of are offered subject to a number of conditions, including:

          -    receipt and acceptance of the shares by the underwriters; and

          -    the underwriters' right to reject orders in whole or in part.

     In connection with this offering,  the  underwriter and securities  dealers
may distribute prospectuses electronically.

     We and the selling  stockholders  have agreed to indemnify the  underwriter
against certain liabilities,  including  liabilities under the Securities Act of
1933, as amended.

Commissions and Discounts

     Shares of our common  stock  sold by the  underwriter  to the  public  will
initially  be offered at the  initial  offering  price set forth on the cover of
this prospectus. Any shares sold by the underwriter to securities dealers may be
sold at a discount  of up to $0.20 per share from the  initial  public  offering
price. Any of these securities  dealers may resell any shares purchased from the
underwriter  to other  brokers or dealers at a discount of up to $0.10 per share
from the initial public  offering  price.  If all the shares are not sold at the
initial public offering price, the underwriter may change the offering price and
the other selling terms.

     Sales of shares made outside of the United States may be made by affiliates
of the underwriter.

     Upon  execution of the  underwriting  agreement,  the  underwriter  will be
obligated to purchase the shares at the price and upon the terms stated therein,
and, as a result,  will  thereafter  bear any risk  associated with changing the
offering price to the public or other selling terms.

     The following  table shows the per share and total  underwriting  discounts
and commissions the selling stockholders will pay to the underwriter:

                                                       Underwriting
                                                          Discounts
-------------------------------------------------- ----------------------
Per share ....................................     $1.20
Total ........................................     $3,563,896.80

The total expenses of the offering  payable by the Company will be approximately
$175,100.

No Sales of Similar Securities

     We,  each of our  directors  and  certain  officers  have  agreed  with the
underwriter  not to, without the prior written  approval of UBS Securities  LLC,
subject  to certain  permitted  exceptions,  offer,  sell,  contract  to sell or
otherwise  dispose  of  or  hedge  shares  or  securities  convertible  into  or
exercisable or exchangeable for our shares. These restrictions will be in effect
for a period of (i) 45 days in the case of the Company,  and (ii) 10 days in the
case  of our  directors  and  officers,  in each  case  after  the  date of this
prospectus.  At any time and  without  public  notice,  UBS  Securities  LLC may
release us or any of directors and officers from this lock-up agreement.

     The 45-day lock-up period  applicable to the Company may be extended for up
to  37 additional  days  under  certain   circumstances  where  we  announce  or
pre-announce  earnings or material news or a material event within approximately
18 days prior to, or  approximately 16 days after, the termination of the 45-day
period.

New York Stock Exchange Listing

     Our  shares  are  listed on the New York  Stock  Exchange  under the symbol
 "HME ".

Price Stabilization, Short Positions

     In connection with this offering,  the underwriter may engage in activities
that stabilize, maintain or otherwise affect the price of our shares including:

          -    stabilizing transactions;

          -    short sales;

          -    purchases to cover positions created by short sales;

          -    imposition of penalty bids; and

          -    syndicate covering transactions.

     Stabilizing  transactions consist of bids or purchases made for the purpose
of  preventing  or  retarding a decline in the market  price of our shares while
this offering is in progress.  These  transactions may also include making short
sales of our shares,  which  involves the sale by the  underwriter  of a greater
number  of  shares  than  it is  required  to  purchase  in this  offering,  and
purchasing  shares on the open market to cover positions created by short sales.
Short sales may be  "naked"  shorts.

     Naked  short  sales  are sales in excess  of total  shares  offered  by the
selling  stockholders under this prospectus.  The underwriter must close out any
naked short  position by  purchasing  shares in the open  market.  A naked short
position is more likely to be created if the  underwriter is concerned there may
be downward  pressure on the price of shares in the open  market  after  pricing
that could adversely affect investors who purchase in this offering.

     As a result of these activities, the price of our shares may be higher than
the price that otherwise might exist in the open market. If these activities are
commenced,  they  may be  discontinued  by the  underwriters  at any  time.  The
underwriter may carry out these transactions on the New York Stock Exchange,  in
the over-the-counter market or otherwise.

                       WHERE YOU CAN FIND MORE INFORMATION

     We file annual,  quarterly and special reports,  proxy statements and other
information  with the SEC. You may read and copy  reports,  statements  or other
information at the SEC's public reference  facilities in Washington D.C., at 450
Fifth Street,  N.W.,  Washington D.C. 20544 and at the SEC's regional offices in
New York,  233 Broadway,  New York,  New York 10279 and Chicago,  175 W. Jackson
Boulevard,   Suite  900,  Chicago,  Illinois  60604.  Please  call  the  SEC  at
1-800-SEC-0330 for further information on the public reference  facilities.  Our
SEC filings are also available to the public from commercial  document retrieval
services and at the web site  maintained by the SEC at  http://www.sec.gov.  You
can also  review  copies of our SEC filings at the offices of the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005.

     We have filed with the SEC a registration statement on Form S-3 to register
the securities.  This prospectus is part of that registration  statement and, as
permitted by the SEC's rules,  does not contain all the information set forth in
the  registration  statement.  For  further  information  you may  refer  to the
registration  statement and to the exhibits and  schedules  filed as part of the
registration  statement.  You can review and copy the registration statement and
its exhibits and schedules at the public reference facilities  maintained by the
SEC as described above. The registration  statement,  including its exhibits and
schedules, is also available on the SEC's web site.

     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 the  information  that we file with
the SEC later will  automatically  update and  supersede  this  information.  We
incorporate  by reference the documents  listed below and any future  filings we
make with the SEC under  Sections  13(a),  13(c),  14 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"):

          -    Our  Annual  Report  on Form  10-K  for  the  fiscal  year  ended
               December 31, 2005;

          -    Our Current Report of Form 8-K, filed on March 27, 2006;

          -    Our proxy statement for the 2006 Annual Meeting of Stockholders;

          -    Our Current Report on Form 8-K, filed on April 13, 2006;

          -    Our Quarterly Report on Form 10-Q, filed on May 8, 2006;

          -    The description of our common stock contained in our registration
               statement on Form 8-A filed under Section 12 of the Exchange Act,
               including  all  amendments  and reports  filed for the purpose of
               updating that description; and

       You may  request  a copy of  these  filings,  at no  cost,  by  writing  or
telephoning  us  at:  Home  Properties,   Inc.,  Attention:  Ann  M.  McCormick,
Secretary, 850 Clinton Square, Rochester, New York 14604; telephone number (585)
546-4900.


                                     EXPERTS

     The financial  statements and management's  assessment of the effectiveness
of internal control over financial  reporting (which is included in Management's
Report on  Internal  Control  over  Financial  Reporting)  incorporated  in this
Prospectus  by  reference  to the Annual  Report on Form 10-K for the year ended
December  31,  2005 have  been so  incorporated  in  reliance  on the  report of
PricewaterhouseCoopers  LLP, an independent  registered  public accounting firm,
given on the authority of said firm as experts in auditing and accounting.

     The audited historical financial statements of Peppertree Farm and Cinnamon
Run  included  in Home  Properties  Inc.'s  Current  Report  on Form  8-K  dated
April 13,  2006  have  been  so  incorporated  in  reliance  on  the  report  of
PricewaterhouseCoopers  LLP, an independent  registered  public accounting firm,
given on the authority of said firm as experts in auditing and accounting.


                                  LEGAL MATTERS

     The validity of the securities  offered hereby will be passed upon by Nixon
Peabody LLP,  Rochester,  New York.  Certain  partners of Nixon  Peabody LLP own
Units equal to less than 1% of the equity of Home  Properties on a fully diluted
basis.  Nixon  Peabody LLP has also  provided an opinion with respect to certain
tax matters which form the basis of the  discussion  under the heading  "Federal
Income  Tax  Considerations."  Certain  matters  will  be  passed  upon  for the
underwriters by their counsel, Skadden, Arps, Slate, Meagher & Flom LLP, Los
Angeles, California.